Review of the CCFF and BSFF--Preliminary Considerations, December 9, 1999

Summing Up by the Acting Chairman
Review of the Compensatory and Contingency Financing Facility (CCFF) and Buffer Stock Financing Facility (BSFF)—Preliminary Considerations

Executive Board Meeting 00/5
January 14, 2000

Executive Directors welcomed the opportunity to review the CCFF and the BSFF, although many would have preferred that the review of these two facilities be undertaken in the context of the broader review of the Fund's financial facilities that is now planned to start ahead of the spring meetings. However, all agreed that this is a useful first step, affording an opportunity for some streamlining at this early stage.

For today's review, Directors were unanimous in supporting the elimination of the BSFF, a facility that has not been used in the last 16 years. In coming to this conclusion, Directors noted variously that buffer stocks have not proven their utility in meeting their objectives; that there are at present no commodity agreements for which BSFF eligibility has been approved; and that other facilities are sufficient for purposes the BSFF could serve.

There was also a broad consensus in favor of elimination of the contingency element (ECM) of the CCFF. Most Directors noted that, while the idea behind this mechanism has some appeal, the ECM was seldom being used—and not at all in the last eight years—probably in part because of its complexity and rigidity, despite earlier efforts at simplification, and because we have found other ways to deal with the problems it was intended to address. These considerations have led a few Directors to favor further attempts at simplification and revitalization of this facility. But others have noted that this has been tried before, and a clear majority would favor elimination of this element of the facility as well.

Predictably, a great deal of today's discussion has focused on the compensatory element (CFF) of the CCFF. No Director has argued for retention of the CFF as it is now, and the debate has focused on the two main options discussed in the staff paper: (i) elimination of the CFF; or (ii) substantial amendments to the facility, limiting it to cases where an arrangement is in place or no other balance of payments problem is present.

Some Directors favored elimination of the CFF. They noted that the question of temporariness is hard to judge in advance; that the facility poses risks of providing access to relatively unconditional Fund resources in circumstances where there is often a need for economic adjustment and conditionality; that the provision of significant up-front CFF resources can weaken economic reform incentives; and that needs for compensatory financing can reasonably be satisfied under a Fund arrangement. A number of these Directors also noted that the current CFF includes tests of cooperation that often involve making difficult judgments outside the context of an arrangement; that there were problems with the way the export shortfall was calculated; and in those cases where adjustment was required, they stressed the difficulty of evaluating stand-alone CFF requests, which require assessing the likely implementation of policies in the future.

A majority of Directors, however, favored the alternative option of retaining a streamlined CFF, pending a further review in the context of the broader review of the full panoply of Fund facilities. They supported limiting the CFF to cases in which an upper credit tranche arrangement is in place—with simplified access provisions and with phasing—or where the balance of payments position is deemed satisfactory apart from the temporary export shortfall or cereal import excess. In these latter cases, stand-alone access to compensatory financing would still be made available. These Directors considered that this alternative could adequately address the problems encountered in the past, mainly those related to the need for adjustment and phasing of purchases, while at the same time maintaining the capacity of a compensatory facility.

On balance, if the compensatory element is retained, a majority would support the staff's proposals: to confine it to cases where arrangements are in place (or cases in which the balance of payments position is deemed satisfactory apart from a temporary export shortfall or cereal import excess); to introduce phasing; and to greatly simplify the system of access limits, possibly by adopting a single access limit for all requests.

Given the views that have been expressed, we will proceed as follows, bearing in mind that there will be a broader review of facilities.

First, we eliminate the BSFF.

Second, we eliminate also the ECM.

Third, we leave the CFF for now, pending the broader review, on the understanding that if it is decided to retain the CFF in the context of that review, there is strong sentiment for modifying and streamlining it along the lines the staff has proposed.

Accordingly, the staff will return shortly with draft decisions eliminating the BSFF and the contingency element of the CCFF, and we will propose that these decisions be adopted on a lapse-of-time basis.