untitled-6 [shodhganga.inflibnet.ac.in]shodhganga.inflibnet.ac.in/bitstream/10603/4374/6/06_chapter...
TRANSCRIPT
123
CHAPTER - 5
IMF’S ROLE IN MAINTAINING INTERNATIONAL LIQUIDITY
5.1 INTRODUCTION
This fifth Chapter of the Thesis begins with the explanation of the IMF’s financial
operations and relevant policies and then proceeds with the review of the IMF’s role in
maintaining international liquidity during the study period (FYs 2001 to 2007 AD). Most
of the material being presented here has been selectively adopted from the IMF’s annual
reports for the respective years.
The IMF is a cooperative institution that lends money to its member countries
experiencing temporary balance of payments financing problems on the condition that
the borrowers undertake economic adjustment and reform policies to address these diffi-
culties. In the 1990’s decade, for example, the IMF had played a central role in resolving
a series of economic and financial crises in emerging market countries in Asia and Latin
America, and in Russia and Turkey. The IMF is also actively engaged in promoting
economic growth and poverty reduction in its poorer member countries by providing
financing on special terms in support of efforts to stabilize economies, implement structural
reforms, and achieve sustainable external debt positions.
The IMF extends financing to member countries through three channels:
• Regular Operations : The IMF provides loans to member governments from a
revolving pool of funds consisting of members’ capital subscriptions (quotas).
These loans are extended under a variety of policies and facilities designed to
address specific balance of payments problems. Interest is charged on the loans
at market-related rates and with repayment periods that vary depending on the
lending facility.
• Concessional Financing : The IMF lends at a very low interest rate to poor
countries to help them restructure their economies to promote growth and reduce
poverty. The IMF also provides assistance on a grant (no-charge) basis to heavily-
indebted poor countries (HIPCs) to help them achieve sustainable external debt
positions. The principal for concessional loans is mostly funded by bilateral lenders
to the IMF at market-based rates. Resources to subsidize the rate charged to
borrowers, and grants for debt relief, are financed through voluntary bilateral
contributions by members and income from the IMF’s own resources.
• Special Drawing Rights (SDRs) : The IMF can also create international reserve
assets by allocating SDRs to members, which can be used to obtain foreign
124
exchange from other members and to make payments to the IMF. The SDR also
serves as the IMF’s unit of account and its value is based on a basket of major
international currencies. The SDR interest rate is based on market interest rates
for the currencies in the valuation basket and serves as the basis for other IMF
interest rates.
As the consolidated financial statements of the IMF are expressed in SDRs, it
would be prudent to briefly discuss this tool of international liquidity at the disposal of
the IMF and its member countries. The SDR is an international type of monetaryreserve
currency, created by the IMF in 1969, which operates as a supplement to the existing
reserves of member countries. The SDR was created in response to conerns about the
limitations of gold and Dollars as the sole means of settling international accounts The
SDRs are designed to augment international liquidity by supplementing the standard
reserve currencies.
The SDRs can be regarded as an artificial currency used by the IMF and described
as a “basket of currencies”. The IMF uses SDRs for internal acounting purposes. The
SDRs are allocated by the IMF to its member countries and are backed by the full faith
in and credit of the member governments’ governments.
Initially, the “basket of currencies” used to determine the value of the SDR included
(a) US Dollar, (b) German Deutsche Mark, (c) Japanese Yen, (d) French Franc, and (e)
British Pound-Sterling.
However, with the launching of Euro in January, 1999, though the basket
currencies for the SDR has remained the same, there has been a slight change in the
nomenclature and the currency amounts to be included to arrive at the value of the SDR
as given in Table 1.2 below.
Table 5.1
Currencies and their amounts included in the SDR Basket
1st January, 1996 31st March, 1999
Currency Amount Currency Amount
Deutsche Mark 0.446 Euro (Germany) 0.2280
French Franc 0.813 Euro (France) 0.1239
Japanese Yen 27.20 Japanese Yen 27.200
Pound-Sterling 0.105 Pound-Sterling 0.1050
US Dollar 0.582 US Dollar 0.5821
Source: IMF’s Annual Reports for the respective years.
Due to the sharp depreciation in the value of the US Dollar, the SDR has now
emerged as a standard of value. It is the unit of accounting for IMF’s transactions. It is
also finding an increasing acceptance as a unit of account for private contracts and
international treaties and for use by many international and regional organizations.
Members designated by the IMF are obliged to accept SDRs up to the point
when their holdings of SDRs increase to three times of their allocation. There is an
125
important reason why members are willing to accept SDRs - they earn an interest
determined weekly on the excess of their holdings over their original allocations. The
IMF has prescribed 16 institutions as ‘other holders’ of SDRs. These holders can acquire
and use SDRs in transactions and operations by agreement with participants and other
holders under the same terms and conditions as participants. These holders, however,
cannot receive allocations of SDRs from the IMF.
Countries having a deficit in balance of payments can use their SDRs upto 85
percent of their holdings for: (i) obtaining foreign currency, (ii) to redeem balances of
their own currencies held by other member-countries, and (iii) to meet their obligations
to the IMF, that is, repayment of interest charges. Countries holding less SDRs than
allocated have to pay interest (determined weekly by the IMF).
Until 1997, more than one-fifth member-countries had never received SDR
allocation, because those countries joined the IMF after the last SDR allocations in
1981. The question of fresh allocation of SDRs was very often pressed by the developing
countries on the following grounds:
• International liquidity constraints prevent a general expansion in world trade and
production;
• A new issue of SDRs would provide adequate resources to the countries in debt
to maintain imports and provide further impetus to the growth of world trade,
• Developing countries were not in a position to borrow internationally on
commercial terms.
In response to these demands, the IMF initiated the following steps:
(1) Special One-time Allocation : In September, 1997, the IMF’s Board of Governors
proposed an amendment to the Articles of Agreement to allow a special one-time
allocation of SDRs to correct for the fact that more than one-fifth of the IMF
members had never received an SDR allocation since they joined the IMF after
the last allocation in 1981. The special allocation of SDRs would enable all
members of the IMF to participate in the SDR system on an equitable basis and
would double the cumulative SDR allocation to SDR 42.87 billion. The proposal
would become effective when three-fifths of the IMF members (total 110 members)
having 85 percent of the total voting power have accepted the proposal. As on
30th April, 2001, 107 members having 71 percent of the total voting power had
agreed.
(2) SDR Valuation : The value of the SDR is based on the value of a basket of
currencies. The currency basis is reviewed every five years to ensure that the
currencies included in it are representative of those used in international
transactions and that the weights assigned to the currecies reflect their relative
importance in the world’s trading and financial system. The valuation review was
completed in October, 2000, and the IMF decided on changes in the valuation
basket, effective 1st January, 2001, to take account of the introduction of the
Euro as the common currency for a number of IMF members and to reflect the
126
growing role of international financial markets.
(3) SDR Interest Rate : The SDR interest rate is determined weekly, based on a
weighted average of representative interest rates on short-term instruments in
the markets of the currencies included in the SDR valuation basket.
Nature of Operations
The SDR is an international interest bearing reserve asset created by the IMF
following the First Amendment of the Articles of Agreement in 1969. All transactions
and operations involving SDRs conducted through the SDR Department. The SDR may
be allocated by the IMF, as a supplement to existing resrve assets, to members participating
in the SDR Department. Its value as a reserve asset derives, essentially from the
commitments of participants to hold and accept SDRs and to honour various obligations
connected with its proper functioning as a reserve asset.
The resources of the SDR Department are held separately from the assets of al
the other accounts of, or administered by, the IMF. They may not be used to meet the
liability, obligations, or losses of the Fund incurred in the operations of the General
Department or other accounts, except that the SDR Department reimburses the General
Department for expenses incurred in conducting the business of the SDR Department.
The SDR is also used by a number of international and regional organizations as
a unit of account or as the basis for their units of account. Several international conventions
also use the SDR as a unit of account, notably those expressing liability limits for the
international transport of goods and services.
Uses of SDRs
Participants and prescribed holders can use and receive SDRs in transactions and
operations by agreement among themselves. Participants can also use SDRs in operations
and transactions involving the General Resources Account, such as the payment of charges
and repurchases. By designating participants to provide freely usable currency to exchange
for SDRs, the IMF ensures that a participant can use its SDRs to obtain an equivalent
amount of currency if it has a need because of its balance of payments, its reserve position,
or development in its reserves.
General Allocations and Cancellations of SDRs
The IMF has the authority to provide unconditional liquidity through general
allocations of SDRs to participants in the SDR Department in proportion to their quotas
in the IMF. The IMF cannot allocate SDRs to itself or to other holders it prescribes. The
Articles also provide for the cancellation of SDRs, although to date there have been no
cancellations. In its decisions on general allocations of SDRs, the IMF, as prescribed
under its Articles, has sought to meet the long term global need to supplement existing
reserve assets in such a manner as will promote the attainment of the IMF ’s purposes
and avoid economic stagnation and deflation, as well as excess demand and inflation.
127
Table 5.2
Descending Order Rankings of Allocations and Holdings of SDRs of
IMF Member Countries (as of April 30, 2006)
(in thousands of SDRs)
Holdings
Net % of Above
Cumulative Total Cumulative (-) Below
Member Country Allocations Holdings Allocations Allocations
Eritrea - - - -
Marshall Islands - - - -
Palau - - - -
Timor-Leste - - - -
Turkmenistan - - - -
Poland - 56,179 - 56,179
Hungary - 46,002 - 46,002
Switzerland - 14,428 - 14,428
Kyrgyz Republic - 12,071 - 12,071
Brunei Darussalam - 10,483 - 10,483
Ukraine - 9,595 - 9,595
Albania - 9,475 - 9,475
Czech Republic - 9,238 - 9,238
Armenia - 9,034 - 9,034
Russian Federation - 4,433 - 4,433
Bulgaria - 4,160 - 4,160
Tajikistan - 3,851 - 3,851
Belize - 1,798 - 1,798
Georgia - 1,521 - 1,521
Micronesia,Federated States of - 1,257 - 1,257
Vanuatu - 1,011 - 1,011
Slovak Republic - 907 - 907
Kazakhstan - 815 - 815
San Marino - 686 - 686
Moldova - 496 - 496
Azerbaijan - 432 - 432
Bhutan - 304 - 304
Tonga - 296 - 296
Mozambique - 163 - 163
Angola - 151 - 151
Latvia - 102 - 102
Lithuania - 63 - 63
Estonia - 56 - 56
Belarus - 23 - 23
Namibia - 18 - 18
128
Mongolia - 14 - 14
Kiribati - 10 - 10
Uzbekistan - 10 - 10
Antigua and Barbuda - 6 - 6
St.Kitts and Nevis - 2 - 2
Somalia 13,697 - - -13,697
Liberia 21,007 - - -21,007
Singapore 16,475 202,090 1226.60 185,615
Libya 58,771 501,034 852.50 442,263
Botswana 4,359 35,888 823.30 31,529
Paraguay 13,697 88,905 649.10 75,208
Lebanon 4,393 22,254 506.60 17,861
Kuwait 26,744 131,270 490.80 104,525
Iraq 68,464 293,105 428.10 224,641
China 236,800 927,840 391.80 691,040
Malta 11,288 32,525 288.10 21,237
Samoa 1,142 2,473 216.60 1,331
St.Lucia 742 1,530 206.20 788
Japan 891,690 1,810,377 203.00 918,687
Saudi Arabia 195,527 396,485 202.80 200,959
Qatar 12,822 25,823 201.40 13,001
Oman 6,262 10,578 168.90 4,316
Grenada 930 1,567 168.50 637
Turkey 112,307 155,317 138.30 43,010
Portugal 53,320 73,051 137.00 19,731
Sierra Leone 17,455 22,010 126.10 4,555
Norway 167,770 201,044 119.80 33,274
United States 4,899,530 5,790,474 118.20 890,944
Mauritius 15,744 18,081 114.80 2,337
Maldives 282 323 114.40 41
Iran,Islamic Republic of 244,056 274,877 112.60 30,821
Germany 1,210,760 1,340,859 110.70 130,099
Rwanda 13,697 15,162 110.70 1,465
Mexico 290,020 314,656 108.50 24,636
Colombia 114,271 122,525 107.20 8,254
Table 5.2 (contd.)
(in thousands of SDRs)
Holdings
Net % of Above
Cumulative Total Cumulative (-) Below
Member Country Allocations Holdings Allocations Allocations
129
Lao People’s Dem.Rep. 9,409 9,859 104.80 450
South Africa 220,360 222,874 101.10 2,514
El Salvador 24,985 24,978 100.00 -7
Syrian Arab Republic 36,564 36,575 100.00 11
Malaysia 139,048 138,796 99.80 -252
Bolivia 26,703 25,917 97.10 -786
Netherlands 530,340 508,542 95.90 -21,798
Pakistan 169,989 150,384 88.50 -19,605
Fiji 6,958 5,666 81.40 -1,292
Canada 779,290 632,766 81.20 -146,524
Nepal 8,105 6,131 75.70 -1,973
Serbia and Montenegro 56,665 41,684 73.60 -14,981
Spain 298,805 216,316 72.40 -82,489
São Tomé and Príncipe 620 447 72.00 -173
Ireland 87,263 62,289 71.40 -24,974
Finland 142,690 98,991 69.40 -43,699
Luxembourg 16,955 11,704 69.00 -5,251
Guyana 14,530 9,504 65.40 -5,026
Haiti 13,697 8,536 62.30 -5,161
Argentina 318,370 192,026 60.30 -126,344
Austria 179,045 103,891 58.00 -75,154
France 1,079,870 622,235 57.60 -457,635
Egypt 135,924 75,056 55.20 -60,868
Morocco 85,689 46,722 54.50 -38,967
Uruguay 49,977 24,070 48.20 -25,907
Korea 72,911 32,287 44.30 -40,625
Sweden 246,525 108,840 44.10 -137,685
Belgium 485,246 210,677 43.40 -274,569
Denmark 178,864 71,687 40.10 -107,177
Swaziland 6,432 2,483 38.60 -3,949
Bahrain 6,200 2,143 34.60 -4,057
Central African Republic 9,325 3,079 33.00 -6,246
Slovenia 25,431 8,259 32.50 -17,172
Guinea-Bissau 1,212 392 32.40 -820
Indonesia 238,956 74,275 31.10 -164,681
Table 5.2 (contd.)
(in thousands of SDRs)
Holdings
Net % of Above
Cumulative Total Cumulative (-) Below
Member Country Allocations Holdings Allocations Allocations
130
Chile 121,924 36,896 30.30 -85,028
Australia 470,545 135,933 28.90 -334,612
Macedonia 8,379 2,247 26.80 -6,132
Italy 702,400 176,077 25.10 -526,323
Djibouti 1,178 265 22.50 -913
Yemen, Republic of 28,743 6,439 22.40 -22,304
Greece 103,544 20,466 19.80 -83,078
United Arab Emirates 38,737 7,301 18.80 -31,436
Guinea 17,604 3,150 17.90 -14,454
New Zealand 141,322 23,990 17.00 -117,332
Ecuador 32,929 5,517 16.80 -27,412
Guatemala 27,678 4,397 15.90 -23,28
Zambia 68,298 10,607 15.50 -57,691
Cyprus 19,438 2,932 15.10 -16,506
Jordan 16,887 2,503 14.80 -14,384
Dominican Republic 31,585 4,140 13.10 -27,445
Suriname 7,750 1,014 13.10 -6,736
Israel 106,360 13,393 12.60 -92,967
United Kingdom 1,913,070 218,733 11.40 -1,694,337
Dominica 592 57 9.70 -535
Kenya 36,990 3,174 8.60 -33,816
Lesotho 3,739 302 8.10 -3,437
Equatorial Guinea 5,812 440 7.60 -5,372
Malawi 10,975 721 6.60 -10,254
Trinidad and Tobago 46,231 2,622 5.70 -43,609
Gabon 14,091 703 5.00 -13,388
Bosnia and Herzegovina 20,481 933 4.60 -19,548
Sri Lanka 70,868 3,114 4.40 -67,754
Brazil 358,670 13,798 3.80 -344,872
Romania 75,950 2,819 3.70 -73,131
Congo,Republic 9,719 312 3.20 -9,407
Philippines 116,595 3,746 3.20 -112,849
Senegal 24,462 781 3.20 -23,681
Cameroon 24,463 750 3.10 -23,713
Tunisia 34,243 942 2.80 -33,301
Table 5.2 (contd.)
(in thousands of SDRs)
Holdings
Net % of Above
Cumulative Total Cumulative (-) Below
Member Country Allocations Holdings Allocations Allocations
131
Chad 9,409 250 2.70 -9,159
Gambia,The 5,121 136 2.70 -4,985
Seychelles 406 11 2.60 -396
Panama 26,322 562 2.10 -25,760
Uganda 29,396 589 2.00 -28,807
Cape Verde 620 12 1.90 -608
Niger 9,409 178 1.90 -9,231
Peru 91,319 1,616 1.80 -89,703
Benin 9,409 148 1.60 -9,261
Solomon Islands 654 10 1.60 -644
Comoros 716 11 1.50 -705
Vietnam 47,658 713 1.50 -46,945
Ethiopia 11,160 144 1.30 -11,016
Ghana 62,983 799 1.30 -62,184
Mauritania 9,719 128 1.30 -9,591
Côte d’Ivoire 37,828 456 1.20 -37,372
Jamaica 40,613 492 1.20 -40,121
Madagascar 19,270 235 1.20 -19,035
Mali 15,912 191 1.20 -15,721
Myanmar 43,474 525 1.20 -42,949
Togo 10,975 129 1.20 -10,846
Croatia 44,205 488 1.10 -43,718
Nicaragua 19,483 216 1.10 -19,267
Nigeria 157,155 1,678 1.10 -155,477
Algeria 128,640 1,273 1.00 -127,367
Bahamas,The 10,230 107 1.00 -10,123
Bangladesh 47,120 448 1.00 -46,672
Burkina Faso 9,409 97 1.00 -9,312
Burundi 13,697 132 1.00 -13,565
Cambodia 15,417 149 1.00 -15,268
Papua New Guinea 9,300 91 1.00 -9,209
Sudan 52,192 547 1.00 -51,645
Tanzania 31,372 303 1.00 -31,069
Zimbabwe 10,200 102 1.00 -10,098
Congo,Dem. Rep. 86,309 809 0.90 -85,500
Table 5.2 (contd.)
(in thousands of SDRs)
Holdings
Net % of Above
Cumulative Total Cumulative (-) Below
Member Country Allocations Holdings Allocations Allocations
132
Honduras 19,057 169 0.90 -18,888
St.Vincent and Grenadines 354 3 0.90 -350
Barbados 8,039 67 0.80 -7,972
Venezuela 316,890 2,620 0.80 -314,270
Costa Rica 23,726 172 0.70 -23,554
Thailand 84,652 577 0.70 -84,075
Iceland 16,409 103 0.60 -16,306
India 681,170 3,805 0.60 -677,365
Afghanistan 26,703 23 0.10 -26,680
Above Allocations 8,955,651 13,280,520 148.3 4,324,869
Below Allocations 12,477,679 4,253,303 34.1 (8,224,376)
Total Holdings 21,433,330 17,533,823
General Resources Account 3,640,792
Prescribed holders* 296,388
Overdue charges 37,673
Total 21,471,003 21,471,003
Source: IMF’s Annual Report-2006, pp.197-99.
*These 16 prescribed holders of SDRs are: (1) African Development Bank, (2) African Develop-
ment Fund, (3) Arab Monetary Fund, (4) Asian Development Bank, (5) Bank of Central African
States, (6) Bank for International Settlements, (7) Central Bank of West African States, (8)
East African Development Bank, (9) EasternCaribbean Central Bank, (10) European Central
Bank, (11) International Bank for Reconstruction and Development (the World Bank), (12)
International Development Association, (13) International Fund for Agricultural Development,
(14) Islamic Development Bank, (15) Latin American Reserve Fund, and (16) Nordic Investment
Bank.
Table 5.2 (contd.)
(in thousands of SDRs)
Holdings
Net % of Above
Cumulative Total Cumulative (-) Below
Member Country Allocations Holdings Allocations Allocations
133
Regular Financing Activities
The IMF’s regular lending activity is conducted through the General Resources
Account (GRA), which holds the subscriptions of members. The bulk of the financing is
provided under Standby Arrangements, which address members’ balance of payments
difficulties of a short-term cyclical nature, and under the Extended Fund Facility (EFF),
which focuses on external payments difficulties arising from longer-term structural
problems. Loans under Standby and Extended Arrangements can be supplemented with
short-term resources from the Supplemental Reserve Facility (SRF) to assist members
experiencing a sudden and disruptive loss of capital market access. All loans incur interest
charges and can be subject to surcharges based on the type and duration of the loan, and
the amount of IMF credit outstanding. Repayment periods also vary by funding facility.
5.2 IMF’S FINANCIAL OPERATIONS IN FY 2001
International Financial Developments
The key financial developments in FY 2001 included:
• A reduction in the outstanding IMF loans, as improved conditions in the world
economy and financial markets contributed to a moderation of new financial aid
and facilitated the repayment of loans extended during the height of the 1997-99
financial crises;
• Intensifying efforts to assist the IMF’s poorest members with the implementation
of initiatives to reduce the debt burdens of the HIPCs and to focus the IMF’s
concessional lending activities more explicitly on poverty reduction;
• Introducing important changes to the IMF’s loan policies to encourage early
adoption of sound economic policies as a means of preventing crises and to
discourage overly-long and heavy use of IMF resources by member countries;
• Modifying the valuation of the SDRs to take account of the introduction of the
euro as the common currency for a number of IMF members and to reflect changes
in global financial markets.
Lending
Favourable global and economic conditions contributed to a decline in new IMF
commitments in FY 2001. Total commitments fell to SDR 14.5 billion in FY 2001 from
SDR 23.5 billion in FY 2000 (as on April 30, 2001, SDR 1 = US$ 1.26579).
The IMF approved nine new Standby Arrangements involving commitments
totalling SDR 2.1 billion and two commitments under Standby Arrangements already in
place were increased by SDR 11 billion. Only one new EFF arrangement was approved,
for the former Yugoslav Republic of Macedonia, for SDR 24 million. The commitment
under Yemen’s EFF was reduced by SDR 37 million.
The largest IMF commitments during the year reflected additions to existing
Standby Arrangements for Argentina and Turkey, including the provision of shorter-
term financing under the SRF. In December 2000, the arrangement with Turkey was
134
increased by SDR 5.8 billion (all from the SRF) to deal with a loss of market confidence
that threatened progress of macroeconomic stabilization and structural reform under the
programme adopted by Turkey in 1999. In January 2001, Argentina’s Standby
Arrangement was increased by SDR 5.2 billion (of which 2.1 billion involved SRF
resources) as part of an international effort to support the country’s reform programme
and improve its access to international capital markets.
In continuation of prevailing trends, a growing volume of IMF financing
commitments under Standby and Extended Arrangements were being treated as
precautionary, with borrowers indicating that they did not intend to draw on the funds
committed to them by the IMF. Drawings were made under only 16 of the 37 Standby
and Extended Arrangements in place during the year. At the end of April 2001, undrawn
balances under the 25 Standby and Extended Arrangements still in effect amounted to
SDR 22.4 billion, that is, about two-thirds of the total amount committed.
Financing provided under the IMF’s facilities for emergency assistance and
compensatory financing was modest in FY 2001. Emergency post-conflict assistance of
SDR 138 million was provided to three countries (Republic of Congo, Sierra Leone,
Federal Republic of Yugoslavia). No country received assistance under the Compensatory
Financing Facility (CFF).
During FY 2001, the IMF disbursed SDR 9.5 billion in loans from its General
Resources Account. The amount of new credit was more than offset by continued
substantial repayment of loans extended in earlier years. Total repayments were SDR
11.2 billion, including advance repayments by Korea (SDR 2.0 billion) and Mexico (SDR
2.3 billion). Consequently, IMF credit outstanding at the end of FY 2001 amounted to
SDR 42.2 billion, a little lower than a year earlier and some SDR 18 billion below the
peak attained during the recent financial crises.
A review of IMF facilities resulted in a number of other important measures
affecting the duration and size of future IMF financing under Standby and Extended
Arrangements. The new policies on time-based early repurchase expectations and the
level-based interest surcharge apply to drawings made after the date of the decision by
the Executive Board. As of April 30, 2001, financing of SDR 3.7 billion was subject to
early repurchase expectations under these policies; at that time, no outstanding credit
was subject to the level-based surcharge.
Resources and Liquidity
The IMF’s financial position, which improved significantly following the 1999
increase in quotas, remained strong at the close of the financial year. On April 30, 2001,
the IMF had SDR 78.7 billion in usable quota resources available for new lending,
compared with SDR 74.8 billion a year earlier and nearly four times higher than the low
point prior to the quota increase. In addition to the net reflows noted earlier, a number
of Standby and Extended Arrangements with large undrawn balances expired (including
Korea, Mexico and Russia), which made about SDR 7.0 billion in funds available for
new lending. Finally, three new countries were considered sufficiently strong for their
currencies to be included in the IMF’s financial operations (Korea, Oman and Qatar),
135
and an increase in China’s quota provided additional usable funds.
Other Developments
A number of quota-related developments took place during FY 2001:
• China’s quota was increased to reflect the resumption of Chinese sovereignty
over Hong Kong. The increase of SDR 1,682 million raised China’s quota to
SDR 6,369.2 million, or 3.0 per cent of total quotas.
• The Executive Board of the IMF agreed that the quota formulas should be
simplified and updated to reflect developments in the world economy, including
the growing role of financial markets. However, concerns were expressed that
the formula recommended by the panel of experts could contribute to a further
concentration of quotas in the largest IMF members. It was, therefore, agreed to
consider possible alternative formalities following additional analysis.
• In December 2000, the Federal Republic of Yugoslavia (Serbia/Montenegro)
fulfilled the necessary conditions to succeed to membership of the former Socialist
Republic of Yugoslavia and consented to, and paid for, a quota of SDR 467.7
million.
• As of April 30, 2001, 174 member countries accounting for more than 99 percent
of total quotas proposed in 1998 under the 11th General Review of Quotas had
consented to, and paid for, their quota increases. Three member countries eligible
to consent to the proposed increases in their quotas had not done so by the end
of the financial year, and six countries were ineligible to consent to their proposed
increases because they were in arrears to the IMF. On January 16,2001, the
Executive Board approved an extension of the period for consent to, and payment
of, quota increase under Eleventh Review until July 31st, 2001. At the end of the
FY 2001, total quotas amounted to SDR 212.4 billion.
Concessional Financing
The IMF provides concessional assistance to help its poorest members boost
their economic growth and reduce poverty through the Poverty Reduction and Growth
Facility (PRGF) and in the context of the Initiative for Heavily Indebted Poor Countries
(HIPCs). In FY 2001, the financing of the PRGF and HIPC Initiative was largely
completed, with significant progress in obtaining bilateral contributions and in securing
the full use of investment income on the profits from the off-market gold transactions
undertaken in FY 2000. A total 37 member countries received PRGF financing during
FY 2001, and 23 countries had received financial commitments under the HIPC Initiative
by the end of the FY 2001.
Pattern of SDR Holdings
The total level of transfers of SDRs continued to decrease in FY 2001, to SDR
18.7 billion, compared with SDR 22.9 billion the previous year, and the peak of SDR
49.1 billion in FY 1999 when the volume of SDR transactions increased significantly
because of payments for the quota increase.
136
By the end of FY 2001, the IMF’s own holdings of SDRs which had risen sharply
as a result of payments for quota subscriptions in 1999, had fallen to SDR 2.4 billion
from SDR 2.7 billion a year earlier, toward the targeted range of SDR 1.0-1.5 billion, in
which the IMF seeks to maintain SDR holdings. SDRs held by prescribed holders also
decreased, by 0.2 billion. Consequently, the SDR holdings by participants increased to
SDR 18.6 billion from SDR 18.1 billion in FY 2000.
The SDR holdings of the industrial and net creditor countries relative to their net
cumulative allocation increased from a year earlier. This increase was mainly due to
large interest payments made to those members. The SDR holdings of non-industrial
members declined to 54.6 percent of their net cumulative allocations from 62.5 per cent
a year earlier, mainly as a result of repayments and payments of interest charges on loans
from the General Resources Account.
Progress under the Strengthened Cooperative Strategy
The strengthened cooperative strategy on overdue financial obligations to the
IMF, initiated in May 1990 in response to mounting concerns about rising arrears during
the 1980s, consists of three essential elements: prevention, intensified collaboration,
and remedial measures.
In FY 2001, the Executive Board conducted several reviews of member countries’
overdue financial obligations to the IMF during the year. The Board reviewed Liberia’s
overdue obligations on November 15, 2000, and noted a regrettable weakening of policy
implementation. The Board decided to consider the initiation of procedure for the
suspension of Liberia’s voting rights in the IMF. The Board reviewed Sudan’s overdue
obligations twice and noted that Sudan’s payments to the IMF were in line with
commitments and that policy performance was broadly on track under the staff-monitored
programmes for 1999-2001. Under its policy of de-escalation of remedial measures, the
Board terminated its suspension of Sudan’s voting rights in the IMF with effect from
August 1, 2000, following the earlier lifting of the declaration of non-cooperation
regarding Sudan in August 1999. The Board held no reviews of the overdue obligations
of the Democratic Republic of Congo, Somalia, and other protracted arrears cases.
At the end of April 2001, the Democratic Republic of Congo, Liberia, Somalia,
Sudan, Iraq and the Islamic State of Afghanistan remained ineligible under Article XXVI,
Section 2(a), to use the general resources of the IMF. Declarations of non-cooperation,
a further step under the strengthened cooperative arrears strategy, were in effect for the
Democratic Republic of Congo (issued on February 14, 1992) and Liberia (issued on
March 30, 1990). In addition, the voting rights of the Democratic Republic of Congo
remained suspended (effective June 2, 1994).
Protracted arrears to the IMF (defined as obligations overdue six months or more)
declined in FY 2001 to SDR 2.24 billion as of April 30, 2001, from SDR 2.32 billion a
year earlier. These arrears continued to be concentrated among four member countries -
the Democratic Republic of Congo, Liberia, Somalia and Sudan, whose arrears accounted
for almost all overdue obligations to the IMF as of April 30, 2001.
137
The Federal Republic of Yugoslavia (Serbia/Montenegro) cleared its arrears of
SDR 101.1 million on December 20, 2002, prior to succeeding to the membership in the
IMF of the former Socialist Federal Republic of Yugoslavia.
5.3 IMF’S FINANCIAL OPERATIONS IN FY 2002
International Financial Developments
The key financial developments in FY 2002 included:
• An increase in outstanding IMF loans as the slowdown in the world economy
contributed to a worsening of the balance payments difficulties of several countries
that experienced reduced access to international capital markets;
• Continued efforts to assist the IMF’s poorest members with the implementation
of initiatives to reduce the debt burdens of the heavily indebted poor countries
and to focus the IMF’s concessional lending activities more explicitly on poverty
reduction;
• Commencement by the IMF of a review of the size and distribution of members’
capital subscriptions and consideration of a possible general allocation of SDRs.
Lending
Augmentation of existing arrangements as well as new arrangements for Brazil
and Turkey, all in amounts larger than usual, contributed to a sharp rise in new IMF
commitments in FY 2002. Total commitments increased to SDR 39.4 billion in FY 2002
from SDR 13.1 billion in FY 2001. The IMF approved nine new Standby Arrangements
involving commitments totalling SDR 26.7 billion, and commitments to Argentina and
Turkey under Standby Arrangements already in place were augmented by SDR 12.7
billion. No EFF arrangements were approved in FY 2002.
The largest IMF commitments during the year reflected new Standby Arrange-
ments for Brazil and Turkey, including the provisions of shorter-term financing under
the SRF. In September 2001, a Standby Arrangement of SDR 12.1 billion (SDR 10
billion under the SRF) was approved for Brazil in support of the government’s economic
and financial programme. In February 2002, the IMF approved a 3-year SDR 12.8 billion
Standby Arrangement for Turkey to support the government’s economic programme,
which replaced the previous arrangement approved in December 1999.
Increased use of precautionary Standby Arrangements, as well as other factors
such as uncompleted reviews and interrupted programmes, resulted in drawings being
made under only 16 of the 34 Standby and Extended Arrangements in place during the
year. At the end of April 2002, undrawn balances under the 17 Standby and Extended
Arrangements still in effect amounted to SDR 26.9 billion, about half of the total amount
committed (SDR 51.7 billion). No commitments were made under the IMF’s policy for
emergency assistance, the Compensatory Financing Facility (CFF) or Contingent Credit
Lines (CCLs) during the year.
During FY 2002, the IMF disbursed SDR 29.1 billion in loans from its GRA. The
138
amount of new credit exceeded the repayment of loans extended in earlier years. Total
repayments were SDR 19.2 billion, including advance repayments by Brazil (SDR 3.3
billion), Korea (1.9 billion) and Turkey (SDR 4.5 billion). Consequently, IMF credit
outstanding at the end of the FY 2002 amounted to SDR 52.1 billion, SDR 9.9 billion
higher than a year earlier but some SDR 8.5 billion below the peak attained during the
recent financial crises.
A review of IMF facilities completed in FY 2001 resulted in a number of important
measures affecting the duration and size of future IMF financing under Standby and
Extended Arrangements. The new policies on time-based early repurchase expectations
and the level-based interest surcharge apply to drawings made after the date of the decision
of the Executive Board (November 29, 2000). As of April 30, 2002, financing amounting
to SDR 21.9 billion was subject to early repurchase expectations under these policies; at
that time, SDR 11.6 billion was subject to the level-based surcharge.
Resources and Liquidity
The IMF’s financial position weakened somewhat during the financial year but
remained comfortable. On April 30, 2002, the IMF had SDR 64.7 billion in net
uncommitted usable resources, compared with SDR 78.7 billon a year earlier. A number
of new, large Standby Arrangements and the augmentation of several existing Arrange-
ments resulted in a decline of available resources. However, this effect was partly offset
by expiration of some arrangements with undrawn balances and by some advance
repayments, both of which increased resources available for new lending. Similarly, the
amount of usable resources increased because two countries (Cyprus and Korea) were
considered sufficiently strong for their currencies to be newly included on the transfer
side of the IMF’s financial transactions plan, which may be described as under:
The IMF extends loans by providing reserve assets from its own holdings and
by calling on financially strong countries to exchange the IMF’s holdings of
their currencies for reserve assets the members that participate in the financing
of IMF transactions in foreign exchange are selected by the Executive Board
based on an assessment of each country’s financial capacity. These assessments
are ultimately a matter of judgment and take into account recent and prospective
developments in the balance of payments and reserves, trends in exchange rates,
and the size and duration of external debt obligations.
The amounts transferred and received by these members are managed to
ensure that their creditor positions in the IMF remain broadly the same in relation
to their quota, the key measure of each member’s rights and obligations in the
IMF. This is achieved in the framework of an indicative quarterly plan for the
quarter ending three months prior to publication. As of April 30, 2002, the 40
members listed below were participating in financing IMF transactions:
Australia Denmark Korea Saudi Arabia
Austria Finland Kuwait Singapore
Belgium France Luxembourg Slovenia
Botswana Germany Netherlands Spain
139
Brunei Greece New Zealand Sweden
Canada Hungary Norway Switzerland
Chile Ireland Oman Trinidad and Tobago
China Israel Poland United Arab Emirates
Cyprus Italy Portugal United Kingdom
Czech Rep. Japan Qatar United States
Quota Developments
A number of quota-related developments took place during FY 2002:
• The 12th General Review of Quotas began in December 2001 with the formation
of a Committee of the Whole to consider the possible need to increase quotas. As
part of this process, the IMF’s Executive Board held an informal seminar on
conceptual issues involved in assessing the adequacy of the IMF’s resource base.
It was noted that the 12th Review is being conducted in the context of increased
global economic and financial integration, including access by a growing number
of countries to private capital markets and greater vulnerability to economic shocks
and financial market volatility. At the same time, many countries had improved
economic policy and performance, leading to a decrease in vulnerability. There
was a broad recognition that these diverse factors, as well as the IMF’s efforts to
adapt its policies to deal with the challenges of globalization, would have important
implications for the future demand for IMF financing. However, there was no
converging view in the Executive Board on the extent to which, on balance, the
various developments could affect the required size of the IMF’s resource base.
• The IMF’s Executive Board also held further discussion on possible revisions of
the formulas used in determining members’ quotas. The Directors expressed a
wide range of views on the structure and content of alternative quota formulas.
It was agreed that further work was needed to develop quota formulas that more
fully reflected members’ roles in the world economy, though it was also noted
that this was a difficult task, because quotas performed a variety of roles. It was
mostly agreed that any new quota formula should be simple and transparent, and
it was generally endorsed that the use in quota formulas of variables that had
traditionally been considered to reflect the IMF’s financial functions (that is, GDP,
openness, variability, and possibly, reserves). However, it was noted that these
variables needed to be modernized to take account of changes in the world
economy, in particular, the large and growing role of international capital flows.
Mostly, it was further recognized that the issues related to the governance of the
IMF were unlikely to be resolved solely through revisions of the quota formulas,
although the revised formulas that commanded wide support could contribute to
the gradual adjustment of quotas. At the same time, it was felt that, apart from
the choice of formula, it was important to address without delay the situation of
countries whose actual quotas were significantly below their calculated quotas.
The desirability of ensuring the proper representation of the IMF’s decision-making
of developing countries, especially the IMF’s poorest member countries,
particularly those in Africa was also underscored.
140
• As of April 30, 2002, 174 member countries accounting for more than 99 percent
of total quotas proposed in 1998 under the 11th General Review of Quotas had
consented to, and paid for, their quota increases. Three member countries eligible
to consent to the proposed increases in their quotas had not done so by the end
of the FY 2002, and six countries were ineligible to consent to their proposed
increases because they were in arrears to the IMF. On January 31, 2002, the
Executive Board approved an an extension of the period for consent to, and
payment of, quota increases under the 11th Review until July 31, 2002. At the
close of the financial year, total quotas amounted to about SDR 212.4 billion.
Concessional Financing
A total of 36 member countries received Poverty Reduction and Growth Facility
(PRGF) financing during FY 2002, and 26 countries received financial commitments
under the Heavily Indebted Poor Countries (HIPC) Initiative by the end of FY 2002.
During FY 2002, the Executive Board approved nine new PRGF arrangements
(for Armenia, Azerbaijan, Cape Verde, Côte d’Ivoire, Guinea, the Kyrgyz Repblic,
Mongolia, Pakistan and Sierra Leone) with commitments totalling SDR 1.8 billion; in
addition, augmentations of existing commitments totalling SDR 66 million were approved
for Chad, Ethiopia, Ghana, and Mali. Total PRGF disbursements during FY 2002
amounted to SDR 1.0 billion, compared with SDR 0.6 billion in FY 2001. As of April
30, 2002, 36 member countries’ reform programmes were supported by PRGF
arrangements, with IMF commitments totalling SDR 4.3 billion and undrawn balances
of SDR 2.7 billion.
During FY 2002, 10 lenders (Belgium, China, Egypt, France, Germany, Italy,
Japan, Netherlands, Spain and Switzerland) made SDR 4.4 billion in new loan resources
available to finance future PRGF operations. Consequently, the borrowing limit for loan
resources of the PRGF Trust was increased from SDR 11.5 billion to SDR 16 billion in
September 2001.
The framework for the PRGF envisages that commitment would be financed
through 2005 from external sources. The continuation of concessional lending for the
period after 2005 would need to be reassessed closer to that time, but a substantial
proportion of such lending is expected to be provided from the IMF’s own resources
accumulating in the PRGF Trust Reserve Account. These resources will become available
as PRGF lenders are repaid and the security provided by the Reserve Account is no
longer needed.
Post-Conflict Emergency Assistance
The IMF provides emergency assistance to countries that are emerging from
conflict through loans, subject to the IMF’s basic rate of charge. An administered account
was established on May 4, 2001, to accept contributions by bilateral donors that would
enable the IMF to provide such assistance at a concessional rate of charge of 0.5 percent
for PRGF-eligible members. As of April 30, 2002, Sweden and United Kingdom had
provided grants to the account, and Belgium, the Netherlands, and Switzerland had also
141
committed to providing such resources. Total pledged grant contributions amounted to
about SDR 7 million, of which SDR 1.4 million had been paid. Disbursements totalled
SDR 0.8 million to subsidize the rate of charge on post-conflict emergency assistance
for six countries (Albania, the Republic of Congo, Guinea-Bissau, Rwanda, Sierra leone,
and Tajikistan).
Special Drawing Rights (SDRs)
The total level of transfers of SDRs continued to decrease in FY 2002, to SDR
14 billion, compared with SDR 18.7 billion in the previous year and the peak of SDR
49.1 billion in FY 1999, when the volume of SDR transactions increased significantly
because of payments for the quota increase. By the end of FY 2002, the IMF’s own
holdings of SDRs, which had risen sharply as a result of payments for quota subscriptions
in 1999, had fallen to SDR 1.5 billion from SDR 2.4 billion a year earlier, in the targeted
range of 1.0-1.5 billion, in which the IMF seeks to maintain its SDR holdings. SDRs
held by prescribed holders amounted to SDR 0.4 billion. Consequently, SDR holdings
by participants increased to SDR 19.6 billion from SDR 18.7 billion in FY 2001. SDR
holdings of the industrial and net creditor countries relative to their net cumulative
allocation increased from a year earlier. This increase was mainly due to large interest
payments made to those members. SDR holdings of non-industrial members increased
to 56.9 percent of their net cumulative allocations from 54.6 percent a year earlier.
Arrears to the IMF
In FY 2002, total overdue financial obligations to the IMF increased to SDR
2.36 billion from SDR 2.24 billion a year earlier, mainly reflecting the continued
accumulation of arrears by Zimbabwe, who represents the first new case of significant
arrears to the GRA since 1993 and the first case of arrears to the PRGF Trust.
At the end of April 2002, more than 97 percent of the total arrears to the IMF
were protracted (outstanding for more than six months), about evenly divided between
overdue principal and overdue charges and interest; almost 90 per cent of arrears were
to the GRA.
Five countries with the largest protracted arrears to the IMF, the Democratic
Republic of Congo, Liberia, Somalia, Sudan and Zimbabwe, accounted for almost 98
percent of the overdue financial obligations to the IMF. Under the IMF’s strengthened
cooperative strategy on arrears, remedial measures have been applied against the countries
with protracted arrears to the IMF. However, in cases of Islamic State of Afghanistan,
the Democratic Republic of Congo, Iraq and Somalia, application of remedial measures
has been delayed or suspended because of civil conflicts, the absence of a functioning
government, or international sanctions.
At the end of April 2002, the Democratic Republic of Congo, Liberia, Somalia,
Sudan and Zimbabwe were ineligible under Article XXVI, Section 2(a) to use the general
resources of the IMF, a further step under the strengthened cooperative arrears strategy,
were in effect for the Democratic Republic of Congo and Liberia, and the voting rights
of the Democratic Republic of Congo remained suspended.
142
5.4 IMF’S FINANCIAL OPERATIONS IN FY 2003
International Financial Developments
The key financial developments in FY 2003 included:
• The IMF completed a review of members’ capital subscriptions (quotas) and
concluded that no general increase in its capital base was necessary for the time
being;
• Outstanding IMF credit to members increased as capital flows to emerging market
countries continued to decline and several members with very large external
financing needs faced reduced access to international capital markets;
• The IMF continued its efforts to assist its poorest members to reduce their debt
burdens and to focus its concessional lending activities more explicitly on poverty
reduction.
Lending
New IMF commitments in FY 2003 were dominated by a large Standby
Arrangement for Brazil. In addition, new large arrangements for Colombia and Argentina,
as well as augmentations of the existing arrangement for Uruguay, kept the level of total
commitments in FY 2003 relatively high, with new commitments amounting to SDR
29.4 billion compared with SDR 39.4 billion in FY 2002. The IMF approved ten new
Standby Arrangements involving commitments totaling SDR 27.1 billion, and the
commitment to Uruguay under the Standby Arrangement already in place was augmented
by SDR 1.5 billion. In addition, two EFF arrangements were approved in FY 2003: SDR
0.7 billion for Serbia and Montenegro and SDR 0.1 billion for Sri Lanka. Burundi,
Grenada, and Malawi made small purchases under the IMF’s policy of emergency
assistance. No commitments were made under the IMF’s Compensatory Financing Facility
(CFF) or Contingent Credit Line (CCL) during the year.
The arrangement for Brazil, the larg`est in the IMF’s history, was approved in
September 2002. This arrangement supports the government’s economic program through
December 2003. The total commitment of SDR 22.8 billion included SDR 7.6 billion
under the SRF. In January 2003, the IMF approved a seven-month, SDR 2.2 billion
Standby Arrangement for Argentina, which replaced the previous arrangement approved
in March 2000. Another large arrangement was also approved in January 2003, a two-
year, SDR 1.5 billion Standby Arrangement for Colombia. Of the current 15 Standby
Arrangements, three are being treated as precautionary, with borrowers having indicated
that they do not intend to draw on the funds committed to them by the IMF. Use of
precautionary Standby Arrangements, as well as other factors such as uncompleted
reviews and interrupted programs, resulted in drawings being made under only 18 of the
29 Standby and Extended Arrangements in place during the year. At the end of April
2003, undrawn balances under the 18 Standby and Extended Arrangements still in effect
amounted to SDR 23.6 billion, about half of the total amount committed under those
arrangements (SDR 47.2 billion).
143
During FY 2003, the IMF disbursed SDR 21.8 billion in loans from its GRA. The
amount of new credit exceeded the repayment of loans extended in earlier years. Total
repayments were SDR 7.8 billion, including advance repayments by Croatia (SDR 0.1
billion, which eliminated its outstanding IMF credit), Thailand (SDR 0.1 billion), and
Estonia and Lithuania. Consequently, IMF credit outstanding at the end of the year
amounted to a record high SDR 66.0 billion, SDR 13.9 billion higher than a year earlier.
In February 2003, the repurchase (repayment) expectations introduced at the
time of a review of IMF facilities completed in FY 2001, began to take effect. In FY
2003, repurchase expectations arose for four members: Argentina, Bosnia/Herzegovina,
Pakistan, and Turkey. In February-March 2003, Bosnia and Herzegovina, Pakistan, and
Turkey repurchased SDR 0.1 billion on the expectations schedule. For Argentina,
repurchase expectations arising in FY 2003 (SDR 0.3 billion) and in FY 2004 (SDR 0.4
billion) have been extended by one year in the context of the programme approved in
January 2003. Repurchase expectations arising in FY 2004 have also been extended for
Ecuador, Sri Lanka, and Uruguay. As of April 30,2003, IMF financing amounting to
SDR 32.9 billion was subject to early repurchase expectations under the policies adopted
in November 2000; in addition, SDR 28.7 billion was subject to the new surcharges on
high levels of IMF credit also introduced at that time.
Resources and Liquidity
The base of usable resources increased during the financial year because four
additional members (India, Malaysia, Mauritius, and Mexico) were considered sufficiently
strong for their currencies to be included in the IMF’s financial transactions plan. The
IMF’s liquidity position remained adequate throughout the year to meet the needs of its
members. The one-year forward commitment capacity (FCC), a new measure of liquidity
introduced during FY 2003, amounted to SDR 61 billion on April 30, 2003, compared
with SDR 59 billion a year earlier. During the first half of the financial year, the FCC
weakened significantly following the approval of the large arrangement for Brazil, but
recovered thereafter following the expiry and cancellation of two arrangements with
substantial undrawn balances (Colombia and Argentina) and an increase in repayments
projected over the 12-month forecast period.
Quota Developments
A number of quota-related developments took place during the financial year.
The Directors continued their exchange of views on the implications for the size of the
IMF of globalization, the integration of financial markets, and the IMF’s efforts to
strengthen its capacity to prevent and resolve financial crises. There was broad recognition
that greater reliance on private market financing by many countries had contributed to
increased vulnerability to capital account shocks, and that such shocks could be quite
large in absolute amounts and relative to the size of an economy. There was also
recognition that global economic and financial integration might entail the risk of financial
contagion. The Directors generally agreed that the IMF’s crisis prevention efforts will
contribute to a reduction in the frequency and severity of financial crises, through
improved surveillance that promotes sound economic policies and strengthens the
144
functioning of domestic international capital markets.
At the same time, the Directors accepted that future crises would occur, and that
the IMF would need to continue to play a central role in crisis resolution and, therefore,
should have adequate resources at hand. However, views differed on the extent to which
the IMF’s response to these developments would or should result in large financing that
could require additional IMF resources. The Board also held further discussions on
various issues involved in revising and updating the quota formulas to reflect changes in
the world economy and measure the countries’ relative positions more adequately.
Progress was made in discussing the development of alternative formulas that, based on
an updating of the traditional variables, are intended to be simpler and more transparent
than the current formulas. The discussions clarified that the selection of weights for the
variables and the distribution of quotas are inextricably linked, and that decisions on
possible changes in quota shares will need to take account of other quota-related issues,
including the financial size of the IMF and access to its resources by borrowers. This
approach would help address concerns about overloading the quota formulas with too
many objectives, including the determination of members’ contributions to the IMF,
access to IMF’s resources, and relative voting power.
As of April 30, 2003, 177 member countries accounting for more than 99 percent
of total quotas proposed in 1998 under the 11th General Review of Quotas had consented
to, and paid for, their then-proposed quota increases. Two member countries eligible to
consent had not done so by the end of the financial year, and four countries were ineligible
to consent to their proposed increases because they were in arrears to the IMF. On
January 23, 2003, the Board approved an extension of the period for consent to, and
payment of, quota increases under the Eleventh Review until July 31, 2003. At the close
of the financial year, total subscribed quotas amounted to about SDR 212.7 billion.
Borrowing Arrangements
The IMF can borrow to supplement its quota-based resources. It maintains two
standing borrowing arrangements with official lenders and can borrow from private
markets, although it has not done so to date. Borrowing has played an important role in
providing temporary supplemental resources to the IMF at critical junctures in the past.
At April 30, 2003, there was no outstanding borrowing. The last outstanding borrowing
was repaid in March 1999, upon receipt by the IMF of the bulk of quota payments under
the 11th General Review.
General Arrangements to Borrow (GAB)
The GAB, which have been in place since 1962, are a set of credit arrangements
under which 11 participants (industrial countries or their central banks) have agreed to
provide resources to the IMF to forestall or cope with an impairment of the international
monetary system. The potential amount of credit available to the IMF under the GAB
totals SDR 17 billion, with an additional SDR 1.5 billion available under an associated
agreement with Saudi Arabia. The GAB have been activated ten times, most recently in
July 1998 for an amount of SDR 6.3 billion (SDR 1.4 billion of which was drawn) in
connection with the financing of an Extended Arrangement for Russia. The activation
145
was canceled and the borrowing was repaid in March 1999. The GAB decision has been
renewed nine times, most recently in November 2002, when the IMF Executive Board
approved its renewal for a further period of five years from December 2003.
New Arrangements to Borrow (NAB)
The NAB, which took effect in November 1998, are a set of credit arrangements
under which 26 participants (member countries and official institutions) have agreed to
provide resources to the IMF to forestall or cope with an impairment of the international
monetary system or to deal with an exceptional situation that poses a threat to the stability
of that system. The potential amount of credit available to the IMF under the NAB totals
SDR 34 billion This is also the total amount of credit potentially available under the
GAB and NAB combined. The NAB is the first and principal recourse in the event of a
need to provide supplementary resources to the IMF, except that: (1) in the event of a
request for a drawing on the IMF by a participating member, or a member whose institution
is a participant, in both the GAB and NAB (all GAB participants are also participants in
the NAB), a proposal for calls may be made under either of the facilities; and (2) in the
event that a proposal for calls under the NAB is not accepted, a proposal for calls may
be made under the GAB. The NAB has been activated once, to finance a Standby
Arrangement for Brazil in December 1998, when the IMF called on funding of SDR 9.1
billion (SDR 2.9 billion of which was drawn). The activation was canceled and borrowing
was repaid in March 1999. In November 2002, the NAB decision was renewed for a
further period of five years from November 2003. The Banco Central de Chile (as an
official institution of Chile) became the twenty-sixth NAB participant, effective February
2003.
Concessional Financing
The IMF provides concessional assistance to help its poorest members boost
economic growth and reduce poverty under the Poverty Reduction and Growth Facility
(PRGF) and the Initiative for Heavily Indebted Poor Countries (HIPC). As of April 30,
2003, a total of 36 member countries received PRGF financing, and 27 countries had
received financial commitments under the HIPC Initiative by the end of the financial
year.
Poverty Reduction and Growth Facility
In 1999, the objectives of the IMF’s concessional lending were modified to include
an explicit focus on poverty reduction in the context of a growth-oriented economic
strategy. The IMF, along with the World Bank, supports strategies elaborated by the
borrowing country in a Poverty Reduction Strategy Paper (PRSP) prepared with the
participation of civil society and other development partners. Reflecting the new objectives
and procedures, the IMF established the PRGF, which replaced the Enhanced Structural
Adjustment Facility (ESAF), to provide financing under arrangements developed in the
context of PRSPs. During FY 2003, the Executive Board approved 10 new PRGF
arrangements (for Albania, the Democratic Republic of the Congo, the Gambia, Guyana,
Nicaragua, Rwanda, Senegal, Sri Lanka, Tajikistan, and Uganda) with commitments
totaling SDR 1.2 billion; in addition, the amount committed under the existing loan to
146
Zambia was increased by SDR 24 million. Total PRGF disbursements amounted to SDR
1.2 billion during FY 2003. As of April 30, 2003, 36 member countries’ reform programs
were supported by PRGF arrangements, with commitments totaling SDR 4.5 billion and
undrawn balances of SDR 2.5 billion. Financing for the PRGF is provided through trust
funds administered by the IMF - the PRGF Trust and PRGF-HIPC Trust - that are separate
from the IMF’s quota-based resources and that are financed from contributions from a
broad spectrum of the IMF’s membership and the IMF itself. The PRGF Trust borrows
resources at market or below-market interest rates from loan providers, central banks,
governments, and government institutions, and lends these funds to PRGF-eligible member
countries at an annual interest rate of 0.5 percent. The PRGF Trust receives contributions
to subsidize the rate of interest on PRGF loans and maintains a Reserve Account as
security for loans to the Trust. The PRGF-HIPC Trust was established to subsidize
PRGF operations during 2002–2005 and also provides resources for HIPC Initiative
assistance.
As of April 30, 2003, the total loan resources that were made available for PRGF
operations amounted to SDR 15.8 billion, of which SDR 12.6 billion had been committed
and SDR 10.1 billion had been disbursed. It is estimated that the remaining uncommitted
PRGF loan resources of SDR 3.2 billion will cover annual commitments of about SDR
1.1 billion under new PRGF arrangements through 2005, in line with the average annual
commitments. The continuation of concessional lending after 2005 will need to be
reassessed closer to that time, but a substantial proportion of such lending is expected to
be provided by the IMF’s own resources accumulating in the Reserve Account of the
PRGF Trust. These resources will become available as lenders to the PRGF Trust are
repaid and the need for security provided by the Reserve Account declines.
Post-Conflict Emergency Assistance
As of April 30, 2003, total pledged grant contributions from seven countries
amounted to SDR 11.5 million, including SDR 6.8 million that had been paid in. Thus
far, disbursements have totaled SDR 1.4 million to subsidize the rate of charge on post-
conflict emergency assistance for seven countries (Albania, Burundi, the Republic of
Congo, Guinea-Bissau, Rwanda, Sierra Leone, and Tajikistan).
Precautionary Financial Balances
To safeguard its financial position, the IMF has a policy of accumulating
precautionary financial balances in the General Resources Account. These precautionary
balances consist of reserves and the SCA-1. Reserves provide the IMF with protection
against financial risks, including income losses and losses of a capital nature. The SCA-
1 was established as an additional layer of protection against the adverse financial
consequences of protracted arrears. Existing precautionary financial balances have been
financed through the retention of income and the burden-sharing mechanism. Additions
to reserves are made by placing the net income, including income from surcharges, to
the General and Special Reserves. Under the Articles of Agreement, the resources in the
147
General Reserve may be distributed by the IMF to members on the basis of quota shares.
The IMF may use the Special Reserve for any purpose for which it may use the General
Reserve except for distribution. Total reserves increased to SDR 4.3 billion as of April
30, 2003, from SDR 3.6 billion a year earlier. The balance in the SCA-1 amounted to
SDR 1.4 billion, compared with overdue principal of SDR 0.7 billion. SCA-1 resources
are to be refunded after all arrears have been cleared, but can be refunded earlier by a
decision by the IMF. In November 2002, the Board reviewed the adequacy of the
precautionary financial balances and decided to continue to build up these balances with
the aim of doubling them. The Board also concluded that the present system of accumu-
lating precautionary balances is appropriate and will keep thepace of accumulation under
close review.
Special Drawing Rights (SDR) Developments
The total level of transfers of SDRs increased in FY 2003 to SDR 15.6 billion,
compared with SDR 14.0 billion in the previous year, but was still well below the peak
of SDR 19.1 billion in FY1999, when the volume of SDR transactions increased
significantly because of payments for members’ quota increases. By April 30, 2003, the
IMF’s own holdings of SDRs, which had risen sharply as a result of payments for quota
subscriptions in 1999, had fallen to SDR 1.0 billion from SDR 1.5 billion a year earlier,
at the low end of the targeted range of SDR 1.0-1.5 billion within which the IMF seeks
to maintain its SDR holdings. SDRs held by prescribed holders amounted to SDR 0.6
billion. SDR holdings by participants increased to SDR 19.9 billion from SDR 19.6
billion in FY 2002. SDR holdings of the industrial and net creditor countries relative to
their net cumulative allocations decreased from a year earlier. SDR holdings of
nonindustrial members amounted to 72 percent of their net cumulative allocations
compared with 56.9 percent a year earlier.
Arrears to the IMF
The strengthened cooperative strategy on overdue financial obligations to the
IMF consists of three essential elements: prevention, intensified collaboration, and
remedial measures. Total overdue financial obligations to the IMF decreased to SDR
2.01 billion during FY 2003, from SDR 2.36 billion at the beginning of the financial
year. This reflected mainly the clearance of arrears by the Democratic Republic of Congo
in June 2002 and by the Islamic State of Afghanistan (henceforth Afghanistan) in February
2003. However, the arrears of other countries (with the exception of Sudan) continued
to rise, most notably those of Zimbabwe.
As of April 30, 2003, almost all arrears to the IMF were protracted (outstanding
for more than six months), about evenly divided between overdue principal and overdue
charges and interest. More than four-fifths of arrears were to the GRA and the remainder
to the SDR Department and the PRGF Trust. The two countries with the largest protracted
arrears to the IMF, Sudan and Liberia, account for more than 79 percent of the overdue
financial obligations to the IMF, with Somalia and Zimbabwe accounting for most of the
remainder. Under the IMF’s strengthened cooperative strategy on arrears, remedial
measures have been applied against the countries with protracted arrears to the IMF. No
148
changes were made in the IMF’s strengthened cooperative strategy on arrears during
FY 2003.
During FY 2003, two countries cleared their arrears to the IMF, the Democratic
Republic of Congo and Afghanistan:
• The Democratic Republic of Congo cleared its arrears to the IMF of SDR 404
million ($522 million) on June 12, 2002. Arrears clearance was facilitated by
bridge loans provided by four countries, Belgium, France, South Africa, and
Sweden. Immediately following the clearance of the arrears, the Executive Board
approved a PRGF arrangement for the Democratic Republic of Congo in the
amount of SDR 580 million (109 percent of its quota). Part of the proceeds of
the first PRGF disbursement of SDR 420 million was used to repay in full the
bridge lenders. The Democratic Republic of Congo subsequently cleared its arrears
of SDR 254 million ($338 million) to the World Bank Group. Arrears of SDR
669 million ($860 million) to the African Development Bank Group were handled
in the context of a partial clearance/partial consolidation mechanism.
• On February 26, 2003, Afghanistan settled its overdue financial obligations to
the IMF totaling SDR 8.1 million (about $11.1 million). The settlement of arrears
to the IMF was part of a coordinated plan under which Afghanistan also cleared
arrears to the Asian Development Bank and the International Development
Association. The coordinated arrears-clearance operation was supported by grant
contributions from Italy, Japan, Norway, Sweden, the United Kingdom, and the
Afghanistan Reconstruction Trust Fund.
The Executive Board conducted several reviews of member countries’ overdue
financial obligations to the IMF during FY 2003:
• The Board considered on two occasions the complaint with respect to the
suspension of Liberia’s voting and related rights in the IMF. At its October 9,
2002, meeting, the Board expressed regret at the further accumulation of arrears
to the IMF by Liberia and the limited actions taken by the authorities to improve
economic policy implementation. Nevertheless, the Board decided to defer the
decision on the suspension of voting and related rights by another six months and
to review the matter at the same time it considered the 2002 Article IV consultation
with Liberia. At this second review, on March 5, 2003, the Board found that
Liberia had not adequately strengthened its cooperation with the IMF and decided
to suspend Liberia’s voting and related rights in the IMF.
• The Board reviewed Sudan’s overdue financial obligations twice during FY 2003,
on June 19, 2002, and on December 18, 2002. In June, the Board expressed
regret that Sudan did not make committed payments to the IMF during the last
three months of 2001 but welcomed the corrective action taken in the latter half
of 2001. It noted Sudan’s constrained capacity for debt service and its intention
to maintain a monthly level of payments to the IMF of $2 million. At the December
review, the Board welcomed the policy performance achieved by the Sudanese
authorities under the staff-monitored program for 2002 and noted that Sudan
149
had made payments to the IMF in 2002 in line with its intentions.
• Against the background of mounting arrears and little improvement in economic
policy, the Board imposed further remedial measures on Zimbabwe during FY
2003. On June 13, 2002, it adopted a declaration of noncooperation regarding
Zimbabwe and suspended all technical assistance. At the next review of
Zimbabwe’s arrears on September 11, 2002, the Board decided to initiate promptly
the procedure on the suspension of Zimbabwe’s voting and related rights in the
IMF. On October 25, 2002, the Board noted the Managing Director’s complaint,
dated October 17, 2002, regarding Zimbabwe’s failure to fulfill its obligations to
the IMF. This complaint will be taken up on the occasion of the next review of
Zimbabwe’s arrears to the IMF, at which time the Board will consider whether to
suspend Zimbabwe’s voting and related rights in the IMF.
At the end of April 2003, Liberia, Somalia, Sudan, and Zimbabwe were ineligible
under Article XXVI, Section 2(a) to use the general resources of the IMF. In addition,
Zimbabwe had been removed from the list of PRGF-eligible countries. Declarations of
noncooperation, a further step under the strengthened cooperative arrears strategy, were
in effect for Liberia and Zimbabwe, and the voting and related rights of Liberia in the
IMF were suspended. In two cases (Iraq and Somalia) the application of remedial measures
has been delayed or suspended because of civil conflicts, the absence of a functioning
government, and/or international sanctions.
5.5 IMF’S FINANCIAL OPERATIONS IN FY 2004
International Financial Developments
The key financial developments in FY 2004 included:
• Outstanding IMF credit reached an all-time high in late-2003 but, by the end of FY
2004, it had dropped below the level at the end of FY 2003. This was because the
demand for new lending was restrained in the second half of the financial year, owing
partly to the improving world economic environment, and repayments exceeded
disbursements.
• Credit outstanding continued to be concentrated in a small number of large, middle-
income member countries, raising concerns about financial risks facing the IMF. The
Executive Board reviewed the IMF’s risk-management mechanisms and level of
precautionary balances.
• The IMF continued its efforts to assist its poorest members in reducing their debt
burdens, and initial steps were taken to ensure the continued ability of the IMF to
provide adequate financial resources to low-income countries over the medium term.
Lending
Improving global economic and financial conditions, combined with an accumu-
lation of foreign exchange reserves by many emerging market economies, contributed to
a decline in new IMF commitments, from SDR 29.4 billion in FY 2003 to SDR 14.5
150
billion in FY 2004.
The IMF approved five new Standby Arrangements and one augmentation of an
existing Standby Arrangement involving commitments totaling SDR 14.5 billion. In
addition, Burundi made a small purchase (SDR 9.6 million) under the IMF’s policy of
emergency assistance. No Extended Arrangements were approved and no commitments
were made under the IMF’s Compensatory Financing Facility (CFF) during the year.
Two new large IMF commitments were made during the financial year.
In September 2003, a three-year Standby Arrangement of SDR 9.0 billion was
approved for Argentina in support of the government’s economic program, succeeding
the arrangement that expired in August 2003. In December 2003, the IMF approved a
15-month extension and SDR 4.6 billion augmentation of Brazil’s existing Standby
Arrangement, which was originally approved in September 2002. Together, these two
cases accounted for more than 90 percent of the total new commitments in FY 2004.
Thirteen Standby and Extended Arrangements were in effect as of end-FY 2004,
of which five are being treated as precautionary, with borrowers having indicated that
they do not intend to draw on the funds committed to them by the IMF. These include
Brazil’s arrangement, on which the authorities have not drawn since September 2003 in
light of improvements in the country’s balance of payments position. Drawings were
made under 15 of the 23 Standby and Extended Arrangements in place during the year,
reflecting use of precautionary Standby Arrangements as well as reviews that were not
completed. At the end of April 2004, undrawn balances under the arrangements still in
effect amounted to SDR 19.8 billion.
IMF credit outstanding reached an all-time high of SDR 70 billion in September
2003, with disbursements in the first months of the financial year to Argentina, Brazil,
Indonesia, Turkey, and Uruguay, but declined rapidly in the second half of FY 2004.
During FY 2004, total repayments reached SDR 21.6 billion, including large repayments
by Argentina, Brazil, Russia, and Turkey and advance repayments by Thailand (SDR 0.1
billion), which eliminated its outstanding IMF credit, exceeding the SDR 17.8 billion
disbursed by the IMF in loans from the GRA. As a result, IMF credit outstanding amounted
to SDR 62.2 billion at the end of the financial year, SDR 3.5 billion less than a year
earlier.
During the year, five members, Bosnia and Herzegovina, Brazil, Pakistan,
Romania, and Turkey, made repayments on the expectations schedule in the amount of
SDR 10.8 billion, of which SDR 8.4 billion constituted SRF repayments by Brazil. Six
members requested and were granted extensions of repurchase expectations. As of April
30, 2004, IMF outstanding credit amounting to SDR 30.6 billion was subject to time-
based repurchase expectations under the policies adopted in November 2000.
Resources and Liquidity
The IMF’s lending is financed primarily from the fully paid-in capital (quotas)
subscribed by member countries in the form of reserve assets and currencies. General
reviews of IMF quotas, during which adjustments may be proposed in the overall size
151
and distribution of quotas to reflect developments in the world economy, are conducted
at five-year intervals. A member’s quota can also be adjusted separately from a general
review to take account of major developments.
The IMF’s base of usable resources increased during FY 2004 because Thailand
was considered sufficiently strong for its currency to be included in the IMF’s financial
transactions plan.
The IMF’s liquidity position remained adequate to meet the needs of its members
throughout the year. Following a strengthening in the first part of FY 2004, the one-year
forward commitment capacity of the IMF declined, primarily because of the IMF’s large
new commitments to Argentina and Brazil. It regained some ground toward the end of
the financial year. Overall, the one-year forward commitment capacity fell slightly in FY
2004, to SDR 58 billion on April 30, 2004, compared with SDR 61 billion a year earlier.
Poverty Reduction and Growth Facility
During FY 2004, the Executive Board approved 10 new PRGF arrangements for
Bangladesh, Burkina Faso, Burundi, Dominica, Ghana, Honduras, Kenya, Mauritania,
Nepal, and Tanzania, with commitments totaling SDR 955 million. In addition, the Board
approved an augmentation of the existing arrangements for Madagascar in the amount
of SDR 12.2 million to help the country recover from the economic impact of a cyclone.
Total PRGF disbursements to these countries and other countries with existing
arrangements amounted to SDR 865 million during FY 2004. As of April 30, 2004, 36
member countries’ reform programs were supported by PRGF arrangements, with total
commitments of SDR 4.4 billion.
As of April 30, 2004, SDR 15.8 billion had been made available for PRGF
operations; of this amount, SDR 13 billion had been committed and SDR 11 billion had
been disbursed. It is estimated that the remaining uncommitted SDR 2.7 billion should
cover the projected annual commitments of about SDR 1.3 billion under new PRGF
arrangements through 2005, slightly above the average annual historical commitments.
During FY 2004, the IMF’s Executive Board held discussions on the IMF’s future role
in low-income member countries and explored various financing options to continue the
IMF’s concessional lending after 2005. Most Executive Directors supported an option
that would allow a self-sustained PRGF to begin in 2006, supplementing its lending
capacity with new bilateral loans.
Post-Conflict Emergency Assistance
During FY 2004, one country, Burundi, received SDR 9.6 million in emergency
assistance. As of April 30, 2004, total pledged grant contributions from seven countries
amounted to SDR 11.2 million, of which SDR 9.6 million had been received (Table 7.5).
Thus far, disbursements have totaled SDR 1.9 million to subsidize the rate of charge on
post-conflict emergency assistance for seven countries (Albania, Burundi, the Republic
of Congo, Guinea-Bissau, Rwanda, Sierra Leone, and Tajikistan). Of these, only two
countries, the Republic of Congo and Guinea-Bissau, still have outstanding balances on
post- conflict emergency assistance.
152
In March 2004, the IMF’s Executive Board broadly endorsed a proposal to
subsidize the rate of charge for emergency assistance offered to PRGF-eligible countries
hit by natural disasters, as is currently done for post-conflict PRGF-eligible countries,
provided that resources are available.
Precautionary Balances
Total reserves increased to SDR 5.1 billion as of April 30, 2004, from SDR 4.3
billion a year earlier. The balance in the SCA-1 amounted to SDR 1.5 billion, compared
with overdue principal of SDR 0.7 billion. SCA-1 resources are to be refunded after all
arrears have been cleared but can be refunded earlier by a decision of the Executive
Board. In February 2004, the Executive Board reconfirmed as broadly appropriate the
decision taken in 2002 for a target level of precautionary financial balances of some
SDR 10 billion. It was agreed that the adequacy of the level of precautionary balances
and the pace of accumulation, as well as the application of the burden-sharing mechanism,
will need to be kept under close review.
SDR Developments
Total transfers of SDRs decreased in FY 2004 to SDR 13.8 billion, from SDR
15.6 billion in FY 2003. The largest transfers of SDRs (SDR 49.1 billion) took place in
FY 1999, when the volume of SDR transactions increased significantly because of
members’ payments for quota increases.
By April 30, 2004, the IMF’s own holdings of SDRs, which had risen sharply as
a result of payments for quota subscriptions in 1999, had fallen to SDR 0.5 billion from
about SDR 1.0 billion a year earlier. SDRs held by prescribed holders amounted to SDR
0.4 billion. SDR holdings by participants increased to SDR 20.6 billion from SDR 19.9
billion in FY 2003. SDR holdings of the industrial and net creditor countries relative to
their net cumulative allocation increased from a year earlier. SDR holdings of nonindustrial
members amounted to 76 percent of their net cumulative allocations, compared with 72
percent a year earlier.
Arrears to the IMF
Total overdue financial obligations to the IMF were SDR 2.05 billion at the end
of April 2004, up slightly from SDR 2.01 billion at the beginning of the financial year.
Although Sudan’s arrears to the IMF declined as a result of regular monthly payments in
excess of obligations falling due, overdue financial obligations by the other four countries
with protracted arrears - Iraq, Liberia, Somalia, and Zimbabwe - continued to increase.
As of April 30, 2004, almost all arrears to the IMF were protracted (outstanding for
more than six months), with 45 percent of them representing overdue principal and the
remainder overdue charges and interest. More than four-fifths of arrears were to the
GRA, with the remainder to the SDR Department and the PRGF Trust.
The two countries with the largest protracted arrears - Sudan and Liberia - account
for 77 percent of the overdue financial obligations to the IMF - with Somalia and
Zimbabwe accounting for most of the remainder. Under the IMF’s strengthened
cooperative strategy on arrears, remedial measures have been applied against the countries
153
with protracted arrears to the IMF. No changes were made in the strengthened cooperative
strategy on arrears during FY 2004.
The IMF’s Executive Board reviewed the overall arrears strategy and extended
the rights approach for one more year. (Established in 1990, the rights approach permits
a member to establish a track record on policies and payments to the IMF under a rights
accumulation program and to earn “rights” to obtain IMF resources under successor
arrangements following the completion of the program and settlement of the arrears to
the IMF.) The Board also conducted several reviews of individual member countries’
overdue financial obligations to the IMF during FY 2004.
As of end-April 2004, Liberia, Somalia, Sudan, and Zimbabwe were ineligible
under Article XXVI, Section 2(a) to use the general resources of the IMF. In addition,
Zimbabwe had been removed from the list of PRGF-eligible countries. Declarations of
noncooperation - a further step under the strengthened cooperative arrears strategy -
were in effect for Liberia and Zimbabwe, and the voting and related rights of Liberia and
Zimbabwe in the IMF were suspended. In addition, a complaint with respect to the
compulsory withdrawal of Zimbabwe from the IMF remained outstanding.
5.6 IMF’S FINANCIAL OPERATIONS IN FY 2005
International Financial Developments
The key financial developments in FY 2005 included:
• The IMF initiated a review of its finances and financial structure. This ongoing
review focuses on ways in which the existing financial structure can be
strengthened. In particular, the review is considering measures to enhance, simplify
and increase the transparency of the IMF’s income mechanism and addressing
ways to strengthen the IMF’s financial position through the diversification of
income sources. Measures to modernize the IMF’s internal budgetary procedures
are also ongoing;
• Outstanding IMF credit declined from the previous year’s all-time high, as a
favourable external financing environment for emerging market countries
contributed to a sharp reduction in the demand for IMF credit;
• The IMF continued its efforts to help its poorest members achieve a higher pace
of sustainable economic growth, reduce poverty, and reduce their debt burdens
to sustainable levels. In this context, the IMF considered ways to strengthen its
ability to provide financial resources to low-income countries over the medium
term.
Lending
During FY 2005, IMF credit outstanding declined from its all-time high reached
in FY 2004. At the end of FY 2005, credit outstanding stood at SDR 49.9 billion, down
from SDR 62.2 billion in April 2004. Disbursements during FY 2005 totalled SDR 1.6
billion, the largest disbursements were made to Turkey and Uruguay under their Standby
154
Arrangements. Disbursements totalling SDR 312.9 million were made under Emergency
Post-Conflict Assistance to the Central African Republic, Haiti and Iraq. Disbursements
totalling SDR 110.4 million were made under Emergency Natural Disaster Assistance to
Grenada, Maldives and Sri Lanka.
During FY 2005, total repayments reached SDR 13.9 billion, reflecting large
repayments by Argentina, Brazil, Russia and Turkey. Both Russia and Lithuania repaid
all GRA principal obligations to the IMF; their advance repayments amounted to SDR
2.2 billion in January 2005 and SDR 16 million in February 2005, respectively. Uruguay
also made several advance repayments totalling SDR 438.5 million. As a result, IMF
credit outstanding at the end of FY was SDR 12.3 billion lower than a year earlier.
New IMF commitments declined sharply from SDR 14.5 billion in FY 2004 to
SDR 1.3 billion in FY 2005, in part reflecting favourable financing conditions for emerging
market sovereign borrowers. New IMF commitments made during FY 2005 were small
relative to large commitments made during FY 2004. The largest commitment made
during FY 2005, for the Dominican Republic (SDR 437.8 million), was far less than the
large commitments made during FY 2004 for the Standby Arrangement with Argentina
(SDR 9.0 billion) and for the augmentation of Brazil’s Standby Arrangement (SDR 4.6
billion).
Resources and Liquidity
The IMF’s base of usable resources increased during FY 2005 because Russia
was considered sufficiently strong for its currency to be included in the IMF’s financial
transactions plan. The Fund’s liquidity, as measured by the Forward Commitment Capacity
(FCC), rose to SDR 94.3 billion at the end of April 2005 from SDR 58.1 billion at the
end of April 2004. This was due primarily to the expiration of Brazil’s Standby Arrange-
ment, the rise of usable resources as a result of net repurchases by Argentina, Brazil,
Turkey and Russia, and the inclusion of Russia in the financial transactions plan.
Poverty Reduction and Growth Facility (PRGF)
During FY 2005, the IMF’s Executive Board approved eight new PRGF
arrangements (for Chad, the Republic of Congo, Georgia, Kyrgyz Republic, Mali, Niger,
Mozambique and Zambia), with commitments totalling SDR 434.4 million. In addition,
the Board approved augmentations of the existing arrangements for Bangladesh and
Kenya in the amounts of SDR 53.3 million and SDR 50 million, respectively. Bangladesh’s
augmentation was associated with the first approval under the newly created Trade
Integration Mechanism, while Kenya’s augmentation was in response to drought and the
sharp rise in oil prices. The commitment of Azerbaijan’s PRGF disbursements amounted
to SDR 0.8 billion during FY 2005. As of April 30, 2005, 31 member countries’ reform
programmes were supported by PRGF arrangements, with commitments totalling SDR
2.9 billion and undrawn balances of SDR 1.3 billion; total PRGF credit outstanding as of
the end of April 2005 stood at SDR 6.6 billion.
Post-Conflict Emergency Assistance
As of the end April 2005, 14 member countries had pledged bilateral contribution
155
totalling SDR 35.1 million for the subsidization of emergency assistance. Of this amount,
SDR 23.9 million are new pledges received after the January 2005 decision. On the
other hand, during FY 2005, six countries borrowed under emergency assistance. Three
borrowings were made under Emergency Natural Disaster Assistance (ENDA) - SDR
2.9 million for Grenada in November 2004, SDR 4.1 million for Maldives in March
2005, and SDR 103.4 million for Sri Lanka in March 2005. Another three borrowings
were made under Emergency Post-Conflict Assistance (EPCA) - SDR 5.6 million for
the Central African Republic in July 2004, SDR 297.1 million for Iraq in October 2004
and SDR 10.2 million for Haiti in January 2005.
Precautionary Balances
As of April 30, 2005, the total reserves increased to SDR 5.7 billion from SDR
5.1 billion a year earlier. The balance in the Special Contingent Account (SCA-1)
amounted to SDR 1.6 billion, compared with overdue principal of SDR 0.7 billion. SCA-
1 resources are to be refunded after all arrears have been cleared, but can be refunded
earlier by a decision of the Executive Board. The IMF has set an eventual target level of
precautionary financial balances of SDR 10 billion. The adequacy of precautionary
balances and the pace of accumulation, as well as the application of the burden-sharing
mechanism, is kept under close review.
SDR Developments
Total transfers of SDRs decreased in FY 2005 to SDR 10.6 billion, from SDR
13.8 billion in FY 2004. The largest transfers of SDRs (49.1 billion) had taken place in
FY 1999, when the volume of SDR transactions increased significantly because of
members’ payments for quota increases.
By end of April 2005, the IMF’s own holdings of SDRs, which had risen sharply
as a result of payments for quota subscriptions in 1999 and subsequently fallen to a low
of SDR 0.5 billion in FY 2004, had risen to SDR 0.6 billion. The SDRs held by prescribed
holders amounted to SDR 0.3 billion. The SDR holdings by participants remained
unchanged from Fy 2004 at SDR 20.6 billion. The SDR holdings of the industrial and
net creditor countries relative to their net cumulative allocations decreased from a year
earlier. The SDR holdings of non-industrial members amounted to 96 percent of their
net cumulative allocations, compared with 76 percent a year earlier.
Arrears to the IMF
Total overdue financial obligations to the IMF were SDR 2.0 billion at the end of
April 2005, a slight decline from SDR 2.1 billion at the beginning of the financial year.
The main reason for the decline was Iraq’s settlement of its protracted arrears to the
IMF of SDR 55.3 million on September 22, 2004. Sudan’s arrears to the IMF also declined
as a result of its regular monthly payments in excess of obligations falling due. At the
end of April 2005, most arrears to the IMF were protracted (outstanding for more than
six months), 44.9 percent of which represented overdue principal, with the remainder
consisting of overdue charges and interest. More than four-fifths of arrears were to the
General Reserves Account (GRA) and the remainder to the SDR Department and the
156
PRGF Trust.
As of the end of April 2005, Liberia, Somalia, Sudan and Zimbabwe were ineligible
under Article XXVI, Section 2(a) to use the general resources of the IMF. In addition,
Zimbabwe had earlier been removed from the list of PRGF-eligible countries. Declarations
of non-cooperation, a further step under the strengthened cooperative arrears strategy,
were in effect for Liberia and Zimbabwe and their voting and related rights in the IMF
were suspended. In addition, a complaint with respect to the compulsory withdrawal of
Zimbabwe from the IMF remained outstanding.
5.7 IMF’S FINANCIAL OPERATIONS IN FY 2006
International Financial Developments
The key financial developments in FY 2006 included:
• Outstanding IMF credit declined to low levels as a favourable external financing
environment for emerging market countries contributed to a sharp reduction in
the demand for IMF credit and to the early repayment of outstanding IMF credit
by a number of large borrowers;
• The decline in credit outstanding led to a corresponding drop in IMF income, the
main source of which is the interest charged on loans. In response, the IMF initiated
steps to develop a stable and diversified income base that is less dependent on its
lending operations. The IMF’s Executive Board established an Investment Account
to enable the IMF to invest its reserves, thereby broadening the sources and
increasing the level of its income. Further steps to strengthen the IMF’s financial
structure and enhance its income-generating capacity are being considered in the
context of an ongoing review of the IMF’s finances.
• Major initiatives were introduced that enhance the ways in which the IMF helps
its low-income members achieve faster economic growth, reduce poverty, decrease
their debt burdens, and address the impact of adverse shocks. These initiatives
include the establishment of the Exogenous Shocks Facility and the Multilateral
Debt Relief Initiative.
Lending
During FY 2006, repayments on loans increased sharply, to SDR 32.8 billion.
Many countries - Algeria, Argentina, Armenia, Brazil, the Republic of Congo, Georgia,
Papua New Guinea, Uzbekistan and Zimbabwe repaid all of their GRA obligations to
the IMF; some ahead of schedule. Advance repayments totalling SDR 21.9 billion were
made by Algeria (SDR 246 million, Argentina (SDR 6.7 billion), Brazil (SDR 14.2 billion),
Bulgaria (SDR 249 million), and Uruguay (SDR 519 million).
Disbursements during the financial year were relatively low, totalling SDR 2.2
billion, the bulk of which was disbursed to Turkey under its Standby Arrangement. In
addition, Emergency Post-Conflict Assistance disbursements totalling SDR 17.2 million
were made to the Central African Republic and Haiti.
157
Reflecting the high level of net repayments, IMF credit outstanding at the end of
FY 2006 stood at SDR 19.2 billion, a 25-year low, compared with SDR 49.9 billion in
April 2005. New IMF commitments rose sharply, from SDR 1.3 billion in FY 2005 to
SDR 8.4 billion in 2006, largely reflecting the Standby Arrangement of SDR 6.7 billion
approved for Turkey in May 2005. The IMF approved a total of five new Standby
Arrangements and one augmentation of an existing Standby arrangement. In addition,
one Extended Arrangement was approved for Albania. Haiti and the Central African
Republic made borrowings under the Emergency Post-Conflict Assistance (EPCA). No
commitments were made under the IMF’s Supplemental Reserve Facility (SRF) and
Compensatory Financing Facility (CFF) during the year.
Eleven Standby and Extended Arrangements were in effect as of the end of FY
2006, of which seven were being treated as precautionary, with borrowers having indicated
that they do not intend to draw on the funds committed to them by the IMF. At the end
of April 2006, undrawn balances under all arrangements still in effect amounted to SDR
7.5 billion.
Resources and Liquidity
The IMF’s liquidity, as measured by the Forward Commitment Capacity (FCC),
rose to an all time high of SDR 120.1 billion at the end of April 2006, from SDR 94.3
billion at the end of April 2005.
Poverty Reduction and Growth Facility (PRGF)
During FY 2006, the IMF approved seven new PRGF arrangements (for Albania,
Armenia, Benin, Cameroon, Malawi and Sao Tome and Principe), with commitments
totalling SDR 107.9 million. In addition, it also approved the augmentation of an existing
arrangement for Niger for SDR 19.7 million to help the country recover from the economic
impact of a severe drought and terms of trade deterioration. Total PRGF disbursements
amounted to SDR 0.4 billion during FY 2006. As of April 30, 2006, 27 member countries’
reform programmes were supported by PRGF arrangements, with commitments totalling
SDR 1.8 billion and undrawn balances of SDR 0.7 billion; total PRGF credit outstanding
as of end-April 2006 stood at 3.8 billion.
Emergency Assistance
As of end-April 2006, 17 member countries had pledged bilateral contributions
totalling SDR 40.3 million for the subsidization of emergency assistance. New pledges
received after the January 2005 decision accounted for SDR 29.1 million of this amount.
Of this overall total, SDR 9.7 million for the subsidization of EPCA only, SDR 17.6
million for the subsidization of ENDA only, and SDR 13.0 million can be used for the
subsidization of either kind of emergency assistance.
During FY 2006, two countries borrowed under emergency assistance. Both
borrowings were made under EPCA, SDR 10.2 million for Haiti in October 2005 and
SDR 7 million for the Central African Republic in January, 2006.
158
Table 5.3
Global Official Holdings of Reserve Assets by the IMF Members
(in billions of SDRs, end of year figures)
Particulars 2001 2002 2003 2004 2005 2006 2007All countries
Total Reserves, excluding Gold
IMF-related assets1
Reserve positions in IMF 56.9 66.1 66.5 55.8 28.6 17.5 15.6
SDRs 19.6 19.7 19.9 20.3 20.1 18.2 18.3
Subtotal, IMF-related assets 76.4 85.7 86.4 76.1 48.6 35.7 34.0
Foreign Exchange 1,631.3 1,771.7 2,036.2 2,413.8 2,921.0 3,348.0 3,508.4
Total Reserves, excluding Gold 1,707.7 1,857.5 2,122.8 2,490.1 2,969.7 3,384.2 3,542.7
Gold
Quantity (millions of ounces) 943.6 931.7 914.0 897.0 878.4 867.9 864.8
Value at London Market Price 207.6 234.9 256.7 253.0 315.3 366.7 378.9
Total Reserves, including Gold 1,915.3 2,092.4 2,379.4 2,743.1 3,285.0 3,750.9 3,921.7
Industrial Countries
Total Reserves, excluding Gold
IMF-related assets
Reserve positions in the IMF 47.0 53.7 52.6 43.6 21.0 11.9 10.4
SDRs 16.0 15.8 15.3 15.3 12.4 13.5 13.5
Subtotal, IMF-related assets 62.9 69.5 67.9 58.9 33.4 25.4 23.9
Foreign Exchange 628.2 666.1 754.4 848.9 906.1 927.2 940.4
Total Reserves, excluding Gold 691.2 735.8 822.6 908.0 939.7 953.0 964.7
Gold
Quantity (millions of ounces) 783.8 770.1 754.5 740.8 723.9 712.9 710.6
Value at London Market Price 172.4 194.1 211.9 208.9 259.8 301.2 311.4
Total Reserves, including Gold 863.7 930.0 1,034.5 1,116.9 1,199.6 1,254.2 1,276.1
Developing Countries
Total Reserves, excluding Gold
IMF-related assets
Reserve positions in the IMF 9.9 12.3 13.9 12.2 7.6 5.6 5.2
SDRs 3.6 3.9 4.6 5.0 7.6 4.8 4.8
Subtotal, IMF-related Assets 13.5 16.2 18.5 17.2 15.2 10.4 10.1
Foreign Exchange 1,003.1 1,105.6 1,281.7 1,564.9 2,014.9 2,420.8 2,568.0
Total Reserves, excluding Gold 1,016.5 1,121.7 1,300.2 1,582.1 2,030.0 2,431.2 2,578.0
Gold2
Quantity (millions of ounces) 159.8 161.7 159.5 156.1 154.5 155.0 154.2
Value at London Market Price 35.2 40.8 44.8 44.0 55.4 65.5 67.6
Total Reserves, including Gold 1,051.7 1,162.5 1,345.0 1,626.1 2,085.4 2,496.7 2,645.6
Source: International Monetary Fund (2007): “International Financial Statistics”.
Note: Components may not sum to totals because of rounding.
1. IMF-related assets compise reserve positions in the IMF and SDR holdings of all IMF members.
Foreign exchange and gold figures represent official holdings of IMF members for which data
are available from the members.
2. One troy ounce equals 31.103 grams. The market price is the afternoon price fixed in London
Metal Exchange on the last business day of each period.
159
Table 5.4
Share of Currencies in Total Identified Official Holdings of Foreign Exchange
by the IMF Members, end of year1
(in percent)
Particulars 2001 2002 2003 2004 2005 2006
All Countries
U.S.dollar 71.5 67.0 65.9 65.8 66.7 64.7
Japanese yen 5.1 4.4 3.9 3.9 3.6 3.2
Pound sterling 2.7 2.8 2.8 3.4 3.6 4.4
Swiss franc 0.3 0.4 0.2 0.2 0.1 0.2
Euro2 19.2 23.8 25.2 24.9 24.2 25.8
Other currencies3 1.3 1.6 2.0 1.9 1.7 1.7
Industrial Countries
U.S.dollar 72.7 68.9 70.5 71.5 73.6 71.9
Japanese yen 5.5 4.3 3.8 3.6 3.4 3.5
Pound sterling 1.9 2.1 1.5 1.9 2.1 2.5
Swiss franc 0.3 0.6 0.2 0.1 0.1 0.2
Euro2 17.9 22.3 21.9 20.8 19.0 20.4
Other currencies3 1.6 1.8 2.0 2.1 1.6 1.4
Developing Countries
U.S.dollar 70.2 65.2 61.3 60.2 61.0 59.7
Japanese yen 4.6 4.4 4.0 4.1 3.7 2.9
Pound sterling 3.5 3.5 4.0 4.9 4.9 5.8
Swiss franc 0.2 0.2 0.2 0.2 0.2 0.1
Euro2 20.5 2.3 28.5 29.0 28.5 29.6
Other currencies3 1.0 1.3 2.0 1.6 1.7 1.9
Memorandum Items
Unallocated reserves4
All countries 23.6 25.5 26.6 29.5 32.4 33..9
Industrial countries 0.1 0.3 0.2 0.2 0.3 0.3
Developing countries 38.1 40.6 41.9 45.3 46.7 46.6
Source: International Monetary Fund (2007): “International Financial Statistics”.
Note: Components may not sum to total because of rounding. Country coverage changes slightly
every year.
1. Currency shares are calculated for the reserves of member countries that report the currency
composition of their foreign exchange reservs. The data include minimal estimation undertaken
mainly for late reporters. Reserves for which curency composition is not reported are shown
under ‘unallocated reserves’.
2. Not comparable with the combined shre of euro-legacy currencies in previous years because it
excludes the euros received by euro-area members when their previous holdings of other euro-
area members’ legal currencies were converted into euros on January 1, 1999.
3. Foreign exchange reserves of IMF members and the sum of reserves reported to be held in
currencies other than those listed in the Table.
4. Foreign exchange reserves whose currency composition is not submitted to the IMF, in percent
of total official holdings of foreign exchange reserves.
160
Table 5.5
Currency Composition of Official Holdings of Foreign Exchange
by the IMF Members, end of year1
(in million SDRs)
Particulars 2001 2002 2003 2004 2005 2006U.S.dollar
Change in holdings 63,779 -6,614 100,191 134,565 198,696 115,348
Quantity change 33,108 63,318 184,717 184,681 99,524 185,608
Price change 30,671 -69,932 -84,525 -50,115 99,173 -70,260
Year-end value 891,186 884,573 984,764 11,19,329 13,18,025 14,33,373
Japanese yen
Change in holdings -7,658 -5,534 1,476 6,585 5,663 -529
Quantity change -963 -6,411 205 7,637 8,656 3,494
Price change -6,694 877 1m271 -1,052 -2,993 -4,023
Year-end value 63,012 57,478 58,954 65,539 71,202 70,673
Pound sterling
Change in holdings 1,659 3,432 4,289 16,108 13,960 26,606
Quantity change 1,409 2,464 3,775 14,487 16,098 19,487
Price change 249 968 513 1,620 -2,137 7,119
Year-end value 33,737 37,169 41,458 57,565 71,526 98,132
Swiss franc
Change in holdings 342 1,901 -2,005 -530 54 1,015
Quantity change 308 1,400 -2,106 -661 243 938
Price change 34 502 102 131 -189 77
Year-end value 3,479 5,380 3,375 2,845 2,899 3,914
Euro2
Change in holdings 26,423 74,819 62,014 47,411 54,327 93,079
Quantity change 30,133 48,525 28,355 33,956 81,628 62,561
Price change -3,710 26,294 33,659 13,456 -27,300 30,517
Year-end value 2,39,487 3,14,306 3,76,320 4,23,731 4,78,058 5,71,137
Sum of the above3
Change in holdings 84,545 68,005 1,65,965 2,04,139 2,72,701 2,35,518
Quantity change 63,995 1,09,296 2,14,945 2,40,099 2,06,147 2,72,088
Price change 20,550 -41,292 -48,980 -35,960 66,553 -36,570
Year-end value 12,30,901 12,98,906 14,64,871 16,69,010 19,41,711 21,77,228
Other holdings
Change in holdings -1,489 4,570 8,964 2,472 1,025 3,611
Year-end value 15,949 20,519 29,483 31,955 32,980 36,591
Total official holdings4
Change in holdings 1,44,926 1,40,400 2,64,501 3,77,670 5,07,111 4,27,063
Year-end value 16,31,268 17,71,669 20,36,169 24,13,839 29,20,950 33,48,013Source: International Monetary Fund (2007): “International Financial Statistics”.
Note: Components may not sum to total because of rounding. Country coverage changes slightly every year.
1. The currency composition of official foreign exchange reserves as reported by countries, including minimal
estimation undertaken mainly for late reporters. Quantity changes are derived by multiplying the changes in
official holdings of each currency from the end of one quarter to the next by the average of the two SDR
prices of that currency prevailing at the corresponding dates. This procedure converts the change in the
quantity of national currency from own units to SDR units. Subtracting the SDR value of the quantity change
so derived rom the quarterly change in the SDR value of foreign exchange held at the end of two successive
quarters and cumulating these differences yields the effect of price changes over the years shown.
2. Represents change from end-1998 holdings of euro-legacy currencies by official institutions outsideeuro
area.
3. Each item represents the sum of the currencies above.
4. Includes ‘Unallocated reserves’ whose currency composition could not be ascertained.
161
Precautionary Balances
Total reserves increased to SDR 6 billion as of April 30, 2006, from SDR 5.7
billion a year earlier. The balance in the SCA-1 amounted to SDR 1.7 billion, compared
with overdue principal of SDR 0.6 billion.
SDR Operations
The total level of transfers of SDRs increased in FY 2006 to SDR 13 billion,
from SDR 10.6 billion in FY 2005. By April 30, 2006, the IMF’s own holdings of SDRs
had increased to SDR 3.6 billion from SDR 0.6 billion at end-FY 2005, as a result of
advance repayments of financial obligations from several members. SDRs held by
prescribed holders amounted to SDR 0.3 billion. SDR holdings by participants decreased
to SDR 17.5 billion from SDR 20.6 billion in FY 2005.
Arrears to the IMF
Overdue financial obligations to the IMF totalled SDR 1.9 billion at end-April
2006, a slight decline from SDR 2 billion at the beginning of the financial year. The main
reason for the decline was Zimbabwe’s clearance of its arrears to the IMF’s General
Resources Account (GRA) in February 2006. Sudan’s arrears to the IMF also declined
as a result of its regular monthly payment in excess of obligations falling due. At end-
April 2006, virtually all arrears to the IMF were protracted (outstanding for more than
six months), 41 percent of which represented overdue principal, with the remainder
consisting of overdue charges and interest. More than four-fifths of arrears were to the
GRA and the remainder to the SDR Department and the PRGF-ESF Trust.
As of end-April 2006, Liberia, Somalia, Sudan and Zimbabwe were ineligible
under Article XXVI, Section 29(a) to use the General Resources of the IMF. In addition,
Zimbabwe had earlier been removed from the list of PRGF-eligible countries. Declarations
of non-cooperation were in effect for Liberia and Zimbabwe, and the voting and related
rights of those two countries in the IMF were suspended.
5.8 IMF’S FINANCIAL OPERATIONS IN FY 2007
International Financial Developments
The key financial developments in FY 2007 included:
• Global economic growth accelerated to 5.4 percent in 2006, up from 4.9 percent
in 2005, marking the fourth successive year of a strong global expansion.
Moreover, the expansion became better balanced, as a slowing in the US economy
was offset by firming of growth elsewhere. Emerging market countries grew
particularly fast, supported by benign international financial conditions and, in
many cases, high commodity prices. Inflation in the advanced economies declined
in the second half of 2006 as oil prices fell from a peak in August.
• Current account imbalances continued to be large. The external deficit of the US
stabilized at 6.5 percent of GDP in 2006, with a marked narrowing toward the
end of the year. The surpluses of the oil-exporting and East Asian countries
162
continued to rise, while deficits grew in both western and emerging Europe and
in rapidly growing emerging market economies such as India.
Lending
The IMF’s credit outstanding at the end of FY 2007 declined to SDR 7.3 billion
from SDR 19.2 billion in April 2006, owing to continued early repayments of outstanding
loans and a low level of new disbursements. During FY 2007, nine members - Bulgaria,
the Central African Republic, Ecuador, Haiti, Indonesia, Malawi, the Philippines, Serbia,
and Uruguay - repaid their outstanding obligations to the IMF ahead of schedule, for a
total of SDR 7.1 billion. The IMF disbursements totalled SDR 2.3 billion, the bulk of
which went to Turkey.
New IMF commitments fell sharply, from SDR 8.3 billion in FY 2006 to SDR
237 million in FY 2007, with two new Standby Arrangements approved for Paraguay
and Peru. Seven Standby and Extended Arrangements were in effect as of the end of FY
2007, of which four were being treated as precautionary since borrowers had indicated
their intention not to draw on them. At the end of April 2007, undrawn balances under
all current Standby and Extended Arrangements amounted to SDR 3.9 billion.
Financial Operations
The IMF’s income in FY 2007 fell SDR 111 million short of expenditures. The
net income shortfall largely reflects a substantial decline in IMF credit outstanding, from
a peak of SDR 70 billion in September 2003 to SDR 7.3 billion at the end of FY 2007,
owing to low demand for new IMF credit and advance repayments by some members in
recent years. The income shortfall will be offset against the Fund’s reserves (retained
earnings), which amount to some SDR 6 billion at the end of FY 2007.
The IMF has taken a number of steps to strengthen its income position. The
Board’s establishment of an Investment Account in April 2006 and its funding with SDR
5.9 billion in June 2006 were the first steps in diversifying the IMF’s resources of income.
Arrears to the IMF
Overdue financial obligations to the IMF totalled SDR 1.88 billion at the end of
April 2007, 83 percent of which was accounted for by Sudan and Liberia; Somalia and
Zimbabwe accounted for the balance. At end-April 2007, all arrears to the IMF were
protracted; 39 percent represented overdue principal, and the rest, overdue charges and
interest. More than four-fifths represented arrears to the GRA, while the remainder
represented arrears to the SDR Department Trust Fun and the PRGF-ESF Trust.
Zimbabwe is the only country with protracted arrears to the PRGF-ESF Trust.
Under the IMF’s strengthened cooperative strategy on arrears, remedial measures
have been applied against countries with protracted arrears. As of the end of financial
year, Liberia, Somalia, Sudan and Zimbabwe remained ineligible to use GRA resources.
Zimbabwe continued to be excluded from the list of PRGF-eligible countries and is
subject to a declaration of non-cooperation. In view of Liberia’s strengthened cooperation
with the Fund, on October 2, 2006, the Executive Board decided to initiate the de-
163
escalation of the remedial measures that had been applied against Liberia and lifted the
declaration of non-cooperation.
5.9 INTERNATIONAL LIQUIDITY (2001-2007)
The three Tables on the following pages present the international liquidity situation during
the study period (2001-2007). Table 5.1 gives the details of the global official holdings
of reserve assets by the IMF members; Table 5.2 shows the shares of currencies in total
identified official holdings of foreign exchange by the IMF members; and Table 5.3
describes the currency composition of official holdings of foreign exchange by the IMF
members. Based on the data presented in these Tables, an interpretation of the year-wise
international liquidity is being offered in the subsequent pages.
5.9.1 International Liquidity in FY 2001
International Reserves
Total international reserves, including gold, increased by 11 percent during 2000
and stood at SDR 1.7 trillion at the end of FY 2001. Total non-gold reserves grew by 12
percent, the result of a 14 percent rise in foreign exchange reserves (the largest component
of official reserve holdings), to SDR 1.5 trillion, and a 10 percent fall in IMF-related
assets, to SDR 66 billion. The market value of gold held by monetary authorities (central
banks, currency boards, exchange stabilization funds and treasuries) declined by 2 percent,
to SDR 200 billion at the end of 2000.
Foreign Exchange Reserves
Ninety-six percent of non-gold assets consisted of foreign exchange reserves at
the end of 2000. Industrial countries increased their foreign exchange reserve holdings
by 13 percent, to SDR 862.1 billion. The foreign exchange reserves of developing
countries rose by 14 per cent during 2000, to SDR 876 billion. Developing countries
have steadily increased their share of foreign exchange holdings; at the end of 2000,
their share represented 60 percent of total foreign exchange reserves.
Oil-exporting developing countries, which hold about 10 percent of all developing
countries’ foreign exchange reserves, increased their foreign exchange reserves by 22
percent in 2000. Foreign exchange reserves of net debtors without debt-servicing problems
increased by 15 per cent, to SDR 558 billion, while those of countries with debt-servicing
problems increased by 8 percent, to SDR 133 billion.
Holdings of IMF-related Assets
During 2000, total holdings of IMF-related assets (that is, reserve positions in
the IMF and SDRs) fell by 10 percent, following a comparable decline in the previous
year. Industrial countries hold a majority of IMF-related assets, 82 percent at the end of
2000. The fall in IMF-related assets was attributable to a 14 percent decline in members’
reserve positions in the IMF, which consist of members’ reserve tranche and creditor
positions, to SDR 47 billion. SDR holdings of IMF members remained virtually unchanged
from end-1999, at SDR 19 billion.
164
Gold Reserves
The market value of old reserves declined by 2 percent during 2000, to SDR
2000 billion. This primarily reflects a decrease in the physical stock of gold, as the SDR
price of gold fell only slightly. The share of gold in officially held reserves declined
gradually to 12 percent at the end of 2000 from about 50 percent at the end of 1980.
Most of the gold constituted 21 percent of these countries’ total reserves at the end of
2000.
Currency Composition of Foreign Exchange Reserves
The currency composition of foreign exchange reserves changed gradually over
the past decade, with holdings of US dollars, the dominant international reserve currency,
rising to 68 percent of foreign exchange reserves at the end of 2000 from 51 percent
nine years earlier. The euro, which replaced 11 European currencies and the European
currency unit (ecu), on January 1, 1999, was the second most important reserve currency.,
accounting for 13 percent of total foreign exchange reserves. The share of the euro
remained nearly unchanged from the end of 1999. Since, at the introduction of the euro,
the Eurosystem’s reserves previously denominated in euro legacy currencies (former
national currencies) became domestic assets of the euro area, the share of the euro in
1999-2000 is not directly comparable with the previous years’ combined share of the
four euro legacy currencies: deutsche mark, French franc, Netherland’s guilder and private
ecu. However, after adjusting, the data take into account only holdings of these currencies
outside the euro area, their combined share in 1998 was virtually identical to the share
of the euro in 1999.
The share of the Japanese yen in total foreign exchange reserves declined steadily
from 9 percent at the end-1991 to 5 percent at the end of 1997, and since then stayed at
about that level. Throughout the past decade, the share of pound sterling has remained
at between 3 and 4 percent and that of the Swiss franc at approximately 1 percent. The
share of unspecified currencies as well as foreign exchange reserves for which no
information on currency composition is available, stood at 9 percent at the end of 2000.
For industrial countries, the share of the US dollar increased throughout the
1990s to peak at 74 percent in 1999; at the end of 2000, its share was 73 percent. The
share of the euro in those countries’ foreign exchange reserves declined by half a
percentage point, to 10 percent, while the shares of Japanese yen, pound sterling, and
Swiss franc were unchanged from the previous year’s levels. The share of unspecified
currencies increased by one percentage point, to 8 percent in 2000.
The share of the US dollar in developing countries’ foreign exchange reserves
was 64 percent in 2000, a level that has remained relatively constant over the last decade.
Since 1999, the share of the euro increased by about 1 percentage point, to 15 percent.
The shares of the Japanese yen, pound sterling and the Swiss franc remained close to
their previous year’s levels at 4 percent, 5 percent and 1 percent, respectively. Unspecified
currencies accounted for 10 percent of developing countries’ foreign exchange reserves
in 2000.
165
Changes in the SDR value of foreign exchange reserves can be decomposed into
quantity and valuation (price) changes. Official reserves held in US dollars increased by
SDR 114 billion in 2000, which reflects an increase of SDR 68 billion in the quantity of
US dollar holdings and a valuation increase of SDR 46 billion. The SDR 27 billion
increase in the quantity of euro holdings was partly offset by a price decline of SDR 3
billion, resulting in a net increase of SDR 24 billion in 2000. Similarly, quantity increases
in both Japanese yen and pound sterling holdings were offset to some extent by valuation
declines, resulting in net increase of SDR 7 billion and SDR 4 billion, respectively. The
SDR 2 billion increase in Swiss franc holdings mostly reflects a quantity change.
5.9.2 International Liquidity in FY 2002
International Reserves
Total international reserves, including gold, increased by 9 percent during 2001
and stood at SDR 1.9 trillion at the end of FY 2002. Foreign exchange reserves, which
constitute the largest component of official reserve holdings, grew by 9 percent, to SDR
1.6 trillion. IMF-related assets, which make up the rest of non-gold reserves, increased
by 16 percent, to SDR 76 billion. The market value of gold held by monetary authorities
increased by 2 percent in 2001, to SDR 203 billion at year-end.
Foreign Exchange Reserves
Ninety-six percent of non-gold assets consisted of foreign exchange reserves at
the end of 2001. The developing countries, which held 62 percent of all foreign exchange
reserves at the end of 2001, increased their holdings by 13 percent, to SDR 1 trillion,
following comparable increases in the previous two years. During 2001, the foreign
exchange holdings of industrial countries rose by 4 percent, to SDR 617 billion.
In 2001, the oil-exporting developing countries, which hold about 10 percent of
all developing countries’ foreign exchange reserves, increased their foreign exchange
assets by 7 percent, following increases of 15 percent and 28 percent in the two preceding
years. Foreign exchange reserves of the net creditor developing countries rose by 9
percent, to SDR 201 billion, and those of net debtor countries grew by 14 percent to
SDR 799 billion at the end of 2001. Foreign exchange reserves of net debtors without
debt-servicing problems increased by 16 percent, to SDR 659 billion, while those of
countries with debt-servicing problems increased by 6 percent, to SDR 140 billion.
Holdings of IMF-related Assets
During 2001, total IMF-related assets increased by 16 percent, following declines
of 10 percent in each of the previous two yeas. Industrial countries hold a majority of
IMF-related assets: 82 percent at the end of 2001. The increase in IMF-related assets
was mainly attributable to a 20 percent growth in members’ reserve positions in the
IMF, which consist of members’ reserve tranche and creditor positions, to SDR 57 billion.
SDR holdings of IMF members increased by 6 percent, to SDR 20 billion, reflecting a
decline in holdings by the IMF and other prescribed holders.
Gold Reserves
166
The market value of gold reserves increased by 2 percent, to SDR 203 billion,
reflecting an increase of 3 percent in the SDR price of gold in 2001; the physical stock of
official gold declined by one percent. The share of gold in officially held reserves has
declined gradually to 11 percent at the end of 2001, whereas in the early 1980s, gold
represented about half of all official held reserves. Most of the gold reserves (83 percent)
are held by industrial countries: gold constituted 20 percent of these countries’ total
reserves at the end of 2001. Gold reserves accounted for 3 percent of the total reserves
of the developing countries.
Currency Composition of Foreign Exchange Reserves
The currency composition of foreign exchange reserves has changed gradually
over the past decade, with the share of US dollar holdings in foreign exchange reserves
rising from 55 percent in 1992 to 68 percent in 1999 and staying at that level through the
end of 2001. The share of the euro has stayed effectively unchanged sine 1999. The
share of the Japanese yen in total foreign exchange reserves declined from 8 percent at
end-1992 to 5 percent at the end of 1997, and has since stayed at about that level through
2001. During the past decade, the share of pound sterling has remained between 3 and 4
percent and that of the Swiss franc at approximately 1 percent. The share of unspecified
currencies as well as foreign exchange reserves for which no information on currency
composition is available, has remained at 9 percent sine the end of 1998.
For industrial countries, the share of US dollar holdings increased throughout
the 1990s to reach 74 percent in 1999, and increased slightly to 75 percent at the end of
2001. The shares of the euro and the Japanese yen in those countries’ foreign exchange
reserves declined by less than one percentage point each from the preceding year, to 10
percent and 6 percent, respectively. Shares of pound sterling and the Swiss franc have
been practically unchanged over the past ten years. The share of unspecified currencies
stood at 8 percent in 2001.
The share of the US dollar in developing countries’ foreign exchange reserves
was 64 percent in 2001, a level that has remained relatively constant over the last decade.
Holdings of the euro accounted for 15 percent of those countries’ foreign exchange
reserves, a level unchanged from the previous year and one percentage point higher than
its share in 1999. During the past decade, the share of the Japanese yen has gradually
decreased by about 3 percentage points, to 5 percent at the end of 2001, while the share
of pound sterling has increased by about 2 percentage points, to 6 percent. The share of
the Swiss franc has remained virtually unchanged at 1 percent since 1997. Unspecified
currencies accounted for 10 percent of developing countries’ foreign exchange reserves
in 2001.
Changes in the SDR value of foreign exchange reserves can be decomposed into
quantity and valuation (price) changes. Official reserves held in US dollars increased by
SDR 87 billion in 2001, which reflects an increase of SDR 51 billion in the quantity of
US dollar holdings and a valuation increase of SDR 35 billion. The SDR 19 billion
increase in the quantity of euro holdings was partly offset by a price decline of SDR 3
billion, resulting in a net increase of SDR 16 billion in 2001. Similarly, a quantity increase
167
of SDR 9 billion in Japanese yen holdings was offset considerably by a SDR 7 billion
valuation decline, resulting in a net increase of SDR 2 billion. Increases in pound sterling
and Swiss franc holdings of SDR 8 billion and SDR 1 billion, respectively, are to a large
extent, attributable to changes in quantity.
5.9.3 International Liquidity in FY 2003
International Reserves
Total international reserves, including gold, increased by 9 percent during 2002
and stood at SDR 2.1 trillion at the end of the year. Foreign exchange reserves, which
constitute the largest component of official reserve holdings, grew by 8 percent, to SDR
1.8 trillion. IMF-related assets, which make up the rest of non-gold reserves, increased
by 12 percent, to SDR 86 billion. The market value of gold held by monetary authorities
increased by 13 percent in 2002, to SDR 235 billion at year-end.
Foreign Exchange Reserves
Foreign exchange reserves represented 95 percent of non-gold assets at the end
of 2002. The developing countries, which held 63 percent of all foreign exchange reserves
at the end of 2002, increased their holdings by 10 percent, to SDR 1.1 trillion, following
comparable increases in the previous two years. During 2002, the foreign exchange
holdings of industrial countries rose by 5 percent, to SDR 653 billion. In 2002, the
foreign exchange assets of the oil-exporting developing countries, which amount to about
10 percent of all developing countries’ foreign exchange reserves, declined by 2 percent,
to SDR 103 billion. Foreign exchange reserves of the net creditor developing country
group rose by 11 percent, to SDR 222 billion, and those of net debtor countries grew by
10 percent, to SDR 889 billion at the end of 2002. Foreign exchange reserves of net
debtors without debt-servicing problems increased by 13 percent, to SDR 753 billion,
while those of countries with debt-servicing problems decreased by 4 percent, to SDR
136 billion.
Holdings of IMF-Related Assets
During 2002, total IMF-related assets (that is, reserve positions in the IMF and
SDRs) increased by 12 percent, following an increase of 16 percent in the preceding
year. Industrial countries hold a majority of IMF-related assets: 81 percent at the end of
2002. The increase in IMF-related assets was attributable mainly to a 16 percent growth
in members’ reserve positions in the IMF, which consist of members’ reserve tranche
and creditor positions, to SDR 66 billion. SDR holdings of IMF members have remained
broadly constant at SDR 20 billion.
Gold Reserves
The market value of gold reserves increased by 13 percent, to SDR 235 billion,
reflecting an increase of 14 percent in the SDR price of gold in 2002; the physical stock
of official gold declined by 1 percent. The share of gold in officially held reserves declined
gradually to 11 percent by the end of 2002, whereas in the early 1980s gold comprised
about half of all officially held reserves. Most of the gold reserves (83 percent) are held
168
by industrial countries: gold constituted 21 percent of these countries’ total reserves at
the end of 2002. Gold reserves accounted for 4 percent of the total reserves of the
developing countries.
Developments During the First Quarter of 2003
During the first quarter of 2003, total reserve assets rose by SDR 43 billion,
whereas foreign exchange reserves increased by SDR 50 billion over the same period.
Reflecting a decline in the SDR price of gold since the end of 2002, the market value of
gold reserves declined by SDR 9 billion during the first quarter of 2003, while the physical
stock of official gold declined by SDR 4 billion. Holdings of IMF-related assets increased
by SDR 2 billion.
Currency Composition of Foreign Exchange Reserves
The currency composition of foreign exchange reserves has changed gradually
over the past decade, with the share of U.S. dollar holdings in foreign exchange reserves
rising from 57 percent in 1993 to 68 percent in 1999 and staying at that level through the
end of 2001. In 2002, however, the share of U.S. dollar holdings declined slightly, to 65
percent, with euro holdings gaining share.
The euro accounted for 15 percent of total foreign exchange reserves in 2002,
somewhat higher than its average since 1999. Given that, at the introduction of the euro,
the Eurosystem’s reserves previously denominated in euro legacy currencies, became
domestic assets of the euro area, the share of the euro in 1999–2002 is not directly
comparable with the previous years’ combined share of the four euro legacy currencies.
- deutsche mark, French franc, Netherlands guilder, and private ecu. However, after
adjusting the data to take into account only holdings of these currencies outside the euro
area, their combined share in 1998 was virtually identical to the share of the euro in
1999.
The share of the Japanese yen in total foreign exchange reserves declined from 8
percent at end-1993 to 5 percent at the end of 1997 and stayed at about that level
through 2002. During the past decade, the share of pound sterling has remained around
3 and 4 percent, and that of the Swiss franc approximately 1 percent. The share of
unspecified currencies, which include currencies, as well as foreign exchange reserves
for which no information on currency composition is available, rose to 11 percent in
2002.
For industrial countries, the share of U.S. dollar holdings increased throughout
the 1990s to reach 73 percent in 2001 and declined to 70 percent at the end of 2002. The
shares of the euro in those countries’ foreign exchange reserves rose to 11 percent in
2002, whereas that of the Japanese yen declined by less than 1 percentage point. Shares
of pound sterling and the Swiss franc have been practically unchanged over the past ten
years, but the share of unspecified currencies rose to 11 percent in 2002.
The share of the U.S. dollar in developing countries’ foreign exchange reserves
declined to 61 percent in 2002, at the lower end of historical values over the past decade.
Holdings of the euro rose to 17 percent of those countries’ foreign exchange reserves, 1
169
percentage point higher than its share in 2001. During the past decade, the share of the
Japanese yen has gradually decreased by about 3 percentage points, to 4 percent at the
end of 2002, while the share of pound sterling has increased by about 2 percentage
points, to 6 percent. The share of the Swiss franc has remained virtually unchanged at 1
percent since 1997. Unspecified currencies accounted for 11 percent of developing
countries’ foreign exchange reserves in 2002.
Changes in the SDR value of foreign exchange reserves can be broken down into
quantity and valuation (price) changes. Official reserves held in U.S. dollars increased
by SDR 30 billion in 2002, as an increase of SDR 113 billion in the quantity of U.S.
dollar holdings was offset by a valuation decline of SDR 83 billion. Euro holdings
increased by SDR 38 billion, reflecting a quantity increase of SDR 17 billion and a
valuation increase of SDR 21 billion. Japanese yen holdings remained unchanged, as a
quantity decline offset a valuation increase. Pound sterling and Swiss franc holdings
increased by SDR 11 billion and SDR 2 billion, respectively, reflecting increases in both
quantity and valuation.
5.9.4 International Liquidity in FY 2004
International Reserves
Total international reserves, including gold, increased by 14 percent during 2003
and stood at SDR 2.4 trillion at the end of the year. Foreign exchange reserves, which
constitute the largest component of official reserve holdings, grew by 15 percent, to
SDR 2.0 trillion. IMF-related assets, which make up the rest of non-gold reserves,
remained broadly unchanged at SDR 86 billion. The market value of gold held by monetary
authorities increased by 9 percent to SDR 256 billion in 2003.
Foreign Exchange Reserves
Foreign exchange reserves accounted for 96 percent of non-gold assets at the
end of 2003. The developing countries, which held 63 percent of all foreign exchange
reserves at the end of 2003, increased their holdings by 16 percent, to SDR 1.3 trillion,
continuing the trend set in recent years. During 2003, the foreign exchange holdings of
industrial countries rose by 14 percent, to SDR 743 billion. In 2003, the oil-exporting
developing countries’ foreign exchange assets, which amount to nearly 10 percent of all
developing countries’ foreign exchange reserves, increased by 9 percent, to SDR 113
billion. The foreign exchange reserves of the net creditor developing country group rose
by 11 percent, to SDR 246 billion, and those of net debtor countries grew by 17 percent,
to SDR 1.0 trillion. Foreign exchange reserves of net debtors without debt-servicing
problems increased by 18 percent, to SDR 884 billion, while those of countries with
debt-servicing problems increased by 14 percent, to SDR 155 billion.
Holdings of IMF-Related Assets
During 2003, total IMF-related assets (that is, reserve positions in the IMF and
SDRs) increased by less than 1 percent, following increases of more than 10 percent in
the two preceding years. Industrial member countries hold a majority of IMF-related
assets: 79 percent at the end of 2003. Members’ reserve positions in the IMF remained
170
broadly unchanged at SDR 67 billion, with the SDR holdings of IMF members remaining
unchanged at SDR 20 billion.
Gold Reserves
The market value of gold reserves increased by 9 percent in 2003, to SDR 256
billion, reflecting an 11 percent increase in the SDR price of gold and a 2 percent decline
in the physical stock of official gold. The share of gold in officially held reserves has
declined gradually to 11 percent by the end of 2003, whereas, in the early 1980s, gold
made up about half of all officially held reserves. Most of the gold reserves (83 percent)
are held by industrial countries: gold constituted 21 percent of these countries’ total
reserves at the end of 2003. Gold reserves accounted for 3 percent of the total reserves
of the developing countries.
Currency Composition of Foreign Exchange Reserves
The currency composition of foreign exchange reserves has changed gradually
over the past decade, with the share of US dollar holdings in foreign exchange reserves
rising from 53 percent in 1994 to 67 percent in 2001. In 2002 and 2003, however, the
share of US dollar holdings declined to 64 percent. Notwithstanding a substantial increase
in official reserves held in US dollars over these two years, the weakening of the US
dollar vis-à-vis other major currencies implied a decline in the share of US dollar holdings
(see the last paragraph for details). The euro, accounted for 20 percent of total foreign
exchange reserves in 2003, higher than its average since 1999.
The share of the Japanese yen in total foreign exchange reserves declined from 8
percent at the end of 1994 to 5 percent at the end of 2003. During the past decade, the
share of pound sterling rose above 4 percent, while that of the Swiss franc remained
below 1 percent. The share of unspecified currencies, which include currencies not
identified as well as foreign exchange reserves for which no information on currency
composition is available, was 7 percent in 2003.
For industrial countries, the share of US dollar holdings increased throughout
the 1990s, peaking at 73 percent in 2001 and amounting to 71 percent at the end of
2003. In 2003, the shares of the euro and the yen in industrial countries’ foreign exchange
reserves declined slightly to 21 and 4 percent, respectively. Shares of pound sterling and
the Swiss franc have remained broadly constant over the past ten years, but the share of
unspecified currencies fell to 2 percent in recent years.
The share of the US dollar in developing countries’ foreign exchange reserves
declined to 59 percent in 2003, close to the historical average over the last decade.
Holdings of the euro rose to 19 percent of those countries’ foreign exchange reserves,
one percentage point higher than in 2002. Over the past decade, the share of the yen has
gradually decreased by about 2 percentage points, to 5 percent at the end of 2003, while
the share of pound sterling has increased by about 2 percentage points, to 6 percent. The
share of the Swiss franc has remained below 1 percent since 1997. Unspecified currencies
accounted for 10 percent of developing countries’ foreign exchange reserves in 2003.
Changes in the SDR value of foreign exchange reserves can be decomposed into
171
quantity and valuation (price) changes. Official reserves held in US dollars increased by
SDR 161 billion in 2003, as an increase of SDR 263 billion in the quantity of US dollar
holdings was offset by a valuation decline of SDR 102 billion. Euro holdings increased
by SDR 56 billion, reflecting a quantity increase of SDR 22 billion and a valuation increase
of SDR 34 billion. Japanese yen holdings increased by SDR 5 billion as quantity and
valuation each increased by more than SDR 2 billion. Driven by the quantity effect, in
2003, pound sterling holdings increased by SDR 12 billion, whereas Swiss franc holdings
declined by more than SDR 1 billion.
5.9.5 International Liquidity in FY 2005
International Reserves
Total international reserves, including gold, increased by 15 percent during 2004
and stood at SDR 2.7 trillion at the end of the year. Foreign exchange reserves, which
constitute the largest component of official reserve holdings, grew by 18 percent, to
SDR 2.4 trillion. IMF-related assets, which make up the rest of non-gold reserves, declined
by 12 percent to SDR 76 billion, reflecting the recent decline in outstanding credit to
member countries. The market value of gold held by monetary authorities decreased by
1 percent to SDR 254 billion in 2004.
Foreign Exchange Reserves
Foreign exchange reserves comprised 97 percent non-gold assets at the end of
2004. Developing countries held 65 percent of all foreign exchange reserves (SDR 1.6
trillion) at the end of 2004, increasing their holdings by 22 percent. During 2004, foreign
exchange holdings of industrial countries rose by 12 percent to SDR 845 billion.
In 2004, the foreign exchange assets of the oil-exporting developing countries,
which amounts to 8 percent of all developing countries’ foreign exchange reserves,
increased by 18 percent to SDR 133 billion. Foreign exchange reserves of the net creditor
developing countries rose by 15 percent, to SDR 282 billion, and those of net debtor
countries grew by 23 percent to SDR 1.3 trillion. Foreign exchange reserves of net
debtors without debt-servicing problems increased by 25 percent to SDR 1.1 trillion,
while those of countries with debt-servicing problems increased by 15 percent to SDR
178 billion.
Holdings of IMF-related Assets
During 2004, total IMF-related assets declined by 12 percent, following three
years of increase. Members’ reserve positions in the IMF declined by 16 percent to SDR
56 billion, while the SDR holdings of IMF members remained at SDR 20 billion. The
decline in the reserve positions was attributed mostly to industrial countries, which
account for more than three-fourths of the reserve positions and SDR holdings.
Gold Reserves
The market value of gold reserves declined by 1 percent to SDR 254 billion in
2004, reflecting a 1 percent decline in the physical stock of official gold. The share of
gold in officially held reserves declined gradually to 9 percent by the end of 2004, whereas
172
in the early 1980s, gold represented about half of all officially held reserves. Most of the
gold reserves (82 percent) are held by industrial countries; gold constituted 19 percent
of these countries’ total reserves at the end of 2004. Gold reserves accounted for 3
percent of the total reserves of the developing countries.
Currency Composition of Foreign Exchange Reserves
The currency composition of foreign exchange reserves has changed gradually
over the past decade, with the share of US dollar holdings in foreign exchange reserves
rising from 59 percent in 1995 to 71 percent in 1999, and remaining broadly stable in
2000 and 2001. In 2002, however, the share of US dollar holdings sharply declined to 67
percent, driven by the fall in the value of US dollar holdings and a reduced share of US
dollar assets in net purchases of reserves. Over the subsequent two years, the dollar
share remained at a similar level. While the official reserves held in US dollars picked up
strongly over these two years, accounting for more than 80 percent of the quantity
increase in official reserve holdings, this was offset by the weakening of the US dollar
vis-a-vis other major currencies.
The euro accounted for 25 percent of total foreign exchange reserves in 2003
and 2004, higher than its average in preceding years. The share of the Japanese yen in
total foreign exchange reserves declined from 7 percent at end-1995 to 4 percent at the
end of 2004. During the past decade, the share of pound sterling has been in the 2-3
percent range, while that of the Swiss franc has remained below 1 percent. The share of
other currencies, which comprise currencies not identified, has been less than 2 percent
since 1999. The share of unallocated reserves, for which no information on currency
composition is available, rose to more than 30 percent of global reserves in 2004.
For industrial countries, the share of US dollar holdings increased throughout
the 1990s, peaking at 74 percent in 1999 and amounting to 72 percent at the end of
2004. The share of the euro in industrial countries’ foreign exchange reserves declined
slightly in 2004, to 21 percent, while the share of the yen remained broadly unchanged
over 2003-04. The shares of pound sterling and the Swiss franc have remained broadly
constant over the past 10 years.
The share of the US dollar in developing countries’ foreign exchange reserves
declined to 60 percent in 2004, lower than the average in preceding years. Holdings of
the euro rose to 29 percent of those countries’ foreign exchange reserves, nearly 10
percent higher than the euro’s share in its initial years (1999 and 2000). Over the past
decade, the share of the yen has gradually decreased by about 3 percent, to 4 percent at
the end of 2004, while the share of pound sterling has increased by about 3 percent, to 5
percent in 2004. The share of the Swiss franc has remained below 1 percent over the
same period.
Changes in the SDR value of foreign exchange reserves can be decomposed into
quantity and valuation (price) changes. Official reserves held in US dollars increased by
SDR 128 billion in 2004, as an increase of SDR 176 billion in the quantity of US dollar
holdings was offset by a valuation decline of SDR 48 billion. Euro holdings increased by
SDR 42 billion, reflecting a quantity increase of SDR 29 billion and a valuation increase
173
of SDR 13 billion. Japanese yen holdings increased by SDR 5 billion as a quantity increase
of SDR 6 billion was offset by a valuation decline of SDR 1 billion. Pound sterling
holdings increased by SDR 16 billion, whereas Swiss franc holdings declined by SDR
0.5 billion.
5.9.6 International Liquidity in FY 2006
International Reserves
Total international reserves, including gold, increased by 20 percent during 2005
and stood at SDR 3.3 trillion at the end of the year. Foreign exchange reserves grew by
21 percent, to SDR 2.9 trillion. IMF-related declined by 36 percent to SDR 49 billion,
reflecting the recent decline in outstanding credit to member countries. The market value
of gold held by monetary authorities increased by 25 percent to SDR 317 billion in 2005.
Foreign Exchanges Reserves
Foreign exchange reserves represented 98 percent of non-gold assets at the end
of 2005. Developing countries held 69 percent of all foreign exchange reserves (SDR 2
trillion), having increased their holdings by 29 percent relative to end-2004. During
2005, foreign exchange holdings of industrial countries rose by 7 percent to SDR 904
billion, and the foreign exchange assets of oil-exporting developing countries, which
amounted to 9 percent of all developing countries’ foreign exchange reserves, increased
by 35 percent to SDR 179 billion.
Holdings of IMF-related Assets
During 2005, total IMF-related assets declined by 36 percent, more sharply than
in the previous year. Members’ reserve positions in the IMF declined by 49 percent to
SDR 29 billion, while the SDR holdings of IMF members remained at SDR 20 billion.
The decline in the reserve positions was mostly attributed to industrial countries, which
account for more than three-fourths of the reserve positions and SDR holdings.
Gold Reserves
The market value of gold reserves increased by 25 percent to SDR 317 billion in
2005, as the strong gold price more than offset the 2 percent decline in the physical
stock of official gold. However, the share of gold in official reserves in 2005 (10 percent)
is much lower than in the early 1980s when gold accounted for about half of all official
reserves. Most of the gold reserves (82) are held by industrial countries, for which gold
constituted 22 percent of their total reserves at the end of 2005. Gold reserves accounted
for 3 percent of the total reserves of developing countries.
Currency Composition of Foreign Exchange Reserves
In 2005, the share of dollar holdings increased slightly, reflecting the strengthening
of the dollar vis-a-vis other reserve currencies. The share of the euro, increased sharply
between 1999 and 2003 and has since remained broadly stable at around 25 percent of
total foreign exchange reserves. The share of the Japanese yen in total foreign exchange
reserves declined from 7 percent at end-1996 to 4 percent at the end of 2005. The share
174
of pound sterling reached nearly 4 percent at end-2005, while that of the Swiss franc
remained well below 1 percent. The share of other currencies not identified has been less
than 2 percent since 1999. The share of unallocated reserves, for which no information
on currency composition is available, rose to more than 30 percent of global reserves in
2005.
For industrial countries, the share of US dollar holdings rose to 74 percent at the
end of 2005, slightly exceeding the high value of 1999. The share of the euro in industrial
countries’ foreign exchange reserves declined slightly to 19 percent in 2005, while the
share of the yen decreased further slightly over 3 percent in 2005. The shares of pound
sterling and Swiss franc have remained broadly constant.
The share of the US dollar in developing countries’ foreign exchange reserves
remained close to 60 percent in 2005, lower than the average in preceding years. Holdings
of the euro remain around 29 percent of those countries’ foreign exchange reserves, 10
percent higher than the euro’s share in its initial years. Over the past decade, the share of
the yen gradually decreased to about 4 percent at the end of 2005, while the share of
pound sterling has increased to 5 percent in 2005. The share of the Swiss franc has
remained below 1 percent over the same period.
Official SDR reserves held in US dollars increased by SDR 190 billion in 2005,
reflecting a quantity increase in US dollar holdings of SDR 90 billion and a valuation
increase of SDR 99 billion. Euro holdings increased by SDR 55 billion, as a quantity
increase of SDR 82 billion was offset by a valuation decline of SDR 27 billion. Japanese
yen holdings increased by SDR 5 billion as a quantity increase of SDR 8 billion was
offset by a valuation decline of SDR 3 billion. Pound sterling holdings increased by SDR
16 billion whereas Swiss franc holdings remained broadly unchanged.
5.9.7 International Liquidity in FY 2007
International Reserves
Total international reserves, including gold, increased by 14 percent during 2006
and stood at SDR 3.8 trillion at the end of the year. Foreign exchange reserves grew by
15 percent, to SDR 3.3 trillion. IMF-related assets declined by 27 percent to SDR 36
billion, reflecting the recent decline in outstanding credit to member countries. The market
value of gold held by monetary authorities increased by 16 percent to SDR 367 billion in
2006.
175
Foreign Exchange Reserves
Foreign exchange reserves accounted for 99 percent of non-gold international
reserves at the end of 2006. Developing countries held 72 percent of all foreign exchange
reserves (SDR 2.4 trillion), an increase of 20 percent since the end of 2005, and the
holdings of oil-exporting developing countries, which amounted to 10 percent of all
developing countries’ foreign exchange reserves, increased by 26 percent to SDR 228
billion. During 2006, the foreign exchange holdings of industrial countries rose by 2
percent to SDR 927 billion.
IMF-related Assets
During 2006, members’ reserve positions in the IMF declined by 39 percent to
SDR 18 billion, while the SDR holdings of IMF members declined 9 percent to SDR 18
billion. The decline in the reserve positions was attributable mostly to the industrial
countries, which account for two-thirds of the reserve positions and SDR holdings.
Gold Reserves
The market value of gold reserves increased by 16 percent to SDR 367 billion in
2006, as higher gold prices more than offset the 1 percent decline in the physical stock
of official gold. However, the share of gold in official reserves in 2006 (10 percent) is
much lower than in the early 1980s, when gold accounted for about half of all official
reserves. At the end of 2006, gold constituted 24 percent of the total reserves of industrial
countries, which hold 82 percent of the world’s gold reserves, and 3 percent of the total
reserves of developing countries.
Currency Composition of Foreign Exchange Reserves
In 2006, the share of dollar holdings dropped below 65 percent, as the euro and
the pound gained share owing to appreciating exchange rates vis-a-vis the dollar as well
as net reserve purchases denominated in those two currencies.
The share of the euro increased again in 2006, to nearly 26 percent of total foreign
exchange reserves at year-end. The share of Japanese yen in total foreign exchange
reserves declined from 6 percent in the late 1990s to 3 percent at the end of 2006. The
share of pound sterling rose above 4 percent at end-2006, while that of the Swiss franc
remained well below 1 percent. The share of other currencies has been less than 2 percent
since 1999. No information is available on the currency composition of unallocated
reserves, whose share of global reserves rose to 34 percent in 2006.
The share of US dollar holdings by industrial countries moderated to 72 percent
at the end of 2006, from the high of the previous year that reflected the relative strength
of the dollar at end-2005. In 2006, the share of the euro in industrial countries’ foreign
exchange reserves recovered, reaching 20 percent, while the share of the yen remained
below 4 percent. The shares of pound sterling and Swiss franc have remained broadly
stable.
The share of US dollar in developing countries’ foreign exchange reserves
remained close to 60 percent in 2006, lower than the average in preceding years. Euro
176
holdings rose to nearly 30 percent of those countries’ foreign exchange reserves. Over
the past decade, the share of the yen gradually decreased to 3 percent at the end of 2006,
while the share of pound sterling increased to 6 percent in 2006. The share of the Swiss
franc remained below 1 percent over the same period.
Official reserves held in US dollars increased by SDR 115 billion in 2006, reflecting
a quantity increase in US dollar holdings of SDR 185 billion and a valuation decrease of
SDR 70 billion. Euro holdings increased by SDR 93 billion, as a quantity increase of
SDR 63 billion was boosted by a valuation increase of SDR 30 billion. Japanese yen
holdings declined by SDR 0.5 billion as a quantity increase of SDR 3.5 billion was offset
by a valuation decrease of SDR 4 billion. Pound sterling holdings increased by SDR 27
billion, Swiss franc holdings by SDR 1 billion.
5.10 SUMMARY
5.10.1 Global Official Holdings of Reserve Assets
As seen from Table 5.1 and Graph 5.1 below, the official holdings of reserve
assets (including gold) of the industrial countries rose from SDR 863.7 billion in 2001 to
SDR 1276.1 billion in 2007, recording an increase of 47.75 percent. At the same time,
the official holdings of reserve assets (including gold) of the developing countries have
risen from SDR 1051.7 billion in 2001 to SDR 2645.6 billion, recording an impressive
increase of 251.50 percent.
Obviously, an increasing number of developing countries have reposed their trust
in the IMF’s monetary unit SDR for fulfilling their balance of payment of obligations.
Source: IMF’s Annual Reports for the respective years
As shown in Table 5.1 and Graph 5.1, the global official holdings of reserve
assets of the developing countries have shown a rising trend, registering a growth of
251.50% in the year 2007 over the base year 2001, while the official holdings of reserve
assets of the industrial countries also showed a marginally rising trend registering a
1276.11254.21199.61169.91034.5930863.7
2645.62496.7
2085.4
1626.11345
1162.51051.7
01000
2000
3000
2001 2002 2003 2004 2005 2006 2007 -Years
Bil
lions
of
SD
Rs
Industrial Countries Developing Countries
Graph 5.1
Global Official Holdings of Reserve Assets (including Gold)
177
growth of merely 147.75% in the year 2007 over the base year 2001.
5.10.2 Global Official Holdings of Gold
As seen from Table 5.1 and Graph 5.2 below, the official holdings of gold of the
industrial countries rose from SDR 172.5 billion in 2001 to SDR 311.4 billion in 2007,
recording an increase of 80.50 percent. At the same time, the official holdings of gold of
the developing countries have risen from SDR 35.2 billion to SDR 67.6 billion, recording
an increase of 92 percent.
Evidently, there is a neck-to-neck race between the industrial countries and the
developing countries to acquire gold stocks as a liquid international asset.
As shown in Table 5.1 and Graph 5.2, the global official holdings of gold of the
developing countries have shown a marginally rising trend, registering a growth of
192.00% in the year 2007 over the base year 2001, while the official holdings of gold of
the industrrial countries also showed a marginally rising trend, registering a growth of
180.50% in the year 2007 over the base year 2001. Both these growths may be not be
taken as significant.
5.10.3 Global Official Holdings of US Dollar and Euro
As seen from Table 5.2 and Graph 5.3 below, the share of the US dollar in global
official holdings of foreign exchange declined from 71.5 percent in 2001 to 64.7 percent
in 2006, a fall of 9.5 percent; while the share of the Euro in global official holdings rose
from 19 percent in 2001 to 25.8 percent in 2006, a rise of 35.8 percent.
It thus appears that the Euro is emerging as a new international currency unit by
supplanting the as-yet undisputed reign of US dollar.
Source: IMF’s Annual Reports for the respective years
172.5 194.2211.9 208.9
259.9
301.2311.4
35.240.8 44.8 44
55.4 65.5 67.6
0200
400
2001 2002 2003 2004 2005 2006 2007 -Years
Bil
lions
of
SD
Rs
Industrial Countries Developing Countries
Graph 5.2
Global Official Holdings of Gold
178
As shown in Table 5.2 and Graph 5.3, the share of US Dollar in the global official
holdings as foreign exchange reserves has decreased by -9.50% in 2007 over the base
year 2001, while the share Euro has increased by 35.80% in 2007 over the base year
2001.
5.10.4 Comparison of US Dollar and Euro in Global Official Holdings
As seen from Table 5.2 and Graph 5.4, the share of the US dollar in official
holdings of foreign exchange reserves in industrial countries declined from 72.7 percent
in 2001 to 71.9 percent in 2007 (1.10 percent decrease); while the share of the US dollar
in official holdings of foreign exchange reserves in developing countries declined from
70 percent in 2001 to 59.7 percent in 2006 (14.75 percent decrease).
On the other hand, the share of Euro in official holdings of foreign exchange
reserves increased from 20.5 percent in 2001 to 29.6 percent in 2007 (44.40 percent
increase); while the share of the Euro in official holdings of foreign exchange reserves in
developing countries increased from 17.9 percent in 2001 to 20.4 percent in 2006 (13.97
percent increase).
This once again confirms that the Euro is emerging as a new international currency
unit for settling the balance of payment between the countries.
64.766.765.865.96771.5
25.824.224.925.223.819
050
100
2001 2002 2003 2004 2005 2006 -Years
% o
f H
old
ings
US Dollar Euro
Graph 5.3
Shares of US Dollar and Euro in Global Official Holdings of Foreign Exchange
Source: IMF’s Annual Reports for the respective years
179
Source: IMF’s Annual Reports for the respective years
As shown in Table 5.2 and Graph 5.4, the share of US Dollar in global official
holdings as foreign exchange reserves has gone down by 1.10% in 2007 over the base
year 2001 in the industrial countries and by 14.70% in 2007 over the base year 2001 in
the developing countries.
As shown in Table 5.2 and Graph 5.4, the share of Euro in global official holdings
as foreign exchange reserves has gone down by 44.40% in 2007 over the base year 2001
in the industrial countries and by 13.95% in 2007 over the base year 2001 in the developing
countries.
Thus concludes the analysis and interpretation of the data presented under this
work. The conclusions derived therefrom are being presented in the next Chapter.
qqq
71.973.671.570.568.972.7
59.76160.261.365.270
20.41920.821.917.9
22.3
29.628.52928.525.3
20.5
050
100
2001 2002 2003 2004 2005 2006 -Years
% o
f H
old
ings
US Dollar in Industrial Countries US Dollar in Develop.Countries
Euro in Industrial Countries Euro in Develop.Countries
Graph 5.4
Comparison of Shares of US Dollar and Euro in Global Official Holdings
of Foreign Exchange in Industrial and Developing Countries