International Monetary Fund 1251 Chapter IX International Monetary Fund (IMF) The world economy in 1987 was characterized by velopments and policies in the member countries continued expansion in output and trade. Real concerned and particularly on how those policies economic growth in industrial countries was more affected the exchange rate and external accounts. than 3 per cent—somewhat faster than in 1986. In July, the IMF Executive Board adopted two At the same time, inflation remained low and ex- modifications to the 1983 guidelines on the fre- ternal imbalances among the major industrial quency of consultations as provided for in article countries began to diminish. In developing coun- IV, section 3 (b).a This reconsideration was aimed tries, economic developments were more mixed: at economizing the resources devoted to the con- while many benefited from vigorous export expan- sultation process without compromising IMF’s sion and higher primary commodity prices, others responsibility for effective surveillance. The first continued to suffer from low or declining growth, modification called for the implementation of a bi- high inflation, and high debt-service burdens. The cyclic procedure, involving a full consultation every average growth rate in developing countries fell second year and a simplified interim procedure in from 4.2 per cent in 1986 to 3.4 per cent in 1987. the intervening year. The second reduced the The economic and financial difficulties of most number of countries for which a strict annual con- heavily indebted middle-income countries, low- sultation was required by virtue of their substan- income countries of sub-Saharan Africa and some tial impact on the international monetary system. fuel-exporting countries were particularly severe. The number of consultations concluded in 1987 Despite some positive aspects in the world eco- declined to 115 (75 per cent of membership) from nomic situation among major industrial countries, a peak of 131 (85 per cent of membership) in 1985. their external imbalances remained large. On 22 February 1987, six major industrial countries Access to IMF resources (Canada, France, Federal Republic of Germany, Japan, United Kingdom, United States), meeting The Fund’s policy of enlarged access to its at the Palais du Louvre, Paris, agreed to intensify resources enabled it to provide supplementary fi- efforts at economic policy co-ordination to pro- nancing to members whose balance-of-payments mote more balanced economic growth and to re- deficits were large in relation to their quotas and duce existing imbalances. In their communique, which needed resources in larger amounts and for known as the Louvre Accord, the six, while not- longer periods than were available under regular ing the progress that had been made in achieving credit tranche policies. On 4 December 1987, the sustainable, non-inflationary expansion, agreed to IMF Executive Board decided to extend the en- co-operate to foster stability of exchange rates larged access policy through 1988 with access limits around current levels. kept unchanged at 1987 levels. Access would be Under its Articles of Agreement, the Interna- subject to annual limits of 90 or 110 per cent of quota, three-year limits of 270 or 330 per cent of tional Monetary Fund (IMF) was charged with overseeing the international monetary system. quota, and cumulative limits of 400 or 440 per cent of quota. Access in individual cases—which in ex- During the year, the Fund continued working actively to strengthen surveillance over the ex- ceptional circumstances could exceed those change rate policies of its members. It pursued the limits—were determined primarily on the basis of development of indicators as an analytical frame- the seriousness of the member’s balance-of- work for promoting policy co-operation, while pre- payments need, the strength of its adjustment ef- serving the flexibility of the floating exchange rate forts and its ability to repay the Fund. system. The use of indicators—including exchange rates—was endorsed by the seven major industrial Other IMF facilities countries (Canada, France, Federal Republic of In 1987, the structural adjustment facility (SAF), Germany, Italy, Japan, United Kingdom, United set up in 1986,b continued to provide loans on States), meeting at their thirteenth economic sum- concessional terms to low-income countries facing mit (Venice, Italy, 8-10 June). protracted balance-of-payments problems. During Article IV of the Fund Agreement calls for regu- lar consultations between IMF and each member aYUN 1983, p. 1278. country. Consultations focused on economic de- bYUN 1986, p. 1159. 1252 Intergovernmental organizations the year, total IMF commitments under SAF to a the Fund’s General Resources Account-a decline number of such countries, measured in special of SDR 0.5 billion relative to 1986—and SDR 0.4 drawing rights (SDRs)—the Fund’s unit of billion was disbursed to eligible low-income coun- account—amounted to SDR 0.9 billion, compared tries under SAF (see above). with SDR 0.5 billion committed in 1986. At the Within the General Resources Account, upper end of 1987, arrangements were in effect with 22 credit tranche purchases (those above 25 per cent countries—13 more than the previous year. The of a member’s quota), which required substantial increase in commitments and disbursements justification and were made available in instal- under SAF during 1987—as well as in the num- ments, subject to the observance of performance ber of countries using SAF—reflected: an increase criteria, amounted to SDR 0.7 billion. Purchases in the access limit under three-year SAF arrange- under stand-by arrangements totalled SDR 1.8 bil- ments from 47 per cent of quota to 63.5 per cent lion, compared with SDR 2.7 billion in 1986, while as of July 1987; the more concessional nature of those under extended arrangements amounted to SAF relative to other IMF facilities; and the fact SDR 0.2 billion, as against SDR 0.3 billion in 1986. that SAF programmes emphasized growth-oriented At the end of 1987, there were 22 stand-by ar- structural adjustment, which made them appropri- rangements and two extended arrangements in ef- ate for the needs of low-income countries. fect between the Fund and its members, with a In response to widespread support for an in- total of SDR 5.6 billion in committed resources. By crease in resources for lending on concessional comparison, 30 stand-by arrangements and one terms to low-income countries facing protracted extended arrangement were in effect at the end of balance-of-payments difficulties, the IMF Execu- 1986, with a total approved value of SDR 5.1 bil- tive Board established on 18 December 1987 the lion. The decline in purchases under stand-by ar- enhanced structural adjustment facility (ESAF), rangements and in the number of countries using which was to become operational in April 1988. the facility reflected, in part, the progress towards ESAF was expected to provide new resources to- balance-of-payments viability by some members tailing about SDR 6 billion, drawn from special that had used Fund resources under earlier adjust- loans and contributions from several countries. Its ment programmes, and a shift by a number of low- objectives, general procedures, financial conditions income countries facing difficulties of a structural and eligibility requirements were similar to those nature to the use of the more concessional SAF. of SAF; differences between SAF and ESAF related mainly to access, monitoring, the strength and The decline in credit tranche purchases in 1987 timing of structural reforms and the degree of as- relative to 1986 was partly offset by a doubling of surances to be sought regarding the timely im- purchases under the compensatory financing fa- plementation of programme measures. Access cility to SDR 1.2 billion. The compensatory financ- under ESAF varied according to the strength of the ing facility was designed to compensate members programme and the member’s balance-of- for temporary shortfalls in export receipts or for payments financing needs, whereas access under sharp increases in cereal import costs that were be- SAF was uniform. Access under ESAF was expected yond their control. Its increased use in 1987 partly to be 150 per cent of quota, on average, over a reflected purchases by some members with rela- three-year period (with maximum access at 250 tively large quotas—notably Argentina and In- per cent of quota and a provision for access of up donesia. to 350 per cent in exceptional circumstances). Dis- In 1987, emergency purchases from the Fund, bursements under ESAF were to take place semi- which helped members to meet foreign exchange annually, on approval of an annual arrangement needs arising from natural disasters, totalled SDR and after the observance of performance criteria 40 million. and, in most cases, the completion of a mid-year As in 1986, repurchases, or repayments, to the review. Fund (excluding SAF and Trust Fund repayments) exceeded purchases in 1987. Repurchases Financial assistance amounted to SDR 7.9 billion, compared with SDR During the year IMF intensified its collabora- 5.7 billion in 1986. Fund credit outstanding thus tion with members in balance-of-payments declined by SDR 4.6 billion, to SDR 28.8 billion at difficulties and the number with IMF financial ar- the end of the year. Almost all of the decline rangements rose to 36 at the end of 198.7, com- reflected repayments during the year by 10 pared with 33 in 1986. As members with arrange- countries—Brazil, Hungary, India, Pakistan, Por- ments in 1987 had smaller quotas, on average, tugal, Republic of Korea, Romania, South Africa, than those with arrangements in 1986, IMF finan- Turkey, Yugoslavia—some of which had borrowed cial assistance in 1987 totalled SDR 3.7 billion, substantially between 1981 and 1984.