International Monetary Fund:

Approach Used to Establish and Monitor Conditions for Financial Assistance

GGD/NSIAD-99-168: Published: Jun 22, 1999. Publicly Released: Jun 22, 1999.

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Thomas J. McCool
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Pursuant to a legislative requirement, GAO reviewed the International Monetary Fund (IMF), focusing on how the IMF: (1) establishes financial arrangements with borrower countries and the types of conditions set under these arrangements and assess how this process was used for six borrower countries; and (2) monitors countries' performance and assess how this process was used for the same six borrower countries, detailing the conditions met and not met, the reasons why conditions were not met, and the actions IMF took in response.

GAO noted that: (1) under IMF's Articles of Agreement, as amended, IMF limits financial assistance to those countries with a balance-of-payments need; (2) continued disbursement of assistance to a country is based on IMF's consideration of data on and judgment of the country's progress in meeting the agreed-upon conditions; (3) IMF has developed a broad framework for establishing a financial assistance arrangement that is to be applied on a case-by-case basis considering each country's circumstances; (4) the specific conditions that IMF and the country authorities establish are intended to address the immediate and underlying problems that contributed to the country's balance-of-payments difficulty, while ensuring repayment to IMF; (5) after a country fulfills any early IMF requirements and the IMF Executive Board then approves the financial arrangement, the program is to take effect and the country is eligible to receive its first disbursement of funds; (6) according to information GAO reviewed for the six countries in its study, IMF generally followed this process to establish the financial assistance package and the conditions for the assistance; (7) the underlying causes and magnitude of the balance-of-payments difficulty varied among the countries but generally stemmed from concerns about their continued access to external financing; (8) the IMF's process for monitoring a country's progress toward overall program goals and compliance with program conditions is designed to respond to an individual country's progress and situation; (9) according to IMF staff, many disbursements are conditioned only on the determination by IMF staff that the country has met prenegotiated quantitative criteria; other disbursements are subject to reviews by IMF Executive Board; (10) the process for conducting IMF Board reviews, which involves the borrower country and IMF, is designed to incorporate data on a country's economic performance as well as the judgment of the IMF Executive Board and staff; (11) according to the information GAO reviewed, the monitoring of the IMF's conditionality program in the six countries in GAO's study was generally consistent with this approach; (12) IMF missions to each country reviewed the country's economy and documented the country's progress in satisfying conditions; and (13) in some cases, IMF determined that country progress in meeting the conditions had not been sufficient, and its response varied depending on the specifics of the condition and the judgment of the IMF staff and Executive Board on the country's overall progress.

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