October 7, 2016/IMF
Why does the IMF need bilateral loans again despite the recently enacted doubling of the quota?
While quota resources on aggregate doubled early this year as the 14th Review quota increases became effective, borrowed resources under the New Arrangements to Borrow (NAB) were concurrently rolled back. As a result, there was a change in the composition of the Fund resources (from NAB to quotas) but no substantive change in the Fund’s overall resource envelope. In the meantime, the Fund’s 2012 bilateral borrowing agreements will start to expire in mid-October, and unless the Fund can renew access to new bilateral loans broadly at the same level of those in 2012, the Fund’s lending capacity could sharply fall, undermining the confidence that the Fund will continue to be able to address the needs of our membership. With this backdrop, the Executive Board agreed on August 29 on a new framework to maintain temporary access to bilateral borrowing. In doing so, the Board while reiterating that the Fund is and must remain a quota-based institution, recognized that securing continued access to temporary bilateral borrowing under the 2016 borrowing agreements was the most practical near-term option to maintain the Fund’s overall lending capacity amid elevated uncertainty and risks in the global economy.
What does a sharp decrease in your lending capacity mean? How much less firepower would you have if the bilateral agreements are not renewed?
The 2012 Bilateral Borrowing Agreements represent close to a third of the Fund’s overall lending capacity. These agreements, totaling SDR 282 billion or US$393 billion at exchange rates prevailing on September 30th, have a maximum of a four-year term and begin to expire in October 2016. As the term of individual agreements start expiring, the resources available under bilateral borrowing would be lost.
What is the total amount you are aiming for?
With the 2016 borrowing agreements, we are aiming at broadly maintaining access to the same level of bilateral borrowed resources as under the 2012 agreements while bringing in new participants to provide confidence that the Fund has available resources to address the needs of the membership. The G20 leaders support this objective of preserving the IMF’s current lending capacity and the new borrowing framework recently approved by the Executive Board has been key in helping achieve this objective. Discussions with existing and potential new bilateral creditors are now underway and further details on participants and their contributions will be made available in due course.
How much more firepower will you have after the bilateral agreements have been renewed?
Are you satisfied with the recent increase in your lending capacity via the agreements? Discussion with creditors are ongoing and progress is promising. The commitments we received so far amount to about SDR 243 billion or US$340 billion, and we expect additional commitments in the near future. We expect that these commitments would contribute to broadly maintaining the Fund’s lending capacity, which is crucial for the Fund to be able to continue to effectively carry out its mission.
How many countries have already committed and for how much? Are you looking to expand your pool of creditors?
Discussions with existing and potential new bilateral creditors are underway. Progress so far is promising. In particular, twenty-five members of the Fund have committed a total of SDR 243 billion (US$340 billion) in bilateral borrowed resources with maximum terms through end2020, with an initial term to end-2019, extendable for a further year through end-2020 with creditors’ consents. We are encouraging other members to join this important international cooperative effort. Further details will be made available in due course.
Under what circumstances can the IMF use those bilateral loans?
These resources are being made available to meet the potential financing needs of all IMF members if risks to the global economy materialize. Thus, such loans will be drawn only if they are needed as a third line of defense after resources from quota and the New Arrangements to Borrow are substantially used. Under the new framework approved by the Board, any activation of the Fund’s bilateral borrowing agreements also requires ex-ante approval from creditors representing 85 percent of the total credit amount committed under 2016 bilateral borrowing agreements. It is worth noting that the 2012 bilateral agreements have not been activated or drawn but have played a critical role in providing assurance to members and markets that the IMF has adequate resources to meet potential needs.
What are the modalities for the bilateral arrangements to be activated? What does the new voting structure refer to?
The bilateral resources are a third line of defense after quota and NAB resources have been substantially depleted. With this in mind, the Executive Board in late August approved maintaining access to new bilateral borrowing under a new framework (the 2016 Borrowing Agreements) that builds closely on the modalities of the 2012 borrowing framework, and includes a requirement that creditors representing 85 percent of the total credit amount committed under the new agreements vote in favor of activation.