International Economic Organisations — Economics STD 12 — Question

Facilities offered by IMF:
The Fund has created several new credit facilities for its members. Chief among them are:
(I) Basic Credit Facility:

1. The IMF provides financial assistance to its member nations to overcome their temporary difficulties relating to balance of payments.
2. A member nation can purchase from the Fund other currencies or SDRs, in exchange for its own currency, to finance payment deficits.
3. The loan is repaid when the member repurchases its own currency with other currencies or SDRs.
4. A member can unconditionally borrow from the Fund in a year equal to 25% of its quota.
5. This unconditional borrowing right is called the reserve tranche.

(II) Extended Fund Facility:

1. Under this arrangement, the IMF provides additional borrowing facility up to 140% of the member’s quota, over and above the basic credit facility.
2. The extended facility is limited for a period up to 3 years and the rate of interest is low.

(III) Compensatory Financing Facility:

1. In 1963, IMF established compensatory financing facility to provide additional financial assistance to the member countries, particularly primary producing countries facing shortfall in export earnings.
2. In 1981, the coverage of the compensatory financing facility was extended to payment problem caused by the fluctuations in the cost of cereal inputs.

(IV) Buffer Stock Facility:

1. The buffer stock financing facility was started in 1969.
2. The purpose of this scheme was to help the primary goods (food grains) producing countries to finance contributions to buffer stock arrangements for the stabilisation of primary product prices.

(V) Supplementary Financing Facility:
Under the supplementary financing facility, the IMF makes temporary arrangements to provide supplementary financial assistance to member countries facing payments problems relating to their present quota sizes.
(VI) Structural Adjustment Facility:
1. The IMF established Structural Adjustment Facility (SAF) in March 1986 to provide additional balance of payments assistance on concessional terms to the poorer member countries.
2. In December 1987, the Enhanced Structural Adjustment Facility (ESAF) was set up to augment the availability of concessional resources to low income countries.
3. The purpose of SAF and ESAF is to force the poor countries to undertake strong macroeconomic and structural programmes to improve their balance of payments positions and promote economic growth.