Leo Varadkar (Dublin West, Fine Gael)
Link to this: Individually | In context

Question 237: To ask the Minister for Finance the circumstances under which a country can apply to the International Monetary Fund for financial assistance; the implications of same; and if he will make a statement on the matter. [39714/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
Link to this: Individually | In context

The IMF has developed various loan instruments, or "facilities," that are tailored to address the specific circumstances of its membership. The bulk of IMF lending is to provide loans to countries experiencing balance of payments problems. This financial assistance enables countries to rebuild their international reserves; stabilise their currencies; continue paying for imports; and restore conditions for strong economic growth. Upon request by a member country, an IMF loan is usually provided under an "arrangement," which stipulates the specific policies and measures a country has agreed to implement to resolve its balance of payments problem. The economic programme underlying an arrangement is formulated by the country in consultation with the IMF, and is presented to the Fund's Executive Board in a "Letter of Intent." Once an arrangement is approved by the Board, the loan is released in phased instalments as the program is implemented.

Low-income countries may borrow at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). Non-concessional loans are provided mainly through Stand-By Arrangements (SBA), and occasionally using the Extended Fund Facility (EFF), the Supplemental Reserve Facility (SRF), and the Compensatory Financing Facility (CFF). The IMF also provides emergency assistance to support recovery from natural disasters and conflicts, in some cases at concessional interest rates. Except for the PRGF and the ESF, all facilities are subject to the IMF's market-related interest rate, known as the "rate of charge," and some carry a surcharge. The rate of charge is based on the SDR interest rate, which is revised weekly to take account of changes in short-term interest rates in major international money markets. Large loans carry a surcharge. The amount that a country can borrow from the Fund - its "access limit"- varies depending on the type of loan, but is typically a multiple of the country's IMF quota. In exceptional circumstances, some loans may exceed the access limits.

In addition, the IMF has emergency procedures to help provide financing at short notice. The Emergency Financing Mechanism can be used when a member country faces an exceptional situation that threatens its financial stability and a rapid response is needed to contain the damage to the country or the international monetary system. Last month, the Executive Board of the IMF approved the creation of a Short-Term Liquidity Facility (SLF) to establish quick-disbursing financing for countries with strong economic policies that are facing temporary liquidity problems in the global capital markets. Disbursements under this facility can be up to 500 percent of quota, with a three-month maturity. Eligible countries are allowed to draw a maximum of three times during any -12-month period. Further details regarding the terms and eligibility applying to the Short-Term Facility and the other facilities can be found at www.imf.org.