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Helping the Poor: the IMF's New Facilities for Structural Adjustment (PART 2)
Vinod Anand | 30 Nov 2011

The SAF and the ESAF are part of a broader effort to cope with the unprecedented problems of the poorest countries.

THE SAF and the ESAF are part of a broader effort to cope with the unprecedented problems of the poorest countries. When the size of the ESAF was being determined, SDR 6 billion of additional resources was estimated to be essential for the medium-term financing needs of low-income countries, even when other exceptional sources of concessional finance were taken into account. These included prospective rescheduling of official debt by official and private creditors, growing bilateral flows for non-project assistance, the World Bank?s Special Program of Assistance for low-income, debt-distressed sub-Saharan African countries as well as its strengthened program for confidence in the poorer countries, and the rapid implementation of IDA VIII, which was replenished with $12.4 billion in late I987. The African Development Bank and the African Development Fund also wee received strong financial support from donors in the same year.The SAF was created with about SDR 2.7 billion of resources to support adjustment in low-income countries with protracted balance of payments problems. The funds available under the SAF come mainly from repayments on loans from the Trust Fund, which will continue to be received through April 1991.

However, it was evident from the outset that these resources were inadequate to enable the poorest countries to overcome their increasingly severe payments difficulties and to assist them in embarking upon the fundamental structural reforms that were required. The idea of a new facility backed by far larger funds emerged, and the Fund was able in a relatively short period of time to obtain, from a wide range of sources, a significant amount of loans as well as grant contributions to subsidize the interest payments on these loans. Accordingly, in mid-December 1987 the Fund established the ESAF with some SDR 6 billion of additional loanable resources.Sixty-one of the Fund?s poorest members are eligible to use the SAF, hut two of the largest, China and India, indicated at the outset that, as they did not anticipate acute or persistent balance of payments needs, they did not intend to make use of the resources.

The Fund now commits up to 70.0 percent of a member?s quota under the three-year arrangements supported by the SAF. Resources are made available for SAF-supported programs on highly coneessional terms- half of one percent interest, with the principal repayable over five and half year to 10 years with a 5-year grace period. Disbursements under the SAF are made annually and are linked to the approval of annual arrangements, with members receiving the equivalent of 20 percent of quota under the first annual arrangement, 30 percent under the second, and 20.0 percent under the third.The same 61 countries that are eligible to use the SAF are eligible 11w the ESAF. China has indicated that, under present circumstances, it does not intend to use the facility although it remains fully eligible to do so, while India has stated that, in the absence of a fundamental deterioration in its balance of payments, it does not expect to borrow from the ESAF.