MECHANISM ADOPTED BY THE INTERNATIONAL MONETARY FUND IN TREATING ARREARS WITH ITS BORROWING COUNTRIES

Abstract

The liquidity of the International Monetary Fund (IMF) is prime to its existence, and just like other financial organizations, the IMF is neither an aid agency nor a charitable organization. This implies that whatever assistance it gives out is not for free but to be repaid most often with interest. Expressly, the Articles of Agreement requires that, the IMF makes its general resources temporarily available to members “under adequate safeguard.” The IMF considers that the best safeguard of repayment is a strong economic adjustment program and thus, it has not been the IMF practice to require collateral as a condition for making resources available to its members. In this light, members with financial obligations to the institution are all oblige to repay them as they fall due so that these resources can be made available to other members. Since the early 1980s, following the debt crisis, overdue obligations to the IMF have been a matter of serious concern because they weaken the IMF’s liquidity position and impose a cost on other members. The need for a strengthened and defined procedure for dealing with overdue financial obligations is a necessity for preventing the emergence of additional overdue financial obligations and eliminating existing ones. To this effect, the IMF has in place a cooperative arrears strategy which serves as first aid in treating arrears, and when there is evidence of bad fate in cooperation, remedial measures or sanctions becomes an option in treating arrears.