Title: Compensatory financing facility.

POPLINE Document Number: 018174

Author(s):

Goreux LM

Source citation:

Washington, D.C., International Monetary Fund, 1980. 84 p. (Pamphlet Series No. 34)

Abstract:

This pamphlet describes the obejctives and modus operandi of the International Monetary Fund's compensatory financing facility. It summarizes the main features of the facility, analyzes the nature of export earnings fluctuations, and explains how the facility operates. The pamphlet includes 4 appendixes which reproduce the compensatory financing decision adopted in August 1979 and list purchases made under the facility until March 1980, illustrate the statistics required for a compensatory financing request, present an algebraic analysis of expert shortfalls, and compare the main features of STABEX with those of the compensatory financing facility. The facility was established by the Fund to provide additional assistance to member countries experiencing balance of payments difficulties arising from expert shortfalls, provided the latter are temporary and largely attributable to circumstances beyond the member's control. Ideally, the facility should enable the member to borrow when its export earnings and financial reserves are low and to repay when they are high, so that its import capacity is unaffected by fluctuations in export earning caused by external events. Assistance extended to the Fund under the compensatory financing facility is additional to other forms of Fund assistance. Because the facility's aim is to cushion the adverse effects which could otherwise have resulted from temporary export shortfalls, assistance under the facility should be provided as soon as the existence of a shortfall can be established. When the shortfall results primarily from a decline in the volume of exports, it is not always easy to determine whether it is due mainly to circumstances beyond the member's control or to inappropriate policies which need to be corrected. The member is generally given the benefit fo the doubt in borderline cases, especially if it has been cooperating with the Fund to find appropriate solutions to its balance of payments difficulties. As with any other drawing from the Fund, a member can draw under the compensatory financing facility only if it has a need to do so in terms of its balance of payments or reserve position or because of developments in its reserves. The amount that a member can draw under the facility is based on the net shortfall in its total export earnings.

Keywords:

Commerce
Foreign Aid
International Cooperation
Economic Development
Development Planning
International Agencies
Macroeconomic Factors
Economic Factors
Financial Activities
Organizations