WORLD TRADE  
ORGANIZATION   
WT/L/565/Add.1 
7 May 2004 
 
 (04-2023) 
 Original:   English 
  
 
FUND SUPPORT FOR TRADE-RELATED BALANCE OF PAYMENTS ADJUSTMENTS 
 
Addendum 
 
IMF Press Release No. 04/73 
 
 The following IMF Press Release on the Tr ade Integration Mechanism (TIM) is being 
circulated for the information of Members.   
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IMF EXECUTIVE BOARD APPROVES TRADE INTEGRATION MECHANISM 
 
The Executive Board of the International M onetary Fund (IMF) has approved the Trade 
Integration Mechanism (TIM), which will allow th e IMF to stand ready to provide resources, as 
necessary, to assist member countries in meeting bala nce of payments shortfalls that might result from 
multilateral trade liberalization. The TIM is not a new lending facility, but rather a policy aimed at making Fund resources more predictably availa ble to qualifying member countries under existing 
IMF facilities. 
The TIM is designed to mitigate concerns am ong some developing countries that their 
balance of payments positions could suffer, albe it temporarily, as multilateral liberalization changes 
their competitive position in world markets. Chief among these concerns is that broad-based tariff 
liberalization might erode the value of their preferen tial access to important export markets; that the 
phasing-out of quotas in world textiles trade at the end of 2004 would expose them to greater competition; or that the reduction in agricultural s ubsidies might result in adverse changes in their 
food terms of trade. Balance of payments shortfalls  are unlikely to be large for most countries, and 
would eventually be dominated by the positive impact  of more open trade. Nevertheless, they could 
be significant in the short run for some countries.  
A qualifying member country may request consideration under the TIM if it expects a net 
balance of payments shortfall as a result of meas ures implemented by other countries that lead to 
more open and non-discriminatory market access for goods and services. The TIM does not cover balance of payments needs arising from reforms to  a country's own trade regime. Domestic reforms 
and the supporting policy framework have been a st andard part of Fund-supported programs and the 
IMF will continue to assist its member countries in this area, including through financing under the 
IMF's previously established policies.  
Under the Trade Integration Mechanism, the IMF would:  
● stand ready to discuss with qualifying countries facing such balance of payments 
shortfalls, new arrangements in the upper credit tranches, the Extended Fund Facility, 
or the Poverty Reduction and Growth Facility; WT/L/565/Add.1 
Page 2  
 
 ● in reaching understandings with author ities on these new arrangements or in the 
context of scheduled program reviews, give  consideration to the appropriate size of 
access, including any need for augmentation,  by taking into account the anticipated 
impact of trade adjustment on the member's balance of payments ( baseline feature ); 
and 
● be prepared to consider augmentations  under arrangements subject to simplified 
procedures, if the actual balance of paym ents effect envisioned under the program 
turns out to be larger than anticipated under the baseline projection ( deviation 
feature );  
Under the deviation feature, augmentations w ill be capped at 10 percent of a country's quota 
for the life of the arrangement. However, if devia tions from the baseline projection are even larger, 
the entire program supported by the underlying IMF a rrangement may need to be re-evaluated in 
order to recalibrate the level of Fund support.  
Following the Executive Board's discussion of Fund Support for Trade-Related Balance of 
Payments Adjustments  on April 2, 2004, Anne Krueger, Acti ng Managing Director and Chair, stated: 
"Directors welcomed the opportunity to discuss ways in which the Fund can give its member 
countries additional confidence to pursue amb itious trade liberalization under the Doha 
Round trade negotiations. They reiterated that a successful conclusion of the Doha Round will 
bring significant benefits to the world economy. The transition to a more liberal trade 
environment, however, also involves economic adjustments, which for several developing 
countries may raise added policy challenges. Dir ectors underscored the important role that the 
Fund is already playing-in accordance with its mandate-in advocating the benefits of open 
trade in the context of its surveillance acro ss the membership, and promoting trade-related 
reforms through the provision of technical assistance and program support. They stressed the 
importance of continued efforts to communicate  clearly the Fund's role in supporting trade 
liberalization. 
"While some Directors felt that the Fund's readin ess to make its existing instruments available 
for supporting trade liberalization should give sufficient confidence to members, most 
Directors saw considerable merit in a more tailored approach to address the balance of 
payments impact of trade adjustment resulting from the Doha Round. Directors, accordingly, 
supported the establishment of a Trade Integra tion Mechanism within the Fund's existing 
lending facilities to clarify further how the Fund will stand ready to help its members mitigate 
short-term balance of payments pressures stemming from trade liberalization. 
"Directors agreed that members will qualify for assistance under the TIM to address existing 
or anticipated balance of payments difficu lties related to the implementation of trade 
liberalization measures by other countries. Qu alifying measures would normally be measures 
introduced under a World Trade Organization ag reement or measures taken outside the WTO 
context on a non-discriminatory basis. A balance of  payments need might result, for example, 
from the erosion of tariff preferences in expor t markets as a result of liberalization agreed 
under the Doha Round, adverse changes in food terms of trade due to the elimination of 
agricultural subsidies, or the expiration, in 2005, of quotas under the WTO Agreement on Textiles and Clothing. At the same time, Director s stressed that the Fund should continue to 
assist members-with policy advice as well as pr ogram support-in anticipating and managing 
the implications of their own multilateral trade commitments.  
"Directors emphasized that, to be effective, th e TIM will need to be used in support of an 
appropriate macroeconomic and structural policy framework. It will be activated in the 
context of an upper credit tranche Stand-by Arrangement, an Extended Arrangement or an  WT/L/565/Add.1 
 Page 3 
 
 
 arrangement under the Poverty Re duction and Growth Facility, either at the time of approval 
of the underlying arrangement or when co mpleting a program review under an existing 
arrangement. If the balance of payments shor tfalls expected to result from the trade 
liberalization measures occur over several year s, successive arrangements with the member 
could involve the TIM. 
"To address the difficulties involved in projecting the balance of payments consequences of a 
particular trade event, Directors generally supported the proposal to structure financial 
assistance under the TIM into a baseline feature a nd a deviation feature. The baseline feature 
will be approved as part of the decision on the underlying arrangement or program review for 
a member. It will address the balance of payments  need anticipated to result from the relevant 
trade events over the course of the Fund-sup ported program, and the appropriate balance 
between the adjustment effort and the financi ng to be provided. The baseline impact will be 
identified by the staff, working closely with th e authorities and other international institutions. 
Financing terms under the TIM will be those of the underlying facility under which access is 
granted. 
"Most Directors concurred with the inclusion in the TIM of a deviation feature to assure a 
member from the outset of the Fund's readiness to consider a future  augmentation in access 
should the balance of payments effect of the tr ade event turn out to be even larger than 
initially foreseen. Directors acknowledged the difficulties in disentangling the different 
contemporaneous causes of a shortfall and ma king a precise estimate of the deviation from 
the baseline. Most Directors therefore saw meri t in a simple and streamlined procedure for 
granting augmented access under the deviati on feature upon the determination that the 
member's adjustment program remains broadl y on track and the additional financing is 
justified by unanticipated balance of payments  difficulties of the type that the TIM is 
designed to address. There was broad agreement that, when necessary, such decisions could 
be taken outside of the regular review cycle on a lapse-of-time basis, and that a cap of 10 per 
cent of quota would set an appropriate limit to the augmented access under the deviation 
feature. A few Directors suggest ed that in some cases this cap may be too low. Should the 
unanticipated shortfall in the balance of pa yments exceed 10 percent of quota, Directors 
agreed that the mix of adjustment and financing (including access) may need to be re-assessed 
in the context of a program review.  
"Directors agreed that the conditionality associ ated with access incorporating a TIM baseline 
feature will normally be determined by the u nderlying arrangement. In some cases, however, 
conditionality specifically related to the adjust ments that the TIM is designed to support may 
be called for. Access augmentation under the deviation feature is not expected to be 
associated with a need for additional conditionality. 
"Directors noted the importance of sound extern al trade data to underpin the effective 
operation of the TIM. Countries availing themse lves of the TIM should be encouraged to 
participate in the General Data Disseminati on Standards, while the Fund should stand ready 
to extend technical assistance to improve data quality and reporting where needed. 
"Directors highlighted the importance of close c ooperation with the World Bank, in particular 
in view of the lending initiatives that the Bank is  developing to facilitate members' adjustment 
to trade reforms and help them strengthen thei r institutions and infrastructure for trade. If a 
member requests support from the Fund and the Ba nk concurrently under these new policies, 
the staffs will be expected to coordinate cl osely-in line with the established framework for 
Fund/Bank collaboration-to avoid duplication of wo rk and ensure that their policy advice is 
tailored to effectively addressing the member's  needs. The importance of avoiding cross-
conditionality was highlighted in this context.  Directors also called for close coordination 
with the WTO and donors in the trade-rela ted assistance area, as well as for continued WT/L/565/Add.1 
Page 4  
 
 technical assistance by the Fund to help memb ers address the loss of tariff revenue resulting 
from trade reforms. 
"Directors stressed that the TIM is designed as a temporary policy to address concerns 
associated with the current round of multilateral trade negotiations. They therefore expected 
that, at the time of the review of experience w ith the policy in three years, a decision will be 
taken on the duration of the TIM," Ms. Krueger said. 
 
 
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