IMPLEMENTATION OF 

CERTAIN LEGISLATIVE PROVISIONS 

RELATING TO THE 

INTERNATIONAL MONETARY FUND 

A Report to Congress 

in accordance with 

Sections 1503 and 1705(a) of the 

International Financial Institutions Act, 

Section 801(c)(1)(B) of the 

Foreign Operations, Export Financing, and Related Programs 

Appropriations Act, 2001 

and 

Section 605(d) of the 

Foreign Operations, Export Financing, and Related Programs 

Appropriations Act, 1999 

United States Department of the Treasury 

January 2008 
Table of Contents

Introduction ............................................................................................................................... 1 

International Financial Institutions Act, Section 1503 Provisions, by Subsection 

1. Exchange Rate Stability .................................................................................................1 

2. Independent Monetary Authority, Internal Competition, Privatization, 

Deregulation, Social Safety Nets, Trade Liberalization ................................................2 

3. Strengthened Financial Systems ....................................................................................5 

4. Bankruptcy Laws & Regulations ...................................................................................5 

5. Private Sector Involvement ............................................................................................6 

6. Good Governance ..........................................................................................................8 

7. Channeling Public Funds Toward Productive Purposes ................................................9 

8. Individual Economic Prescriptions ...............................................................................9 

9. Core Labor Standards ....................................................................................................9 

10. Discouraging Ethnic and Social Strife ...........................................................................9 

11. Environmental Protection ............................................................................................10 

12. Greater Transparency ...................................................................................................10 

13. Evaluation ....................................................................................................................10 

14. Microenterprise Lending ..............................................................................................11 

15. Anti-Money Laundering and Combating the Financing of Terrorism .........................11 

Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2001, Section 

801(c)(1)(B) Provisions, by Subsection 

I. Suspension of Financing for Diversion of Funds ........................................................12 

II. IMF Financing as Catalyst for Private Sector Financing .............................................12 

III. Conditions for Disbursement .......................................................................................13 

IV. Trade Liberalization .....................................................................................................13 

V. Focus on Short-Term Balance of Payments Financing ................................................13 

VI. Progress toward Graduation from Concessionary Financing ......................................13 

Annex 1: New IMF lending arrangements, per section 605(d) of the Foreign Operations, Export 

Financing, and Related Programs Appropriations Act, 1999 
1

Introduction 

This is the ninth report prepared in accordance with Sections 1503 and 1705(a) of the 

International Financial Institutions Act (the IFI Act – codified at 22 United States Code sections 

262o-2 and 262r-4(a)).1 This report also covers policies set forth in Section 801(c)(1)(B) of the 

Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2001, 2 as 

required by Section 1705(a) of the IFI Act. The report reviews actions taken by the United 

States to promote these legislative provisions in International Monetary Fund (“IMF” or the 

“Fund”) country programs. Annex 1 covers new IMF lending arrangements per section 605(d) 

of the Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1999. 

Earlier reports under these provisions are available on the Department of the Treasury’s website 

(www.treas.gov/press/reports.html). 

 

 Treasury and the Office of the United States Executive Director (“USED”) at the IMF 

consistently endeavor to build support in the IMF’s Executive Board for the objectives set out in 

this legislation. These endeavors include meetings with IMF staff and other Board members on 

country programs and IMF policies, formal statements by the USED in the IMF Board, and 

USED votes in the Board. Treasury’s objective is to support strengthened commitments in IMF 

programs, policy actions by program countries, and policy decisions at the IMF itself. 

 Treasury’s IMF task force is charged with increasing awareness among Treasury staff about 

legislative mandates and identifying opportunities to influence IMF decisions in line with 

broader U.S. international economic policy objectives. Assessments of the overall effectiveness 

of the Treasury and USED’s office in promoting the legislative provisions are published annually 

by the GAO and are available online.3

 The most recent report states that the “Treasury continues 

to promote the [IMF] task force as a tool for monitoring and promoting legislative mandates and 

other policy priorities.” 

 

Report on specific provisions 

I. Section 1503(a)

(1) Exchange rate stability 

Article I of the IMF’s Articles of Agreement states that one of the purposes of the IMF is “to 

promote exchange stability, to maintain orderly exchange arrangements among members, and to 

avoid competitive exchange depreciation.” In June, 2007, as a result of U.S. leadership, the IMF 

adopted a new framework for exchange rate surveillance. A key feature of this framework is the 

concept of fundamental misalignment. A country’s exchange rate can be found fundamentally 

misaligned if it substantially deviates from its long run equilibrium level and if it is coupled with 

 

1

 These provisions were enacted in Sections 610 and 613 of the Foreign Operations, Export Financing, and Related 

Programs Appropriations Act, 1999 (Public Law 105-277, division A, § 101(d), title VI, §§ 610 & 613). Section 

1705(a) was amended by Section 803 of the Foreign Operations, Export Financing, and Related Programs 

Appropriations Act, 2001 (Public Law 106-429, title VIII, § 803). 

2

 Public Law 106-429, title VIII, § 801(c)(1)(B). 

3 Treasury Has Sustained Its Formal Process to Promote U.S. Policies at the International Monetary Fund, 

Government Accountability Office (GAO), June 2006. 
2

a persistent misalignment in the current account. A finding of fundamental misalignment does 

not, in itself, imply a sanction by the Fund. However, it would sharpen the discussion on 

whether the country’s exchange rate policy has a detrimental impact on the rest of the world. If a 

country were found to be fundamentally misaligned with the intent of increasing net exports, the 

Fund could find the country to be manipulating its currency in violation of its obligations under 

the IMF’s articles of agreement. 

This new framework is in the process of being implemented. Some Article IV’s have been 

delayed, included China’s, in order to incorporate the new framework into the Article IV 

reviews. 

Treasury has urged the Fund to exercise firm surveillance over exchange rates throughout the 

year, as the new framework was being formulated. 

• In its Board statement at the September 2007 Article IV discussions on the Republic of 

Korea, the USED underscored Korea’s strong growth in a flexible exchange rate regime and 

the role of exchange rate appreciation in mitigating inflationary pressures. 

• In its July 2007 statement on the Article IV review of Brazil, the USED noted that heavy 

intervention resulted in substantial reserve accumulation. It stated that given the Central 

Bank of Brazil’s high level of reserves, intervention is more costly than the alternative 

options for preventing the development of an overvalued real exchange rate and that 

concerns about exchange rate overshooting could be better addressed through countercyclical 

fiscal policy. 

• In its December 2006 board statement on the Article IV review of India, the USED noted that 

India’s flexible exchange rate regime will support the economy’s adjustment as well as 

encourage the recognition and hedging of foreign exchange risk. It also emphasized that there 

is scope for additional flexibility in the application of the exchange rate policy which is 

particularly important as India moves toward greater integration with the global economy.

• In its Board statement at the October 2006 Article IV discussions on Russia, the USED noted 

that heavy intervention in the foreign exchange market has led to significant money supply 

growth and that negative real interest rates have helped fuel an asset price boom. The USED 

highlighted that given that Russia now has the world’s third largest foreign exchange 

reserves and a current account surplus of 11 percent of GDP, the authorities should cease 

intervening in the foreign exchange market and rather focus monetary policy directly on 

steadily reducing inflation.

(2) Policies to increase the effectiveness of the IMF in promoting market-oriented reform, 

trade liberalization, economic growth, democratic governance, and social stability 

through: 

(A) Establishment of an independent monetary authority 
3

 With the support of the United States, the IMF has been a consistent advocate of greater 

independence of monetary authorities across a range of countries. IMF conditionality frequently 

includes measures to strengthen central bank autonomy and accountability. The IMF also 

provides technical assistance to help countries achieve these goals. In addition, the Fund 

promotes these objectives through assessments of compliance with internationally-agreed upon 

standards and codes, as well as rules for safeguarding the use of IMF resources. Examples of 

United States activities in the last year with regard to these issues include the following: 

• In its Board statement at the July 2007 Article IV discussions, the USED urged that the 

Brazilian Central Bank be granted full autonomy, especially given Brazil’s recent success in 

anchoring the market’s inflation expectations. 

• In its statement on Pakistan’s November 2006 Article IV review, the USED noted that a 

strong and independent central bank will continue to be a key to macroeconomic stability. 

(B) Fair and open internal competition among domestic enterprises 

Though the World Bank has the lead mandate on these issues, with United States support the 

IMF encourages member countries to pursue policies that improve internal economic efficiency. 

These measures may include ending directed lending (or other relationships between government 

and businesses based on favoritism), improving anti-trust enforcement, and establishing a sound 

and transparent legal system. For example, 

• In a January 2007 Board Statement on Swaziland’s Article IV review, the USED urged 

authorities to remove legal, regulatory, and administrative barriers to business establishment 

and operation in an effort to promote private sector-led economic development. 

(C) Privatization 

 The IMF has made privatization a component of country programs where significant 

distortions and government ownership of business enterprises have created substantial 

inefficiencies in the allocation of resources and the production of goods. Collaborating with the 

World Bank, the Fund has supported the use of competitive and transparent means of 

privatization so that borrowing countries might achieve gains in economic efficiency and 

improve their fiscal positions. Examples of IMF programs and surveillance discussions in which 

the USED has advocated privatization include the following: 

• In an August 2007 board statement for the Iraq Article IV, the USED commended the 

liberalization of fuel imports and encouraged Iraqi authorities to push for quick passage and 

implementation of a suite of hydrocarbons laws to encourage private investment in oil 

production.

• In a December 2006 Board statement on the second review of Cameroon's Poverty Reduction 

and Growth Facility, the USED urged the government to move forward with the privatization 
4

of the government-owned airline, telecom company and water parastatal, noting that further 

delay would require additional government subsidization. 

• In an April 2007 Board statement on a Poverty Reduction and Growth Facility for Burkina 

Faso, the USED encouraged Burkina Faso authorities to continue efforts for the government 

to reduce the government’s ownership stake in SOFITEX, the country’s largest cotton 

company and a central player in the critical cotton sector. 

(D)Economic deregulation and strong legal frameworks 

Markets are distorted and entrepreneurship is stifled without strong property rights, 

enforcement of contracts, and fair and open competition. While these issues are often addressed 

as part of the World Bank’s mandate, the IMF periodically includes such policy advice in its 

programs or surveillance on measures considered critical to the member country’s 

macroeconomic performance. Examples of United States’ efforts to encourage these reforms 

include the following: 

• In the August, 2007 Article IV review for Uruguay, the USED urged Uruguayan authorities 

to support increased financial intermediation through promoting banking sector competition, 

reforming state-owned banks, and strengthening bank supervision and regulation. 

• In the December, 2006 Article IV review for India, the USED emphasized that an inefficient 

dispute resolution system, the lack of binding international arbitration and the backlogged 

domestic court system remain major deterrents to foreign investment in critical infrastructure 

projects.

(E) Social safety nets 

While growth is an essential ingredient for poverty reduction, investment in human 

development and basic social services is also critical. Cost effective social safety nets can play 

an important role in building domestic support for economic reform, and in alleviating the direct 

impact of poverty. 

The IMF does not lend directly for budget support to build social safety nets. However, the 

Fund’s policy advice and its focus on macroeconomic stability encourage domestic policy 

makers to develop fiscal strategies that address the needs of the poor. Reducing generalized 

subsidies while protecting pro-poor spending, for example, is a common theme. In the poorest 

countries, IMF advice is developed within a country-specific poverty reduction strategy (PRS) 

that encourages accountability between donors and recipients. 

• In the June 29, 2007 Board review of Paraguay’s Stand-by Arrangement, the USED 

advocated increased expenditure on poverty reduction in Paraguay, financed by increased 

revenues from reforms to broaden the tax base. 

(F) Opening of markets for agricultural goods through reductions in trade barriers 
5

The IMF encourages a multilateral, rules-based approach to trade liberalization across all 

sectors of the global economy, including, but not limited to, the agricultural sector. The IMF has 

played a supportive role in promoting trade liberalization, particularly in the context of the WTO 

trade negotiations under the Doha Development Agenda (DDA). In April 2004, the Fund 

approved the Trade Integration Mechanism (TIM) to provide financial support to countries 

facing balance of payments problems resulting from trade adjustment. The proposal represents a 

concrete response to developing country concerns about the potential negative impacts from 

multilateral trade liberalization. The IMF is prepared, along with the World Bank, to provide 

transitional assistance to member countries experiencing payment imbalances arising from the 

passage of trade reform. 

(3) Strengthened financial systems and adoption of sound banking principles and practices 

The joint IMF-World Bank Financial Sector Assessment Program (“FSAP”) has emerged as 

a critical instrument for financial sector surveillance and advice. As of end-September 2007, 116 

countries have completed FSAP assessments and 24 countries have completed FSAP update 

assessments. Twenty-eight reviews are underway or planned. 

 Results from the FSAP are used to generate assessments of compliance with key financial 

sector standards such as the Basel Committee’s Core Principles for Effective Banking 

Supervision, the International Organization of Securities Commission’s Objectives and 

Principles of Securities Regulation, and the IMF’s own Code of Good Practices on 

Transparency in Monetary and Financial Policies. The FSAP assessment results are 

summarized in Financial System Stability Assessments (“FSSA”) which are often provided to the 

public. Some key examples of where the USED has supported the strengthening of financial 

systems are: 

• In its May, 2007 Board statement on Turkey’s 6th review of its Stand-by Arrangement the 

USED noted that Government of Turkey supervisory capacity has improved substantially, 

while the legislative framework is being modernized with the new Banking Law, the 

Mortgage Law, and prospective legislation on insurance and capital markets. 

• In its statement on Japan’s Article IV review in July 2007, the USED called for greater focus 

on consumer and investor protection, based on information disclosure, and risk management 

measures. The USED emphasized the need for such efforts to respond to Japanese investors’ 

increased appetite for risk and investment abroad, and the need to increase the return on 

savings for retirement. 

• During the IMF Board discussion on Brazil’s Article IV review in July 2007, the USED 

supported policies that would foster financial intermediation, further reductions in directed 

lending, gradual phase out of the financial transactions tax, phase-out of credit quotas to 

specific sectors, and reorientation of the state-owned development bank toward marketoriented lending. 

(4) Internationally acceptable domestic bankruptcy laws and regulations 
6

The IFIs have continued to build upon work started after the Asian financial crisis to promote 

more effective insolvency and debtor-creditor regimes. While the World Bank normally leads 

reviews of domestic insolvency laws, the IMF actively supports this agenda. Both the UN 

Commission on International Trade Law (UNCITRAL) and the World Bank have worked to 

compile recommendations in this area covering, respectively, insolvency law and sound 

insolvency/creditor rights regimes. At the urging of the United States, staff from the World 

Bank, IMF and UNCITRAL worked together to develop a standardized, unified assessment 

methodology to assess implementation of those recommendations. The Financial Stability 

Forum, also with strong U.S. support, has called on World Bank and UNCITRAL staff to 

continue this cooperation and complete a concise, unified international standard for insolvency 

and creditor rights. 

The IFIs also provide technical assistance to help emerging market economies develop efficient 

insolvency regimes. The IMF and the World Bank have supported adoption of the Model Law 

on Cross-Border Insolvency developed by the UN (the UNCITRAL Model Law) to facilitate the 

resolution of increasingly complex cases of insolvency where companies have assets in several 

jurisdictions. With the support of the United States, the IMF has worked with the World Bank to 

promote improved insolvency regimes in a number of countries. 

(5) Private sector involvement

The United States continues to work to ensure that the private sector plays an appropriate 

role in the resolution of financial crises. Over the past several years, the IMF, with the support 

of the United States, has taken important steps towards strengthening crisis prevention and 

resolution. The IMF has strengthened its surveillance of member countries and instilled more 

discipline in the use of official sector financing, especially through the establishment of rules and 

procedures governing exceptional access to Fund resources. Additionally, the use of collective 

action clauses (see Section C, below), supported by the IMF as an accepted contractual, marketbased approach to sovereign debt restructurings, should help a sovereign restructure its debt 

when under financial distress. The IMF recognizes the need to preserve the fundamental 

principles that (a) creditors should bear the consequences of the risks they assume, and (b) 

debtors should honor their obligations. 

In particular, the United States has advocated policies that include: 

(A)Increased crisis prevention through improved surveillance and debt and reserve 

management 

The United States has urged the IMF to strengthen further its surveillance function and crisis 

prevention capabilities. In May 2007, the Board discussed an IMF staff paper on strengthening 

debt management which provided a stocktaking of the IMF and World Bank’s experience in 

helping middle- and low-income countries in strengthening debt management practices. The 

Board noted that the development of clear operational frameworks to identify, monitor, and 

manage balance sheet and market risks would be helpful for middle- and low-income countries 

and the USED supported a four-year pilot project for providing technical assistance to three to 
7

four low-income countries per year to help them build the capacity to develop and implement an 

effective medium-term debt management strategy. 

The USED has also supported the balance sheet approach to measure vulnerabilities in 

emerging markets and has called for greater focus on debt sustainability in both low-income and 

emerging market countries. 

• In its October, 2006 Article IV Board statement, the USED commended Colombia’s 

performance in reducing its debt ratio to a predicted 40% or less of GDP by 2010, and 

encouraged continued debt reduction and prudent fiscal policies. 

• In its January 26, 2007 review of the Peru Stand-By Arrangement, the USED welcomed 

authorities’ efforts to re-balance the currency denomination of debt towards domestic 

currency, reducing the government's vulnerability to exchange rate volatility. 

• In its July 18, 2007 Article IV response, the USED supported Indonesia’s fiscal stance which 

aims to reduce public debt, and noted that this goal remains appropriate.

The IMF continues to encourage, with strong United States support, member countries to 

make their economic and financial conditions more transparent. Countries are urged to provide 

additional information to private market participants by publishing Article IV assessments and 

program documentation as well as by regularly releasing data consistent with the IMF’s Special 

Data Dissemination Standard (SDDS). 

• Fund members subscribing to either the General or Special Data Dissemination Standards 

(SDDS) increased from 75% of all members in 2005 to 82% in 2006, and 83% in 2007. 

• In its October 2006 statement on Burma’s September 2006 Article IV review, the USED 

noted that economic data continues to not be transparent to outside observers and the 

Burmese public and found that IMF surveillance and formulation of policy recommendations 

are hindered by questionable transparency and data shortcomings. 

• In its November 2006 statement on India’s Article IV review, the USED encouraged the 

Indian authorities to adopt the methods outlined by SDDS and to publicize current statistics.

• In its Board statement at the September 2007 Article IV discussions on the Republic of 

Korea, the USED emphasized that that it would welcome welcome a greater degree of 

transparency from Korean authorities regarding the timing and magnitude of their foreign 

exchange interventions.

(B) Strengthening of emerging markets' financial systems

The IMF continues to work with other IFIs to promote stronger financial systems in 

emerging market economies (see Section 3). The IMF and the World Bank reviewed 

coordination of their assistance efforts and the results of this review were set forth in the Malan 

Report which was published in February 2007. This report notes that the IMF and the World 
8

Bank are the only IFIs with near universal membership, and that both of these institutions play 

an important role in helping emerging economies address the challenges of globalization, and 

obtain its benefits. The report recommended that future cooperation be based on the comparative 

expertise of the two institutions, with the IMF taking the lead in instances where there are 

significant issues of domestic or global economic stability, and the World Bank leading in 

instances where financial sector development issues are paramount. 

The IMF is also actively involved with the World Bank in monitoring the implementation of 

the Basel Core Principles for Effective Banking Supervision. The IMF, with United States 

support, has increased its cooperation with the World Bank in this area, through the joint 

Financial Sector Assessment Program (FSAP) and in assessing countries’ observance of other 

standards and codes. 

Some key examples of where the USED has supported a strengthening of emerging market 

financial systems are: 

• In its statement during the December 2006 IMF Executive Board discussion on India’s 

Article IV consultations, the USED urged the removal of restrictions on banking sector 

assets, divestiture of government ownership of financial institutions, elimination of the 

obstacles to development of securitization markets, and improving reporting standards. 

• The IMF Board discussed Turkey’s Article IV review in May 2007. Welcoming Turkey’s 

recent participation in the FSAP, the USED called for bolstering the bank resolution 

framework, supported authorities’ commitment to bank privatization. The USED’s statement 

encouraged ongoing human capital investment so that bank supervisors can respond 

effectively to still high levels of deposit dollarization, the large stock of foreign currency 

loans, and the thin inter-bank markets. 

• In its Board statement at the February 2007 Article IV discussions, the USED noted that 

although Guatemalan authorities made progress in upgrading the bank supervisory 

framework and implementing the Basel Core Principles, the supervisors still lack sufficient 

legal authority to conduct effective consolidated supervision, and need to take immediate 

steps to bolster the crisis management framework, initiate comprehensive special inspection 

of banks, and recapitalize the deposit insurance fund with public money. 

 

• In its December, 2006 review of the Uruguay Stand-By Arrangement, the USED urged the 

passage of a financial sector law, along with capitalization of the central bank, as a means of 

reducing financial sector vulnerabilities. 

(C) Strengthened crisis resolution mechanisms 

The United States, in cooperation with the IMF and the broader international financial 

community, has promoted a strengthened framework for crisis resolution through use of 

collective action clauses (CACs), application of the lending into arrears policy, and clear limits 

on the use of official finance. 
9

 

(i) Collective Action Clauses

 Sovereign bonds governed by New York law conventionally had not included provisions 

which would permit modification of key payment terms by less than unanimous consent. This 

restriction made these bonds harder to restructure when a sovereign experienced financial 

distress. The United States has worked actively with the IMF and the private sector to promote 

the market’s adoption of CACs in order to improve debt restructuring processes. CACs have 

now become the market standard for sovereign bonds issued under New York law. 

 As of August 2007, CACs are included in 66 percent of the stock of external sovereign bonds 

issued by emerging markets. The IMF, encouraged by the United States, has made CACs an 

important element of its crisis resolution agenda. The IMF has indicated it will continue to 

encourage future issuers to follow this trend. 

(ii) Lending into Arrears 

The IMF lending into arrears policy permits the Fund to provide financial support for policy 

adjustments, despite the presence of actual or impending arrears on a country's obligations to 

private creditors, where: (i) prompt IMF support is considered essential for the successful 

implementation of the member's adjustment program; and (ii) the member is pursuing 

appropriate policies and is making a good faith effort to reach a collaborative agreement with 

creditors. IMF efforts in recent years have focused on applying the “good faith” criterion to 

specific cases, including Argentina, the Dominican Republic, Iraq, and Dominica. 

(iii) Clear Limits on Official Finance 

The United States continues to press the IMF to improve its lending selectivity. In 2002 

explicit criteria were developed for extending loans to countries seeking to borrow beyond 

normal limits (“exceptional access”). These include: (i) the member must be experiencing 

“exceptional balance of payments pressures on the capital account” which cannot be addressed 

with normal resources, (ii) an analysis of sustainable debt levels, (iii) reasonable prospects exist 

that the member will regain access to private capital markets during the program term, and (iv) 

the member’s policy program can reasonably be expected to succeed. In addition, procedures 

were introduced to require: (i) a “higher burden of proof in program documentation”, (ii) early 

consultation with the Board on sovereign creditor negotiations, (iii) the issuance of a staff note 

specifically outlining all of the relevant considerations, and (iv) an ex-post evaluation of such a 

program within twelve months of its completion. 

(6) Good governance 

The IMF’s commitment to promoting good governance is outlined in its 1996 Declaration on 

Partnership for Sustainable Global Growth and its 1997 Guidelines on Good Governance. The 

IMF also supports good governance through its emphasis on transparency, strong fiduciary 

diagnostics, and its promotion of market-based reforms.4

 Recently, the IMF has been 

4

 IMF financing is provided to central banks to address balance of payments difficulties. The IMF does not lend to 

fund specific projects in member countries aimed at procurement and financial management controls. 
10

particularly active in promoting good governance through its efforts to protect against abuse of 

the financial system and to fight corruption. 

The Fund’s involvement has focused on those governance aspects that are generally 

considered part of the IMF’s core expertise, such as improving public administration, increasing 

government transparency, enhancing data dissemination, and implementing effective financial 

sector supervision. The IMF promotes best practice principles through its codes and standards, 

such as the Code of Good Practices on Fiscal Transparency, and is collaborating with the World 

Bank on strengthening the capacity of HIPC countries to track public sector spending. The Fund 

has worked with the World Bank and other donors to develop 28 Public Expenditure and 

Financial Accountability (PEFA) indicators, building on the 16 HIPC indicators, to measure and 

track countries' PMF performance over time. Supplementing this is the Fund's 2005 resource 

revenue guide, updated in 2007, a complement to the FISC ROSC for use in resource (oil-gasmining) rich countries. The guide is being used increasingly in diagnostic work in extractive 

industry intense economies. 

Examples of U.S. efforts to encourage good governance include the following: 

• In its October 2006 statement on Burma’s September 2006 Article IV, the USED observed 

that ongoing pervasive government control of the Burmese economy continues to generate 

serious macroeconomic imbalances, resulting in low investment, high and volatile inflation 

and entrenched poverty. 

• In an August 2007 Board Statement on Angola’s Article IV review, the USED urged 

authorities to increase oil and diamond sector transparency to ensure that the country’s 

improved macroeconomic performance translates into lower poverty, a more diversified 

economy, and increased opportunities for all Angolans. 

• During the July 2007 Third Review of Liberia’s performance under the staff-monitored 

program, the USED urged timely passage of anti-corruption legislation to allow the 

government to continue its pursuit of good governance and greater transparency. 

• In meetings with IMF staff, OUSED and Treasury staff encouraged the Fund to accelerate 

the use of the resource revenue guide in Fiscal ROSCs and to apply it more systematically in 

relevant Article IV reports. 

(7) Channeling public funds away from unproductive purposes, including large “show case” 

projects and excessive military spending, and toward investment in human and physical 

capital to protect the neediest and promote social equity 

 The Fund published a Code of Good Practices on Fiscal Transparency in 1998 that aims to 

enhance fiscal policy transparency, promote quality audit and accounting standards, and reduce 

or eliminate off-budget transactions, which are often the source of unproductive government 

spending. The IMF also encourages countries to conduct “public expenditure reviews” with the 

World Bank. 
11

• In its July, 2007 Article IV review of Bolivia, the USED encouraged Bolivian authorities to 

enact a new budget framework to strengthen the budget process and control subnational 

spending. 

 

• In its Board statement at the most recent Brazil Article IV discussions, the USED questioned 

the value of Brazil’s use of fiscal adjustors to the primary surplus, noting that such 

adjustments tend to cloud fiscal transparency. 

(8) Economic prescriptions appropriate to the economic circumstances of each country

The United States has supported flexibility in Fund programs, while emphasizing the need to 

focus conditionality on issues critical to growth and macroeconomic stability using measurable 

results. Partly as a result of U.S. efforts, program conditions have focused increasingly on debt 

and financial vulnerability in middle-income countries and macroeconomic management in lowincome countries. In low-income countries, the U.S. has supported the use of Poverty Reduction 

Strategy Papers (“PRSP”), which are developed by local authorities and civil society and help 

ensure that IMF programs meet specific needs of the country. 

(9) Core labor standards (CLS)

 

 Core labor standards provide a useful benchmark for assessing countries’ treatment of 

workers against internationally agreed-upon standards. The State Department monitors labor 

standards in all IFI borrower countries and Treasury is mandated to submit a separate report to 

Congress assessing progress made with respect to internationally recognized worker rights. 

(10) Discouraging practices that may promote ethnic or social strife 

By helping to create the conditions for a sound economy, IMF assistance facilitates the 

reduction of ethnic and social strife, to the extent such strife is driven in part by economic 

deprivation. For example, with United States support, the IMF has increasingly encouraged the 

strengthening of social safety nets. The IMF also encourages consultation with various segments 

of society in the development of programs so that these segments have an opportunity to 

participate in the implementation of national priorities. IMF assistance has helped to free up 

resources for more productive public investment by contributing to a reduction in country 

military expenditures. 

(11) Link between environmental and macroeconomic conditions and policies 

With respect to its individual lending operations, the IMF does not itself evaluate positive or 

negative linkages between conditions and environmental sustainability. Rather, the IMF 

coordinates with the World Bank which, unlike the IMF, possesses the internal expertise to 

address such linkages. The United States has encouraged the inclusion of conditions on 

environmental issues in cases where such issues have significant macroeconomic consequences. 
12

 

• In the August 2007 statement on Laos’ July Article IV review, the USED noted that a 

transparent and predictable resource revenue management framework would help maximize 

the benefits of Lao’s vast natural resources and strongly recommended that the authorities 

participate in the Extractive Industries Transparency Initiative and adhere to the Fund’s 

guidelines on resource revenue management. 

(12) Greater transparency 

Over the last several years, the IMF has increased significantly the amount of information on 

its programs that it has made available to the public. The United States has stressed the need to 

build on this progress and expand the number of publications and IMF practices open to public 

scrutiny. As of July 2004, publication of all Article IV and Use of Fund Resources staff reports 

is presumed unless a country objects. In addition, all exceptional access reports will generally be 

published as a pre-condition for the Board’s approval of such an arrangement.5

 The USED 

consistently encourages countries to publish the full Article IV staff report on the IMF's public 

website. The percentage of staff reports published increased from 78 percent in 2004 to 84 

percent in 2006. 

(13) Greater IMF accountability and enhanced self-evaluation 

 In April 2000, with the strong urging of the USED, the Executive Board agreed to establish 

an Independent Evaluation Office (“IEO”) to supplement existing internal and external 

evaluation activities. The IEO provides objective and independent evaluation on issues related to 

the IMF and operates independently of Fund management and at arm's length from the IMF 

Board. Since its inception, the IEO has published thirteen comprehensive reviews, including 

recent assessments of the IMF’s structural conditionality, exchange rate policy advice, and aid to 

Sub-Saharan Africa. All reports are publicly available on the IEO’s website at 

(http://www.imf.org/external/np/ieo/index.htm). 

In response to recommendations of a 2002 IEO study on prolonged use of IMF resources, the 

IMF now requires “Ex Post Assessments” (EPAs) of IMF engagement in countries where the 

IMF has had a program in place for at least 7 out of the past 10 years. The EPAs are intended to 

provide a long-term, arms-length perspective and are led by someone other than the country 

mission chief, ideally someone outside of the area department. EPAs provide valuable insights 

to guide future engagement with “prolonged use” countries. 

(14) Structural reforms which facilitate the provision of credit to small businesses, including 

microenterprise lending 

The lack of financial services available to the poor is a significant obstacle to growth for 

many developing countries. The IMF does not have the lead role in microeconomic reforms to 

benefit small businesses; however, the Treasury Department engages with the IFIs to promote 

structural reforms that encourage the provision of credit to small and micro enterprises. The 

microfinance sector is frequently reviewed in the context of the Financial Sector Assessment 

Program (FSAP) in developing countries. 

5

 “Exceptional access” refers to financing arrangements in amounts that exceed the Fund's normal limits. 
13

• In its July, 2007 Article IV response, the USED voiced concerns about the impact of a staterun development bank, BDP, on the Bolivian micro-credit industry, doubting its potential to 

complement the private sector without competition. 

(15) Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) 

Comprehensive integration of the efforts of the IMF and the other IFI efforts as part of the 

global war on terrorism has been a consistent policy priority for the United States and its 

partners. We have encouraged collaboration between the IFIs and the Financial Action Task 

Force (FATF) to assess global compliance with the anti-money laundering (AML) and counterterrorist financing (CFT) standards based on the FATF 40 Recommendations on Money 

Laundering and the 9 Special Recommendations on Terrorist Financing. 

In April 2007, largely as a result of US and G7 leadership, the Executive Board of the IMF 

reiterated the importance of AML/CFT standards to strengthening the integrity of financial 

systems and deterring financial abuse, and affirmed the collaborative arrangements presently in 

place with the FATF and FATF-style regional bodies (FSRBs) for assessing AML/CFT regimes 

in the context of the IMF's financial sector work. The Board also encouraged greater 

transparency by calling for the publication of comprehensive country evaluations. 

 Collaboration by the IMF, FATF and FSRBs, with the assessors, using the same common 

methodology, institutionalizes the global fight against terrorist financing and money laundering, 

and helps countries identify shortfalls in their AML and CFT regimes and implement reforms. 

As of September 2007, the IMF had conducted 50 assessments of country compliance with 

AML/CFT, four of which were conducted jointly with the World Bank. 

 The IMF is also a substantial source of funding for countries’ efforts to strengthen their own 

AML/CFT regimes – an activity that Treasury has supported and has joined in to leverage 

Treasury’s own bilateral AML/CFT assistance. The IMF has provided substantial technical 

assistance (TA) on a bilateral and regional basis, delivering 88 missions and events from May 

2006 to April 2007. 

 In the latest Communiqué of the International Monetary and Financial Committee of the 

Board of Governors of the International Monetary Fund (IMFC) - the Secretary of the Treasury 

is the Governor for the United States - the IMFC reiterated the importance of these issues and 

called for closer cooperation between the IMF and FATF in promoting stronger implementation 

of AML/CFT standards and encouraged publication of comprehensive country evaluations. 

The USED/IMF office played a crucial role in mobilizing the IMF Board support for this 

initiative, as well as making sure note is taken of AML/CFT issues in Article IV reviews and 

reports, IMF programs, and other regular reviews of country progress. Examples include: 

• In its September 2007 statement on the United Arab Emirates’ Article IV report, the USED 

concurred with IMF staff in calling upon the government of the United Arab Emirates to 

strengthen its legal framework for combating terrorist financing and money laundering. 
14

• In the USED July 2007 Board Statement, the USED noted that MENA FATF (the regional 

FSRB for the Middle East and North Africa) had completed its AML/CFT assessment of 

Syria. The USED asked IMF staff to review the MENA FATF assessment and provide the 

Board with comment on its main findings. 

• In its December 2006 statement on Hong Kong’s Article IV review, the USED noted that 

Hong Kong authorities are taking steps to improve their AML/CFT legislative framework. 

The USED called for improved enforcement of AML/CFT measures, and highlighted the 

need for greater regulatory oversight. 

 

• In its November 2006 statement on Pakistan’s Article IV review, the USED congratulated 

Pakistani authorities on measures taken to date to build robust controls against illicit finance 

and emphasized that passage of the long-delayed legislation on money laundering would be 

an important step. 

II. Section 801(c)(1)(B)

(I) Suspension of IMF financing if funds are being diverted for purposes other than the 

purposes for which the financing was intended

With strong United States support, the IMF has taken steps in the past several years to 

ensure that IMF resources are used solely for the purposes for which they are intended. These 

steps constitute a serious and far-reaching initiative to strengthen the system for safeguarding the 

use of Fund resources and for deterring the misreporting of data to the IMF. 

The IMF’s safeguards framework requires countries receiving funds to submit to external 

financial audits of their central bank’s data. This process is designed to ensure that central banks 

have adequate control, accounting, reporting and auditing systems in place to protect central 

bank resources, including IMF disbursements. Any critical gaps identified during the assessment 

process must be remedied before additional IMF resources can be disbursed. 

(II) IMF financing as a catalyst for private sector financing 

The IMF recognizes that, if structured effectively, official financing can complement and 

attract private sector flows. The Fund promotes policy reforms that catalyze private financing 

and, in cases of financial crisis, allow countries to regain access to international private capital 

markets as quickly as possible. (See Section 5 above for a more in-depth discussion of private 

sector involvement.) 

(III) Financing must be disbursed (i) on the basis of specific prior reforms; or (ii) 

incrementally upon implementation of specific reforms after initial disbursement 

IMF disbursements are tranched based on a country’s performance against specified policy 

actions, both prior to and during the program. 
15

• In its Board statement at the February 2007 discussions on the Ex-post Assessment of the 

2002-2006 PRGF program for Nicaragua, the USED noted that using an IMF disbursement 

of funds as a signal to other donors of compliance put pressure on the IMF to disburse funds 

despite countries not meeting program standards, limiting the IMF’s ability to be an effective 

gatekeeper of funds. 

(IV) Open markets and liberalization of trade in goods and services

The IMF has been a consistent advocate of open markets and trade liberalization. The Fund 

also recognizes that trade adjustments can cause temporary balance of payments problems and 

has developed the Trade Integration Mechanism to provide transitional financial assistance to 

countries if needed. 

• In its Board statement at the December 2006 Article IV discussion for India, the USED 

agreed with IMF staff that India can play a proactive role in restarting multilateral trade talks 

and noted that in the Doha Round, key developing countries such as India also need to reduce 

tariffs and other trade barriers in order to promote new trade flows in agriculture, 

manufactured goods and services. 

• In its Board statement at the February 2007 Article IV discussions, the USED encouraged 

Panama that implementation of the US-Panama FTA would provide additional impetus for 

reforms and help sustain growth. 

(V) IMF financing to concentrate chiefly on short-term balance of payments financing 

In September 2000, with strong United States support, the IMF agreed to reorient IMF 

lending to discourage continued or prolonged use of IMF funds, and provide incentives for quick 

repayment. In particular, the IMF shortened the expected repayment periods for both Stand-By 

and Extended Arrangements and established surcharges for higher levels of access. 

In early 2006 the IMF activated an Exogenous Shocks Facility (ESF) for low-income 

countries, which the U.S. supported to bolster the IMF’s focus on addressing short-term balance 

of payments needs. The U.S. also successfully pressed for the adoption of the non-borrowing 

Policy Support Instrument (PSI), to provide a framework for IMF policy advice and donor 

signaling without the need for IMF lending. The U.S. has discouraged low-income countries 

from pursuing serial PRGF programs. The U.S. urges those countries without a clear balance of 

payments financing need to opt for a PSI, in which case they would retain the option of seeking 

ESF financing in the event of sudden adverse developments in their balance of payments. 

(VI) Graduation from receiving financing on concessionary terms 

The United States supports comprehensive growth strategies to move countries from 

concessional to market-based lending. The United States works closely with the IMF and World 

Bank to promote a growth-oriented agenda in developing countries based on strong monetary 

and fiscal policies, trade liberalization, and reduction of impediments to private sector job 

creation. The IMF extends concessional credit through the PRGF. Eligibility is based 
16

principally on a country's per capita income and eligibility under the International Development 

Association (“IDA”), the World Bank's concessional window (the current operational cutoff 

point for IDA eligibility is a 2004 per capita GNI level of $965). Factors that would contribute 

to reduced reliance on concessional resources include a country’s growth performance and 

prospects, capacity to borrow on non-concessional terms, vulnerability to adverse external 

developments such as swings in commodity prices, and balance of payments dynamics. 
ANNEX 1 

Report to Congress on International Monetary Fund Lending 

October 1, 2006 – September 30, 2007 

Board 

Approval Date Country Amount Type U.S. 

Position 

11/20/2006 Haiti SDR 73.7 million 

(US $110 million) 

PRGF Support 

12/15/2006 Moldova SDR 30.8 million 

(US $46 million) 

PRGF Augmentation Support 

12/18/2006 Mauritania SDR 16.1 million 

(US $24 million) 

PRGF Support 

12/22/2006 Central African 

Republic 

SDR 36.2 million 

(US $54 million) 

PRGF Support 

01/26/2007 Peru SDR 172.4 million 

($258 million) 

SBA Support 

02/21/2007 The Gambia 

SDR 14 million 

($21 million) 

PRGF 

Support 

04/23/2007 Burkina Faso SDR 6 million 

($9 million) 

PRGF Support 

05/07/2007 Gabon SDR 77.2 million 

($116 million) 

SBA Support 

08/03/2007 Côte d’Ivoire SDR 40.6 million 

(US$62 million) 

EPCA Support 

1
Legislative Provisions 

Section 1503 of the International Financial Institutions Act, as amended 

(originally passed as Section 610 of the 

Foreign Operations, Export Financing, and 

Related Programs Appropriations Act, 1999, and amended in 2004) 

 

The Secretary of the Treasury shall instruct the United States Executive Director of the 

International Monetary Fund to use aggressively the voice and vote of the Executive Director to 

do the following: 

(1) Vigorously promote policies to increase the effectiveness of the International Monetary Fund 

in structuring programs and assistance so as to promote policies and actions that will 

contribute to exchange rate stability and avoid competitive devaluations that will further 

destabilize the international financial and trade systems. 

(2) Vigorously promote policies to increase the effectiveness of the International Monetary Fund 

in promoting market-oriented reform, trade liberalization, economic growth, democratic 

governance, and social stability through – 

(A) Establishing an independent monetary authority, with full power to conduct monetary 

policy, that provides for a non-inflationary domestic currency that is fully convertible in 

foreign exchange markets; 

(B) Opening domestic markets to fair and open internal competition among domestic 

enterprises by eliminating inappropriate favoritism for small or large businesses, 

eliminating elite monopolies, creating and effectively implementing anti-trust and antimonopoly laws to protect free competition, and establishing fair and accessible legal 

procedures for dispute settlement among domestic enterprises; 

(C) Privatizing industry in a fair and equitable manner that provides economic opportunities 

to a broad spectrum of the population, eliminating government and elite monopolies, 

closing loss-making enterprises, and reducing government control over the factors of 

production; 

(D)Economic deregulation by eliminating inefficient and overly burdensome regulations and 

strengthening the legal framework supporting private contract and intellectual property 

rights; 

(E) Establishing or strengthening key elements of a social safety net to cushion the effects on 

workers of unemployment and dislocation; and 

(F) Encouraging the opening of markets for agricultural commodities and products by 

requiring recipient countries to make efforts to reduce trade barriers. 

(3) Vigorously promote policies to increase the effectiveness of the International Monetary 

Fund, in concert with appropriate international authorities and other international financial 

institutions (as defined in Section 1701(c)(2)), in strengthening financial systems in 

developing countries, and encouraging the adoption of sound banking principles and 

practices, including the development of laws and regulations that will help to ensure that 

domestic financial institutions meet strong standards regarding capital reserves, regulatory 

oversight, and transparency. 

1
(4) Vigorously promote policies to increase the effectiveness of the International Monetary 

Fund, in concert with appropriate international authorities and other international financial 

institutions (as defined in Section 1701(c)(2)), in facilitating the development and 

implementation of internationally acceptable domestic bankruptcy laws and regulations in 

developing countries, including the provision of technical assistance as appropriate. 

(5) Vigorously promote policies that aim at appropriate burden-sharing by the private sector so 

that investors and creditors bear more fully the consequences of their decisions, and 

accordingly advocate policies which include – 

(A) Strengthening crisis prevention and early warning signals through improved and more 

effective surveillance of the national economic policies and financial market development 

of countries (including monitoring of the structure and volume of capital flows to identify 

problematic imbalances in the inflow of short and medium term investment capital, 

potentially destabilizing inflows of offshore lending and foreign investment, or problems 

with the maturity profiles of capital to provide warnings of imminent economic 

instability), and fuller disclosure of such information to market participants; 

(B) Accelerating work on strengthening financial systems in emerging market economies so 

as to reduce the risk of financial crises; 

(C) Consideration of provisions in debt contracts that would foster dialogue and consultation 

between a sovereign debtor and its private creditors, and among those creditors; 

(D)Consideration of extending the scope of the International Monetary Fund’s policy on 

lending to members in arrears and of other policies so as to foster the dialogue and 

consultation referred to in subparagraph (C); 

(E) Intensified consideration of mechanisms to facilitate orderly workout mechanisms for 

countries experiencing debt or liquidity crises; 

(F) Consideration of establishing ad hoc or formal linkages between the provision of official 

financing to countries experiencing a financial crisis and the willingness of market 

participants to meaningfully participate in any stabilization effort led by the International 

Monetary Fund; 

(G)Using the International Monetary Fund to facilitate discussions between debtors and 

private creditors to help ensure that financial difficulties are resolved without 

inappropriate resort to public resources; and 

(H)The International Monetary Fund accompanying the provision of funding to countries 

experiencing a financial crisis resulting from imprudent borrowing with efforts to 

achieve a significant contribution by the private creditors, investors, and banks which 

had extended such credits. 

(6) Vigorously promote policies that would make the International Monetary Fund a more 

effective mechanism, in concert with appropriate international authorities and other 

international financial institutions (as defined in Section 1701(c)(2)), for promoting good 

governance principles within recipient countries by fostering structural reforms, including 

procurement reform, that reduce opportunities for corruption and bribery, and drug-related 

money laundering. 

(7) Vigorously promote the design of International Monetary Fund programs and assistance so 

that governments that draw on the International Monetary Fund channel public funds away 

2
from unproductive purposes, including large “show case” projects and excessive military 

spending, and toward investment in human and physical capital as well as social programs 

to protect the neediest and promote social equity. 

(8) Work with the International Monetary Fund to foster economic prescriptions that are 

appropriate to the individual economic circumstances of each recipient country, recognizing 

that inappropriate stabilization programs may only serve to further destabilize the economy 

and create unnecessary economic, social, and political dislocation. 

(9) Structure International Monetary Fund programs and assistance so that the maintenance 

and improvement of core labor standards are routinely incorporated as an integral goal in 

the policy dialogue with recipient countries, so that – 

(A) Recipient governments commit to affording workers the right to exercise internationally 

recognized core worker rights, including the right of free association and collective 

bargaining through unions of their own choosing; 

(B) Measures designed to facilitate labor market flexibility are consistent with such core 

worker rights; and 

(C) The staff of the International Monetary Fund surveys the labor market policies and 

practices of recipient countries and recommends policy initiatives that will help to ensure 

the maintenance or improvement of core labor standards. 

(10) Vigorously promote International Monetary Fund programs and assistance that are 

structured to the maximum extent feasible to discourage practices which may promote ethnic 

or social strife in a recipient country. 

(11) Vigorously promote recognition by the International Monetary Fund that 

macroeconomic developments and policies can affect and be affected by environmental 

conditions and policies, and urge the International Monetary Fund to encourage member 

countries to pursue macroeconomic stability while promoting environmental protection. 

(12) Facilitate greater International Monetary Fund transparency, including by enhancing 

accessibility of the International Monetary Fund and its staff, foster a more open release 

policy toward working papers, past evaluations, and other International Monetary Fund 

documents, seeking to publish all Letters of Intent to the International Monetary Fund and 

Policy Framework Papers, and establishing a more open release policy regarding Article IV 

consultations. 

(13) Facilitate greater International Monetary Fund accountability and enhance 

International Monetary Fund self-evaluation by vigorously promoting review of the 

effectiveness of the Office of Internal Audit and Inspection and the Executive Board’s 

external evaluation pilot program and, if necessary, the establishment of an operations 

evaluation department modeled on the experience of the International Bank for 

Reconstruction and Development, guided by such key principles as usefulness, credibility, 

transparency, and independence. 

3
(14) Vigorously promote coordination with the International Bank for Reconstruction and 

Development and other international financial institutions (as defined in Section 1701 (c)(2)) 

in promoting structural reforms which facilitate the provision of credit to small businesses, 

including microenterprise lending, especially in the world’s poorest, heavily indebted 

countries. 

(15) Work with the International Monetary Fund to 

(A) foster strong global anti-money laundering (AML) and combat the financing of terrorism 

(CFT) regimes; 

(B) ensure that country performance under the Financial Action Task Force anti-money 

laundering and counterterrorist financing standards is effectively and comprehensively 

monitored; 

(C) ensure note is taken of AML and CFT issues in Article IV reports, International Monetary 

Fund programs, and other regular reviews of country progress; 

(D) ensure that effective AML and CFT regimes are considered to be indispensable elements 

of sound financial systems; and 

(E) emphasize the importance of sound AML and CFT regimes to global growth and 

development. 

4
Legislative Provisions 

Section 801 (c) (1) (B) 

Foreign Operations, Export Financing, and 

Related Programs Appropriations Act, 2001 

 

Treasury should report on the extent to which the IMF is implementing – 

I. Policies providing for the suspension of financing if funds are being diverted for 

purposes other than the purpose for which the financing was intended; 

II. Policies seeking to ensure that financing by the Fund normally serves as a catalyst for 

private sector financing and does not displace such financing; 

III. Policies requiring that financing must be disbursed (i) on the basis of specific prior 

reforms; or (ii) incrementally upon implementation of specific reforms after initial 

disbursement; 

IV. Policies vigorously promoting open markets and liberalization of trade in goods and 

services; 

V. Policies providing that financing by the Fund concentrates chiefly on short-term balance 

of payments financing; 

VI. Policies providing for the use, in conjunction with the Bank, of appropriate qualitative 

and quantitative indicators to measure progress toward graduation from receiving 

financing on concessionary terms, including an estimated timetable by which countries 

may graduate over the next 15 years. 

5
Legislative Provisions 

Section 605(d) of the Foreign Operations, Export Financing, and 

Related Programs Appropriations Act, 1999 

On a quarterly basis, the Secretary of the Treasury shall report to the appropriate committees on 

the standby or other arrangements of the Fund made during the preceding quarter, identifying 

separately the arrangements to which the policies described in section 601(4) of this title apply 

and the arrangements to which such policies do not apply. 

6
7