The International Monetary Fund, established in 1945, is a cooperative, intergovernmental, monetary and financial institution. As of April 1999, it had 182 members. The IMF’s first purpose is the promotion of international monetary cooperation. Its Articles of Agreement (as amended), or charter, also provide that it may make its resources available to members experiencing balance-of-payments problems; this is to be done under “adequate safeguards.” Making resources available to counter balance-of-payments problems is intended to shorten the duration and lessen the degree of these problems and avoid “measures destructive of national or international prosperity.” Member countries govern the IMF through the Executive Board—the IMF’s primary decision-making body. The IMF Executive Board comprises 24 Executive Directors who are appointed or elected by one or more IMF member countries. The U.S. Executive Director, for instance, represents the United States at the IMF. When a country joins the IMF and later when IMF members agree to increase the IMF’s capital, the country pays a quota or a capital subscription to the organization. The quota serves several purposes: (1) the funds paid to the IMF contribute to the pool of funds that the IMF uses to lend to members facing financial problems and (2) the amount of quota paid determines the voting power of the member. The IMF calculates the quota by assessing each member country’s economic size and characteristics—economically larger countries pay relatively larger quota amounts. The United States pays the largest quota and thus has the largest single share of voting rights. The IMF also has access to lines of credit provided by member countries under the General Arrangements to Borrow and, more recently, under the New Arrangements to Borrow. As part of the IMF’s mission to promote economic and financial cooperation among its members, the IMF may provide financial assistance to countries facing actual or potential balance-of-payments difficulties that request such assistance. Balance-of-payments difficulties may have short- term, as well as longer-term aspects. The IMF’s approach to alleviating a country’s balance-of-payments difficulties is intended to address both aspects, as needed. As such, the IMF’s approach has two main components—financing and conditionality—that are intended to address both the immediate crisis as well as the underlying factors that contributed to the difficulties. Although financing is designed to help alleviate the short-term balance-of-payments crisis by providing a country with needed reserves, it may also support the longer-term reform efforts by providing needed funding. Similarly, although conditionality, usually in the form of performance criteria and policy benchmarks, is intended to primarily address the underlying causes of the balance-of-payments difficulties over the medium term, it can also assist in alleviating the immediate balance-of- payments problems by, for example, reducing the country’s aggregate demand, including imports. The access to and disbursement of IMF financial assistance is conditioned upon the adoption and pursuit of economic and structural policy measures the IMF and recipient countries negotiate. This IMF “conditionality” aims to alleviate the underlying economic difficulty that led to the country’s balance-of-payments problem and ensure repayment to the IMF. As the reasons for and magnitude of countries’ balance-of-payments problems have expanded (due, in part, to the growing importance of external financing and changes in the international monetary system since the 1970s), conditionality has also expanded. According to IMF staff, conditionality has moved beyond the traditional focus of reducing aggregate demand, which was appropriate for relieving temporary balance- of-payments difficulties, typically in industrial economies. Structural policies—such as reducing the role of government in the economy and opening the economy to outside competition—that take longer to implement and are aimed at increasing the capacity for economic growth became an important part of conditionality. More recently, the financial crises in Mexico (1994-95) and in Asia and Russia (1997-99) have resulted in an increased focus on strengthening countries’ financial sectors and the gradual opening of the economy to international capital flows. The main instruments used by the IMF to provide financial assistance are Stand-by Arrangements (SBA), that provide short-term assistance for problems of a temporary nature; extended arrangements, under the Extended Fund Facility (EFF), that provide longer-term balance-of-payments assistance for problems arising from structural maladjustments; typically, when established, a program lists the general objectives for the first year; objectives for subsequent years are spelled out in program reviews; a Supplemental Reserve Facility (SRF), provided under an SBA or extended arrangement, that provides assistance for exceptional balance- of-payments problems owing to a large and short-term financing need resulting from a sudden and disruptive loss of market confidence reflected in pressure on the capital account and reserves; it is likely to be used when the magnitude of capital outflows may threaten the international monetary system; and an Enhanced Structural Adjustment Facility (ESAF), which is the principal means for providing financial support (highly concessional, or low- interest, loans) to low-income countries facing protracted balance-of- payments problems. The first three arrangements are funded through the IMF’s general resources account (GRA). The ESAF is funded through separate resources. A country may also draw on its “reserve tranche,” that is, call on funds that initially represented about one-quarter of its quota. Except for the highly concessional ESAF loans, the country pays market-based interest rates on money it receives. The SRF is a new facility that charges a higher amount for its use than other IMF instruments. According to the IMF, for a member country to use this facility, there should be a reasonable expectation that the implementation of strong adjustment policies and adequate financing will result in the early correction of its difficulties. IMF financial assistance may be a part of a larger package of financial assistance committed to countries in crisis. Brazil, for example, received commitments for a package that included about $18 billion to be provided by the IMF and approximately $4.5 billion each from the World Bank and the Inter-American Development Bank–primarily to provide improved social safety nets and banking reform. Additional bilateral sources agreed to provide $14.5 billion in financing, primarily to guarantee credits extended to Brazil from the Bank for International Settlements. The resulting package for Brazil amounted to more than $41 billion in commitments. An IMF program can also serve as a catalyst for debt relief from other creditors. For example, to qualify for debt relief from the Paris Club of creditor governments, countries must reach agreement with the IMF on a reform program. The Paris Club conditions its debt relief on countries’ implementation of economic and structural reforms under IMF-supported financing programs. Part of the motivation for Russia’s IMF arrangement in 1996 was to facilitate its debt rescheduling from the Paris Club. The IMF’s general framework for establishing a financial assistance arrangement is intended to be applied on a case-by-case basis that considers each country’s individual circumstances. This process gives the IMF considerable latitude in establishing the balance-of-payments need, the amount and timing of resource disbursements, and the conditions for disbursements. Under its Articles of Agreement, as amended, the IMF limits financial assistance to those countries with a balance-of-payments need. However, the Articles do not precisely define “need,” and, according to IMF documents, the IMF’s Executive Board has been reluctant to establish guidelines that would add greater specificity to the charter’s general criteria. The specific conditions that the IMF and the country authorities negotiate are intended to address the underlying problems that contributed to the country’s balance-of-payments difficulty, while ensuring repayment to the IMF. These conditions include a variety of changes in a country’s fiscal, monetary, or structural policies. After the country completes any “prior actions” and the IMF Executive Board approves the financial arrangement, the program is to take effect and the country is eligible to receive its first disbursement of funds. We found that the IMF generally followed this process for the six countries we reviewed. The formal process the IMF generally uses to establish countries’ financial arrangements is outlined in figure 1. IMF staff, the IMF Executive Board members, and country authorities may also consult informally at any stage throughout this process. Establishment of an IMF financial arrangement begins with discussions between IMF staff and country officials and continues through the IMF Executive Board’s approval of the arrangement. If a member country determines that it is experiencing or could experience a balance-of- payments problem, it can initiate discussions with IMF staff that may lead it to request IMF financial assistance. These discussions can occur at any time, including during the country’s annual consultation with the IMF or through informal consultations requested by the member. At these consultations, IMF staff and country authorities discuss economic data and policies as well as the nature of the country’s balance-of-payments difficulty, amount of financing expected to be provided by various sources and the amount that may be requested from the IMF, instruments under which the IMF resources could be provided, potential schedule for reviewing countries’ performance and disbursing likely conditions for assessing countries’ performance under the program. IMF staff noted that key tasks during country missions to conduct the negotiations are (1) the collection of extensive data describing the country’s economic conditions and (2) an analysis of those data to recommend the amount and timing of the IMF financial assistance and conditionality. The IMF’s review of a country’s economy is an iterative process that is often based on country-provided data, projections of key macroeconomic variables, and judgment by the IMF staff and country officials. The design of an IMF program is complicated, and negotiations between IMF staff and country authorities can be difficult for several reasons. First, the countries are facing an adverse or uncertain economic situation.