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The Lending Agreement

In: Business and Management

Submitted By jenniferlau
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Studies in Business and Economics


Lucian Blaga University of Sibiu, Romania

This paper focuses on the lending arrangements of the IMF in EU countries during crisis period. First, we reviewed the literature regarding IMF-supported programs in times of crisis. On the other hand, we provided a description of the IMF arrangements in EU countries in
2008-2013. We found that these programs differ in type, duration, amount and conditionality, but not significantly in their key objectives (achieving sustainable public finances and ensuring financial sector stability).

Key words: IMF lending arrangements, EU countries, crisis

1. IMF – supported programs in times of crisis – a literature review
Some authors examine the role of the IMF as crisis manager and crisis lender
(Boughton, 2000; Chandavarkar, 2002), the role played by the IMF as a creditor and as a monitor of economic reforms (Marchesi and Sabani, 2007) or the efficacy of IMF's finance in preventing financial crises (Brandes and Schule, 2008).
Many articles have been written on the role of the IMF in financing and designing economic reform programs for developing countries and in dealing with crisis periods, thus:


the IMF's role in dealing with the Asian crisis in Thailand, Indonesia and South
Korea in 1997-1998 (Jonas, 1999; Ito, 2007);


the IMF-supported program in Indonesia during the crisis period (Boediono, 2002;
Grenville, 2004);


the IMF's influence on economic policies in Russia in the 1990s (Jordan, 2001;
Odling-Smee, 2006);


the IMF Intervention in Korea in 1997 (Crotty and Lee, 2009);


the IMF involvement in 13 low income countries between January 2007 and June

104 IMF financial arrangements in 74 developing countries during 1973-1991
(Santaella, 1996);

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2009 (Van Waeyenberge, Bargawi and McKinley, 2010);


the transition experience of the IMF in Eastern Europe (Rodlauer, 1995);


the IMF-supported adjustment programs in Poland during 1990-1995 and in Russia for the period 1992-1994 (Gomulka, 1995);


Hungary's relationship with the IMF between 1954-1994 (Csaba, 1995);

the effectiveness of IMF programs in Eastern European countries (Eke and Kutan

Hungary, Latvia and Ukraine experience in Stand-By Arrangements signed with the IMF during current crisis (Cordero, 2009);


the IMF rescue package for Greece in the context of sovereign debt crisis (Visvizi,
Analyzing the financial crises that have threatened Mexico, Thailand,
Indonesia, Korea, Malaysia, Russia and Brazil between 1994 and 2001, Fischer (2003) discusses the reform of the international financial system stressing the role of the IMF reforms in crisis prevention and responses.
Reviewing the IMF’s current practices, Weisbrot, Cordero and Sandoval (2009) conclude that in the crises of the 1990s Fund „made serious mistakes that adversely affected the economies in need” and „failed to act as a lender of last resort”. They find that „the Fund’s current policy decisions and orientation remain similar to those of the
Edwards and Hsieh (2011) highlight recent changes in IMF lending, considering that „this is a marked change from earlier decades, during which IMF lending was more evenly distributed across regions, and Europe accounted for a relatively low share”.
Barkbu, Eichengreen and Mody (2012) describe financial crises and the multilateral response in the last 40 years warning that both crises and programs have changed over time.
Other studies evaluate the effects of IMF loan programs on economic growth, reforms and other variables: Conway (1994); Garuda (2000); Dicks-Mireaux, Mecagni and Schadler (2000); Hutchison and Noy (2003); Martinez-Vazquez and Mina (2003);
Barro and Lee (2005); Dreher and Rupprecht (2007); Hajro and Joyce (2009); Abbott,
Andersen and Tarp (2010); Dreher and Walter (2010).
The framework underlying the IMF conditionality is described in: Buira (1983);
Joyce (1992); Guitian (1995); Drazen (2002); United Nations (2010).
2. IMF arrangements in EU countries in 2008-2013 - some features
The characteristics of the IMF programs (type, period and amount) in EU countries in time of crisis are presented in Table 1. We analyzed only the nonconcessional IMF-supported programs through the General Resources Account (GRA) not concessional arrangements through the Poverty Reduction and Growth Trust

Studies in Business and Economics - 135 -

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Table 1. IMF arrangements in EU countries during 2008-2013 (millions of SDRs)
No. Country Facility


Date of

Date of
Expiration or
Cyprus EFF
May 2013
May 2016
Greece EFF
March 2012
March 2016
May 2010
March 2012
Hungary SBA
November 2008 October 2010 10,537.5
December 2010 December 2013 19,465.8
December 2008 December 2011 1,521.6
Poland FCL
January 2013
January 2015 22,000.0
January 2011
January 2013 19,166.0
July 2010
January 2011 13,690.0
May 2009
May 2010
Portugal EFF
May 2011
May 2014
Romania SBA
September 2013 September 2015 1,751.3
March 2011
June 2013
May 2009
March 2011
Source: IMF - IMF Lending Arrangements Database





In the period 2008-2013 there were approved 14 non-concessional arrangements in EU developed and emerging and developing countries: 6 SBA
(Standby Arrangement), 4 EFF (Extended Fund Facility) and 4 FCL (Flexible Credit
Line) (Graph 1). All Flexible Credit Lines were treated as precautionary.

Graph 1. Number and type of IMF arrangements approved in
EU countries during 2008-2013










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In several countries (Greece, Hungary, Portugal and Romania), IMF programs were accompanied by financial assistance from other official creditors (EU, World Bank and other institutions).
There are differences between programs regarding theirs duration, with a median of 24 months (Graph 2).

Graph 2. EU countries 2008-2013 IMF arrangements duration (in months)


Almost all arrangements implied exceptional access to IMF resources, over the usual limits (with maximum levels of 2159% and 2399% of IMF quota for Greece and
2306% of IMF quota for Portugal). There is much variability of access in percent of each country IMF quota, with a median of 837% of quota (Graph 3).

Graph 3. Amount agreed of EU countries IMF arrangements in 2008-2013 as percent of countr
IMF quota (%)


The design of the programs (main objectives) is as follows (see the number of country facility in Table1):

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(1. Cyprus) Objectives ( to restore financial stability and resumption of credit to support economic activity; to adjust fiscal budget that balances short-run cyclical concerns and long-run sustainability objectives, while protecting vulnerable groups.

(2. Greece) Objectives ( to reduce debt-to-GDP ratio to 120% by 2020; to put growth at the center of the Greece agenda; to achieve a viable level of public spending; to ensure the solvency of the banking sector while protecting depositors.

to restore confidence and fiscal sustainability;

to restore competitiveness; to safeguard financial sector stability.

(3. Greece) Objectives (

(4. Hungary) Objectives ( to implement a substantial fiscal adjustment to ensure that the government's debtfinancing needs will decline; to maintain adequate liquidity and strong levels of capital in the banking system; to restore stability in the financial sector and create the conditions for an economic recovery. (5. Ireland) Objectives
to restructure the banking sector that will entail extensive deleveraging and reorganization; to provide an appropriate balance between consolidation to achieve fiscal sustainability while mitigating adverse effects on growth and protecting the most vulnerable; to pass the structural impediments to business environment that might underpin competitiveness. (6. Latvia) Objectives ( to stem the current liquidity crisis and then ensure long-term external stability, while maintaining the exchange rate peg; to stabilize the financial sector, restore depositor confidence, and to avoid the disorderly adjustment that would follow if the exchange rate peg were abandoned; to stem the loss of bank deposits and international reserves; to restore confidence in the banking system in the medium-term and to support private debt restructuring.

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(7. Poland) Objectives ( to preserve investor confidence, supporting macroeconomic policies, and providing significant insurance against external risks.

(8. Poland) Objectives ( to safeguard the economy against heightened downside risks; to preserve investor confidence and support macroeconomic policies.

(9. Poland) Objectives ( to give confidence that Poland economic policies will remain strong.

(10. Poland) Objectives
to support the authorities’ policy response, boosting market confidence, and placing Poland in a better position to manage adverse developments.
(11. Portugal) Objectives
to stabilize the fiscal balance supported by structural fiscal reform; to safeguard financial stability and prevent a protracted credit contraction.
(12. Romania) Objectives
to maintain sound macroeconomic policies and financial sector stability and continue structural reforms to enhance growth prospects.
(13. Romania) Objectives
to boost potential growth through structural reforms; to improve efficiency of the public sector for reducing bureaucratic barriers to economic efficiency and increasing the absorption of EU structural funds; to introduce deep-rooted reforms in the energy and transport sectors, including pricing reforms, improved regulation, and the restructuring and privatization of energy and transport state owned enterprises; to reassure private markets and provide a cushion against future shocks.
(14. Romania) Objectives
to reduce the fiscal imbalance to bring the deficit back under 3% of GDP by 2011; to maintain adequate capitalization of banks and liquidity in domestic financial markets; Studies in Business and Economics - 139 -

Studies in Business and Economics

to bring inflation within the target range of the National Bank of Romania by end2009 and maintain it there; to secure adequate external financing and improve confidence.

As it can be observed, the IMF programs in EU countries in the period 20082013 differ in type, duration, amount and conditionality, but not significantly in their key objectives (achieving sustainable public finances and ensuring financial sector stability). 3. References:
Abbott, P., Andersen, T.B., Tarp, F. (2010). IMF and Economic Reform in Developing Countries,
The Quarterly Review of Economics and Finance, 50, 17-26.
Barkbu, B., Eichengreen, B., Mody, A. (2012). Financial Crises and the Multilateral Response:
What the Historical Record Shows, Journal of International Economics, 88(2), 422-435.
Barro, R. J., Lee, J. W. (2005). IMF Programs: Who is Chosen and What are the Effects?
Journal of Monetary Economics, 52(7), 1245-1269.
Boediono. (2002). The International Monetary Fund Support Program in Indonesia: Comparing
Implementation under Three Presidents, Bulletin of Indonesian Economic Studies, 38(3),
Boughton, J. M. (2000). From Suez to Tequila: The IMF as Crisis Manager, Economic Journal,
110(460), 273-291.
Brandes, J., & Schule, T. (2008). IMF's Assistance: Devil's Kiss or Guardian Angel? Journal of
Economics, 94(1), 63-86.
Buira, A. (1983). IMF Financial Programs and Conditionality, Journal of Development
Economics, 12(1-2), 111-136.
Chandavarkar, A. (2002), Is the IMF a Lender of First or Last Resort? Economic and Political
Weekly, 37(36),
Conway, P. (1994). IMF lending programs: Participation and impact, Journal of Development
Economics, 45(2), 365-391.
Cordero, J.A. (2009). The IMF’s Stand-by Arrangements and the Economic Downturn in Eastern
Europe. The Cases of Hungary, Latvia, and Ukraine, Center for Economic and Policy
Crotty, J., Lee, K.K. (2009). Was IMF-Imposed Economic Regime Change in Korea Justified?
The Political Economy of IMF Intervention, Review of Radical Political Economics, 41(2),
Csaba, L. (1995). Hungary and the IMF - The Experience of a Cordial Discord, Journal of
Comparative Economics, 20(2), 211-234.
Dicks-Mireaux, L., Mecagni, M., Schadler, S. (2000). Evaluating the Effect of IMF Lending to
Low-income Countries, Journal of Development Economics, 61(2), 495-526.
Drazen, A. (2002), Conditionality and Ownership in IMF Lending: A Political Economy Approach,
Imf Staff Papers, 49, 36-67.
Dreher, A., Rupprecht, S. M. (2007). IMF Programs and Reforms - Inhibition or Encouragement?
Economics Letters, 95(3), 320-326.
Dreher, A., Walter, S. (2010). Does the IMF Help or Hurt? The Effect of IMF Programs on the
Likelihood and Outcome of Currency Crises, World Development, 38(1), 1-18.

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Edwards, K., Hsieh, W. (2011). Recent Changes in IMF Lending, Reserve Bank of Australia
Bulletin, December.
Eke, B., Kutan, A.M. (2009). Are International Monetary Fund Programs Effective? Evidence from East European Countries. Eastern European Economics, 47(1), 5-28.
Fischer, S. (2003). Financial Crises and Reform of the International Financial System, Review of
World Economics, 139(1), 1-37.
Garuda, G. (2000). The Distributional Effects of IMF Programs: A Cross-Country Analysis, World
Development, 28(6), 1031-1051.
Grenville, S. (2004). The IMF and the Indonesian crisis, Bulletin of Indonesian Economic
Studies, 40(1), 77-94.
Gomulka, S. (1995). The IMF-Supported Programs of Poland and Russia, 1990-1994 Principles, Errors, and Results, Journal of Comparative Economics, 20(3), 316-346.
Guitian, M. (1995). Conditionality: Past, Present, Future, International Monetary Fund Staff
Papers, 42(4), 792-835.
Hajro, Z., Joyce, J.P. (2009). A True Test: Do IMF Programs Hurt the Poor? Applied Economics,
41(3), 295-306.
Hutchison, M.M., Noy, I. (2003). Macroeconomic Effects of IMF-Sponsored Programs in Latin
America: Output Costs, Program Recidivism and the Vicious Cycle of Failed
Stabilizations, Journal of International Money and Finance, 22(7), 991-1014.
Ito, T. (2007). Asian Currency Crisis and the International Monetary Fund, 10 Years Later:
Overview, Asian Economic Policy Review, 2(1), 16-49.
Joyce, J.P. (1992). The Economic Characteristics of IMF Program Countries, Economics
Letters, 38(2), 237-242.
Jonas, J. (1999). Asia's Financial Crisis and the Role of the International Monetary Fund,
Finance a Uver, 49(3), 129-142.
Jordan, A. (2001). The Model of Reforms Advocated by the IMF in Russia: Between Inertia and
Change, Revue D Etudes Comparatives Est-Ouest, 32(2), 197-223.
Marchesi, S., Sabani, L. (2007). IMF Concern for Reputation and Conditional Lending Failure:
Theory and Empirics, Journal of Development Economics, 84(2), 640-666.
Martinez-Vazquez, J., Mina, W. (2003). Some Effects of IMF Lending Programs in the MENA
Countries, Topics in Middle Eastern and North African Economies, 5, Middle East
Association and Loyola
Chicago, Odling-Smee, J. (2006). The IMF and Russia in the 1990s, IMF Staff Papers, 53(1), 151-194.
Rodlauer, M. (1995). The Experience with IMF-Supported Reform Programs in Central and
Eastern-Europe, Journal of Comparative Economics, 20(1), 95-115.
Santaella, J.A. (1996). Stylized Facts before IMF-Supported Macroeconomic Adjustment, IMF
Staff Papers, 43(3), 502-544.
United Nations (2010). World Economic Situation and Prospects, New York.
Van Waeyenberge, E., Bargawi, H., McKinley, T. (2010), Standing in the Way of Development?
A Critical Survey of the IMF’s Crisis Response in Low Income Countries, elopment.pdf.
Visvizi, A. (2012). The Crisis in Greece and the EU-IMF Rescue Package: Determinants and
Pitfalls, Acta Oeconomica, 62(1), 15-39.
Weisbrot, M., Cordero, J., Sandoval, L. (2009). Empowering the IMF: Should Reform be a
Requirement for Increasing the Fund’s Resources? Center for Economic and Policy

Studies in Business and Economics - 141 -

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