Our Work The IMF's fundamental mission is to help ensure stability in the international system.

It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members. Surveillance When a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community. It also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability, to avoid manipulating exchange rates for unfair competitive advantage, and to provide the IMF with data about its economy. The IMF's regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability. This process is known as surveillance. Country surveillance Country surveillance is an ongoing process that culminates in regular (usually annual) comprehensive consultations with individual member countries, with discussions in between as needed. The consultations are known as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials. IMF staff missions also often meet with parliamentarians and representatives of business, labor unions, and civil society. The team reports its findings to IMF management and then presents them for discussion to the Executive Board, which represents all of the IMF's member countries. A summary of the Board's views is subsequently transmitted to the country's government. In this way, the views of the global community and the lessons of international experience are brought to bear on national policies. Summaries of most discussions are released in Public Information Notices and are posted on the IMF's web site, as are most of the country reports prepared by the staff. In June 2007 the IMF's Executive Board adopted a comprehensive policy statement on surveillance. The 2007 Decision on Bilateral Surveillance over Member's Policies, complements Article IV of the IMFs Articles of Agreement and introduces the concept of external stability as an organizing principle for bilateral surveillance. This means that the main focus of the discussions between the IMF and country officials is whether there are risks to the

economys domestic and external stability that would call for adjustments to that countrys economic or financial policies. Regional surveillance Regional surveillance involves examination by the IMF of policies pursued under currency unionsi ncluding the euro area, the West African Economic and Monetary Union, the Central African Economic and Monetary Community, and the Eastern Caribbean Currency Union. Regional economic outlook reports are also prepared to discuss economic developments and key policy issues in Asia Pacific, Europe, Middle East and Central Asia, Sub-Saharan Africa, and the Western Hemisphere. Global surveillance Global surveillance entails reviews by the IMF's Executive Board of global economic trends and developments. The main reviews are based on the World Economic Outlook reports and the Global Financial Stability Report, which covers developments, prospects, and policy issues in international financial markets. Both reports are published twice a year, with updates being provided on a quarterly basis. In addition, the Executive Board holds more frequent informal discussions on world economic and market developments. The IMF also has the option of holding multilateral consultations, involving smaller groups of countries , to foster debate and develop policy actions designed to address problems of global or regional importance. In 2006, multilateral consultations brought together China, euro area countries, Japan, Saudi Arabia, and the United States to discuss global economic imbalances. Technical Assistance The IMF shares its expertise with member countries by providing technical assistance and training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax policy and administration, and official statistics. The objective is to help improve the design and implementation of members' economic policies, including by strengthening skills in institutions such as finance ministries, central banks, and statistical agencies. The IMF has also given advice to countries that have had to reestablish government institutions following severe civil unrest or war. In 2008, the IMF embarked on an ambitious reform effort to enhance the impact of its technical assistance. The reforms emphasize better prioritization, enhanced performance measurement, more transparent costing and stronger partnerships with donors. Beneficiaries of technical assistance

Technical assistance is one of the IMF's core activities. It is concentrated in critical areas of macroeconomic policy where the Fund has the greatest comparative advantage. Thanks to its near-universal membership, the IMF's technical assistance program is informed by experience and knowledge gained across diverse regions and countries at different levels of development. About 80 percent of the IMF's technical assistance goes to low- and lowermiddle-income countries, in particular in sub-Saharan Africa and Asia. Postconflict countries are major beneficiaries. The IMF is also providing technical assistance aimed at strengthening the architecture of the international financial system, building capacity to design and implement poverty-reducing and growth programs, and helping heavily indebted poor countries (HIPC) in debt reduction and management. Types of technical assistance The IMF's technical assistance takes different forms, according to needs, ranging from long-term hands-on capacity building to short-notice policy support in a financial crisis. Technical assistance is delivered in a variety of ways. IMF staff may visit member countries to advise government and central bank officials on specific issues, or the IMF may provide resident specialists on a short- or a long-term basis. Technical assistance is integrated with country reform agendas as well as the IMF's surveillance and lending operations. The IMF is providing an increasing part of its technical assistance through regional centers located in Gabon, Mali, and Tanzania for Africa; in Barbados for the Caribbean; in Lebanon for the Middle East; and in Fiji for the Pacific Islands. As part of its reform program, the IMF is planning to open four more regional technical assistance centers in Africa, Latin America, and central Asia. The IMF also offers training courses for government and central bank officials of member countries at its headquarters in Washington, D.C., and at regional training centers in Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates. Partnership with donors Contributions from bilateral and multilateral donors are playing an increasingly important role in enabling the IMF to meet country needs in this area, now financing about two thirds of the IMF's field delivery of technical assistance. Strong partnerships between recipient countries and donors enable IMF technical assistance to be developed on the basis of a more inclusive dialogue and within the context of a coherent development framework. The benefits of donor contributions thus go beyond the financial aspect.

The IMF is currently seeking to leverage the comparative advantages of its technical assistance to expand donor financing to meet the needs of recipient countries. As part of this effort, the Fund is strengthening its partnerships with donors by engaging them on a broader, longer-term and more strategic basis. The idea is to pool donor resources in multi-donor trust funds that would supplement the IMF's own resources for technical assistance while leveraging the Fund's expertise and experience. Expansion of the multi-donor trust fund model is envisaged on a regional and topical basis, offering donors different entry points according to their priorities. The IMF is planning to establish a menu of seven topical trust funds over the next two years, covering antimoney laundering/combating the financing of terrorism; fragile states; public financial management; management of natural resource wealth, public debt sustainability and management, statistics and data provision; and financial sector stability and development. Lending by the IMF A country in severe financial trouble, unable to pay its international bills, poses potential problems for the stability of the international financial system, which the IMF was created to protect. Any member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it has a balance of payments needthat is, if it cannot find sufficient financing on affordable terms in the capital markets to make its international payments and maintain a safe level of reserves. IMF loans are meant to help member countries tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth. The IMF is not a development bank and, unlike the World Bank and other development agencies, it does not finance projects. The changing nature of lending About four out of five member countries have used IMF credit at least once. But the amount of loans outstanding and the number of borrowers have fluctuated significantly over time. In the first two decades of the IMF's existence, more than half of its lending went to industrial countries. But since the late 1970s, these countries have been able to meet their financing needs in the capital markets. The oil shock of the 1970s and the debt crisis of the 1980s led many lowerand lower-middle-income countries to borrow from the IMF. In the 1990s, the transition process in central and eastern Europe and the crises in emerging market economies led to a further increase in the demand

for IMF resources. In 2004, benign economic conditions worldwide meant that many countries began to repay their loans to the IMF. As a consequence, the demand for the Funds resources dropped off sharply (see chart below).

But in 2008, the IMF began making loans again to countries hit by the financial crisis and high food and fuel prices. In late 2008 and early 2009 the IMF lent $60 billion to emerging markets affected by the crisis.

While the financial crisis has sparked renewed demand for IMF financing, the decline in lending that preceded the financial crisis also reflected a need to adapt the IMF's lending instruments to the changing needs of member countries. In response, the IMF conducted a wide-ranging review of its lending facilities and terms on which it provides loans.

In March 2009, the Fund announced a major overhaul of its lending

framework, including modernizing conditionality, introducing a new flexible credit line, enhancing the flexibility of the Funds regular stand-by lending arrangement, doubling access limits on loans, adapting its cost structures for high-access and precautionary lending, and streamlining instruments that were seldom used. It has also speeded up lending procedures and redesigned its Exogenous Shocks Facility to make it easier to access for low-income countries.

Lending to preserve financial stability

Article I of the IMF's Articles of Agreement states that the purpose of lending by the IMF is "...to give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity."

In practice, the purpose of the IMF's lending has changed dramatically since the organization was created. Over time, the IMF's financial assistance has evolved from helping countries deal with short-term trade fluctuations to supporting adjustment and addressing a wide range of balance of payments problems resulting from terms of trade shocks, natural disasters, post-conflict situations, broad economic transition, poverty reduction and economic development, sovereign debt restructuring, and confidence-driven banking and currency crises.

Today, IMF lending serves three main purposes.

First, it can smooth adjustment to various shocks, helping a member country avoid disruptive economic adjustment or sovereign default, something that would be extremely costly, both for the country itself and possibly for other countries through economic and financial ripple effects (known as contagion).

Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders. This is because the program can serve as a signal that the country has adopted sound policies, reinforcing policy credibility and increasing investors' confidence.

Third, IMF lending can help prevent crisis. The experience is clear: capital

account crises typically inflict substantial costs on countries themselves and on other countries through contagion. The best way to deal with capital account problems is to nip them in the bud before they develop into a fullblown crisis.

Conditions for lending

When a member country approaches the IMF for financing, it may be in or near a state of economic crisis, with its currency under attack in foreign exchange markets and its international reserves depleted, economic activity stagnant or falling, and a large number of firms and households going bankrupt. In difficult economic times, the IMF helps countries to protect the most vulnerable in a crisis.

The IMF aims to ensure that conditions linked to IMF loan disbursements are focused and adequately tailored to the varying strengths of members' policies and fundamentals. To this end, the IMF discusses with the country the economic policies that may be expected to address the problems most effectively. The IMF and the government agree on a program of policies aimed at achieving specific, quantified goals in support of the overall objectives of the authorities' economic program. For example, the country may commit to fiscal or foreign exchange reserve targets.

The IMF discusses with the country the economic policies that may be expected to address the problems most effectively. The IMF and the government agree on a program of policies aimed at achieving specific, quantified goals in support of the overall objectives of the authorities' economic program. For example, the country may commit to fiscal or foreign exchange reserve targets.

Loans are typically disbursed in a number of installments over the life of the program, with each installment conditional on targets being met. Programs typically last up to 3 years, depending on the nature of the country's problems, but can be followed by another program if needed. The government outlines the details of its economic program in a "letter of intent" to the Managing Director of the IMF. Such letters may be revised if circumstances change.

For countries in crisis, IMF loans usually provide only a small portion of the resources needed to finance their balance of payments. But IMF loans also signal that a country's economic policies are on the right track, which

reassures investors and the official community, helping countries find additional financing from other sources.

Main lending facilities

In an economic crisis, countries often need financing to help them overcome their balance of payments problems. Since its creation in June 1952, the IMFs Stand-By Arrangement (SBA) has been used time and again by member countries, it is the IMFs workhorse lending instrument for emerging market countries. Rates are non-concessional, although they are almost always lower than what countries would pay to raise financing from private markets. The SBA was upgraded in 2009 to be more flexible and responsive to member countries needs. Borrowing limits were doubled with more funds available up front, and conditions were streamlined and simplified. The new framework also enables broader high-access borrowing on a precautionary basis.

The Flexible Credit Line (FCL) is for countries with very strong fundamentals, policies, and track records of policy implementation. It represents a significant shift in how the Fund delivers Fund financial assistance, particularly with recent enhancements, as it has no ongoing (ex post) conditions and no caps on the size of the credit line. The FCL is a renewable credit line, which at the countrys discretion could be for either one- or twoyears, with a review of eligibility after the first year. There is the flexibility to either treat the credit line as precautionary or draw on it at any time after the FCL is approved. Once a country qualifies (according to pre-set criteria), it can tap all resources available under the credit line at any time, as disbursements would not be phased and conditioned on particular policies as with traditional Fund-supported programs. This is justified by the very strong track records of countries that qualify to the FCL, which give confidence that their economic policies will remain strong or that corrective measures will be taken in the face of shocks.

The new Precautionary Credit Line (PCL) is also for countries with sound fundamentals and policies, and a track record of implementing such policies. While they may face moderate vulnerabilities that may not meet the FCL qualification standards, they do not require the same large-scale policy adjustments normally associated with traditional Fund-supported program. The PCL combines pre-qualification (similar to the FCL), with more focused ex-post conditions that aim at addressing the identified vulnerabilities. Progress is assessed in the context of semi-annual monitoring over a one to two year period. The size of the credit line allows access to a larger amount of resources than under a typical SBA. While there may be no actual balance of payments need should at the time of approval, the PCL can be drawn upon should such a need arise unexpectedly.

The Extended Fund Facility is used to help countries address balance of payments difficulties related partly to structural problems that may take longer to correct than macroeconomic imbalances. A program supported by an extended arrangement usually includes measures to improve the way markets and institutions function, such as tax and financial sector reforms, privatization of public enterprises.

The Trade Integration Mechanism allows the IMF to provide loans under one of its facilities to a developing country whose balance of payments is suffering because of multilateral trade liberalization, either because its export earnings decline when it loses preferential access to certain markets or because prices for food imports go up when agricultural subsidies are eliminated.

Lending to low-income countries

To help low-income countries weather the severe impact of the global financial crisis, the IMF has revamped its concessional lending facilities to make them more flexible and meet increasing demand for financial assistance from countries in need. These changes became effective in January 2010. Once additional loan and subsidy resources are mobilized, these changes will boost available resources for low-income countries to US$17 billion through 2014.

Three types of loans were created under the new Poverty Reduction and Growth Trust (PRGT) as part of this broader reform: the Extended Credit Facility, the Rapid Credit Facility and the Standby Credit Facility.

The Extended Credit Facility (ECF) provides financial assistance to countries with protracted balance of payments problems. The ECF succeeds the Poverty Reduction and Growth Facility (PRGF) as the Funds main tool for providing medium-term support LICs, with higher levels of access, more concessional financing terms, more flexible program design features, as well as streamlined and more focused conditionality.

The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to low-income countries (LICs) facing an urgent balance of payments need. The RCF streamlines the Funds emergency assistance, provides significantly higher levels of concessionality, can be used flexibly in

a wide range of circumstances, and places greater emphasis on the countrys poverty reduction and growth objectives. The Standby Credit Facility (SCF) provides financial assistance to low-income countries (LICs) with short-term balance of payments needs. The SCF replaces the High-Access Component of the Exogenous Shocks Facility. It provides support under a wider range of circumstances, allows for higher access, carries a lower interest rate, can be used on a precautionary basis, and places greater emphasis on the countrys poverty reduction and growth objectives. Several low-income countries have made significant progress in recent years toward economic stability and no longer require IMF financial assistance. But many of these countries still seek the IMF's advice, and the monitoring and endorsement of their economic policies that comes with it. To help these countries, the IMF has created a program for policy support and signaling, called the Policy Support Instrument. Debt relief In addition to concessional loans, some low-income countries are also eligible for debts to be written off under two key initiatives. The Heavily Indebted Poor Countries (HIPC) Initiative, introduced in 1996 and enhanced in 1999, whereby creditors provide debt relief, in a coordinated manner, with a view to restoring debt sustainability; and The Multilateral Debt Relief Initiative (MDRI), under which the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF) canceled 100 percent of their debt claims on certain countries to help them advance toward the Millennium Development Goals.