This process, based on the IMF’s analysis of country data and projections of future economic performance, gives the IMF wide latitude in establishing an actual or potential balance-of-payments need, the amount and timing of resource disbursements, and the conditions for disbursements; and in monitoring and, in some cases, modifying the arrangements. Its Process for Establishing and Monitoring Programs Gives IMF Latitude

Under its Articles of Agreement, as amended, the IMF provides financial assistance only to those countries with a balance-of-payments need. This framework has provided the IMF with wide latitude to consider countries’ individual circumstances and changes in the international monetary system in its financial assistance decisions. Korea and Argentina exemplify the differences that can exist between countries’ financial arrangements with the IMF. The approach is designed to incorporate data on a country’s economic performance as well as the judgment of the IMF Executive Board and staff. For example, in response to the Argentine government’s request, the IMF staff recommended, and the Executive Board approved, a waiver on the basis of the IMF’s judgment that there was sufficient overall progress in implementing the program and that the deviation from meeting the required condition was minor. Access to funding was not delayed. Disbursements Have Been Delayed Until Satisfactory Progress Occurred

In some cases, the IMF determined that the countries had not made sufficient overall progress in meeting program conditions. In these cases, no additional funds were made available until, in the IMF’s judgment, satisfactory progress had been achieved. Trade policies were not the major focus of IMF conditions for structural reform in the four borrowers we studied that are important U.S. trade partners. As we noted earlier, the IMF seeks to address the immediate and underlying problems that contributed to a country’s balance-of-payments problem; restrictive trade policies were not major factors contributing to the countries’ needs for IMF assistance. As such, countries that have borrowed from the IMF sometimes have liberalized their trade systems within the context of their financial arrangements. Brazil, Indonesia, and Korea have undertaken some trade liberalization within the context of their recent IMF financial arrangements. Nevertheless, their overall conditionality has focused primarily on macroeconomic and structural reforms other than trade reform because restrictive trade policies per se were not major causes of their balance-of- payments difficulties, according to the Treasury Department and the IMF. Some U.S. Imports From the Four Countries Have Increased Markedly in the Past Year, but Impact Is Difficult to Measure

The large macroeconomic changes in these four countries caused by their recent financial crises greatly complicate predicting and measuring the trade policies’ impact on the United States.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the International Monetary Fund (IMF), focusing on the: (1) conditions IMF negotiates with its borrower countries; and (2) trade policies of borrower countries.

What GAO Found

GAO noted that: (1) IMF has a process for establishing and monitoring financial arrangements with member countries and it generally followed the process for the six countries in GAO's study; (2) the process encompasses data collection and analysis as well as judgment by the IMF Executive Board and staff, and gives IMF wide latitude in assessing a country's initial request for assistance, negotiating terms and conditions for that assistance, and determining the country's continued access to IMF resources; (3) under its charter, IMF limits financial assistance to members with a balance-of-payments need; IMF has broadly interpreted this to encompass a wide range of financial difficulties; (4) IMF has continued to make disbursements to a country that had not met all conditions when it decided that the country was making satisfactory progress; this decision was based on IMF's analysis of data on the country's progress and IMF's judgment; (5) when IMF determined that the country's progress in meeting key conditions was insufficient, disbursements have been delayed, and have not resumed unless or until satisfactory progress was achieved, in IMF's judgment; (6) IMF financial arrangements in four borrower countries that are important trading partners of the United States focus primarily on macroeconomic and structural reforms rather than trade reform because restrictive trade policies were not major causes of the countries' financial problems leading to the request for IMF assistance, according to the Department of the Treasury and IMF; (7) nevertheless Brazil, Indonesia, and Korea have undertaken some trade liberalization within the context of their most recent IMF arrangements; (8) according to Treasury, Thailand's recent IMF financial arrangements have had no trade liberalization commitments because trade policies were not the root causes of its financial crisis, and also because Thailand's trade system was more open than the other three countries' systems; (9) the large macroeconomic changes in these four borrower countries caused by their recent financial crises have probably been a more important source of changes in their trade policies; (10) this greatly complicates the task of measuring the impact of the trade policies on the United States; and (11) the countries' trade policies can distort trade in specific sectors, however, which could contribute to import surges.