International financial institutions

15.4.4 Financial assistance 
The IMF lends money only to member countries with balance of 
payments problems. A member country with a payments problem can 
immediately withdraw from the IMF the 25 per cent of its quota. A 
member in greater difficulty may request for more money from the IMP 
and can borrow up to three times its quota provided the member 
country undertakes to initiate a series of reforms and uses the 
borrowed money effectively. The frequently used mechanisms by the 
IMF to lend money are
1. 
Standby Arrangements
2. 
Extended Arrangements
3. 
Structural Adjustment Mechanism (With low interest 
rates)
Regular IMF facilities 
• 
Standby Arrangements (SBA) are designed to provide 
short-term balance of payments assistance for deficits of a 
temporary or cyclical nature, such arrangements are 
typically for 12 to 18 months. Drawings are phased on a 
quarterly basis, with their release made conditional on 

---

FM-305 
493 
meeting performance criteria and the completion of 
periodic programme reviews. Repurchases are made 31/4 
to 5 years after each purchase.
• 
Extended Fund Facility (EFF) is designed to support 
medium-term programmes that generally run for three 
years. The EFF aims at overcoming balance of payments 
difficulties stemming from macroeconomic and structural 
problems. Performance criteria are applied, similar to 
those in standby arrangements and repurchases are made 
in 4½ to 10 years.
Concessional IMF facility
• 
Enhanced Structural Adjustment Facility (ESAF) was 
established in 1987 and enlarged and extended in 1994. 
Designed for low-income member countries with 
protracted balance of payments problems, ESAF drawings 
are loans and not purchases of other members’ 
currencies. They are made in support of three year 
programmes and carry an annual interest rate of 0.5 per 
cent, with a 51h year grace period and a 10 year maturity. 
Quarterly benchmarks and semi-annual performance 
criteria apply; 80 low income countries are currently 
eligible to use the ESAF.
15.5 SDRs 
As time passed, it became evident that the Fund’s resources for 
providing short-term accommodation to countries in monetary 
difficulties were not sufficient. To resolve the situation, the Fund, after 

---

FM-305 
494 
much debate and long deliberations, created new drawing rights in 
1969. Special Drawing Rights (SDRs), sometimes called paper gold, 
are special account entries on the IMF books designed to provide 
additional liquidity to support growing world commerce. Although 
SDRs are a form of money not convertible to gold, their gold value is 
guaranteed, which helps to ensure their acceptability. Initially, SDRs 
worth $9.5 billion were created.