The IMF's Proposed New Arrangements to Borrow (NAB): An Overview

In the wake of the Mexican financial crisis, the major industrial countries agreed, at the Halifax economic summit of June 15-16, 1995, to establish an "emergency financing mechanism." This goal would be achieved by the proposed establishment of the "New Arrangements to Borrow" (NAB), adopted by the International Monetary Fund's (IMF) Executive Board on January 27, 1997. The proposed NAB are medium-term lines of credit that will provide funds to the IMF to enable it to "forestall or cope with an impairment of the international monetary system, or to deal with an exceptional situation that poses a threat to the stability of the system." Commitments totaling SDR 34 billion, currently about $45.1 billion, have been received from 25 countries. The total U.S. commitment to the NAB is SDR 6,712 million. SDR 2,462 million of the proposed U.S. share in the NAB -- the increment above an existing U.S. participation of SDR 4,250 in an earlier credit arrangement, the "General Arrangements to Borrow" (GAB) -- will require authorization and appropriation by the U.S. congress. This amount is scored in the FY 1999 budget as $3.4 billion. Under current budgetary and accounting practices, however, U.S. participation in the NAB is considered to be an exchange of assets and, therefore, to have no impact on the U.S. federal fiscal position. The NAB are easier to activate than the predecessor GAB. This results from dropping the GAB requirement that, when making a call for funds on behalf of nonparticipants, the IMF face an "inadequacy" of resources. It is this shift that effectively establishes the NAB as the facility of first recourse. The NAB are currently under consideration by the 105th Congress. Under prevailing budgetary and accounting practices, the NAB are subject to the requirement of both an authorization and appropriation. The occasion of a request for IMF funding also presents an opportunity for vigorous congressional oversight of the IMF's programs and operations.