IMF Emergency Assistance Related to Natural Disasters and Postconflict Situations

Report
from International Monetary Fund
Published on 05 Sep 1999


In addition to support under its regular and special facilities, the IMF provides emergency assistance through loans to help members meet economic problems arising from sudden and unforeseeable natural disasters. The IMF has also expanded the scope of emergency assistance to include countries emerging from conflict in carefully defined situations.
A country's economic balance can be temporarily but severely disrupted by sudden and unforeseeable natural disasters such as earthquakes, hurricanes, drought, or pest infestation. IMF policies on emergency assistance related to natural disasters aim to help finance countries' recovery efforts and support any economic adjustment programs that may also be under way. Emergency assistance loans do not involve performance criteria or meeting specific economic targets, or, normally, the phasing of payouts.

The assistance is usually limited to 25 percent of the member's quota in the IMF, and is available provided that the member is cooperating with the IMF to find a solution to its economic problems. Repayments are required in three and one-fourth to five years.

No Formal Disaster Facility

No formal facility has been established to meet cases of emergency assistance because disaster-related loans can generally be made under existing IMF policies, as long as the borrowing country cooperates with the IMF to address its problems. An IMF member requesting emergency assistance is required to describe the general corrective economic policies that it proposes to follow, and to agree it will avoid introducing or intensifying exchange and trade restrictions. Emergency assistance countries usually also agree to adopt an IMF-supported adjustment program. In most cases, this assistance is followed by an arrangement with the IMF under one of its regular loan facilities.

IMF Emergency Assistance Related to Natural Disasters
Country
Year
Event
Loan
(millions of U.S. Dollars)
Egypt
1962
Crop failure
24.0
Yugoslavia
1963
Earthquake
30.0
India
1966
Drought
187.5 (millions of SDRs)
Nicaragua
1973
Earthquake
12.0
Chad
1974
Drought
2.8
Dominican Rep.
1979
Hurricane
23.3
Dominica
1979
Hurricane
1.0
St. Lucia
1980
Hurricane
1.8
St. Vincent and the Grenadines
1980
Hurricane
0.4
Yemen P.D.R.
1982
Floods
15.4
Yemen Arab Rep.
1983
Earthquake
9.8
Mexico
1986
Earthquake
291.4
Madagascar
1986
Cyclone
16.6
Solomon Islands
1986
Cyclone
1.3
Ecuador
1987
Earthquake
37.7
Bangladesh
1988
Floods
71.9
Jamaica
1989
Hurricane
36.4
Pakistan
1992
Floods
189.6
Bangladesh
1998
Floods
98.1
Dominican Rep.
1998
Hurricane
39.7
Haiti
1998
Hurricane
15.2
Honduras
1998
Hurricane
47.5
St. Kitts and Nevis
1998
Hurricane
1.6
Parallel facilities also help

In 1995, the IMF's policy on emergency assistance was expanded to cover countries in postconflict situations. This assistance may be provided when the member's institutional or administrative capacity has been disrupted as a result of the conflict but there is still sufficient capacity for planning and policy implementation, and a demonstrated commitment on the part of the authorities; when there is an urgent balance of payments need; and when IMF support would be catalytic, could prompt other foreign aid, and is part of a concerted international effort.

Who Might Qualify for Postconflict Help?

To qualify for postconflict assistance, a determination has to be made as to whether:

  • as a consequence of the conflict there is an urgent balance of payments need to help rebuild reserves and meet essential current payments, including debt service to multilateral institutions, and a role for the IMF to play in catalyzing support from other official sources;
  • the country's institutional and administrative capacity has been disrupted to the point that the member is currently unable to develop and implement a comprehensive economic program that could be supported under an IMF arrangement;
  • there is nonetheless sufficient capacity for planning and policy implementation, and demonstrated commitment on the part of the authorities to provide confidence that the IMF's resources will be adequately safeguarded; and
  • there is under way a concerted international effort to address the aftermath of the conflict in a comprehensive way.

IMF Assistance to Postconflict Countries

To help meet at an early stage the special needs of countries experiencing political turmoil, civil unrest, or international armed conflict, the IMF in 1995 expanded its emergency assistance policy to include postconflict countries.

In helping such countries re-establish macroeconomic stability, the IMF works closely with other international agencies and bilateral donors. IMF assistance is made available in three main forms:

  • Technical assistance. IMF technical assistance focuses on rebuilding capacity - for example, establishing and reorganizing monetary and exchange institutions to help restore payment, credit, and foreign exchange operations and ensure the effective use of aid resources. Such assistance may also be financed by other institutions such as the United Nations Development Program, the World Bank, the European Union, and bilateral and multilateral donors.
  • Policy advice. IMF policy advice covers the full range of macroeconomic policies, as well as needed structural measures.
  • Financial assistance. The IMF can also provide relatively quick - disbursing financial assistance. The timing depends on country-specific factors, such as how quickly the political situation is clarified, the member's capacity to formulate and implement an economic program, the time needed for mobilizing donor support, and, if relevant, the clearance of arrears to multilateral institutions.

Since emergency postconflict assistance became available, six countries have qualified and received such support (see box).
Postconflict Emergency Assistance
Country
Date
Amount
(millions of SDRs)
Approved
(% of quota)
Albania
Nov. 1997
8.8
25.0
Bosnia and Herzegovina
Dec. 1995
30.3
25.0
Rep. of Congo
July 1998
7.2
12.5
Rwanda
April 1997
8.9
15.0
Dec. 1997
6.0
10.0
Sierra Leone
Nov. 1998
11.6
15.0
Tajikistan
Dec. 1997
7.5
12.5
March 1998
7.5
12.5