The Arab states instituted the Arab Monetary Fund in their desire to lay the monetary foundation of Arab economic integration and to accelerate the process of economic development in all Arab countries. The Fund’s Articles of Agreement place its lending activity at the top of the means available for its use in order to achieve its objectives.
In this regard, the Articles of Agreement defined with precision the nature of the lending activity, which it entrusted the Fund with the responsibility of conducting. In effect, Article Four states that “correcting disequilibria in the balance of payments of member states constitutes one of the objectives to the achievement of which the Fund should aim at contributing to”. The agreement thus distinctly differentiates the Fund from other joint Arab financial institutions with regard to this specific area. It has directed the organization to deal with aspects related to the macroeconomic situation since the disequilibrium in the balance of payments reflects financial and structural imbalances in the macro-economy. Moreover, Article Nine of the Agreement has also empowered the Fund to “adopt, by decision of the Board of Governors, any other measures which may assist in the realization of its goals”.
Since this activity seeks to correct the disequilibrium in the balance of payments of its member states, stabilize their economies and overcome the structural imbalances facing them, in addition to support sectoral reforms such as the reforms in public finance and the financial and banking sectors, it provides a major incentive to the concerned members to reduce the reliance of their system on exchange restrictions and hence to achieve convertibility between their currencies and liberalize trade and payments.
In this context, the Fund lending policy and procedures enunciate a number of fundamental basis and principles, which the Fund must take into consideration in discharging its lending function. Included in these, are the principle of fairness and the equal opportunity of access to Fund’s loans by Arab countries. Another principle relates to the safeguard of the Fund’s ability to maintain its continuity in growth while also striving to achieve the objectives for which it was created, by seeking to strike an optimal balance between the provision of necessary loan financing and the need to strengthen its resources and capabilities. Moreover, the Fund is also required to ensure that the resources it lends are used safely by the borrowing members who must have the ability to meet their obligations towards it. One way in which the Fund does so is through an agreement it reaches with the borrowing member on appropriate adjustment programs in situations where the Agreement so stipulates and through consultations aimed at monitoring the effectiveness of the said programs in alleviating the member’s balance of payments deficit during the loan’s maturity period.
In addition, the Fund endeavors to develop its capacity to continue meeting the financing requirements of its member states by strengthening its financial resources under optimal conditions. To that end, the fund protects, as much as feasible, its resources from exchange rate fluctuations and strengthens its own reserves in order to be able to meet unforeseeable emergencies and to render the terms and conditions of its lending to its members concessionary.