Chapter 6


Box 6.6: The IMF Cereal Import Financing Scheme

In 1981 the International Monetary Fund (IMF) set up an innovative scheme to finance grain imports for its
member countries. The plan makes temporary financing available when a crisis, such as a crop failure or a surge
in international grain prices, hits a member country with a balance of payments deficit.
The IMF decided to integrate this plan with its Compensatory Financing Facility (CFF), which helps countries
troubled by fluctuations in their export earnings. Under the cereal import plan, the amount of financing
available for the necessary extra imports is calculated as the difference between the cost of these imports during
the most recent twelve months and the estimated average cost of cereal imports for five years, centred on the
year the request is made. The excess cost of cereal imports is then either offset by extra export earnings or
increased by an export shortfall from a rise or fall in average export earnings. To make financing timely, the
plan allows early drawings.
The limit is 83 percent of a country's quota in the fund (the same as the limit for financing export shortages).
For financing requests to cover both extra imports and export shortages, there is a joint limit of 105 percent.
The current finance charge is 7 percent a year, plus a one-time service charge of 0.5 percent and the repayment
period is five years.
The conditions for financing cereal imports are the same as for the CFF program. The excess cost of cereal
imports should be temporary (reversible in a few years). Its causes should be largely beyond the control of the
member country. The IMF must be satisfied that the member has a balance of payments need and that it will co-
operate with the IMF in efforts to solve the balance of payments problems. To obtain financing that raises a
member's drawings above 50 percent of its quota, the IMF must be satisfied that the member has developed a
solution to its balance of payments difficulties.
Source: World Bank, 1986, op.cit


2) External finances to reduce chronic food insecurity

By providing the means for productive investments and for implementing appropriate
institutional and policy changes, external finances can make a substantial contribution to
alleviating chronic food insecurity. Financial assistance can help mitigate food deficits from
both sides: by increasing food production as well as the effective demand of poor and
vulnerable groups.

On the production side, financial assistance plays a highly important role in all cases where
financial constraints inhibit a more effective and efficient use of existing production
potentials. This refers, in principle, to almost all measures listed in Table 5.1 of Chapter 5:
technology, manpower, land utilisation, infrastructure, input supply and marketing. Financial
assistance provides the financial basis to implement policy measures in these various fields,
possibly side by side with complementary technical assistance (see section 2.1 above). The
effects of such approaches are discussed in relation to Figures 5.2 and 5.3 in Chapter 5: food
supplies increase and food prices are reduced, hence food deficits are reduced from the
supply as well as the demand side.

Financial assistance can also contribute to directly diminishing demand deficits, if used to
finance investments that raise incomes of poor and vulnerable groups. Priority fields are
measures aiming to raise the productivity and incomes of small-scale farmers as well as to
create and enhance employment and income opportunities in urban and rural areas. External
finance can also be used to support cost-effective measures of targeted assistance, such as


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