Box 1: Italy and the IMF

Italy’s quota position within the IMF stands at 3.31 percent of the total with SDR 7.88 billion. The latest Article IV consultation with Italy — concluded in March 2011 — found that Italy was suffering from a weak structural economy, with growth rates slowing over the past 10 years and weakening productivity relative to some of its European counterparts. The IMF recognized that high levels of public debt coupled with disappointing growth exposed Italy to vulnerability from external shocks.

Since Italy joined the IMF in 1947, it has entered into two arrangements with the fund — the first stand-by program was in 1974 and the second shortly thereafter in 1977. In 1974, Italy suffered from a large current account deficit and experienced inflation higher than that of any other industrial country at the time — the result of expansionary policies aimed at maintaining employment and stimulating the sluggish economy. When oil prices spiked in 1973, it became clear that Italy was suffering from sizeable balance of payments pressures. Italian authorities requested a stand-by arrangement for SDR 1 billion. Despite short-term balance of payments stabilization success, a second arrangement was requested in 1977, which, combined with favorable terms of trade gains from a depreciating dollar, ended with major improvement in the country’s external account.

While not an official arrangement, last month’s "Stabilization Law" submitted by then Prime Minister Silvio Berlusconi and the "Save-Italy" decree approved by the Mario Monti cabinet broadly provides the basis for the IMF’s monitoring of Italy’s structural and economic reform measures. The move to request intensive surveillance from the IMF came after considerable political pressure from French President Nicolas Sarkozy and German Chancellor Angela Merkel on the sides of the G-20 Summit in Cannes. The measures committed by Italy include: bringing government debt down to 113 percent of GDP by 2014; achieving a balanced budget by 2013 and a structural budget surplus by 2014. Structural adjustments pledged by Italy include the implementation of a balanced budget rule in the constitution by mid-2012 and an increase in competitiveness by cutting red tape and by further liberalizing local public services and utilities.

Intensive surveillance falls outside of the compulsory Article IV consultations and tend to be more informal in nature. Whereas all Article IV consultation findings are brought to the executive board, intensive surveillance are rarely appraised by the board. Intensive surveillance need not originate by country request, but could also come from a country’s creditors or the fund itself. From 2004, Jamaica, Lebanon, and Nigeria have requested such enhanced monitoring.

Currently, Italy has two main channels for accessing IMF resources. The newly established Precautionary and Liquidity Line (PLL) "[c]an be used as a liquidity window allowing six-month arrangements to meet short-term balance of payments needs. Access under a six-month arrangement would not exceed 250 percent of a member’s quota, which could be augmented to a maximum of 500 percent in exceptional circumstances." Moreover, the PLL "[c]an also be used under a 12 to 24-month arrangement with maximum access upon approval equal to 500 percent of a member’s quota for the first year and up to 1,000 percent of quota for the second year (the latter of which could also be brought forward to the first year where needed, following a Board review)." Under the PLL, Italy could access approximately 45 or 90 billion euros, assuming 500 or 1,000 percent access, respectively. The second channel, the Flexible Credit Line (FCL), has a higher qualification bar than the PLL and no cap on access limits. Resource allocation is assessed on a case-by-case basis to address potential, rather than actual, balance of payments needs. To date Colombia, Mexico, and Poland have accessed the FCL, but none has drawn from it. Currently, Italy would be unlikely to qualify for the FCL.