Experiences with Traditional Compensatory Finance Schemes and Lessons from Flex

This paper describes some policy instruments set up by the IMF and the European Union in order to provide financial assistance to developing countries whose economies are affected by exogenous shocks from exports side. After briefly reviewing the IMF's CFF and the EU's STABEX, the paper presents the operational rules of FLEX and comments on how it functioned from 2000 to 2007. The analysis shows that the FLEX facility suffered from there being inadequate finance allocated to ACPs and from delays in the financing procedure. While these constraints greatly limited the impact of FLEX in the application years 2000-2006, the 2008 FLEX revision eased them and, now, FLEX can guarantee financial support more rapidly than in the past and may more satisfactorily cover the financial requirements of ACPs coping with export earnings instability