What Is the Arab Monetary Fund (AMF)?
The term Arab Monetary Fund (AMF) refers to an organization launched in 1976 by the Arab League to balance payments and promote beneficial trade in order to boost economic development between participating member nations. Membership has grown to 22 nations spread across the Middle East and North Africa.
- The Arab Monetary Fund is an organization that aims to balance payments and promote trade in order to boost economic development between participating member nations.
- The fund was established in 1976 by the Arab League.
- There are 22 member nations that make up the fund.
- The fund's management consists of a board of governors, a board of executive directors, and a director-general, with each nation appointing a governor and deputy governor to five-year terms.
Understanding the Arab Monetary Fund (AMF)
The Arab Monetary Fund (AMF) was established as a sub-organization of the Arab League in 1976 and became active the following year. The fund’s original mandate focused on the balance of payments among member nations. Initial funding of the AMF was possible thanks to the escalation of oil prices in the mid-1970s.
The AMF first went about pursuing its mandate by providing low-interest loans to developing Arab states. From that starting point, the AMF began to engage in projects that target, among others, the following objectives:
- Minimizing trade restrictions and payments
- Developing capital markets within and among Arab nations
- Calibrating monetary policies among member nations
- Loosening flows of capital across the Arab world
The fund's management structure consists of a board of governors, a board of executive directors, and a director-general. Each member nation appoints a governor and deputy governor to five-year terms. The board of governors enjoys all management power over the fund, including the appointment of the board of executive directors and the director-general. The governors also assign a portfolio of responsibilities to the individual directors, such as the inclusion of new members and suspension of other members, the distribution of funds to member nations, the management of audits, and financial reporting.
Similar regional funds have been discussed in Asia and Africa, but have yet to be established.
As noted above, 22 Middle Eastern and African member states make up the AMF. They include the United Arab Emirates, Jordan, Bahrain, Tunisia, Algeria, Djibouti, Saudi Arabia, Sudan, Syria, Somalia, Iraq, Oman, Palestine, Qatar, Kuwait, Lebanon, Libya, Egypt, Morocco, Mauritiana, Yemen, and Comoros. The fund’s central offices are in Abu Dhabi in the U.A.E. The AMF often works in close collaboration with the International Monetary Fund (IMF).
As noted earlier, the fund also lends money to participating member states to help tackle their balance of payment (BOP) deficits. Among them are the following three types of loans:
- Automatic loans: Loans extended in this program do not go over 75% of a participating nation's portion of the fund's capital. Automatic loans mature within three years and allow for an 18-month grace period.
- Ordinary loans: Member countries that need a loan to cover more than 75% of their portion of the fund's capital qualify for ordinary loans and can go as high as 100% of their contribution in convertible currencies.
- Compensatory loans: When a country experiences an unexpected BOP deficit—normally due to a drop in exports—the fund may advance a compensatory loan valued at 100% of its contributions in convertible currencies. Like the automatic loan, it matures in three years with an additional 18-month grace period.
Example of an AMF Project
Let's take one of the projects the AMF worked on to show how it pursues the goals listed above. The AMF and the World Bank Group (WBG) announced a partnership in 2015. The agreement aimed at strengthening the retail financial sector in the Arab World. In doing so, both organizations felt that they could improve financial markets and trade across the Arab community.
Both the AMF and WBG collaborated on on-the-ground initiatives in three areas. First, they directed financing toward the improvement of electronic payment infrastructure and credit reporting systems. Next, they cultivated the start-up sector by providing banks with the know-how to underwrite bond issues and start-up financing and launch small and medium enterprise (SME) stock markets. Finally, the AMF and World Bank provided financing for the expansion of mobile and microfinancing networks in member nations.