What were General Agreements to Borrow (GAB)?

“General Agreements to Borrow” (GAB) is a discontinued lending medium for G-10 members. Established in 1962, the program enables the IMF to borrow cash from advanced countries’ central banks. To prevent crises, countries in economic hardship received temporary loans for capital. Member nations closed the GAB in 2018 after agreeing its effectiveness was “diminished and limited.”

Knowing General Agreements to Borrow

The IMF created the General Agreements to Borrow in 1962. It relied on the G-10, a group of 11 major economies, including Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the U.K., the U.S., and Switzerland, which played a minor role.

This ongoing arrangement enables the IMF to borrow money from these countries to help other countries in economic hardship. Countries facing financial challenges that might hinder economic development or undermine the international monetary system should seek additional assistance from the IMF. The IMF used GAB funding to support capital-strapped countries.

In mid-2018, the GAB allowed the IMF to offer up to $24 billion in additional loans to needy members (as of December 2017).1 The IMF made more resources available to prevent financial system instability. In the 1960s, balance of payments (BOP) concerns in the U.K. and U.S. prompted the need for programs like GAB, and more recently, emerging market economies in Latin America and Asia encountered challenges.

GAB activation has occurred ten times since its founding. It has remained the same size since 1983. Despite its repetition, the GAB’s relevance fell, and the IMF’s executive board said the program was less beneficial with time. Given this, the executive board did not extend the GAB in 2017, enabling it to fade out on December 25, 2018.

No country other than the 11 G-10 members may join the GAB until 1983.

GAB Pros and Cons

Some say that tiny countries need a boost in cash to enact policies that boost their local economies and promote growth. Through the GAB, the IMF assisted member countries in restoring exports and investor confidence following natural disasters. It also allowed the IMF to limit turmoil that may extend to other nations.

However, not everyone thinks IMF loans help. Some say the group supports bad policy and ineffective political leadership. Critics argue that loans go to financial institutions in developed countries, rewarding bankers for riskier investments in emerging areas.

Also questioned are lending terms. The IMF, as shown in its three bailouts for Greece, imposes austerity policies that may not immediately benefit residents of failing nations. Some say these concepts prolong economic pain, strengthen poverty, and perpetuate colonialism.

Pros

• Increases liquidity for smaller nations
• It helps nations launch their economies
• Limits instability from spreading to other nations

Cons

• Empowers bad policy and ineffective government leadership
• Pays developed-country bankers for bad, risky trades
• Conditions may extend economic distress.

GAB-NAB

In the late 1990s, the New Arrangements to Borrow (NAB) became the primary IMF loan fundraising mechanism. The proposal originated in 1995 during the Mexican financial crisis. This time, they raised fears that economic downturns may require more excellent resources.

To increase the amount available under the GAB, the IMF contacted the G-10 and other financially strong countries to propose a new funding structure. Launched in 1998, the NAB followed the GAB’s deactivation. Withdrawal from the better-funded NAB was the only way to activate the GAB.

Like the GAB, the NAB involves financial arrangements between the IMF and certain nations. Their membership numbers distinguish them. The NAB had 38 participants, whereas the GAB had a few. NAB totaled $521 billion between 2021 and 2025.

Conclusion

• G-10 nations lent through the IMF through the General Agreements to Borrow.
• The program began in 1962.
• G-10 countries sent funding to the IMF for nations in economic difficulty.
• Participants opted to let the program expire in 2018 since it was useless.
• New Arrangements to Borrow became the primary IMF loan fundraising mechanism.