The correct answer is: C. Compensatory Financing Facility
The Compensatory Financing Facility (CFF) is a facility of the International Monetary Fund (IMF) that provides short-term financial assistance to member countries that experience balance of payments difficulties caused by a temporary shortfall in export earnings. The CFF is mainly meant for Less Developed Countries (LDCs), which are countries with low per capita income and a high degree of economic vulnerability.
The CFF was established in 1963 to help countries that were experiencing balance
of payments difficulties due to a decline in their export earnings. The facility was originally designed to provide assistance to countries that were affected by natural disasters or other exogenous shocks. However, the CFF has been expanded over time to include assistance to countries that are experiencing balance of payments difficulties due to a decline in their export earnings for reasons beyond their control, such as a decline in the world market price of their exports.The CFF is a revolving fund, which means that the IMF provides loans to countries that are experiencing balance of payments difficulties, and the countries repay the loans with interest. The terms of the loans are relatively generous, with repayment periods of up to five years and grace periods of up to one year.
The CFF has been used by a large number of countries, including many LDCs. The facility has been effective in helping countries to overcome balance of payments difficulties and to maintain their economic growth.
The other options are:
- A. Credit Tranche Drawing is a type of IMF assistance that is available to all member countries. It is a short-term loan that is used to finance temporary balance of payments deficits.
- B. Extended Fund Facility is a type of IMF assistance that is available to member countries that are experiencing more serious balance of payments difficulties. It is a medium-term loan that is used to finance structural reforms.
- D. Structural Adjustment Facility is a type of IMF assistance that was available to member countries that were experiencing severe balance of payments difficulties. It was a medium-term loan that was used to finance structural reforms. The facility was discontinued in 1999.