Finally, on October 16, 2020, the Principality of Andorra as a country became the 190th member of the International Monetary Fund (IMF), after the signing by the Ambassador of Andorra in the United States of the Constitutive Agreement in an event held in that country. After ratifying the document and also signing the statutes on behalf of Andorra, the Ambassador, Excma. Ms. Elisenda Vives Balmaña, and the Managing Director of the IMF, Kristalina Georgieva, met at the IMF headquarters.
Thus culminates a process that It has taken almost a year officially as expected, since at the beginning of January of this year the Minister of Finance of the Government of Andorra Eric Jover announced the start of the procedure for membership by letter to the international financial institution.
A long-awaited addition
The former head of Government of Andorra, Antoni Martí, who was the one who carried out the Major reforms in the country after the BPA crisis, He already showed the intention of studying whether the country should join the International Monetary Fund (IMF) so that it acts as a provider of last resort, as well as classifying the tax offense within the penal code to standardize the legislation. In fact, other financial rating agencies and different European institutions already made this recommendation after the reforms undertaken by the country, which also already had a relationship with the IMF.
During this time period also Institutions were created to supervise the Andorran financial system, as the Andorran Financial Authority (AFA), a specific Commission to ensure the vigilance and prevention of risks, and the Andorran National Institute of Finance (INAF) was endowed with greater resources seeking greater professionalization.
The process began a few years later, on January 9, 2020, during which positions were approached and the different requirements were established, such as the incorporation quota, the objectives to be followed or the statistical analyzes and studies that the Andorran government must provide to the organization. The obstacles were not exactly few, even within Parliament itself.
Acceleration due to the pandemic
After the covid-19 pandemic the government accelerated the accession process, and the integration fee was finally approved by the Council of Ministers at 101.6 million euros, equivalent to 82.5 million of the so-called Special Drawing Rights (SDR) of the IMF, also called Special Drawing Rights (SDR) that they are the unit of account for the reserve assets of the fund. The government maintained that the benefits for Andorra of joining the international institution far exceed the financial costs of the operation.
His thesis, roughly speaking, is that the benefits can outweigh the costs (which they also compensate) by up to 437%, since the agency not only functions as an emergency provider but also offers reputation, recognition, technical assistance and training. It also seemed so to the other groups in the ruling coalition, since Parliament finally approved the accession resolution after the Government also approved it.
However, he highlighted the insistence of the leader and in general of the representatives of the Andorran Social Democratic Party (PSA) that the costs and risks were higher of those admitted by the government, such as the loss of sovereignty and certain structural policies. Thus they appealed the emergency processing in its claims for prudence, responsibility, patience and conscientious analysis.
The truth is that it was of no use to them, after modifying and improving the legislative text in commission with the other parties, which did support this operation to reduce risks such as loss of sovereignty and legal security, the Adhesion Law was definitively approved in a session of the Consell and sent to the IMF, achieving the purpose of being members in the October assembly of the organism.
Furthermore, due to this fact Andorra will be able to integrate directly to the Benelux constituency (Belgium, the Netherlands and Luxembourg) in the executive committee of the institution avoiding waiting two years to benefit from the advantages, and increasing the voice of small countries in this body.
Andorra as an exception
The Principality was one of the only 5 countries that are not members of the IMF along with Monaco and Liechtenstein, on the one hand, and Cuba and North Korea on the other. A) Yes, it was an exception country since on the one hand the values, freedoms, lifestyle, culture and concerns of Andorra are in the antipodes of countries like Cuba or North Korea, which are not part of the organization because they are obviously extremely authoritarian and totalitarian regimes.
On the other hand, Liechtenstein and Monaco, unlike Andorra, have agreements with Switzerland and France in such a way that the central banks of these countries are the guarantors of their monetary and financial systems, in such a way that entry to the IMF is not a matter for them. indispensable.
Consequences and benefits of membership
So, after the final ceremony of the event, The IMF welcomed Andorra and showed its commitment to working together with the Andorran authorities in meeting short- and long-term challenges, especially those common to other European countries. Also to ensure development and prosperity in the post-pandemic scenario, in cooperation with the rest of the international community.
As we have anticipated before, final benefits that the country will obtain with this milestone are:
- Technical assistance in economic and legal matters of various kinds, such as budgetary policy. The IMF acts by advising and proposing measures to avoid economic crises.
- Access to agency funds and financing on its part, which will improve the solvency and liquidity ratings of the rating agencies and allow the country to finance itself at a lower cost and overcome imbalances in the balance of payments.
- Greater transparency and stability due to financial and statistical supervision that will increase the quality of the country's reported data and improve macroeconomic analysis, as well as the fight against money laundering.
As a direct consequence, negotiations of bilateral agreements such as the Double Taxation Agreements with Belgium and the Netherlands are progressing at a faster pace, since Andorra has entered the International Monetary Fund as part of the group led by Belgium and the Netherlands. For example, Finance Minister Eric Jover recently met with his counterpart in the Netherlands, Wopke Hoekstra along with Andorra's Ambassador to the European Union, Esther Rabasa, as well as the Secretary of State for International Financial Affairs, Marco Ballestas. .
Hoekstra stressed that the entry of Andorra into the IMF is essential to increase international multilateral cooperation mechanisms. The ministers have also discussed other issues associated with Finance, especially those related to the context of the health pandemic caused by SARS-CoV-2 and the rapprochement of Andorra both in the European Union and the European Investment Bank.
The IMF endorses the recovery of the Andorran economy
At the beginning of April 2022 the technical staff of the International Monetary Fund (IMF) visited Andorra for a week, issuing the corresponding preliminary report of conclusions that will be published definitively before the summer. This report is made periodically to all the members of the IMF and, to carry it out, a delegation from the organization has held 32 meetings with heads of the General Administration, semi-public, as well as with the private and financial sector of Andorra.
Regarding the economic perspectives, the IMF highlights that «the Andorran economy is recovering significantly from the deep recession caused by the pandemic”, with a “positive growth higher than expected during the second half of 2021” which represented a real growth of 8.9% of GDP. It also emphasizes that labor market conditions "improved, with one of the lowest unemployment rates in Europe." Finally, it highlights that inflation, given the high energy prices, has been contained "more than in neighboring countries thanks to long-term contracts with foreign energy suppliers."
We already commented on the latter in our article on the electricity prices in Andorra. The IMF expects that growth will be maintained during 2022 with 4.5%, but with risks of a downward trend. However, the organization underlines Andorra's resilience in the face of the current world situation: "an important fiscal cushion, a large current account surplus, the recent accumulation of international reserves, well-capitalized and liquid banks, will help in this environment full of uncertainties”.
In conclusion, everything points to the decision to carry out this process has been correct, and we also believe this from Andorra Insiders. The IMF will make it possible not only to improve Andorra's image and reputation, but to open up internationally, deepen its homologation, attract even more financial capital, equip itself with funds and emergency financing systems, improve its solvency and data analysis, and obtain prestige at the level world.
You will have at your disposal very high-level advisers who will provide you with valuable assistance and will take a true and in-depth look at the country annually. With this completes another great step for Andorra in its transformation and modernization.