## _102811

## Source details

**Canonical URL:** [_102811](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_102811.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_102811.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_102811.pdf.json)

---

### Executive summary — motivation and guiding principles
- Ongoing turmoil in the Euro Area and recent calls for enhanced emergency assistance in the Middle East and North African region motivate reforms to the global financial safety net amid increased interconnectedness and volatility.
- Identified gaps in the Fund’s lending toolkit:
  - Liquidity needs of members with relatively strong fundamentals affected during systemic crises ("crisis bystanders").
  - Urgent financing needs arising in a broader range of circumstances than natural disasters and post-conflict situations.
- Objective: propose reforms to fill gaps while preserving simplicity and coherence of the lending framework and balancing members’ financing needs against safeguards for Fund resources.
- Guiding principles:
  - Organize lending toolkit primarily according to strength of members’ policies and fundamentals.
  - Preserve simplicity and avoid proliferation of instruments.
  - Balance predictable and rapid liquidity access with adequate safeguards to minimize moral hazard.
  - Ensure enhancements are backed by adequate Fund financial resources.

### Proposed reforms — two key reforms
- Broadening emergency assistance: consolidate current GRA emergency assistance tools under a single instrument in the credit tranches named the Rapid Financing Instrument (RFI).
  - RFI replaces the current emergency assistance special policy covering ENDA and EPCA.
  - Purpose: support urgent balance of payments (BoP) needs from exogenous shocks, natural disasters, post-conflict and fragile situations, or other disruptive situations.
  - Financing form: outright purchases.
  - Access limits: annual access limit of 50 percent of quota and a cumulative access cap of 100 percent of quota.
  - Conditionality: upper-credit tranche-quality policies would not be required for approval; member must outline policy plans and commitments in a letter of intent and cooperate with the Fund.
- Enhancing liquidity provision: replace the PCL with the Precautionary and Liquidity Line (PLL).
  - Allow use by members with an actual BoP need at time of approval (in addition to potential BoP need).
  - Allow six-month duration arrangements to meet short-term BoP needs.
  - Rationale: enable members satisfying other PCL qualification criteria but with an actual BoP need to obtain financing while retaining positive signaling effect; establish a liquidity window to address needs of crisis bystanders during heightened regional or global stress.
  - Design intent: give the Executive Board adequate room to deal with rapidly evolving crises while including stronger procedural safeguards.

### Resource implications (overview)
- Proposed reforms may increase upfront calls on Fund resources to the extent they encourage more members to seek early financial assistance.
- Timely and effective responses can produce confidence effects that offset part of upfront calls on resources.
- Overall assessment: for a given level of global financing needs, the proposed reforms are expected to have only a limited impact on the need for Fund resources.

### Rationale for RFI (broadening emergency assistance)
- Current ENDA and EPCA are compartmentalized and limited to natural disasters and post-conflict situations, leaving gaps for fragile but non-post conflict situations and other urgent BoP needs, particularly for middle-income countries.
- Non-PRGT eligible members with urgent financing needs often seek SBAs despite potential implementation capacity challenges related to fragility.
- Proposal: replace ENDA and EPCA with a single credit-tranche instrument, the RFI, modeled closely on the PRGT's RCF.

### RFI — nature, purpose, qualification, and conditionality
- Purpose and scope:
  - Designed similar to the RCF for PRGT-eligible members and available to all Fund members (including PRGT-eligible members).
  - Intended where (i) the member is experiencing an urgent BoP need that, if not addressed, could result in an immediate and severe economic disruption; and (ii) either (a) the BoP need is expected to be resolved within one year with no major policy adjustments, or (b) the member lacks capacity to implement a UCT-quality economic program due to limited policy implementation capacity or urgency.
- Qualification and conditionality:
  - Ex-ante commitment of policy undertakings required to qualify.
  - UCT-quality policies would not be required, though not precluded.
  - RFI support: outright purchases; there would be no ex post conditionality.
  - Approval conditions:
    - Board must be satisfied the member will cooperate with the Fund to find solutions.
    - Ex ante policy undertakings outlined in a letter of intent; prior actions could be established where warranted.
- Fund engagement and track-record requirements:
  - Members encouraged to include quantitative targets and structural objectives in the letter of intent, where possible.
  - Alternatively, assessment of policy adequacy could be underpinned by:
    - a track-record building Staff Monitored Program (SMP); or
    - a track record based on the Fund’s assessment that macroeconomic policies have been adequate at least over the most recent six-month period.
  - SMP provides a medium-term framework and allows more regular reporting to the Board.

### RFI — access rules and safeguards
- Access:
  - Capped at 50 percent of quota annually and at 100 percent of quota on a cumulative basis.
  - Access in individual cases depends on scale of the BoP need, assessment of capacity to repay, outstanding Fund credit, and past record of using Fund resources.
  - RFI access counts toward overall limits on access to GRA resources; approvals above those limits subject to exceptional access substantive and procedural requirements.
- Repeated use limits:
  - If a member has made an RFI purchase within the three preceding years, any additional RFI purchases—except those requested to meet an urgent BoP need caused primarily by an exogenous shock—could only be approved if the member has established a track record of adequate macroeconomic policies at least over a period of six months immediately prior to the request.
  - Initial staff reports for RFI requests, particularly in fragility cases, could discuss anticipated repeat use and time to restore capacity for a UCT-quality program.
- Safeguards:
  - Scope for prior actions; cooperation requirement; requirement to outline policy undertakings in a letter of intent; track record requirement for repeat use not premised on an exogenous shock.
  - Members requesting RFI assistance must commit to undergo a safeguards assessment and authorize Fund staff access to the central bank’s most recently completed external audit reports and to hold discussions with external auditors.
  - Timing/modalities of safeguards assessments determined case-by-case; normally assessment would need to be completed before Executive Board approval of any subsequent arrangement to which the Fund’s safeguards policy applies.
- Governance:
  - Adoption of the RFI as a window in the credit tranches would require an Executive Board decision adopted by a majority of the votes cast.

### Replacing PCL with PLL — overview and qualification
- Two proposed changes:
  - Allow actual BoP need at approval as well as potential BoP need.
  - Establish a liquidity window: allow six-month PLL arrangements for shorter-duration financing needs.
- Rename PCL to Precautionary and Liquidity Line (PLL) to reflect dual crisis prevention and resolution role.
- Qualification criteria remain unchanged from current PCL decision, except members could seek support based on potential or actual BoP need.
- A six-month PLL arrangement could be based on potential or actual short-term BoP need; short-term generally considered one in which credible progress can be made during the arrangement.
- PLL cannot be approved for a member facing sustained inability to access international capital markets; existence of an actual BoP need at approval would be factored into qualification assessment; sustained vulnerabilities may suggest SBA or EFF as more appropriate.

### PLL — duration, conditionality, and safeguards
- Durations:
  - One- to two-year arrangements as currently under PCL.
  - Six-month arrangements for short-term needs; six-month arrangements should not be used for longer-term BoP needs.
- Repeated use rules for six-month arrangements:
  - Allowed only if:
    - a) A “cool off” period of at least two years has elapsed since approval of the previous six-month arrangement; or
    - b) The member’s short-term BoP need lasts longer than initially expected due to heightened regional or global stress, in which case one additional successor six-month PLL arrangement may be approved without observing the two-year period, on a case-by-case basis and subject to assessment of continued qualification and prior actions, if warranted.
  - Beyond these circumstances, additional PLL support would be expected under one- to two-year PLL arrangements, subject to current PCL access limits.
- Conditionality:
  - One-to-two year PLL arrangements: same ex ante conditionality and ex post conditionality as current one- to two-year PCL arrangements (indicative targets, standard continuous performance criteria, six-monthly reviews, other performance criteria as per Guidelines on Conditionality).
  - Six-month PLL arrangements: subject to ex ante conditionality and those elements of ex post conditionality applicable to six-month duration (i.e., standard continuous performance criteria generally applicable to GRA arrangements).
    - Six-month PLL arrangements would not be subject to six-monthly reviews, indicative targets, or potential performance criteria that apply to one-to-two year PLL arrangements.
  - Prior actions could be required in arrangements of any duration; authorities required to submit a concise written communication with policy commitments and a quantified macroeconomic framework.

### PLL — access limits, phasing, and modalities (exact figures)
- Access (six-month arrangements):
  - a) Normal periods:
    - Access determined case-by-case, with no phasing (entire approved amount available upfront).
    - Capped at 250 percent of quota.
    - This access level is half of the 500 percent of quota annual approval limit for current PCL arrangements.
    - Purchases cannot exceed the actual BoP need.
    - After expiration of the two-year “cooling off” period, a new six-month arrangement of up to 250 percent of quota could be approved.
  - b) Times of heightened regional or global stress:
    - Access under six-month PLL arrangements could exceed the cap of 250 percent of quota, but cannot in any case exceed the 500 percent of quota annual approval under the PCL.
    - Higher access available on a case-by-case basis to six-month arrangements approved or in place during high stress periods, whether a single six-month arrangement or cumulatively in successive six-month arrangements.
  - c) Final decision revision:
    - The higher access limit of 500 percent of quota applies in exceptional circumstances where the member is experiencing or has the potential to experience short-term balance of payments needs that exceed the normal 250 percent of quota limit due to the impact of exogenous shocks, including heightened regional or global stress conditions.
    - Applicability of the higher access to any particular country would be approved by the Executive Board on a case-by-case basis.
- Access (one-year or one-to-two year arrangements):
  - d) For one year or one-to-two years PLL arrangements, access could be increased up to the PCL instrument’s cap of 1,000 percent of quota at any time during the course of the arrangement, subject to completion of a scheduled or ad hoc review.
- Phasing:
  - a) One-to-two year arrangements approved where the member has an actual BoP need would have purchases phased on a semiannual basis, in line with semiannual reviews.
  - b) One-to-two year arrangements approved in the absence of a BoP need would continue to be phased on an annual basis as under the current PCL.

### Rationale for six-month PLL arrangements
- Provide flexibility to respond to regional or global stress events, improve market confidence, create positive externalities for other members, and help cut contagion chains by ring-fencing crisis bystanders.
- Six-month PLL could serve as a liquidity provision tool to address short-term BoP needs of crisis bystanders, supplanting the need for a Global Stabilization Mechanism.

### Box 2 — considerations to determine a heightened stress event (decision inputs)
- Purpose: inform Board determination of access in six-month PLL arrangements by detecting heightened stress events through analyses and judgment in three areas:
  - monitoring global/regional stress;
  - assessing contagion risk via trade and financial linkages;
  - assessing contagion risk beyond direct linkages.
- Monitoring global and regional stress:
  - Quantitative stress indicators can be used (example: the global systemic crisis indicator developed in the Analytics paper).
  - Complementary surveillance and risk analysis products: WEO, REOs, GFSR, Early Warning Exercise, Vulnerability Exercises, FSB reports.
- Contagion via trade and financial linkages:
  - Assess degree of integration to global/regional trade and financial networks to gauge contagion vulnerability.
  - Empirical note: severity of the 2008/09 global crisis was at least partly attributable to growth of trade and financial linkages and to shocks from the most integrated economies.
- Contagion beyond direct linkages:
  - Assess potential for investor reappraisal of risks in similarly-situated, but not directly connected, countries that are connected to other “core nodes.”
  - Case example: Latvia’s 2008/09 crisis triggered broader creditor panic affecting many similarly-situated emerging markets in Eastern Europe.
- Forward-looking considerations:
  - Access decisions should take into account forward-looking indicators, particularly during heightened stress.
  - Country-specific risk indicators may not reveal stressed market conditions while broader contagion assessments may indicate potential future deterioration.
  - Important to take into account the totality of circumstances and potential for contagion to exacerbate funding strains when proposing access levels.

*Source: IMF document excerpt (sections 8–24) on the design of the RFI and proposed replacement of the PCL with the Precautionary and Liquidity Line (PLL).*

### Executive Summary ......................................................................................................

### Executive Summary

### Motivation
- Ongoing turmoil in the Euro Area and recent calls for enhanced emergency assistance in the Middle East and North African region highlight urgent need for a more effective global financial safety net amid increased interconnectedness and volatility.
- Past staff work identified gaps in the Fund’s lending toolkit:
  - Liquidity needs of members with relatively strong fundamentals affected during systemic crises ("crisis bystanders").
  - Urgent financing needs arising in a broader range of circumstances than natural disasters and post-conflict situations.
- Companion Review paper on the FCL and PCL identified gaps in overall flexibility of the financing toolkit.
- Objective of paper: propose reforms to fill gaps while preserving simplicity and coherence of the lending framework and balancing members’ financing needs against safeguards for Fund resources.

### Proposed reforms (two key reforms)
- Broadening coverage of emergency assistance: consolidate current GRA emergency assistance tools under a single instrument in the credit tranches named the Rapid Financing Instrument (RFI).
  - The RFI would replace the current emergency assistance special policy covering ENDA and EPCA.
  - Purpose: support a full range of urgent balance of payments (BoP) needs, including those from exogenous shocks (e.g., commodity price shocks and natural disasters), post-conflict and other fragile situations, or other disruptive situations.
  - Financing form: outright purchases.
  - Access limits: annual access limit of 50 percent of quota and a cumulative access cap of 100 percent of quota.
  - Conditionality: upper-credit tranche-quality policies would not be required for approval; member must outline policy plans and commitments in a letter of intent and cooperate with the Fund to find solutions for financing difficulties.
- Enhancing liquidity provision: replace the PCL with a more flexible instrument (Precautionary and Liquidity Line, PLL) by:
  - Allowing use by members with an actual BoP need at time of approval (in addition to those with potential BoP need).
  - Allowing six-month duration arrangements to meet short-term BoP needs.
  - Rationale: enable members satisfying other PCL qualification criteria but with an actual BoP need to obtain financing while retaining the positive signaling effect linked with PCL qualification; establish a liquidity window to address needs of crisis bystanders during heightened regional or global stress.
  - Design intent: give Executive Board adequate room to deal with rapidly evolving crises while including stronger procedural safeguards.
  - Result: the revamped PCL would no longer be strictly precautionary and would be more suitably named the Precautionary and Liquidity Line (PLL).

### Resource implications
- Proposed reforms may increase upfront calls on Fund resources to the extent they encourage more members to seek early financial assistance.
- Timely and effective responses can produce confidence effects that offset part of upfront calls on resources.
- Overall assessment: for a given level of global financing needs, the proposed reforms are expected to have only a limited impact on the need for Fund resources.

### Background and rationale
- The SBA remains the Fund’s workhorse instrument, but the 2008 global crisis exposed gaps for large and frontloaded crisis prevention financing.
- The Fund created the FCL and subsequently the PCL to enhance crisis prevention and resolution flexibility.
- Recent contagion concerns and emergency assistance requests underscore the need for a broader and more effective global financial safety net.
- Identified gaps (staff assessments and companion papers):
  - Need to enhance rapid emergency assistance to countries in fragile situations; merits of an instrument in the GRA similar to the PRGT's RCF were noted in the Fragile Situations paper discussion.
  - Complex cross-country financial linkages increase systemic risks and contagion; crisis bystanders with relatively strong fundamentals face difficulty during heightened stress events.
  - Replacing the PCL with a more flexible instrument would address broader member needs amid increased interconnectedness, including allowing access when an actual BoP need exists at approval and allowing more flexible arrangement durations.
- Guiding principles for proposals:
  - Organize lending toolkit primarily according to strength of members’ policies and fundamentals.
  - Preserve simplicity and avoid proliferation of instruments.
  - Balance predictable and rapid liquidity access with adequate safeguards to minimize moral hazard.
  - Ensure enhancements are backed by adequate Fund financial resources.
- Executive Board early feedback:
  - Preference for a streamlined toolkit and avoidance of proliferation.
  - Broad support for an emergency assistance instrument and reforms to allow PCL approval when a BoP need is present and to make PCL duration more flexible.
  - Many Directors preferred modifications within the existing toolkit rather than introducing a new instrument or formally activating mechanisms for liquidity injection during systemic crises.
  - Modifications to the FCL decision to allow six-month FCL arrangements did not receive broad support.
  - The proposed PLL design aims to provide flexibility while maintaining safeguards and Board involvement.

### Broadening Emergency Assistance: Rationale for RFI
- Current ENDA and EPCA application is compartmentalized and limited to natural disasters and post-conflict situations, leaving gaps for fragile but non-post conflict situations and other urgent BoP needs, particularly for middle-income countries.
- Non-PRGT eligible members with urgent financing needs often seek SBAs despite potential implementation capacity challenges related to fragility.
- Proposal: replace ENDA and EPCA with a single credit-tranche instrument, the Rapid Financing Instrument (RFI), modeled closely on the PRGT's RCF.

### Design features of the proposed Rapid Financing Instrument (RFI)
- Purpose and objectives:
  - Provide rapid and low-access financing with limited conditionality to address urgent BoP needs from a variety of circumstances, including exogenous shocks, fragile or post-conflict situations, or other disruptive events.
  - Avoid compartmentalizing emergency assistance based on strictly defined sources of BoP need; provide a single, flexible mechanism to support members.
- Terms and framework:
  - RFI would be a window in the credit tranches with the same applicable terms of financing (charges, surcharges, and repurchase periods of 3¼ to 5 years) as any other instrument in the credit tranches.
  - The RFI would replace the current emergency assistance special policy that covers ENDA and EPCA.
  - In addition to financial resources, the RFI could provide a framework for policy support and technical assistance and play a catalytic financing role for official and market sources.

*Source: Executive Summary (pages 2–7) of the IMF internal paper on proposed changes to GRA lending instruments.*

### 8.      Nature of the BoP need: The RFI is designed similar to the RCF for PRGT-eligible

### _102811 - 8.      Nature of the BoP need: The RFI is designed similar to the RCF for PRGT-eligible

### Nature and purpose of the RFI
- The RFI is designed similar to the RCF for PRGT-eligible members and would be available to all Fund members (including PRGT-eligible members).
- Intended for situations where:
  - (i) the member is experiencing an urgent BoP need that, if not addressed, could result in an immediate and severe economic disruption; and
  - (ii) either:
    - (a) the BoP need is expected to be resolved within one year with no major policy adjustments being necessary (e.g., due to the transitory and limited nature of financing and adjustment needs due to, say, a temporary shock), or
    - (b) the member lacks the capacity to implement an UCT-quality economic program due to limited policy implementation capacity (e.g., institutional constraints from conflicts or political transformations) or due to the urgent nature of the BoP need (e.g., urgency does not allow sufficient time to reach understandings on a Fund-supported UCT-quality economic program to address the member’s longer term needs).

### Qualification and conditionality for RFI
- Ex-ante commitment of policy undertakings required to qualify for the RFI.
- UCT-quality policies would not be required (as currently the case under ENDA/EPCA and the RCF), though they would not be precluded.
- RFI support would be in the form of outright purchases; there would be no ex post conditionality.
- Approval conditions:
  - Board must be satisfied that the member will cooperate with the Fund to find solutions for its BoP difficulties.
  - Ex ante policy undertakings, as appropriate, outlined in a letter of intent, setting out general policies the member plans to pursue and its commitment not to introduce measures and/or policies that may compound its BoP difficulties.
  - Prior actions could be established, where warranted, for implementation prior to approval of an RFI purchase.

### Fund engagement and track-record requirements
- Members encouraged to include quantitative targets and structural objectives in the letter of intent, where possible.
- Alternatively, assessment of policy adequacy could be underpinned by:
  - a track-record building Staff Monitored Program (SMP); or
  - where no relevant pre-determined monitorable objectives exist, a track record based on the Fund’s assessment that macroeconomic policies have been adequate at least over the most recent six-month period.
- An SMP provides a medium-term framework, opportunity to assess commitment and progress toward UCT-standard program implementation, and allows more regular reporting to the Board.

### Access under the RFI
- Financial assistance under the RFI would be capped at 50 percent of quota annually and at 100 percent of quota on a cumulative basis.
- Access in individual cases depends on: scale of the BoP need, assessment of the member’s capacity to repay, outstanding Fund credit, and past record of using Fund resources.
- RFI access counts toward overall limits on access to GRA resources; approval for members with outstanding GRA credit above those limits would be subject to exceptional access substantive and procedural requirements.

### Repeated use limits for RFI
- Limits on repeated use to guard against supporting continued weak policies or creating moral hazard:
  - If a member has made an RFI purchase within the three preceding years, any additional RFI purchases—except those requested to meet an urgent BoP need caused primarily by an exogenous shock—could only be approved if the member has established a track record of adequate macroeconomic policies at least over a period of six months immediately prior to the request (as described in ¶10).
  - Initial staff reports for RFI requests, particularly in fragility cases, could discuss anticipated repeat use and time to restore capacity for a UCT-quality program.

### Safeguards and safeguards assessments
- Safeguards built into the RFI design include:
  - scope for using prior actions;
  - cooperation requirement in the approval standard;
  - requirement to outline policy undertakings and commitments in a letter of intent;
  - track record requirement for repeat use not premised on an exogenous shock.
- Members requesting RFI assistance must commit to undergo a safeguards assessment and authorize Fund staff access to the central bank’s most recently completed external audit reports and to hold discussions with external auditors.
- Timing and modalities of safeguards assessments determined case-by-case; normally assessment would need to be completed before Executive Board approval of any subsequent arrangement to which the Fund’s safeguards policy applies.

### Resource and governance implications
- Additional demand for Fund resources from broadening emergency assistance is likely to be limited, reflecting relatively limited modifications to ENDA/EPCA approval standards and continuation of access caps.
- Adoption of the RFI as a window in the credit tranches would require an Executive Board decision adopted by a majority of the votes cast.

### Replacing the PCL with the Precautionary and Liquidity Line (PLL): overview
- Two proposed changes to the PCL:
  - Allowing actual BoP need at approval (PCL could respond to actual needs at approval as well as potential needs).
  - Establishing a liquidity window: allowing six-month PCL arrangements to meet shorter-duration financing needs, including those from exogenous shocks or heightened regional/global stress.
- Renaming: PCL would be renamed Precautionary and Liquidity Line (PLL) to indicate dual crisis prevention and resolution role.

### PLL: qualification and scope
- Qualification criteria unchanged from current PCL decision, except members could seek support based on potential or actual BoP need.
- A six-month PLL arrangement could be based on potential or actual short-term BoP need; short-term generally considered one in which credible progress can be made during the arrangement.
- Short-term BoP needs may often arise from exogenous shocks or heightened regional/global stress.

### PLL: continued safeguards
- All other qualification criteria under the current PCL decision remain unchanged, ensuring PLL targets countries with sound fundamentals and institutional policy frameworks.
- Requirement that a PLL cannot be approved for a member facing sustained inability to access international capital markets continues to apply.
- Existence of an actual BoP need at approval would be factored into qualification assessment; sustained vulnerabilities may suggest SBA or EFF as more appropriate.

### PLL: duration and rules on repeated use
- PLL arrangements could be for one- to two-year duration as currently under PCL, or for six-month duration for short-term needs.
- Six-month arrangements should not be used for longer-term BoP needs.
- Repeated use of six-month PLL arrangements allowed only if:
  - a) A ―cool off‖ period of at least two years has elapsed since approval of the previous six-month arrangement; or
  - b) The member’s short-term BoP need lasts longer than initially expected due to heightened stress in regional or global financial and economic conditions. In such a situation, approval of one additional successor six-month PLL arrangement would be possible without observing the two-year period. Approval would be on a case-by-case basis and subject to assessment of continued qualification and prior actions, if warranted.
- Beyond these two circumstances, additional PLL support would be expected under one- to two-year PLL arrangements, subject to current PCL access limits.

### Rationale for six-month PLL arrangements
- Six-month PLL arrangements provide flexibility to respond to regional or global stress events, improve market confidence, create positive externalities for other members, and help cut contagion chains by ring-fencing crisis bystanders.
- Six-month PLL could serve as a liquidity provision tool to address short-term BoP needs of crisis bystanders, supplanting the need for a Global Stabilization Mechanism.

### Conditionality under PLL
- One-to-two year PLL arrangements: same ex ante conditionality and ex post conditionality as current one- to two-year PCL arrangements (indicative targets, standard continuous performance criteria, six-monthly reviews, other performance criteria as per Guidelines on Conditionality).
- Six-month PLL arrangements: subject to ex ante conditionality and those elements of ex post conditionality applicable to six-month duration (i.e., standard continuous performance criteria generally applicable to GRA arrangements).
  - Six-month PLL arrangements would not be subject to six-monthly reviews, indicative targets, or potential performance criteria that apply to one-to-two year PLL arrangements.
- Prior actions could be required in arrangements of any duration; authorities required to submit a concise written communication with policy commitments and a quantified macroeconomic framework.

### PLL: access and phasing (exact limits and modalities)
- Access and phasing vary by duration and country-specific needs.

Access (six-month arrangements)
- a) Normal periods:
  - Access under six-month PLL arrangements determined case-by-case, with no phasing (entire approved amount available upfront).
  - Capped at 250 percent of quota.
  - This access level is half of the 500 percent of quota annual approval limit for current PCL arrangements.
  - Purchases cannot exceed the actual BoP need.
  - After expiration of the two-year ―cooling off‖ period, a new six-month arrangement of up to 250 percent of quota could be approved.
- b) Times of heightened regional or global stress:
  - Access under six-month PLL arrangements could exceed the cap of 250 percent of quota, but cannot in any case exceed the 500 percent of quota annual approval under the PCL.
  - Higher access available on a case-by-case basis to six-month arrangements approved or in place during high stress periods, whether a single six-month arrangement or cumulatively in successive six-month arrangements.
- c) Final decision revision:
  - Under the final decision, the higher access limit of 500 percent of quota applies in exceptional circumstances where the member is experiencing or has the potential to experience short-term balance of payments needs that exceed the normal 250 percent of quota limit due to the impact of exogenous shocks, including heightened regional or global stress conditions.
  - Applicability of the higher access to any particular country would be approved by the Executive Board on a case-by-case basis.

Access (one-year or one-to-two year arrangements)
- d) For one year or one-to-two years PLL arrangements, access could be increased up to the PCL instrument’s cap of 1,000 percent of quota at any time during the course of the arrangement, subject to completion of a scheduled or ad hoc review.

Phasing
- a) One-to-two year arrangements approved where the member has an actual BoP need would have purchases phased on a semiannual basis, in line with semiannual reviews.
- b) This contrasts with one-to-two year arrangements approved in the absence of a BoP need, where phasing would continue to be done on an annual basis as under the current PCL.

*Italicized final source attribution below.*

*Source: IMF document excerpt (sections 8–24) on the design of the RFI and proposed replacement of the PCL with the Precautionary and Liquidity Line (PLL).*

### Box 2: Considerations to Determine a Heightened Stress Event

### Box 2: Considerations to Determine a Heightened Stress Event

### Overview
- Purpose: To inform the Board’s determination of access in six-month PLL arrangements by detecting heightened stress events through analyses and judgment in three main areas.
- This approach requires monitoring global/regional stress, assessing contagion risk via trade and financial linkages, and assessing contagion risk beyond direct linkages.

### Monitoring global and regional economic and financial stress
- Quantitative stress indicators can be used (example: the global systemic crisis indicator developed in the Analytics paper).
- Complementary surveillance and risk analysis products to consider:
  - WEO
  - REOs
  - GFSR
  - Early Warning Exercise
  - Vulnerability Exercises
  - FSB reports

### Contagion risk via trade and financial linkages
- Assess how integrated the member is to global/regional trade and financial networks to gauge contagion vulnerability.
- Evidence cited:
  - The severity of the 2008/09 global crisis was at least partly attributable to growth of trade and financial linkages in the prior decade and to shocks originating from the most integrated economies.

### Contagion risk beyond direct trade and financial linkages
- Important to assess the potential for investor reappraisal of risks in similarly-situated, but not directly connected, countries that are more closely connected to other “core nodes” of financial and trade networks.
- Case example:
  - Latvia: By economic size or financial linkages it may not be a “core node” of the financial network, but its 2008/09 crisis triggered broader creditor panic, affecting many similarly-situated emerging markets notably in Eastern Europe, which were more closely connected to core European banking systems.

### Forward-looking considerations for access decisions
- Access decisions should take into account forward-looking considerations, particularly during periods of heightened stress.
- Situations may arise where country-specific risk indicators do not reveal stressed market conditions, while broader contagion assessments indicate potential future deterioration in market conditions.
- Based on the 2008/09 crisis experience, when proposing access levels in individual country cases it is important to:
  - Take into account the totality of circumstances.
  - Consider the potential for contagion to exacerbate funding strains.
- Application context:
  - These considerations are relevant to determining access in six-month PLL arrangements and in proposing access levels in individual country cases.

*Source: Box 2: Considerations to Determine a Heightened Stress Event, from the provided IMF content unit.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2011/_102811.pdf_