Press Release: IMF Overhauls Lending Framework
IMF News, March 24, 2009
Source details
- Canonical URL
- Press Release: IMF Overhauls Lending Framework
Other formats
Bibliographic details
- Published: March 24, 2009
Overview
- Press Release No. 09/85 — March 24, 2009.
- Executive Board approved a major overhaul of the IMF’s lending framework, including creation of a new Flexible Credit Line (FCL).
- Key rationale: "More flexibility in our lending along with streamlined conditionality will help us respond effectively to the various needs of members." — Dominique Strauss-Kahn.
- Reform objectives include stronger crisis prevention and crisis resolution tools, streamlined conditionality, and increased lending capacity.
Key reforms approved
- Modernizing IMF conditionality for all borrowers.
- Introducing a new Flexible Credit Line (FCL).
- Enhancing the flexibility of the Fund’s traditional stand-by arrangement (SBA).
- Doubling normal access limits for nonconcessional resources.
- Simplifying cost and maturity structures.
- Eliminating certain seldom-used facilities.
- Reforms of concessional lending instruments for low-income members are in train.
- Consulting with members to secure a sharp increase in lending resources.
Modernizing conditionality
- Shift toward pre-set qualification criteria (ex-ante conditionality) where appropriate, embodied in the FCL.
- Structural policy implementation will be monitored through program reviews rather than structural performance criteria.
- Structural performance criteria will be discontinued in all Fund arrangements, including those with low-income countries.
- Monitoring approach aims to reduce stigma and eliminate need for formal waivers when structural reforms are not met by a specific date.
Flexible Credit Line (FCL)
- New credit line for countries with very strong fundamentals, policies, and track records.
- Purpose: crisis prevention and resolution for very strong-performing members.
- Access features:
- Large and upfront access to Fund resources with no ongoing (ex post) conditions.
- Renewable credit line, initially for either a six-month period, or a 12-month period with a review of eligibility after six months.
- Longer repayment period: "3¼ to 5 years" versus maximum rollover period of 9 months in the SLF.
- No hard cap on access to Fund resources; access assessed case-by-case (the SLF had a cap on access of 500 percent of quota).
- Flexibility to draw at any time or to treat it as a precautionary instrument (which was not allowed under the SLF).
- FCL replaces and strengthens the Short-Term Liquidity Facility (SLF), which is discontinued.
- Pre-set qualification criteria (core elements) include assessment of:
- (i) a sustainable external position;
- (ii) a capital account position dominated by private flows;
- (iii) a track record of steady sovereign access to international capital markets at favorable terms;
- (iv) a reserve position that is relatively comfortable when the FCL is requested on a precautionary basis;
- (v) sound public finances, including a sustainable public debt position;
- (vi) low and stable inflation, in the context of a sound monetary and exchange rate policy framework;
- (vii) the absence of bank solvency problems that pose an immediate threat of a systemic banking crisis;
- (viii) effective financial sector supervision;
- (ix) data transparency and integrity.
- Strong performance against all criteria is not strictly necessary; compensating factors, including corrective policy measures under way, are considered.
Enhancing Stand-by Arrangements (SBA)
- SBA reforms aim to increase flexibility and support crisis prevention for members not qualifying for the FCL.
- New SBA framework enables high-access on a precautionary basis.
- Provides increased flexibility by allowing frontloading of access and reducing the frequency of reviews and purchases where warranted by country policy strength and balance of payments needs.
Doubling access limits and Exceptional Access
- Nonconcessional loan access limits doubled:
- New annual access limit: 200 percent of quota.
- New cumulative access limit: 600 percent of quota.
- Access above these limits continues under Exceptional Access procedures, which are being clarified and streamlined.
Adapting and simplifying cost and maturity structures
- Elimination of the time-based repurchase expectations policy; replaced by a new time-based surcharge.
- Streamlined level-based surcharges introduced.
- Objective: mitigate credit and liquidity risks without increasing costs for countries that make timely repayments.
- New schedule of commitment fees increases with the size of precautionary lending to mitigate liquidity risks without discouraging early access.
Reform of facilities for low-income members and toolkit simplification
- Structural conditionality reform applies to concessional loan facilities for low-income countries.
- Fund is considering modifications to concessional lending facilities to strengthen short-term and emergency financing tools for low-income countries.
- Facilities being eliminated (seldom used):
- Supplemental Reserve Facility.
- Compensatory Financing Facility.
Boosting the Fund’s resources
- Need for substantial increase in IMF resources to meet expanded financing requirements.
- Japan has provided an additional US$100 billion to bolster lendable resources to about US$350 billion.
- European Union has committed €75 billion.
- Efforts underway to further increase IMF resources in the run-up to the April 2 London summit of the G-20, and to at least double concessional resources for low-income countries.
Press Release No. 09/85 — March 24, 2009 — https://www.imf.org/en/news/articles/2015/09/14/01/49/pr0985