Press Release: IMF Enhances Liquidity and Emergency Lending Windows
IMF News, November 22, 2011
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- Published: November 22, 2011
Overview and purpose of the reforms
- Press Release No. 11/424; November 22, 2011.
- The Executive Board of the International Monetary Fund (IMF) approved on November 21 a set of reforms designed to bolster the flexibility and scope of the Fund’s lending toolkit to provide liquidity and emergency assistance more effectively to the Fund’s global membership.
- Reforms aim to:
- Respond better to the diverse liquidity needs of members with sound policies and fundamentals, including those affected during periods of heightened economic or market stress—the crisis-bystanders.
- Address urgent financing needs arising in a broader range of circumstances than natural disasters and post-conflict situations previously covered.
- Quotes from IMF Managing Director Christine Lagarde:
- “I commend the Executive Board for the expeditious response to support the membership in these difficult times.”
- “The Fund has been asked to enhance its lending toolkit to help the membership cope with crises. We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership."
- “The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution. This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.”
Key elements — Precautionary and Liquidity Line (PLL)
- The reform replaces the Precautionary Credit Line (PCL) with the more flexible Precautionary and Liquidity Line (PLL).
- Eligibility and qualification:
- Qualification criteria remain the same as under the PCL.
- A member needs to be assessed as having sound economic fundamentals and institutional policy frameworks, having a track record of implementing sound policies, and remaining committed to maintaining such policies in the future.
- A member can seek support when it has either a potential or actual balance of payments need at the time of approval of the arrangement (rather than only a potential need, as was required under the PCL).
- Uses and modalities:
- Can be used as a liquidity window allowing six-month arrangements to meet short-term balance of payments needs.
- Access under a six-month arrangement would not exceed 250 percent of a member’s quota, which could be augmented to a maximum of 500 percent in exceptional circumstances where the member faces a balance of payments need that is of a short-term nature and results from exogenous shocks, including from heightened regional or global economic stress conditions.
- Can also be used under a 12 to 24-month arrangement with maximum access upon approval equal to 500 percent of a member’s quota for the first year and up to 1000 percent of quota for the second year (the latter of which could also be brought forward to the first year where needed, following a Board review).
- As under the PCL, arrangements of these durations include Executive Board reviews every six months.
Key elements — Rapid Financing Instrument (RFI)
- The Fund’s current instruments for emergency assistance (Emergency Natural Disaster Assistance and the Emergency Post-Conflict Assistance) are consolidated under the new Rapid Financing Instrument (RFI).
- Coverage and purpose:
- The RFI broadens coverage of urgent balance of payments needs beyond those arising from natural disasters and post-conflict situations, and can also provide a framework for policy support and technical assistance.
- Access and conditions:
- Funds are available immediately to the member in need upon approval with access limited to 50 percent of the member’s quota annually, and to 100 percent on a cumulative basis.
- The member needs to outline its policy plans to address its balance of payments difficulties, and the IMF must assess that the member will cooperate in finding solutions for these difficulties.
Review of Flexible Credit Line (FCL) and Precautionary Credit Line (PCL)
- The Executive Board reviewed the FCL and PCL and found that these instruments have bolstered confidence and moderated balance of payments pressures during a period of heightened risk.
- Key review conclusions:
- The rigorous qualification framework has worked well and access decisions have reflected the evolution of risks facing users of these instruments.
- The review calls for focusing qualification discussions more on qualitative and forward-looking aspects of policies and policy frameworks.
- The review calls for enhancing the transparency of access decisions.
Source: Press Release No. 11/424, International Monetary Fund, November 22, 2011.