Transcript of the Background Briefing on the Short-term Liquidity Line

IMF News, May 8, 2020

Source details

Canonical URL: Transcript of the Background Briefing on the Short-term Liquidity Line

Event: Background Briefing on the Short-term Liquidity Line (SLL).
Date: May 8, 2020.
SLL approved by the Executive Board on April 15, to further strengthen the global financial safety net as part of the Fund's COVID-19 response.
Embargo: documents and the call were under embargo until 12:30 p.m. on the day of the briefing.

Designed as a liquidity backstop for members with very strong policy frameworks and fundamentals.
Intended to address moderate, short-term liquidity needs arising from external shocks that can come suddenly and without much warning.
Revolving facility: the line can be drawn on repeatedly and repaid as liquidity needs abate.
Signal value: SLL approval serves as an endorsement of a country’s current policy framework to domestic and international financial markets.
Intended use: to be one instrument among a range of financing options countries pursue (e.g., capital markets, other facilities).

Qualification mirrors aspects of the Flexible Credit Line (FCL): countries with established market access and high-quality policy frameworks.
Exclusions cited: concessional-lending countries and countries with easy access to reserve-issuing currencies (for instance, Euro Area countries are excluded).
Order-of-magnitude estimate for the potential universe of qualifying countries: "somewhere between 10 and 20."
Emphasis on "platinum quality" policy frameworks as the target profile.

SLL complements existing toolkit (including FCL and emergency instruments):
- FCL: for countries facing very large potential or actual balance-of-payments shocks.
- SLL: for short-term, moderate-sized liquidity pressures; cheaper than the FCL and revolving.
Transition possibilities:
- Countries could move from FCL to SLL when large risks abate.
- Countries could move from SLL to FCL if shocks prove larger than anticipated, subject to Board decision and qualification.
Interaction with central bank swap lines and other external facilities was a topic of past debate; members raised questions on how SLL would interact with swap lines.

Blog post mentioned potential demand of "up to 50 billion."
Management reported ongoing discussions with several potential clients and openness among countries to dialogue with the Fund.
Historical uptake reference: FCL had limited take-up (noted recipients included Colombia, Mexico, and Morocco for precautionary and liquidity lines at the time of discussion).
Stigma concerns:
- Acknowledged that stigma had affected uptake historically (e.g., FCL uptake limited).
- SLL design elements intended to reduce stigma: revolving nature, offer-based approach, and under certain conditions the agreement could be signed by the central bank only.

SLL concept had been discussed several years earlier (referred to as a short-term liquidity swap) but lacked prior consensus.
Membership debate covered novelty, potential users, and interaction with other instruments.
Rapid adoption in 2020: concept moved from prior work to Executive Board endorsement in a matter of two weeks.
Internal remark: comparable institutional innovations are rare; last similar instrument change was "10 or so years ago, maybe even longer."

SDRs remain part of the broader discussion on liquidity provision:
- Voluntary trading/exchanges of SDRs continue to be facilitated by the IMF.
- Precedent exists for countries loaning SDRs to the PRGT to support concessional lending.
Challenge identified: many SDRs are held by developed economies that may not need them; mobilizing those SDRs for poorer countries is a policy objective.
PRGT resource needs:
- Management noted more than "a hundred" countries have approached the IMF for emergency financing.
- The PRGT needed additional resources to meet expected demands; a call for PRGT resources was made and "some are materializing quickly."
No specific new SDR-allocation decision was announced; membership debate on a new SDR allocation remains robust and some members are skeptical.

For countries where lending may be infeasible because debt is unsustainable, IMF management will "look for solutions that can unlock critical financing."
Argentina:
- IMF engagement with Argentine authorities has been ongoing and described as "productive."
- IMF officials emphasized hope for a debt-agreement with private creditors that would restore debt sustainability.
- Officials declined to comment on specific negotiations or to disclose the details of ongoing discussions.

Moderator: Maria Candia, Communications Department.
Participants identified generically as IMF Official #1 and IMF Official #2 (SLL expert).
Media rules: discussion conducted on background with comments attributable to IMF Official; embargo in place until 12:30 p.m.
A request to extend embargo to 1:00 p.m. was denied; embargo remained 12:30 p.m.

Transcript of the Background Briefing on the Short-term Liquidity Line, May 8, 2020, IMF Communications Department.