The Fund's Financing Role - Reform Proposals on Liquidity and Emergency Assistance

Policy Papers, October 28, 2011

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Canonical URL: The Fund's Financing Role - Reform Proposals on Liquidity and Emergency Assistance

Motivation: Ongoing turmoil in the Euro Area and requests for enhanced emergency assistance in the Middle East and North African region underscore the need for a more effective global financial safety net to address increased interconnectedness and volatility.
Related analytical work: Staff work identified gaps in the Fund’s lending toolkit, including gaps highlighted in a companion paper reviewing the Flexible Credit Line (FCL) and Precautionary Credit Line (PCL).
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Identified gap 1: The Fund’s lending toolkit is insufficient to respond to liquidity needs of members with relatively strong fundamentals affected during systemic crises (the “crisis bystanders”).
Identified gap 2: The Fund’s emergency assistance remit is too narrow to address urgent financing needs that arise in a broader range of circumstances than natural disasters and post-conflict situations.
Identified gap 3: The Review of the Flexible Credit Line (FCL) and Precautionary Credit Line (PCL) found gaps in the overall flexibility of the financing toolkit.
Design priorities: Any reform should preserve the simplicity and coherence of the lending framework while balancing members’ financing needs against the need for adequate safeguards for the use of Fund resources.

Objective: Fill identified gaps in the financing toolkit while maintaining a coherent framework and adequate safeguards.
Emphasis on balance:
- Expand tools to better address liquidity needs of crisis bystanders.
- Broaden emergency assistance modalities to cover urgent financing needs beyond natural disasters and post-conflict situations.
- Improve overall flexibility of financing instruments, informed by the FCL/PCL review.
Institutional constraints: Proposals seek to preserve simplicity and coherence of the lending framework and to ensure adequate safeguards for Fund resource use.

Applicability: Reforms intended for members with relatively strong fundamentals as well as for members facing urgent non-traditional emergency financing needs.
Safeguards: Reinforce safeguards proportionate to expanded use of Fund resources to maintain program integrity and Fund credibility.
Complementarity: Proposed changes are designed to work alongside existing instruments, taking into account findings from the companion FCL/PCL review.

Publication date: October 28, 2011
Subject tags: Access limits; Access to Fund general resources; Balance of payments need; Emergency assistance; Fund role; General Resources Account; Precautionary Credit Line; Rapid Credit Facility

Source: The Fund's Financing Role - Reform Proposals on Liquidity and Emergency Assistance (October 28, 2011).