## 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](https://www.imf.org/en/news/articles/2020/05/08/tr042220-transcript-of-the-background-briefing-on-the-short-term-liquidity-line) ## Other formats - [Markdown version](/en/news/articles/2020/05/08/tr042220-transcript-of-the-background-briefing-on-the-short-term-liquidity-line/index.md) - [Structured JSON version](/en/news/articles/2020/05/08/tr042220-transcript-of-the-background-briefing-on-the-short-term-liquidity-line/index.json) - [Bundle manifest](/en/news/articles/2020/05/08/tr042220-transcript-of-the-background-briefing-on-the-short-term-liquidity-line/bundle-manifest.json) ## Bibliographic details - Published: May 8, 2020 --- ### Overview and context - 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. ### Purpose and principal features of the SLL - 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). ### Eligibility, qualifying characteristics, and target universe - 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. ### Relationship with other IMF instruments and external facilities - 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. ### Expected demand and take-up considerations - 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. ### Governance, Board deliberations, and speed of adoption - 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." ### Special Drawing Rights (SDRs), PRGT, and broader liquidity strategies - 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. ### Debt sustainability, countries with unsustainable debt, and Argentina example - 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. ### Operational and communication details from the briefing - 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._ --- ## References - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2020/05/08/tr042220-transcript-of-the-background-briefing-on-the-short-term-liquidity-line_