Since the onset of the global economic crisis in 2008, the IMF has mobilized on many fronts to support its 188 member countries. It increased and deployed its lending firepower, used its cross-country experience to offer policy solutions, and introduced reforms that made it better equipped to respond to countries' needs.
Creating a crisis firewall. To meet ever increasing financing needs of countries hit by the global financial crisis and help strengthen global economic and financial stability, the Fund has greatly bolstered its lending capacity since the onset of the global crisis. It has done so both by obtaining commitments to increase quota subscriptions of member countries—the IMF's main source of financing—and securing large bilateral borrowing agreements.
Stepping up crisis lending. The IMF has overhauled its lending framework to make it better suited to country needs giving greater emphasis to crisis prevention, and has streamlined conditions attached to loans. Since the start of the crisis, it has committed well over $600 billion in loans to its member countries.
Helping the world’s poorest. The IMF undertook an unprecedented reform of its policies toward low-income countries and quadrupled resources devoted to concessional lending.
Sharpening IMF analysis and policy advice. IMF monitoring, forecasts, risk analysis, and policy advice, informed by the Fund’s global perspective and experience from previous crises, have been in high demand as the crisis evolved. The IMF is also contributing to the ongoing effort to draw lessons from the crisis to reform the global financial architecture, including through its work with the Group of Twenty (G20) industrialized and emerging market economies.
Reforming the IMF’s governance. To strengthen its legitimacy, in April 2008 and November 2010, the IMF agreed on wide-ranging governance reforms to reflect the increasing importance of emerging market countries. The latter reforms, which are not yet effective, would also ensure that smaller developing countries retain their influence in the IMF.
Reforming the IMF’s lending framework
To better support countries during the global economic crisis, the IMF beefed up its lending capacity and approved a major overhaul of how it lends money by offering higher and more frontloaded amounts and tailoring loan terms to countries’ varying strengths and circumstances.
Credit line for strong performers. The Flexible Credit Line (FCL), introduced in April 2009 and further enhanced in August 2010, is a lending tool for countries with very strong fundamentals that provides large and upfront access to IMF resources, mainly as a form of insurance for crisis prevention. There are no policy conditions to be met once a country has been approved for the credit line. Colombia, Mexico, and Poland have been provided combined access of about $100 billion under the FCL (no drawings have been made under these arrangements). FCL use has been found to lead to lower borrowing costs and increased room for policy maneuver.
Access to liquidity on flexible terms. Heightened regional or global stress can affect countries that would not likely be at risk of crisis. Providing rapid and adequate short-term liquidity to such crisis bystanders during periods of stress could bolster market confidence, limit contagion, and reduce the overall cost of crises. The Precautionary and Liquidity Line (PLL) is designed to meet the liquidity needs of member countries with sound economic fundamentals but with some remaining vulnerabilities—Macedonia and Morocco have used the PLL.
Reformed terms for IMF lending. Structural performance criteria have been discontinued for all IMF loans, including for programs with low-income countries. Structural reforms continue to be part of IMF-supported programs, but have become more focused on areas critical to a country’s recovery.
Emphasis on social protection. The IMF is helping governments to protect and even increase social spending, including social assistance. In particular, the IMF is promoting measures to increase spending on, and improve the targeting of, social safety net programs that can mitigate the impact of the crisis on the most vulnerable in society.
Crisis Program Review.
The IMF conducted a review of Fund-supported programs that began after the 2008 global crisis. The review found that the IMF took a more flexible and accommodating role in designing programs, responding to individual country needs, and helping countries avoid worse economic outcomes during the crisis, providing higher and more frontloaded financing. While many of the second-round crisis program countries faced different and often more protracted difficulties, program design and financing appear to be responding to their individual needs within a framework consistent with the earlier programs.
Helping the world’s poorest
In response to the global financial crisis, the IMF undertook an unprecedented reform of its policies toward low-income countries. As a result, IMF programs are now more flexible and tailored to the individual needs of low-income countries—with streamlined conditionality, higher concessionality and more emphasis on safeguarding social spending.
Increased access to resources. Concessional resources available to low-income countries through the Poverty Reduction and Growth Trust were substantially increased in 2009, consistent with a call from G20 leaders, while average access limits under the IMF’s concessional loan facilities were doubled to enhance the financial safety net for low-income countries. In addition, access norms and limits were increased by 50 percent in 2015 in the context of international efforts to support the Sustainable Development Goals adopted by the United Nations in 2015 to succeed the Millennium Development Goals. Concessional loan commitments from 2009 to 2014 totaled just over $11 billion.
Provision of debt relief to countries facing natural catastrophes. In 2010, the IMF established the Post-Catastrophe Debt Relief (PCDR) Trust, to allow it to join international debt relief efforts for very poor countries hit by catastrophic natural disasters. PCDR-financed debt relief has amounted to $268 million.
In 2015, the IMF expanded the PCDR Trust, transforming it into the Catastrophe Containment and Relief (CCR) Trust, to enable it also to provide exceptional debt relief to countries confronting a major international public health disaster that constitutes a threat to lives, economic activity and international commerce across several countries. The revised Trust to date has financed debt relief amounting to about $100 million to Liberia, Guinea, and Sierra Leone, which were hit hard by the Ebola epidemic.
Creating a crisis firewall
As a key part of efforts to overcome the global financial crisis, the G20 agreed in April 2009 to increase borrowed resources available to the IMF (complementing its quota resources) by up to $500 billion (which tripled the total pre-crisis lending resources of about $250 billion) to support growth in emerging market and developing countries.
In April 2010, the Executive Board adopted a proposal on an expanded and more flexible New Arrangements to Borrow (NAB), under which the NAB grew to about SDR 367.5 billion (about $560 billion at April 2010 exchange rates), with 13 new participating countries and institutions, including a number of emerging market countries that made significant contributions to this large expansion. On November 15, 2011, the National Bank of Poland joined the NAB as a new participant, bringing the total to about SDR 370 billion (about $520 billion at current exchange rates) and the number of new participants to 14. The expanded NAB has been activated nine times since April 2011, providing key financial resources to the Fund.
In April 2012, the IMFC and G20 Finance Ministers and Governors jointly agreed to further enhance IMF resources through a new round of bilateral borrowing; 35 agreements for a total of about SDR 282 billion ($396 billion) have been finalized. In September 2014, the Executive Board approved a one-year extension of the initial two-year terms of the agreements. These borrowing agreements serve as a second line of defense after quotas and NAB resources.
The 14th General Review of Quotas, approved in December 2010 but not yet effective, would double the IMF’s permanent resources to SDR 477 billion (about $672 billion). A rollback in the NAB credit arrangements from SDR 370 billion to SDR 182 billion will become effective when participants pay for their 14th Review quota increases
In addition to increasing the Fund’s own lending capacity, in 2009, the membership agreed to make a general allocation of SDRs equivalent at the time to $250 billion, resulting in a near ten-fold increase in SDRs. This represented a significant increase in own reserves for many countries, including low-income countries.
Sharpening IMF analysis and policy advice
In recent years, the IMF undertook major initiatives to strengthen surveillance to respond to a more globalized and interconnected world. These initiatives include revamping the legal framework for surveillance to cover spillovers (how economic policies in one country can affect others), deepening analysis of risks and financial systems, stepping up assessments of members’ external positions, and responding more promptly to concerns of the membership.
As part of these efforts, in July 2012, the Executive Board adopted a new Integrated Surveillance Decision to strengthen the underlying legal framework for surveillance. In September 2012, the Executive Board endorsed a new Financial Surveillance Strategy that proposes concrete and prioritized steps to further strengthen financial surveillance. In response to the growing importance of capital flows in the international monetary system, the Board endorsed an institutional view on the liberalization and management of capital flows to guide Fund surveillance and advice to member countries.
External Sector Reports that present a broad and multilaterally consistent analysis of the external sector for the world’s largest economies are being discussed annually by the Executive Board. Moreover, risk analysis has been enhanced, including by taking a cross-country perspective, and early warning exercises are being carried out jointly with the Financial Stability Board. Analyses on linkages between the real economy, the financial sector, and external stability are being strengthened. Work has also been done on mapping and understanding the implications of rising financial and trade interconnectedness for surveillance (including spillover reports) and for lending to strengthen the global financial safety net.
The 2014 Triennial Surveillance Review (TSR), completed in September 2014, focuses on building on these recent reforms and ensuring that IMF surveillance continues to best support sustainable growth in a deeply interconnected post-crisis world. It identifies five operational priorities going forward: integrating and deepening risk and spillover analysis; mainstreaming macro-financial surveillance; paying more attention to structural policies, including labor market issues; delivering cohesive and expert policy advice; and having a client-focused approach to surveillance, supported by clear and candid communication. The Managing Director’s Action Plan for Strengthening Surveillance outlines concrete measures to take forward work in these priority areas, with initial steps already in the process of implementation. A review of the Financial Sector Assessment Program was also completed in September 2014.
With more than 200 million people unemployed across the world, and income inequality on the rise in many countries, the Fund has set up an internal “Working Group on Jobs and Growth,” which has recommended steps to enhance the Fund’s effectiveness in helping member countries achieve their goals regarding growth, employment creation, and income distribution.
Reform of IMF governance to better reflect the global economy
A top priority for the IMF’s legitimacy and effectiveness has been the completion of governance reform.
On December 15, 2010, the Board of Governors approved far-reaching governance reforms under the 14th General Review of Quotas. The package includes a doubling of quotas, which will result in more than a 6 percentage point shift in quota share to dynamic emerging market and developing countries while protecting the voting shares of the poorest member countries. The reform will also lead to a more representative, fully-elected Executive Board.
To become effective, an amendment to the Articles of Agreement must be accepted by three-fifths (or 113) of the member 188 countries having 85 percent of the total voting power and members having no less than 70 percent of total quotas on November 5, 2010, must consent to their quota increases. At present,more than a sufficient number of countries has accepted the amendments to the Articles, but they do not represent enough of the fund’s voting power—accounting for 77 percent of the 85 percent needed. Acceptance by the United States is necessary to reach the required threshold. Member countries having more than 80 percent of total quotas have consented to their quota increases.
The agreed package builds on quota and voice reforms agreed in April 2008 and became effective on March 3, 2011. Under these reforms, 54 members received an increase in their quotas—with China, Korea, India, Brazil, and Mexico as the largest beneficiaries. Another 135 members, including low-income countries, saw an increase in their voting power as a result of the increase in basic votes, which will remain a fixed percentage of total votes. Combined with the 14th Review, the shift in quota share to dynamic emerging market and developing countries will be 9 percentage points.