IMF First Deputy Managing Director John Lipsky Welcomes Polandís Interest in Expanding Flexible Credit Line to US$29 BillionPress Release No. 10/512
December 22, 2010
Mr. John Lipsky, First Deputy Managing Director and acting Managing Director of the International Monetary Fund (IMF), made the following statement today:
“I welcome the Polish authorities’ interest in taking advantage of the recent reforms to the Fund’s Flexible Credit Line (FCL) facility to replace its existing one-year, SDR 13.69 billion (about US$21 billion, equivalent to 1,000 percent of quota) precautionary FCL arrangement with a two-year precautionary FCL arrangement in the amount of SDR 19.2 billion (about US$29 billion, or 1,400 percent of quota).
“Poland has followed very strong policies over the past decade, including an effective inflation targeting regime, a commitment to the EU Stability and Growth Pact, and a strong financial supervisory framework. In this context, the authorities implemented timely and comprehensive countercyclical policies in response to the global crisis, which helped Poland avoid a recession in 2009 and supported a pick-up in economic growth in 2010.
“Looking ahead, growth is projected to remain solid and balanced. Nonetheless, important uncertainties in the global environment have increased, and I share the authorities’ view that the longer duration and higher access available under the reformed FCL can play an important role in continuing to support Poland’s policy strategy and in maintaining external confidence. I therefore intend to move ahead rapidly in seeking approval by the Fund's Executive Board of Poland’s request.”
The FCL was established on March 24, 2009 for countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes. FCL arrangements are approved for countries meeting pre-set qualification criteria (see Press Release No. 09/85).
The FCL was further enhanced with reforms approved in August 30, 2010 (see Press Release No. 10/321). The duration of the line was expanded from one year to up to two years (with an interim review of continued qualification after one year) and the removal of the implicit cap on access to resources of 1000 percent of a country’s IMF quota. The repayment period on any drawings is between three and a quarter and five years. Access is determined on a case-by-case basis, and is fully available from the start, rather than being phased over time as in traditional IMF arrangements. Disbursements under the FCL are not conditioned on implementation of specific policy targets or meeting quantitative criteria. There is flexibility to either draw on the credit line at the time it is approved, or treat it as precautionary.
Poland’s first FCL was approved on May 6, 2009 (see Press Release No. 09/153), and was renewed on July 2, 2010 (see Press Release No. 10/276). Two other countries, Mexico and Colombia, have also established precautionary arrangements under the FCL.
The qualification criteria are the core of the FCL and serve to highlight the IMF’s confidence in a qualifying member country’s policies, and its ability to take corrective economic policy measures when needed. At the heart of the qualification process is an assessment that the member country has very strong economic fundamentals and institutional policy frameworks; is implementing—and has a sustained track record of implementing—very strong policies; and remains committed to maintaining such policies in the future.
The criteria used to assess a country’s qualification for an FCL arrangement are a sustainable external position; a capital account position dominated by private flows; a track record of access to international capital markets at favorable terms; a reserve position that is relatively comfortable when the FCL is requested on a precautionary basis; and sound public finances, including a sustainable public debt position. The criteria also includes low and stable inflation, in the context of a sound monetary and exchange rate policy framework; no bank solvency problems that pose systemic threats to banking system stability; effective financial sector supervision; and data integrity and transparency.