DUSHANBE, March 26, 2009, Asia-Plus — In a statement posted on its website, the International Monetary Fund (IMF) noted on March 24 that as part of moves to support countries during the global economic crisis, the IMF is beefing up its lending capacity and has approved a major overhaul of how it lends money by offering higher amounts and tailoring loan terms to countries’ varying strengths and circumstances.
The IMF announced the creation of a new flexible credit line for countries with very strong fundamentals, policies, and track records of policy implementation. Once approved, these loans — a type of insurance policy for strong performers — can be fully disbursed when the need arises rather than being conditioned on compliance with policy targets as in traditional IMF-supported programs.
The 185-member institution also announced that it would double nonconcessional loan access limits, enhance its traditional Stand-By facility, and simplify lending terms. Complementary reforms of concessional lending instruments for low-income members are also in train.
“These reforms represent a significant change in the way the Fund can help its member countries — which is especially needed at this time of global crisis,” said IMF Managing Director Dominique Strauss-Kahn. “More flexibility in our lending along with streamlined conditionality will help us respond effectively to the various needs of all our member countries — especially emerging market and developing countries. This, in turn, will help them to weather the crisis and return to sustainable growth.”
The overhaul was approved ahead of the meeting in London of the Group of Twenty (G-20) major industrialized and emerging market economies, when leaders are expected to discuss a major boost to IMF resources. A substantial increase in the IMF’s resources is required to give full confidence to countries that the Fund will have sufficient money available should they need to borrow or provide themselves with insurance.
Japan has already provided the IMF with an additional $100 billion to bolster the Fund’s lendable resources during the current crisis, and the European Union has committed €75 billion. Efforts are under way to further increase IMF resources in the runup to the April 2 summit. Before the Japanese announcement, the IMF had $250 billion to lend.
The revamp of IMF lending will enable it to help countries more nimbly as the impact of the crisis grows. One objective of the lending overhaul is to encourage countries to come to the IMF as early as possible, rather than when their problems have become intractable.
Key elements of the lending overhaul include modernizing conditionality, flexible credit line (FCL), enhancing stand-by arrangements (SBA), doubling lending access limits, simplifying cost and maturity structures, simplifying lending toolkit, and reform of facilities for low-income countries.
