Work continues on strengthening IMF framework for crisis resolution

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Crisis prevention is the primary focus of the IMF's reform agenda, but work is also continuing on ways to improve the management and resolution of the financial crises that do occur. Indeed, a stronger and clearer framework for crisis resolution is expected to help lessen the number and severity of crises. The IMF is seeking to combine a clearer policy on access to IMF resources and greater selectivity in its lending with an examination of possible approaches to strengthening the mechanisms for restructuring unsustainable sovereign debt.

Clearer, more predictable access

Increasing international integration of financial markets in recent decades has helped emerging market countries finance investment and economic activity but has also exposed these countries to the risk of crises caused by rapid reversals of capital flows. In some cases, the IMF has supported member countries' efforts to resolve such crises by providing large amounts of financing.

In Mexico in 1995, during the Asian crises of 1997-98, and subsequently, the IMF has provided financing in amounts well above the access limits normally applied to Stand-By and Extended Fund Facility arrangements.

Large access will sometimes continue to be necessary if the IMF is to provide meaningful assistance to members facing capital account crises, but the policy on exceptional access has needed to be strengthened to ensure that such access remains exceptional.

The IMF's Executive Board reviewed the policy framework for exceptional access in early 2003 and agreed that more clearly defined criteria for such access in capital account crises were needed to help shape the expectations of members and markets, set up benchmarks for difficult decisions about program design and access, safeguard IMF resources, and ensure uniform treatment of members. At a minimum, the Board agreed, the following criteria would need to be met to justify exceptional access in a capital account crisis:

* The member must be experiencing exceptional balance of payments pressures on the capital account, resulting in a need for IMF financing that cannot be met within the normal limits.

* A rigorous and systematic analysis must indicate a high probability that debt will remain sustainable.

* The member has good prospects of regaining access to private capital markets within the time IMF resources would be outstanding, so that the IMF's financing would provide a bridge.

* There is a reasonably strong...