IMF Explores Ways to Enhance Cooperation with Regional Groups

Regional financing arrangements (RFAs) can play key role in crisis response

IMF-RFA cooperation offers benefits, but also poses challenges

IMF staff outlines broad options for cooperation going forward

By mobilizing resources and pooling risks at the regional level, groups such as the European Stability Mechanism or the Chiang Mai Initiative Multilateralization in Asia increase the firepower available to tackle large-scale crises. Because these regional groups have unique strengths, combining their local-level knowledge and expertise with that of the IMF can boost chances for the success of a lending program, the report finds.

There is more work to be done, however, on the coordination of global and regional financing. In an interview, the IMF’s Strategy, Policy, and Review Department’s Toshiyuki Miyoshi—the report’s lead author—discusses the IMF’s engagement with regional financing arrangements and explains the paper’s findings.

IMF Survey: What are regional financing arrangements and what purpose do they serve?

Miyoshi: A regional financing arrangement (RFA) is a financing mechanism through which a group of countries in a region mutually pledge financial support to countries within the group that are experiencing financial difficulties, drawing on resources pooled at the regional level.

RFAs vary greatly in their objectives, size, and institutional frameworks, but they have been part of the so-called global financial safety net—that is, the range of facilities to support countries in difficulty—since the 1970s. The crises of the 1990s and a move toward greater regional integration more broadly created further incentive for some regions to establish RFAs.

IMF Survey: Why are we hearing about r egional f inancing a rrangements now?

Miyoshi: RFAs are increasingly recognized as a key layer of the global financial safety net. Following the global financial crisis of 2008, policymakers realized that domestic policy responses were not sufficient to deal with the rapid propagation of shocks in a highly interconnected global economy. The systemic crisis called for both global and regional efforts to deal with the financial difficulties of individual countries. The IMF responded by quadrupling its lending resources and overhauling its lending toolkit. At the regional level, new RFAs were established and existing ones strengthened, which complement the Fund’s crisis-fighting initiatives.

With this expansion of the RFAs’ influence, there...