IMF Revamps Lending Options in Response to Global Crisis

IMF responds to calls for stronger global financial safety net

Precautionary Credit Line replaced with more flexible instrument to provide liquidity

New instrument broadens emergency assistance

The reforms, which have been under way for some time, come in response to calls from the Group of Twenty (G-20) industrialized and emerging market economies and the IMF’s broader membership for a stronger global financial safety net to help prevent crises.

The IMF is upgrading one type of precautionary credit line, and broadening the reach of its emergency assistance. The Precautionary and Liquidity Line will enable the IMF to provide upfront liquidity in a broad range of circumstances, including for countries with sound policies that have been affected by economic shocks beyond their control, such as heightened stress in global financial markets.

The Rapid Financing Instrument enhances the IMF’s instruments for emergency assistance, and may be used to support member countries experiencing a range of urgent balance of payments needs, including needs arising from commodity price shocks, natural disasters, post-conflict situations, and other emergencies. The Rapid Financing Instrument will improve the IMF’s ability to provide low-access financial assistance to member countries with urgent financing needs, without the need for a full-fledged program.

“The IMF has been asked to enhance its lending toolkit to help the membership cope with crises. We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership,” IMF Managing Director Christine Lagarde said.

“The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution. This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.”

Strengthening the global financial safety net

As part of its broader response to the 2008 global financial crisis, the IMF approved comprehensive reforms to strengthen its capacity to prevent and resolve crises, resulting in the creation of the Flexible Credit Line and the Precautionary Credit Line. To date, three countries—Mexico, Poland, and Colombia—have used the Flexible Credit Line, while Macedonia is the only country to have accessed the Precautionary Credit Line.

As part of the process of preparing the latest lending reforms, the IMF reviewed the role that the Precautionary Credit Line and...