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Special> Global Financial Crisis> Latest
UPDATED: March 25, 2009
IMF Approves Major Overhaul of Lending
The IMF announced Tuesday the creation of a new flexible credit line for countries with very strong fundamentals, policies, and track records of policy implementation

The International Monetary Fund (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 Tuesday 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, according to a statement released by the IMF.

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," he added.

The overhaul was approved ahead of the meeting in London of the Group of 20 (G20) 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 IMF will have sufficient money available should they need to borrow or provide themselves with insurance.

Emerging market and developing countries are facing increasing difficulties around the world because of the spreading global economic crisis, with external financing drying up, exports dropping sharply, and commodity prices falling.

As the crisis becomes more prolonged, a growing number of countries will find room for policy maneuver increasingly limited. Large-scale financing from the IMF can cushion the economic and social costs of these global shocks and even help avert full-blown crises if assistance is requested early on.

The key innovation in the overhaul is the creation of a new lending instrument, dubbed the Flexible Credit Line (FCL). The IMF is introducing this new credit line to provide large and upfront financing to members with very strong fundamentals and policies.

The FCL will allow countries to obtain the credit line as a "precautionary instrument" and will be available to be drawn on at any time.

Meanwhile, the IMF is also redesigning lending facilities for low-income countries to strengthen the IMF's capacity to provide concessional short-term and emergency financing. "The IMF's objective is also to at least double its concessional lending capacity for low-income countries," said the statement.

(Xinhua News Agency March 25, 2009)

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