New IMF credit plan too harsh

15 June 1999

The IMF‘s Contingency Credit Line (CCL), agreed during the Spring meetings, will not help developing countries facing financial crisis because the qualification conditions are too demanding. This is a credit line for countries that are least likely to need it.

Some countries are worried that joining the CCL could signal to private investors that the government is concerned about a currency collapse. Once a country accepts the CCL there is no way out because leaving could precipitate a confidence collapse. IMF staff have warned that “there is a real danger that such arrangements can be destabilising rather than stabilising”. The Financial Times said the CCL sets a precedent for pre-qualification for IMF support. This would lock countries into IMF-approved policies regardless of whether they draw on its funds, whilst creating a pariah class of countries not willing to follow the IMF‘s prescriptions.

A review will be made in a year’s time.