IMF augments new lending facilities after earlier reviews

29 September 2014 | Update

In late May and mid-June the executive board of the IMF discussed a review of three new lending facilities – the Flexible Credit Line (FCL), the Precautionary Liquidity Line (PLL) and the Rapid Financing Instrument (RFI). The facilities were introduced after the 2008 financial crisis to strengthen the Fund’s capability for crisis prevention and resolution (Update 65). An initial review in February revealed a lack of demand for the three new instruments amongst emerging economies (Observer Spring 2014).

Following a June discussion, the executive board agreed to align the qualification criteria for FCL and PLL to improve the transparency and predictability of the Fund’s decisions. While no conditionality is attached to FCL and there is no hard limit on the amount of money countries can access, applying candidates have to be identified as “strong performers” according to specific criteria. This provides for a form of prior conditionality. The PLL comes with comparable pre-qualifications but on the other hand is subject to conditions addressing country-specific “vulnerabilities”. The board agreed to adjust the criteria on financial sector eligibility  including bank solvency, which countries have to meet to qualify for both facilities, only in respect of the broader soundness of the financial system and the absence of solvency threats for systemic stability. In addition, IMF directors agreed to introduce more detailed quantitative indicators to measure the institutional quality of candidate countries, including factors such as counter-cyclicality of economic policies, the existence of fiscal rules and indicators on anti-corruption policies.

However, Bodo Ellmers of Belgian-based NGO network Eurodad commented that the amendments were “largely missing the point”. “The idea of new lending instruments such as the FCL was to be less intrusive and more accessible as there is no direct conditionality attached, but in practice they have only replaced loan conditionality with ex ante qualification criteria. The implication is that only a few countries that follow the IMF’s orthodox approach to economic policy can use them. The recent changes are merely cosmetic, the fail to address the fundamental problem that the IMF increasingly treats members differently, and some worse than others. The IMF needs to interfere less and treat its members more equally if it wants to remain relevant for all.”