International Monetary Fund

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IMF to Double Credit Lines, Relax Conditions

The International Monetary Fund said it will double credit limits for countries struggling with the financial crisis and relax loan conditions for emerging nations that need short-term assistance.

The IMF, in a statement released in Washington today, said it will loosen the strings attached to loans, overhaul a credit program for immediate borrowing, double regular credit lines and let governments borrow more money up front.

"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," IMF Managing Director Dominique Strauss-Kahn said in a statement. "More flexibility in our lending along with streamlined conditionality will help us respond effectively to the various needs of members. This, in turn, will help them to weather the crisis and return to sustainable growth."

The short-term credit facility, renamed the Flexible Credit Line, hasn't attracted a single customer since it was announced five months ago. The changes reflect Strauss-Kahn's effort to curtail the global economic damage and broaden the fund's role to include crisis prevention in addition to being a lender of last resort.

The fund's executive board, which represents the 185-member nations, approved the changes today. In the statement, the IMF said it wants to "modernize" its loan conditions.

'Evolution'

John Lipsky, the fund's first deputy managing director, called the changes a "significant evolution" and said it would make the fund more responsive to its members.

Paulo Nogueira Batista, Brazil's executive director at the IMF, said the financial crisis is accelerating change at international institutions.

"A lot of the ideas we put forth a year ago were considered unrealistic or even utopian," he said. "But the crisis has transformed ideas that even six months ago were considered unrealistic or even utopian into something real or that's on the table."

The fund also said it would double the credit limit for its traditional loans to individual countries -- so-called standby arrangements -- based on the amount they contribute to the fund. "These higher limits aim to give confidence to countries that adequate resources would be accessible to them to meet their financing needs," the IMF said.

The fund said it would be "relying more on pre-set qualifications" rather than traditional post-loan conditions -- which typically insist on government spending cuts.

'Flexible' Credit

The Flexible Credit Line will allow countries whose policies are deemed appropriate to borrow with no conditions. To qualify for such access, the fund said a nation would need to have low inflation, moderate levels of foreign debt and sound public finances.

The latest plan offers loans for longer periods -- as long as a year instead of three months -- and has no fixed limits on how much a country can borrow. In addition, countries can draw on the credit line at any time and do not need to take the money immediately.

The IMF's traditional loans have been in demand since the start of the financial crisis, with $55 billion to nations including Pakistan, Ukraine and Iceland. In November, the Washington-based lender had the busiest month in its 60-year history, agreeing to extend a record $41.8 billion. Those loans are typically for several years, and include scrutiny over economic and budget policies.

$500 Billion

To meet expected demand for loans, Strauss-Kahn has said he wants to double the size of IMF resources from their pre-crisis level to $500 billion. The governments of Japan and the European Union have each pledged $100 billion. The U.S. Treasury has put forward plans that would increase the IMF's lending capacity to $750 billion.

Finance ministers from the Group of 20 industrial and developing economies earlier this month said they want the IMF to play a bigger role in helping end the crisis. "We agree on the urgent need to increase IMF resources very substantially," the G-20 nations said in a March 14 communiqué after a meeting in Horsham, England.

SOURCE: http://www.bloomberg.com/apps/news?pid=20601087&sid=a0IKSMapmpf8&refer=home

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