IMF Creates Emergency Credit Line to Protect Eurozone
November 24th, 2011
The International Monetary Fund (IMF) has finalised its ‘Preventive Liquidity Line’, a credit line agreed at the G-20 summit in Cannes to assist countries in the Eurozone who need emergency money.
“These reforms will enable the Fund to be more responsive to the diverse needs of members with sound (economic) policies,” said a statement from the organisation and reported in El Mundo.
The IMF wants to use their credit lines to help countries with strong economies but who have extraordinary liquidity needs, beyond the sort of situations considered so far (conflicts or natural disasters, for example).
IMF Managing Director, Christine Lagarde, commended the Board of Directors of the Institution for “their expeditious response in supporting the Member states in these difficult times.”
“The Fund has been asked to strengthen its lending instruments in order to help members deal with crisis,” Lagarde said in a statement. “We acted quickly and the new instruments will now allow us to respond more quickly and effectively to benefit all Members.”
The “preventive liquidity line” which replaces the “precautionary credit line” is more flexible, and can be used under what the IMF statement describes as “broader circumstances, including protection against future shocks and short-term liquidity.”
For a member country to make use of this instrument, the IMF must assess that their government have “applied institutional policy frameworks and solid economic fundamentals” and that they “remain committed to maintaining such policies in the future.”
The line can be used as a “liquidity window” allowing arrangements of six months in order to meet the needs of short-term payments.
The loan “shall not exceed 250 percent of the member’s quota (in the IMF), but may be increased to a maximum of 500 percent in exceptional circumstances where a member faces short-term payment needs resulting from external shocks, including regional or global conditions of greater economic stress,” the statement said.
Agreements can also be made, for payment periods of 12 to 24 months, with access equivalent to 500 percent of the member’s quota for the first year, and up to 1,000 percent in the second year.
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