Monday, April 27, 2009

IMF mulls new credit line for emerging markets

By Lesley Wroughton, DAR ES SALAAM, March 10 (Reuters)

The International Monetary Fund is considering a new credit line for well-run emerging market economies that would allow them to access funds as needed without drawing down the full amount, the head of the International Monetary Fund said on Tuesday.

The so-called Flexible Credit Line would replace the Short-term Liquidity Facility that was approved on Oct. 26. The Short-term Liquidity Facility forced countries tapping the program to draw down the entire amount available.

The credit line could be approved by the IMF board "within weeks," Strauss-Kahn told an IMF conference in the Tanzanian capital.

As the global crisis spreads to emerging economies across the world, the IMF has been under pressure to design or change lending instruments to make it easier for countries to access financing.

The new credit line would provide financing for emerging market countries suffering from short-term pressures through no fault of their own, without making them resort to a standard IMF lending program, which would come with strict conditions.

In addition, Strauss-Kahn said the IMF was also considering a High-Access Precautionary Arrangement that would give countries with IMF standby loan arrangements access to financing over and above the normal limit of between two times and six times their IMF quota.

Each IMF member country is assigned a quota based on its size in the world economy. The quota determines its financial commitment to the IMF, its voting power within the organization, and how much it can borrow from the fund.

Similar to the Short-term Liquidity Facility, the new Flexible Credit Line would be available to a group of pre-approved emerging market countries with good track records and sustainable debt burdens and will not include the string of conditions of normal programs.

Emerging market countries complained that the Short-term Liquidity Facility was too restrictive and obliged them to draw down the money immediately. They also said the agreed five times of quota limit was too small, with some pushing for access of up to 10 times quota.