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IMF to offer credits on simple terms

26 March 2009 09:01 (UTC +04:00)

WASHINGTON (AFP) â€” The International Monetary Fund said Tuesday it would start offering countries lines of credit without conditions as it revamped its lending practices to battle the global economic crisis.
One week before the Group of 20 crisis summit in London, the IMF announced major reforms in the way it lends to its 185 member countries, a key part of its mission of promoting global financial stability.
"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," said IMF managing director Dominique Strauss-Kahn.
"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," he said.
The IMF said G20 leaders were expected to discuss "a major boost" to IMF resources at their April 2 meeting in the British capital, which the IMF and World Bank also will attend.
"A substantial increase in the IMF’s resources is required to give full confidence to countries that the Fund will have sufficient money available should they need to borrow," the Washington-based institution said.
Japan in February provided a 100-billion-dollar loan and the European Union last week pledged 75 billion euros (roughly 100 billion dollars). The United States, the largest IMF stakeholder, has called for IMF emergency resources to be increased by up to 500 billion dollars but has not made a specific commitment.
In a sharp break with past lending practices, the IMF unveiled the Flexible Credit Line (FCL), a new instrument designed for member countries deemed as having "very strong fundamentals, policies, and track records of policy implementation."
The credit line has no conditions, no limit on the amount of money that can be borrowed, can be drawn on at any time, and can be used to confront a crisis or as a "precautionary instrument" to prevent one.
The FCL replaces the Short-Term Liquidity Facility (SLF), which since its creation in late October had never been used because it had to be reimbursed swiftly and had a loan limit.
Under the terms of the FCL, the credit line initially can be for six months, or 12 months with a review of eligibility at the six-month mark. Its repayment period extends to between three years and three months, to five years, compared with the SLF’s maximum nine-month period.
Strauss-Kahn called on strong-performing countries that may be suffering from the global crisis to use the new credit line, which he said "could strengthen further their economic position."
Another key reform is the "modernization" of the conditions linked to other IMF lending instruments, the Washington-based institution said.
The IMF said it would "rely more on pre-set qualification criteria where appropriate," rather than on performance criteria after the loan is granted.
"In the past, IMF loans often had too many conditions that were insufficiently focused on core objectives," it said, responding to longstanding criticism that its loan conditions at times end up hurting developing countries.
Moves to reform lending instruments for low-income countries were under way.
The IMF said it was eliminating the use of structural performance criteria in all its arrangements, including those with low-income countries, and instead would monitor the implementation of structural policies in the context of program reviews.
The IMF doubled the limits of access to loans, which normally were fixed in relation to the amount of capital contributed by each country to the fund’s resources.
The IMF also overhauled repayment structures "to create the right incentives for borrowing from the Fund."
"We arrived at these reforms by listening to our membership, consulting with a variety of stakeholders, and reviewing past experiences," said John Lipsky, first deputy managing director.
"These reforms will pave the way for countries to work more effectively with the Fund on crisis prevention and crisis resolution."