The International Monetary Fund (IMF) expanded and enhanced its lending tools to help contain the occurrence of financial crises. As part of the efforts to enhance the institution’s crisis-prevention toolkit, the Fund’s Executive Board decided to increase the duration and credit available under the existing Flexible Credit Line (FCL) and to establish a new Precautionary Credit Line (PCL) for members with sound policies who nevertheless may not meet the FCL’s high qualification requirements.
“These decisions expand and reinforce the IMF’s crisis-prevention toolkit and mark an important step in our ongoing work with our membership to strengthen the global financial safety net. The enhanced Flexible Credit Line and new Precautionary Credit Line will enable the Fund to help its members protect themselves against excessive market volatility,” said IMF Managing Director Dominique Strauss-Kahn.
This strengthening of the Fund’s insurance-type instruments is aimed to encourage countries to approach it in a more timely fashion in order to help prevent a crisis and, also, help to protect them during a systemic crisis. Mr. Strauss-Kahn added that “the revamped financing toolkit rewards countries that implement strong policies. We expect that the availability of these credit lines to a broader spectrum of countries will contribute to a more stable international monetary system.”
These reforms come as the G20 has made the strengthening of the global financial safety net an agenda item for its next meeting in Seoul, Korea in November 2010, the IMF said in a press release.
