IMF Boosts Lending Facility, Unveils Short-Term Credit Line

The International Monetary Fund has enhanced its lending facility and introduced a new six-month liquidity line to encourage countries at risk from the euro-zone crisis to turn to the fund for help.

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Today the IMF said a more flexible “precautionary and liquidity line” of credit would act as “insurance against future shocks and as a short-term liquidity window to express the needs of crisis bystanders.”

The credit line program will give countries with relatively good economic policies access to credit for up to six months. The IMF said it could also be used under a 12- to 24-month arrangement, with access up to 1,000% of a member’s quota.

The revamped lending tool will enable countries that pre-qualify to request IMF funds without having to make as many policy changes as with traditional loans.

The organization also announced the adoption of a new “rapid financing instrument” for countries with urgent need for funds arising out of so-called exogenous shocks, such as natural disasters.

“The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution,” IMF Managing Director Christine Lagarde said in an e-mailed statement. “This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.”

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“We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership,” said Lagarde.