Friday, March 27, 2009

A stronger role for the IMF in times of crisis

During the current crisis the IMF (International Monetary Fund) has been lending to countries in need of funds. Despite this increase in activity there is a sense that the IMF could play a much stronger role in times of crisis. One of the constraints was the limited pool of funds available but this is about to change as there has been an agreement to increase substantially these funds. But, in addition, some countries where not willing to go to the IMF because of the conditions that it imposed on the borrowers. The IMF has just approved new lending facilities that address some of these concerns. Some of the changes include
  • increase in the amount of lending that countries can obtain from the IMF
  • additional flexibility in the terms of the loan as well as the lending processes
  • loans are conditional on pre-qualification criteria rather than ex-post outcomes (this is probably one of the most significant changes as these conditions were many times seen as unnecessary impositions on domestic economic policy
If you want to know more, the IMF provides details on all these changes in their web site

It will be interesting to see how the new lending facilities change the attitude of some of the countries that today do not consider the IMF as the first place to go for funding in times of crisis. These changes are also happening at the time when we hear additional demands for the need of an international authority in matters such as exchange rate or the creation of a world currency which is independent of national governments (as expressed by Zhoe Xiaochuan, the Chinese central bank governor).

Antonio Fatás