“We ask the Fund, by the time of the next Annual Meetings, to study and report on the future financing role of the Fund. Building on the success of the FCL and high access precautionary arrangements, this study should consider whether there is a need for enhancing financing instruments and whether this can offer credible alternatives to self-insurance, while preserving adequate safeguards.”IMFC Communiqué, Istanbul, October 4, 2009
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Paper prepared by an interdepartmental team led by L. Giorgianni (SPR) and comprising C. Beaumont, L. Kohler, M. Rossi, and C. Visconti, (all FIN), W. Bergthaler, D. Eastman, K. Kwak, Y. Liu, C. Ogada, and R. Weeks-Brown (all LEG), M. Anthony, U. Das, C. Mulder, J. Pihlman (all MCM), S. Basu, A. Ghosh, J. Kim, J. Ostry, L. Ricci, and M. Roca (all RES), and G. Adler, M. Goretti, I. Halikias, J. Roaf, and A. Stuart (all SPR).
See How Have Emerging Market Countries Coped in the Crisis (forthcoming) and The Implications of the Global Financial Crisis for Low-Income Countries.
See Review of Recent Crisis Programs.
See GRA Lending Toolkit and Conditionality—Reform Proposals; Review of Fund Facilities—Analytical Basis for Fund Lending and Reform Options ; and Conditionality in Fund-Supported Programs – Purposes, Modalities, and Options for Reform.
The upcoming paper on Reforms of the International Monetary System will discuss the source of global instability stemming from accumulation of reserves that is large relative to the size of the reserve issuers. See also Ghosh et al. (2009).
See The Fund’s Mandate—An Overview.
Concessional facilities were overhauled recently. There may be scope for further refinements of the toolkit, in particular to address special challenges arising from catastrophic disasters and conflict situations. These issues will be taken up in separate papers. Further work on meeting low-income countries’ growing demand for insurance may also be useful.
In an event study, Izquierdo and Talvi (2009) argue that the strengthening of Fund facilities played a key role in stabilizing emerging market spreads.
The experience of countries that have entered into SBAs during the crisis has been reviewed in Review of Recent Crisis Programs.
For additional discussion of the legal implications of some of the proposals discussed in this paper, see The Fund’s Mandate—The Legal Framework.
A 70 percent majority of the total voting power is needed to establish a special facility with a special commitment fee and other special charges (Article V, Section 8(d)). The majority increases to 85 percent of the total voting power if the special facility would have a repurchase period different than the 3¼- to 5-years applicable in the credit tranches (Article V, Section 7(d)), or if purchases under the facility will “float” against the reserve tranche (Article XXX(c)(iii))—the latter has been a feature of all recent special facilities.
See Review of the Fund’s Financing Role in Member Countries—Background paper on Proposals for a Rapid Access Line, a Financial Stability Line, and Rapid Liquidity Line.
Alternatively, to ensure automaticity, the occurrence of a predetermined exogenous market trigger established in advance by the Board could activate availability of the offer. Use of market triggers has been discussed in different contexts by Cohen and Portes (2006); Buiter and Sibert (1999); and, more recently, Caballero (2009).
The word “swap” is intended to convey the short-term, ex-post conditionality-free nature of the arrangement rather than the formal swap of asset streams; in a sense, all Fund lending is a “swap” insofar as freely usable currencies are made available in exchange for the member’s own currency.
As discussed above, the establishment of special facilities requires a qualified majority (usually 85 percent of the total voting power).
Analysis in an initial paper on the size of the Fund is conducted within the Fund’s existing lending mandate.