MercoPress. South Atlantic News Agency

IMF proposes a short term liquidity facility to prevent financial crises

IMF First Deputy Managing Director John Lipsky

A top International Monetary Fund official called for the creation of an emergency lending facility as part of a global toolkit aimed at preventing the spread of financial crises.

IMF First Deputy Managing Director John Lipsky told a meeting of central bankers from the world's largest economies the liquidity facility could work alongside other lending programs the Fund has been working on following the global financial crisis.

After the crisis, world leaders boosted IMF resources to 750 billion US dollars. Besides tripling its lending capacity, another measure that reassured markets was the creation of a new lending tool called a flexible credit line, or FCL. The IMF then said in July it was also considering a “precautionary” credit line, or PCL, that wouldn't require the same stringent fiscal and economic conditions that normally apply to IMF loans.

Lipsky added a third tool to the IMF kit, a short-term emergency lending facility with “well-understood conditionality and access rules.” He said it would be better than the ad hoc use of the Federal Reserve's emergency currency swap lines in late 2008.

The IMF official called for the creation of a better framework to deal with crisis situations, what he dubbed a “systemic crisis prevention mechanism.”

“This instrument could proactively channel support simultaneously to a group of Fund members--rather than one-at-a-time--either through the existing FCL, the proposed FCL, or possibly through an eventual short-term facility.”

Lipsky said the IMF board would discuss the proposal in the coming weeks. The IMF is aiming to deliver the proposal at the G-20 meeting of the world's biggest economies in Seoul in November.