The International Monetary Fund has stepped up as a lender of last resort, as it increased the firepower of its lending instruments and extending a six-month liquidity lifeline to indebted eurozone nations.
According to the IMF, the Precautionary and Liquidity Line would act as “an insurance against future shocks and as a short-term liquidity window to address the needs of crisis bystanders.”
The set of measures, said the IMF, are intended to “bolster the flexibility of scope” of its emergency facilities for countries facing liquidity problems.
Traditionally seen as a lender of last resorts, the new loan agreements, which Reuters points out is the most flexible in the fund’s 60-year history, will allow the likes of France to borrow big sums in the heat of a crisis with fewer of the IMF’s typical policy demands. “Regular” IMG loans can take lengthy months to negotiate and come with painful public spending restrictions.
We have acted quickly, and the new tools will enable us to respond more rapidly and effectively for the benefit of the whole membership, IMF Managing Director Christine Lagarde said in an email statement.
By taking a bigger and more active role in easing the European debt crisis, the Fund provides an effective safety net for countries like Italy, Spain and Hungary.
“The reform enhances the Fund’s ability to provide financing for crisis prevention and resolution,” Lagarde said. “This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness."
The fund said it approved revisions to help countries with “relatively strong policies and fundamentals” affected by the debt crisis in the euro zone — in its words, “crisis bystanders.” It said it would be able to offer assistance in a “broader range of circumstances” than previously allowed.
The goal, the fund said, is to “break the chains of contagion.”
But Jonathan Wheatley from FT points out that some analysts have already dismissed the move as a “palliative measure that would do nothing to address the roots of the eurozone crisis.”
As Reuters argued, the $400 billion that the IMF has left in its coffers will help, but cannot alone save Europe.