LENDING BY THE IMF Rutu’s Notes

Section 1  Role of IMF: provide loans for countries to pay off international loans and maintain appropriate reserve (when in need)  Change afoot!—want to allow for policies of crisis prevention

Section 2  History of IMF lending summarized. Also briefly described some changes made in last few years

Section 3  Why lend money?—“To preserve world financial stability”  Currently 3 main purposes Help countries adjust to stock changes Provide credibility by lending to allow other lenders to provide money Combat capital account crises

Section 4  Conditions for lending—  Country w/ currency under attack near state of eco crisis  IMF discusses w/ borrower which policies need to changed or be amended in order to succeed  Delivered in installments over 3 yrs—usually need additional help but IMF investment boosts confidence

Section 5  Types of lending: {non-concessional lending (no conditions)}:  Stand-by Arrangement—for emerging market countries  Flexible Credit Line—strict qualifications b/c of no loan cap  Precautionary and Liquidity Line—avoid crisis by meeting balance of payment needs  Rapid Financing Instrument—for urgent balance needs (w/o need for a full-fledged program)  Extended Fund Facility—extended, related to having to restructure country’s financial structure  Trade Integration Mechanism—changes in trade policy affect economy

Section 6  How to make concessional aid available to low- income countries:  Changes made Jan 2010: 3 types of loans were created under the new Poverty Reduction and Growth Trust (PRGT) Extended Credit Facility: medium term support Rapid Credit Facility: quick w/ minimal conditions Standby Credit Facility: short-term needs

Section 7  Debt relief: 2 initiatives that allow for debt to be “written off”  Heavily Indebted Poor Countries (HIPC) Initiative— creditors provide debt relief  Multilateral Debt Relief Initiative (MDRI): 100% debt relief to allow certain countries to advance towards MGDs