Emerging issue in the design of IMF credit facilities from the 1960s, which became the dominant one following the major crises in emerging economies of the last decades of the twentieth century, has been balance-of-payments support in the face of capital account crises.
These elements were present in the major reforms adopted after the North Atlantic financial crisis, notably the reforms adopted in 2009 that were possibly the most ambitious in the IMF’s lending history.
Creation of a successful precautionary facility in 2009, the Flexible Credit Line (FCL), came after several failed attempts.
This was complemented by the decision adopted in December 2009 to change the design of the concessional loan lines from a single design to a menu of options (IMF 2009e), which recognizes the differences among low-income countries in terms of debt vulnerabilities and management capacity. This includes the possibility that those with stronger conditions can eventually access non-concessionary facilities.
Fund lending has clearly met its counter-cyclical objective through history and certainly since the North Atlantic financial crisis, indicating that the decisions on new credit lines adopted at the onset of the crisis were steps in the right direction.
Second is the need to continue making progress in designing financing facilities that are either automatic or have simpler pre-qualification processes.
Additional reforms introduced in March 2009 were to eliminate structural performance criteria for all programmes, and thus the relationship between IMF disbursements and structural conditionality, and to eliminate ex-ante conditionality for the FCL.
Eliminating structural benchmarks and the creation of a preventive credit with no ex-ante conditionality were major steps forward. However, as already indicated, much more has to be done in designing automatic credit facilities with no conditionality and making them available to a larger set of countries.
A counter-cyclical role of IMF lending should be complemented by other mechanisms, as part of what has come to be called a ‘global financial safety net’.
The new BRICS Contingency Reserve Arrangement, formally launched in 2015 by Brazil, Russia, India, China, and South Africa, is a new addition to the safety net.
Use of the Chiang Mai Initiative, and this rule has (paradoxically) been adopted by the BRICS Contingency Arrangement. Therefore, mechanisms without a tie to an IMF pro- gramme, which include the swap mechanisms and FLAR lending, are better in this regard.
Sovereign Debt Workout Mechanisms
The second element of a well-structured crisis response architecture is a system to manage debt overhangs.
Additionally the role that bankruptcy procedures play at the national level.
However, advances made in improving emergency financing during recent crises have not been matched by the development of an institutional frame- work to manage the debt overhangs of countries.