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IMF expands lending tools

Fresh lending measures to help countries insulate themselves from the ongoing eurozone debt crisis have been unveiled by the International Monetary Fund.

The Precautionary and Liquidity Line can be extended to countries with “sound policies and fundamentals” to help them meet their short-term funding needs.

Replacing the Precautionary Credit Line, the PLL is part of the IMF’s new Rapid Financing Instrument. This reform allows countries to seek support during “periods of heightened economic or market stress” in addition to times of natural disasters and post-conflict situations as covered by the previous system.

The liquidity line “can be used under broader circumstances, including as insurance against future shocks and as a short-term liquidity window to address the needs of crisis bystanders during times of heightened regional or global stress and break the chains of contagion”, the fund says.

Countries can access funding of two-and-a-half times their IMF quota, or their annual contribution to the fund, for six-month arrangements, although this can be lifted to five times in “exceptional circumstances”. Two-year loans are capped at ten times the quota.

Christine Lagarde, managing director of the IMF, says: “The reform enhances the fund’s ability to provide financing for crisis prevention and resolution.

“This is another step toward creating an effective global financial safety net to deal with increased global interconnectedness.”

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