A New Facility for Market Access Countries--The Short-Term Liquidity Facility

Policy Papers, October 24, 2008

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A New Facility for Market Access Countries--The Short-Term Liquidity Facility

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Bibliographic details

• Published: October 24, 2008
• Series: Policy Papers

Context and Rationale

• The ongoing financial market turmoil is described as remarkable for its severity and the speed with which shocks spread across markets and economies.
• Disruptions noted:
  • short-term funding in mature markets,
  • deleveraging and contraction of bank balance sheets,
  • contagion from a systemic loss of confidence.
• Consequence: sharply reduced financial flows to economies far from the origins of the crisis, producing short-term external liquidity needs even in emerging market countries with strong underlying domestic policies.
• Implication: The Fund’s traditional facilities may not always be the optimal means of addressing short-term balance of payments pressures.

Proposed facility and its role

• The paper proposes a special facility to complement existing instruments by filling a gap in the Fund’s toolkit.
• Rationale for complementing existing instruments:
  • Stand-By Arrangements (SBAs) had been used flexibly to support members’ economic programs where both policy adjustment and financing were needed.
  • A targeted facility would address short-term external liquidity needs that arise from rapid market turbulence and reduced financial flows, facilitating a member’s early return to market financing and buttressing market confidence.

Key findings and emphasis

• Market turbulence in advanced economies can create short-term external liquidity needs in other economies, including emerging market countries with otherwise strong policies.
• Stand-By Arrangements (SBAs) have served roles in:
  • addressing underlying vulnerabilities,
  • buttressing market confidence,
  • facilitating an early return to market financing.
• The proposed Short-Term Liquidity Facility is intended to fill a specific gap not optimally covered by traditional facilities.

Subject coverage (as listed)

• Access limits
• Access to Fund general resources
• Balance of payments
• Capital account
• Financial assistance
• Multilateral surveillance
• Reserves
• Short-Term Liquidity Facility

Source: IMF policy paper landing page — "A New Facility for Market Access Countries--The Short-Term Liquidity Facility".

Content in this bundle

• A New Facility for Market Access Countries—The Short-Term Liquidity Facility; October 24, 2008
  • A New Facility for Market Access Countries—The Short-Term Liquidity Facility; October 24, 2008 (Markdown version)
  • A New Facility for Market Access Countries—The Short-Term Liquidity Facility; October 24, 2008 (PDF)