The International Monetary Fund has launched a line of credit without conditions in a major overhaul of lending practices to tackle the worst global economic crisis in 60 years.
One week before a Group of 20 crisis summit in London, the IMF on Tuesday hiked the amount of money it would lend to its 185 member countries, streamlined procedures and took steps to encourage borrowing.
"These reforms represent a significant change in the way the Fund can help its member countries -- which is especially needed at this time of global crisis," said IMF managing director Dominique Strauss-Kahn.
"More flexibility in our lending along with streamlined conditionality will help us respond effectively to the various needs of members. This, in turn, will help them to weather the crisis and return to sustainable growth," he said.
The IMF also recognized China's proposal for an IMF-based global reserve currency to dethrone the US dollar, which was installed as the reference currency after World War II.
"This is an idea, the idea of a global currency, determined by multilateral organizations, which is not new, but it's a serious proposal," John Lipsky, the IMF's first deputy managing director, said.
"I'm sure that discussion will continue on this and other approaches to improve the working of the international system. It's only natural," he added.
The IMF said G20 leaders were expected to discuss "a major boost" to IMF resources at their April 2 meeting in the British capital, which the IMF and World Bank also will attend.
"A substantial increase in the IMF's resources is required to give full confidence to countries that the Fund will have sufficient money available should they need to borrow," the Washington-based institution said.
Japan in February provided a 100-billion-dollar loan and the European Union last week pledged 75 billion euros roughly 100 billion dollars. The United States, the largest IMF stakeholder, has called for IMF emergency resources to be increased by up to 500 billion dollars but has not made a specific commitment.
The IMF doubled the limits of access to loans and overhauled repayment structures "to create the right incentives for borrowing from the Fund."
It also created an unprecedented credit line for member countries deemed to have "very strong fundamentals, policies, and track records of policy implementation."
The Flexible Credit Line FCL has no conditions, no limit on the amount of money that can be borrowed, can be drawn on at any time, and can be used to confront a crisis or as a "precautionary instrument" to prevent one.
The FCL replaces the Short-Term Liquidity Facility SLF, which since its creation in late October had never been used because it had to be reimbursed swiftly and had a loan limit.
Under the terms of the FCL, the credit line initially can be for six months, or 12 months with a review of eligibility at the six-month mark. Its repayment period extends to between three years and three months, to five years, compared with the SLF's maximum nine-month period.
Strauss-Kahn encouraged strong-performing countries that may be suffering from the global crisis to use the new credit line, which he said "could strengthen further their economic position."
Another key reform is the "modernization" of the conditions linked to other IMF lending instruments, the Washington-based institution said.
The IMF said it was eliminating the use of structural performance criteria in all its arrangements, including those with low-income countries.
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