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Lending by the IMF

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.

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Lending by the IMF

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  1. Lending by the IMF Rutu’s Notes

  2. 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

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

  4. 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

  5. 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

  6. 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

  7. 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

  8. 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

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