IMF expands credit line to avert future financial crisis

The International Monetary Fund (IMF) has unveiled new credit facilities for member countries to secure financial assistance in a timely manner, which will help prevent financial crises in the future.

In recent times, the multilateral lending agency extended financial aid to crisis-hit nations such as Greece and Romania.

The IMF's executive board has approved a new Precautionary Credit Line (PCL) that would allow countries having sound fiscal and monetary policies to take loans quickly in times of crisis.

In addition, the lender will increase the duration, as well as the credit available through existing Flexible Credit Lines (FCL).

The "insurance-type instrument" is aimed at encouraging countries to approach the fund in a more timely fashion to prevent a crisis, according to an IMF statement issued on Monday.

IMF Managing Director Dominique Strauss-Kahn said the new credit facilities will expand and strengthen the lender's crisis prevention toolkit.

"The enhanced Flexible Credit Line and new Precautionary Credit Line will enable the fund to help its members protect themselves against excessive market volatility," he noted.

According to the IMF, countries' eligibility for PCL would be broadly based on factors such as the nation's fiscal policy, monetary policy, financial sector soundness and supervision.

"While requiring strong performance in most of these areas, the PCL permits access to precautionary resources to members that may still have moderate vulnerabilities in one or two of these dimensions," it added.

As part of an overhaul of its lending framework, the IMF had created the FCL in March, 2009. The instrument was mainly for member nations having very strong fundamentals, policies and track records of policy implementation.

In the wake of the meltdown in 2008-09, G-20 nations had pledged to strengthen the global financial system to avert similar turmoil in future.

The leaders of the G-20 countries, who will meet in South Korea in November, 2010, are expected to discuss ways to bolster the global financial safety net.