Publications

Working Paper No. 157 | May 1996

A New Facility for the IMF?

In this working paper, John Williamson, senior fellow at the Institute for International Economics, evaluates proposals to create a short-term financing facility within the International Monetary Fund (IMF). The emphasis in this facility would be on the period within which the IMF would respond to a request for assistance, rather than on the duration of the loan. According to Williamson, there are two situations in which existing arrangements within the IMF do not allow for a response quick enough to be effective: when a country is attempting to defend a pegged exchange rate and when default is imminent. Some have suggested that any new facility be able to lend to alleviate these circumstances. Those who support freely floating exchange rates, however, are opposed to supporting a pegged rate regime and favor restricting such activity by any new facility. Others would support this activity by a new facility only in cases that pose a systemic threat.

Williamson focuses on the broadest of the purposes that could be fulfilled by a new facility: assisting countries to finance capital flows judged to be unjustified by the fundamentals and therefore destabilizing. Proposals directed at fulfilling this purpose (which date back some years and have been enjoying a recent resurgence) stipulate the countries that should have access to such a facility, the terms and level of access, the maturity of loans, and the source of the facility's financing.

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John Williamson

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