Yesterday, the IMF announced the creation of a Short-Term Liquidity Facility. The Facility will draw upon existing IMF resources to provide “quick-disbursing short term financing” to countries with relatively strong economic policies, but that have been experiencing liquidity problems as a result of the global economic crisis.

Mr. Dominique Strauss-Kahn, Managing Director of the IMF stated that, [t]he ongoing turmoil in global capital markets has led to significant liquidity difficulties for some emerging market countries, even those that have maintained sound macroeconomic frameworks and have sustained histories of market access. Existing Fund loan facilities offer flexibility. However, they are fundamentally used for countries that require both financing and policy adjustment, and not for countries that despite strong initial macroeconomic positions and policies are facing short-term liquidity pressures. This new facility addresses that gap in the Fund’s toolkit of financial support.”

The IMF has stated that the terms of these loans are anticipated to “be up to 500 percent of quota, with a three month maturity.” Countries that are deemed eligible to receive a loan will be permitted to draw upon the Facility “a maximum of three times during any 12-month period.” The loans will be made available without many of the standard conditions and contingencies that are characteristic of IMF financing arrangements, however, borrower countries must “certify that they are committed to maintaining strong macroeconomic policies.”

In his statement, Mr. Strauss-Kahn, also congratulated the establishment by the U.S. Federal Reserve, the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore of temporary reciprocal currency arrangements (swap lines).