The IMF’s expanded loan eligibility

The IMF’s expanded loan eligibility

The current Great Recession is a global one, with even the most buoyant economies struggling. Reports today suggest that Japan may follow Georgia, Ireland, Switzerland, and Spain in suffering from deflation. Economic woes  caused the collapse of the government of the Czech Republic. And dozens of other countries face similar specters. 

All of which means the IMF, the international lender of last resort, has become very, very, very important. In the past, the IMF provided loans to countries out of ways to solve their own economic problems. In return for the loan, the IMF imposed strict conditionalities, requiring governments to clean up their act, sell assets, change tax policies, etc.

But the realities of the global recession mean that even countries with responsible policies may need IMF loans — and may not want to accept them, for fear of the conditionalities and the optics. (See: Brown, Gordon.)

And the IMF, with its new $1 trillion budget, figured that out quickly. So, they changed the rules:

The IMF’s intention is to do away with procedures that have hampered dialogue with some countries, and prevented other countries from seeking financial assistance because of the perceived stigma in some regions of the world of being involved with the Fund. 

To this end, the IMF announced the creation of a "flexible credit line" policy. 

[It is an] insurance policy for strong performers, mainly emerging market countries. Access to the FCL is restricted to countries that meet strict qualification criteria. But once a credit line has been approved, a country can draw on it without having to meet specified policy goals, as is normally the case for IMF loans. 

Mexico has already applied for the FCL loan, a $47 billion "precautionary credit line," last month. Question is, with new scary data emerging, which countries will be next to approach the IMF?