He International Monetary Fund (IMF) reported this Saturday that its executive board approved changes in its financing guarantee policy that apply in situations of exceptionally high uncertainty.
The modifications facilitate the granting of emergency loans and are contemplated against “external shocks that are beyond the control of the authorities of the countries and the scope of their economic policies,” it said in a statement.
The IMF seeks to correct key obstacles when designing an Upper Credit Tranche (UCT) agreement in cases of high uncertainty. This credit normally requires, prior to its validation, the implementation of a program to resolve the balance of payments problems and restore external viability in the medium term.
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The change allows official bilateral creditors to offer a credible guarantee of debt relief and/or financing in advance and expands the use of creditors’ or donors’ repayment guarantees of emergency loans, which would help establish adequate safeguards.
When delivering these credits, the IMF will outline a scenario with downside risks and another upside to make sure that its plan can work in both cases. The executive board admits that the proposed changes carry considerable risks for the institution, but the statement made it clear that the option to support countries experiencing high uncertainty outweighs the additional dangers resulting from the change.
The change in his policy could actually favor Ukraine, a country Russia launched an invasion of in February last year. The announcement coincides at a time when the IMF representative for Ukraine, Vahram Stepanyan, said this week that talks with the Ukrainian authorities for an agreement on a financing program are progressing at a good pace.