IMF Gets $600 Billion Credit Line to Help in Financial Crises

By Sandrine Rastello

Nov. 25 (Bloomberg) -- The International Monetary Fund said it will have access to a credit line of up to $600 billion to make loans during financial crises after contributing countries agreed to fold commitments into one pool.

The agreement, yet to be approved by the IMF board, adds as many as 13 members from the current 26 to the so-called New Arrangements to Borrow, including emerging nations China, Russia, Brazil and India, the IMF said in an e-mailed statement.

The decision “marks an important moment for multilateralism and the fund, which will help the IMF’s effectiveness in its response to crises,” Managing Director Dominique Strauss-Kahn said in yesterday’s statement.

The deal goes beyond a pledge by leaders of the Group of 20 nations to contribute up to $500 billion to a credit arrangement that’s currently worth $54 billion, the IMF said. The worst financial crisis since the Great Depression prompted more nations to seek aid from the fund, created after World War II to help ensure the stability of the global monetary system.

The agreement, which merges existing commitments into one facility, makes it easier for the IMF to tap into its supplemental resources. The credit line will be “an effective tool of crisis management as a backstop for the international monetary system,” the IMF statement said.

While a general agreement on the NAB was reached at the G- 20 meeting in Pittsburgh in September, talks on the specifics stalled over divisions between some emerging and developed nations over voting rights relating to the credit facility.

Borrowed From Members

The IMF has estimated that its current credit line was insufficient when the financial crisis boosted demand for loans. It then started to borrow from individual members, such as Japan, to continue lending to countries in difficulty.

To ensure the institution would continue shoring up economies around the world, G-20 leaders in April pledged to add $500 billion to the IMF’s resources.

Some of these contributions were bilateral loans, while China agreed to participate by buying the first IMF notes. Some countries, like the U.S., made theirs directly to the NAB.

When the new credit-line agreement is activated, all the bilateral loans will fall into it, Andrew Tweedie, who heads the IMF Finance Department, said in a Nov. 20 interview. It won’t come into effect before next year, he said.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net