The International Monetary Fund has proposed that it be allowed to borrow directly from financial markets in order to raise capital for its lending programs. In an email interview, Daniel McDowell, a doctoral student at the University of Virginia and an expert in international lending practices, discussed the IMF's proposal.
WPR: Why is the IMF seeking the ability to borrow directly from financial markets?
Daniel McDowell: The IMF wants to be a fully capable international lender of last resort (ILOLR). Simply put, an ILOLR is an actor that is willing and able to provide credit during crises to solvent but illiquid institutions -- in this case, countries -- when all other lenders will not. The IMF is almost always a willing ILOLR, but it has not always been able. In the initial stages of the global financial crisis in 2008, the IMF had roughly $250 billion in total lendable resources. While this may seem like a large sum, it was nowhere near the amount needed to respond to the massive vacuum in international credit markets. As a result, major central banks -- led by the U.S. Federal Reserve and the European Central Bank (ECB) -- were forced to provide the liquidity that the IMF could not. The Fund has already begun to rectify this, and its lendable resources today are close to $700 billion. However, increasing its resources required a lengthy and intensely political quota review process. The ability for the IMF to borrow from financial markets during times of crisis would give it increased flexibility to temporarily augment its resources on short notice, bypassing the need to negotiate with member states.