A New Facility for Market Access Countries--The Short-Term Liquidity Facility

Please note that the Shorth-Term Liquidity Facility was discontinued March 29, 2009. The above information is no longer current. Read the press release. The ongoing financial market turmoil is remarkable for its severity but also for the speed with which shocks have spread across markets and economies. Disruptions in short-term funding in mature markets, deleveraging and contraction of bank balance sheets, and contagion from a systemic loss of confidence are leading rapidly to sharply reduced financial flows to economies far from the origins of the crisis. Market turbulence in advanced economies has thus led to the emergence of short-term external liquidity needs even in emerging market countries with strong underlying domestic policies. In these circumstances, the Fund’s traditional facilities may not always be the optimal means of addressing short-term balance of payments pressures. Stand-By Arrangements (SBAs) have been used flexibly to support members’ economic programs where both policy adjustment and financing were needed to address underlying vulnerabilities, buttress market confidence, and facilitate a member’s early return to market financing. This paper proposes a special facility to complement existing instruments by filling a gap in the Fund’s toolkit.