• Fund is looking to replace expiring bilateral credit lines
  • Proposal for new arrangement is spearheaded by Germany

Countries that provide bilateral credit lines to the International Monetary Fund want the power to veto loans drawn from those precautionary arrangements, according to people familiar with the discussions.

The IMF has been in talks with more than 30 countries that made available $393 billion to the fund in 2012 through bilateral credit lines, said the people, who asked not to be identified because the negotiations are private. The Washington-based lender is looking to extend some of those facilities that are set to expire at the end of the year.

Ahead of the IMF’s annual meetings next month, consensus is building to renew the credit lines, as long as the IMF’s executive board approves a governance structure that would require the approval of creditor nations before the money is disbursed, said one of the people. The safeguard under discussion would give a lending nation the option to withdraw support for its credit line being used.

The IMF, which was conceived during the Second World War to oversee the global monetary system and promote open markets, currently has about $1.3 trillion at its disposal to lend to countries facing balance-of-payments shortfalls.

The institution has three main sources of capital. It primarily funds itself through the quotas that each member country pays and also has access to standing pools of credit funded by multiple countries. The third source, the bilateral credit lines, has never been used, but the IMF sees it as an important last line of defense in a global economic calamity.

Post-Crisis Credit

After the financial crisis, the IMF sought more capital to meet the growing demand for its loans. In 2012, more than 30 nations stepped up with bilateral credit lines, led by Japan, Germany, China and France.

The new approval process would be similar to the one in place for the New Arrangements to Borrow, a standing pool of about $255 billion, one person said. Under NAB rules, money can only flow once countries representing 85 percent of the credit contributions give their consent.

The proposal is being spearheaded by Germany, which also wants the burden of financing the IMF to be more widely shared among the fund’s 189 member nations, according to the people. Talks are at an advanced stage and an announcement may be made as soon as the IMF’s annual meetings in Washington from Oct. 7-9, they said.

Lending Capacity

Group of 20 leaders pledged their support last month for maintaining the fund’s bilateral credit lines “in line with the objective of preserving the IMF’s current lending capacity.” They also called for “broad participation of the IMF membership, including through new agreements.”

After the G-20 meeting, IMF Managing Director Christine Lagarde said she was “heartened” that the group’s leaders supported maintaining the bilateral credit lines.

Last year, the IMF’s board approved governance changes that roughly doubled the fund’s quotas while giving more voting power to emerging economies such as China and Brazil.

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