The International Monetary Fund‘s (IMF) Board has approved a significant amendment aimed at granting a greater flexibility to assist countries in crisis, even while negotiations with major creditor governments such as China are ongoing, Reuters reported on Wednesday.
The proposed reform targets the IMF’s Lending Into Official Arrears (LIOA) policy, which dictates the conditions under which the IMF can extend loans to a country in debt to another IMF member nation.
In a statement issued late Tuesday, the Fund announced that its Executive Board had endorsed “reforms to enhance the IMF’s ability to support countries undergoing debt restructuring.”
A crucial revision entails enabling the IMF to provide financial assistance to a country even if it hasn’t yet reached a debt agreement with one or more of its bilateral creditors, provided that the Fund is furnished with “additional safeguards.”
Moreover, veterans of debt crises have long advocated for a shift in the IMF’s approach, citing prolonged negotiations with countries like China as contributing to protracted defaults in nations such as Zambia, Ethiopia, and Sri Lanka.
“The addition of a fourth provision, under which the Fund will seek additional safeguards in cases where a sufficiently representative agreement hasn’t been reached through a standard negotiation forum, garnered support from Directors,” stated the IMF.
