Article: Poland seeks $20bn IMF Credit (BBC)

The article Poland to seek $20bn IMF credit appears on BBC on April 14th, 2009. The article’s synopsis is Poland’s government is to ask the International Monetary Fund (IMF) for a $20bn (£13.44bn) credit line to help tackle the economic crisis.

This article also appears on Marketwatch.

The article Poland asks for $20.5 billion credit line from IMF on Marketwatch provides more details on the transaction.

It is presumed that the “Flexible Line of Credit” is a rebranding of the “Short Term Liquidity Fund”, as they seem to have the exact same principles, objects and pre-qualifications. From the IMF web-site:

Flexible Credit Line (FCL).
The FCL is for countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes. FCL arrangements are approved for countries meeting pre-set qualification criteria. The length of the FCL is 6 months or 1 year (with a mid-term review). Access is determined on a case-by-case basis, is not subject to the normal access limits, and is available in a single up-front disbursement rather than phased. Disbursements under the FCL are not conditioned on implementation of specific policy understandings as is the case under the SBA. There is flexibility to draw on the credit line at the time it is approved, or it may be treated as precautionary.

As a line of credit, the IMF short-term liquidity facility (STLF) can create the perception that a state has more foreign currency reserves than it actually has. It also provides access to extra foreign currency reserves in the event that there is a run on the currency. This respectively reduces the likelihood of a run on the state’s currency, and the likelihood of a run creating a liquidity or balance-of-payments crisis.

The STLF has similar effects to currency swap agreements between states, currency unions and monetary unions.

The STLF creates a moral hazard. Countries can now under-fund their foreign currency reserves on the basis that the IMF will step in and provide STLF lending in a crisis. The STLF has the potential to become a guarantor of the currency, in lieu of reserves.