Just two years ago the air resounded with calls for reform of the "international financial architecture."
Though the interest of many has turned elsewhere, the International Monetary Fund has been laboring steadily to bring elements of that new architecture to life. Indeed the conclusion of a yearlong review has resulted in changes to the IMF's lending practices to encourage more effective use of its resources.
Traditionally the IMF's financing has been directed to countries already in trouble. While this role remains critical, the fund launched a loan facility in 1999 to help keep countries out of trouble.
The new contingent credit lines facility offers a precautionary line of credit to help countries counter the effects of crises beyond their own making. The monetary fund last month approved a redesign to make this facility more attractive. The cost of borrowing was lowered, and the facility now provides more automatic access to a large amount of resources in the event of a crisis.
To counter the risk of moral hazard, contingent credit lines will be available only to countries that have a strong record of sound economic policies, are seeking to meet international standards in relevant areas, have a well-managed external debt, and maintain relations with private creditors that are likely to ensure continued access to private credit during a crisis.
The IMF's responsibility for crisis resolution requires that it be adequately funded. But the fund's resources are and should remain limited. Hence the new policies also establish an expectation that countries will repay loans as soon as their balance of payments situation permits such repayments.
Countries that borrow under our standby arrangements will be expected to repay their loans within four years instead of five. And those borrowing under our extended facility will do so within seven years instead of 10. Countries that cannot meet this expectation will have to request an extension from the fund.
Moreover, the use of funds above a certain level will be subject to a surcharge.
Together these measures will reduce reliance on the IMF as a source of longer-term financing, encourage countries with access to global financial markets to use them more quickly, and free up funds for potential use by other countries.
The IMF also decided to strengthen the monitoring of the economic policies of countries that have substantial credit outstanding to the fund.
We are hopeful that over time these reforms will make the fund more effective in a world of integrated and often quite volatile capital markets and more efficient in using its resources to prevent and help resolve financial crises.
Mr. Boorman is the director of policy development and review at the International Monetary Fund.
