Colombia is considering a renewal of its flexible credit
line (FCL) with the IMF to insure itself against abrupt capital
flows, its finance minister has said.
Oscar Zuluaga told Emerging Markets: The
flexible credit line with the IMF expires in May, so we are
studying what we should do.
Asked whether stigma attached to IMF loans by markets and
the public would affect the decision, Zuluaga said: This
is not a problem in Colombia. The markets have seen this
[flexible credit line access] in a positive light.
Colombia secured a one-year precautionary credit line with
the IMF last year. Zuluagas comments come after Mexico on
March 10 asked the IMF to renew a $48 billion line, to boost
market confidence in the countrys liquidity position and
to stem the threat of dollar capital flight once US interest
rates are hiked.
The FCL was set up in early 2009 to help well-managed
emerging market countries weather the global crisis. FCL
standards are too stringent for most Latin American
countries, IDB economist Eduardo Fernandez-Arias said.
As the prospect of volatile capital flows in the medium term
looms large, it is vital for the IMF to be seen as an effective
liquidity-lender of last resort for both middle and low-income
countries, he added.
But concerns that latching onto the IMF swap line could
breed dependence and undermine market confidence about a
countrys liquidity position is still deterring Latin
clients, Morris Goldstein, a senior fellow at the Peterson
Fernandez-Arias advocates a tiered system of contingent
credit lines, whereby countries, judged to have sound policies,
would be granted large and quick access to IMF emergency credit
lines. While weaker countries could be provided with limited
access and would have to enact IMF conditions after accessing
This has the advantage of providing breathing space to
countries, which require immediate liquidity assistance.
For these countries, Fernandez-Arais says IMF conditions
imposed after access would be weaker than a normal
balance-of-payments program if the shock was exogenous, such as
the sudden collapse in the terms of trade.
But IMF Western Hemisphere director Nicolas Eyzaguirre told
Emerging Markets that the institution was limited in extending
the FCL. It does not make sense to treat some countries
[in Latin America] as equal [to the likes of FCL-recipients
Mexico and Colombia] because they are not seen as safe by the
market. In addition, those countries that are perceived
to have weak policies by the IMF could not receive the FCL, in
order to safeguard the institutions
Nevertheless, Eyzaguirre said he agreed with the logic of
providing tailored liquidity facilities to weaker economies, in
some cases but no new lending instruments were being