Eesti Pank is ready to lend to the IMF if needed
Eesti Pank this week agreed in principle to lend up to 380 million euros to the International Monetary Fund (IMF) if needed. The IMF would only use this credit line in extreme circumstances, once it had exhausted all other sources of funds.
The IMF would be able to use this credit line for three years starting from next year, once the current credit line agreements have ended. The length of the loan can be extended by one year. The IMF already has similar credit line agreements or is in the process of making them with a large number of IMF member states. The details of the credit line will be clarified soon, and it is expected that the contract will be signed in the second half of the year.
The IMF can use those loans if it needs to in order to prevent an economic crisis, or to give temporary support to countries that have hit economic difficulties. Strict conditions are applied to countries that receive such a loan, and they are required to improve their economic policies.
“It is in the interests of Estonia as a small country with an open economy that the IMF have sufficient financial capacity to hold off any possible crises and to support countries facing economic difficulties, if it needs to, and so stabilise the global economy. As a country that is dependent on exports, we could be directly affected by concerns in the global economy”, said Deputy Governor Ülo Kaasik.
Bilateral credit line agreements with countries are the third line of defence for the IMF, which it can use to lend to countries in difficulty only if the resources in the first defence lines have been exhausted. So far it has never been necessary to use this loan facility.
The first source of funding, or defence line, is the quota paid in by the member states of the IMF, which currently stands at a total of 595 billion euros. The second line of defence is the multilateral lending mechanism, which is currently 456 billion euros. Bilateral credit lines between the IMF and its member states, which make up the third line of defence, are reckoned to total up to 400 billion euros.
The income for Eesti Pank from the loan to the IMF would depend on the difference between the interest rates on the basket of currencies that make up the special drawing rights (SDR) of the IMF, and the rates on the monetary policy loans of the European Central Bank.