Fed Establishes New IMF Facility. Dollar Swap Lines with Brazil, South Korea, Mexico, and Singapore

As Senator Everett Dirksen famously said, “A billion here, a billion there, and pretty soon you are talking real money.”

Today, the Fed provided Brazil, South Korea, Mexico, and Singapore with dollar swap lines of $30 billion each (hat tip readers Robertm, Dwight). From the Fed’s press release:

Today, the Federal Reserve, the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore are announcing the establishment of temporary reciprocal currency arrangements (swap lines). These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well managed economies.

Federal Reserve Actions
In response to the heightened stress associated with the global financial turmoil, which has broadened to emerging market economies, the Federal Reserve has authorized the establishment of temporary liquidity swap facilities with the central banks of these four large and systemically important economies. These new facilities will support the provision of U.S. dollar liquidity in amounts of up to $30 billion each by the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore.

These reciprocal currency arrangements have been authorized through April 30, 2009.

The FOMC previously authorized temporary reciprocal currency arrangements with ten other central banks: the Reserve Bank of Australia, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Japan, the Reserve Bank of New Zealand, the Norges Bank, the Sveriges Riksbank, and the Swiss National Bank.

IMF Announcement
Separately, the Federal Reserve welcomes the announcement today by the International Monetary Fund of the establishment of the Short-Term Liquidity Facility, which is designed to help member countries that are facing temporary liquidity problems in the global capital markets. The Federal Reserve is supportive of the IMF’s role in helping countries address and resolve their ongoing economic and financial difficulties.

On the IMF Facility (from the IMF website):

The Executive Board of the International Monetary Fund (IMF) today approved the creation of the Short-Term Liquidity Facility (SLF) to establish quick-disbursing financing for countries with strong economic policies that are facing temporary liquidity problems in the global capital markets.

“I am very pleased to announce that the Executive Board has approved the establishment of a new facility for market access countries—the Short-Term Liquidity Facility,” stated Mr. Dominique Strauss-Kahn, Managing Director of the IMF. “The ongoing turmoil in global capital markets has led to significant liquidity difficulties for some emerging market countries, even those that have maintained sound macroeconomic frameworks and have sustained histories of market access. Existing Fund loan facilities offer flexibility. However, they are fundamentally used for countries that require both financing and policy adjustment, and not for countries that despite strong initial macroeconomic positions and policies are facing short-term liquidity pressures. This new facility addresses that gap in the Fund’s toolkit of financial support.”

Mr. Strauss-Kahn emphasized that the IMF is committed to promoting a coordinated and cooperative approach to dealing with the current crisis. “Exceptional times call for an exceptional response,” Mr. Strauss-Kahn said. “The Fund is responding quickly and flexibly to requests for financing. We are offering some countries substantial resources on an expedited basis, with conditions based only on measures absolutely necessary to get past the crisis and to restore a viable external position,” he said….

Outline of the IMF’s new Short-Term Liquidity Facility (SLF):

Purpose: Establishes a facility through which large, upfront, quick-disbursing short-term financing, using existing IMF resources, can be provided to countries with strong policies and a good track record but which are facing temporary liquidity problems arising from developments in external capital markets.

Terms: Disbursement of Fund resources can be up to 500 percent of quota, with a three-month maturity. Eligible countries are allowed to draw a maximum of three times during any 12-month period.

Eligibility: Countries with track records of sound policies, access to capital markets and sustainable debt burdens. Policies should have been assessed very positively by the IMF in its most recent Article IV discussions. Given this strong emphasis on past performance, financing is made available without the standard phasing, performance criteria, monitoring, and other conditionality of a Fund arrangement. However, borrowers are expected to continue their commitment to maintain a strong macroeconomic policy framework.

Note the lack of detail as to the size of this program.

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  1. TulsaTime

    Since the world owes the money to itself, it’s not like this is bad debt. Yeah, just moving it from one pocket to the other. Where does it come from you ask? Go away kid, you bother me!!

  2. ruetheday

    Bernanke needs to take a breather. He was asleep at the wheel for a while late last year and earlier this year, woke up and tried to make up for lost time, and ever since October 10 has been in a panic-driven overdrive. You’ve done what was needed, now give it some time to work and don’t go overboard in the meantime.

  3. Anonymous

    They can’t get the money out of the EM’s fast enough?

    What sort of currency risk is associated with this lending, how are the reserves calculated? Are the reserve requirements figured daily?

    The de-leveraging seems to have stopped, is it the end of the month, or the lack of ability to suck money from the EM’s?

  4. a

    Bernanke does realize, I hope, that this is the kiss of death for any economy that does not get this kind of treatment (with the possible exception of China). You will be either “well managed” or dead.

  5. Robertm73

    So as an example if Brazil need a loan, there quota is 3B so they can borrow up to 500 percent of that. Glad we are supporting :)
    So lets look at someone in need like pakastain, whose quote is $1B, they could ask for $500 ,if the IMF had 500 B which they dont. In short just a process to speed up the process of loans and depelete the reserver quicker.

  6. Anonymous

    Bernake just wants to be the ‘hero’ who manages to prevent a recession, somehow. If his banker friends get rich in the process, well that’s just a bonus.

  7. juan

    so what are the fund’s conditionalities to be this time?

    anon, monetary authorities can’t prevent, only mitigate and, over time, become less able to accomplish even that task, esp on a global scale.

  8. patrick neid

    Well here we are a month later. Back when this whole mess started I quipped that no plan was the best plan. After mocking Paulson’s first plan I said plans d, e and f would be where the real fun starts.
    Here we are.

    The Greenspan put now is worldwide. But there is no reason to get bored. There are a lot of plans to come before we get to Z!

    We will get to Z.

  9. Anonymous

    The currency speculators can’t wait until the swaps are returned in the mean time they pick on the US$

  10. Anonymous

    Someone please explain! I thought the 700 billion was to help the US. What about the forclosures? What about my 401k. Why are we lending to other countries when our people need it!

  11. eh

    … in fundamentally sound and well managed economies.

    I guess they felt it necessary to include this.

    BTW, does that include the US of A?

  12. Bendal

    Didn’t Congress modify Bush’s original Bailout Bill to include oversight and regulatory controls on what Paulson/Bernancke could do with OUR money?

    Didn’t they?

    If they did, how come we’re only hearing after it’s been done about all these chunks of OUR money being flung at banks and (now) other countries like the feces that chimps throw at each other?

    This is disgusting; first AiG gets handed billions of dollars but refuses to tell us what they’re doing with it, then Paulson hands out hundreds of billions to banks for essentially no return or control, and NOW he’s giving countries our money, and NO ONE is calling him on it!

  13. SilverDollar


    Don’t worry, Obama will take care of it ;-)

    Get ready for the mother of all crashes in 2009!

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