Global Safety Nets: Crisis Prevention in an Age of Uncertainty

As the global economics crisis abates, there is an emerging consensus that a better global financial safety net is needed to enable countries with good policies to insure against bad outcomes, especially when they are innocent by-standers caught in a financial turmoil. Last week the IMF took another step toward meeting this need by further enhancing its country insurance facilities. Reza Moghadam, head of the IMF’s Strategy, Policy, and Review Department, has authored this blog to coincide with a series of speeches about the reforms, including a scheduled speech at the Peterson Institute for International Economics next Monday. The blog outlines the two major changes: enhancements to our flagship insurance option—the Flexible Credit Line (FCL)—for countries with very strong policies and economic fundamentals; and the establishment of a new Precautionary Credit Line (PCL), which offers a new form of contingent protection for countries with some moderate vulnerabilities.