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FCL, PCL, MSL: Why The IMF's Alphabet Soup Of Rescue Facilities Means Much More Sovereign Pain To Come
In early April, we noted that the IMF was preparing for something big when we observed that the IMF was launching a new credit facility, the New Arrangements to Borrow, with $550 billion in total commitments (of which the US was at the top in terms of funding responsibility). Incidentally this was before the Greek parliament storming led 2 year spreads to jump to 20%+, and the announcement of the biggest bailout in history by the EU, and came at a time when the IMF's rescue contribution was expected to be a paltry $10 billion, only to end up well north of $200 billion. Indeed, the IMF knew all too well what was coming. And judging by what the IMF is doing behind the scenes with its new alphabet soup of rescue facilities, things are about to get much worse once in the sovereign arena yet again.
Enter the FCL, PCL and MSL, better known as the Flexible Credit Line, the Precautionary Credit Line, and the Multi-Country Swap Line. Together these represent the IMF's recent expansion into the alphabet soup of improvised rescue facilities, reminiscent of the hundreds of various rescue facilities concocted by the Fed in late 2008 when the world was blowing up for the first time.
Reading up on these various new facilities at the IMF's website we get the following:
The acute volatility and fierce contagion in the crisis focused attention on the need to enhance the IMF’s role in preventing crises and dampening contagion effects from shocks. The preliminary ideas in the staff paper discussed by the Executive Board included:
- Refinements of the FCL—which would remain dedicated to countries with very strong fundamentals and policies—principally by extending its duration, increasing the predictability of qualification, and removing the informal cap on access amounts.
- Adaptation of the existing high access precautionary arrangement into a more attractive Precautionary Credit Line (PCL) targeted at countries with sound policies but which do not qualify for the FCL. The PCL would have streamlined policy conditionality focused on addressing any residual vulnerabilities.
- Development of a Multi-Country Swap Line (MSL) mechanism to enable the IMF to offer liquidity lines to a limited set of countries with sound policies and track records that could have systemic effects. This mechanism would complement the role played by central banks and other institutions by helping contain contagion stemming from a systemic shock.
In other words, even as the NAB is still being implemented, the IMF is already looking down the road, and seeing much, much more capital needs, which has to be locked up in advance of the next major sovereign crisis. How big? Well, as the NAB has about $300 billion in excess capacity pro forma for the most recent bail out, the IMF is signalling that the next wave of sovereign dominoes to fall will cost well over this amount.
Bank of America provides another clarification on the topic of the upcoming IMF shoring of capital:
The major reforms of the Fund’s lending instruments are still works in progress. The general idea is to provide an array of new credit lines that may not warrant strict policy implementation. These new facilities came on top of the usual standby facilities and more traditional programs currently in place in Hungary and Ukraine, for example. The main issues with global financial safety nets are defined as follows:
- The newly introduced FCL is not as effective because its duration is too short and qualification remains unclear.
- FCLs were designed to cater to high-quality macro stories. Therefore, they only support a limited number of countries. The IMF has been studying the introduction of a Precautionary Credit Line (PCL). This would be a stop gap between stand-by arrangements and FCL.
- One core instrument applied in this crisis was a range of swap lines provided by the Fed. Initially these swap lines were implemented mainly in between the developed world. Later, the Fed allowed Mexico, Brazil, Singapore, and Korea to also hold swap lines. The IMF should also look into a system of Multicountry Swap Lines (MSL), in our view.
Indeed, the IMF is already looking at a MSL facility, to provide a secondary backstop to the Fed, should our corrupt politicians actually follow through on preventing the Fed from either issuing incremental FX rescue lines, or allowing the US to participate in IMF loan hand outs, as per recently passed amendments to the FinReg bill (something which we are fully confident Barney Frank will promptly make sure disappears from the final law, as it would put his banking employers in the slightly uncomfortable position of holding the now-extinct concept of "risk" on their books).
Yet in a world where nobody still has any clue whether the IMF's existing DIP facility to Greece et al is pari passu or subordinated, even though it should be super senior by definition, another expectation is that the IMF will provide no incremental clarity on these three various new rescue programs up until a few days before the Italy-Spain-Portugal-France domino finally topples, and America finds itself responsible for roughly 75% of that particular bailout check.
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Hey Brother can you spare an SDR?
My SDR for your food stamp.
welfare hotel voucher for the SDR and food stamp -
Hall pass for the SDR voucher.
One faked permission to speak for the food stamp.
hey tyler,
here is a newly published presentation The Spanish banking sector: outlook and perspectives from national bank of spain..
http://www.bde.es/webbde/es/secciones/prensa/intervenpub/diregen/regula/...
Sounds like the IMF is increasing their own operating budget since each of those new bailout classes probably needs a department of bureaucrats.
Reminds me of the EU order something like 700 Ipads for all the MEPs. Good to see them showing the way with such austerity.
if i may add; and those ipads were made by Chinese workers on $150 per month. Any wonder western economies have been decimated?
Ok, we all know we are getting fucked. I have my KY jelly all ready. In the mean time, The Casino market will see green. Please Ben, Be easy with me, This is my first time.
Isn't it about time we got another "we're selling more gold" announcement from the IMF? It's been a while since they paraded that flag out in the open...or has it already been surreptitiously sold off?
I think they may have a LITTLE BIT LEFT..But it is way to valuable to help countries get back on there feet with #1...#2 they cant use that propaganda to lower the gold price anymore because someone like Sprott will call there bluff and fire up the transfer lines, then they will be forced to back away..Theya rent going to say shit about gold now for sometime to come.
Hey TD,
Everyone understands the concept of the old way a nation used colonies to extend their reaterritory and resources. The new paradigm, now in play but harder to grasp, is to simply bypass the geography, bypass the colony, and use debt and interest to extract payments and in effect seize wealth. Get the peasants (i.e. any landlocked citizen) to buy into the concept of paper money, print an endless supply, and charge them interest, on, and on, and on. What an efficient way to run a colony. Welcome to the new world . . . dare I say it . . . order.
Maybe. But no one forced anyone to borrow. Each made a free will decision to live beyond their means. Now we have to pay the price.
Seems ta me that we will have to pay the price to backstop everything...
Tha whole scam is getting intentionally buried further and further under acronymic bullshit...
Hey!
Simon's left AMIdle!
Word! That's why I'm so averse to bailouts. I've lived within my means. I pay for every major purchase out of pocket. I buy nothing I can't afford. I don't have a high-def television, a fancy car, or much of anything past a decent collection of used books. I have no credit card, no car loan, no heloc, no mortgage, no debt, and (oddly enough) no credit. I guess that type of lifestyle is not 'credit worthy'. One thing Americans don't realize, in general, is that the things you own start to own you. Still contrast that with 'he who dies with the most toys'... it's all a matter of personal preference I guess...
That's what they've been doing to the third world for years. The loans usually enrich mainly a corupt dictatorship and then the people are taxed and have their resources taken to pay back the loan.
That does sound a lot more paralell to what's going on in the US though, then European countries where the debt actually went to increase the peoples' quality of life. But it doesn't mean that the IMF won't use that oppurtunity as a way to move the siphon from poor-nations-to-rich-nations to the-whole-world-to-a-few-top-plutocrats.
I urge the imf to sell some Gold asap to cover some of these debts...Im going to facebook with this non sense..Imf is crap..Smoke and mirrors and wont answer any questions..SDR's are make believe JUNK...Thin air printing and the world will soon know about there con job that there trying to pull..I just back back from field day at my daughters school and told 3 more people about there non sense..Word of mouth to soccer moms goes a long ways..NOBODY CAN TAKE ADVANTAGE OF YOU WITHOUT YOUR PERMISSION...Educate the masses to these scams is the only way to have any future.. They dont have any gold for sale..They know how valuable it is and dont want to waste it on things that they can throw paper at..I dont blame them for that, thats what the WHOLE WORLD IS WAKING UP TO....
Educate the masses to these scams is the only way to have any future..
Hey!
Simon's left AMIdle!
Fraudulent and Corrupt Lenders
Poor Commoners Lose
More Slavery and more Lies
Fuck the IMF
Can someone smarter than first tell me if there is any value in understanding the differences between the three?
If the value only lies in the capacity for obfuscation which is what I suspect, then WTF!!! There is no need to obfuscate what people either do not know of nor understand, am I missing something?
Is this an IMF internal make work program or what?
Rant off.
Sorry (getting tired of the crap)
Michael Franti and Spearhead:
http://www.youtube.com/watch?v=0ejc4U9wE7Y
WE CAN"T STOP
They gotta war for oil, a war for gold
A war for money and a war for souls
A war on terror, a war on drugs
A war on kindness and a war on hugs
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They gotta a war on hippies tryin' save the trees
A war with jets and a war with missiles
A war with high seated, government official
Wall street war, on high finance
A war on people who just love to dance
A war on music, a war on speech
A war on teachers and the things they teach
A war for the last 500 years
War's just messin' up the atmosphere
A war on Muslims, a war on Jews
A war on Christians and Hindus
A whole lotta people just sayin' kill them all
They gotta a war on Mumia Abu Jamal
The war on pot, is a war that’s failed
A war that's fillin' up the nations jails
World war one, two, three and four
Chemical weapons, biological war
Bush war 1, Bush war 2
They gotta a war for me, they gotta a war for you!
New world days and new world nights
New world wrongs and new world rights
Putting new world funds in the new world banks
With the new world guns on the new world tanks
New world devils and new world gods
New world jails see the new worlds hard
New world names sing the new world songs
New world planes are the new world bombs
New world's flying, the new world's dying
The new world's crying and the new world's trying
New world sons and new world daughters
They are already selling us the new world water
New world beats for the new world to bang
New world streets for the new world to hang
New world president, new world drugs
New world resident, new world thugs
New world players for new world sports
New world trials for the new world courts
New world lawyers and new world laws
New world prisons and new world bars
New world fight the new world's fists
The new world lighting up the new world spliffs
New world smoke in the new world lungs
New world's choking, the new world's done
New Idea to plub the BP Well
Acronyms are for douchebags.
Now I understand why Goobermint is so Fonda them....
The Fickle Pickle Missile.
You are correct Tyler, the same alphabet soup of programs that the fed tried and did starting in 2008. They where coming out with a new one every 6 weeks it seems. They know what is coming and are getting ready to "get in front of it". The problem is that it's putting our economy more at risk.
Interesting EURO chart :
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
"Yet in a world where nobody still has any clue whether the IMF's existing DIP facility to Greece et al is pari passu or subordinated, even though it should be super senior by definition, another expectation is that the IMF will provide no incremental clarity on these three various new rescue programs up until a few days before the Italy-Spain-Portugal-France domino finally topples, and America finds itself responsible for roughly 75% of that particular bailout check."
The Quote Above seems quite a bit alarmist
Think Asian Financial Crises. .Mexican Crises,any bailout the IMF performs is ultimately good for USA growth,so i dont see what the big deal is all about
Frankly i think the world will come through this just fine. . until the next crises hits that is
But if we are all dead in the long run,who cares
Let the IMF do what they are good at doing. . .and i will be positioning myself to profit off of that
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