International Monetary Fund: Short-term Liquidity Line, 2020

As the COVID-19 pandemic spread in March 2020, global financial conditions tightened considerably. In response, global reserve currency-issuing countries extended bilateral swap lines to select countries. Strong demand for US dollar liquidity among emerging markets led the International Monetary Fund (IMF) to introduce the Short-Term Liquidity Line (SLL) on April 15, 2020. The SLL functioned as a swap lending facility. Unlike other IMF liquidity tools, the SLL was a revolving credit line that allowed countries to repeatedly draw funds and make repayments, with each repayment restoring access up to the approved limit across SLL arrangements. Its purpose was to enable countries with relatively strong fundamentals facing moderate, short-term balance-of-payments needs to access short-term credit without the conditionality or stigma of other IMF liquidity programs. Qualified IMF members could access Special Drawing Rights (SDR) (up to 145% of their quota) through the SLL with a 12-month repurchase period. Chile was the sole IMF member to enter an SLL arrangement, in May 2022. The IMF offered the Banco Central de Chile USD 3.5 billion (145% of Chile's IMF quota), which it never drew upon. Only three months after entering the SLL, Chile exited and returned to the Flexible Credit Line (FCL), a larger IMF credit facility to which it had access in the two years immediately preceding its SLL arrangement, citing rapidly deteriorating macroeconomic conditions. In 2023, the IMF reviewed its precautionary toolkit--including the SLL, the FCL and the Precautionary and Liquidity line-- and found that the SLL remained attractive for countries needing revolving credit lines but had been underused because of its relatively low access limit, the rise of tail risks associated with large balance of payment needs connected to the pandemic, and the lack of awareness among qualifying countries. To address these issues, the IMF proposed raising the SLL's access limit to 200% of SDR quota and allowing simultaneous use with the FCL, enabling countries to respond more flexibly to diverse external risks.