IMF contingency financing for middle-income countries with access to private capital markets: An assessment of the proposal to create a reserve augmentation line

In order to assess the proposal of the IMF to create a Reserve Augmentation Line (RAL), this paper first reviews the conditions that led to the loss of IMF control over balance of payments financing, and how private capital flows increased the liquidity requirements for system stability. It then reviews how the IMF responded to these problems, before assessing whether the RAL represents a sufficient improvement to the Contingent Credit Line (CCL), the unused predecessor to the RAL, in providing signals that will reduce the probability of crisis for countries implementing it, as well as conditions to convince countries to actually use it. The main argument of the paper is that, despite the fact that the RAL constitutes some improvements over the CCL, it also still exhibits limitations in providing the kind of rapid support that member states might expect, thereby limiting the possible success of the RAL in acting as a "seal of approval", as well as convincing countries to actually use it. Apart from the limited extent of improvement of the drawbacks of the CCL, there are still several unresolved issues regarding the RAL, as with any draft proposal, that need to be addressed in order for the RAL to be successful.