Borrowing Patterns in the Global Financial Safety Net: Does Governance Play a Role?

The global financial safety net (GFSN) has become a complex regime. Regional financial arrangements (RFAs) have emerged alongside established IMF structures. How relevant are RFAs and the IMF in moments of financial crisis? And more specifically: Do member countries resort to RFAs as complements or as substitutes to IMF lending? To answer these questions, we developed an original data-set on the GSFN use by the 61 emerging market and developing economies (EMDEs) that are members of existing RFAs between 1976 and 2018. We find that not only economic criteria such as lending volume, timeliness and conditionality drive patterns of complementarity and substitution in crisis finance, but that RFA governance structure and regional independence matters. The data show that borrower-dominated RFAs are used much more frequently than creditor-dominated RFAs. Moreover, RFAs which lack regional policy autonomy but are dependent on the IMF are not called upon – even if they have far superior volumes of potential lending capacity.

Policy Implications

  • Coordination between all GFSN elements beyond exchange of information is necessary if untapped resources of the GFSN are to be utilized in a more effective way. Such coordination requires including currency swap providing central banks as relevant actors in the GFSN.
  • Coordination between GFSN elements needs to take into account the regional and institutional peculiarities that each RFA entails. The status quo of the GFSN requires a pluralistic debate on the future of a decentralized short-term lending system.
  • The institutional autonomy of RFAs is of particular importance if they are to be utilized as alternative sources of crisis prevention and backstop.
  • If their resources are to be utilized for crisis prevention and backstop, RFAs need to design institutional governance in a way that allows including large creditor countries to gain lendable volume and at the same time balancing power to give borrowers adequate voice in decision-making processes.


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