WELL-MANAGED countries may, in the future, be able to get support from the International Monetary Fund (IMF) in times of crisis without necessarily having to meet the strict conditions it now imposes.
Deputy Prime Minister Tharman Shanmugaratnam, who is also chairman of the IMF's policy steering committee, the International Monetary and Financial Committee, told a press conference in Washington last Saturday that the fund is working on strengthening its safety nets.
Responding to a question from The Straits Times about measures to manage the volatility of capital flows, he said: "There is an important space in international finance that is still missing, and that involves quick assistance, quick liquidity at times of crises to well-managed countries without conditionality."
He added: "Even well-managed countries can run into difficulty, given the scale and volatility of capital flows. That is something which we discussed at some length. The fund is doing work on the development of possible new instruments as part of the international safety net."
DPM Tharman did not offer examples of countries that might qualify for such aid. However, he stressed that the IMF would have to proceed carefully to avoid the moral hazard of having money that is too easily available.
The IMF has, in recent years, been trying to change the not-uncommon impression that receiving its help can be more trouble than it is worth, due to a complex regime of conditions.
IMF managing director Christine Lagarde said the fund was changing the way it offers financial support. "It is really on the basis of a partnership. There is always, in partnership, a bit of hardship to go with it."
The focus on boosting the fund's safety net appears motivated by concern over how large and fickle global capital flows are.
"What we have observed is more herd-like behaviour in the markets, more herd-like capital flows, which means risk on/risk off is now a more accentuated phenomenon," said Mr Tharman, who is also Finance Minister.
"That is not going to be a short-term phenomenon but a continuing challenge, partly reflecting a change in the structure of global finance, with larger capital flows and also a changed composition."
The risks posed by this volatility have been evident, driven by the US' decision to scale down monthly bond purchases.
Within the first two months of this year, investors pulled out some US$12 billion (S$15 billion) of stock and bond funds from emerging economies. In contrast, US$15 billion was withdrawn for the whole of last year.
Risk and economic reforms aside, a recurring theme at the meetings has been concern over the US delay in ratifying reforms the IMF passed in 2010.
For a second day, Mr Tharman urged US lawmakers to approve legislation to bolster IMF re- sources. "These reforms to the fund are not just institutional reforms but reforms that would enable us to have a safer and better world, because the fund provides critical public goods to the world."