"Enemy of None but a Common Friend of All"? An International Perspective on the Lender-of-Last-Resort Function

The paper explores whether and how current lending-of-last-resort practices can be extended beyond national borders. It argues that what makes lending of last resort effective at the national level is a blend of resource availability, technical discretion, ex-ante supervision, and powers of enforcement. Accordingly, the importance of the distinction between illiquidity and insolvency and of penalty-rate financing is downplayed. Some peculiarities of the international environment make it difficult to replicate this structure, and this may explain why recent large-scale rescue packages have worked less than satisfactorily. However, private contingent credit facilities and IMF lending into arrears in the context of internationally-sanctioned, temporary moratoria on foreign debt, may offer some scope for effective, though limited in aims and resources, international liquidity support. To this purpose, amending the IMF Articles of Agreement appears indispensable, both to signal, contrary to the Bretton Woods design, the desirability of a high degree of capital mobility, and to facilitate the handling of temporary suspensions of foreign payments when such actions prove unavoidable.