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2nd UPDATE: Lipsky: IMF Studying New Measures To Support Members

(Updates with comments and background on foreign reserves)

By Ken Parks

Of DOW JONES NEWSWIRES

MEXICO CITY -(Dow Jones)- The International Monetary Fund is studying new measures to support member countries following the success of its flexible credit line launched earlier this year, a top IMF official said Monday.

"We are exploring the possibility of improving our existing facilities or adding other insurance-like facilities that will give our members greater confidence that they don't need to self-insure by building up [foreign] reserves," IMF Deputy Managing Director John Lipsky said during a conference in Mexico City.

Developing countries like China have accumulated massive levels of foreign exchange reserves in recent years, which, among other things, serve as a kind of insurance against financial instability. Those reserves have also been blamed for contributing to the overabundance of liquidity in the global financial system prior to the crisis.

The improvements to the IMF's existing support facilities would include the flexible credit line program, he said.

The flexible credit line program, relaunched in March with a higher funding level and longer repayment period than a previous version in 2008, was designed to help countries with sound macroeconomic and fiscal policies weather the global crisis.

The program comes without the strict fiscal conditions normally associated with IMF loans. So far, Poland, Mexico and Colombia have received flexible credit lines.

Lipsky said the global crisis hasn't derailed support in the leading emerging market economies for growth based on open economies and financial-sector development.

Emerging markets managed to avoid the worst effects of the crisis because their financial systems had less international exposure than those of developed economies, he added.

"However, there is no guarantee this will be the case in the future when new strains might arise from other sources, perhaps domestic ones," said Lipsky, who urged further development of financial systems in emerging economies.

Commenting on the current debate about global financial system regulatory reform, the official said regulation should include all systemically important institutions and a mechanism for winding down large financial institutions operating in different jurisdictions to reduce the risk of future financial crises.

Lipsky warned that the size of a financial institution alone doesn't necessarily create a systemic risk.

"There is no clear guide to the optimal size of bank and non-bank financial intermediaries," he said.

-By Ken Parks, Dow Jones Newswires; 52-55-5001-5723; ken.parks@dowjones.com

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  10-19-092057ET
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