The International Monetary Fund board Wednesday approved a change to one of its lending facilities that will allow the fund to give Greece a four-year program, according to a person familiar with the matter.
Despite one board member raising concerns, the tweak of the IMF's Extended Fund Facility was tailored to meet a particular country's financing needs, namely Greece, the person said the board approved the policy change because it could be used by other countries in the future.
Previously, the Extended Fund Facility had an initial three-year payout, with the possibility of later extending it to a fourth year, if needed.
But now, the fund can go ahead with a four-year payout from the start of a program.
That paves the way for Thursday's expected board approval of the EUR28 billion Greek loan program.
The facility also has a longer payback schedule. Unlike the standard Stand-By Arrangement, which typically has a three-to-five year repayment period, the Extended Fund Facility can be repaid over a period of four to 10 years.
Late last week, IMF Managing Director Christine Lagarde said she's proposing a four-year program for Greece, saying the fund's financial support "over an extended period of time would be commensurate with the long-term nature of the challenges facing Greece."
The longer payment period allows for smaller disbursements, helping to limit the fund's exposure to Greece and to the euro zone in general. The fund has lent Greece proportionally more compared to Athens's IMF contributions than any other country in the fund's history. Also, most of the IMF's lending resources have been promised to euro-zone nations.
Many board members, including the U.S. and other emerging-market economies, are concerned that the IMF has overexposed itself to the risk of defaults in the euro zone.
The person familiar with the matter said the board member who raised concerns about the tweak to the lending facility warned that it could undermine the perceived credibility of the IMF.
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