The rules on lending flexibilities and absorption of losses: what is legally possible at IMF and European level?

Gianni Lo Schiavo

The existence of a legal regime on the flexible use of lending programmes and on the absorption of losses has emerged as a major issue in the post-crisis environment. In particular, the current legal regime is still uncertain as to whether clear rules are applicable on the law of absorption of losses. This article assesses the law of the International Monetary Fund in international economic law as well as the law of the European Central Bank and of the developing financial assistance mechanisms in Europe. Firstly, the article attempts to examine to what extent the IMF and the new lending institutions in Europe allow for some flexibilities in the context of lending programmes. Secondly, the article appraises whether and what resources may be legally used to offset losses arising from existing lending programmes.