(Bloomberg) -- The International Monetary Fund recently rejected a proposed new tool that would have offered countries pandemic loans with looser conditions than usual, choosing instead to work within the flexibility of existing programs, according to people familiar with the talks.The discussion of the Pandemic Support Facility took place in the weeks leading up to the IMF’s annual meetings in mid-October as the Fund was preparing announcements of new initiatives, said the people, who asked not to be named because the talks were private.The consensus among the IMF board, which represents the finance ministries of member nations, was that current tools can perform necessary lending, and that it shouldn’t create new ones without an obvious demand or need, the people said. Such a move would require the approval of board members representing 85% of the IMF’s voting power.IMF spokesman Gerry Rice declined to comment directly on the proposal.“We continue to apply flexibility available in existing IMF lending tools -- as approved by our executive board -- to support our member countries, calibrated to their pandemic-related needs,” he said in an emailed statement. “This has enabled the IMF to respond to this crisis as never before in our history and help our member countries on an unprecedented scale and at unprecedented speed.”The IMF has made more than $100 billion in new financing available to 80-plus countries since the start of the pandemic -- mostly with limited or no conditions -- and in April doubled the annual access limit that countries have to emergency financing.Creating the new tool was a further option prepared by staff in the Strategy, Policy and Review Department. They said that given the virus’s unprecedented impact, the fund could allow cash-strapped countries longer repayment periods and also let them make policy changes toward the end of the loan once the pandemic’s path is clearer, rather than immediately, the people said.IMF loans are typically disbursed over a period of one to three years.The IMF has generally been facing requests for help from two kinds of countries: One group was on sounder footing before the pandemic and is encountering a liquidity crisis as a result of the virus. Others face tougher solvency challenges from the virus but were seen as needing policy changes even before the pandemic.Lightning RodSo-called conditionality has made the IMF a lightning rod for criticism over the years. But the fund has traditionally operated on the idea that requiring countries to commit to fundamental reforms -- such as narrowing budget deficits via spending reductions, controlling inflation and tackling corruption -- is necessary for creating the self-sustaining growth that weans them off reliance on multilateral lenders like the IMF and World Bank.The IMF also has considered another move that would effectively increase the capital available to countries without conditions: a new allocation of its reserves, known as special drawing rights. A proposal to issue $500 billion of the assets has been blocked by Donald Trump’s administration, which criticized the idea for failing to target poor countries, but it could gain new life under President-elect Joe Biden.Some IMF board members who opposed the new pandemic facility didn’t want it to finance nations that need reforms in order to deal with underlying and pre-existing weakness, the people said. Another concern was that lending to countries without conditions could result in failure to repay the fund and therefore put IMF resources at risk.A similar mechanism was proposed in July by two former IMF officials: Adnan Mazarei, a non-resident senior fellow at the Peterson Institute for International Economics in Washington, and Matthew Fisher.Creating PrecedentMazarei and Fisher argued that absent a new facility, the IMF might need to loosen the conditionality in some of its traditional lending tools. Should that happen, it would be difficult to restore the standards when the pandemic ends, they said.“We proposed there be a sunset clause on this facility, that it only be used until the pandemic is over,” Mazarei said in an interview. “Then, you bring back the old workhorse facilities. If you loosen standards now on those facilities, you won’t be able to raise them back to where they were.”France’s finance minister, Bruno Le Maire, also urged the consideration of the Pandemic Support Facility last month during the IMF’s annual meetings.The IMF’s decision to forgo the new instrument follows its creation in April of the Short-term Liquidity Line, a tool to help countries ease moderate liquidity problems before they intensify. The fund predicted when launching the instrument that demand might be as much as $50 billion, but it’s had no takers so far.(Updates with additional IMF comment in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.