IMF reforms loan programs for countries in trouble
The International Monetary Fund is revising its loan programs to make them better suited to members facing financial difficulties, but no decision has been made on what form any emergency loan program would take, IMF sources said Friday, according to AP.
Among ideas under discussion is to provide a credit line in hard currency to countries that otherwise would have no access to foreign capital, said the sources, who spoke on condition of anonymity because discussions among IMF member nations including the United States have produced nothing definite.
The IMF's 24-member executive board is expected to meet next week to examine the various proposals under consideration.
The immediate beneficiaries would be developing countries with good economic records such as Turkey, Brazil, and South Korea who normally have no difficulty borrowing but have seen access to money dry up as Western banks stopped lending amid a credit crisis.
Another idea under consideration is to allow member countries to borrow against the amount they have contributed to the fund, known as a quota. For example, if South Korea borrowed against its quota it could obtain almost $22 billion.
The IMF already is discussing loan packages with close to a dozen countries and is examining ways to speed up the process in line with instructions it received this month from its policymaking committee.
IMF loans often have a knock-on effect by generating other financing from private and public sources such as the multilateral development banks.
The loans also come with stringent conditions that involve budget cutting and other belt-tightening measures that some governments have said should be eased in the current crisis.
In the first loan made in the current global economic turmoil, Iceland and the IMF tentatively agreed to a $2 billion loan over two years in response to the collapse of the country's banking system.
The government said the deal, which still must be approved by the IMF's board in Washington, also will give Iceland immediate access to $830 million to head off the financial threat to its entire economy.
Iceland became the first Western country to borrow from the IMF since Britain in 1976.
Other countries thought to be close to reaching a loan agreement with the IMF include Hungary, Ukraine and Pakistan.
The head of the IMF, Dominique Strauss-Kahn, said this month that the fund has in excess of $200 billion available for lending and could obtain additional resources quickly if needed.