Washington: The International Monetary Fund said on Wednesday it is creating a new program to get money quickly to developing countries with strong economies that are facing cash crunches in the global financial crisis.
The IMF’s executive board approved a new short-term loan program, called a liquidity facility, to speed funds to the countries. The so-called Group of 24 poorer countries, including nations from Latin America, Asia and Africa, had asked for such a program early this month.
IMF officials said a maximum of around $100 billion would be available under the emergency loan program.
Countries would have to repay the money, at interest rates around 4% within a year. Each eligible country would be allowed to borrow an amount equal to as much as five times its quota, the amount it has contributed to the fund, and would be able to roll over the loan after three months, up to three times in a 12-month period.
There are no other specific conditions on the loans, except that the countries receiving them maintain strong economic and interest-rate policies, low or stable inflation and manageable debt loads, IMF officials said.
That makes them different from the IMF’s existing loan programs, which usually go to countries with weaker economies and require them to adjust their policies in return.
One possible use of the new loans could be for countries to inject capital into their banking systems, a senior IMF official said.
The immediate beneficiaries could be countries with strong economic records such as Turkey, Brazil and South Korea that normally have no difficulty borrowing but have seen access to cash dry up as Western banks have stopped lending.
The IMF already has been discussing loan packages with around a dozen countries.
The response to the financial crisis by the 185-nation organization, which includes the United States, came because “exceptional times call for an exceptional response,” IMF Managing Director Dominique Strauss-Kahn said.
Separately on Wednesday, the Fed said it will supply new lines of credit to the central banks of Brazil, Mexico, South Korea and Singapore to help those countries deal with the global credit crisis. The Fed will provide up to $30 billion to each of the central banks, the latest in a series of “swap” arrangements where the Fed provides dollars in exchange for reserves of the other nations’ currencies.
Treasury Secretary Henry Paulson praised the moves by the IMF and the Fed. “The Federal Reserve and IMF actions show international resolve to support strong performing emerging-market economies adversely impacted by the current financial market turbulence,” he said in a statement.
In the first loan made in the current global economic turmoil, Iceland and the IMF recently reached tentative agreement on a $2 billion loan over two years in response to the collapse of the country’s banking system.
The deal, which still must be approved by the IMF’s board, also will give Iceland immediate access to $830 million to head off the financial threat to its entire economy.
“I think there won’t be any kind of problem” that might prevent the board’s approving the loan, Strauss-Kahn said Wednesday. “We think that (Iceland’s government) will be able to fix the problems.”
Iceland became the first Western country to borrow from the IMF since Britain in 1976.
Other countries thought to be close to reaching loan agreements with the IMF include Hungary, Ukraine and Pakistan.