The IMF created on Wednesday a new emergency lending tool to help economically “sound” countries squeezed by a cash crunch amid the global financial crisis.
The IMF executive board approved the creation of the short-term, quick-response financing “for countries with strong economic policies that are facing temporary liquidity problems in the global capital markets,” the multilateral institution said.
IMF managing director Dominique Strauss-Kahn said the new short-term liquidity facility fills a gap in the institution’s array of financial supports which until now had focused on countries that require both financing and policy adjustment.
“Exceptional times call for an exceptional response,” he said at a news conference.
“The ongoing turmoil in global capital markets has led to significant liquidity difficulties for some emerging market countries, even those that have maintained sound macroeconomic frameworks and have sustained histories of market access,” he said.
For those countries that, despite strong initial macroeconomic positions and policies, are facing short-term liquidity pressures, he said, “this new facility addresses that gap in the Fund’s toolkit of financial support.”
He welcomed the announcement earlier on Wednesday that the US Federal Reserve has offered new credit “swap” lines of credit with central banks in Brazil, Mexico, South Korea and Singapore to help those countries ease a credit squeeze.
He noted the swap lines are designed “to mitigate the spread of difficulties in obtaining foreign currency funding in fundamentally sound and well-managed economies.”
Strauss-Kahn underlined that the IMF was committed to promoting a coordinated and cooperative approach to battling the worst financial crisis since the 1930s Great Depression, which is threatening to tip the world economy into recession.
“The Fund is responding quickly and flexibly to requests for financing. We are offering some countries substantial resources on an expedited basis, with conditions based only on measures absolutely necessary to get past the crisis and to restore a viable external position,” he said.
The new short-term lending facility will provide large, quick-disbursing financing, using existing IMF resources, “to countries with strong policies and a good track record,” the IMF said.
The 185-nation institution said potential recipients of the new facility had to have sound policy histories, access to capital markets and sustainable debt burdens.
Eligible countries can withdraw up to 500 percent of their IMF quota, for a three-month period, up to three times during any 12-month period.
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