IMF approves new fund for emerging markets

Wed Oct 29, 2008 10:31pm EDT
By Lesley Wroughton
WASHINGTON (Reuters) - The International Monetary Fund on Wednesday approved a short-term financing facility for emerging market economies that have a good economic track record but are having difficulties accessing credit.
"Exceptional times call for an exceptional response," said IMF Managing Director Dominique Strauss-Kahn. "The IMF will respond to this crisis with all the necessary financing," he said in a statement announcing the action.
The new Short-Term Liquidity Facility will be available to a group of pre-approved countries that have well-run economies, access to capital markets and sustainable debt burdens.
Once selected, countries will be able to tap up to five times their IMF quota in a single disbursement and are allowed three drawings in the course of a year for the next two years.
Each IMF member country is assigned a quota based on its size in the world economy. The quota determines its financial commitment to the IMF, its voting power, and how much it can borrow from the fund. Under normal lending program, countries are allowed to draw up to three times their quota.
"We are prepared to use our own resources and to work with others to generate additional resources to make sure that countries have the money they need to restore confidence and maintain stability," Strauss-Khan said.
"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," he added.
In a separate action the U.S. Federal Reserve also extended a helping hand to emerging economies establishing currency swap lines with Brazil, Mexico, South Korea and Singapore to provide them with dollar liquidity of up to $30 billion each.
The new IMF facility provides financing to countries that don't need to adopt the standard IMF lending program but are suffering from short-term liquidity pressures through no fault of their own.
"This new facility addresses that gap in the Fund's toolkit of financial support," Strauss-Kahn said.
During a news conference, Strauss-Kahn declined to name any candidates for the new facility and said if a country applied for funding, it would be done confidentially.
Asked whether Argentina would qualify, Strauss-Kahn said the "conditions include having a very strong track record and strong policies in the past" for at least some period of time.
"I'm afraid the country you mentioned ... will not be eligible for the facility," he added.
IMF First Deputy Managing Director John Lipsky said the IMF fully expects countries to make use of the new facility.
"We won't judge it in the short term by its use, but we would expect in the current context it will be used and we will review it over time," he said.