Steel mill at Donetsk, Ukraine, where policy package designed to help meet needs partly created by steel price collapse. (photo: Viktor Korotayev/ Reuters)
GLOBAL FINANCIAL CRISIS
The announcement follows closely on the heels of an October 24 outline agreement with Iceland to lend the island economy $2.1 billion through a two-year facility to support an economic recovery program to help it restore confidence in its banking system and stabilize its currency.
IMF quick action
The IMF is moving quickly to help emerging markets battered by fallout from global financial turmoil and the sharp slowdown in the economies of advanced industrialized countries. It is in discussions with several other countries about possible new lending programs. The 185-member institution has more than $200 billion of loanable funds and can draw on additional resources through two standing borrowing arrangements with groups of IMF member countries.
On October 25, a 43-nation conference of Asian and European nations issued a statement calling for new rules to guide the global economy following the financial crisis triggered initially by the subprime meltdown in the United States. The Asia-Europe Meeting in Beijing, China, called on the IMF to take a leading role to aid crisis-hit countries. "Leaders agreed that IMF should play a critical role in assisting countries seriously affected by the crisis, upon their request," the statement said.
Initial agreement on Ukraine package
IMF Managing Director Dominique Strauss-Kahn said an IMF staff mission and the Ukraine authorities had reached agreement, subject to approval by IMF Management and the Executive Board, on an economic program supported by a $16.5 billion loan under a 24-month Stand-By Arrangement. Consideration by the Board would follow approval of legislative changes to Ukraine's bank resolution program.
"Ukraine has developed a comprehensive policy package designed to help the country meet the balance of payments needs created by the collapse of steel prices, and the global financial turmoil and related difficulties in Ukraine's financial system. The authorities' program is intended to support Ukraine's return to economic and financial stability, by addressing financial sector liquidity and solvency problems, by smoothing the adjustment to large external shocks and by reducing inflation," Strauss-Kahn said. "At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible."
"The IMF is moving expeditiously to help Ukraine, and this program is focused on the essential upfront measures needed to maintain confidence and economic and financial stability. The strength of the program justifies the high level of access, equivalent to 800 percent of Ukraine's quota in the Fund," Strauss-Kahn added.
Hungary talks
On Hungary, the IMF said that an IMF staff mission and the Hungarian authorities, in close consultation with the European Union (EU), have reached broad agreement on a set of policies that will bolster the Hungarian economy's near-term stability and improve its long-term growth potential. The authorities' program will ensure fiscal sustainability and strengthen the financial sector.
"A substantial financing package in support of these strong policies will be announced when the program is finalized in the next few days. Participants will include the IMF, the EU, and some individual European governments, together with regional and other multilateral institutions," Strauss-Kahn noted.
"With Hungary's commitment to strengthened economic policies, we expect that banks and other financial institutions operating in the country will continue to provide adequate financing.
"The Fund's assistance, in the form of a Stand-By Arrangement, will be considered by the IMF's Executive Board for approval under the Fund's expedited procedures. The policies Hungary envisages justify an exceptional level of access to Fund resources," Strauss-Kahn added
Ready to lend quickly
Strauss-Kahn, who helped spearhead the international response to the global financial turmoil during the IMF-World Bank Annual Meetings in Washington on October 10-13, has emphasized the IMF's readiness to lend quickly to member countries that need help during the ongoing crisis through its emergency financing procedures.
The IMF says the financial turmoil hitting advanced economies is starting to slow growth in many emerging markets. The world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s, according to the IMF's World Economic Outlook.
Summit plans
World leaders will hold a summit in Washington on November 15 to agree on a broad set of principles for reforming the international financial system. The IMF, which will also attend, has been asked to take a lead in preparing lessons from the crisis and how the international financial architecture could be adjusted and these ideas could feed into the summit discussion.
The White House has invited to the summit members of the G-20, a forum of rich and emerging nations that was convened in 1999 after an earlier international crisis. Its members are Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United States, and the European Union.
Leaders at the Beijing meeting pledged to undertake "effective and comprehensive reform of the international monetary and financial systems." They agreed to take quickly appropriate initiatives in this respect, in consultation with all stakeholders and the relevant international financial institutions. "The International Monetary Fund and other international financial institutions should bring into play their mandated role in the international financial system, to help stabilize the international financial situation," the statement said.
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