Stall in Rawalpindi, Pakistan: authorities sought talks with IMF on problems from high food, fuel prices, global crisis (photo: Farooq Naeem/AFP/Getty)
FINANCIAL MARKET FALLOUT
"I have been on the phone with leaders in several capitals who have asked the Fund for assistance. We now have mission teams in some of these countries assessing their needs and, where asked to do, discussing programs that could be supported by an IMF loan," says IMF Managing Director Dominique Strauss-Kahn.
The IMF is currently discussing possible loan packages for Hungary, Iceland, Pakistan, and Ukraine. It is also in discussions with a number of other countries about possible financing needs, and is providing confidential policy advice to governments in emerging and developing economies on how to adapt to the current turmoil. It said on October 22 that it would also begin discussions with Belarus.
Emergency Financing Mechanism
"We are actively engaged at this critical time with several governments around the world, both to provide technical economic advice and financing, if necessary. We are ready to act very quickly, with streamlined conditions attached," says Strauss-Kahn.
Strauss-Kahn said in an October 22 statement that an IMF mission would soon begin discussions with Pakistan's authorities on a program aimed at strengthening economic stability and enhancing confidence in the financial system. The amount of Fund financing under a Stand-By Arrangement had yet to be determined. Financing could be made within framework of the Fund's Emergency Financing Mechanism, Strauss-Kahn added.
The IMF has recently activated the mechanism—a procedure for speeding up lending in a crisis—which has been used six times previously since it was set up in 1995.
Loanable funds
The IMF 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.
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.
Fewer conditions
Strauss-Kahn says that although some policy conditions will still be attached to loans from the IMF, the conditions will be fewer and more targeted than in the past. Given that the IMF is a financial institution, its lending has to be accompanied with some policy conditions, he adds.
However, he told IMF staff recently that "conditionality has to be defined as what is needed to achieve the goals of the program... it should not attempt to fix the world." These measures must be directly related to achieving the goals of the program, he emphasized.
"This is the way for us to be recognized by the membership as addressing the needs they have and not the agenda we have."
Executive Board role
Under the Emergency Financing Mechanism, IMF management informs the Board of the intention to activate emergency procedures and provides reasons for doing so; a short written report is circulated as soon as feasible, describing the member's economic situation; once agreement with the authorities has been reached on a lending program, the IMF staff report is circulated, and the Board considers the request for a loan within 48-72 hours.
The rules state that member's past cooperation with the IMF has a strong bearing on the speed with which the Fund can assess the situation and agree on necessary corrective measures to put the economy back on track.
Several countries in pipeline
Several countries appear close to agreeing loan packages with the IMF. Iceland is seeking help from the IMF and a number of countries to help shore up the economy after the collapse of its banking system. The IMF has announced a Fund mission will begin discussions with Pakistani authorities in the next few days to meet balance of payments needs created by recent high food and fuel prices and the global financial crisis. Discussions with Ukraine and Hungary are ongoing, with the intention of bringing them to an early conclusion.
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.
Comments on this article should be sent to imfsurvey@imf.org
