♠ Posted by Emmanuel in Credit Crisis,Europe
at 10/27/2008 09:31:00 AM
Dear readers, I hope you visit this blog in the belief that I get a reasonable number of things right. Before many did, I called for Iceland to approach the IMF. Here's further proof: I was correct in believing that Ukraine would beat Hungary to the IMF's doorstep, reasoning that the latter would last longer due to its recourse to EU funding as a freshly minted member. It now transpires that the IMF has announced $16.5B worth of lending to Ukraine, with Hungary waiting in the wings:The IMF said it has reached a tentative agreement with Ukraine to lend the eastern European country $16.5 billion to help it combat a series of economic problems tied to the international financial turmoil and announced broad agreement with Hungary on a set of policies designed to bolster near-term stability...What will be interesting to watch is if famed IMF conditionalities will be lessened this time around as promised by Dominique Strauss-Kahn. With the IMF standing accused of, among other things, causing thousands of tuberculosis fatalities in Eastern Europe post-Soviet era, this is certainly a sensitive issue. On this, the Economist adds:
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.
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.
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...
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...
In part, their reluctance is a sign of the stigma of an IMF bail-out. The delay can cost valuable time while countries scramble to find other sources of help. Governments also worry about the damaging domestic political fallout of being forced to accept tough conditions as part of a rescue package. Critics have argued that the IMF is overly hung up on conditionality—although, in countries like Pakistan and Ukraine, which have enormous deficits, the need for conditions is clear. More generally, however, the fund needs to be flexible and it has indeed rethought its approach in recent years. It now aims to impose policy prescriptions only when absolutely critical to a programme’s success. Details emerging from the talks with Iceland suggest these guidelines are being followed: there appear to be no punitive strings attached. That will help the IMF dispel concerns that it is too rigid in its ideology.
