The International Monetary Fund will consider on Monday a new form of financing to provide quick help to poor countries hit by economic shocks, including sudden rises or falls in commodity prices such as oil, reports Reuters
Known as the "exogenous shocks facility," the proposal is being pushed by the Group of Eight industrial countries, which includes the United States, France and Britain. They argue current IMF assistance to poor countries does not provide money quickly enough or cannot provide enough of it. Until now, only countries that have an IMF-supported loan program can qualify for additional aid when they encounter sudden economic shocks.
Under the proposed facility, poor countries that do not have a standing relationship with the IMF will be eligible for aid. "Many low-income countries face considerable vulnerability to external shocks and the IMF has long ago identified this as a problem," said Todd Moss, a senior research fellow at the Washington-based Center for Global Development. "The general donor response to shocks has been ad hoc and very uneven, so there is scope for a more thorough and predictable approach, with the Fund a logical institution to take a lead role," he said. Countries globally have seen import costs for a wide range of commodities soar in recent years. Benchmark US light crude, for example, is trading around $61 a barrel, up 40 percent from the end of last year and double 2003 prices.
Under a proposal to be discussed by the IMF's board on Monday, developing countries would be offered quick access to two- to three-year loans, with a lump sum upfront to ward off immediate problems from sudden economic shocks. The remainder would be paid out in regular installments while the borrowing country makes the necessary economic adjustments to deal with the shock, the proposal suggests. Participation would require the country to submit to IMF monitoring under the Fund's Poverty Reduction and Growth Facility.
Some countries, however, have argued there will be few takers of the facility, since many countries can access quicker and cheaper financing elsewhere, such as from the private sector. Moss said past IMF facilities aimed at helping poor countries cope with shocks had been virtually untouched. "We will have to see whether this time it will be different," he said. "One of the main justifications for shock insurance was to cushion debt service in a bad year. But given the deeper debt relief now available for the poorest and most vulnerable countries, this is less pressing," Moss noted.
British finance minister Gordon Brown believes afflicted countries should be able to get help quickly and call immediately on the IMF. "A world that in just a year has seen a chain of disasters ravage communities and continents needs an international response that is more proactive in its ambitions and more coordinated in its reach," Brown wrote recently in an editorial. He referred to the possible expansion of an IMF program already in existence that provides emergency assistance for natural disasters and post conflict aid but lacks assistance for poor countries hit by unexpected economic shocks. However, the shocks facility under consideration by the IMF would be separate from the existing emergency assistance program.