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Emerging Markets

IMF offers money without ‘shame’

His charm offensive comes amid growing criticism of new IMF credit lines, announced this week as the lender sought to cast off the stigma attached to its lending practices.

“There is no shame in having an arrangement with the Fund,” IMF Western Hemisphere director Nicolas Eyzaguirre told Emerging Markets in an interview. “We’re just putting down a bed of confidence.

“We do not demand anything from countries. We are just saying that, should you need it, there are extra resources available,” he said. “What kind of shame is there in that?”

But experts expressed caution over the multilateral’s efforts to loosen the strings attached to loans and overhaul its credit programme for immediate borrowing.

Sebastian Edwards, former chief economist for Latin America at the World Bank, told Emerging Markets: “The IMF has tried many times before to be flexible, and has failed to dissociate itself from the stigma attached in going to the Fund.”

William White, former chief economist at the Bank for International Settlements (BIS), said: “Going to the IMF is still the kiss of death for many sovereigns, since the political and market fallout could be severe.”

The new initiatives seek to broaden the Fund’s role to include crisis prevention, in addition to being a lender of last resort. Eyzaguirre argued that the new facilities are precautionary and should therefore not send negative signals to markets. “It’s saying: ‘you’ve been a good customer and here’s what we can do for you’”, he said.

But several nations have already ruled out drawing on the facility. Brazilian finance minister Guido Mantega this week said: “The objective is not for us to get some funds from this [credit] line. Brazil does not need that.”

Bahamian finance minister Zhivargo Laing told Emerging Markets: “We are not on any Fund programme and don’t see ourselves being on any Fund programme.” But he added that he was nevertheless “in support of” the new scheme, since there are countries that need it.

Edwards said the IMF is most likely courting Mexico as an early candidate for the facility, in order to incentivize relatively more vulnerable economies in the region such as Colombia.

Some bankers say asset prices could rally if governments act in unison and simultaneously draw upon the facility, but Edwards dismissed this “a political fantasy and counter-productive for the richer emerging markets”.

He added: “No country can know what the hell is going to happen if they access this facility,” he adds: “What will happen to its credit default spreads?”

Eyzaguirre warned that the debate over accessing Fund credit lines risked being politicized. “For government’s to use the Fund as a straw man for what’s going on is false.”

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