The US government is considering a new non-borrowing programme to help deal with crises in developing countries. It might prove to
be an alternative instrument in some cases for countries that would have formerly turned to the discredited and now defunct Contingency Credit Facility (CCF), says John Taylor, under-secretary for international affairs at the US Treasury.
Taylor explains that the idea springs from an earlier concept put forward by the US to help very poor countries build better relations with markets and donors and that the US is now thinking of extending this idea to crisis-hit countries. He notes that it was likely to take at least a year to have a fully-fledged plan.
Essentially, any country facing a crisis of confidence would draw up its own plan of action. The Fund would assess the proposal and signal its verdict on the plan's merits to donors and the wider investment community. Once agreed, it would provide a framework for the country and would give markets and donors both the information and the confidence to assess risk.
The idea outlined by Taylor builds on many themes supported by the US. First, it gives ?ownership' of the solution to the nation facing the crisis. Second, it reduces uncertainty and gives the markets clarity. If successful, the plan would be cheap and might relieve the need for IMF bail-outs.
Taylor was sceptical that a re-working of the CCF was viable. The CCF was put together for particular needs at that time, he says. Mexico did consider using it, but it was not workable, he adds.
Then Treasury Secretary Robert Rubin put forward the CCF in 1999. The thinking behind it was that it would reduce the need for bail-outs as country's getting into trouble could tap the CCF. The idea dove-tailed with the US vision for the Fund to be less involved in large rescue packages and was prompted by the widespread emerging market crisis that started in Russia in 1998.
The CCF was so flawed that no country ever used it. The main problem was that countries that sought to use it needed to enter negotiations with the Fund. This sent a strong signal to the markets that the country faced significant problems and had a predictably dire effect on market confidence.