Dominique Strauss-Kahn, the IMF's managing director, said yesterday he has activated the programme, which could distribute a record amount of cash. The move comes as the cost of protecting bonds issued by a number of developing countries has climbed sharply, and nations such as Brazil, Mexico and Peru have sold dollars to shore up their currencies.
The financial turmoil may restore the Washington-based lender to a central role in the global economy. Demand for IMF assistance has collapsed in the past few years as buoyant capital markets and rising commodity prices allowed many developing nations to raise funds on their own and build up currency reserves. Now central banks around the world are drawing on those reserves as the credit crisis spreads.
"The IMF had been written off as increasingly irrelevant," said Claudio Loser, a scholar at Inter-American Dialogue, a policy-analysis centre in Washington, and former director of the IMF's Western Hemisphere department. "Now we could see a renaissance at the fund. Countries that had hoped never to need the fund again may be forced to ask for help as the normal sources of finance dry up."
Less Burdensome: Strauss-Kahn, 59, announced the plan on the eve of the fund's annual meeting this weekend in Washington. The programme will allow the fund's 184 member nations to get loans in 10 days or less, rather than the usual several weeks it takes to process requests. Conditions the fund typically requires, such as cutting government spending, will also be less burdensome.
The IMF had $110.2 billion in outstanding loans at its peak as of December 31, 2003. That had fallen to $17 billion as of September 30.
"The fund did not lend a lot during the last five or six years," Strauss-Kahn said. "We have hundreds of billions of dollars which are likely to be used in one year, and even more if we go over this period."
Iceland's Prime Minister Geir Haarde said October 8 an IMF loan is "definitely an option," and a mission from the fund was on the island yesterday. The government has taken control of the country's three biggest banks after they collapsed under the weight of debt.
At Risk: Win Thin, a senior currency strategist at Brown Brothers Harriman & Co in New York, said in an October 7 report that Eastern European nations are among the most at risk, because of large current-account deficits and high levels of external debt.
Estonia's current-account deficit
