IMF to boost funds to poor countries

 

The International Monetary Fund said on Wednesday it was mobilizing up to $17 billion (10.3 billion pounds) in new resources to lend to 80 of the world's poorest countries seen most at risk from the global economic crisis.

The IMF announcement represented a major overhaul of the fund's previous lending practices as it tries to limit the damage from the global crisis, which seems to be ebbing in industrialized economies, but is still being felt in most of the developing world.

The Washington-based institution said demand for loans from poor countries, mostly in Africa, has exceeded its projections as government revenues have been strained by a sharp decline in global trade and investment as well as volatile commodity prices.

The fund said it would substantially increase resources for low-income countries by up to $17 billion over the next six years through 2014. Lending in 2009 and 2010 is likely to hit $8 billion, and will increase between $2 billion and $2.5 billion annually after that.

In the first six months of this year, the IMF has lent or committed about $3 billion, which is more than the last three years combined.

Some of the resources used for the scaled-up lending will be raised through the sale of 403 tonnes of IMF gold stocks, which will probably be sold within a new central bank gold sales agreement currently being negotiated.

In addition, the IMF said it will temporary freeze interest rate payments on outstanding credit for 60 low-income countries over the next two and a half years until the start of 2011.

"This is an unprecedented scaling up of IMF support for the poorest countries in sub-Saharan Africa and all over the world" IMF Managing Director Dominique Strauss-Kahn said. 

In addition, the IMF said it had designed three new lending instruments better suited for such countries' circumstances, including a standby credit facility which poor countries could tap when they need the funds. Currently, they are forced to draw down the entire loan by the end of an IMF program.

"By adopting these measures, the IMF has transformed its relations with low-income countries and responded directly to an international consensus on how to respond to the global crisis" the IMF said.

It said the new instruments placed a "strong emphasis on poverty alleviation and growth" adding the programs will include specific targets to safeguard social and other priority spending.

The announcement comes as the IMF and its sister organisation, the World Bank, worry that the global crisis could derail economic progress in Africa, where annual growth had averaged around 5 percent to 6 percent over most of the past decade.

Antoinette Sayeh, director for the IMF's Africa Department, said the fund was maintaining its 2009 growth forecast for Sub-Saharan Africa at 1.5 percent. Excluding South Africa and Nigeria, growth was expected to be 2 percent in 2009.

She also said the IMF had revised upward its forecast for the region next year to 4 percent, compared with an April forecast of 3.8 percent.