Thursday, April 16, 2009

IMF Offers Poland $20 Billion in Flexible Credit Line Arrangement

Sources: BBC, Poland To Seek $20bn IMF Credit; Forbes, Poland to IMF: Spare Some Change; New York Times, Poland Gets $20 Billion Credit Line from I.M.F.

The IMF on Tuesday decided to make Poland the second country in the world to receive credit under its new Flexible Credit Line Arrangement, after Mexico. The new funding, unlike credit that the IMF has extended to smaller, more desperate countries in Eastern Europe, is only available for countries that already have a relatively sound economy. As long as a country meets certain pre-conditions to be eligible in the first place, there are no conditions that have to be met after receiving some of the money, unlike loans offered, for example, to the Ukraine.

Factors that make Poland a candidate for this type of loan include the lack of any real banking crisis in the country, the expectation of a higher GDP growth than other Eastern European countries in 2009, strong economic fundamentals and framework, and the government's trustworthiness. Poland does have its problems – bankruptcies, foreign investors pulling out, and a currency that has plummeted during the crisis – but its relative strength indicates that it is a good credit risk and may not even need to use the money. The expectation is that if it does draw on the arrangement, it will be for a short time, and not all of the $20 billion will be used. Poland's intention is to use this arrangement to strengthen its reserves and guard against speculative attacks.

1) Do you think the IMF's expectation that Poland will not use, or will not use all, of the money extended to it through the Flexible Credit Line Arrangement is correct? Do you think the existence of the credit line will encourage Poland to depend on it?
2) Do you think that extending such a facility to a stronger economy in Eastern Europe will help confidence spread in Eastern Europe so that countries such as Hungary and the Ukraine that needed emergency support will become less dependent on the IMF in the long run?

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