Reformed IMF lending policies address the needs of low-income countries

Sources
Reuters Africa: IMF to boost funds, revamps lending to poor nations
IMF: The IMF Response to the Global Crisis: Meeting the Needs of Low-Income Countries

For the world’s industrialized economies, the worst of the global financial crisis seems to be over. G8 leaders are contemplating recovery strategies, trying to rein in inflation and hoping to reduce the overall severity of the recession. In low-income countries however, the global economic downturn, along with rising food and fuel prices, threatens to erase years of economic progress.

On July 29, the IMF announced a series of new lending policies to combat the effects of the recession in low-income countries. By adopting the new measures, the Fund has “transformed its relations with low-income countries,” and responded directly to an emerging international consensus on how best to respond to global crisis.

The IMF plans to increase concessional lending to low-income countries to $17 billion by 2014. The increased funding will be accompanied by more generous borrowing limits and by new, flexible concessional financing facilities. For example, the new Standby Credit Facility will address short term needs by allowing countries to tap the IMF specifically when they need funding, rather than in the course of an established IMF program. The Fund also plans to place a strong emphasis on poverty alleviation and growth, implementing programs to protect social and other priority spending. The Fund also plans to freeze interest rate payments on outstanding credit for 60 low-income countries over the next two and a half years, until 2011.

Already, in the first six months of 2009, the IMF has lent or committed about $3 billion, more than in the past three years combined. Their new commitment will increase overall lending to four times historical levels and represents an unprecedented transformation of the IMF’s lending policies.

Discussion
1. The IMF is overhauling its lending policies to meet an immense need. However some of those policies were established as safeguards against problematic lending to already debt-burdened countries. What are the potential costs of these new, flexible lending practices?
2. How can the Fund effectively monitor poverty-alleviation spending? Will other member countries be more willing to subsidize low-cost lending if the IMF is able to scrutinize loan spending?