Thursday, September 24, 2009

IMF Says Wealthy Countries Need to Give Financial Support to Low-Income Countries

Low-Income Countries Need Extra Support to Cope With Crisis
IMF Says Poorer Nations Need $55 Billion in Aid
Press Release No.09/305

During past financial crises, low-income countries may have had to cut government spending, limit imports, or simply not pay their bills. During the recent crisis, an increase in IMF financial support and policy advice aided their macroeconomic policies. This support has allowed three quarters of low-income countries to increase their budget deficits to combat the recent global financial crisis. However, these countries have still been hit hard by the crisis and may see their growth levels fall to half of pre-crisis levels this year. Because low-income countries remain vulnerable to the global financial crisis, wealthy countries need to support their poorer neighbors, said IMF Managing Director, Dominique Strauss-Kahn, in a press release issued on September 17, 2009.

The long-term needs for development financing go beyond the IMF’s current capacity to provide. The IMF has made $8 billion available for concessional lending over the next two years and has approved zero interest payments up to the end of 2011 for all concessional loans as well as lower interest rates on a permanent basis thereafter. Challenges such as East Africa’s drought will further increase the need for financial support from wealthier countries.

Strauss-Kahn said that as the world emerges from the financial crisis, wealthier countries may be tempted to reduce aid and respond primarily to their domestic needs; however, the needs of low-income countries cannot be ignored. He also stated the global economic crisis stemmed from the wealthy countries' mistakes and poor countries should not be left on their own. The World Bank President, Robert Zoellick, has called on all rich countries to resist complacency and follow through on their promises to fund their poor neighbors.

Strauss-Kahn says he expects the global economy to emerge from recession during the first half of 2010. He warned that relying on the increasing world demand to pull the low-income countries along is a bet we should not take. Low-Income countries remain highly vulnerable and financing needs remain substantial.

1. Should the IMF require more of its member countries to solidify the financial support to poor countries?
2. Is it fair to ask wealthier nations to provide more funding to poor nations while they are struggling to emerge from the financial crises themselves?

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