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Cash for Poor Countries, or Another Round of Subprime Lending?

This is a joint post with Benjamin Leo.

A special new lending facility was announced in July 2009 with the objective of providing up to $17 billion in new loans through 2014 and, to entice cash-strapped borrowers, the lender is waiving interest payments for the first two years. This may sound like dangerous new short-term teaser offers for sub-prime borrowers. But this isn’t coming from Countrywide Financial. It actually is a new IMF facility for low-income countries, including some of heavily indebted poor countries (HIPCs) who are just barely coming out of the last debt crisis.

The stated objectives of the new IMF facility are laudable: to offset the effects of the global economic crisis by boosting international reserves and supporting adjustment policies. And yes, the overall terms are more concessional than past IMF loans. Nonetheless, the net impact on national debt levels may be significant. And it was just four years ago that the IMF committed to cancel roughly $6 billion in bad loans to many of these very same countries.

French Candidate for IMF Head Would Reform Selection System: AFP

Agence France Presse reported last week that Dominique Strauss-Kahn, France's candidate to head the IMF, told Brazilian President Luiz Inacio Lula da Silva that he wants to reform the IMF--including how the head of the international lender of last resort is selected. Marco Aurelio Garcia, Lula's advisor for international policy, briefed reporters after the two men met. According to AFP:
He said the Socialist party leader and former French finance minister told Lula change was needed in the IMF in "three key areas," including how member states were represented, how its managing director is selected and its operating program....
Strauss-Kahn after his meeting with Lula told reporters, "If I am a candidate, it is because I want to change the IMF."

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