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AGENCE FRANCE PRESSE
Washington, Apr 26: The IMF executive board has approved a new credit line to help countries threatened by financial crisis provided they follow sound economic policies, the IMF said.
The contingent credit lines (CCL) are designed as ``a precautionary line of defence readily available'' for countries threatened by ``international financial contagion,'' as long as they follow ``strong economic policies,'' the statement said yesterday. The new facility is ``intended to play an important role in preventing crisis,'' Italian finance minister Carlo Azeglio Ciampi told a news conference. Ciampi is chairman of the IMF's policy-making interim committee. The CCL is designed to offer short-term credit for countries to help forestall a threatened financial crunch once crisis hits.
``The CCL is a preventive measure intended solely for members that are concerned with potential vulnerability to contagion, but are not facing a crisis at the time of commitment,'' the IMF said.But the CCL will not be available to countries ``already facing contagion-related balance of payments difficulties'' and funds will only be released if the country concerned ``is implementing policies unlikely to give rise to a need'' for an IMF aid package. The facility, initially to be available for a two-year period, is designed as ``a new instrument of crisis prevention by creating further incentives for members to adopt strong policies,'' the statement said.
They must also encourage ``the constructive involvement of the private sector'' and adhere to internationally accepted standards, ``thereby reducing the risks of contagion,'' it added.
The idea is to help provide ``a supplemental line of defence'' against contagion from financial crisis, IMF managing director Michel Camdessus said.In order to qualify, countries must have received a favourable review of their economic performance in the last annual IMF review, including satisfactory debt management and ``constructive relations with private creditors'' and a ``satisfactory economic and financial programme.'' In addition, there would be a special ``activation'' review when a country actually asked to borrow money. There has been much talk since the Asian crisis erupted in mid-1997, followed by crises in Russia and Brazil, of setting up a credit line that would be available to help countries threatened by the spillover effects of a financial crisis elsewhere before they succumb to turmoil themselves.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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