Developing Economies

IMF To Increase Lending To Poor Nations, Provide Easier Terms

The IMF i i

Last year's IMF Spring Meetings in Washington. IMF / Flickr/Flickr hide caption

itoggle caption IMF / Flickr/Flickr
The IMF

Last year's IMF Spring Meetings in Washington.

IMF / Flickr/Flickr

The IMF announced yesterday that it's going to increase its lending to poor nations by $17 billion through 2014, responding to what officials call a "third wave" of the financial crisis which has threatened low-income countries. The IMF is also doubling the amount individual countries can borrow.

Loans from the IMF can be a lifeline for struggling states, but they do come with strings attached. A few economists at the United Nations recently told us all about the havoc that IMF debt can wreak on a poor country. Now the IMF is implementing some of the recommendations from those same economists — folks like Martin Khor and Joseph Stiglitz — to make lending fairer.

In addition to the extra money, the IMF is freezing interest payments on outstanding loans to poor countries through the end of 2011, a measure recommended by some of the UN economists so that poor countries can easier survive the crisis. The fund also said it would provide easier lending terms on a permanent basis, including a method of updating annual interest rates after 2011 so that countries still in trouble have a better shot at paying back their loans.

Further, the IMF is creating new lending instruments, such as a standby credit facility, that lets countries draw on funds when they need it instead of forcing countries draw down an entire loan.

To pay for it all, the IMF is planning to sell off about one-eighth of its gold holdings, about 400 metric tons of gold.

The new lending procedures, according to the IMF, are supposed to include "higher pro-poor spending," but the fund isn't specific on what that means. There are still many problems with how IMF loan money is spent by governments, especially the often corrupt governments of poor nations. Still, the changes could help over 80 poor countries get through the crisis — without some of the crippling long-term debt that's typically associated with IMF loans.

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