Emergency funds set to double
Faster response required in the fight against future financial crises. Diane Coyle reports from Washington
Friday 06 October 1995
Finance ministers gathering in Washington on the eve of the IMF's annual meeting will approve proposals to provide a $50bn-plus fighting fund to tackle emergencies like the Mexican financial crisis. The new arrangement should be in place by next spring.
Michel Camdessus, the IMF's managing director, said yesterday: "This is a very important and timely initiative."
The Group of Seven (G7) industrial countries agreed at their summit in Halifax in June to a significant extension to the IMF's General Arrangements to Borrow. These are a $27-bn overdraft facility provided by the G7 and the four other countries - Belgium, the Netherlands, Sweden and Switzerland - which make up the G10. The decision was a reaction to the Mexican financial crisis, even though the Fund financed its $17.8-bn loan to Mexico out of its own resources.
However, progress on extending the GAB has been slowed by negotiations to involve other countries. Austria, Australia and Korea, for example, are being approached for contributions to a new, parallel arrangement to the existing GAB. Although the non-G7 members of the G10 fear dilution of their influence, their bigger partners believe it is essential to make other important economies take up their responsibilities to the international community.
Terms of the new parallel arrangement are still under discussion but Mr Camdessus said yesterday: "I hope they come to a decision as rapidly as possible. We need to have a mechanism permanently in place."
The IMF has failed, though, in another bid to increase its resources. Ministers are unlikely to agree to a general increase in the subscriptions paid by member countries.
As another part of its post-Mexico improvements, the Fund expects to have stricter standards for economic statistics provided by members in place by next April: 12 basic measures that all countries must provide monthly, and a more demanding standard for countries that borrow in the international financial markets.
Mr Camdessus said the Fund was working on making the information available electronically to the financial markets. "One of the best ways for countries to protect themselves against erratic behaviour by the financial markets is to provide all the relevant data. Markets hate surprises," he said.
The Mexican crisis, which triggered the flurry of activity to improve the IMF's surveillance procedures and financial resources, is well on its way to resolution, Mr Camdessus said. The country had met the IMF's economic conditions and would qualify for another $1.6bn disbursement in mid-November, on top of the $12bn it has already received from the Fund.
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