U.S. and IMF working on new credit plan to fend off crisis

U.S. and IMF working on new credit plan to fend off crisis

WASHINGTON (Reuters): The United States and the International
Monetary Fund said on Monday they were still hammering out the
details of a new kind of international loan program to help
embattled countries fend off economic turmoil.

The new approach, proposed last year by U.S. President Bill
Clinton, aims to provide "precautionary financing" to countries
before they get into economic trouble. Traditional IMF packages
have usually kicked in after troubles started.

"They (the IMF) are in the process of looking at how to best
structure a program, and we're doing that with them," U.S.
Treasury Under Secretary Timothy Geithner told reporters after
testifying before a Senate Banking subcommittee.

"But at this stage we haven't made a judgment what would be
appropriate, or what would be feasible, in the short term."

The Wall Street Journal said in its Tuesday edition the IMF
was thinking of making Mexico the first country to benefit from
such a new program. The unsourced report claimed that Mexico was
seeking a $9 billion credit line.

Both Geithner and an IMF spokesman called the report
premature, suggesting it reflected Mexico's desires more so than
the current state of thinking at Treasury and the IMF.

"My sense is that story was a little bit ahead of itself.
There's always people who have things they would like to see
happening, but that's a different question than what's likely to
happen and what we would support," Geithner said.

The IMF spokesman said the possibility of future IMF support
for the United States' second-largest trading partner had indeed
been discussed with Mexico but insisted that "no decision has
been taken and figures were not discussed".

Major industrial nations, led by the United States, last
October unveiled a plan to stop the global financial firestorm
that started in Asia in 1997 from spreading around the world.

Their most immediate hope was to prevent the turmoil from
engulfing Latin America's biggest economy -- Brazil.

But Brazil's economic situation deteriorated so quickly at the
end of last year that officials now say there simply was not
enough time to put together a multi-billion dollar package, with
input from both the IMF and sovereign governments, along the new
and untested lines of the Clinton proposal.

Instead, Brazil won a more traditional $41.5 billion
international rescue package last November, structured mostly on
four similar multi-billion dollar bailouts that were given to
Thailand, Indonesia, South Korea and Russia once those nations
found themselves in the midst of deep economic crises.

But the loan failed to prevent the devaluation of Brazil's
real currency in January. Brazil and the IMF subsequently had to
renegotiate the economic program underpinning the loan.

After six weeks of talks, the IMF on Monday said it was ready
to free $4.9 billion in fresh money for Brazil. The new plan sees
the world's eighth-largest economy shrinking by up to four
percent this year but expects a recovery in 2000.

Mexico has been holding regular talks with the IMF over the
past few weeks, discussing how best to deal with some $8 billion
in IMF loans that falls due this year. The debts were contracted
as part of a multi-billion dollar bailout after the 1994 crash of
its peso currency.