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.