First Two Countries Tap IMF Shocks Loans, More Expected

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Countries in central Asia and Africa are the first two nations to tap the IMF's revamped borrowing program designed to help low-income countries cope with emergencies caused by events beyond their control.

Several more African nations are expected to request loans in the near future, according to IMF officials.

The IMF's Executive Board on December 10 approved a loan of $100 million for the landlocked, mountainous Kyrgyz Republic in central Asia under the revised Exogenous Shocks Facility (ESF). Previously the Board had approved a one-year $77 million arrangement for Malawi-the first loan since the Board revised the ESF in September.

The 18-month Kyrgyz loan will help the government address several economic shocks, including the rise in commodity prices that continued until mid-2008, a shortfall in hydropower, banking sector difficulties in neighboring Kazakhstan, and an earthquake in the Nura region.

The loan to Malawi, a country in southeast Africa heavily dependent on tobacco exports, will support the authorities in their adjustment to the terms of trade shock caused by rapid increases in fuel and fertilizer prices earlier in the year.

The ESF was established two years ago to enhance the IMF's ability to help low-income member countries deal with sudden and exogenous shocks. To make it easier and faster for members to receive the Fund's support during the worsening of global economic conditions, ESF reviews were accelerated. Surging food and fuel prices have hit low-income countries particularly hard, an IMF spokesman said.

Revision of the ESF aims to provide assistance more quickly, and in larger amounts, to help low-income IMF members cope with events such as commodity price changes (including oil), natural disasters, and conflicts and crises in neighboring countries that disrupt trade.

The modifications, which went into effect in late November, also streamlined the conditionality-commitments that borrower governments make on their economic and financial policies-attached to the ESF. The changes respond to a request from ministers at the IMF's 2008 Spring Meetings.

The revamping of the IMF's shocks facility for low-income countries is part of an effort by the IMF to improve its lending toolkit. In October, the IMF announced a new short-term lending facility to channel funds quickly to emerging markets that have a strong track record but need rapid help during the current financial crisis to get them through temporary...