IMF Plans Huge Credit Line for Poor Nations

Wave of defaults in developing world could imperil global economy

By Jason Farago, Newser Staff

Posted Oct 24, 2008 6:11 AM CDT

(Newser) – While the financial crisis is leading the West into recession, other parts of the world from Hungary to Argentina face an even worse fate: default, market panic, and possibly social upheaval. Now the IMF is working to build a giant line of credit, funded by rich nations, to provide emergency capital to nations on the brink. "The tsunami has only just reached their shores," said one international banker.

Japan and several oil-producing nations would probably bankroll the program, although the US has expressed interest. Most of the countries under threat did not take part in the mortgage-backed securities binge; rather, the drying up of liquidity has hit them hard, sending currencies plunging and exacerbating foreign debts. "Right now, it’s a liquidity problem," an economist observed, "but if it goes on long enough, it can become a solvency problem."

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IMF Fund Managing Director Dominique Strauss-Kahn, right, and World Bank President Robert B. Zoellick speak during a news conference at IMF headquarters in Washington Sunday, Oct. 12, 2008. (AP Photo/Jose Luis Magana)

IMF Managning Director Dominique Strauss-Kahn speaks during the Boards of Governors 2008 Annual Meetings at the International Monetary Fund headquarters in Washington on Monday Oct. 13, 2008. (AP Photo/Jose Luis Magana)

A protester speaks to the crowd outside the Central Bank of Iceland during a demonstration demanding the resignation of its chairman, in Reykjavik, Friday Oct. 10, 2008. (AP Photo/Arni Torfason)

A protestor waves an Icelandic flag outside the Central Bank of Iceland during a demonstration demanding the resignation of the Chairman of the Centrdal bank David Oddsson, in Reykjavik Friday Oct.... (AP Photo/Arni Torfason)

President of the Hungarian National Bank Andras Simor attends the National Summit in the Science Academy in Budapest, Hungary, Saturday, Oct. 18, 2008. (AP Photo/Bela Szandelszky)

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Our whole economic prospects are going to turn on whether the emerging markets keep growing. It could be the difference between a moderate downturn and a deep downturn. - C. Fred Bergsten, economist

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IMF Plans Huge Credit Line for Poor Nations