IMF and the World Bank set to increase loans

With stock markets collapsing around the world and economies headed for a global slowdown, international agencies are stepping up their bid to bail them out. Both the International Monetary Fund (IMF) and the World Bank have decided to increase their lending to poor and developing countries, and several developed nations have also expressed their support for it.

The IMF is drawing up emergency plans for a new short-term loan facility for governments facing a cash squeeze as a result of the turmoil in the world's financial markets. It is reportedly considering establishing a pool of money that nations in jeopardy of defaulting on their foreign payment obligations could quickly access for loans.

In addition, it is also looking at longer-term assistance programmes. Iceland is already in line for a $2 billion IMF bail-out, and a queue of other hard-hit countries, including the Ukraine, Belarus, Pakistan and Hungary, are also in negotiations with teams from the Washington-based lender. (See: IMF approves $2-billion loan for Iceland)

There have been reports that the governments of the US, Japan and some oil-producing nations have expressed interest in aiding the IMF's efforts. The IMF has about $250 billion available for a variety of loans that may be supplemented by funds from other countries.

The World Bank aims to double its long-term loans to those countries from $13.5 billion in 2007 to help them cope with the global credit crisis. These loans will be targeted at around 10 poor countries in Asia and Africa, such as Ghana, Bangladesh and Cambodia, as the IMF focuses on emerging, middle-income economies. They would be offered in tenures of 15 to 20 years at an interest rate roughly on a par with London Inter-bank Offered Rate, or LIBOR.

In an unrelated development, the World Bank and the French Development Agency have agreed to lend China $910 million dollars in reconstruction funds for the devastating Sichuan earthquake which struck on 12 May and left over 87,000 dead.

The Chinese government estimates that a three-year reconstruction plan will cost $147 billion. While the international lender will provide an emergency recovery loan of $710 million, the French agency will chip in with $200 million.