International Monetary Fund support of 15 emerging market countries in the global financial crisis helped them weather the worst of the turmoil, an internal IMF study has claimed.
A mix of increased resources, policy flexibility, and more focused conditionality on financing had allowed the IMF to provide improved support, the 186-nation institution said in the study published Sunday.
In the report "Review of Recent Crisis Programs," the IMF said the fund-supported programs were delivering the kind of policy response and financing needed to help cushion the blow from the worst financial crisis since the 1930s Great Depression.
"What this study tells us is that, with IMF support, many of the severe disruptions characteristic of past crises have so far been either avoided or sharply reduced," IMF managing director Dominique Strauss-Kahn said in a statement.
Strauss-Kahn underscored that serious challenges remained, particularly in restoring sustained economic growth and higher employment, but he also said there were "encouraging signs of stabilization."
"The governments and peoples of the countries concerned deserve the credit for these efforts," he said.
Still, the study cautioned that daunting challenges remain as the global economy stabilizes from the worst global recession since World War II, including the timely unwinding of fiscal and monetary stimulus and fixing bank balance sheets.
The economists compared the typical economic and financial effects of past crises and analyzed why those outcomes had been avoided so far in most cases in Armenia, Belarus, Bosnia & Herzegovina, Costa Rica, El Salvador, Georgia, Guatemala, Hungary, Iceland, Latvia, Mongolia, Pakistan, Romania, Serbia, and Ukraine.
Key factors for the improved results included the fund's rapid mobilization of large financing packages for countries hit by the global financial turbulence of late 2008 that followed the collapse of Wall Street investment bank in mid-September.
Almost all the financing packages provided access beyond the normal limits to fund resources, with more front-loaded disbursements. In a number of European programs, private sector involvement was sought.
"Importantly, official financing has been used more to meet actual funding constraints of the private and public sectors, less to replenish central banks reserves," the IMF said.
Other key factors were the front-loading of financing to sectors facing the tightest financing constraints; emphasis on protecting the financial sector from liquidity squeezes; and fewer conditions on financing.
The IMF highlighted that stronger country "ownership" had occurred due to a closer tailoring of support to each country's particular reform agenda, noting that "the failure to do this has been a criticism of past IMF support."
"Compliance has been better and completion of program reviews timely, suggesting strong country ownership of programs supported by the fund," it said.
"It is clear that this new generation of programs incorporates the lessons of the past," said Reza Moghadam, IMF director of strategy, policy, and review.
"While it is certainly too early to draw firm conclusions, this assessment is useful in providing real-time feedback to country authorities, IMF staff, partner institutions and policymakers elsewhere, so that we can continue to learn and improve further."
The IMF said that all the countries had undertaken commitments to sustain or expand social safety nets.
"Given the importance of protecting the most vulnerable groups, this is another aspect requiring continued close monitoring."
The IMF report cautioned that the exit from crisis and fund programs may be prolonged, with current account deficits still needing to adjust in some cases, and the possibility that balance sheet problems of banks, companies and households could intensify during the process of stabilization.
"Countries like Latvia (where policies are limited by the choice of the currency regime), Iceland (where the crisis has resulted in a very heavy external debt burden), and Ukraine (which is still affected by financial and political fragility) face the greatest challenges going forward," the Washington-based institution said.
The report came ahead of the IMF and World Bank annual meetings on October 6-7 in Istanbul.
Source: AFP Asian Edition
