In accordance with US recommendations, the IMF will reduce the term for a number of its credit programs and increase interest rates for loans, the Bloomberg Agency reported. According to US Secretary of the Treasury Lawrence Summers, these steps signify the movement of the IMF towards more selectivity and better response to emergencies in the financial sector. Secretary Summers said the IMF will reduce the duration of loans paid out from its main reserves to the term of two and a quarter to four years (now it is three and a quarter to five years). Extended Financing Facilities will be reduced from ten to seven years. The IMF will also raise the interest rate for large and long-term loans.
According to the Treasury Secretary, in the US there is a consensus that the IMF should not take the place of private capital markets for borrowing countries. He said basically that the changes will put an end to repeated and long term utilization of fund resources. The US Congress has criticized the IMF for having forgotten its initial mandate — to provide short term and timely support to assuage balance of payments problems, and has been lending to such countries as Argentina and the Philippines for decades. The envisioned changes will allow the Clinton administration and the IMF to deflect the barrage of criticism directed at them from the US Senate. Soon after Mr. Summer’s recommendations the IMF made an official announcement about reducing the term of its credit programs and raise its interest rates for long- term loans. The IMF can issue a loan to a country above a certain amount, but the borrower will have to pay a fine. Such penalties will not be imposed on loans issued to cope with extraordinary situations such as natural disasters or postwar crises. According to the new rules, loans for overcoming crises will be expedited. Such loans will represent a predetermined, large amount of money, and governments will have access to them as soon as it is established that the crisis was not caused by that government’s policies.
According to prominent Ukrainian economist Oleksiy Plotnykov, what is now happening with the IMF is a quite natural process caused by the reorganization of the fund and revision of its functions. This is also the IMF’s response to the wave of criticism directed against it after the Asian financial crisis. It is also quite logical that the revision of the term of credit and the increase in interest rates is carried out on US initiative, for it is the fund’s major creditor. While the destiny of the EFF is still unclear, the planned changes will not, in Dr. Plotnykov’s words, contribute to the improvement of relations between Ukraine and the IMF or to the economic situation in this country on the whole. In spite of the fact that the terms of borrowing will become less attractive, Mr. Plotnykov thinks, the IMF interest rates (which are currently 5% to 7% per annum) will hardly be higher than those for commercial loans, and IMF lending will still be more advantageous than that offered by private lenders. According to Dr. Plotnykov, since Ukraine is heavily dependent on foreign financing, the Yushchenko government will most likely do everything possible to make its 2001 draft budget meet the IMF’s requirements, because the Cabinet will either work out an acceptable budget and get loans or fall.
Simultaneously, the results of the IMF fiscal year ending on April 30 were announced: the amount of financing has fallen more than threefold. In fiscal 2000 fund members borrowed $8.3 billion versus $28.2 billion in 1999, reports Interfax-Ukraine. The IMF reduced the amount loaned, because a number of developing countries that previously needed its assistance, have successfully overcome their crises.