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Much sooner than we expected a week ago, the multilaterals (or International Financial Institutions -- IFIs) must be ready to step in with emergency lending. The Inter-American Development Bank (IDB) in collaboration with Andean Development Corporation (CAF) and the Fund for Latin American Reserves (FLAR) announced yesterday a new $9.3 billion facility to help Latin American countries withstand the turmoil in financial markets. The global crisis that began in the United States has already taken its toll in the region in the form of sharp unexpected depreciations, tumbling equity markets and bankrupticies.

The new facility is very different from past emergency lending. Three characteristics stand out: it will channel liquidity to the private sector through the banking sector; borrowing countries will not be required to have a previous agreement with the IMF, and the fund will not have the typical conditions, such as lowering fiscal deficits and tightening monetary policy. These differences are a clear recognition that this time countries in Latin America are the victims of something they did not cause.
Good for the IADB, CAF and FLAR for acting quickly and with the right kind of instrument!

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.