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Cash for Poor Countries, or Another Round of Subprime Lending?

This is a joint post with Benjamin Leo.

A special new lending facility was announced in July 2009 with the objective of providing up to $17 billion in new loans through 2014 and, to entice cash-strapped borrowers, the lender is waiving interest payments for the first two years. This may sound like dangerous new short-term teaser offers for sub-prime borrowers. But this isn’t coming from Countrywide Financial. It actually is a new IMF facility for low-income countries, including some of heavily indebted poor countries (HIPCs) who are just barely coming out of the last debt crisis.

The stated objectives of the new IMF facility are laudable: to offset the effects of the global economic crisis by boosting international reserves and supporting adjustment policies. And yes, the overall terms are more concessional than past IMF loans. Nonetheless, the net impact on national debt levels may be significant. And it was just four years ago that the IMF committed to cancel roughly $6 billion in bad loans to many of these very same countries.

The IMF beyond Istanbul

This post originally appeared in the Business Standard.

Wanted: An Asian Managing Director and new approaches to capital flows.

The IMF will strike a triumphalist tone at its forthcoming annual meetings in Istanbul. Some of this will be warranted because the IMF’s record in responding to the global financial crisis was commendable, even if its record leading up to it was less stellar (see http://www.iie.com/realtime/?p=942 for more details).

The Expanding Role of the Fed and Why It Matters for Development

In a recent interview on CNN en Español I discussed the evolving role of the U.S. Federal Reserve Board and its implications for developing countries. People in Latin America are following this issue closely. That’s because the global crisis has reminded everybody that an unstable financial sector in the industrial countries has powerful ripple effects not only on the financial sector of developing countries but also on the real economy, with serious consequences for poverty and inequality.

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