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Behind the Headlines: Toronto Summit(s) and Development

The G-8 and G-20 summits held in Canada last week yielded few headlines on development issues, but there was plenty of rhetoric about global interdependence and poverty reduction and a handful of promising, if mostly modest, development initiatives just below the media’s radar.

As expected, the G-20 declaration focused on when and how to unwind stimulus programs that helped to avert a global economic collapse, and on strengthening regulation of the financial sector to avoid a repeat of the 2008–09 financial crisis.

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.

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