West is in Talks on Credit to Aid Poorer Nations - Laura Johnson 10/24/08

As the current financial crisis engulfs American and European corporations and central banks, many emerging nations are feeling tight strains as their economies have depended on the “safe” economies of the United States and Western Europe. The fast-growing economies of the developing world depend on money from Western Banks to build factories, buy machinery, and export goods to the United States and Europe. However, as banks stop lending and the money dries up, the developing countries suddenly find themselves in a financial crisis as well.

Stock markets and currencies have plunged, foreign capital has fled, trade flows have slowed, and in an echo of past financial crises, investors have begun to worry about governments’ defaulting. Many have heavy debts in foreign currencies, but the cost of repaying that debt has increased as their home currencies’ value has declined. To compensate, they are seeking dollars to repay the loans.

Countries under the harsh credit squeeze include Hungary, Russia, Ukraine, Pakistan, Turkey, South Africa, Iceland, Estonia, Latvia, Romania, and Bulgaria. Among the earliest victims have been countries where companies and even individuals borrowed heavily in foreign currencies. As credit dried up and local currencies plummeted, they have been unable to repay these loans. Now, the IMF is issuing emergency loans to repay the debt. There is a deep reluctance to negotiations with the IMF because they come with strict conditions, which is why many countries are traditionally adverse to such loans.

These countries are now borrowing money from the largest shareholder in the fund, the United States, which can then exert influence on the governing policies of that country, known as structural adjustment programs. The highest ranking American at the IMF will lead the fund’s effort to extend loans to a broader range of countries. President Bush has agreed to convene an emergency meeting of the now G-20 countries on Nov. 15 to develop a response to the global financial crisis, led by Henry Paulson, the US Treasury secretary. This will mimic the Breton Woods conference held after WWII, again in the US, but this time with more influence from other nations, like France and Germany, is likely. It is unfair for developing nations to have to depend on the biggest contributors of this crisis in order to help their own country.

http://www.nytimes.com/2008/10/24/business/worldbusiness/24emerge.html?_r=1&ref=world&oref=slogin