Low-Income Countries Need Increased Financing to Cope with Crisis, Says IMF Managing Director Strauss-Kahn

Even as global economic recovery becomes more certain, rich countries need to step up their support to poorer countries so they can quickly rebound from the crisis that came from the advanced economies, Managing Director of the International Monetary Fund (IMF) Dominique Strauss-Kahn said today. “We must make sure that any global recovery also lifts the low-income countries. These countries desperately need additional financing to tide them over, to give them adequate breathing space to cope with this crisis”, said Mr. Strauss-Kahn in a speech, today at the Center for Global Development in Washington, DC.

Mr. Strauss-Kahn emphasized that most low-income countries have responded well to the global financial crisis thanks to sound economic policies. “Since many of these countries ran good policies, they built foundations to ward off the storm. In the past, many low-income countries facing such a financial squeeze would have been forced to slash government spending, put administrative constraints on imports, or simply not pay their bills. But this time is different”, he said. Because of improved policies, three quarters of low-income countries have been able to increase their budget deficits to help combat the crisis. Of 27 low-income countries with available data, 26 have been able to preserve or increase social spending—a significant achievement in the current environment.

The Managing Director also said that the there had been an unprecedented scaling up of IMF financial support and policy advice to low-income countries . This has helped provide poorer countries with the necessary room to ease macroeconomic policies. Mr. Strauss-Kahn added that the Fund had gone “above and beyond” what the G20 asked at the London summit in April. The IMF has increased its concessional lending to $17 billion through 2014, and is front-loading this assistance so that $8 billion is available over the next two years. In addition, the IMF Executive Board approved zero interest payments up to the end of 2011 for all concessional loans and lower interest rates on a permanent basis thereafter.

Thus far, low-income countries have weathered the global financial crisis better than expected, the Managing Director said. ”But low-income countries remain highly vulnerable”, he stressed, “so we cannot be complacent”. He added that poor countries have longer-term needs for development financing, going well beyond what the IMF has the mandate or capacity to provide. As the recent drought in East Africa suggests, there may be more challenges to come in the wake of the crisis. “At times like this, there is always a temptation for countries to retreat inwards, to look first at their own problems, to respond primarily to domestic political needs and demands. I understand that. But the world community cannot ignore the needs of the low-income countries, especially since the poorer countries are paying the price for rich country mistakes”, added Mr. Strauss-Kahn “Countries must resist the temptation to reduce aid, or to engage in trade or financial protectionism”.