NEW YORK, 7 July 2008 (IRIN) - The International Monetary Fund (IMF) is augmenting an existing facility and reshaping a second to help countries worst hit by the food and fuel price crisis, especially in sub-Saharan Africa.

The Fund has already increased low-interest loans under existing arrangements with Benin, Burkina Faso, Kyrgyz Republic, Central African Republic, Haiti and Madagascar under its Poverty Reduction and Growth Facility (PRGF) to provide balance of payment and budget support, opened new PRGF arrangements with Mali and Niger, and is in discussions with about a dozen other countries.

On 2 July the Fund increased the nearly $90 million arrangement with Madagascar by about $30 million. Almost two weeks earlier it had approved some $26.5 million in additional aid to Haiti, enabling an immediate disbursement of about $38.7 million.

IMF Managing Director Dominique Strauss-Kahn also pledged to reform the Exogenous Shocks Facility (ESF), which provides low interest loans to countries affected by natural disasters, conflicts and crises in neighbouring countries that disrupt trade.

"We're going to reshape our exogenous facility, which obviously is not adapted to the current crisis, and we'll meet other requests if needed," he told a Fund forum in Washington. The ESF requires that a Fund-supported economic programme be put in place.

This implicitly assumes that the country needs to change policies and/or adjust their macroeconomic stance, which is not always the case and causes delay, an IMF spokesperson said.

But for some in the humanitarian community the move, though welcome, is not enough, and the terms of 0.5 percent interest, and repayment over five-and-a-half to 10 years, still too arduous.

"We're worried that the Fund's money is actually relatively expensive," Oxfam International senior policy adviser Elizabeth Stuart told IRIN. "They say they've checked and countries can afford to take on more debt. Well, maybe they can this time, but if this is going to carry on, can they afford to take on more debt in the future? So we say that the Fund should make its lending cheaper."

She compared IMF loans with those under the International Development Association, the World Bank's low-income arm. "You've got a payment holiday for 10 years and then you have 40 years to repay the loan, and there's no interest rate," she said.

"So that tells you how relatively expensive Fund money is in comparison. If the Fund wants to be a serious player in doing something about the food crisis, it needs to make its money cheaper."

Tipping point

At the Washington Forum, the IMF released a study identifying 18 sub-Saharan countries that have been especially hard hit and urgently needed additional balance of payment and budget support.

"The scale of the aftershocks really threatens to derail macro-economic stability and efforts to achieve the MDGs [Millennium Development Goals]," Strauss-Kahn said.

"Some countries are at a tipping point. If food prices rise further and oil prices stay the same, some governments will no longer be able to feed their people and at the same time maintain stability in their economies.

"They need good policy options and they need help from the international community. Their challenge is ours. It is to ensure adequate food supplies while preserving the poverty-reducing benefits derived in recent years from faster growth, low inflation, and better budget and balance of payments positions."

The study noted that monetary and fiscal policies would have to adjust, with the exchange rate in some cases playing an important role.

David Kauck, senior policy analyst at CARE, said: "They're [the IMF] looking at balance of payments and cash reserves and they're worried about the fact that rising prices are going to cause a serious balance of payments problem and cash flow problem for some of these countries and that it might be so severe that they might not be able to import what they need. And I think that's quite reasonable."

Room for manouevre

Oxfam's Stewart would like to see more and quicker IMF action. "I think they should be helping more countries. The Fund always moves slowly and actually [now] in some terms it's moving relatively quickly," she said.

"But we think the Fund should automatically offer extra money under the terms of the loan agreement. You shouldn't have to wait for a review by the Board, you should offer it automatically to any country that is suffering from the food crisis. In some ways the Fund's moving quickly, but it needs to move more quickly still."

Noting its pledge on policy advice, she called on the Fund to give countries flexibility, changing the terms of some PRGF arrangements. For example, if a country needed to spend more, there should be more room for manoeuvre within the PRGF. In the past these arrangements targeted single-digit inflation or certain balance of payment deficits.

"Clearly when countries are coming into this sort of crisis they need more space," she added, saying the Fund was fudging its own role in the current situation.

"What about past policies that dismantled lots of mechanisms that would allow countries to deal with the food crisis, things like dismantling buffer stocks, and privatising state marketing boards? There were some kinds of safety nets that were built into the system and the [World] Bank and the Fund have in the past been part of getting rid of those."

But the deputy director of the IMF's African Department, Benedicte Christensen, defended the Fund's role: "We hope also that our support has a catalytic impact in drawing the attention of donors to the needs and providing also a framework for them to contribute as well," she told the Washington forum.

ma/mw

© IRIN. All rights reserved. More humanitarian news and analysis: http://www.IRINnews.org

IRIN news