Poland seeks $20.5 billion credit from IMF

Poland could be the second country after Mexico to benefit from the 'recharged' International Monetary Fund (IMF) by securing a $20.5-billion credit line for the revival of its ailing economy battered by the global meltdown.

Poland's prime minister, Donald Tusk said in Warsaw on Tuesday that his country was interested in the IMF's new flexible credit line (FCL) arrangement for a $20.5 billion credit.

At the recent G-20 summit in London, the world's leading industrialised and emerging market economies agreed to boost the IMF's lending power to $750 billion as a means to aid nations to tide over the worst economic crisis over 60 years. (See: IMF triples firepower as G-20 injects $500 billion)

Welcoming the Polish announcement, the IMF's managing director, Dominique Strauss-Kahn, said, "I am very pleased by this positive response from Poland to the invitation I extended to strongly performing economies to use this new instrument to bolster international confidence."
 
''Poland has a sustained record of sound economic policies,'' he said. ''Its economic fundamentals and policy framework are strong, and the Polish authorities have demonstrated a commitment to maintaining this solid record. I therefore intend to move ahead rapidly in seeking approval by the Fund's executive board of Poland's request for an FCL arrangement.''

Mexico, the second largest economy in Latin America, has already sought a $47-billion assistance from the IMF a fortnight ago which will be considered by the IMF executive board shortly.

IMF has revamped the lending facilities in March and the new FCL is aimed to strengthen its ability to react to the global financial turmoil. The IMF's new FCL is available to strongly performing economies to gain access to Funds with fewer strings attached.

Poland's finance Minster Jacek Rostowski yesterday said that the credit line would boost the reserves of its central bank -Polish National Bank- by about a third and would help make "the Polish economy immune to the virus of the crisis and speculative attacks."                 

Polish economists believe that the credit would create a buffer for the finance ministry and also would increase Poland's credibility as a recipient.

Over the years, Poland has been transformed into a market oriented economy with a GDP of $567 billion (2008 estimated), the highest in the region. The country achieved an average growth of around 5 per cent from 2003 to 2008. Some economists believe that in 2009, Poland could be the only country in Europe which may achieve a positive growth of 0.7 per cent.

In the present crisis, although Poland is more comfortable compared to other countries in the region, it has also suffered from capital erosion due the credit crunch and worries over the region's development and financing.

The unemployment is at 9.3 per cent and inflation at 4.3 per cent, based on 2008 estimates. Rising demands on government spending on social welfare, health, education and infrastructure are the major challenges before the government.

Recently IMF amended the lending rules to ease the lending to its members by removing the stigma of borrowing, easing conditionality, and focusing on objectives rather than actions. (See: IMF eases lending rules, creates new line of credit)

Starting 1 May, structural performance criteria will be discontinued for all IMF loans, except when they are seen as critical to a country's recovery.

In the past decade, many countries paid back their loans to the IMF and kept themselves away from the Fund due to its rigid conditionality.

Critics say that even though IMF proclaims it has changed and the days of harsh conditionality are over, evidence of actual change is hard to find.

Since the financial crisis engulfed the world, the IMF loans required budget cuts, wage freezes and interest rate hikes whereas the actions taken by the developed world to overcome the turmoil are just the opposite like the huge stimulus measures taken by rich countries and reduction in interest rates.

IMF's much publicised FCL is only available to strongly performing economies and therefore, poorer countries are hard to benefit from it, although there may be a modest loosening of Fund conditions for some countries.

Critics believe that the United States, being a major contributor to the Fund by pledging $100 billion, is in a position to attach conditions to the IMF not to impose damaging policies to countries in financial distress, during the recession times.