IMF to subsidize loans for natural disasters

Shareholder governments of the International Monetary Fund on Thursday agreed to a plan that will subsidize assistance for countries hit by natural disasters by providing loans at below-market interest rates.

The decision follows the devastating tsunami that struck countries from Asia to Africa on Dec. 26 and comes in time for countries hit by the disaster to apply for IMF aid.

Sri Lanka is the only country which has indicated it will seek help under the disaster facility, to help its economy deal with costs from the tidal wave.

The global lender estimated it will require about $68 million to $98 million in new aid from shareholders over the next five years to support the move.

Grant contributions would be used to subsidize the rate of charge to 0.5 percent a year, the same interest rate charged on loans for the IMF's poorest borrowers.

Before the change, the global lender provided loans for natural disaster relief at a market-based rate of 3-1/4-5 years from the date of purchase.

In a statement by the IMF board, France immediately pledged to contribute funding, while other countries "stated readiness of their authorities to consider providing subsidy contributions."

"Beneficiaries of this initiative will include members affected by the recent tsunami and those that have previously received emergency assistance for natural disasters but have not yet fully repaid such assistance," the board said.

The new policy would allow "a quick response by the fund to assist low-income members facing natural disaster on terms that are less likely to contribute to a debt burden than at present," the IMF added.

The IMF already provides subsidized lending for countries affected by conflict, which has been backed with money by Canada, Belgium, Netherlands, Norway, Sweden, Switzerland and Britain.

IMF disaster assistance is usually limited to 25 percent of a borrower's IMF quota, with larger amounts available in only exceptional cases.

Requests for such assistance requires a statement of economic policies from a country that will show the IMF it will address balance of payments difficulties triggered by the natural disaster.

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