Emergency Loans IMF Props Up Hungary and Ukraine as Crisis Continues
The International Monetary Fund announced over the weekend that it was providing both Ukraine and Hungary with emergency loans in the face of the ongoing financial crisis. Markets around the world continue to plunge on Monday.
The International Monetary Fund has had a busy weekend. On Friday, the fund reached an initial agreement for an emergency $2.1 billion loan to Iceland. On Sunday, IMF Managing Director Dominique Strauss-Kahn announced that the international lender had reached an agreement with Ukraine on a $16.5 billion loan. And then came a bank statement intimating that the IMF has also agreed to provide Hungary with much-needed assistance.
International Monetary Fund director Dominique Strauss-Kahn has his hands full this month.
According to the IMF bank head, the European Union along with some individual European countries will likewise be part of the assistance package for Hungary. The total amount of the package has not yet been released, but the country has run into problems stemming from the global financial crisis as investors have sold off their Hungarian assets leading to a plunge in the country's currency, the forint.
The problems facing Hungary are not altogether different from those confronting a number of developing economies. With credit markets still frozen up, a number of countries are having trouble gaining access to the funds they need on international money markets. Western banks have been hoarding money instead of lending it out, leading to shaky finances in countries dependent on those loans. A number of currencies in developing economies have seen substantial drops in value in recent weeks.
The IMF loan to Ukraine still must be granted final approval and Kiev must in turn pass a balanced budget and reform its banking sector. The country has been hit hard by a collapse in steel prices and a precipitous fall in the value of its currency, the hryvnia. Political infighting between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko has hindered efforts to come up with a far-reaching strategy to confront the crisis.
"The IMF is moving expeditiously to help Ukraine, and this program is focused on the essential upfront measures needed to maintain confidence and economic and financial stability," Strauss-Kahn said in a statement posted on the IMF Web site.
There may be more IMF bailouts to come. In announcing the loans, the IMF was careful to reveal that it had $200 billion currently available for more such loans and that additional resources could likewise be drawn upon. Two other countries currently being mentioned as candidates for immediate IMF help are Pakistan and Belarus. Despite receiving a hefty loan from the IMF on Friday, Iceland Prime Minister Geir Haarde told a Finnish newspaper on Monday that his country needed a lot more help to stabilize its crumbling economy.
"It's hard to give an exact figure, but the situation would be good if we would get $4 billion more," Haarde told the Finnish daily Helsingin Sanomat.
Despite the IMF announcements and other aggressive moves across the globe this weekend to relieve economic pressure caused by the financial crisis, world markets remained jittery on Monday. Japan's stock market, the Nikkei, dropped 6.4 percent in Monday trading to close at its lowest level since 1982 while the Hong Kong Hang Seng Index saw its largest drop in 17 years, shedding 12.7 percent to 11,015.84 points. Bangkok had to suspend trading after its market, the SET, fell by 10 percent, triggering an automatic break.
Germany's DAX likewise began Monday on a negative note with all major bank stocks rapidly shedding value. The market dropped almost 4 percent in morning trading but has managed to remain above 4,000 points on the strength of VW stock rocketing upward by over 80 percent. The European FTSEurofirst index dropped nearly 5 percent to its lowest level in five and a half years in early trading on Monday.
cgh -- with wire reports