The IMF's expanded loan eligibility

The current Great Recession is a global one, with even the most buoyant economies struggling. Reports today suggest that Japan may follow Georgia, Ireland, Switzerland, and Spain in suffering from deflation. Economic woes  caused the collapse of the government of the Czech Republic. And dozens of other countries face similar specters. 

All of which means the IMF, the international lender of last resort, has become very, very, very important. In the past, the IMF provided loans to countries out of ways to solve their own economic problems. In return for the loan, the IMF imposed strict conditionalities, requiring governments to clean up their act, sell assets, change tax policies, etc.

But the realities of the global recession mean that even countries with responsible policies may need IMF loans -- and may not want to accept them, for fear of the conditionalities and the optics. (See: Brown, Gordon.)

And the IMF, with its new $1 trillion budget, figured that out quickly. So, they changed the rules:

The IMF’s intention is to do away with procedures that have hampered dialogue with some countries, and prevented other countries from seeking financial assistance because of the perceived stigma in some regions of the world of being involved with the Fund. 

To this end, the IMF announced the creation of a "flexible credit line" policy. 

[It is an] insurance policy for strong performers, mainly emerging market countries. Access to the FCL is restricted to countries that meet strict qualification criteria. But once a credit line has been approved, a country can draw on it without having to meet specified policy goals, as is normally the case for IMF loans. 

Mexico has already applied for the FCL loan, a $47 billion "precautionary credit line," last month. Question is, with new scary data emerging, which countries will be next to approach the IMF?


China's problem we wish we had: too much credit

Last month China recorded its largest-ever surge in bank loans, the government reported over the weekend. 

While the rest of the world begs for lines of credit and U.S. policymakers struggle to unclog the financial system, Beijing has announced that it will need to "strictly control lending," especially to certain areas of the economy such as "high-polluting, high-energy consuming industries and...those with overcapacity." 

Part of the Chinese government's concern is that money from their stimulus package, announced last November, is getting stuffed into various industries that may eventually produce a spate of overly risky loans. They also worry about the onset of inflation in 2010, if too much money gets dumped into the economy now. Remember the good old days (as far back as summer 2008) when Beijing's biggest economic worries were high inflation and over-heating? Well, even if we don't, the Chinese certainly do. And they plan to avoid revisiting them.

In a related announcement on Saturday, Chinese Prime Minister Wen Jiabao explained that the Chinese economy was performing better than expected, building on recent positive projections from a variety of analysts, including some at the World Bank. A day earlier, U.S. President Barack Obama gave a press conference at which he expressed "glimmers of hope" for the American economy, but comparatively, the evidence for his prognosis seemed much more meager.

And it's safe to say that the Chinese noticed that fact as well. In fact, while reading this China Daily (one of China's state-run newspapers) report, it's hard not to detect a sense of schadenfreude coming out of Beijing when it compares Chinese prospects:

'Despite the year-on-year slowdown, the Chinese economy has posted a strong recovery on a quarterly basis, making us more upbeat about the country's economic prospects,' said Frank Gong, senior economist, JP Morgan, who predicted China's quarter-on-quarter GDP growth has rebounded to about 5 percent in the first quarter from only 1.5 percent three months earlier."

to American prospects:

US President Barack Obama said last Friday that the US economy was beginning to show 'glimmers of hope,' as mortgage interest rates declined to historic lows, while refinancing has shown significant pick-up. But some analysts said the largest economy in the world and also China's major trade partner is far from bottoming out, given the severe stress of financial malaise and job losses."

One hopes that China will use this growth potential not just to expand its regional influence and national interests, but also to continue to take positive steps in global cooperation. After all, they certainly still have great interest in the health of the American economy.             

Photo: Frederic J. Brown/Getty Images