Poland goes to IMF for 20 billion USD credit
To strengthen the zloty
Poland is to apply for a 20 billion USD credit from the International Monetary Fund to increase reserves at the National Bank of Poland and strengthen the zloty, Polskie Radio reported.
Poland’s government is now emphasizing that the 20 billion USD Flexible Credit Line is not an anti-crisis loan, but a way to increase central bank’s reserves by one third. At present the currency reserve is at 46 billion euros.
Last week a report by Barclays Capital predicted that Poland would be the next country, after Mexico, to take up the new Flexible Credit Line from the IMF, though it did add the proviso that the government may prefer to wait as they pursue entry into the ERM-2 exchange rate mechanism this year.
Other analysts thought that the previous stigma attached to the old IMF loans would deter the government from taking up the offer.
Jacek Rostowski, Ministry of Finance, underlines this is not a rescue credit similar to aid given to Iceland, Hungary or Ukraine where the IMF demands economic reforms and a decreased budget deficit. Poland does not have to meet any conditions.
“It is just a kind of insurance policy,” said Dominique Strauss-Kahn, head of IMF. "Poland’s economic fundamentals and policy framework are strong, and the Polish authorities have demonstrated a commitment to maintaining this solid record,"Mattao Napolitano from the Economist Intelligence Unit in London told thenews.pl that the measure is an attempt to increase market confidence in the Polish economy. “The government wants to shore up reserves. It had predicted carrying over a 155 to 160 billion public debt, but that expectation was based on a GDP growth of 1.7 percent for 2009. Those predictions are now being revised,” he said.
Investors have reacted enthusiastically to the announcement and Poland’s currency has strengthened.
The no strings loan aims to make the Polish economy more immune to the financial crisis and the zloty currency less vulnerable to speculative attacks, which have caused its significant depreciation in the past few months. The Government in Warsaw also thinks that the credit will help Poland join euro zone and ERM-2.
The Flexible Credit Line is a new instrument introduced in March by the IMF for economies with sound public finances. It will be available for one year to be taken up by the Central Bank if it so wishes.
Countries next in line for the loan are thought to be Brazil, the Republic of South Africa and South Korea.