SINGAPORE, July 11, 2006 (AFP) – The International Monetary Fund (IMF) is proposing an emergency liquidity cushion to help Asian and other emerging economies deal with any financial crises. Takatoshi Kato, the IMF’s deputy managing director, told a seminar in Singapore on Monday that despite the buoyant global economy, precautions must be taken against future instability.
“A key challenge for most emerging market countries these days is to continue to reduce domestic vulnerabilities, so as to make themselves more resilient to large and volatile capital flows and avoid future crises,” Kato told the two-day seminar on “crisis prevention”.
Many emerging markets, especially in Asia, have accumulated large reserves to guard against vulnerabilities but those reserves come at high cost, he said.
The IMF has been examining a lower-cost solution that provides a “high-access” line of credit to emerging market countries with strong macro-economic policies but which remain vulnerable to shocks, Kato said.
“This instrument would provide a liquidity cushion for our members and would be designed to help them avoid crises and respond to them if and when they do occur,” he told policymakers a