The Czech Republic will provide a EUR 1.03 billion (CZK 27 billion) loan to the International Monetary Fund as possible aid to countries hit by the financial crisis. The sum is the Czech contribution to the USD 1 trillion package that the G20 countries agreed on at the London summit a week ago.
According to the Finance Ministry’s proposal, the money should come from the Czech National Bank’s foreign exchange reserves. Finance Minister Miroslav Kalousek confirmed the information to the daily E15. “This solution would not burden the debt service and would not increase the government debt,” Kalousek said.
The Czech National Bank governing board discussed Kalousek’s proposal on Thursday. “I can confirm that we did not reject this option. EU rules allow us to use reserves for this purpose. However, there is still a number of details that we have to address, such as the economic aspect of the transaction from our point of view,” Czech National Bank vice-governor Miroslav Singer told E15. According to the daily’s information, the IMF pays less for loans than what is the common practice. The Finance Ministry should therefore top up the difference to the central bank.
Kalousek said that the final amount of money available to the IMF could be EUR 200 million lower in the end. The reason is that the Czech Republic has already approved a separate loan to the extent of some CZK 5.5 billion for Latvia, and the Finance Ministry will try to achieve that the IMF take it into account. “We will try to negotiate this,” Kalousek said. Since it is a permanent commitment, there will be no maturity set for the loan. The IMF can ask the Czech National Bank for the money at any time.
The Czech Republic has been a creditor within the IMF for many years and does not draw any loans. “Hungary, Latvia and Romania would be the first members of the European Community in more than 30 years to use these tools,” said Miroslav Zámečník, member of the Czech government’s economic council.
Hungary was the first to receive aid from international institutions after it ran into huge difficulties in October last year. The country was given a EUR 25 billion loan. Then came Latvia that received a EUR 7.5 billion loan, in particular from the International Monetary Fund. The package included money from the EU, the Nordic countries, the Czech Republic, Poland, Estonia, and the World Bank.
Most recently, Romania has negotiated aid to the extent of EUR 20 billion, of which nearly EUR 13 billion should come from the IMF. The London summit of G20 countries approved a capital increase for the IMF to USD 750 billion for the Fund to have a reserve if any crisis-hit country needed finance urgently. A further USD 250 billion will be spent to boost free trade and to help the poorest countries.