The United States Federal Reserve agreed to provide US$ 30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time.
The Fed set up "liquidity swap facilities with the central banks of these four large systemically important economies" effective until April 30, the central bank said in a statement. The arrangements aim "to mitigate the spread of difficulties in obtaining US dollar funding."
The Fed announcement coincided with a decision by the International Monetary Fund to almost double borrowing limits for emerging market countries while waiving demands for economic austerity measures.
The Fed and IMF actions "show international resolve to support strong performing emerging-market economies adversely impacted by the current financial market turbulence," U.S. Treasury Secretary Henry Paulson said in a statement.
"The Fed is there to support large emerging markets that have done their homework over the past several years like South Korea, Brazil, Singapore and Mexico," said Alonso Cervera, a Latin America economist with Credit Suisse Group in New York. "These are large, relevant emerging countries that have followed responsible fiscal and monetary policies for the past several years and now are going through tough times."
The Fed also created this week a 15 billion US dollars swap line with its New Zealand counterpart and removed limits this month on four existing swap lines, including one with the European Central Bank. The Fed set up a 10 billion arrangement with Australia's central bank last month and then tripled it to $30 billion.
The official Fed release said that "the Federal Reserve, the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore are announcing the establishment of temporary reciprocal currency arrangements (swap lines). These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well managed economies."
"In response to the heightened stress associated with the global financial turmoil, which has broadened to emerging market economies, the Federal Reserve has authorized the establishment of temporary liquidity swap facilities with the central banks of these four large and systemically important economies. These new facilities will support the provision of U.S. dollar liquidity in amounts of up to $30 billion each by the Banco Central do Brasil, the Banco de Mexico, the Bank of Korea, and the Monetary Authority of Singapore. These reciprocal currency arrangements have been authorized through April 30, 2009."
The FOMC previously authorized temporary reciprocal currency arrangements with ten other central banks: the Reserve Bank of Australia, the Bank of Canada, Denmark's Nationalbank, the Bank of England, the European Central Bank, the Bank of Japan, the Reserve Bank of New Zealand, the Norges Bank, the Sveriges Riksbank, and the Swiss National Bank.
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