An international fund to help poor countries deal with economic shocks such as soaring oil prices will provide lending of $2.8bn and require hundreds of millions of pounds in donations from western countries.
Gordon Brown, Britain’s chancellor of the exchequer, secured the backing of Saudi Arabia for the International Monetary Fund facility during talks in Riyadh at the weekend with the Saudi and French finance ministers.
The UK said it would contribute $85m (€72m, £50m) to “kickstart” the fund, which will need $700m of financing from donor countries over five years. France and Saudi Arabia are expected to announce details of their contributions shortly.
Britain, which is chairing the Group of Eight leading industrialised nations this year, has put poverty reduction at the top of the international agenda. Its contribution can be expected to finance about $340m in loans.
The “shock” fund is intended to help poor countries deal with the effect of high oil prices, sudden changes in the value of their commodity exports, natural disasters and the effect of wars in neighbouring countries.
In a statement after his return to London on Sunday Mr Brown called this year’s doubling in world oil prices “the largest sustained oil price shock since the 1970s”.
The rise posed “a significant risk to global growth and there is a need for concerted global action in response to this global challenge,” he said.
The IMF facility, which effectively subsidises the cost of lending so poor countries can borrow money at very low rates of interest, would “play a vital role supporting poverty reduction...ensuring that development is not undermined by changes in economic conditions,” said Mr Brown.
The chancellor repeated his call for other countries, including oil producers, to make contributions. He believes producing countries have reaped economic benefits worth $800bn over the last two years as a result of the oil price rise.
All countries that are already eligible for concessional finance from the IMF – those with per capita income of $895 or less – will be able to draw on the fund.