(Adds quotes from conference call and Brazil director)
By Lesley Wroughton
WASHINGTON, Oct 29 (Reuters) - The International Monetary Fund on Wednesday approved a short-term financing facility for emerging market economies that have a good economic track record but are having difficulties accessing credit.
"Exceptional times call for an exceptional response," said IMF Managing Director Dominique Strauss-Kahn. "The IMF will respond to this crisis with all the necessary financing," he said in a statement announcing the action.
The new Short-Term Liquidity Facility will be available to a group of pre-approved countries that have well-run economies, access to capital markets and sustainable debt burdens.
Once selected, countries will be able to tap up to five times their IMF quota in a single disbursement and are allowed three drawings in the course of a year for the next two years.
Each IMF member country is assigned a quota based on its size in the world economy. The quota determines its financial commitment to the IMF, its voting power, and how much it can borrow from the fund. Under normal lending program, countries are allowed to draw up to three times their quota.
"We are prepared to use our own resources and to work with others to generate additional resources to make sure that countries have the money they need to restore confidence and maintain stability," Strauss-Khan said.
"The ongoing turmoil in global capital markets has led to significant liquidity difficulties for some emerging market countries, even those that have maintained sound macroeconomic frameworks," he added.
In a separate action the U.S. Federal Reserve also extended a helping hand to emerging economies establishing currency swap lines with Brazil, Mexico, South Korea and Singapore to provide them with dollar liquidity of up to $30 billion each.
The new IMF facility provides financing to countries that don't need to adopt the standard IMF lending program but are suffering from short-term liquidity pressures through no fault of their own.
"This new facility addresses that gap in the Fund's toolkit of financial support," Strauss-Kahn said.
During a news conference, Strauss-Kahn declined to name any candidates for the new facility and said if a country applied for funding, it would be done confidentially.
Asked whether Argentina would qualify, Strauss-Kahn said the "conditions include having a very strong track record and strong policies in the past" for at least some period of time.
"I'm afraid the country you mentioned ... will not be eligible for the facility," he added.
IMF First Deputy Managing Director John Lipsky said the IMF fully expects countries to make use of the new facility.
"We won't judge it in the short term by its use, but we would expect in the current context it will be used and we will review it over time," he said.
EXCESSIVE CONDITIONS
Emerging economies have long called on the IMF to create a financing instrument they could tap quickly and without the conditions. But the fund has long grappled with the design, especially how it can provide the credit without signaling to markets the country may be in trouble.
Paulo Nogueira Batista, who represents Brazil and eight other Latin American countries on the IMF board, said the facility was a departure from normal fund practices because it didn't contain the excessive conditions of normal programs.
He said Brazil had pushed for the facility not because it needed it, but because it was important for the IMF's membership and the relevance of the institution.
He said the stigma associated with such instruments may not be overcome instantly. "But I think the approval of this facility is a step in that direction," he told Reuters.
Strauss-Kahn said the IMF may need to seek more resources from member countries if it is to be an effective lender.
He said it was important the IMF supports emerging market economies at a time that they are the key sources of global growth.
"We have a need to support growth in the world and to have some budgetary support to countries that have planned a balanced budget, but are unable to go on because of the slowdown in the world economy," he said, "In this case, the resources of the fund may not be enough."
Eswar Prasad, economics professor at Cornell University and a former IMF official, said the facility would make the IMF more useful to emerging market economies. But he worried whether the fund had enough resources.
"It makes countries a little more willing to approach the IMF," Prasad said, "But if countries do start relying on this liquidity facility, the IMF is going to run short of capital very quickly," he added. (Additional reporting by Emily Kaiser; Editing by Jan Paschal and Carol Bishopric)