Which country will be first to default?

03–31–2009 – MOSCOW. (Oleg Mityayev, RIA Novosti economic commentator) - The global economic downturn has sent tumbling governments of smaller European countries. The first country to see its national currency collapse was Iceland in January; in February, Latvian prime minister filed resignation. The Czech government is resigning now as well, and the Hungarian and Bulgarian governments are likely to follow suit. Ukraine's largest and most influential opposition party, the Party of Regions, has demanded a resignation of the government. So why are European governments collapsing like houses of cards? The key reason is looming default that some of them may announce soon. Some countries could default because of the harsh terms on which they received financial aid from the International Monetary Fund. The money they receive must only be spent to support the national currency, which is usually directly linked to either the dollar or the euro, or to cover the budget deficit. However, national banks of the aid recipients are forbidden to print more cash to support internal demand, because, according to the IMF, such actions fuel inflation and undermine a country's financial stability. That a flagrant example of double standards. U.S. President Barack Obama and Federal Reserve head Ben Bernanke do not have to ask anyone's permission to print another $800 billion to stimulate American producers. Even though these steps increase inflation in the United States, and, what is more, they devalue other countries' assets denominated in U.S. dollars, such as their central banks' reserves. The need to reform the IMF has been widely discussed lately. In fact, the IMF itself revised its credit terms as recently as last week. The main innovation is a new lending instrument, dubbed the Flexible Credit Line. The FCL, without any conditions or a limit on the amount of money that can be borrowed, will allow countries to use the credit line as a "precautionary instrument" and can be drawn on at any time, the IMF said, amending, however, that the FCL was designed for member countries the IMF views as having well-managed economies, "with very strong fundamentals, policies, and track records of policy implementation." In other words, it is unlikely to be available to countries on the verge of default. The most powerful emerging economies, the BRIC nations, currently support a radical reform of the IMF. These countries - Brazil, Russia, India and China - suggest revising the international group's role and harmonizing it with the current global financial architecture. The BRIC counties insist on changing the system of distribution of votes in the IMF in favor of the most rapidly developing countries, which play a substantial role in the global economy. This would help augment the IMF's funds and make its loans more easily available to countries that need them. Along with the BRIC countries, the IMF reform plans are supported by the United Kingdom, Germany, Indonesia, Saudi Arabia, Canada and Mexico. The idea to replace the dollar as the international reserve currency by another supra-national currency that would be controlled by a reformed IMF is also gaining supporters. The proposal was made by Russia, China and Kazakhstan. However, while the world's leading economies are busy discussing reform plans for the global financial system, smaller nations may decide that announcing default is the shortest way out of their blind alley.