Bursting of the biggest credit bubble in world history is battering emerging-market powerhouses that only months ago were seen as pillars

Bursting of the biggest credit bubble in world history is battering emerging-market powerhouses that only months ago were seen as pillars of global strength, sparking runs on their currencies and dramatic plunges in their sharemarkets. The Brazilian real and Korean won, for instance, have both shed more than 30% against the dollar in the past two months as panicked investors have yanked billions out of the market. Hungary, also among those countries hit hardest, has already struck a deal for a loan with the IMF, and the European Central Bank said on Wednesday it would join in the $US25.1 billion bail-out.Making matters worse, many financial institutions in the developing world are struggling for cash as banks in the developed world, themselves facing a credit crunch, pull in their lines of credit. Governments, companies and even consumers have loans and other bets denominated in US dollars, making those debts suddenly more expensive as their domestic currencies sink against the dollar.By offering emergency loans to the central banks in key emerging markets, the Fed and the IMF are giving institutions more power to jump-start lending in their home countries, many of which have spent billions of their reserves defending their currencies in recent weeks.The Fed made clear that it viewed the risks facing the US economy to be severe. "The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," the Federal Open Market Committee said in an unusually blunt statement. "Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."The rate cut is designed to guard against the risk of a devastating downturn. In normal times, Fed rate cuts make it cheaper for businesses to borrow to expand and for consumers to get car loans, home mortgages and credit card debt. But in the current crisis, with banks reluctant to lend at any price, the rate's impact is uncertain.Nonetheless, many economists think the Fed will cut the rate again at its December 16 meeting, if not before, as the economy worsens.By offering new loans with flexible terms, the IMF is breaking with decades of highly methodical lending that came with tough conditions.Only nations viewed as fundamentally sound and with good relationships with the fund can participate in the program. Countries deemed not to have good track records, such as Argentina, would not be eligible.The short-term loans would have three-month terms, in contrast with the three-to-five-year terms of typical IMF loans.