InvestIdeas

Recovery has started: IMF

WASHINGTON - THE global recovery from recession has begun but a delicate rebalancing of economies is needed to ensure its sustainability, the International Monetary Fund's chief economist said Tuesday.

'The recovery has started. Sustaining it will require delicate rebalancing acts, both within and across countries,' Olivier Blanchard said in an IMF article, released in advance of publication on Wednesday.

Mr Blanchard cautioned that predictable models based on past recoveries from recessions would not apply to the worst global slump in seven decades. 'The world is not in a run-of-the mill recession. The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come,' he said.

The top economist at the 186-nation institution noted that in a typical battle against recession, the central bank lowers interest rates, which results in increased demand and output, and often a decline in the value of the currency boosts exports by making them cheaper. 'The lower-than-normal growth during the recession gives way to higher-than-normal growth for some time, until the economy has returned to its normal growth path,' Mr Blanchard said.

'The current global recession is far from normal,' he said, citing the breakdown in parts of the economic system. 'In advanced countries, the financial systems are partly dysfunctional, and will take a long time to find their new shape,' he wrote in the article, titled 'Sustaining a Global Recovery.' Emerging market countries may not see dwindled capital inflows return to pre-crisis levels for a few years.

The United States, the epicentre of the crisis, 'is central to any world recovery,' he said. Mr Blanchard said two rebalancing acts will have to come into play to sustain the global recovery: a switch from public to private spending and the rebalancing of international trade flows. The latter would require 'a shift from domestic to foreign demand in the United States and a reverse shift from foreign to domestic demand in the rest of the world, particularly in Asia,' he said.

Pointing to a decline in American household consumption - which 'represents 70 per cent of total US demand' - and a rise in the personal saving rate that is expected to persist for some time, Blanchard estimated a 3.0 percentage point drop in the ratio of consumption to US gross domestic product, a broad measure of economic output.

With the 3.0 per cent drop unlikely to be made up by increased investment and the eventual phase-out of the massive fiscal stimulus, 'US net exports must increase' for the US recovery to occur, he said. The key to the rebalancing act will be in increased foreign demand for US goods, particularly in countries with large current account surpluses, notably in China and other Asian countries.

'From the point of view of the United States, a decrease in China's current account surplus would help increase demand, and sustain the US recovery. That would result in more US imports, which would help sustain world recovery,' he said.

China may be willing to pursue that 'because it may well be in its own interest,' said the economist, but other emerging market Asian countries that run large current account surpluses have weaker incentives than China to boost internal demand. The end result of the global crisis: possibly a permanently lower potential output, he said.

Mr Blanchard said the IMF's upcoming latest edition World Economic Outlook will cover 88 banking crises over the past four decades in a wide range of countries. 'While there is large variation across countries, the conclusion is that, on average, output does not go back to its old trend path, but remains permanently below it,' he said.

Source: AFP

China Begins Its Move Away from U.S. Dollar Reserves

WASHINGTON China has agreed to buy the first International Monetary Fund bonds for about 50 billion dollars, the IMF said Wednesday.

IMF managing director Dominique Strauss-Kahn and the deputy governor of the People's Bank of China, Yi Gang, signed the agreement Wednesday at IMF headquarters in Washington, the multilateral institution said.

Under the agreement, the Chinese central bank "would purchase up to SDR 32 billion (around 50 billion dollars) in IMF notes," it said.

An SDR is an interest-bearing IMF asset based on a basket of international currencies -- the dollar, yen, euro and pound -- that is calculated daily and which members can convert into other currencies.

"The note purchase agreement is the first in the history of the fund," the 186-nation institution said.

The IMF executive board approved the plan to issue notes to governments on July 1.

The issuance of bonds is an unprecedented step to boost IMF resources as the institution struggles to provide financing to help member nations cope with the global financial and economic crises.

"The agreement offers China a safe investment instrument. It will also boost the fund's capacity to help its membership -- particularly the developing and emerging market countries -- weather the global financial crisis, and facilitate an early recovery of the global economy," the IMF said.

The global economy is beginning to pull out of the worst recession since World War II, according to the institution, but recovery is expected to be sluggish and financial systems remain fragile.

China, whose dynamic economy is expected to lead the global economy out of recession, has been seeking greater representation at the IMF to reflect its rising economic might.

In early June Chinese officials said the government could invest up to 50 billion dollars in IMF bonds.

Brazil, Russia and India -- the other three countries that make up what is known collectively as the BRIC countries -- are seen as potential buyers of IMF bonds and are also in the vanguard of developing countries' drive for greater representation in international bodies.

A deal for Russia to buy up to 10 billion dollars of IMF should be concluded by September, a senior Russian government official said in early July.

Brazil is also in the market for 10 billion dollars' worth of new IMF bonds.

Any bid by China to expand its formal influence at the IMF is likely to encounter resistance, especially from Europe, which has traditionally provided the fund's managing director.

The announcement of the Chinese IMF bond deal came hours after European Union finance ministers agreed to raise the 27-nation bloc's contribution to the IMF to 125 billion euros (178 billion dollars), from 75 billion euros.

Source: AFP

http://moneynews.newsmax.com/financenew ... 55910.html

IMF warns on rising bank losses By Lesley Wroughton

ISTANBUL (Reuters) - The International Monetary Fund on Wednesday lowered its estimate for global write-downs for banks and other financial institutions to roughly $3.4 trillion but warned that loan losses could rise in the face of stubbornly high unemployment and associated delinquencies.

http://www.reuters.com/article/business ... orethebell

IMF: Bank problems aren't even halfway over
From The Pragmatic Capitalist:

According to the IMF the problems in the banking sector are far from over. In their latest Global Financial Stability Report they find that the economy is improving, however, the risks to the banking sector remain. They also conclude that any hiccup in the real economy would reverberate thru the banking sector and further intensify the weakness in the broader economy:

The immediate outlook for the financial system has improved markedly since the April 2009 Global Financial Stability Report (GFSR) and extreme tail risks have abated. Financial markets have rebounded, emerging market risks have eased, banks have raised capital, and wholesale funding markets have reopened. Even so, credit channels are still impaired and the economic recovery is likely to be slow.

http://pragcap.com/the-problems-in-the- ... f-way-over

The IMF and the euro-zone rescue
High stakes
What has the fund got itself into by participating in Europe’s bail-out?

May 13th 2010 | From The Economist print edition

THE IMF’s star has risen steadily through the global economic crisis. Contributions from its members have tripled its firepower. It has rescued economies from Hungary to Pakistan. Yet despite these achievements, its activities did not extend into the heart of the rich world.

That is now changing. Although initially sidelined by the European Union (EU), the IMF eventually cofunded and devised the terms of Greece’s massive bail-out. And on May 10th the EU announced that the IMF is to provide up to €250 billion ($317 billion) to supplement its own €500 billion stabilisation fund to prop up the euro area’s weaker members.

But the details of the IMF’s promised contribution are far from clear. The fund is keen to emphasise that no money has actually been set aside for the rescue. Its deputy chief, John Lipsky, stresses that the €250 billion figure is “a hypothetical or theoretical number” based on the fund’s role in recent joint EU-IMF rescues, where the IMF has provided about a third of the cash on offer.

The amount is hypothetical for a very good reason. Having to set that amount aside immediately would leave the IMF unable to lend to any other country that got into trouble. As of May 6th, its total remaining lending capacity for the year ahead was $272 billion, or €215 billion. It has never lent as much in one go as it would if the euro-area package were to be activated in its entirety (see chart).

The fund could, of course, find more money. Its board recently approved an extension of its standing arrangements to borrow from governments and central banks by more than $500 billion. But about half that amount is already included in its current lending capacity. Activating the rest would require many governments to seek legislative approval.

There are other options. The IMF will get some extra cash at the end of the year from a general increase in quotas, the maximum amounts countries are obliged to supply to the fund. Last year it also issued $250 billion of Special Drawing Rights (SDRs), its own quasi-currency. These sit in countries’ reserves in proportion to their quotas. Dominique Strauss-Kahn, the fund’s chief, thinks countries could lend some of this money to others. But there is no precedent for SDRs being transferred on such a massive scale.

The fund could also approach some reserve-rich emerging countries to top up its kitty. Some have already lent to the fund. China bought $50 billion of notes the fund issued last year; Brazil, Russia and India each bought $10 billion. But some of these countries are miffed that the fund did not consult them before rushing to the rescue of the euro area. Emerging Asian economies have bitter memories of the harsh conditions the IMF imposed on them during the Asian crisis; they are concerned about the fund making a huge commitment of resources without clearly setting out what potential borrowers would have to do to get the money.

Eswar Prasad, a former chief of the fund’s China desk, says that all this is once again leading to questions about “whether the IMF’s ultimate fealty is to its main shareholders, the US and the EU”. Such concerns repeatedly arise because European countries as a group have the biggest chunk of votes in the IMF, and are over-represented relative to their economic heft.

Some also wonder whether the political ambitions of Mr Strauss-Kahn, who is widely rumoured to be considering a run for the French presidency, were behind the IMF’s eagerness to step in. Simon Johnson, once the fund’s chief economist, says that “a former French finance minister is the worst possible person to be leading the IMF into negotiations designed to save the euro. The conflicts of interest are overwhelming.” The fund’s European adventures may help Mr Strauss-Kahn. Their consequences for the institution he heads are less clear.

I heard that IMF stands for 'International Maid F*****'

hahaha....this fellow Strauss-Kahn has been formally charged by the police

Hmmm.... Maybe I should move this topic from the Americas & European section.

The Chinese are now testing the water on whether they can assume the leadership of the IMF

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Reuters Insider - Beijing May Push for IMF Leadership, Says China Expert

DateLine: NEW YORK, May 17 (Reuters) - Yukon Huang, senior associate in the Carnegie Endowment's Asia Program, says China will push for either a Chinese, or at least an Asian, candidate for the top IMF job.

Source: Reuters

some european quarters have openly stated that this IMF chief position should be occupied by a european... disgusting discrimination and racist view, imo...

kennynah wrote:some european quarters have openly stated that this IMF chief position should be occupied by a european... disgusting discrimination and racist view, imo...

Its not just discrimination...

One must consider that the IMF is not a purely bipartisan organization...

They exists to bail out rich world's banks with money when their bets in emerging markets go sour, all the while crippling the country that they are supposed to help... just look at Indonesia back in 97/98