Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Thursday, April 19, 2012
The Slog commentary on the IMF becoming irrelevant as power heads to the East - and note Egan - Jones ( of all of the raters ) about to get a hip check from the SEC - possible suspension for two years from rating asset backed securities and SOVEREIGN debt ! Guess that recent downgrade of the US wasn't really appreciated in DC.....
EUROBLOWN EXCLUSIVE: Power draining away from the IMF
The economic world’s shift in balance towards the East and South is making the IMF increasingly irrelevant to economic and fiscal thinkers, a qualitative study conducted by The Slog suggests.
Last weekend and during the early part of this week, I devoted some time to taking the temperature of the IMF among economists, traders, senior executives in commerce and the odd politician here and there. The territories covered were the UK, France, Germany, Greece, Singapore, Spain, the US and Mexico. We’re talking small-scale research here, so the findings come with a big health-warning; also some key States like Brazil, Argentina and Italy weren’t included. But the consistency of findings will come as a shock to some, I think.
The attitudes ranged from visceral dislike in southern Europe to a general feeling of anti-BRIC bias in developing areas – and perhaps very significant, a sense that the IMF is underfunded and ‘lightweight’ from opinion leaders in the larger territories.
As it happens, some of this is already being reflected out there in the real world. Canada bluntly told the IMF’s CEO Christine Lagarde yesterday that not a single cent more would be contributed from that direction until Europe was off the salavation agenda. Jim Flaherty, Canada’s Finance Minister, said yesterday it was time the eurozone put its hands in its pockets. I think Mr Flaherty hasn’t been doing his sums on the contents of those pockets, but neverthless his view reflects that of many others.
The Slog study might also explain why much of what Lagarde had to say yesterday about Europe’s central importance to the global economy fell on deaf ears. The other reason is that, about fifteen months behind the music, she accepted for the first time that a eurozone breakup might be on the cards…and most of the MSM focused on that.
“The IMF is increasingly seen as a bit of a joke in my constituency,” said one UK credit bigwig, “and its economic ideas are, frankly, idiotic in the face of what’s happening.”
“I find the arrogance [of the IMF] both irritating and amusing at the same time,” said a Madrid contact, “the eurozone problem is far bigger than them, and the Brics will probably insist on more power there before too long – or start up their own operations”. Ironically, the EU itself has talked of doing the same thing. Predictably, Brussels has abandoned the idea….due to lack of interested investors.
“Out here, the feeling is that the IMF is fixated on Europe,” said an Asian respondent, “But the reality is that China has problems, and Brazil is showing early signs of a slow-down. The US starved the IMF for years, and now that’s coming home to roost. There’s no way they have the money or ideas to look at these big new strains in the global economy.”
There is a sense in Washington too that the Obama White House thinks the invention of the Universal Giant Bazooka by Tim Geithner has rendered the IMF pointless: that once the trillions thing became commonplace, the IMF was simply no longer a player. The President has flatly refused any more money for the eurozone via the IMF (he tends to deal it off the bottom straight to Mario Draghi at the ECB) and although Japan made a smallish eurozone commitment last month, it’s trade balance bombed last month, creating an 83bn Yen deficit.
When most Sovereigns in the world felt wealthy after 2001, the IMF should’ve gone round with the begging bowl then. In the event, it has turned into just another charity which, in a world being pauperised by debt monetisation, spends too much time protesting too much.
“Look,” said a Greek respondent summing the situation up very well, I thought, “the IMF likes lecturing people, but it doesn’t have any clout. The events [in the Greek crisis] this year have shown what Big League finance is about today. It’s about clinging on, and desperation, and the illegal punishment of government and citizens who had little or nothing to do with the big disasters. Lagarde is a hate figure in Greece today, but nothing like on the same scale as Merkel, Schauble and Draghi. In many ways, that’s a reflection of her irrelevance”.
Ms Lagarde, the IMF managing director, has set a target of at least doubling the fund's resources to $800bn (£498bn) to help stabilise the global recovery.
Speaking at the start of the IMF spring meeting in Washington, she said: "I hope that the entire membership will seize the moment." On the UK, she added that it was "in their interest" to commit more funds.
Chancellor George Osborne is expected to agree on Friday to provide at least another £10bn of taxpayer money to the global economic watchdog, but has yet to make a final decision. Britain has already pledged £30bn to the IMF.
Ms Lagarde said: "The UK is a founding father of the IMF. And the UK is there for international grave situations. It's always been a very loyal partner when it's tough.
"But it's in their interest. Because if the key partners of a country like the UK are in very bad shape, they are bad clients. It's not in the interest of the UK to have a weak euro."
Speaking earlier about the US, she said: "The leading economic power in the world has to have a leadership role."
Britain and the US are under pressure following decisions by Switzerland to pledge $26bn and by Poland to commit $8bn.
The IMF has secured $320bn since it first unveiled plans to raise as much as $600bn in new resources last October. The eurozone committed $200bn in December, and earlier this week Japan pledged $60bn, Sweden $10bn, Norway $9bn and Denmark $7bn.
Ms Lagarde said there were "others in the pipeline" that have yet to reveal their plans, which would move the IMF closer to its new, reduced target of raising $400bn. However, the big players besides Japan have so far remained silent.
Washington sources said the US was not expected to make any contribution due to the awkward politics of being "in an election year".
The UK also has reservations but is believed to be ready to strike a deal as long as all the other major non-eurozone members outside the US – China, Canada, Australia, Brazil and India – sign up.
However, Canada has signalled it is likely to follow the US's lead, which may prove an insurmountable obstacle.
Ms Lagarde remained confident, though. "It has to be increased and it has to be enough," she said. "The IMF needs to contribute by building additional firepower to contribute to a global firewall."
Global leaders are persuaded that increasing the IMF's funds to at least $800bn will help "restore confidence" and underpin the recovery.
Although the international community is in agreement, leaders were refusing to support the call for more resources until the eurozone had reinforced its own bail-out funds.
Ms Lagarde on Thursday said the recent €500bn (£409bn) increase in the eurozone firewall to €800bn alongside the €1 trillion of emergency funding from the European Central Bank "is a comprehensive package", turning the focus back on the international community.
Washington sources added that the US has dropped its principled opposition to any increase in IMF funds since the eurozone agreed the enhanced package, despite refusing to contribute itself, making it easier to secure other bilateral deals.
George Osborne, who is close to Ms Lagarde, will have to decide in the next couple of days whether the UK should join in. He can commit as much as £10bn without a parliamentary vote. Anything higher, though, will need to be approved by MPs.
Ms Lagarde's call to arms came as Robert Zoelllick, the outgoing World Bank president, warned that "further actions" will be needed to stabilise the eurozone. He also urged stronger European Union members to take more co-ordinated efforts to support economic growth in Italy and Spain.
He said the Spanish and Italian governments were "taking strong actions" but that they were finding it difficult politically to push through reforms due to flagging growth.
"It would certainly help if they got some support to help with growth and political reform," he said. "You need not just to focus on austerity and macroeconomic stability but to do this in a context of growth."
Mr Zoellick has called for infrastructure investment in Italy and Spain through the European Investment Bank and greater movement of labour across the European single market.
He added that the ECB's €1 trillion of emergency funding had bought time but that now "they are at the end of that point, so I think further actions are going to be called [for]".
and check the part where Lagarde wants the money to go directly to financial institutions and to pass by the sovereigns ......
IMF chief Christine Lagarde in last-ditch struggle to raise funds
Fresh fears emerge that eruption of financial crisis will leave International Monetary Fund short of emergency cash
IMF managing director Christine Lagarde holds a briefing in Washington on Thursday. Photograph: Alex Wong/Getty Images
Christine Lagarde is involved in a struggle to raise funds for the International Monetary Fund amid fears that a fresh eruption of the globalfinancial crisis will leave the organisation short of emergency cash.
The fund's managing director was lobbying hard for Britain and other developed nations that have yet to pledge money to build a bigger firewall to provide more than $400bn (£250bn) in fresh resources.
George Osborne, who arrived in Washington on Thursday night for the spring meetings of the IMF and the World Bank, has yet to say whether the UK will participate in the fundraising exercise, insisting that the eurozone must show a willingness to sort out its own problems first.
With the US refusing to participate in the fundraising exercise, the IMF has already scaled down its target from the $600bn it was looking for when the eurozone crisis was at its height in late 2011.
But the upward pressure on Italian and Spanish borrowing costs has raised the prospect that the eurozone's third and fourth-biggest economies might need financial support, providing extra ammunition for Lagarde as she asks for loans both from developed nations and the leading emerging economies.
IMF sources said that they did not expect the US to respond to the call in an election year, since any loan made would have to be passed by both houses of Congress. Lagarde said she wanted the US to play its part in the international effort to combat future crises. "The leading economic power in the world clearly has to have a leadership role," she said.
Lagarde added that Europe needed to keep up the pace of reform and should aim for a "deepening integration of the eurozone".
She expressed concern about five "dark clouds" – high unemployment, slow growth, over-rapid deleveraging by banks, strains in the eurozone and higher oil prices – gathering over the global economy. She said she was looking for further support from "our broader membership" to ensure that it could tackle crises and ensure global financial stability.
"The fund needs to participate in building additional firepower to the global firewall we have been advocating. I expect our own firepower to be significantly increased."
So far, the eurozone has pledged $200bn to the IMF, Japan $60bn and Switzerland $26bn. Four other European countries – Norway, Sweden, Denmark and Poland – have between them agreed to contribute $35bn.
With concern growing about the health of Spain's banks, Lagarde said she wanted the European authorities to be able to invest directly in financial institutions rather than through governments.
Robert Zoellick, the president of the World Bank, said the impact of the European debt crisis was rippling out to poorer countries in the Balkans, south-east Europe and north Africa. "The eurozone is going to be walking a very fine line," he said, adding that the European Central Bank (ECB) had only bought time by providing cheap three-year money to eurozone banks. "That time has to be used. There needs to be a focus, not just on austerity and macro-economic stability, but on growth."
Zoellick said the phase in which banks were able to use the low-cost funds from the ECB to purchase government bonds was coming to an end. "Italy and Spain are vital," he added. "We are not out of this mess yet. It is still a fragile economy."
The World Bank president said that the outcome for the eurozone would depend on actions taken in individual countries and the structural reforms they implemented. "It is very difficult to take these steps in a no-growth environment."
Zoellick, who will be leaving the World Bank in the summer at the end of his five-year term, expressed concern that the new rules for banking regulation drawn up under the Basel III agreement were too tough and would choke off lending. "Basel III is too strict in my view," he said.
20.35 More problems in the credit ratings industry. Egan-Jones, the minnow of the industry when compared to the likes of Standard & Poor's and Moody's, has come up against the Securities and Exchange Commission, the US market watchdog.
SEC regulators are planning to vote today on whether or not to file civil charges against Egan-Jones, Reuters reported, citing documents and people familiar with the matter.
The possible charges are related to alleged misstatements the firm made in its 2008 regulatory application to rate two classes of securities - asset-backed securities and sovereign debt
One person familiar with the matter told Reuters the SEC may be considering suspending Egan-Jones from rating sovereign and asset-backed securities for two years.