Category: IMF & WB

Lagarde woos Saudis, says debt top IMF target for her | Reuters

French Finance Minister and IMF candidate Christine Lagarde said on Saturday tackling sovereign debt troubles would be a priority of the International Monetary Fund if she led the Washington-based rescue lender.  Lagarde, competing with Mexican central bank chief Agustin Carstens, was in Saudi Arabia as part of a world tour where she needs to drum up support among emerging market economies for her IMF candidacy.

South Africa’s Trevor Manuel ruled himself out of the race for the IMF’s top job on Friday, making Lagarde an even firmer favourite, although she remains under threat of a judicial inquiry in her home country. Lagarde is backed by the European Union and a handful of smaller countries from Georgia to Mauritius. Paris is hopeful that Washington and Beijing will also stand behind her.

Brazil, Latin America’s biggest economy is leaning towards supporting Lagarde but has not yet made up its mind, officials said on Friday. Lagarde said that the IMF should also support countries affected by the pro-democracy protest movement sweeping North Africa and the Middle East.

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IMF chief’s warning of currency war ‘real threat’

BBC News | 7 October 2010 | 23:33 GMT

Global currency wars pose "a real threat" to economic recovery, the head of the International Monetary Fund, Dominique Strauss-Kahn, has warned. In an interview with the BBC, he said currency disputes showed that countries were not co-operating as well as they had during the financial crisis. In recent weeks both the US and Europe have led criticism of China over its undervalued yuan.

Dominique-Strauss-KahnMeanwhile, Japan has been forced to intervene to curb rises in the yen. Separately, Indian Finance Minister Pranab Mukherjee on Thursday warned that imbalances in the global economy have become "not sustainable". But he urged major economies to shun confrontation to avoid a feared currency war.

Mr Strauss-Kahn told the BBC that there were signs that countries were trying to use their currencies "as a weapon". "The willingness of the countries to work together, which was very strong at the climax of the [financial] crisis is not as strong today," he said. "’Currency war’ might be too strong, but the fact the countries want to find domestic solutions to a global problem is really a threat to the recovery."

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GDP growth in 2011 to be slower than thought, says IMF

BBC News | 6 October 2010 | 15:16 GMT

The global economy will grow slightly more slowly than previously expected next year, the International Monetary Fund (IMF) has said. It predicted GDP would increase by 4.2% in 2011, down from an earlier forecast of 4.3%. And while economic recovery was likely to continue, it warned that risks were high. There are worries, as governments try to reduce their debt burdens and cut spending, growth may suffer.

Income gaps On Tuesday, the IMF said that the global financial system remained the weak link in the economic recovery. It predicted a gradual improvement in the financial system, but added that there was a substantial risk of further problems.

‘Vulnerable’

The latest report, the IMF’s World Economic Outlook, highlighted the difference in growth expected in the advanced and emerging economies. In advanced economies – including the US, the UK, Japan and key EU nations – it said that the financial sector was "still vulnerable to shocks,” adding that "growth appears to be slowing" as government stimulus efforts began to be withdrawn.

This would lead to growth of 2.8% in 2010 and 2.2% next year – from an earlier prediction of 2.4%. However, economic growth in what it classes as emerging and developing economies – which include Brazil, Russia, India and China – will be 6.4% next year, it said, unchanged from earlier predictions. This year it is expecting growth of 7.1%, slightly better than previously stated.

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IMF worries over global financial system

BBC News | 5 October 2010 | 13:00 GMT

The International Monetary Fund says the global financial system remains the weak link in the economic recovery. In a new report, the IMF predicts a gradual improvement in the financial system, but adds that there is a substantial risk of further problems. The IMF says that in the last six months there has been a setback to financial stability, which may affect the recovery from global recession.

Global financial system That has been highlighted by the recent turmoil in European financial markets. In these markets, government debt has combined with weak banks to undermine stability. The financial system remains fragile, the report says. There is also a warning that some developing countries could be destabilised by large financial inflows, as investors seek higher returns in fast-growing economies. That is particularly a concern in Asia and Latin America.

Foundations

There are some positive elements in this report, however. The IMF report describes the response of Europe to recent developments as forceful. And it says the banks have made some further progress in strengthening their financial foundations. One important theme underlying this report is the continued divergence between the unconvincing economic recovery in rich countries and the more robust performance of many developing nations. The concerns about financial flows to emerging markets reflect that difference.

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Sluggish recovery to linger into 2011 – IMF’s Lipsky

Reuters | Sep 28, 2010 | 7:11pm IST

John Lipsky, IMF 1st Dep Director The slowdown in the global economic recovery is likely to persist into early 2011 and growth is set to fall short of IMF forecasts for the second half of this year, a senior IMF official said in a speech published on Tuesday.

"The global expansion likely will fall somewhat short of the 3.7 percent annual rate that we had anticipated previously for the second half of this year," IMF First Deputy Managing Director John Lipsky told the Depository Trust and Clearance Corporation Executive Forum on Monday.

Global growth reached an annual rate of 4.7 percent in the first half of the year, he said.

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The Fall and Rise of Major Economies’ Interest Rates

Article first published as The Fall and Rise of Major Economies’ Interest Rates on Blogcritics.

macro-economics The world financial crisis, the worst since the great depression of 1930s, forced major economies of the world reduce their central banks’ interest rates to their least level possible. This was done to overcome “the credit crunch” that erupted as a byproduct of the financial crisis. Credit crunch was also a result of the bankers ceasing their lending to one another, due to mistrust developed out of lack of transparency over the exposure of each bank to the toxic sub-prime mortgage loans.

As the banks, investment as well as commercial, stopped releasing their funds for lending, the central banks stepped in to see that the required funds are available to market. This prompts people believing that the banks are in dearth of funds, which is not true. If market players stall their activities, the theories of free market economy would become useless. Ironically the people (or consumers in market language), on whose purchasing capacity and spending activity the markets depend upon, had no role in this entire fiasco except paying taxes and losing jobs.

Interest Rates

The central banks exercise their control mainly on four rates. They are Bank Rate (or discount rate), repo rate (repurchasing rate), reverse repo rate and CRR (cash reserve ratio). A bank rate is the interest rate that is charged by a country’s central bank (federal bank in some countries) on loans and advances

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IMF Briefing Note Says Slow Growth is Certain in 2nd Half of 2010

Article first published as IMF Briefing Note Says Slow Growth is Certain in 2nd Half of 2010 on Technorati.

IMF_3 The International Monetary Fund reiterated that risks for slowdown in global growth in 2nd half of 2010 may be unavoidable and even intensified, due to recent turbulence in sovereign debt markets and prolonged weakness in the financial sector. In a briefing note prepared for Group of 20 (G20) countries’ deputy finance ministers, the IMF said though the global growth in 1st half of 2010 had been somewhat stronger than expected, it would slow in 2nd half of 2010 and 1st half of 2011.

First half of 2011 includes last quarter of present FY11 for India. This poses a danger to India’s present hawkish markets’ mood that risks India’s GDP growth for FY 2010-11 as the US developments automatically impact Asian economies as per recent comments by IMF director Dominic Strauss Khan. IMF cites crisis of confidence in some national economies coupled with the financial sector’s weakness as major reasons for the expected slowdown.

US weakness

Yesterday the WEF report said the U.S ranking slipped from 2nd position to 5th position due to decreasing businesses’ confidence in the US economy and its huge debt and deficit. The IMF said the US property market was a source of downside risk as foreclosures of mortgaged houses had been speeded up there. Increased foreclosures or number of home repossessions are further pressuring bank balance sheets.

This may be causing reduction in credit available to the economy, the IMF suggested. Risk of credit unavailability causes renewed turbulence in sovereign debt market that could adversely affect the ‘to and fro’ flow of finance between sovereigns and the financial sector. Such developments could cause Greece like crises in developed economies.

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