US / World Economy in Trouble

Financial Times Article....


http://www.ft.com/cms/s/0/0faf68e2-a490-11dd-8104-000077b07658.html?nclick_check=1


IMF could soon run short of firepower


By Alan Beattie in Washington


Published: October 28 2008 02:00 | Last updated: October 28 2008 02:00


With its $2bn (£1.3bn, €1.6bn) rescue loan to Iceland and $16.5bn to Ukraine, the International Monetary Fund has started to dip into an arsenal that is full to the brim. Yet the IMF could soon run short of firepower.


In spite of the period of relative peace in recent years among emerging markets, the private armies of global finance have grown much faster than the fund's store of ammunition.


The IMF, headed by Dominique Strauss-Kahn, has about $200bn in easily reachable money and another $50bn or so it can access rapidly. But Simon Johnson, a former IMF chief economist now at the Massachusetts Institute of Technology, says that is relatively small. "Maybe if the IMF had two trillion dollars it could be a serious global player," he says.


"But $200bn can go very quickly. There are a lot of countries in the same position as Ukraine, and you only need to add one or two of the really big countries to use it up."


Mr Johnson reckons that with other countries also in trouble, the IMF has probably already had to pencil in committing about a quarter of its $200bn over the next few months.


Despite a long and sometimes fractious discussion about funding and governing the IMF (see sidebar), it has not kept pace with the rapid rise in the size of global capital markets. Countries in trouble are normally supposed to be limited to three times "quota", or their own financial contribution to the fund. Ukraine's loan was eight times its quota; Iceland's 11 times bigger.


But even stretching its resources does not produce overwhelming firepower. Investment bank analysts estimate, for example, that Ukraine needs to raise some $55bn-$60bn next year in external financing. And while most of that will be borrowed by the private sector rather than the government to which the IMF lends, it still illustrates the huge size of gross financial flows.


Nor is the IMF money likely to be the only cash on the table or even the biggest contribution in many crisis-hit countries. Iceland is seeking several billion dollars more from its Nordic neighbours to supplement the fund's loan. If, as seems likely, the IMF agrees a loan to Hungary, it will follow emergency lending from the European Central Bank.


The administration of President George W. Bush used to argue that the IMF alone, not bilateral lenders, should be in charge of rescues. That doctrine, like several others, appears to have been discarded.


"The IMF has enough funds to play an active role in the smaller and poorer emerging market countries," says Ken Rogoff, another former IMF chief economist. "But it doesn't have the resources to be lender of last resort for a country of any size like Brazil, Turkey or Argentina. The fund cannot backstop crises in emerging markets the way the Fed can backstop the crisis in the US."


The fund has insisted it stands ready to get money quickly to countries that need it and is considering granting rapid access to richer and more stable emerging market countries via a "liquidity swap facility". But this only means getting existing resources out of the door faster. Increasing the money at its disposal is harder.


Japan has floated the idea of lending some of its foreign exchange reserves - perhaps as much as $200bn - to the IMF for use in rescues: experts say Tokyo appears to be concerned that countries such as China or Russia will gain foreign policy leverage by bilateral loans. Other potential solutions would include the IMF creating more Special Drawing Rights, an intergovernmental currency.


But the main obstacle to the IMF single-handedly saving the world is not technocratic but political.Its member governments are wary of handing over that much power to a single institution.


Mr Rogoff says: "The IMF is a necessary part of fixing problems in emerging markets, as it has the expertise that almost no one else does. But it doesn't, and probably shouldn't, have the resources to do it alone."

 

The IMF pot runs dry,the west in retreat!


http://www.theglobeandmail.com/servlet/story/LAC.20081030.IBEUROPE30/TPStory/Business


EUROPE


The West in retreat, the pot running dry


CARL MORTISHED


carl.mortished@thetimes.co.uk


October 30, 2008


LONDON -- We are witnessing another great retreat by the West. The International Monetary Fund is patching up the casualties in Central and Eastern Europe but the funds are running out and Gordon Brown, the British Prime Minister, is rushing to the Gulf to beg for funds. Turkey, our ally in the Near East, may also be in need of help and something must be done for Pakistan. A financial collapse on the front line of the war against the Taliban is not a risk worth contemplating.


There is something eerie about the lineup of financial chaos on Europe's eastern borders. The chaotic withdrawal of funds by Western banks from the so-called "transition economies" of the former Warsaw Pact brings to mind Napoleon's vanquished armies stumbling home on the road to Smolensk.


This is another imperial vision that has fallen foul of greed, corruption and incompetence. Hungary was close to becoming a fully fledged graduate in free-market capitalism. The European Bank for Reconstruction and Development had set a deadline of 2010 at which point Hungary would no longer qualify for the EBRD's financial programs.


Perhaps Hungary and Ukraine were just too quick to embrace capitalist chic. The latter was Washington's poster child, adored for its absurd flirtation with NATO but few bothered to consider whether a nation dependent on subsidized Russian fuel was independent and viable. Hungary is now consumed by debt, its gross external borrowings are almost equal to its GDP but economic growth has almost come to a standstill. Taxation is high and the black market is rife. Unable to finance growth with internal savings, Hungarians have borrowed abroad. Even ordinary citizens took out euro loans to finance house purchases, attracted by low euro interest rates.


Unsurprisingly, this high-risk gamble has gone badly wrong. Instead of converging with the euro zone, Hungary's economy has rushed pell-mell in another direction; the collapse of the forint has left the nation with an unaffordable debt burden in euros, Swiss francs and yen. The government has lost all credibility to manage the situation after the Prime Minister admitted to about the state of the economy in order to win an election.





The World Bank has told Bulgaria to prepare an emergency financial plan and Romania's Prime Minister has compared his nation to party-goers on the Titanic, oblivious to the water penetrating the lower decks. On Monday, Standard & Poor's reduced the rating on Romania's sovereign debt to "junk bond" status, and on Tuesday, Germany sounded the alarm on another front line in South Asia. Pakistan is suffering a balance of payments crisis and is badly in need of funds to meet its debt repayments.


The IMF's pot will soon run dry. The emergency bailout fund stood at about $200-billion (U.S.) after the recent commitments of $2-billion to Iceland and $16.5-billion to Ukraine. Yesterday, the IMF pledged $15.7-billion to Hungary (the aid package also includes $8.1-billion from the European Union and $1.3-billion from the World Bank).


Pakistan needs about $15-billion and there is a long queue quietly forming in the IMF's corridors in Washington. Hence Gordon Brown's mission to coax a bit of cash from the ample coffers in Beijing, Riyadh and Abu Dhabi.


The huge dollar reserves in the Gulf and in China could be recycled into banking bailouts on Europe's eastern front and in other emerging economies that became addicted to debt in the recent decade.


The money will not come without strings.


The new contributors to the fund will want more say in how the organization is run.


The IMF used to be a club made up of Americans, Europeans and the Japanese but the dollar reserves are now in the petro-states and in China, and henceforth they will expect and get more clout in the management of the world economy.


Bankruptcy is always painful but it is more painful for nations than for individuals. When Argentina defaulted in 2001, it descended into an abyss of hyperinflation, mass unemployment and food shortages. A nation that exported food could not feed its children and as banks closed their doors, Argentines resorted to barter.


The British Prime Minister knows that we cannot afford to watch as a dozen Argentinas emerge on Europe's border with Russia and across Asia.


America is proving useless in this crisis, absorbed in its election campaign and pandering to its profligate and overindulged citizens.

 

Glad your watching the IMF situation herb....

Aye herb im watching this play out closely myself,like i said pakistan and who knows how many more nations wannempty the pot and then when the UK needs it there wont be shit


This IMF thing is leading us into financial oblivion herb if they cant sort out some shit and like your article says about the arabs,we just had some sheik buy one of our largest banks for several billion UK POUNDS!!! Now we have gordon brown going 'cap in hand' to all the rich arab states which i DONT FUCKIN LIKE,neccesary evil some say ,i just say its selling our souls to the devil i mean they already hold us at gunpoint over petrol prices so what the fuck are they gonna do when they OWN our banks and major corporations EVEN our govt and economy??????


They wont need OSama Bin Laden ,all they need is to FORECLOSE and the UK is fucked! Herb i remember you telling skuzz that when it hits the UK we gonna be worst hit...well your right,i saw one of these geniuses economy guys on tv and he was saying that out of the G20 of the worlds richest nations that the UK is thee worst equipped to deal with all this upcoming meltdown(yup its only gonna get worse)...so thats why gordon brown is begging the financial terorists for cash cos he got a general election round the corner and cant afford to be seen not ACTING like hes doing summit although saying that hes a clever and usually prudent guy with the UK treasury so itsa a surprise to hear him say hes gonna increase the UK debt,basically not only is he gonna max out the UK credit card,hes actually gonna take out another one...this was opne of his economic golden rules when he was chancellor for 11 years before becoming PM...and to that point....SURELY HE MUST HAVE SEEN THIS COMING?????????????? AFTERALL HE WAS ALSO ASKED TO BECOME THE HEAD OF THE IMF WHICH WILL BE HIS NEXT JOB SHOULD HE LKOSE NEXT YEARS ELECTION.... SCARY TIMES!.Peace


PS:Clay your right,this crisis has sickened /scunnered us all so much that the election was a welcome reprieve from the daily doom and gloom from wall street and the ftse index,etc...but now we gotta act,i see Obama and Brown(two socialists ,:eusa_think: interesting) have spoke already and brown will be 1st to meet after the inauguration on january and im VERY interested to see what will effectively be Obamas 1st BIG test on the world stage will be.... watch this space i say...this threads gonna be the saddest and longest one ever in GK history by time all is said and done:sad4eace Herb/Guys