Posts Tagged ‘International Monetary Fund’

Bad forecasts and grovelling apologies have become standard for the IMF

June 9, 2014

It’s not what you say but what you do that counts.

Economics is clearly not a science though many would like us to think it is. But with the IMF it is just apology followed by apology for wrong forecasts and bad advice. It smacks of forecasts made to suit a political agenda or just plain incompetence. Based on their track record nothing that is said by Christine Lagarde or the International Monetary Fund that she heads can be taken very seriously. She spends more time apologising than would seem to be healthy.

The latest apology by Christine Lagarde has been called “grovelling”:

‘Do I have to go on my knees?’: grovelling apology from IMF head for incorrect warnings on UK economy

Head of the International Monetary Fund, Christine Lagarde, accepts her organisation’s low growth forecasts for the UK economy were wrong.

Christine Lagarde has asked whether she needs to grovel on her knees before George Osborne over the IMF’s incorrect warnings on the UK economy, as she warned against raising taxes.

“Do I have to go on my knees?” Ms Lagarde, the head of the International Monetary Fund said, when asked whether she has apologised to George Osborne over the fund’s low growth forecasts and calls to adopt a ‘Plan B’ of less austerity – calls the body now accept it got wrong.

In a blow to Ed Miliband, who has called for higher rates of personal taxation and new levies on banks, Ms Lagarde said tax rises are “not recommendable”.

But this is not an isolated incident. Time after time the IMF announces that some country has got its economic policy wrong and warns of dire consequence if the country does not follow the advice of the IMF. Then – a few months later – they admit that the IMF got it wrong. And ususally by then they have caused much misery and wailing and gnashing of teeth.

12th January 2012: Does the EU-IMF Owe Ireland an Apology?

2nd June 2012: IMF apology to Greece after Lagarde remarks – YouTube

3rd January 2013: An amazing mea culpa from the IMF’s chief economist on austerity

6th June 2013: For hard-hit Greeks, IMF mea culpa comes too late

In any normal corporation Christine Lagarde and the IMF’s Chief Economist,  Olivier Blanchard would have been sacked a long time ago. And to think that some are suggesting Christine Lagarde for the top job in the EU only reduces my respect for the IMF and the EU.


Portugal moves closer to a Red Euro

April 7, 2013

The common thread running through the countries which are now in or entering the Red Euro zone  is that they have reached their current positions because they have all been incredibly profligate in their public sector while being incredibly lax in controlling the excesses of a rampant private banking sector. Of course the private sector “cowboys” have made obscene amounts of money and ridden off into the sunset. But a large number of public sector employees also made economically unjustified gains in the form of increased salaries and inflated pensions and reduced working hours. Now the piper has to be paid and of course those doing the paying are not necessarily those who gained the benefits. There is a pervading sense of the unfairness of it all.

It is only to be expected that those bearing the brunt of the consequences will fight to retain what they have. Portugal has been teetering on the brink of falling into the Red Euro zone and has been struggling to implement the austerity measures that are deemed necessary. Most of the austerity measures in Greece and Italy and Portugal postpone the day of reckoning but don’t really correct for the previous profligacy. Now Portugal’s Constitutional Court has rejected some of the measures for public sector salary and pension reductions as being “unfair”. Portugal continues “muddling through”  and Government sources are playing down the impact of the Court’s rejections but Portugal is one step closer to the Red Euro. There is an argument that formally establishing the Red Euro zone with a lower value than the Blue Euro rather than “muddling through” with all the Euro constraints, would be a better way to go.

(Reuters) Portugal’s constitutional court on Friday rejected four out of nine contested austerity measures in this year’s budget in a ruling that deals a blow to government finances but is unlikely to derail reforms two years after the country’s bailout.

The measures rejected by the court should deprive the country of at least 900 million euros ($1.17 billion) in net revenues and savings, according to preliminary estimates by economists.

…  Debt-ridden Portugal agreed to a 78 billion euro bailout in 2011 from the European Union and International Monetary Fund. The entire package of austerity measures introduced by the 2013 budget is worth about 5 billion euros and includes the largest tax hikes in living memory, which were mostly upheld.

“It’s a lesser evil. … Putting it into perspective, a good manager and leader should not have difficulty finding room in a budget to accommodate this cut,” said Joao Cantiga Esteves, economist at the Lisbon Technical University.

…. The government has called a Cabinet meeting on Saturday, and would not provide any immediate comment. It has to cut the budget deficit to 5.5 percent of GDP this year from 6.4 percent in 2012, when it missed the goal but was still lauded by its EU and IMF lenders for its austerity efforts.

Analysts consider the outcome manageable and say the government should be able to cover the shortfall with additional spending cuts it has been working on at the request of lenders. Analysts say the lenders could also give Portugal more leeway in terms of budget targets. 

…… On Wednesday, the government easily defeated a motion of no confidence, but the move united all the opposition in parliament against it. Socialist opposition leader Antonio Seguro said on Friday the court’s ruling “reinforces our position in d..emanding the government’s resignation.”

…… The 13 constitutional court judges have been scrutinizing articles of the 2013 budget since January when opposition parties argued that cuts to pensions and welfare benefits undermined workers’ basic rights.

The court rejected cuts in pensioners’ and public servants’ holiday bonuses, as well as reductions to sickness leave and unemployment benefits. They upheld tougher measures such as a reduction in the number of tax brackets, which alone brings in an estimated revenue of more than 2 billion euros.

Last year, the court also dealt a blow to government plans for more public-sector wage cuts, forcing it to resort to tax hikes instead. The austerity has provoked mass protests, but rallies in Portugal have been much more peaceful than in countries like Greece or Italy.

Berlusconi bungas while Italy burns

November 7, 2011

Image via Wikipedia

Il Cavaliere , Sylvio “bunga-bunga” Berlusconi is 75 years old, has a personal fortune of some $9billion, and has been Italy’s Prime Minister for longer than anyone else. He is clinging desperately to power as Italy slides towards a Greece-like crevice and it is not apparent as to why he bothers. Whereas the Greek debt is only about 4% of Eurozone debt, Italy’s debt is closer to 20%. Italy’s public debt in 2010 was 118.4% of GDP. The annual budget deficit was 4.6% of GDP. Italy’s public debt-to-GDP ratio is the second highest in the euro zone after Greece’s, while its debt in absolute terms, which stood at 1.84 trillion euros at the end of 2010, is second to Germany’s.

It might seem to be just a powerful politician in denial of the approaching flames when Berlusconi declares that “Life in Italy is good. The restaurants are full. It’s difficult to get a seat on a plane they’re so busy; holidays are all booked up”.


DSK case collapsing: Was this just French politics to kill his Presidential aspirations?

July 1, 2011
French Finance Minister Christine Lagarde (L) ...

French Finance Minister Christine Lagarde (L) talks with International Monetary Fund's Managing Director Dominique Strauss-Kahn (R):Image via Wikipedia

The New York Times broke this story and it makes me wonder if the anti- DSK faction in France were behind all of this just to get him out of the running for French President and – incidentally – to replace him with a Sarkozy-friendly Christine Lagarde at the IMF. With the internecine nature of French politics  reality is often much more convoluted than the most fanciful conspiracy theories. Perhaps Sarkozy  – who loves devious political machinations – was behind all of this?

The sexual assault case against Dominique Strauss-Kahn is on the verge of collapse as investigators have uncovered major holes in the credibility of the housekeeper who charged that he attacked her in his Manhattan hotel suite in May, according to two well-placed law enforcement officials. …. 

Since her initial allegation on May 14, the accuser has repeatedly lied, one of the law enforcement officials said. Senior prosecutors met with lawyers for Mr. Strauss-Kahn on Thursday and provided details about their findings, and the parties are discussing whether to dismiss the felony charges. Among the discoveries, one of the officials said, are issues involving the asylum application of the 32-year-old housekeeper, who is Guinean, and possible links to people involved in criminal activities, including drug dealing and money laundering. …. 

The revelations are a stunning change of fortune for Mr. Strauss-Kahn, 62, who was considered a strong contender for the French presidency before being accused of sexually assaulting the woman who went to clean his luxury suite at the Sofitel New York.

Prosecutors from the office of the Manhattan district attorney, Cyrus R. Vance Jr., who initially were emphatic about the strength of the case and the account of the victim, plan to tell the judge on Friday that they “have problems with the case” based on what their investigators have discovered, and will disclose more of their findings to the defense. The woman still maintains that she was attacked, the officials said.

“It is a mess, a mess on both sides,” one official said.

According to the two officials, the woman had a phone conversation with an incarcerated man within a day of her encounter with Mr. Strauss-Kahn in which she discussed the possible benefits of pursuing the charges against him. The conversation was recorded.

That man, the investigators learned, had been arrested on charges of possessing 400 pounds of marijuana. He is among a number of individuals who made multiple cash deposits, totaling around $100,000, into the woman’s bank account over the last two years. The deposits were made in Arizona, Georgia, New York and Pennsylvania.

The investigators also learned that she was paying hundreds of dollars every month in phone charges to five companies. The woman had insisted she had only one phone and said she knew nothing about the deposits except that they were made by a man she described as her fiancé and his friends.

In addition, one of the officials said, she told investigators that her application for asylum included mention of a previous rape, but there was no such account in the application. She also told them that she had been subjected to genital mutilation, but her account to the investigators differed from what was contained in the asylum application.

G 20 ends: “We know we must do something but we don’t know what …”!

November 12, 2010

Everybody agreed that a currency war was a “bad thing” but each country – of course – denied that it would ever indulge in such a thing. All agreed that the world was a dangerous place and that there were “grave imbalances”. The US blamed China and China blamed the US but they did try to engage and tone down the earlier rhetoric. It started a little acrimoniously but ended with fine words and a task passed on to the IMF to set “indicative” guidelines.

It is no doubt a “good thing” that the leaders do meet and at least try to think a little outside the box but few have the ability to look much beyond immediate domestic issues and domestic politics. The European leaders did at least have a “break out” meeting to address the problems in Ireland.

Reuters –

G20 leaders closed ranks Friday and agreed to a watered-down commitment to watch out for dangerous imbalances, yet offered investors little proof that the world was any safer from economic catastrophe.

The developing and emerging nations agreed at the summit in Seoul to set vague “indicative guidelines” for measuring imbalances between their multi-speed economies but, calling a timeout to let tempers cool, left the details to be discussed in the first half of next year.

Leaders vowed to move toward market-determined exchange rates, a reference to China’s tightly managed yuan that the United States has long complained is undervalued.

They pledged to shun competitive devaluations, a line addressing other countries’ concern that the U.S. Federal Reserve’s easy-money policy was aimed at weakening the dollar.

In a nod to emerging markets struggling to contain huge capital inflows, the G20 gave the okay to impose “carefully designed” control measures. They also agreed that there was a critical, but narrow, window of opportunity to conclude the long-elusive Doha round of trade liberalization talks launched in 2001.

After weeks of verbal jousting, the United States and China sought to bury the hatchet over rows about China’s “undervalued” currency and the global risks created by the U.S. printing money to reflate its struggling economy. “Exchange rates must reflect economic realities … Emerging economies need to allow for currencies that are market driven,” Obama said. “This is something that I raised with President Hu (Jintao) of China and we will closely watch the appreciation of China’s currency.”

Tim Condon, head of research at ING Financial Markets in Singapore said it was “hard to disagree” with the vows of the leaders but they had fallen short of the progress hoped for going into the summit.

“They decided just to put down a lot of laudable objectives as the conclusion of the meeting and hope that they can do better, that more can be accomplished in future meetings,” he said. The G20 has fragmented since a synchronized global recession gave way to a multi-speed recovery. Slow-growing advanced economies have kept interest rates at record lows to try to kickstart growth, while big emerging markets have come roaring back so fast that many are worried about overheating.

But at least the G20 spouses apparently had a good time  in what looks like sunny autumn weather!

Main Image

The spouses of G20 world leaders walk through a park in Seoul November 12, 2010. Credit: REUTERS/Yonhap/Pool SOUTH KOREA

Currency war of words continues – time to be in Yuan?

October 13, 2010

For the layman currency investor these are dangerous times. Countries are intervening in currency markets to hold the value of their currencies down as a way of helping their own exports. The currency market is not that “free”. The only certainty for the long term is that the Chinese Yuan is undervalued. Even Gold where the price may keep rising in Dollars may not keep pace – in the long term – with the Yuan. The Korean Won is also undervalued  but whether this will hold in the long term is uncertain. In the Eurozone the Euro will not rise till the lowish values now can get the economies of Spain and Ireland and Greece and Portugal moving again. But the current values can help the export engines in Germany and the UK  to keep going.

The G20 finance ministers will meet in South Korea from October 22 and its leaders are to gather in Seoul next month to try to reach a consensus on the global currency system to prevent competitive devaluation from damaging growth. A weekend International Monetary Fund meeting failed to defuse tensions reports Reuters.

“As chair of the G20, South Korea’s role will be seriously questioned,” Japanese Finance Minister Yoshihiko Noda told a parliamentary panel when asked about South Korea’s currency intervention and its place in G20. Japan intervened in the currency market last month for the first time in more than six years to try to stem a rise in the yen that is putting a fragile economic recovery at risk. Noda declined to say whether Japan would step in again as the Japanese currency hovers near a 15-year high against the dollar. He drew a distinction, however, between Japan’s intervention, which appears so far to have been a one-off move, and more frequent intervention by South Korea and China. “In South Korea, intervention happens regularly, and in China, the pace of yuan reform has been slow.

“Our message is that we have confirmed at the Group of Seven that emerging market countries with current account surpluses should allow their currencies to be more flexible.”

Analysts say Tokyo is worried about Japanese exporters’ waning competitiveness against South Korean rivals, given that the yen has risen about 13 percent against the dollar so far this year, while the won has gained only about 4 percent.

Hopes for a G20 currency consensus look slim. “It’ll be impossible for the G20 to reach a consensus on currencies. Many emerging economies feel that they are being forced to intervene because of a weak dollar,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.

Japanese Prime Minister Naoto Kan urged Seoul and Beijing to act responsibly but acknowledged Tokyo’s delicate position. “I want South Korea and China to take responsible actions within common rules, though how to say this is difficult because Japan has also intervened,” he told the same parliamentary panel.

Japan sold 2.1 trillion yen ($25.65 billion) last month in its first currency intervention in more than six years to curtail the yen’s strength against the dollar. South Korea has intervened to the tune of about $13 billion since late September to try to cap the won’s rise, but analysts said its intervention had been more aggressive in relative terms.

%d bloggers like this: