Posts of October 2008

The Zero-Conditionality IMF Loan

♠ Posted by Emmanuel in Bretton Woods Twins,Credit Crisis at 10/30/2008 01:06:00 PM

The IMF has just come out with a new lending facility designed for countries that have a "strong track record" but are nonetheless experiencing balance-of-payments difficulties. Again, the IMF is presenting itself as adjusting with the times with this facility by hastening disbursement and removing conditionalities altogether for country borrowers that can avail of the so-called Short-Term Liquidity Facility (SLF). What remains to be seen is just how many countries qualify for this new facility to make it a usable one in these uncertain times. From the IMF website:The IMF said it will create a new short-term lending facility to channel funds quickly to emerging markets that have a strong track record, but that need rapid help during the current financial crisis to get them through temporary liquidity problems.In a press announcement, the IMF said the Short-Term Liquidity Facility (SLF) is designed to help emerging market countries with a track record of sound policies address...

Currency Swapping: Hotter Than Wife Swapping?

♠ Posted by Emmanuel in Credit Crisis,Hegemony at 10/30/2008 10:56:00 AM

OK, so the post title is idiotic (but catchy!) I can explain the former, though the latter is beyond the scope of this blog's coverage. Anyway, to no one's real surprise, the US Fed has cut the federal funds rate to 1.00%. Skeptics like myself naturally ask, "If several economic commentators attribute the housing crisis to Greenspan cutting this rate to 1.00% and keeping it there for a while after the Internet bubble burst, how can this action help? You can of course say that, having been burned bigtime before, banks will be more circumspect this time around. I certainly hope so, but there is always the possibility that as money flows more freely once again, there will be another bubble in the offing: tech stocks...real estate...heaven knows what next.While we await the results of this latest Fed reflation play, something that seems to have brought more immediate benefits is the Federal Reserve establishing $30B swap lines with the likes of Brazil, Mexico, South Korea, and Singapore....

Yesterday Once More: Indonesian Rupiah Besieged

♠ Posted by Emmanuel in Credit Crisis,Southeast Asia at 10/28/2008 09:03:00 AM

I sometimes despair that we are revisiting the dark days of the Asian financial contagion. South Korea's plight has already been discussed [1, 2]; now let us turn our attention to Indonesia. Though Indonesia's fundamentals are reckoned to be much sounder this time around, there are several things roiling the country at the current time:The default by the Netherlands-based Indonesische Overzeese Bank (Indover) had prompted some investors to ignore Indonesia’s relatively healthy economic fundamentals amid concerns that south-east Asia’s largest economy might be at risk of a sovereign default.Credit default swap spreads over...

Sachs's 7 Steps to Avoid Global Recession

♠ Posted by Emmanuel in Credit Crisis at 10/28/2008 08:49:00 AM

I hereby dub this week "Big Name Economists Try to Save the World" week. Hot on the heels of Joseph Stiglitz offering a five-point plan to fix the global financial crisis comes Jeffrey Sachs's own recipe for avoiding a global recession. Like Stiglitz, Sachs offers a rather Keynesian recipe. Notable wrinkles here are "pro-poor" measures such as low conditionality loans from the IMF and asking presumably loaded Middle Eastern countries to invest in other emerging markets. As if it weren't apparent before, we're in this together now. From the Financial Times:Any co-ordinated expansion should include the following actions. First, the US Federal Reserve, the European Central Bank and the Bank of Japan should extend swap lines to all main emerging markets, including Brazil, Hungary, Poland and Turkey, to prevent a drain of reserves. Second, the International Monetary Fund should extend low-conditionality loans to all countries that request it, starting with Pakistan. Third, the US...

Thriller: Will G7 Launch Coordinated Yen Effort?

♠ Posted by Emmanuel in Credit Crisis,Japan at 10/27/2008 09:45:00 AM

The G7 has just made a very terse statement which goes like this:We reaffirm our shared interest in a strong and stable international financial system. We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability. We continue to monitor markets closely, and cooperate as appropriate.The mighty yen is attributable in part to the continuing unwinding of the carry trade. Given the low interest rates on yen borrowing that have existed for quite some time to combat domestic deflation, many speculators have used the yen as funding...

Ukraine Reaches $16.5B IMF Deal; Hungary Awaits

♠ Posted by Emmanuel in Credit Crisis,Europe at 10/27/2008 09:31:00 AM

Dear readers, I hope you visit this blog in the belief that I get a reasonable number of things right. Before many did, I called for Iceland to approach the IMF. Here's further proof: I was correct in believing that Ukraine would beat Hungary to the IMF's doorstep, reasoning that the latter would last longer due to its recourse to EU funding as a freshly minted member. It now transpires that the IMF has announced $16.5B worth of lending to Ukraine, with Hungary waiting in the wings:The IMF said it has reached a tentative agreement with Ukraine to lend the eastern European country $16.5 billion to help it combat a series of economic problems tied to the international financial turmoil and announced broad agreement with Hungary on a set of policies designed to bolster near-term stability...The IMF is moving quickly to help emerging markets battered by fallout from global financial turmoil and the sharp slowdown in the economies of advanced industrialized countries. It is in discussions...

Stiglitz's 5 Step Fix for Financial Crisis

♠ Posted by Emmanuel in Credit Crisis at 10/27/2008 08:54:00 AM

Nobel Laureate Joseph Stiglitz has come up with five items on his "to do" list in order to fix the current financial crisis. While most of these prescriptions concern American policymaking, we'll cut him slack as it is a TIME article. Never let it be said that Stiglitz fails to think big. The Economist has faulted him in the past for prescribing remedies that are, if anything else, too ambitious. Here, I would like have liked more discussion from Stiglitz about how steps 2 and 3 are going to be funded. After all, he is an economist, and "there's no such thing as a free lunch" remains operative. In step 5, he calls for a new global regulator. Here I have two questions. First, why can't we work with the current set of institutions like the Bretton Woods twins, the Bank of International Settlements, and so on? Second, why does he cite the French as inspirational in promoting new regulatory regimes when they are self-serving more often than not?1 Recapitalize banks. With all the...

IMF Twofer: $2.1B for Iceland, Strauss-Kahn Cleared

♠ Posted by Emmanuel in Bretton Woods Twins,Credit Crisis at 10/26/2008 07:32:00 AM

In case you missed them, here's a short take on two stories which have been featured on this blog. First, as predicted so many days ago, Iceland has reached an agreement with the IMF functioning as lender of last resort. From the IMF press release:The IMF announced an initial agreement with Iceland on a $2.1 billion two-year loan to support an economic recovery program to help the island restore confidence in its banking system and stabilize its currency.Following review by the IMF's management, the agreement could be presented to the IMF Executive Board for approval in early November. Iceland would be able to draw $833 million immediately after Board approval."Iceland has put together an ambitious economic program, which aims to restore confidence to the banking system, to stabilize the krona through strong macroeconomic policies, and to help the country achieve medium-term fiscal consolidation following the collapse of its banking system," said IMF Managing Director Dominique...

Did the IMF Cause TB Deaths in Eastern Europe?

♠ Posted by Emmanuel in Bretton Woods Twins,Health at 10/25/2008 03:26:00 PM

This post is a timely one for very unfortunate reasons. As you probably know, Hungary, Ukraine, and Belarus have entered discussions with the IMF for lender of last resort funding. One of the points the IMF is emphasizing with this round of crises is that it will be sparing with the use of politically unpopular conditionalities. (I hope so.) Think of these conditionalities as similar to loan covenants. For instance, you may lend money to an errant relative provided that he cuts spending on alcohol and looks for gainful employment. Like other lenders, the IMF is interested in getting paid back. Accordingly, it has used conditionalities...

Mallaby on a 21st Century Bretton Woods

♠ Posted by Emmanuel in Credit Crisis,Hegemony at 10/25/2008 01:47:00 PM

Don't miss the CFR's Sebastian Mallaby commenting on the prospects for a 21st Century Bretton Woods at the November 15 G-20 summit called at the behest of the White House. For those of you who are familiar with Mallaby's writing, it comes as no surprise that he's not quite sanguine on its prospects. He cites China and the US as pivotal figures and the Europeans as peripheral ones. Plus, unlike the original Bretton Woods, key issues on the table do not include currencies. Here is an excerpt from the Wall Street Journal article:Persuading China to change its currency policy would be a worthy goal for a new Bretton Woods conference. But currency reform is low on the agenda of the summit that the Bush administration plans to host on Nov. 15. (The administration styles this gathering a "G-20 meeting," ignoring the European talk of a Bretton Woods II.) The British and French leaders who pushed for the meeting want instead to talk about financial regulation -- how to fix rating agencies,...

Socialism's Joys: Energy Shortages...in Venezuela

♠ Posted by Emmanuel in Anti-Globalization,Latin America at 10/24/2008 12:13:00 PM

In these days of globe-spanning economic turmoil, socialist ideologies are making something of a comeback. The excesses of laissez-faire are leading those hurt by it to now seek protection. Karl Polanyi called it the "double movement," defined as the continuing tension and conflict between the efforts to establish, maintain, and spread the self-regulating market and the efforts to protect people and society from the consequences of the working of the self-regulating market. Although I am not a Polanyi fan, you may say that today's newspaper headlines are endless variations on this theme: citizens have been hurt by the credit...

Europe, Asia Ask China to Help Save the World

♠ Posted by Emmanuel in China,Europe at 10/24/2008 11:04:00 AM

There are good reasons why you probably haven't heard of the Asia-Europe Meeting (ASEM). Aside from gaining limited attention from Asia specialists in the academic community [that'd be us], these conferences did not usually amount to much more than UN-esque talk shops. I do not need to say that times have changed; the 7th ASEM Summit in Beijing is proving to be a rather livelier affair. Having accumulated an almost unfathomable $1.9 trillion in reserves, China's margin of safety is no small beer. Also, it has caused Europeans and Asians to take notice.Let us begin with the Europeans asking China to participate more fully in the upcoming US-sponsored meeting. Are the Europeans finally letting an LDC have full say in global economic governance? From Reuters:The European Union wants China, with the world's biggest stash of currency reserves, to play a full part at a crisis summit that U.S. President George W. Bush is convening next month to help shape global financial reforms and...

The Kinder, Gentler IMF? Easing Conditionalities

♠ Posted by Emmanuel in Bretton Woods Twins at 10/24/2008 10:30:00 AM

The IMF is now in the negotiating stages with several countries affected by the credit crunch. The troubles of these countries have been discussed elsewhere on this blog. Anyway, the introduction to the recent IMF release goes like this:The International Monetary Fund (IMF), which has announced its readiness to lend billions of dollars to support nations hit by fallout from the global financial turmoil, is holding talks with several countries about possible new lending programs."I have been on the phone with leaders in several capitals who have asked the Fund for assistance. We now have mission teams in some of these countries assessing their needs and, where asked to do, discussing programs that could be supported by an IMF loan," says IMF Managing Director Dominique Strauss-Kahn.The IMF is currently discussing possible loan packages for Hungary, Iceland, Pakistan, and Ukraine. It is also in discussions with a number of other countries about possible financing needs, and is...

Conservative Thinktanks Selling the Unsaleable

♠ Posted by Emmanuel in Hegemony at 10/23/2008 12:48:00 PM

Laissez-faire reached full flower in Anglo-Saxon nations as Margaret Thatcher and Ronald Reagan came into office, providing fertile ground for libertarians and rational choice theorists alike. Accordingly, thinktanks espousing a minimal role for government--the "nightwatchman state" they call it--and a maximal role for market mechanisms gained favor in the UK and the US. In time, such models of political economy became more prominent in other countries, whether through imitation or pressure (via IMF and World Bank lending conditionalities.)Nowadays, the troika of "liberalization," "privatization," and "deregulation" are no...

The Melamine Messiah: Can Wal-Mart Go Green?

♠ Posted by Emmanuel in China,CSR at 10/23/2008 11:42:00 AM

Being the world's largest retailer, Wal-Mart poses an outsized target for activists on traditional corporate social responsibility (CSR) fronts: labor and the environment. With regard to labor, Wal-Mart's strong preference for non-unionized labor is one of the major grievances alongside allegations of hiring undocumented migrants and sex discrimination. Wal-Mart fighting the Chinese government's insistence to allow union membership--albeit a state-sponsored, highly non-activist sort--is well-known as it creates a precedent others may follow elsewhere. With regard to the environment, Wal Mart's supply chain literally spans the globe. Hence, its supplier selection, product packaging and distribution have a significant effect on the environment. Does Wal-Mart's famous stinginess encourage a "race to the bottom" among its suppliers?A few months ago, I discussed Wal-Mart's efforts to take on green challenges with regard to its China operations. Wal-Mart has brought the issue to the...

Fanning the Flames of Russian Conspiracy x 3

♠ Posted by Emmanuel in Middle East,Russia at 10/22/2008 03:44:00 PM

Western fears about Russia may increase given the trio of stories below concerning (1) the use of SWF money to buy into local companies, (2) attempts to create a gas cartel, and (3) plans to establish an oil reserve. Fears of communism have long since given way to Russia deploying its abundant natural resources to accomplish geopolitical objectives. As a large producer of energy, being able to influence global prices commanded by such commodities would certainly be a welcome outcome for Russia. It wants to be enabled, not hobbled, by oil and gas.(1) Russia's SWF, the National Wealth Fund, is now allowed to put money into the...

Will UK Recession Finish Off Chav Culture?

♠ Posted by Emmanuel in Europe,Neoliberalism at 10/22/2008 12:32:00 PM

I was on a KLM flight to Birmingham once when the stewardess offered me and the Englishman next to me newspapers. As I was in the seat closer to the aisle, I had first crack at the last copy of the Financial Times. Instead of taking the remaining English language newspaper, the International Herald Tribune, he just smirked and said, "American--no thanks." This chap displayed a common British disdain for things American. Why this is so I cannot tell. In addition to a shared language, the British are rather similar to Americans in many not-so-desirable ways of consumerism run amok. Just as Americans are supposedly the fattest...