Worst of financial crisis yet to come: IMF chief economist

[dr.umer]

Worst of financial crisis yet to come: IMF chief economist​

Sunday, November 23, 2008

ZURICH: The IMF's chief economist has warned that the global financial crisis is set to worsen and that the situation will not improve until 2010, a report said Saturday.

Olivier Blanchard also warned that the institution does not have the funds to solve every economic problem.

"The worst is yet to come," Blanchard said in an interview with the Finanz und Wirtschaft newspaper, adding, "A lot of time is needed before the situation becomes normal."

He said economic growth would not kick in until 2010 and it will take another year before the global financial situation became normal again.

The International Monetary Fund on Friday promised to help Latvia deal with its economic crisis after it assisted Iceland, Hungary, Ukraine, Serbia and Pakistan.

But Blanchard said the IMF was not able to solve all financial issues, in particular problems of liquidity.

Withdrawals of capital leading to problems of liquidity "can be so significant that the IMF alone cannot counter them," he said, adding that massive withdrawals of investments from emerging countries could represent "hundreds of billions of dollars. "We do not have this money. We never had it," he said.

The IMF had spent a fifth of its 250 billion dollar (200 billion euro) fund in the last two weeks, Blanchard added.

He also urged central banks around the world to cut interest rates, after the Swiss National Bank made a surprise one percentage point rate cut Thursday.

The central banks "should lower interest rates to as close to zero as possible," he said.

 

[BanglaBhoot]

Federal deficit could top $1 trillion

WASHINGTON - President-elect Barack Obama will enter office in January facing an unprecedented budget deficit that will probably top $1 trillion, more than twice the previous record, further limiting his maneuvering room as he tries to boost the beleaguered economy and follow through on hundreds of billions of dollars worth of campaign promises, according to estimates by congressional officials and budget analysts.

Even as he faces the skyrocketing deficit, Obama is considering a massive stimulus package that is intended to boost the economy but is expected to further increase the deficit by as much as $300 billion.

While the deficit had been expected to rise since the most recent official projection, $421 billion in September, the estimates provided to the Globe by the Senate Budget Committee and independent analysts painted the starkest picture yet of how the nation's financial crisis will affect the start of Obama's presidency.

"A trillion-dollar deficit is not only something you wouldn't have seen in an economic textbook, it is something that even a science fiction writer would not dare mention," said Stan Collender, one of the nation's most re spected budget analysts, who was a budget staffer for both the House and Senate and now works for a Washington corporate communications company.

"What it tells you is that the next four years are going to be four of the roughest fiscal years in the history of the United States."

With Obama expected to formally announce his economic team tomorrow, some analysts are urging him to use the occasion to explain that the exploding deficit has changed the fiscal terrain so dramatically that he must put off tax cuts and other costly programs to focus on putting the nation's financial fundamentals back in order.

"He should say we are facing a trillion-dollar deficit, that this is an emergency situation, it is a different world, and we are going to have to scale back on some of these promises," said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group.

Yesterday, Obama announced that he has asked his economic team to craft a stimulus plan that would create 2.5 million jobs in the next two years, but he did not say how much the plan would cost or where the money would come from. One possibility is that Obama will take the second half of the already approved $700 billion financial bailout, which has not yet been allocated, for the stimulus plan.

An Obama spokesman declined to comment on the impact of the projected deficit on the president-elect's plans.

Senator Judd Gregg of New Hampshire, the top Republican on the Senate budget panel, said that he expects Obama will face a deficit between $1 trillion and $1.2 trillion, once a stimulus bill is added. The deficit will probably be $1 trillion in the following year, Gregg said. By comparison, the deficit for the fiscal year that ended Sept. 30 was $455 billion, the current record.

Gregg said the problem is being compounded by an enormous drop in government tax revenues, which in recent years had been growing as investors cashed in stock market profits. With few people making money in stocks this year, tax revenues will fall sharply, probably by at least $100 billion.
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"The economy is a dropping like a rock and the federal government will feel that very quickly on the revenue side," Gregg said in an interview. "I think it is very hard in the context of a trillion-dollar deficit to add new programs to the books."

To put the dilemma in perspective, Gregg noted how quickly the size of the deficit has grown in relationship to the gross domestic product, the sum of all goods and services produced in the United States. Analysts said the deficit in the last fiscal year was 3.2 percent in relation to the GDP. But with the shrinking economy and the shortfall in tax revenues, that is projected to rise in the current fiscal year to about 8 percent, the highest rate since World War II.

Analysts said that trend deserves scrutiny because the higher the deficit, the more the government must spend on paying interest on the debt, which in turn means less money for new programs or tax cuts - both of which Obama has promised.

If the deficit remains high "over enough years, it leads to a debt explosion" that could devastate the economy for years, said Richard Kogan, a senior fellow at the nonpartisan Center on Budget and Policy Priorities.

Nonetheless, many economists are urging Obama to push a stimulus package that will probably, at least in the short term, further increase the deficit. Obama's advisers have suggested a stimulus package that could range between $100 billion to $300 billion. However, there has been strong disagreement on Capitol Hill about whether the package should be similar to a stimulus bill enacted earlier this year, which resulted in many taxpayers receiving $600 rebate checks, or whether it should focus on a jobs program such as funding infrastructure projects.

Gregg, who opposed the $600 rebate checks, said that program did little to stimulate the economy and resulted in much of the money being spent on goods produced in foreign countries, particularly China. He said he proposed at the time that the money be used to stabilize the housing market, suggesting that might have helped prevent the current financial crisis. Obama has not yet specified what his stimulus program will include, though in his remarks yesterday he spoke of "rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels," along with fuel-efficient cars.

Economists said the goal of the stimulus program would be to create enough growth to eventually offset the cost of the program and, in the long term, reduce the deficit. They said that if the stimulus plan does spur substantial growth, that would help the banks that have borrowed money from the government under the financial bailout plan to repay the loans with interest. That, in turn, would help shrink the deficit if other economic problems are brought under control, the economists said.

But even if Obama is successful in reversing the economic slowdown, he faces another longer-term deficit problem due to the ballooning costs of Social Security and Medicare as baby boomers retire. Obama still hopes to expand healthcare and push through other costly initiatives sought by his supporters.

The deficit received relatively little notice during the campaign. Bill Clinton left his successor, President Bush, with a budget surplus of $128 billion. That quickly turned into a deficit because of a combination of factors, including increased spending, across-the-board income tax cuts, an economic downturn, and some of the costs associated with improving homeland security after the Sept. 11 attacks.

The deficit started declining in 2004, prompting Republicans to say that the tax cuts were stimulating economic growth. But the deficit more than doubled in the last year as the economy slowed and the cost of the wars in Iraq and Afghanistan built up.

In the federal response to the financial crisis, a series of measures have added to the deficit in the last three months, including $105 billion to offset a scheduled increase in the alternative minimum tax and up to $350 billion to pay for the financial bailout (the second half of the $700 billion has not yet been allocated).

Bixby said that while the deficit is a major concern, the bigger problem is that little is being done to ensure the accumulated national debt - $10.6 trillion, the highest in relation to GDP in a half century - is brought under control for the long term.

"We are doing nothing to get ourselves to dig ourselves out of it," Bixby said. "What's the end game? We don't have a responsible economic policy and we are on the verge of the baby boomers retiring, which means that there are going to be enormous budgetary pressures in the next several decades. This is a convergence of bad events."

Federal deficit could top $1 trillion - The Boston Globe

 

[RabzonKhan]

2009 may be ‘even darker’ economically, says IMF

LONDON, Dec 21: The head of the International Monetary Fund (IMF) warned on Sunday that the economic situation could get even worse in 2009 if governments fail to take firm enough action.

“Our forecasts are already very dark but they will be even darker if not enough fiscal stimulus is implemented,” Dominique Strauss-Kahn told BBC radio.

“We see 2009 as really being a bad year, with recession for most advanced economies and growth decreasing for emerging economies.”

The IMF has called for global fiscal stimulus of about two per cent of GDP, equivalent to some $1.2 trillion.

The IMF chief said he feared recent initiatives, including the one announced by the G20 in Washington last month, may not go far enough.

“I can see that some measures have been announced, but I’m afraid it won’t go far enough,” he said.

Strauss-Kahn said he understood Germany’s ‘reluctant’ attitude to the steps announced by some countries, including Britain, but added it would be best if all countries act together to “face the recession”.

“I respect the traditional view of the Germans but nevertheless I think we are at a time when we should be a bit more imaginative than we have been in the past,” the French former finance minister said.—AFP

 

[ajpirzada]

there are so many banks who are still not showing the true figure of their bad debts.

 

[BanglaBhoot]

Toyota Expects Its First Loss in 70 Years

TOKYO — Toyota Motor, the Japanese auto giant, announced Monday that it expected the first loss in 70 years in its core vehicle-making business, underscoring how the economic crisis is spreading across the global auto industry.

Analysts said Toyota’s downward revision, its second in two months, showed that the worst financial crisis since the Depression is threatening not just the Big Three but even relatively healthy automakers in Japan, South Korea and Europe. Many other companies will also soon be reporting losses.

Worse, analysts said that they expect next year to be even more painful, amid forecasts that the global economy will continue to slide until at least the summer. This could cause a significant shakeout, driving cash-strapped smaller and weaker companies into the arms of a smaller number of bigger, richer players.

“It is just a matter of time before all major automakers are losing money,” an auto analyst in Tokyo for Credit Suisse Securities, Koji Endo, said. “And things will just get worse next year, when companies start losing money for the second consecutive year.”

On Monday, Toyota said it expected a loss during the fiscal year of 150 billion yen, or $1.7 billion, in its group operating revenue, the amount it earns from its auto operations. Toyota said that would be its first annual operating loss since 1938, a year after the company was founded.

The loss would also be a huge reversal from the 2.3 trillion yen, or $28 billion, in operating profit Toyota earned last fiscal year. The company, which has been neck and neck with General Motors to be the world’s largest vehicle-maker, said it still expected to eke out a narrow net profit in the current fiscal year, which ends March 31.

The company, which just a few months ago seemed unstoppable after eight consecutive years of record profits, said it suffered from plunging vehicle sales not only in North America but even in once-promising markets like India and China, which many had hoped would prove immune to the United States malaise.

“The change in the world economy is of a magnitude that comes once every hundred years,” Toyota’s president, Katsuaki Watanabe, told a news conference in Nagoya, Japan, near the company’s Toyota City headquarters. “We are facing an unprecedented emergency.”

Mr. Watanabe said the company would respond by suspending investment in new plants, including the delay in starting a factory in Mississippi announced last week, and moving some production lines to single shifts. The company has even unplugged electric hand dryers at some offices in an effort to cut costs.

With some $18.5 billion in cash, and relatively little debt, Toyota is still in far better shape to weather the downturn than G.M. and Chrysler, which on Friday received $17.4 billion in emergency loans from Washington.

In Japan, the economic slowdown could force a realignment of the country’s eight automakers, which are globally competitive but have begun feeling increasing pain from the global downturn.

The biggest drops have come in the United States, traditionally the Japanese companies’ most profitable market. After years of increasing market share at Detroit’s expense, Japanese companies are seeing sharply lower sales. In November, Toyota saw its sales drop 33.9 percent and Honda Motor 31.6 percent, faring slightly better than G.M.’s 41 percent decline.

Sales are also down in their home market of Japan, both because of the crisis and longer-term demographics in this rapidly aging society. Last week, an industry group announced that new car sales in Japan would drop next year below five million vehicles for the first time in 31 years.

Japan’s automakers have responded by slashing global production by 2.2 million vehicles in the current fiscal year. They have also cut profit forecasts, laid off non-staff workers and delayed investment in new factories. Last week, Honda Motor, the nation’s second-largest carmaker, reduced its profit forecast by two-thirds for the current fiscal year.

The auto slowdown has helped worsen an increasingly nasty recession in Japan’s export-dependent economy, the world’s largest after the United States. On Monday, Japan finance ministry said exports dropped 26.7 percent in November, the largest drop since statistics started being kept in 1980, to push the nation into a rare trade deficit for the month.

The financial turmoil has also hurt carmakers by driving up the value of the Japanese yen, which has risen some 25 percent since summer. A higher yen makes Japanese autos and other products more expensive overseas.

On Monday, Toyota cited the currency as one reason for revising its forecast. Analysts say Toyota has been seen as the most vulnerable of Japan’s big automakers because it had been investing heavily in new products, including a full-sized pickup truck for the United States market, just when auto sales started to fall.

“They’ve caught the same cold that Detroit has caught,” said Christopher J. Richter, senior analyst in Tokyo at Calyon Capital Markets Asia. “Everything is going wrong for Toyota this year.”

On Monday, Toyota also lowered its worldwide vehicle sales forecast for the current fiscal year to 7.54 million vehicles, far below the 8.9 million vehicles it sold last year. It said the decline would be particularly large in North America, where it forecast it would sell 2.17 million vehicles this fiscal year, down from 2.96 million last year.

Despite the loss in its car business, the company said it still expected to post a group net profit in same period of 50 billion yen, or $560 million. Toyota’s group includes automaker Daihatsu and truck builder Hino.

http://www.nytimes.com/2008/12/23/b...?bl&ex=1230094800&en=03cc697c3c1376e9&ei=5087

 

[RabzonKhan]

2008 In Review: 'Once-In-A-Century' Financial Crisis Hits Markets Worldwide

December 24, 2008
By Kathleen Moore

Although the first big signs of trouble began to emerge last summer, 2008 was the year the financial crisis would go truly global, knocking the economies of the United States, Europe, and Japan into their first simultaneous recession since World War II.

In 2008, terms like "credit crunch," "fiscal stimulus," and the one that started it all -- "subprime" -- would become part of everyday language.

As early as January, U.S. authorities recognized the economy needed a health check. But President George W. Bush's words as he pushed for a fiscal stimulus package were still confident. "We can provide a shot in the arm to keep a fundamentally strong economy healthy, and it will help economic sectors that are going through adjustments, such as the housing market, from adversely affecting other parts of our economy,” Bush said.

Unfortunately for the United States, and for countries around the world, that housing market adjustment would indeed have startling adverse effects.
The crisis had its roots in the market's subprime section. Too many people had taken out home loans beyond what they could afford to pay back. When they began to default in large numbers, lenders began to collapse. Banks posted huge losses on complex securities linked to those subprime mortgages. This in turn led banks to become more reluctant about lending money to businesses and each other.

With borrowing difficult to get for business and individuals, the chill of recession was in the air. The question was how severe the storm would be, and how far it would blow from the United States.

By March, the subprime crisis had its first big casualty. One of Wall Street's biggest firms, Bear Stearns, was taken over by its rival, JP Morgan Chase, for a fraction of its previous value.

July was another peak month. It brought the demise of Indymac, one of the biggest U.S. mortgage lenders. It was also the month of $147-a-barrel oil prices and an all-time high -- at $1.60 -- for the euro.

And then came the events of September. U.S. Treasury Secretary Henry Paulson on September 7 announced the government rescue of two huge mortgage lenders, Fannie Mae and Freddie Mac, saying that the companies “are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in the financial markets."

The crisis quickly spread within the following days and weeks. On September 15, in the space of just one day, one of the world's biggest investment banks, Lehman Brothers, collapsed, and another, Merrill Lynch, was taken over by another bank.

The next day, the Federal Reserve announced a multibillion dollar emergency loan to rescue insurance giant AIG.

By the end of the month, two more investment banks – Goldman Sachs and Morgan Stanley -- had transformed into regular commercial banks, and a giant mortgage lender, Washington Mutual, was closed down.

Meanwhile, the first details were emerging of a $700-billion government plan to take over the bad debt at the heart of the crisis.

Cardiac Arrest

With hindsight, some say it was a mistake for U.S. authorities to allow Lehman Brothers to fail. The decision quickly set in motion a chain reaction of events that put the financial system, in the words of U.S. financier George Soros, into "cardiac arrest."

Lehman's failure led to the seizing up of the important market in "commercial paper" -- short-term debt issued by businesses to raise cash for expenses like payroll.

A huge amount of that debt issued by Lehman Brothers became worthless overnight, and money market funds stopped buying commercial paper.

Howard Davies, the director of the London School of Economics and a former financial regulator in the United Kingdom, said that the failure of Lehman Brothers provided a lesson in how the market has changed in recent years.

"In the past the doctrine had been that an investment bank -- unlike a commercial bank -- could fail and you would have to unwind its transactions and the shareholders would lose all their money, but nonetheless the market would carry on,” Davies said. “In fact, we discovered that Lehman Brothers might not have been too big to fail but it was too connected to fail, and created all kinds of ripple effects across the globe."

So far, Europe had been fairly smug about what seemed to be a crisis made in the U.S.A. But by end of September, the smirks disappeared as the crisis washed across the Atlantic.

A series of emergency responses began with the nationalization in Britain of mortgage lender Bradford and Bingley, and the bailout by Belgium, Luxembourg, and the Netherlands of banking and insurance group Fortis.

Most dramatically, Iceland's banking system collapsed in October, forcing it to seek help from the IMF.

Russia Points A Finger

The crisis was spilling over into emerging markets too. Investors were fleeing Russia and elsewhere for safer shores, and by October there was panic as Russian stocks went into freefall, prompting markets to close several times.

Russian Prime Minister Vladimir Putin blamed what he called "U.S. irresponsibility" for the crisis. And President Dmitry Medvedev pronounced the end of an era, saying that “the time of domination by one economy and one currency has been consigned to the past once and for all."

Fingers pointed to many culprits in this crisis: irresponsible borrowers; the Federal Reserve for keeping interest rates too low for too long; exotic, complex investments based on mortgages; credit rating agencies that gave top grades to those investments.

Whatever the causes, the economic crisis loomed ever larger in the U.S. presidential campaign, not least because it was clearly spilling over into sectors from banking to airlines to manufacturing, all of which cut thousands of jobs. By December, it was confirmed the U.S. economy had been in recession all year.

November also brought the biggest bank bailout yet -- that of Citigroup.

The list of countries asking for IMF help grew ever longer, as Hungary, Latvia, Ukraine, Belarus, and Pakistan joined Iceland in seeking emergency aid.

The Fed continued to take unprecedented actions. After deep rate cuts -- some coordinated with other central banks -- the Fed's key rate now stands practically at zero, effectively retiring it as a tool of monetary policy.

But the cuts so far have had a limited effect in boosting lending, prompting the Fed to adopt unconventional methods. Among them, programs to buy more than $2 trillion of short-term debt from companies; another $1.4 trillion in bank loan guarantees; and a $200-billion program in which the Fed lends for the first time to holders of investments backed by car loans, student loans, and credit cards.

By the end of the year, the potential cost of this massive U.S. government rescue effort -- so far -- was an estimated $8.5 trillion.

Trillions of dollars had been wiped off the value of stocks worldwide. There were worries about the possible collapse of the U.S. auto industry. Oil was at under $50 a barrel -- less than a third of its value in July. State intervention was back in vogue in a big way.

There were questions, too. Was it right for governments to try to borrow and spend their way out of the problem, passing a colossal debt burden onto future generations? To some ears, the borrow-and-spend route out of recession sounds a lot like the original cause.

 

[asaad-ul-islam]

you again? we've already been through this, SBP has cleared up this stuff. Pakistan has not been affected by the financial crisis. our problem is our own, we've caused it since the past year.

 

[asaad-ul-islam]

This whole meltdown is avoidable

EDITORIAL (December 16 2008): The Governor of State Bank of Pakistan, Dr Shamshad Akhtar, has been repeatedly arguing that world financial trouble has not impacted Pakistan. It has certainly not impacted our banks, thanks to a conservative SBP approach as the central bank did not allow Pakistani banks to invest abroad aggressively because our forex reserves position did not allow the banking sector this luxury, available to some other developing countries.

In fact, SBP was not very favourably disposed to the government taking on more forex liabilities through dollar bond floatations to meet its fiscal deficit target. SBP's conservative approach was viewed as "bureaucratic" by banks wanting to invest abroad or to copycat the financial instruments such as 'Derivatives' since SBP required them to obtain its permission for every deal.

In hindsight, SBP has earned kudos for protecting the forex side, but unfortunately the performance on the rupee side is not up to the same mark. Despite its commitment, the SBP could not deliver on replacing its Continuous Funding System (CFS) - 'Badla' in local parlance. The relationship of SBP with the other regulator, Securities and Exchange Commission of Pakistan (SECP), has also been less than cordial.

In fact, it has grown more tense with a battle over turf between them. Non-bank financial institutions sided with the SECP when SBP wanted them to come under its ambit. In return when the liquidity crisis erupted and SBP pumped up the credit market, it did not appreciate the crisis in the capital market for it was not its prime responsibility.

SECP also has done an even shoddier job. Although it cannot be solely blamed for the "floor rule" on KSE for 103 days, the Ministry of Finance needs to shoulder responsibility for this trouble. The legal wrangle in the courts between the broker community and the lenders (banks, DFIs, NBFIs and Mutual Funds) is a regulatory failure in the first place.

SECP was bound to fail as the main lenders, who are not their regulatees (are under SBP) could not be successfully persuaded by SECP to resolve the differences over CFS Mark-II contracts. Unfortunately, even the regulatees under the ambit of SECP could not agree to any proposal emanating from it. The broker community leaders believe that the SECP proposals are drafted in the offices of MUFAP, Mutual Funds association.

The MUFAP leadership is of the opinion that SECP circulars are drawn up keeping the broker community's interest paramount. This is indeed a sad reflection on SECP. But the story does not there. Even the frontline regulator, ie the Board of Directors of the KSE, has failed to address the key issues. The experiment of bringing non-broker directors on KSE Board has not proved successful.

The objective of the exercise was to be the first step towards complete demutualisation of the exchange so that vested interests do not hold sway over investor interests. The broker directors are considered more knowledgeable about the technical working of the exchange than the non-broker Chairman and Directors and have by and large taken the decisions for the protection of brokers in the board meetings. The placement of the floor on August 27th is said to have been a highly controversial development.

Being one man short, the non-broker directors were outvoted. At the last Board meeting (on December 13th), there was a split in the Board over the directive of SECP to withdraw the floor and suspend the Board's powers for 90 days on this issue. The Chairman's casting vote was used to block the resolution to seek legal opinion on the SECP circular of December 12, 2008. The Lahore High Court decision on Monday shows who is more conversant with the law, rules and regulations of SECP.

While blaming the regulators we do not absolve either the broker community or the financial institutions. Pig headedness from both sides has landed the issue in court. Both sides know fully well that this issue cannot be resolved quickly in courts and it is clear to both that they need each other to stay in business. The brokers need credit to conduct business and settle their daily transactions.

The lenders know that the brokers do not have the cash to provide additional margins on account of the expected steep fall of the KSE index. Brokers have invested, besides shares, in properties and in the current economic conditions they cannot sell these properties to raise cash as there are hardly any buyers for them.

After all, banks exposed to financing against shares have had to accept properties as additional collateral, while rolling over the financing against shares into one-year term loans instead of cash and shares. Similarly, CFS is a structured product. The terms of default are clearly defined.

Is it in the interest of Mutual Funds to have 25 odd brokers default first and later agree to work out modalities to salvage them? On the other hand, it is highly unfair for brokers to walk away from CFS contracts (declaring them null and void) - leaving the shares held by the lenders as margins, as the full and final payment under the CFS contract.

After all, the brokers are servicing their loans against shares. Banks need not take a position: why should we bail out the big boys? Well, some of these big boys not only own brokerage houses, but also Mutual Funds as banks. The blame for this lies squarely on past SECP Chairman Khalid Mirza and SBP Governor Ishrat Husain.

But all this is the past. It is the present situation that needs to be addressed. Unfortunately, however, the situation is evolving every hour, every day. The Advisor on Finance Shaukat Tarin needs to get the two regulators to sit with him and ask all the major regulatees to sit across the table and come up with a fair and amicable solution that both sides can live up to.

For the future, a solution to stop pumping up the capital market through excessive leveraging needs to be put in place. It is the reversal, ie fall which always causes the crisis of liquidity. We have been able to avoid the US subprime crisis affecting us. Now we need to resolve the KSE crisis as it could otherwise lead to a meltdown.

Business Recorder [Pakistan's First Financial Daily]

 

[RabzonKhan]

you again? we've already been through this, SBP has cleared up this stuff. Pakistan has not been affected by the financial crisis. our problem is our own, we've caused it since the past year.

I think SBP Governor was specifically talking about the banks not the entire economy, but I don’t know what you’re trying to get out of it?

This whole meltdown is avoidable

EDITORIAL (December 16 2008): The Governor of State Bank of Pakistan, Dr Shamshad Akhtar, has been repeatedly arguing that world financial trouble has not impacted Pakistan. It has certainly not impacted our banks, thanks to a conservative SBP approach as the central bank did not allow Pakistani banks to invest abroad aggressively because our forex reserves position did not allow the banking sector this luxury, available to some other developing countries.

 

[opinion786]

=Rabzon;253419]Most dramatically, Iceland's banking system collapsed in October, forcing it to seek help from the IMF.

Icelend's banking system collapsed becasue its banking liabilities were 5 times that of its country's GDP.

Pakistan's banking liabilities do not exceed 55% of its country's GDP. Hence Pakistan's economy is resilient and on safe side, thanks to sane policies of Shaukat Aziz.

Ours is a mess created by insanity of PPP and their incompetence to protect our sovereignty i.e Foreign Reserves and Foreign & Local Investment - above $29 billion flew out of the country under PPP.

This has been dicussed on DAWN news several times by economists.

 

[RabzonKhan]

Crude Oil Falls on Concern Fuel Demand May Slump Amid Recession

By Alexander Kwiatkowski

Dec. 30 (Bloomberg) -- Crude oil fell, poised for its first annual decline in seven years, on concern that fuel stockpiles may increase as a deepening global recession reduces demand.

U.S. gasoline inventories probably rose to the highest since August last week, according to a Bloomberg survey of analysts. South Korean factory production dropped by the most on record, adding to signs Asia’s fourth-largest economy will join Japan, Europe and the U.S. in a recession. Crude also fell on speculation that Israeli attacks on the Hamas-controlled Gaza Strip won’t disrupt supplies from the Middle East.

“With most global economies struggling and credit markets still in an impaired state, it is hard to get too excited about the upside potential in energy markets attributable solely to geopolitical factors,” Edward Meir, an analyst at MF Global Ltd. in Connecticut, said in a note today.

Crude oil for February delivery fell as much as 94 cents, or 2.4 percent, to $39.08 a barrel in electronic trading on the New York Mercantile Exchange. It was at $39.59 at 1:29 p.m. London time. Futures have declined 73 percent from a record $147.27 in July and are down 59 percent this year.

U.S. gasoline stockpiles probably rose 1.5 million barrels in the week ended Dec. 26 from 207.3 million barrels the week before, according to the median of seven analyst estimates before an Energy Department report this week. All the analysts said there was a gain. Gasoline inventories have risen in 11 out of the past 13 weeks.

For crude oil, opinion was mixed, with three analysts forecasting an inventory gain and four a decline. The Energy Department is scheduled to issue its weekly report tomorrow at 10:35 a.m. in Washington. The release time will change back to its original time of 10:30 a.m., starting Jan. 7.

Brent Crude

Brent crude oil for February settlement dropped as much as 92 cents to $39.63 a barrel on London’s ICE Futures Europe exchange and was trading at $40.43 at 1:28 p.m. Yesterday, the contract rallied $2.18, or 5.7 percent.

“I’m still pretty bearish on oil,” said Mark Pervan, a senior commodities strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “It’s cheap compared with where prices were six months ago, but it’s probably not cheap based on current market fundamentals.”

South Korea’s statistics office said today industrial output slumped 14.1 percent from a year earlier in November, while the central bank said an index measuring manufacturers’ sentiment for January fell to a record low of 44, from 52 the previous month.

Gaza Violence

Oil pared gains after advancing yesterday on concerns that an escalation in Israeli attacks on the Gaza Strip may disrupt Middle East oil supplies.

At least 345 Palestinians have been killed and 1,400 wounded since Israel started its aerial campaign on Gaza on Dec. 27, according to the Palestinian emergency services office in Gaza City. Israeli leaders said they began the bombardment to halt rocket attacks on southern towns by Islamic militants after a six-month cease-fire with Hamas expired Dec. 19.

Still, oil futures may rebound from their worst year to average $60 a barrel next year as OPEC makes record production cuts to counter the deepest economic slump since World War II, according to the median forecasts of 33 analysts compiled by Bloomberg.

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world’s oil, agreed on Dec. 17 to reduce daily production targets by 2.46 million barrels next month. Libya and the United Arab Emirates have announced compliance with the cuts agreed on this month.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net; Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

 

[RabzonKhan]

Icelend's banking system collapsed becasue its banking liabilities were 5 times that of its country's GDP.

Pakistan's banking liabilities do not exceed 55% of its country's GDP. Hence Pakistan's economy is resilient and on safe side, thanks to sane policies of Shaukat Aziz.

Ours is a mess created by insanity of PPP and their incompetence to protect our sovereignty i.e Foreign Reserves and Foreign & Local Investment - above $29 billion flew out of the country under PPP.

This has been dicussed on DAWN news several times by economists.

I agree with you our banking system is strong and certainly the credit goes to Shaukat Aziz and to certain extend to Governor SBP Shamshad Akhtar.

From where did you get the $29 billon dollars figures, can you elaborate on it?

 

[RabzonKhan]

Comment: One crisis, one world —Kemal Dervis & Juan Somavia

January 22, 2009

As recession spreads around the world, the global production networks that arose with the globalisation of the world economy have become sources of cutbacks and job losses. Postponing purchases of new winter coats in the United States means job losses in Poland or China. These losses then translate into reduced demand for American or German machine tools.

Unemployment and reduced sales then feed back into new losses in banks’ loan portfolios, further weakening the battered financial sector. As a result, anxiety, hopelessness, and anger are spreading, as what was a financial crisis becomes an economic and human crisis. Unchecked, it could become a security crisis.

Trying to rescue the financial sector without supporting a recovery in terms of businesses, jobs, and family purchasing power will not work. What is needed is a large worldwide fiscal stimulus to counteract falling private demand.

Different countries’ capacity to act depends on their indebtedness, foreign exchange reserves, and current-account deficits. Germany and China can do more than others. The US can do a lot, in part because of the dollar’s status as the main international reserve currency. Low interest rates mean that the additional debt burdens that public borrowing will create can remain manageable.

Moreover, if the stimulus succeeds and leads to an early recovery, the additional income gained may more than offset the increase in debt. Given the collapse of commodity prices and excess production capacities, there is no short-term inflation danger, even if part of the stimulus is financed directly by central banks.

The argument for a strong fiscal stimulus is overwhelming. Several countries have already announced measures, but there is a need to evaluate what they all amount to in reality. For example, some constitute “new” money, while others represent existing commitments brought forward. We also need to assess the quality of these packages.

The argument is strong for providing stimulus through increased government expenditures rather than relying on, say, tax cuts, because panicked consumers might save the money instead of spending it. Debt and inflation will reappear as medium-term problems, so it is critical that the fiscal ammunition used helps long-term productivity, growth, and sustainability.

Of course, fiscal stimulus does not mean just throwing money at the problem. There needs to be a strategy, priorities must be weighed, and empirical evidence analysed. We should also remember that what growth there is in the world economy in 2009-2010 will come mostly from developing economies. Policies supporting their growth are critical to prospects in the advanced economies, too.

Each country may hope that others will stimulate their demand while it preserves its fiscal headroom, thereby relying on exports as the engine of recovery. Each country may also be tempted by protectionist measures, trying to preserve domestic jobs at the expense of imports. Such “beggar-thy-neighbour” policies in the 1930’s aggravated and deepened the Great Depression.

The automobile industry is a good example. Measures to keep the industry afloat in one country look like unfair competition to others. But the answer is not to let a collapse in the world’s car industry fuel a deeper recession. The answer is to coordinate a global recovery package, which creates the opportunity to point recovery in the direction of a new generation of fuel-efficient and low-carbon-emission vehicles and green jobs.

Sovereign countries will have the final say on their recovery packages, but global coordination will increase the effectiveness of everyone’s actions. Moreover, fairness and security considerations demand that the most vulnerable, who had no role in the making of this crisis, receive support.

Extending social safety nets helps the most vulnerable and is likely to have high multiplier effects, as the need to spend is most urgent for the poorest people. Training programmes, including for green jobs, should be significantly increased. Public expenditures must be focused on programmes with strong employment content, such as in small- and medium-scale infrastructure projects and support to local governments.

Credit lines should be kept open to smaller businesses, which employ the bulk of the world’s workers but have the least access to credit. The use of social dialogue for crisis management should be increased, because trust must be rebuilt. Donors must maintain the promised (and very modest) levels of development aid for the poorer countries, and the drive to achieve the Millennium Development Goals must be renewed. The availability and affordability of trade finance should be improved.

The Bretton Woods institutions have a key role to play. The International Monetary Fund and central banks should increase liquidity in a coordinated fashion in the form of short-term credit to emerging-market economies suffering from cuts in capital inflows and export earnings. The World Bank should increase lending to help finance growth-supporting expenditures in developing countries. Tangible progress is needed in global trade negotiations in order to signal that the world economy will remain open.

While these recovery measures are put in place, the world must also build the institutions for the twenty-first-century economy. The International Labour Organisation’s Decent Work Agenda of employment and enterprise, social protection, sound labour relations, and fundamental rights at work creates a solid platform for fair globalisation.

Any crisis is also an opportunity. This crisis has demonstrated that the destinies of countries around the world are linked. Policy coordination and a global strategy that instils confidence and creates hope will bring a quicker and stronger recovery to us all. —DTPS

Kemal Dervis is the executive head of the United Nations Development Programme; Juan Somavia is the Director-General of the International Labor Organisation

 

[RabzonKhan]

IMF chief warns world faces deepening crisis

January 23, 2009

* Strauss-Kahn warns of risk of social unrest in some hard-hit countries
* Says IMF may need an extra $150bn to help emerging markets and low-income countries

Daily Times Monitor

LAHORE: With the global economic slump spreading to major emerging markets including China, India and Brazil, “the world faces a deepening economic crisis”, International Monetary Fund Managing Director Dominique Strauss-Kahn warned in an interview with the BBC on Thursday.

The fund would significantly lower its forecast for world growth for 2009 in a revised assessment on January 29, he said in the BBC’s Hardtalk programme aired on Wednesday.

The IMF had said in an update last November that the output of the economies of the advanced countries would shrink in 2009 for the first time since the World War II, but since the emerging markets would continue to grow, the international economy might show a 2.2 percent growth this year.

“So 2009 will not be a good year for the world economy, even if we see recovery at the beginning of 2010,” he said.

The IMF has recommended a combination of measures to get the world back on track, including action already taken by many governments to stabilise financial markets and get credit flowing again.

The measures included fiscal stimulus through a combination of increased government spending and tax cuts to revive consumer demand; liquidity support for emerging market countries to reduce the adverse effects of the widespread capital outflows triggered by the financial crisis; and help for low-income countries harmed by fallout from the crisis and the lingering impact of last year’s spike in food and fuel prices.

The IMF has proposed that governments in a position to do so should act together to inject a global fiscal stimulus equivalent to about two percent of world GDP—$1.2 trillion.

A number of governments around the world have announced stimulus plans, including in the United States, Japan, Europe, China, and India. But Strauss-Kahn said he did not think enough had been done so far. “In Europe especially, they are still behind the curve,” he said. “There needs to be more done on the spending side, especially because the reaction of the economy to more spending is quicker than the reaction to a decrease in taxes.”

The European Commission said on January 19 it expected that the 16 countries using the euro would see their economies shrink by 1.9 percent in 2009.

Strauss-Kahn warned of the risk of social upheaval and unrest in some countries worst affected by the downturn and said he expected additional countries to seek IMF help, not just in Eastern Europe, but elsewhere in the world, including Latin America where some countries were “just on the edge”.

The IMF has so far committed $47.9 billion in lending to a number of economies affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Serbia, and Ukraine. It announced a precautionary loan for El Salvador this month and an IMF team is also in negotiations with Turkey.

Strauss-Kahn said the world had avoided a total meltdown of the financial system as a result of coordinated intervention by major central banks last October. “We were very close in September to a total collapse of the world economy,” the former French finance minister revealed.

Strauss-Kahn said that even though the financial crisis had started in the United States, the recent strength of the dollar showed that people around the world still had confidence in the US economy.

Before the crisis erupted, the IMF had around $200 billion in available resources and access to a further $50 billion. Since then, Japan has offered to lend the IMF an additional $100 billion. Strauss-Kahn has said that the IMF may need an extra $150 billion to help emerging markets and low-income countries get through the crisis.

 

[RabzonKhan]

Well, we don’t need to worry, because according to some “experts” our economy will not be affected by the world economic crises.


IMF: World Suffering Worst Downturn in Postwar Era

28.01.2009

The world economy will grow by only 0.5 percent in 2009, the worst rate since World War Two, as industrial nations battle a recession that is dragging developing countries down with them, the IMF said Wednesday, Jan. 28.

Wealthy nations will experience their worst recession in the post-war period as a financial crisis continues to spread throughout their economies, the International Monetary Fund said as it slashed its global economic forecasts. A contraction of two percent is expected in 2009, even with massive fiscal stimulus packages planned by all rich countries.

A recovery to 1.1 percent is possible in 2010, the IMF said, but only with drastic government intervention to help revive demand and stabilize financial institutions at the heart of the downturn.

The United States will contract by 1.6 percent and Germany -- Europe's largest economy -- by 2.5 per cent in 2009. Japan, Asia's biggest economy, will contract 2.6 percent, the IMF predicted.

Growth in emerging and developing countries will also slow dramatically in 2009 to 3.3 percent from 6.3 percent in 2008.

China's economy will slow to 6.7 percent in 2009 from nine percent, India's will drop to 5.1 percent and Brazil's growth will plummet a whopping four percentage points to 1.8 percent in 2009.

The IMF's predictions represented another sharp revision from its last forecast in November, a fact attributed to dramatic collapses in consumer and business confidence, plummeting global trade and demand, frozen credit markets and even greater losses for financial institutions.

"We expect the global economy to come to a virtual standstill in 2009," Olivier Blanchard, the IMF's chief economist, told reporters.

In its November update, the IMF had forecast 2.2 percent global growth for 2009, a contraction of 0.3 percent in advanced economies and 5.1 percent growth in developing countries. World growth below three percent is considered a global recession.

Global trade volumes are also expected to collapse in 2009, contracting 2.8 percent after growth of 4.1 percent the year before. In November, the IMF still predicted a 2.1 percent increase in trade for this year.

Deflation becoming a serious risk

At the same time, the IMF warned that deflation was now becoming a serious risk for some wealthy nations. Consumer prices were expected to rise by only 0.3 percent in industrial nations in 2009 and 0.8 percent in 2010.

The global downturn continues to be driven by the debilitating financial crisis which began with a collapse in the US housing market but has since spread to all corners of the globe.

Financial firms are now projected to lose a total of $2.2 trillion before the crisis is over -- about $500 billion more than banks currently have in their reserves -- and will require more government aid.

The IMF also expects the world's 20 largest economies to spend at least 1.5 percent of their gross domestic product on massive fiscal stimulus packages. The US is currently mulling an $825 billion package worth some five percent of GDP.

Such government spending is crucial to reviving consumer demand, but would only provide a relatively short-term boost to economies: stabilizing the financial system is the key in the long run.

"Restoring financial health is a necessary condition for durable economic recovery," Blanchard said, adding that governments needed to take more "aggressive" measures to stem the collapse of financial firms.

Banks' need for cash has stopped them from lending to each other and to consumers. Developing countries have seen foreign investments in their economies dry up as a result.

Governments, especially the US, must inject more capital into banks to keep them afloat, but should also take the damaged mortgage-related assets off their balance sheets in order to promote a long-term recovery, the IMF said.

The price of commodities like oil, food and metals has also plummeted in the last few months due to falling demand, putting even more pressure on some poorer countries dependent on their exports of natural resources.