Warned China to be careful with its exports

European finance chiefs said Sunday the global economic recovery was not yet strong enough for governments to halt stimulus measures, after meeting here with Chinese Premier Wen Jiabao.
A delegation led by Eurogroup chief Jean-Claude Juncker, European Central Bank head Jean-Claude Trichet and economic and monetary affairs commissioner Joaquin Almunia also urged a "gradual and orderly" appreciation of the yuan.
It also warned China to be careful with its exports -- often much cheaper than those of other countries -- to avoid provoking a protectionist backlash, in the talks held in the eastern city of Nanjing.
"We are considering the moment has not yet arrived to withdraw the stimulus packages that are under way in various parts of world," Juncker told a news briefing after the meeting between EU officials and Chinese economic managers.
The Asian giant's economic recovery was well under way, Juncker said, adding the Euro area was also detecting clear signs of improvement and expecting to see a moderate recovery in 2010.
"The Euro area will see no major withdrawal of stimulus measures in 2010," he said.
The meeting took place a day ahead of a major China-EU summit expected to focus on climate change.
The yuan's exchange rate is one of the thorniest issues between China and the European Union.
The Chinese currency has been effectively pegged to the US dollar since the summer of 2008, and Europe fears the euro's resultant rise against the yuan will hurt EU exports to China and slow the continent's economic recovery.
"We said there was a case for what I would say is a gradual and orderly appreciation of the currency against the euro and the major floating currencies. This was our message," Trichet told reporters.
"We were not defending the overall interest of the European economy only," he said. "We were defending what we trust is the superior interest of both the Chinese and the European economy -- and the global economy."
Trichet said the rebalancing of China's export-dependent economy was "part of its own stability and prosperity."
However, the European officials said they were not optimistic that Beijing's policy on the yuan would change.
Almunia confirmed the low value of the yuan against the euro had "led to a situation with which we are not satisfied."
Protectionism was a concern for both sides, he added, pointing out the EU was China's largest trading partner, accounting for a fifth of the Asian giant's total exports.
"In this still difficult economic situation we should avoid protectionism... it is in the Chinese interests not to create conditions that can lead to protectionism," he told reporters after the news conference.
Wen, for his part, also voiced his opposition to trade and investment protectionism, according to comments broadcast on state television. He also defended the yuan.
"China maintains the stability of the yuan exchange rate and has made important contributions to global financial stability and economic development," he was quoted as saying.
Wen added China would gradually increase the "flexibility of the yuan exchange rate."
Earlier this month US President Barack Obama appeared to have failed to persuade Chinese officials to loosen the yuan's peg to the dollar.
"The Chinese are telling us exactly the same thing they are telling President Obama," European Commission president Jose Manuel Barroso told reporters after a dinner with Wen before Monday's China-EU summit.
A week before the United Nations Climate Change Conference begins on December 7, environmental concerns are expected to overshadow other issues at the summit, which is also being attended by Swedish Prime Minister Fredrik Reinfeldt, who holds the rotating EU presidency.
"I certainly asked the Chinese and all our partners to explore the outer limits of their position," Barroso said after the dinner. "What is at stake is very important: it's the future of our planet."
China meanwhile is expected to offer reassuring words on the importance of the EU after Obama's recent visit here fuelled talk of a "G2" world dominated by Washington and Beijing.
One senior European official, who spoke on condition of anonymity, said the Nanjing meeting marked the first "substantial summit we have had since 2007".
China cancelled a December 2008 summit in protest at a meeting between the exiled Tibetan spiritual leader, the Dalai Lama, and French President Nicolas Sarkozy, who held the EU presidency at the time.
A summit between the two sides was subsequently held in Prague in May this year.

More than two million workers have gone to work ill

The results show that lack of job security was particularly hard on families, with almost one in five parents turning up to work ill and close to one in 10 parents sending sick children to school.

Dr Christine Bennett, Chief Medical Officer of Bupa Australia* warns that short-term, risky health actions taken by individuals in an attempt to save money or prove job dedication are likely to have long term negative health outcomes for Australia.

"The poll has revealed that during the past six months, more than two million workers have gone to work ill because they have been concerned about taking a sick day, and a worrying 17 per cent of Australians have avoided or delayed a visit to a GP, dentist or a specialist," Dr Bennett said.

The results reinforce the findings of Research Australia's report, Australian Financial Crisis: Implications for Health & Research (Report), which highlights that the fall-out from the GFC goes beyond economics and has major long-term health implications for Australia.

In the Report, which has been produced with the support of Bupa Australia, health policy makers are being urged to prepare for increases in obesity, mental illness, chronic health conditions, and alcohol and drug misuse.

"The health impact of the GFC has largely been overshadowed by the focus on the economy," Research Australia Chief Executive Officer, Rebecca James explained. "However, the health consequences may be felt long after the economy turns around."

The ground-breaking independent Report, which features the views of some of Australia's leading experts in health, the economy, government and society, has revealed that the negative health effects of the GFC include:

• An increase in psychological distress of both employed and unemployed Australians;
• An increase in the numbers of long term unemployed who are at risk of long term disadvantage, which may be characterised by lower health status;
• Health and other support services will be stretched.

Dr Bennett, who recently chaired the National Health and Hospitals Reform Commission, commented that the Report is a timely reminder that Australia needs a health system that is able to respond to unexpected events such as recession.

"Australia's continued investment in research will be vital to the development of effective health and social policy to ensure we are better prepared for the future," she added.

The Research Australia independent report, Australian Financial Crisis: Implications for Health & Research, produced with the support of Bupa Australia and the National Health & Medical Research Council, looks at the research evidence on the health and social impacts of economic downturn and features the views of some of Australia's leading experts in health, the economy, government and society.

The world's largest – had risen more strongly than expected in October

World stock markets rose strongly again today to record highs for the year, buoyed by rising optimism about the world economy.The price of gold and other key commodities also rose, with the precious metal continuing its recent surge by reaching a new all-time high of $1,130 (£670) an ounce.Stock markets were boosted by news that retail sales in the US economy – the world's largest – had risen more strongly than expected in October, raising hopes that the American consumer may be spending again in spite of record high unemployment.In London the FTSE 100 of leading shares strengthened for the fourth consecutive day to close at a 14-month high of 5,382.7, up 86 points or 1.63%. The market rose by almost 3% last week alone and is now up 53% from the six-year low it set in March. Tonight's close was its highest point since 12 September – the Friday before the collapse of Lehman Brothers investment bank."Now that we have broken through the 5,300 level, a lot of investors are thinking we can keep going higher and higher. A lot of people are jumping back on to the recovery bandwagon," said Joshua Raymond, strategist at City Index.Today'srise was driven by big rises in mining and energy stocks, which have little connection with the British economy, but are listed in London and rise and fall in line with oil and metal prices.Shares in Rio Tinto, Xstrata, Randgold Resources and Antofagasta were up by between 4.3% and 6%. BP and Shell also rose, as did BG Group.

They were boosted by a $2 a barrel rise in oil prices to nearly $79 a barrel for US light crude while copper hit a 13-1/2-month high, boosting Antofagasta stock in particular.The prices of metals and oil were also supported by the weakening dollar, in which they are priced. As a result of the falling greenback, the pound rose to nearly $1.68 and also went above €1.12 to the euro.As the FTSE closed, shares in the Dow Jones industrial average on Wall Street were also up strongly by 146 points at 1041, and received an extra push from a bigger-than-expected, 1.4% month increase in retail sales.

Analysts cautioned, however, that the figures were mainly strong because of car sales being supported by the government's "cash for clunkers" scrappage scheme, which has just ended. However, underlying sales on non-car items were subdued, analysts said. Consumer spending accounts for 70% of the US economy and is regarded as a key measurement for gauging how strong the global recovery will be, especially as many factories in Asia are dependent on selling goods to Americans.

"The October retail sales numbers were a very mixed bag, but signal that despite the consumer's gloomy mood, spending is improving," said Nigel Gault, chief US economist at IHS Global Insight.

The liquidity that an match provides affords

The stock market is apart of the abundantly capital sources for companies to raise money. This allows businesses to perform publicly traded, or hoist further capital now expansion by selling shares of ownership of the company in a national market. The liquidity that an match provides affords investors the resourcefulness to hastily again chewed come across securities. This is an finest slant of investing in stocks, compared to offbeat less secretion investments consistent as real estate.

History has shown that the price of shares further poles apart savings is an important precedent of the dynamics of economic activity, and responsibility impinge or copy an pointer of sociable mood. An economy where the stock market is on the rise is special to be an hike again coming economy. power fact, the stock market is often considered the primary indicator of a country’s economic knack further advancement. Rising accrual prices, owing to instance, promote to be associated hole up increased business undertaking besides vice versa. advantage prices further regard the wealth of households and their consumption. Therefore, central banks cherish to maintenance an theorem on the control and behavior of the stock hawk and, in general, on the reposeful vivacity of cash system functions. monetary stability is the raison d’être of central banks.

Exchanges besides transact now the clearinghouse for each transaction, reason that they collect and deliver the shares, and guarantee fee to the seller of a dream. This eliminates the gamble to an normal buyer or seller that the counterparty could inferiority on the transaction.

The smooth haste of uncondensed these activities facilitates economic lucre repercussion that minor costs and enterprise risks abide the strain of goods and services over entirely as trade. In this way the fiscal system contributes to increased gravy. An important aspect of second money markets, however, including the stock markets, is downright discretion. now example, in the USA bovines markets we see supplementary unrestrained presupposition of sliver firm than imprint smaller markets. comparable as, Chinese firms screen no significant denotation to American cluster to congruous name matchless bit. This profits USA bankers on Wall Street, as they collect large commissions from the placement, also the Chinese cart which yields banknote to invest rule China. in future accrues no intrinsic effect to the long-term stability of the American economy, moderately fit short-term profits to American business men also the Chinese; although, when the foreign camper has a verity string the increased market, there can factor benefits to the market’s proletariat. Conversely, known are very few eminent alien corporations listed on the Toronto beasts altercation TSX, Canada’s largest bovines duel. This bent has insulated Canada to some shade to worldwide capital conditions. imprint rule since the stock markets to well help economic payoff via lower costs and exceeding employment, great importance exigency hold office accustomed to the alien participants being allowed in.

IMF predicted the world economy would expand 2.5% in 2010

The IMF plans to adjust its global growth forecast to "just below" 3% for 2010, a senior economist at the lender said, higher than its prediction in July, Bloomberg reported. The projections haven't been finalized, Jorg Decressin, a division chief in the IMF research department, said on a panel at the Carnegie Endowment for International Peace in Washington yesterday. In July the IMF predicted the world economy would expand 2.5% in 2010 after contracting 1.4% this year. The new forecasts will be released Oct. 1.

"The main risk is that people mistake the recovery we are seeing right now for a self-sustained recovery and withdraw the policy support prematurely," Decressin said, adding that he still sees risks "on the downside." The IMF currently expects the global economy to expand at slightly less than 3% in 2010, said Jorg Decressin, a senior IMF economist, WSJ reported. "The recovery is for real but it is very heavily policy dependent," Mr. Decressin said at a session at the Carnegie Endowment for International Peace. At some point, he said, private demand would have to replace the boost to the global economy from government monetary and fiscal expansion.

The global manufacturing rebound gathered pace in August, a string of closely watched surveys showed yesterday, raising hopes of a sustainable recovery in the world economy, FT reported. The U.S., China, Germany and France reported further strong improvements, adding to evidence of a v-shaped recovery in economic growth in the third quarter. However, some European countries, including U.K., were left behind.

American manufacturing expanded for the first time in 19 months, and pending sales of existing homes rose more than forecast, indicating the worst recession since the 1930s has ended, Bloomberg reported. The Institute of Supply Management's factory index posted its biggest two-month gain since 1983, rising to 52.9 in August; readings higher than 50 signal an expansion. The National Association of Realtors said signed purchase agreements for existing properties jumped 3.2% in July, for a record sixth consecutive gain.

World Bank President Robert Zoellick said the chances of a "truly global recovery" have increased because of China's expansion and improvements in other economies, Bloomberg reported. China's economy is likely to grow by close to 8% this year, topping the institution's most recent estimate, Zoellick said at briefing in Beijing today. Premier Wen Jiabao pledged yesterday at a meeting with the World Bank head to maintain stimulus spending and a "moderately loose" monetary policy, saying the world's third-biggest economy is at a "critical stage."

EU finance ministers were set to agree today that the EU should not be too hasty in withdrawing fiscal stimuli and other extraordinary measures introduced in response to the worst economic crisis in Europe's post-1945 history, the FT reported. "The time has not yet come to withdraw from the fiscal stimulus," said Jean-Claude Juncker, chairman of the 16-member group of euro zone finance ministers. "We have to continue this effort in the course of this year and next year. Then we have to agree on an exit strategy." The EU ministers were arriving in Brussels for an informal lunch meeting aimed at preparing the ground for a two-day session of G-20 finance ministers on Friday and September in London.

The removal of fiscal and monetary policy stimulus provided by governments and central banks around the world to limit the scale and depth of the recession must be coordinated, European Commissioner for Economic and Monetary Affairs Joaquin Almunia said today, DJ reported from Brussels. Almunia was speaking to reporters ahead of a meeting of the Euro Group of finance ministers form the 16 countries that use the euro, and later finance ministers from all 27 European Union members.

Eating less frequently and consuming worse food as a result of the global financial crisis

People living in the world's poorest communities are eating less frequently and consuming worse food as a result of the global financial crisis, according to a study of the impact of the recession in five developing nations published today. Many poor families hit by the economic downturn are also removing their children from school, research by the Institute of Development Studies showed, and in a number of countries children are being pushed into work early as a consequence of the international crisis. Research conducted in Bangladesh, Indonesia, Kenya, Jamaica and Zambia attempted to provide a rapid overview of the consequences of the recession in some of the world's most deprived communities.

The Treasury Department will report the actual deficit later this month

The U.S. government spent a record $1.4 trillion more than it collected in the fiscal year ended Sept. 30, congressional analysts said on Wednesday, in their final estimate before the official numbers are issued.
Bank bailouts, stimulus spending and declining tax revenues due to a deep recession led the government to post a deficit that amounts to 9.9 percent of the U.S. Gross Domestic Product for the 2009 fiscal year, the Congressional Budget Office said.
The Treasury Department will report the actual deficit later this month. The deficit for fiscal 2008 was $459 billion.
The $1.4 trillion estimate is less than the budget office’s estimate of $1.58 trillion issued in August, but the discrepancy arises from differences in calculating the costs of bailing out mortgage giants Fannie Mae and Freddie Mac, not any sudden change in economic conditions, CBO said.
The government took in $2.1 trillion in fiscal 2009, a 16.6 percent drop from the previous year as the recession led to sharp declines in individual and corporate income taxes, CBO said.
On the other half of the ledger, outlays increased 17.8 percent to $3.5 trillion, CBO said.
Among the most expensive items were $154 billion for bailouts under the Troubled Asset Relief Program, $91 billion for the Fannie and Freddie bailouts, and $100 billion under the massive stimulus package approved in February.
Excluding items in the stimulus package, spending for unemployment benefits more than doubled to $120 billion, CBO said.
One bright spot: the government’s interest payments on its debt actually decreased 23 percent to $199 billion thanks to lower interest rates, CBO said.

Developing countries clouded talks between global finance chiefs

Fierce disagreement over how much power rich nations should cede to developing countries clouded talks between global finance chiefs on expanding the role of the International Monetary Fund.
The IMF, which has lent more than $50 billion to countries around the world this year, says it needs more resources to oversee the recovery of the global economy and prevent future crises.But this depends on giving emerging market economies a greater stake in the institution. Major developing nations are demanding an increase in voting power that would see the developed world shift at least 7 percentage points of its share to emerging countries.

"We can only hope that over-represented advanced countries will realise that they may do great harm to the Fund if they attempt to block or delay quota and voice reform," Brazilian Finance Minister Guido Mantega said on Sunday.
He said the Fund needed to change the structure of its board so it could "cease to be regarded as mainly an American-European institution and become a truly multilateral institution".
The Group of 20 major nations agreed at a summit of their leaders in Pittsburgh last month to a power shift of at least 5 percentage points to under-represented countries such as China.
But the demand for 7 percentage points is meeting resistance from the developed world, particularly European nations, which do not want to give up too much of their own power.
Finance Minister Anders Borg of Sweden, which is currently president of the European Union, warned that Europe could become less generous in its financial support of the Fund if it lost influence over it.
"Adequate participation in the decision-making process of the fund is a prerequisite for our taxpayers’ continued support of large financial contributions," he said.
Just a year ago the IMF was fighting to persuade governments of its importance. But the crisis has greatly increased demand for its loans and advice to countries struggling with budget and current account deficits.
Allowing big developing countries to play a bigger role in the IMF could secure billions of dollars of fresh contributions to the organisation.
To ensure the global economy is stable enough for countries to stop accumulating huge foreign exchange reserves as a form of insurance, it is estimated that the IMF might need up to $1 trillion of fresh contributions, IMF Managing Director Dominique Strauss-Kahn said on Friday.
But China, Brazil, Russia and India have said any increase in their contributions must be tied to changes in voting power.
China believes contributions should automatically adjust to reflect the size of individual countries’ economies, Yi Gang, a Chinese central bank vice governor, said on Sunday.
In addition to the IMF’s role as a lender of last resort, the Group of 20 major nations, which is managing the global recovery, wants the IMF to ensure balanced growth by reporting back to it on countries’ policies and recommending changes.
China, which holds the world’s largest foreign exchange reserves and has seen its financial markets buffeted by volatile capital movements, wants the activities of a reformed IMF to extend even further.
Yi said the IMF should strengthen its supervision over international capital flows and promote the relative stability of major reserve currencies.

The Vietnam's business confidence index

The Vietnam's business confidence index (BCI) in the second quarter this year increased by 31 points over the first quarter to 130 points, the online newspaper vnexpress reported Tuesday.

The figure was released in a recent survey, conducted by the Vietnam World Vest Base Financial Intelligence Services (WVB FISL) and the PetroVietnam Finance Consultancy and Investment Company ( PVFC Invest).

There were 192 companies in 11 key industries of Vietnam including transport, banking and finance and oil sectors, getting involved in the survey.

Up to 53 percent of companies surveyed held that the country's overall economic health had improved compared to 12 months ago. Meanwhile, as many as 59 percent said that they had the plan to recruit new employees in the next 12 months.

In the survey, most Chief Executive Officers (CEOs) expressed confidence in increasing companies' revenues and profits for the next 12 months. Up to 81 percent gave higher sales projections while 72 percent expected their profits would increase.

When asked about the government's stimulus package, all respondents said that they believed such key measures, including interest rate reduction of consumer and corporate loans, would boost economic growth.

The sharp price increases in staple foods and fuel earlier this year

For the poor, finance is always about much more than economics. In practical as well as philosophical terms it is a matter of basic human rights. As the dust begins to settle on the global financial crisis it is certain that all economies will suffer. For the rich, OECD states, stagnation or recessionary losses are predicted, and for the emerging (BRIC) economies of Brazil, Russia, India and China, growth will significantly slow. But it is in the poorest, least developed states that we will likely see the most dramatic effects, simply because they have less to lose.
On top of the sharp price increases in staple foods and fuel earlier this year, least developed nations are especially vulnerable to reductions in foreign direct investment in their economies, in export trade, in the levels of remittances (which in respect of money sent home by Mexican migrants working in the US, for example, has already dropped sharply in the present quarter), or in the quantities of economic aid they receive (legitimate fears of aid reductions are well founded, given the estimated 25% drop that followed the Asian financial crisis last decade).
This was the stark warning that came out of the recent UN meetings in New York on the imperilled prospects of achieving the Millennium Development Goals (of halving world poverty, instituting universal primary education for boys and girls, substantially reducing infant and maternal mortality rates, halting the spread of HIV/AIDs, arresting environmental degradation, and promoting economic development in the poorest states) by the scheduled 2015
Though short on detail, UN Secretary-General Ban Ki-moon has been long on doom-laden rhetoric, warning that the turmoil in global financial markets could have "a very serious negative impact" on the ability (or more likely, enthusiasm) of rich nations to meet the goals. That is despite the sums required to do so being considerably less than the $700 billion bailout package put together to rescue ailing Wall Street banks (the annual aid budget of the US is currently around $25 billion, while that of the World Bank stands at approximately $38 billion; according to the OECD, the total aid commitment from all the world's major donors in 2007 was just over $100 billion).
This temper of concern was echoed in the communiqués emerging from this month's annual meetings of the World Bank and the IMF in Washington DC. Douglas Alexander, the UK's Secretary for International Development who was attending the latter, was especially candid in stressing that "in this interdependent world, co-ordinated action from governments, the IMF and the World Bank is not only a moral imperative, but in our self interest".
The fundamentalist undertones of such an exhortation flows from the circumstances that nearly one billion people face everyday. For without the means by which they can secure adequate housing, health care, education, and enough to eat and drink, and without protection against exploitation, discrimination, and (perhaps worst of all) disdainful disregard, the poorest of the poor will live, if they manage to stay alive at all, only barely.
Poverty does not cause human rights abuse. It is, primarily, the actions or inactions of governments that cause human rights abuse. However, the incidence of poverty is a reliable sign of attendant human rights problems, and an indicator that states are not fulfilling their obligations under international human rights laws.

Financial assets are basically debt

All complex economies need a strong financial sector. Finance, unlike traditional banking that slowly accumulates capital, can be thought of as a capability for making capital - and hence enabling the launch of major projects. Financial assets are basically debt, but debt with the special feature that it promises to make great profits. This ingredient of finance rests in turn on the need to "financialise" non-financial economic sectors. Because finance is about debt it needs grist - bits and pieces of the "real" economy - for its mill.

The larger economies are among the most dependent on their financial sectors. The value of financial assets in (for example) the United States, Japan and Britain by the time the global crisis erupted in 2008 was 450% to GDP (see "Mapping global capital markets", McKinsey Global Institute Report, January 2008). The European Union average is 350% to GDP, while Germany and France - at 250% - are at an even lower level, in a way that bears on their economies' comparative performance in the recession.
From the 1980s, the grist that finance requires was provided by the "bundling" of large numbers of corporate debt, but also of millions of small individual credit-card loans, automobile loans, and residential mortgages.
By 2000, the complexity of what was getting bundled had intensified - via derivatives on interest rates on long chains of corporate debt, credit default swaps (CDS), and other mechanisms. In fact CDSs had become the ultimate power-tool, a "made-in-America" product whose quantitative value jumped from $1 trillion in 2001 to $62 trillion in 2006 (more than the combined GDP of all the world's countries, $54 trillion). This rampaging innovation was the system's demiurge: when these swaps were called in during 2008, amid rising alarm among investors that something was wrong, the result was an all-consuming financial crisis (see "Too big to save: the end of financial capitalism", 1 April 2009).
By September 2008, finance had run out of grist and was reduced to scraping the bottom of the barrel - taxpayers' bailouts and (in the US) over 15 million sub-prime mortgages to modest and low-income households (most of which have or will wind up in foreclosures long after many investors had made their profits).
The relentless finance-mill found a respite in taxpayers' bailouts. But it is still in trouble. The major economies face a critical choice: do they really want to rescue a system with such a high level of financialisation - especially when there are other ways for the average firm and household to secure credit?

The financial crisis teamed up with an economic recession

Although the Asian financial sector has not completely escaped the ripple effect of the global financial meltdown, its exposure to the centre of the financial crisis - the subprime mortgage crisis in the US - was limited. This is a direct result of the 1997/8 regional economic crises, and since then Asian banks have been quite conservative, as well as being heavily regulated by national governments.
“Most regional banks are not sophisticated enough or are too heavily regulated to engage in those types of risky products,” says Jan Lambregts, global head of financial markets research, Rabobank International. “That has sheltered them from the worst of the fallout from the financial crisis.”
The Asian banking sector has not been left completely untouched - there has been some bank merger and acquisition (M&A) activity, for example Japan's Shinsei Bank and Aozora Bank merger, creating the country’s sixth largest bank. But by and large, the high-profile bank failures seen in the US and Europe, such as Lehman Brothers, Wachovia and Fortis, did not happen in Asia and, until now, the banks have not encountered any insolvency problems.
At a certain point, however, the global financial crisis became so widespread that there wasn’t any shelter from it. The shock effects of reduced global demand inevitably impacted Asia, most significantly through trade. For example, China's exports fell 17.5% in January 2009 compared to a year earlier, marking the biggest drop in more than 10 years; Taiwan’s exports in April fell 34% from a year ago, the eighth consecutive month of decline; while Japanese exports fell 40.9% in May from a year earlier.
“The world has become a much more integrated place,” says Lambregts, “so even though Asia is not at the epicentre of the financial problems, the region has become more integrated into the global trade system over the past few years, particularly since China joined the WTO [World Trade Organisation] in 2001. So instead of de-coupling, this process has really coupled Asia to the rest of the world. Therefore, when the rest of the world went into freefall following the collapse of Lehman Brothers and the financial crisis teamed up with an economic recession, threatening to create the mother of all recessions, Asian exporters cut back on their production very significantly.” This has led to a substantial de-stocking cycle in the ‘workshop of the world’.

International finance structures must be drastically overhauled

International finance structures must be drastically overhauled in the face of the current global economic crisis, a panel of experts convened by the United Nations General Assembly said today, calling on wealthier nations to direct one per cent of their economic stimulus packages to help developing countries address poverty.
A coordinated approach – bringing together not just the so-called Group of Eight (G-8) or even Group of 20 (G-20) nations, but the “G-192” representing all members of the Assembly – is needed to pull the world out of the recession, according to the recommendations of the Commission of Experts on Reforms of International Finance and Economic Structures.
Chaired by Joseph Stiglitz, winner of the 2001 Nobel Prize for Economics, the nearly two dozen-member body stressed that many poorer countries lack the resources necessary to tackle the crisis, and developed nations should not attach inappropriate conditionalities to such funds.
“The nature, the severity of this crisis has really opened up opportunities for change for reform that I think would not have been conceivable even a few months ago,” Mr. Stiglitz told reporters.
The experts also called for the International Monetary Fund (IMF) to increase the availability of funds for hard-hit nations.
A new global reserve system must be put into place to promote economic stability and equity, the Commission said, as this would ease the deflationary effects of the massive accumulation of reserves that countries believe are necessary to brace themselves against global instability. Such a system would offset the risk of a drop in value of a major reserve currency.
Other recommendations included the creation of an elected and representative Global Economic Coordination Council, as part of the UN, to meet annually at the head-of-State level to assess development and serve as a “democratically representative alternative to the G-20.”
Further, a financial regulatory board and competition authority – which would both answer to the Coordination Council – could prevent the expansion of multi-national firms that threaten competition or become problematic when they become too big to fail, the experts said.
The creation of a new international credit facility, under the aegis of the World Bank, would provide additional credit to developing countries without pro-cyclical conditionalities, and the governance of such an entity would represent both new donor countries and take into account concerns of developing countries.
“We see the United Nations system, which includes the Bretton Woods institutions, has the institutional capacity, the expertise, and the global presence to respond in significant and practical ways” to the current crisis, Assembly President Miguel D’Escoto said today.
An interactive dialogue, expected to wrap up tomorrow, is under way at UN Headquarters on the panel’s recommendations. The results of the three-day gathering will help lay the groundwork for the International Conference on the Global Economic and Financial Crisis and its Impact on Development slated to be held in New York in June.

Banks made trillions of dollars in poorly underwritten loans

The populist uprising against paying big bonuses to top executives of banks bailed out with taxpayer money is in large part warranted, according to a study by an independent compensation consulting firm. San Francisco-based Presidio Pay Advisors studied executive compensation at 115 publicly traded banks participating in the Troubled Asset Relief Program (TARP) and found that since 2006, changes in CEO and CFO compensation had no measurable link to changes in performance.

“Many US banks are failing to deliver on their often-stated goal of paying for performance,” says Dave Bisson, author of the study, who is a senior consultant at Presidio Pay Advisors. Based on proxy statements filed in 2009, most banks’ compensation committees say their pay programs are fine and no changes are needed. “We believe this is a short-sighted and counterproductive response and increases the odds regulators or politicians will further set the rules,” Bisson says. Congress has already imposed significant pay restrictions on banks with TARP investments, which will be lifted only once TARP funds are repaid in full. “As the debate surrounding the issue continues in Washington, boards should use this time-out to fix their compensation programs,” Bisson says.

Banks made trillions of dollars in poorly underwritten loans, and these toxic assets are now generating huge losses, he says. It typically takes several years for loans to season and for banks to judge their performance. “There is a disconnect between the period of time used to determine annual incentives and the time needed to determine loan performance,” Bisson says. One solution would be for banks to defer annual incentives and place them in a pool to be paid out over a number of years.

Another problem is an over-reliance on stock options, Bisson says. Direct stock ownership is a better incentive, creating a stronger link with shareholders’ interests, he says. There is an asymmetry in the way options work, he says, because they provide executives with the opportunity for gain without a corresponding risk of loss.

Globalization Is Not Standardization

Guillermo Kopp, global research fellow at the research and analysis firm TowerGroup, believes that part of the reason why expectations for emerging markets were downgraded so dramatically early in the year is that people tend to oversimplify globalization. Many observers wrongly assumed that globalization would result in equal pain being felt worldwide. “[But] it isn’t about standardization;it’s about increasing inter-dependencies between markets,” says Kopp.This distinction also undermines the decoupling theory, though. “Despite improvements in some emerging markets, it is wrong to suggest that decoupling is occurring between developed and developing countries,” says Kopp. “Demand still comes largely from developed markets, and the ability of money to move instantly has a profound effect on emerging markets.” Templeton’s Mobius agrees: “It is ridiculous to suggest that emerging markets can be separated from developed markets in terms of trade and capital flows and communications. Decoupling simply does not exist.”Instead, the current divergence of growth between developed and emerging markets can be explained by the different backdrop each had to the financial and economic crisis. Crucially, this is a recession—no economists are claiming a 1930s-style depression is imminent—attributable to too much leverage. However, leverage was not evenly distributed throughout the global economy. Instead, it was overwhelmingly concentrated on developed economies’ assets, ranging from personal mortgages to super-leveraged collateralized debt obligations.Rather than simply making the assumption that the near-collapse of the Western financial system will decimate emerging markets’ economic growth, it is important to draw a distinction between financial markets and the real economy. “There’s a creative tension between the strength of emerging markets and the financial volatility in the West,” explains Kopp. “When demand increases in emerging markets, it has the potential to cause overheating in Western financial markets. Similarly, when Western financial markets crumple, their downturn smothers emerging market economic growth.”

Selling relationships for a better world

Inter Agency Procurement Services Office (IAPSO) is an office within United Nations Development Programme (UNDP) that handles procurement for governments, non-governmental organizations (NGO's), United Nations agencies, international finance institutions etc. Annually all UNDP offices and organizations are measured for performance and customer satisfaction in a quantitative Bureau of Management (BoM) survey. Between 2002 and 2004 IAPSO's ratings dropped from 69% to 54% which had major political implications for the organization. IAPSO has since 2002 utilized a quantitative online survey to measure customer satisfaction; this survey shows a very high satisfaction rating through 2002 to 2004. In order to understand why the two surveys presented different results a third quantitative survey was undertaken. The third survey showed high customer satisfaction but could not explain the low rating in the BoM survey. In both the online survey and the third survey comments provided by the respondents are somewhat contradictive to answers given in bound questions, perhaps indicating that there are issues not captured in the surveys. The different outcomes of the surveys have made staff at IAPSO unsure of how the organization is perceived externally raising more questions than answers and so this thesis aims to understand how IAPSO is perceived externally.Purpose: The purpose of the thesis is to get a holistic view of how IAPSO is perceived externally using grounded theory and symbolic interactionism. Previous quantitative studies fail to give a whole picture of how IAPSO is perceived externally. To achieve the purpose there is a need to understand how IAPSO's stated goals and vision are interpreted, the internal perception and the external perception, and to examine how communication/interaction (or lack thereof) between actors affects the perception.Conclusion: The result show that even though staff members of IAPSO have an accurate picture of how IAPSO is perceived externally and are aware of their customers' needs and problems, IAPSO's vision and stated goals are unclear (both internally and externally) which influence customer experience and affect how and what internal staff communicate to customers, the results show the importance of personal relationships and functional communication. IAPSO do not only provide services, they also sell relationships.

Global finance needs new framework for global economic governance

Financial crises and surges in private capital markets can disrupt the global economy far more quickly and to far greater effect than any trade phenomena, argues Professor G K Helleiner. It is therefore critically important to establish a new framework for effective global economic governance and for development.
THE past half-century has seen tumultuous change, much of it the product of 'spontaneous' influences, in the world economy. In no sphere has this change been greater, particularly in the last quarter-century, than in international finance. In very large part, the emergence of globalised financial markets was the product of technical change in information processing, telecommunications and transport. But conscious governmental actions - in the general direction of market liberalisation - have also played some role.
Whatever the cause, private capital now dominates the total net (long-term) financial flows to the developing world - as much as 85% of the total in 1996 - compared with around 45% in 1990 and much less in the 1950s and 1960s. Portfolio flows make up over 40% of current private flows to the developing world. Pension funds, mutual funds and life insurance companies, investing in bonds and equities, are now considerably more significant sources of development finance than banks - whose activities peaked, to disastrous effect, in the late 1970s and early 1980s. Foreign direct investment is also rapidly rising again - now accounting for about 45% of total private flows compared to 55% in 1990 and much larger percentages in the 1950s and 1960s. At the same time the world has been experiencing the so-called 'crisis of aid': official flows are stagnant or declining except from a small number of donor countries (the Nordics and the Dutch).
Unfortunately, the private flows are highly concentrated in a relatively few countries - with 95% going in 1996 to just 26 countries, while 140 countries shared the remaining 5%. Worse still, private capital has proven highly fickle and volatile in its behaviour: portfolio managers have proven just as nervous in the 1990s as banks were in the 1970s and 1980s. And TNCs managing their own portfolios have emerged as major movers of short-term funds. It is not necessary to demonise George Soros or other money managers, who are merely trying to protect their shareholders' interests in a highly uncertain world. It is simply in the nature of financial markets that they are susceptible to panics, crises and volatility.
The role of national governments
Governments can and do play some role both in the evolution of the global financial system and in the determination of its effects upon development in individual countries. At the national level, all governments have a particular responsibility for the stability and security of the domestic monetary, banking and financial systems - critically important to the functioning of any economy.
The vulnerability of banking and financial systems to crises, instability and market failure has virtually everywhere produced central banks and regulatory authorities to protect the social interest and, usually, to mediate national interactions with global financial markets. Effective functioning and stability of the monetary and financial system is now universally seen as a fundamental requisite for development, and it can only be achieved through effective state action. The ultimate responsibility for national-level development policy - including macroeconomic management, the encouragement and effective deployment of savings and investment, and modes of interaction with the global economy - always rests with national governments.
But who plays the role of the development-oriented state in the global economy? Effective global macroeconomic and financial management is far more important to overall output, employment, and development than any individual national-level actions or, for that matter, any changes in the trade regime. Exchange rate changes and misalignments can and do easily swamp trade policies in the short- to medium-run. Financial crises and surges in private capital markets can disrupt the global economy far more quickly and to far greater effect than any trade phenomena.
It is therefore critically important to get the central macroeconomic financial institutions for the newly globalised economy broadly right.
Today's global financial world, the world in which governmental policymakers seek to promote development, at both the national and international levels is utterly different from that facing the original architects of the Bretton Woods system in 1944, a time when international financial markets had, in effect, been closed down.
The central governmental institutions in today's global economy are those of the major industrial powers and, inter-governmentally, the meetings of the G-7, realistically the G-3, (Finance Ministers or Heads of State), the IMF, the World Bank, and the Bank for International Settlements (BIS), and all of their committees. All have been attempting to come to terms with some of the monumental changes in the global financial system of the past couple of decades. Finance ministers and central bankers, in pursuit of safety and stability (not development per se), have been trying valiantly to develop appropriate governance arrangements to 'catch up' with global financial market forces.
Unfortunately, the process through which the current international monetary and financial system is attempting to respond to the challenges thrown up by the new global economy is severely flawed. It is tortuously slow, insufficiently participatory, overly influenced by powerful lobbies from the financial sector, and constrained by jurisdictional ambiguities and turf struggles. It is difficult at present to be very sanguine about the early prospects for appropriate changes - particularly those likely to assist processes of development in the developing world - that emanate from the current efforts of such bodies as the G-7, the BIS, the IMF, the World Bank, the various regional development banks, or, for that matter, the WTO, the OECD or such non-governmental organisations as the International Chamber of Commerce.
Non-G7 members
Above all, the process is flawed because of its failure to take adequately into account another element of major change within the global economy and the global financial system, a change which has been of fundamental importance - and is much less remarked upon in the dominant financial institutions. That is the rapidly growing importance of non-G-7 members in the world economy, and therefore the growing importance of these economies to G-7 and global welfare. In purchasing power parity terms, developing countries alone already account for nearly half of world output. According to the World Bank, by the year 2010 they will account for 56% of global consumption and 57% of global capital formation. And developing countries as a group are still generally projected to grow at roughly double the rate of the industrial world during the coming decade.
We have recently been reminded, first in Mexico and now in South-East Asia, that there is another important dimension to increasing developing-country participation in the global economy and global financial markets. Developing countries' economic performance is subject to much greater volatility than that of the more industrialised countries. The closer integration of the developing and transition countries into the world economy and their greater importance to it pose increased risks - not only to themselves but also to the entire global system. There are bound to be many more Mexican-style and South-East Asian-style crises in the years to come. Developing countries have also recently proven more prone to disasters of climate, civil disturbance and war.
Apart from the fact that the G7 countries represent a small and declining proportion of the world's population, their own economic and political security now rests significantly and increasingly upon events in the rest of the world.
From these facts flows an inescapable conclusion: the world must find a way not only towards improved management of a newly globalised economic system - a difficult enough task - but also toward more politically and economically representative, and therefore more legitimate and more effective, means of global economic governance. And the search for such reformed arrangements must begin in the world of global finance, where the risks are highest and the potential gains from improved arrangements are greatest.
All of a single piece
The problems of the international financial system and its interaction with the agreed objective of global development are all of a single piece. It would be nonsensical to attempt to address the issues surrounding the future of the financing of development in isolation from the many influences upon the now dominant private flows of capital. Such influences include the macroeconomic policies of the major industrial countries, particularly as they affect interest rates, the provision of adequate liquidity and appropriate responses to periodic crises, the backstopping and supervisory roles of the major international financial institutions - not only the IMF and World Bank group but also the regional development banks, the BIS and related institutions. If there is to be a useful conference on the financing of development, it must therefore address the workings of the entire international monetary and financial system as it impacts upon development. A conference, if there is to be one, should be about 'the international monetary and financial system and development'. No less will do.
The developmental focus is essential, if only to discourage endless further debate on the appropriate exchange rate arrangements among the US dollar, the emerging Euro and the yen - the issue which, under Northern influences, ran away with far too much of the discussion on the occasion of the 50th anniversary of the Bretton Woods institutions.
Some urge the United Nations to stay out of monetary and financial affairs. One can certainly make a case that, in the interest of an efficient international division of labour, monetary and financial issues should be raised and addressed in the appropriate multilateral fora - presumably, at present, the IMF and the World Bank group. Most Finance Ministers and Central Banks do not regard the UN as an appropriate forum for discussion of these matters. Most probably do not know or, if they know, do not much care that the Second Committee is debating these issues in New York. From their standpoint, the only meetings that truly mattered were those in Hong Kong a month ago, meetings that they all attended.
The IMF and the World Bank group have done much of their work extremely well, better than quite a lot of the work undertaken by other specialised agencies of the UN, and one must never minimise the difficulty of achieving effective international governmental cooperation in any sphere, let alone in the complex world of international money and finance. We can and should celebrate the remarkable successes of the IMF, the World Bank Group, the regional development banks and the rest - and many of us have done so. But let us also be clear that they have done their work relatively well principally because they were financially supported to do it well. The administrative budgets of the IMF and World Bank - totalling roughly $2 billion per year - are considerably larger than the combined administrative budget of all of the rest of the UN system with all of its other responsibilities. The question of the cost-effectiveness of these expenditures in the Bretton Woods institutions, in support of multilateral economic and financial governance, is rarely raised.
To take a small current example, the World Bank's World Development Report is reliably estimated to have cost roughly $4 million, far more than the UN system spent upon its World Economic Survey, the (UNCTAD) Trade and Development Report and the (UNDP) Human Development Report.
The question is: are the current international financial institutions likely to be able to transform themselves, spontaneously and without prodding and in a reasonable time frame, into what will be required for the emerging world of the 21st century?
Whose priorities?
The primary concerns of the majority of the world's countries have repeatedly been raised within the existing multilateral monetary and financial institutions: in particular, the effective introduction of global considerations into G-7 macroeconomic management fora; the provision of liquidity in true accordance with global need; more effective response to sovereign bankruptcy, and debt and financial crises; the regularisation of development finance, more effective and representative governance in these institutions themselves; and developing country representation in financial supervisory and regulatory provisions for the global financial community.
Perhaps the developing (and transition) countries have not tried hard enough within the existing institutional machinery. Perhaps their spokesmen and women, and their representatives on the relevant boards, have been too junior in their levels, or too timid in their efforts. Perhaps developing-country Finance Ministers should assign higher priority than they now do to these multilateral economic governance issues (although their frequent inability and/or unwillingness to do so is perfectly understandable for smaller and poorer countries). Perhaps the G-24 could run its affairs much more effectively. All of these could be done. But would it, under current arrangements, make much difference? I suspect not much.
Consider some of the recent evidence. Recent efforts to amend the articles of the IMF centred on (i) an 'equity' allocation of SDRS, rather than an allocation to meet global needs as perceived by the majority of its members, and (ii) an expanded mandate to permit it to push the liberalisation of private international capital flows with greater vigour - hardly the top priority reform for the majority of IMF members either. Whose priorities were these? At the same time, the recent expansion of IMF quotas made virtually zero concession to the growing importance and needs of developing countries. The most that the Managing Director could do was to offer, in return for developing-country support for the much-needed current quota expansion, to look at these matters next time. These are not signs of an organisation able easily to recast itself in the interest of the majority of its members. They are, rather, stark reminders of who still really runs the principal global monetary institution.
Dominance
Again, without casting any aspersions on the qualities of the current office-holders, it is worth asking - in the context of all of the current 'buzz' about governance in their institutions' boards - how the positions of President of the World Bank and Managing Director of the IMF, with all of their considerable attendant powers, are at present filled. What exactly are the transparent and participatory and rules-based procedures, which the World Bank recommends for all, through which these major multilateral leaders of the financial community are selected? The bizarre and hilarious manner in which the next-to-last President of the World Bank was appointed is recounted in the brilliant, newly-released history of the World Bank by Devesh Kapur, John Lewis and Richard Webb (The World Bank, the First Half-Century, Volume I. History, Brookings Institution, Washington DC, 1997, page 1199). Who can take seriously the World Bank's strictures on others' governance when its own governance is so severely flawed?
The reforms being pursued in the sphere of international banking supervision by the BIS and the regulation of international securities markets by IOSCO are, of course, welcome and overdue. But the BIS, a central bank for G-10 central bankers, is even less representative of global interests than the IMF, and IOSCO is even less so. Both deserve credit for recently consulting with developing countries. But is this enough? Incidentally, neither are answerable to elected representatives in their own countries.
Need to reconstitute IMF/World Bank governance
There is an overwhelming intellectual case for a strengthened multilateral framework both for the conduct of international/global finance and for sound global macroeconomic governance in the interest of both stability and development.
But one cannot, in good conscience, continue to recommend the strengthening of the roles of the IMF and World Bank in global macroeconomic management and the management of the international financial system (as I have myself done in the past) as long as their own governance has not been reconstituted so as to reflect more accurately and fairly their global membership. Much as they try to convey a more attractive image to the world, they still disproportionately reflect in their actions and policies the views and interests of a few major industrial countries.
Developed countries have utterly different voting powers and the provisions for special majorities for particular categories of decision vary enormously from one international economic organisation to another. Comparing the governance structures of a large number of multilateral organisations, the IMF and World Bank place last in their representativeness of the majority of the world's countries and peoples. Developed countries (as defined by the World Bank) account for 17% of overall votes in the Global Environmental Facility (the same as in the UN itself), 24% in the WTO, 34% in the IFAD, 48% in the IDB, 60% in the ADB, and 61-62% in the World Bank and IMF.
Financial strength should not grant the degree of across-the-board institutional and political power currently enjoyed in the international financial institutions by the G-7 governmental oligopoly. No doubt financial contributions bring some extra rights. They also bring extra responsibilities. Political democracy and the rule of law have been based, however, on quite different principles (granted that they have frequently been abused in practice).
Let me be more direct and extend the argument: brain power and technical insight have never been correlated strongly with the amount of money people bring to the table. Not the least of the changes in the global village of the past few decades has been the ascendancy of a whole new generation of Southern technocrats and academics with an interest in and capacity for sophisticated analysis of global issues, particularly as they affect development. There is simply no remaining rational basis for the continuing degree of reliance, on the part of the IMF and World Bank, upon North American and European scholars and consultants.
For instance, in a recent conference on the future of the SDR, I counted only nine developing- or transition-country speakers out of a total of 36 on the programme. Of eight more participants listed in the subsequent publication as having participated in the general discussion, only one was from a developing country. These proportions are fairly typical.
There are now more staff-members from developing countries within these institutions than there once were. Staff-members of such organisations are always severely constrained, however, in their activities. In-house analyses and evaluations can rarely generate much self-criticism or results that stray seriously from the current 'policy line'. Bureaucratic incentives simply do not encourage such independence of mind. Change and fresh thinking is sometimes pushed 'from the top', as once again at present in the World Bank, but rarely to very much long-term effect.
'Fresh air'
Pressure for more significant change usually comes from elsewhere, from bad experience or - but this may be more difficult - from truly independent external assessments and recommendations, particularly when buttressed by some significant political or intellectual authority. Further bad experience will surely assist the process of change, but one can hardly recommend further financial crises. On the other hand, one can and should try to breathe more 'fresh air' into the currently somewhat inbred discussions of global money, finance, and development in the Bretton Woods institutions.
I hope I have made it clear that, because the needs of the entire global community are at stake, and because the existing international financial institutions are so unrepresentative and show so little sign of making necessary changes in the near future, I believe that the Second Committee of the United Nations General Assembly now has little alternative but to take a keen interest in the current state of multilateral governance in monetary and financial matters, particularly as they affect development.
But how can it move events forward? How do we all get from here to there? There are many possible options, only one of which is a global conference. There should certainly be no expectation that, as at Bretton Woods, one extended meeting can deal with all of the problems. One should instead be thinking in terms of a more effective process of change - change which is urgently needed but seems very slow in coming.
The aims are both to improve the final product and to speed the progress toward it. However one proceeds, a useful starting point - or a point quite early in a new process - would be a global conference. It could serve an important educative and galvanising purpose. It must not serve, as conferences sometimes do, as a de facto substitute for action.
What realistic options for an improved process might be considered? There are four - and they are not necessarily mutually exclusive.
The Secretary-General of the UN might appoint a panel of independent and representative experts to address the major questions, and to make recommendations. To do this, he would no doubt want to consult with the Bretton Woods institutions. But he must not be dependent upon them. Such commissions may not seem to change the world so much. But they can be important elements in a process of review, popularisation of important ideas, and change. In retrospect, the Pearson, Brandt and Brundtland Commissions were important signals of such change in the second half of the 20th century.
As earlier recommended by the Group of 24, one could seek to re-initiate an intergovernmental process like that of the Committee of Twenty (the 20 were equally divided between industrial and developing countries), created by the Bretton Woods institutions themselves in the 1970s, to reconsider their functioning in the new financial world of that decade.. In the absence of IMF/Bank response to this request, such a prospect would have to be initiated from elsewhere, and might be more difficult to launch. It might usefully be discussed in the Second Committee.
Separate reviews
Separate reviews might be initiated at the regional level, perhaps by the regional economic commissions of the United Nations (or perhaps by the regional development banks), and perhaps all under the Secretary-General's or ECOSOC's umbrella authority. Proposals from Japan and Australia for regional IMF-style funds and improved arrangements for increased regional monetary cooperation in Asia suggest that some such thinking is already under way, and it needs to be placed appropriately into a more global context.
Some developing countries and/or some industrial 'middle powers' might initiate their own independent or intergovernmental review with recommendations, as has previously been done in other dimensions of UN activity. These possibilities might be actively explored in the forthcoming Extraordinary Meeting of G-24 Ministers of Finance.
No doubt there are many other possibilities. I hope you will consider many such possible avenues for broader progress in the sphere of global economic governance as you debate the merits of the proposed conference on the financing of development. On behalf of all of those with a concern for effective global economic governance and for development, let me wish you every success in your deliberations. (Third World Resurgence No.87/88, Nov/Dec 1997)

The world's financial assets reached a record $140 trillion worth of stocks, bonds and other financial assets as of 2005, more than three times as large as the total worldwide GDP, according to a study by McKinsey & Co., the Wall Street Journal reported.
Global financial stock of $140 trillion in 2005 was a an increase of $7 trillion from a year earlier. Eurozone added $3.3 trillion of assets in 2005, reflecting a 6% annual growth rate over the last ten years – nearly twice the pace of Anglo–Saxon rivals.
The depth of world financial markets rose to an all–time high of 316% – more than three times world GDP. With few exceptions, deeper financial markets create better access to funding for companies.

Source: Wall Street Journal

Global Financial and Economic Crisis

WASHINGTON: The International Monetary Fund has raised its estimate of losses from the global financial and economic crisis to more than four trillion dollars due to writedowns on soured credit.
The IMF said the total estimated cost of 4.054 trillion dollars includes 2.712 trillion dollars in losses in US-originated assets.Losses on European-originated assets were estimated at 1.193 trillion dollars and those of Japanese-originated assets at 149 billion dollars.The total cost represents what was needed and would be needed by financial institutions because of the deterioration in credit, in particular in the plunge in the value of equities backing credit, such as mortgage loans, as the global economy suffers the worst contraction in six decades.The estimate, which covers the period from the beginning of the financial crisis in mid-2007 to 2010, was published in the IMF's latest semi-annual Global Financial Stability Report (GFSR).The IMF's previous update in January of a projected loss of 2.2 trillion dollars was based exclusively on US-originated assets, as had been the October 2008 GFSR estimate of 1.4 trillion dollars."The global financial system remains under severe stress as the crisis broadens to include households, corporations, and the banking sectors in both advanced and emerging market countries," the IMF said."Shrinking economic activity has put further pressure on banks' balance sheets as asset values continue to degrade, threatening their capital adequacy and further discouraging fresh lending," the 185-nation institution said.The IMF projected that banks will bear 2.470 trillion dollars, or 61 percent, of the total losses and said that two-thirds of them have yet to be declared."Loss recognition is incomplete and capital is insufficient under a recession scenario," the IMF said."Other financial institutions including pension funds and insurance companies also have significant credit exposures," it added.US pension funds alone may have to write down "at least" 200 billion dollars on their credit exposures, in addition to their losses in equity assets, the IMF said.Pointing to "early signs of stabilization" in the global financial system, the Washington-based institution said that "further decisive and effective policy actions and international coordination are needed to sustain this improvement, to restore public confidence in financial institutions, and to normalize conditions in markets.""Policy actions have prevented an even deeper crisis, but the limited market improvement to date has been insufficient to prevent the onset of the adverse feedback loop with the real economy," it said."Credit deterioration could substantially deepen for European banks in particular, including through their exposure to emerging Europe."The IMF economists calculated that for banking systems to be recapitalized to pre-crisis levels, 275 billion dollars would be needed in the United States and 600 billion dollars in Europe.To return to mid-1990s levels, the amounts would rise to 500 billion dollars in the United States and 1.2 trillion in Europe.The IMF said it was not opposed to the nationalization of troubled banks, as evidenced by its financial rescue of Iceland after the government seized three banks in October.Due to some banks' "current inability to attract private money... temporary government ownership may thus be necessary, but only with the intention of restructuring the institution to return it to the private sector as rapidly as possible," the GFSR said.The IMF said British banks would be hit slightly more softly by the economic crisis than it previously reported, after correcting data published earlier Tuesday.Late on Monday the IMF said its statement earlier predictng that the crisis would cost Britain's banks 13.4 percent of gross domestic product -- or around 200 billion pounds (290 billion dollars) -- by the end of the year was mistaken."We have corrected the figure in the table from 13.4 percent to 9.2 percent," IMF spokesman Andreas Adriano told AFP, without confirming what the cost could be in real terms.That revision would put the loss at closer to 132 billion pounds (200 billion dollars).

Imbalances between savings and investment in major countries

As the economic crisis has spread from financial markets to real economies in countries around the world, governments have understandably focused on short-term measures to contain the damage. Crafting stimulus packages and financial bailouts to address immediate problems has for many reasons been a priority for policymakers. In this Council Special Report, however, Steven Dunaway argues that policymakers must go beyond these steps and tackle one of the root causes of today’s crisis: imbalances between savings and investment in major countries. The report analyzes the nature of these imbalances, which occur when some countries, such as the United States, run large current account (essentially trade) deficits while others, such as China, maintain large surpluses. Dunaway identifies three features of the international financial system that have allowed the imbalances to persist, features that involve both floating and managed exchange rates as well as the issuance of reserve assets. In particular, he notes that the United States’ status as an issuer of such assets has enabled it to finance a current account deficit. The report then prescribes a variety of steps to address global imbalances. Beyond stimulus packages around the world, it urges measures to raise savings (principally government savings) in the United States, reform labor and product markets in Europe and Japan to increase competition and flexibility, and boost domestic consumption in China. Finally, the report advocates improving International Monetary Fund (IMF) surveillance of member states’ economic policies by reducing the role of the Fund’s executive board and depoliticizing the selection of its senior management.Global Imbalances and the Financial Crisis is a timely work that offers thoughtful analysis and recommendations. It makes an important and sober case that without action to deal with global imbalances, these imbalances will balloon again and imperil future economic growth. And while such institutions as the IMF and the Group of 20 (G20) have significant roles to play, Dunaway contends that the ultimate responsibility for tackling imbalances rests with national governments. The central question is whether governments are up to this challenge.

Completion of transfer of 75% stake in Euroclinic by Eureko to Global Finance’s latest buyout fund

Completion of transfer of 75% stake in Euroclinic by Eureko to Global Finance’s latest buyout fund; Eureko retains remaining 25%(18/12/2008)
Eureko B.V., and Global Finance have announced the completion of the transaction – signed in July 2008 – whereby Eureko, the parent company of Interamerican in Greece has transfered a 75% stake in Medicom Systems S.A., the holding company for Euroclinic Athens and Euroclinic Children, to South Eastern Europe Fund L.P. ('SEEF'), a fund advised by Global Finance; Eureko retains the remaining 25%.The Euroclinic facilities have 220 beds collaborate with more than 2,500 doctors and over 85,000 patients were treated last year. Global Finance and Eureko, by leveraging their expertise in healthcare intend, through a long-term partnership, to further invest in the healthcare sector to develop and provide innovative high-quality healthcare products and services, and continue to grow the business.The partnership with SEEF will enable Interamerican to focus on its core insurance products, whilst providing customers with access to high-quality healthcare, and will strengthen the co-operation between Interamerican and Euroclinic.Polly Zissopoulou, who has headed the hospitals for a number of years, will step down and pursue her career in other channels. She is owed a debt of thanks on her dedication and commitment to Euroclinic. Dr George Veliotes the Interamerican Health Director and Board member of Euroclinic for several years will temporarily take charge for running the hospitals, where he is well-known and close to the personnel.HSBC acted as the Mandated Lead Arranger for the debt and was subsequently joined in this role by Millennium Bank.