IMF

IMF tags 10 conditions

Govt has to lift ceiling on lending rate, cut SoE losses to get loan
The government must fulfil 10 conditions in the current fiscal year including withdrawal of the ceiling on lending rate and reduction of loss incurred by three major state owned enterprises to get International Monetary Fund (IMF) loans.

Setting the conditions last month, the IMF said the loan proposals are likely to be placed before the IMF Board meeting this month if the government clears its position in this regard.

Bangladesh Bank (BB) in 2009 capped the interest rate of 13 percent on loans of the commercial banks to encourage investment and cut the cost of business. The IMF said the ceiling should be phased out by March.

The IMF conditions are based on the commitments the finance minister made in his last two years’ budget speeches.

To get a $1 billion loan as budget support, the government has held a series of talks with the organisation in the last few months. The government has to meet the conditions by the end of this fiscal year to get the loan which will be disbursed in three years.

In efforts to fulfil the conditions, Finance Minister AMA Muhith held discussions with the ministries concerned when officials of some ministries projected their reservations about some of the conditions.

However, the minister has made some progress in fulfilling the conditions.

One of the main conditions was that drafts of new VAT and income tax laws have to be placed in parliament by June and the government has to finalise the drafts prior to the IMF Board meeting.

The National Board of Revenue (NBR) has already posted the draft laws on its website to solicit public opinion.

The BB is ambivalent about lifting the upper cap on the lending rate as it fears the step would elicit negative reaction from the business community.

The businessmen have long been saying that the interest rate in Bangladesh is too high and have demanded that it be lowered, said BB officials. If the ceiling is lifted, the central bank may face criticism.

In a press briefing on January 30 when journalists asked whether the cap will be withdrawn, Nazrul Huda, central bank deputy governor, said, “It is a major policy decision. It cannot be said at the moment.”

Another major condition is to establish a monitoring framework for Bangladesh Petroleum Corporation, Bangladesh Chemical Industries Corporation and the Power Development Board to raise budget appropriation for covering projected loss.

A finance ministry official said the objective of the condition is to cut the loss by increasing prices of their products like power, petroleum and fertilizer.

The government has in principle agreed to increase the prices. BB’s monetary policy statement released last Sunday hinted at price hike of the products, which may in turn increase the prices of other non-food products.

Apart from this, there are conditions involving the banking sector and those have to be met between June and December.

The IMF said audit of the state-owned commercial banks (SCBs) by international auditors must be completed in the given period.

Besides, proposals for amending the bank company act should be placed in parliament by September to improve the governance of all commercial banks including SCBs. The reforms are needed to change the definition of default loan and regulate tenure, size and composition of board of directors, ensuring their independence and capabilities.

The conditions also include the recapitalization by December of the SCBs which have about Tk 1200 crore capital deficit. Another major condition is to formulate a plan to clearly delineate the approval and implementation process of the annual development programme

EU forcing bailout on State – SF

Sinn Féin has challenged Fianna Fáil, Fine Gael and Labour to outline how they believe the State can afford to pay back the €67 billion EU/IMF rescue package.

Party vice-president Mary Lou McDonald said the State was pushed into accepting the Lisbon treaty, which despite assurances, had put Irish corporation tax rates at risk, and that being forced into drawing down the bailout could potentially be disastrous.

“It would be tragic if we stepped into the same trap with EU/IMF bailout,” she said.

Ms McDonald, who is running in the Dublin Central constituency, said Sinn Féin was the only party in the Dáil that said the Lisbon treaty was a bad deal and the party was now being proven right after recent suggestions about implementing harmonised EU tax rates.

“When Lisbon was negotiated we said they’d signed the State up to a very bad deal. I think the chickens have come home to roost on that matter, not least with the kind of pressure that our right to set our own corporation tax rates is now at.”

She said the mantra was at the time was that people should “vote yes for jobs” and “vote yes for recovery”, but this was far from the case.

“I know out on the street the question is ‘where is the recovery and all of those jobs’,” she said. “It seems history is repeating itself [with the EU/IMF bailout] because we know have yet another bad deal, negotiated by Fianna Fáil and supported by Labour and Fine Gael. It’s a deal that will bring a huge burden of debt down on the State.

“We’re saying we’re correct on this matter just as we were with the Lisbon treaty. We once again challenge those who say we draw down the EU/IMF money, the tens of billion of debt, to explain very precisely how we will pay that debt.”

Ms McDonald said that whatever corporation tax rate is set the decision should be taken in Dublin and not Brussels.

Regarding the bailout, Ms McDonald said it was not necessary. She said the State had enough money to see itself through the next 12 to 18 months between taxes generated and the National Pension Reserve Fund and that by implementing Sinn Féin’s economic policy, Ireland could be “match fit” to return to the bond markets in that period.

“We’ve said consistently that the medium- and long-term way that you deal with the deficit is to grow Exchequer revenues, which means getting people back to work,” she said.

“We have a plan that is about saving, reducing the deficit and getting people back to work, but we will not accept any scenario where you take €67 billion more debt on to the State.

“Having shed that overwhelming debt and going back to the markets with an economic plan that’s about job creation and increased exchequer revenues, I think absolutely that’s a much more attractive bet in terms of borrowing at reasonable rates.”

Estonian Inflation May Quicken to 4 Percent in 2011, IMF Says

By Ott Ummelas on Bloomberg
Estonia’s inflation rate may accelerate to 4 percent this year because of rising global food and fuel prices, the International Monetary Fund said.

Core inflation should remain “subdued,” the Washington- based lender said in a report on its website today. Consumer prices rose 2.7 percent last year, before the nation adopted the euro on Jan. 1.

The $19 billion economy, which in 2008 and 2009 shrank by almost a fifth in the second-worst recession in the European Union behind neighboring Latvia, will probably expand 3.6 percent this year after an estimated 2.4 percent increase in 2010, the fund said, reiterating a forecast it gave last month.

“Prices have surprised on the upside reflecting global food and fuel prices, the report said. “The key policy challenge that Estonia faces is to ensure that its economy remains on a sustainable growth path.”

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

Original article

IMF Warns That Likelihood of Civil Wars is Increasing

02/02/11 Stockholm, Sweden – The International Monetary Fund’s managing director, Dominique Strauss-Kahn, has pointed out that the global is economy is built upon a destabilizing and dangerous combination: emerging economies, where brisk growth has created two-tiered societies with rich and poor on hugely unequal footings, and developed nations, that are still wracked with high unemployment and have little relief in sight.

He suggests these imbalances are igniting the breed of deep-seated animosity that can lead to civil wars, especially in those countries with the largest wealth disparities and highest unemployment.

According to the Telegraph:

‘It is not the recovery we wanted. It is a recovery beset by tensions and strain, which could even sow the seeds of the next crisis,’ he [Dominique Strauss-Kahn] said.

‘Global unemployment remains at record highs, with widening income inequality adding to social strains,’ he said, citing turmoil in North Africa as a prelude to what may happen as 400m youths join the workforce over the next decade. ‘We could see rising social and political instability within nations – even war,’ he said.

The IMF has published a paper entitled Inequality, Leverage and Crisis arguing that the extreme gap between rich and poor – with echoes of the US in the late 1920s – was an underlying cause of the Great Recession from 2008-2009. The paper, by the Fund’s modelling unit, warned of ‘disastrous consequences’ for the world economy unless workers regain their ‘bargaining power’ against rentiers. It suggests radical changes to the tax system and debt relief for workers.

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