The I.M.F. Admits Mistakes. Will Europe?

Somewhere ... Somehow ... In EuropeThe International Monetary Fund admitted this week that it made big errors in the first bailout of Greece three years ago, but it added no matter what it did then Greece would have suffered deep recession. European Union officials, by contrast, still refuse to concede their handling of the financial crisis has been deeply flawed. In 2010, the fund joined the E.U. and European Central Bank in providing loans totaling 110 billion euros ($145 billion at current exchange rates) to Greece. In exchange for that money, Greece committed to cutting its fiscal deficit and reforming its economy. But that deal was based on faulty, overly rosy predictions of country’s economy, government finances. Now IMF says it should have known the agreement would leave Greece with far more debt than it could have ever hoped to pay back. It also says it underestimated damage that government spending cuts and tax increases would do to the Greek economy. Employees of the fund raised some of these concerns in 2010. But the European leaders ignored those warnings because they did not want to put up more money to help Greece, force banks to take losses on their holdings of Greek bonds, risk undermining investor confidence in other troubled European countries like Spain and Italy. The I.M.F. stops well short of concluding the demands made on Greece were wrongheaded and devastating to its economy and society. In spite of the errors it acknowledges, the fund bizarrely finds that the “overall thrust of policies” used by the fund and the European leaders in Greece was “broadly correct.” Whatever the policy makers say does not alter the reality that their bad decisions continue to hobble much of Europe. Greece was eventually allowed to restructure its debts, but had it done so earlier it might have avoided some of the economic pain, which shows no meaningful sign of an easing. The most recent statistics put Greek unemployment at 27%, up from 12.5% in 2010. The report concludes European leaders were unwilling to consider alternative policies like debt restructuring until need for it became abundantly clear year later. They remain just as stubborn today: on Thursday, a spokesman for European Commission said that it “fundamentally disagrees” with I.M.F. report. Instead of learning from past errors, “lovely” European officials seem content to repeat them in Spain, in Italy, elsewhere. (source: The Editorial Board – NYTimes – 08/06/2013)

In a muddled world economy, the Great Stalemate baffles policymakers

We have the Great Depression as a model on what works and what doesn'tTopic A, the core agenda for world leaders, has become clear: how to fill the economic middle with jobs that can put Europe back to work, get incomes climbing in the United States and absorb a bulge of young people in parts of Asia and the developing world. But deep into the world’s financial crisis response, and as officials wrap up annual spring meetings of the International Monetary Fund and the World Bank, there is no consensus on how to proceed. Europe remains locked in a feud over more spending in hopes of job growth now versus. austerity and potential for growth later. The U.S. fiscal policy debate seems deadlocked. Developing nations are growing, but struggling over how to fix a massive infrastructure shortfall that could crimp their ability to build a large enough workforce in future. The world enjoyed the Great Moderation through years of growth, then endured Great Recession. Now, welcome to the Great Stalemate. “What’s the next step? How do you [stimulate] real economy? None seems to have good answer,” said Changyong Rhee, chief economist for Asian Development Bank and a close observer of debate over world economic policy. “Everyone is watching. Economic theory has its limits.” There has been little in this week’s meetings of the IMF and World Bank to suggest progress. IMF has shifted gears over the past three years and now agrees that Europe should ease its austerity drive, at least in the countries that can still borrow, such as Germany and United Kingdom, and do more for short-term growth. There’s been little response. If anything, the eurozone seems more bogged down, its acute risks diminishing but no grand consensus on how to improve short-term conditions have saddled nations such as Spain+Greece with depression-level unemployment rates. The broad statements coming from groups such as IMF imply that there’s a solution out there, somewhere, that could in short order start generating jobs and satisfy the new mantra of “inclusive growth” for older workers, long-term unemployed, women and the less-skilled. Domenico Lombardi, a former member of IMF executive board and now director of the global economy project with the Centre for International Governance Innovation, said he regards those public statements as “a diversion” from the fact that there is a fundamental disagreement among and within the nations about how to proceed. Europe, pro-austerity clique centered on Germany and more successful north remains entrenched, leaning against any short-term assault on joblessness, Domenico Lombardi said. In the struggling southern European nations, the reforms needed to improve economic performance are lagging, meaning there’s not enough preparation for what might create jobs down the road. “We are navigating by sight”, Servaas Deroose, the European Commission’s mission chief in Greece, said in a Friday seminar at the Peterson Institute for International Economics on Europe’s response to the crisis. “There is no model available” for simultaneously sorting out a set of problems that cuts across banking, government and national economic structure (…..)

Link: http://www.washingtonpost.com/business/economy/in-a-muddled-world-economy-the-great-stalemate-baffles-policymakers/2013/04/19/191437fa-a931-11e2-a8e2-5b98cb59187f_story.html

Argentina sienta un precedente

Anne Krueger + Rodrigo RatoNo tiene una deuda pública neta equivalente al 161% del PIB, es Grecia, que el año pasado debió reestructurarla. Tampoco llega a niveles de otros países europeos en riesgo, España, con el 67%; Portugal, con 110%; Irlanda o Italia, ambos con el 102%, Chipre, con el 74%. Su deuda pública neta ronda el 19% y, sin embargo, se encuentra bajo la amenaza de la suspensión de pagos. Es la Argentina y espera que el próximo miércoles se disipen esos temores. (Alejandro Rebossio – El Pais.com – 24/02/2013)

La tercera economía latinoamericana quiere evitar un impago como el de hace 12 años. En 2001 declaró la mayor suspensión de pagos de la historia de un país, al incumplir con un pasivo de unos 82.000 millones de dólares. 93% de esas deudas fueron canjeadas por títulos públicos que valían entre un tercio y la mitad de su valor original, tras las quitas que les ofrecieron el Gobierno Néstor Kirchner en 2005 y el de su esposa, Cristina Fernández, en 2010. El 7% restante está en manos de inversores que litigan contra Buenos Aires en tribunales de EEUU (dos tercios), Europa, Japón, Banco Mundial o Argentina para recuperar 100% del valor nominal de los bonos impagados desde 2001. Esos acreedores son los que quieren forzar a la Argentina a pagarles antes que a los que aceptaron la reestructuración de la deuda, algo que Fernández no está dispuesta a hacer, de ahí el riesgo de suspensión de pagos técnico, como lo definen los mercados. No es que Argentina no tenga el dinero para seguir abonando el pasivo refinanciado, sino que un juez de primera instancia de NYC, Thomas Griesa, decidió en octubre pasado que se bloquearan esos pagos hasta que se abone 100% a los litigantes. Próximo miércoles se darán cita en el Tribunal de Apelaciones neoyorquino los abogados de Argentina, un reputado bufete de la Gran Manzana, y de los demandantes para derogar o confirmar, según el caso, la decisión Griesa, que por ahora está suspendida.

El grupo de litigantes está encabezado por dos fondos, NML y Aurelius, calificados de buitres porque se dedican a comprar los títulos de empresas y Gobiernos cuando suspenden pagos, es decir, cuando cuestan baratos, después emprenden juicios para cobrar 100% de su valor nominal. NML, de Paul Singer, asesor del excandidato presidencial republicano Mitt Romney, fue el que logró embargar por dos meses buque escuela de la Marina argentina, la fragata Libertad, en Ghana. Cuando el barco regresó a Argentina en enero pasado, después de que un tribunal recordara la inmunidad de bienes militares de los países, Fernández espetó: “¿Quiénes son estos fondos buitres? Son producto de esta crisis global, una suerte del anarcocapitalismo, donde no hay reglas. Los buitres son las aves que comienzan a volar sobre los muertos para comer la carroña. ¿Qué hacen? Ellos sobrevuelan los países endeudados y en default (suspensión de pagos)”. A los buitres se les han unido 13 ahorradores argentinos que compraron los bonos antes de la suspensión de pagos, cuando valían hasta 100% de su valor nominal. Los litigantes piden que Argentina les pague de una sola vez 1.400 millones de dólares que reclaman. Todos ellos argumentan que los títulos impagados en 2001 contenían una cláusula de equidad por la que el Gobierno debe dar el mismo trato a todos los bonistas, fueran o no a los canjes de 2005 y 2010. Con ese razonamiento convencieron al juez para bloquear todos los pagos de la deuda externa que Argentina ha regularizado, incluidos los regidos por la legislación europea y japonesa, hasta que no se salde la totalidad de lo que les deben. Argentina, en cambio, ha cambiado su discurso que nunca les pagaría nada, después del fallo desfavorable de Griesa, ha ofrecido al Tribunal de Apelaciones reapertura del canje de deuda para el 7% que lo ha rechazado, siempre y cuando le conceda una sentencia en su beneficio. De resultar así, la justicia estadounidense prácticamente obligaría a la minoría litigante a aceptar la quita que ha aceptado la mayoría de los acreedores, lo que sentaría un precedente para otras reestructuraciones de deuda. Precisamente para el Gobierno de EEUU y la comunidad financiera de Wall Street, caso argentino puede ser ejemplo en la materia, sobre todo teniendo en cuenta el riesgo de suspensiones de pagos soberanas en Europa.

Los litigantes argumentan que Argentina dispone en su Banco Central de 42.000 millones para hacer frente a los pagos de títulos impagados, que superan 11.000 millones en total. Buenos Aires sostiene que si EEUU le bloquea el pago de la deuda reestructurada, deberá afrontar demandas adicionales por otros 43.000 millones tanto de otros acreedores de deuda impagada en 2001 como de todos los inversores con títulos argentinos emitidos bajo la legislación extranjera, sea Nueva York, Londres o Japón. Otras dos partes contrarias se harán oír en la audiencia judicial del miércoles. El grupo de Bonistas del Canje, que encabeza el fondo estadounidense Gramercy, reclamará que el bloqueo del pago de deuda normalizada constituye una violación a su derecho de propiedad. Y el Bank of New York, contratado por Argentina para canalizar pagos al exterior desde Buenos Aires, pedirá que se revierta amenaza de Griesa de sancionar, por cómplices, a todos los intermediarios que contribuyan a incumplir su decisión. En últimos meses se han presentado amigos a favor de unos y otros. Argentina recibió 11 apoyos; entre ellos, algunos críticos de sus políticas económicas, pero que consideran que las futuras reestructuraciones de deuda soberana pueden verse desalentadas por un fallo a favor de quienes no las aceptan. Se trata del Gobierno de EEUU y de la ex subdirectora gerente Fondo Monetario Internacional, Anne Krueger. Se desconoce si el Tribunal de Apelaciones resolverá el propio miércoles o se tomará semanas o meses. En caso de una sentencia desfavorable, Argentina intentará apelarla ante el Tribunal Supremo de EEUU.

Estadísticas tramposas

Cristina Fernández de KirchnerEl Gobierno de Cristina Fernández ha reaccionado mal al ser acusado por el Fondo Monetario Internacional (F.M.I) de falsificar estadísticas de precios. Oficialmente la inflación alcanzó en Argentina el 10,8% en 2012, menos de la mitad del 25% que estiman expertos. Tras la acusación, Gobierno optó por negarlo. Después, minimizó la falsedad, generalizándola a todos los países, incluido EEUU. Al final se decantó sin mayores explicaciones por el control de precios alimentarios, presentado como un mero acuerdo con las cadenas de supermercados. El engaño viene de lejos. Lo denunció hace ya un lustro economista ahora convertido en influyente ministro. También lo delataron propios funcionarios encargados de elaborar los datos. 13 de ellos fueron despedidos. En consonancia, el kirchnerismo prohibió, bajo multa 100.000 euros, que las consultoras publicaran sus estimaciones independientes. Si la realidad molesta, basta con borrarla. Hasta ahora el asunto no causaba mayores problemas. Pero la caída del crecimiento económico, del 7% al 2%, provocó en 2012 que inflación erosionase poder adquisitivo, se convirtiese de nuevo en motivo de protesta. Un factor que viene a confluir con el malestar del campo, la polémica de las nacionalizaciones sin indemnización y el autoritarismo contra los principales medios de comunicación. El motivo alegado para falsear datos era reducir la cuantía de los pagos a los inversores que compraron deuda pública referenciada a la inflación oficial. Y una razón subyacente: enmascarar un factor de malestar social. O sea, doble abuso. Un Gobierno que maquilla sus datos acaba conduciendo a los ciudadanos al abismo; y a su país, a la condición de paria internacional. El FMI ha tratado de evitarlo. El año pasado ya le sacó la tarjeta amarilla y ahora, tras un aplazamiento, saca la roja: acaba de emitir “declaración de censura” contra Gobierno argentino. Es la primera vez que toma una medida tan grave en sus 69 años de historia. Esta sanción verbal podría llegar a convertirse en la expulsión del país infractor del organismo multinacional si, antes del próximo 29 de septiembre, el Gobierno de Cristina Fernández no arregla el desaguisado. Lamento victimista y medidas intervencionismo artificial, por tanto, insostenibles, con que ha reaccionado no auguran nada bueno. (Fuente: Editorial – El pais.com – 06/02/2013)

Greece’s Rotten Oligarchy

Kostas VaxevanisDemocracy is like a bicycle: if you don’t keep pedaling, you fall. Unfortunately, the bicycle of Greek democracy has long been broken. After military junta collapsed in 1974, Greece created only a hybrid, much diluted form of democracy. You can vote, belong to a party, protest. In a truly essence, however, a small clique exercises all meaningful political power. For all that has been said about the Greek crisis, much has been left unsaid. The crisis has become a battleground of the interests and the ideologies. At stake is the role of public sector and welfare state. Yes, in Greece we have a dysfunctional public sector; for the past 40 years ruling parties handed out government jobs to their supporters, regardless of their qualifications. (source: Kostas Vaxevanis – NYTimes – 07/01/2013)

But the real problem with the public sector is the tiny elite of business people who live off the Greek state while passing themselves off as “entrepreneurs”. They bribe politicians to get fat government contracts, usually at inflated prices. They also own many of the country’s media outlets, and thus manage to ensure that their actions are clothed in silence. Sometimes they’ll even buy a soccer team in order to drum up popular support and shield their crimes behind popular protection, as the drug lord Pablo Escobar did in Colombia, and as paramilitary leader Arkan did in Serbia. In 2011, Evangelos Venizelos, who was then finance minister and is now leader of socialist party, Pasok, instituted a new property-tax law. But for properties larger than 2,000 square meters, about 21,000 square feet, the tax was reduced by 60 percent. Mr. Venizelos thus carved out a big exemption for only people who could afford to pay the tax: the rich. (Mr. Venizelos is also the man responsible for a law granting broad immunity to government ministers).

Such shenanigans have gone on for decades. The public is deprived of real information, as the television stations, newspapers and online news sites are controlled by the economic and political elite. Another scandal involves the so-called Lagarde List. In 2010, Christine Lagarde, then the French finance minister (and now head of the International Monetary Fund), gave the Greek government a list of roughly 2,000 Greek citizens with Swiss bank accounts, to help uncover tax fraud. Greek officials did virtually nothing with the list; two former finance ministers, George Papaconstantinou and his successor, Mr. Venizelos, reportedly even told Parliament they did not know where it was. Meanwhile, several media outlets falsely accused some politicians and business figures of being on the list in order to conceal the ugly reality: rich people were evading taxes while their desperate fellow citizens were searching the trash for food. When Hot Doc, monthly magazine I edit and publish, made the list public in October, I was arrested and charged with violating personal privacy, but was acquitted. The result didn’t please those in power. So I am being brought back for a second trial (a date has yet to be set) on similarly vague allegations. Throughout the entire process, the publication of the list, my arrest, my acquittal, Greek media were absent. The case was a top story in international press, but not in the country where it took place. The reason is simple. Lagarde list implicates a corrupt group that answers to the name of the democracy even as it casually nullifies it: officials with offshore companies, friends and relatives of government ministers, the bankers, publishers and those involved in the black market. After my magazine released the list, Greek government made not a single statement about the case. When Venizelos left the Finance Ministry last March, he failed to turn the CD with the list over to his successor. He took it with him. Only when his successor, Yannis Stournaras, told The Financial Times in October he had never received the list did Mr. Venizelos turn it over to the prime minister’s office. He was never asked about the delay, and leaders of the three parties in the coalition government have not referred his conduct to Parliament’s investigatory committee.

Meanwhile, a newly released version of the list made clear someone had removed the names of three relatives of Mr. Papaconstantinou, who was the finance minister from 2009 to 2011, before Mr. Venizelos. Last month, Mr. Papaconstantinou was expelled from the Pasok. He now faces a Parliamentary investigation, the potential lifting of his immunity from prosecution as a former minister, charges of tampering with the data. It appears he may become a new Iphigenia, a scapegoat sacrificed so the corrupt political system can survive. This is all unfolding at a time when Greece is walking a tightrope above the abyss of bankruptcy, while the coalition government is instituting new taxes on lower classes. Half of young Greeks are unemployed. The economy is shrinking at an annual rate of 6.9%. People are scrounging for food. And a neo-Nazi party, Golden Dawn, is on the rise, exploiting the resentment and rage toward the ruling class. The Greek people must remount their bicycle of democracy by demanding an end to deception and corruption. Journalists need to resist manipulation and rediscover their journalistic duties. And government should revive Greece’s ancient democratic heritage, instead of killing the messenger. 

Auditor finds IMF was pressured by U.S. to fault China

Washington, DCInternational Monetary Fund, at the urging of United States, shaped a very recent research to pressure China over its economic policies, according to study released Wednesday by the fund’s in-house watchdog. The report by the IMF’s Independent Evaluation Office provides an unusual look at how political priorities of the fund’s major members can influence what is ostensibly objective analysis by apolitical organization. Divisions within IMF, between industrialized countries and influential group of the developing nations including China and Brazil, have been heightened since the 2008 financial crisis spilled across the world out of the U.S. housing market. (source: Howard Schneider – The Washington Post – 20/12/2012)

More recently, IMF efforts to aid Europe were criticized by some emerging-market officials as more generous than programs established in response to financial crises in Asia and Latin America. In this case, the evaluation office concluded, fund’s staff opened a new line of research on the accumulation of foreign reserves around the world in “response to frustration” among “influential shareholders” that China was not allowing its exchange rate to fluctuate more freely. A steady rise in foreign reserves, a country’s holdings of dollars, yen or other major world currencies, can be the result of large trade surpluses. But it can also stem from an undervalued exchange rate, something that the United States has long accused China of maintaining to give its products more attractive price on world markets. The findings of that research showed China with perhaps double the recommended level of foreign currency holdings, its roughly $3 trillion stash is the largest in the world, IMF officials suggested that excessive reserve holdings were a risk to global financial stability. But fund’s work was “not persuasive,” evaluation office concluded, and characterized it as “addressing symptom rather than the cause”. The audit report said IMF staff overlooked some of the reasons for countries to accumulate reserves, and ignored related threats to financial stability that stemmed more from policies in United States and other developed countries. In particular, China and Brazil have both argued that loose monetary policy in the United States has created a global glut of dollars that has distorted markets worldwide.

The fund “should have placed greater emphasis on more pressing issues than reserves, for example growth in global liquidity and capital flow volatility,” the evaluation office concluded. IMF staff and Managing Director Christine Lagarde in separate written responses criticized the findings, arguing that the IEO singled out one strand of research that was part of a broader look at how to strengthen international financial system. Other recent studies, for example, acknowledged that limits on movement of capital into and out of a country can be a useful tool for a nation to protect itself, a point long argued by developing nations and now validated by the IMF. The research on reserves, however, seemed to strike a particularly political note and was seen as a “stalking horse” for the United States to press China on its currency policy, said Amar Bhattacharya, head of the Group of 24, a consortium of developing nations that monitors the IMF. The United States is the fund’s largest shareholder and has an effective veto over major decisions on IMF board. In aftermath of the crisis, Treasury Secretary Timothy Geithner and other U.S. officials were pressing China directly to float its currency. Treasury officials had no comment on the report. While the IMF reports on China frequently mention its misaligned exchange rate, and evaluation office complimented fund’s bilateral analysis of that country’s economy, sudden focus on the reserve accumulation was seen to aid U.S. efforts to spotlight China’s “imbalances” rather than address an urgent concern. 

Emerging Voices: Richard Dowden on World Bank and IMF Involvement in Africa

I feel sorry for the World Bank and the International Monetary Fund. In the 1990s they were masters of the world. The end of the Cold War proved that free market capitalism had won out over state-controlled socialism, and the Bank and the Fund were given the role of liberalizing the world’s markets and ushering in an era of prosperity and peace. Traveling to the capitals of Africa in that period I met bright young World Bank men (the era of equality had not yet broken), missionaries of monetarism bearing the bible of free market prosperity. Many, like all zealots, believed that the greater the pain, greater the gain. Hundreds of thousands of state employees were thrown out of work when government spending was slashed and life savings were wiped out when currencies sank like stones after being “floated”. The men from the Bank, however, dismissed these as inevitable side effects of an essential change. (source: Richard Dowden – CFR – 29/10/2012)

The rulers of these formerly one-party states, of course, had access to hard currency so they bought up the privatized state companies and state land. Many used their wealth to form new political parties and hold onto power. They became owners of their countries as well as rulers. But this was politics, not in the brief of the Bank or the Fund. When Western countries pushed for political liberalization including multiparty elections, some dictators lost power but many were able to use their wealth, position, to win votes. Hardly surprisingly, with little to lose, discontents found weapons and started rebellions. By the end of the 1990s, twenty-six of Africa’s fifty-two countries had suffered civil wars. Nor did the Washington Consensus, as the policy of the Bank and the Fund was called at that time, deliver prosperity in Africa. When Africa’s growth rates did begin to change dramatically around 2000 the main driver was not Western policy but the engagement of the East. China’s need for raw materials took its companies to Africa where Chinese state made secret deals with presidents to obtain the minerals they needed. In parts of Africa where Europeans+Americans now feared to tread, the Chinese involvement gave African economies a huge boost. From about 2000, along with mobile technology, the Chinese engagement made African economies start to grow again. African presidents liked Chinese because they did not lecture them about human rights and free speech as Western governments did. And Chinese delivered highly visible infrastructure projects: airports, roads, parliament buildings, and the occasional presidential palace. At last African governments had an alternative partner and could use the Chinese, later India, Brazil, Russia, and other countries, to push back against Western political pressure, including dictates of the Bank and the Fund. Even the most pro-Western governments now had wiggle room. The smartest rulers maintained good relations with West and East. Yoweri Museveni in Uganda, Paul Kagame in Rwanda, Meles Zenawi in Ethiopia encouraged Chinese engagement but bought into West’s agenda just enough to make themselves strategically indispensable. They got themselves into position where Washington and London and Paris needed them as much as they needed Western support.

Around this time Western development fashion changed. Big infrastructure project gave way to the human development approach. Instead of funding the glossy new roads and massive dams, the Bank funded less visible programs in health and education. The money was channeled through governments, which of course claimed credit for themselves. It may be that economic historians will demonstrate the Bank and the Fund did help lay the foundations of Africa’s economic revival. But in the minds of most people it was China. At the same time China was also making goods such as radios, watches, shoes, and clothes that Africans could afford. So most Africans see China, not the Bank and the Fund, as the catalyst of their prosperity. The Bank and the Fund are still associated in the minds of most people with the bad times of the 1990s. And now there are alternative sources of funding and investment, so Bretton Woods Institutions no longer have a monopoly on economic ideology or control. Yet they still have huge resources and influence. Recent spurt of economic growth in Africa may not have done much for the poor, so the question institutions face now is how to develop a new policy to help those left behind.

Link: http://blogs.cfr.org/development-channel/2012/10/29/emerging-voices-richard-dowden-on-world-bank-and-imf-involvement-in-africa/