UK changes position on IMF loan for Morsi’s Egypt

Amhram
Amer Sultan

British officials refrain from giving full backing to Egypt's $4.8 billion loan request, having previously supported such funding under military rule

Egypt's President Mohamed Morsi (R), Prime Minister Hisham Kandil (C),
Finance Minister Mumtaz al-Saeed (L) and Governor of Egypt's
Central Bank (CBE) Farouk El-Okdah (2nd L) meet with IMF Managing Director
Christine Lagarde at the Presidential Palace in Cairo

The United Kingdom has refrained from backing Egypt's request of a $4.8 billion loan from the International Monetary Fund (IMF).

"We prefer to wait and see the results of the negotiations between Egypt and the IMF," a UK Foreign Office spokesperson told Ahram Online.

During her recent visit to Cairo, the IMF's managing director, Christine Lagarde, received a formal request from Egypt for a $4.8 billion loan.

"The UK thinks that this is a good opportunity for dialogue between the two parties," the spokesperson added.

Asked whether the UK would back the Egyptian request if the IMF board decides in its favour, the spokesperson replied: "We do not have anything to say for the time being."

The UK's caution seems to mark a significant change in its attitude towards Egypt's calls for international assistance to overcome its economic difficulties.

The UK provides 5 per cent of the IMF budget, making it the fourth biggest contributor, with equivalent voting power. It follows the US (18 per cent), Germany (6 per cent) and Japan (6 per cent).

Mid-last year, the UK government was enthusiastic about an IMF offer of a $3.2 billion loan at a 1.5 per cent interest during Egypt's period of direct military rule.

A high level UK diplomat then told Ahram Online that the offer was "an amazingly good deal" with "virtually no conditionality."

UK support at the time followed a meeting of British representatives with the Supreme Council for Armed Force (SCAF), which until July 2012 had veto power on all political decisions.

The diplomat explained that his government felt the deal the IMF put to Egypt was very favourable.

Speaking this week, the Foreign Office spokesperson insisted there was no change in the UK positions on the IMF loan after President Morsi took the reins of power from SCAF.

During her visit to Egypt last Wednesday, Lagarde met Morsi and his prime minister Hesham Kandil, and praised the Egyptian vision for reform.

"We are impressed by the strategy that President Morsi and Prime Minister Kandil have proposed during our meetings today," she said at a joint press conference with Kandil.

An IMF technical team is due to arrive in Cairo in early September to begin work on arrangements for the mooted loan.

"We prefer foreign borrowing at this stage given the low interest rate of the IMF loan compared to much higher rates when borrowing domestically," said Kandil, on the matter. 

He added that borrowing domestically would crowd out the private sector and the IMF loan would help ease  liquidity problems.

The IMF said in a statement it had maintained close dialogue on economic policy with Egyptian authorities since the start of the transition period in February 2011. It said it has also provided considerable technical assistance upon request from the government.

IMF urges U.S. lawmakers to remove ‘fiscal cliff’

Wall Street Journal
Greg Robb

A failure to avoid the “fiscal cliff” could slash the U.S. growth rate to under a 1% annual rate and risk harming the global economy, the International Monetary Fund said in a report released Tuesday.

The fiscal cliff is Washington shorthand for current tax and spending plans, enacted in law when the debt ceiling was narrowly passed last summer, that would shrink the deficit by around 4% of gross domestic product in 2013. 

These policies “could reduce growth to well below 1%, with negative growth early next year and significant negative repercussions on an already fragile world economy,” the IMF warned.

Lawmakers should replace the fiscal cliff with a program of small deficit reduction in the short-term with a longer-term fiscal sustainability program, the IMF said. 

A small deficit reduction means cuts totalling about 1% of gross domestic product in calendar year 2013, IMF Managing Director Christine Lagarde said at a press conference.

Growth in the largest global economy is expected to average 2% in 2012 and 2.25% in 2013, and downside risks have intensified, the IMF said 

With interest rates near zero since December 2008 and the federal budget needing to be trimmed, U.S. officials have “limited space to act,” said Lagarde. But they must use it, she said. 

Congress must also quickly pass another increase in the federal debt ceiling that is expected to be needed in early 2013, the IMF said. The market disruption and uncertainty that surrounded the last debt ceiling hike in August 2011 must be avoided, the agency said. 

Rep. Bill Johnson, flanked in 2011
by fellow GOP freshmen.

The Treasury Department had a very limited public reaction to the IMF report, issuing a brief statement only noting that it had been released. 

Outside of fiscal policy, the U.S. remains vulnerable to contagion from the euro-area debt crisis, the report concluded. 

The Fed has room for further easing should the outlook deteriorate, the IMF said. 

Fundamentals suggest the dollar is modestly overvalued, the report concluded. 

The IMF backed more aggressive steps to aid the housing market, including measures to convert foreclosed properties into rental units and programs to allow more homeowners to refinance at current low interest rates.

Congress should also reconsider its opposition to legislation dubbed “cram down” that would allow bankruptcy judges to modify mortgages and help troubled homeowners reduce the principal they owe on the loan. 

Greg Robb is a senior reporter for MarketWatch in Washington.

Max Keiser: Banks Are Dead

International Monetary Fund (IMF) Leader Calls for Trillion-dollar "Firewall"

The New American
William F. Jasper

“We need a larger firewall.” So declared Christine Lagarde (left), Managing Director of the International Monetary Fund (IMF) during a speech in Berlin on January 23, in which she called on taxpayers of the world to chip in $1 trillion to the IMF to stave off a global crisis. “We need to act quickly or else we could easily slide into a 1930s moment,” Lagarde warned, in an obvious reference to the Great Depression.

Suddenly, talk of “firewalls” was everywhere. Australian Treasurer Wayne Swan backed Ms. Lagarde, saying that  without “larger firewalls” to protect embattled European nations the global economy was at risk. On January 27, U.S. Treasury Secretary Timothy Geithner, speaking at the annual billionaire confab known as the World Economic Forum, in Davos, Switzerland, said that “building a stronger, more credible firewall,” is key to resolving the eurozone sovereign debt crisis.

But the IMF is not the only institution calling for expensive new fire protection. On January 30 CNN reported that European leaders meeting in Brussels had just concluded an agreement “to strengthen a financial firewall and most members of the 27-nation group will sign a new fiscal compact.” The centerpiece of that pact is €500 billion ($650 billion) to implement the European Stability Mechanism, or ESM, for bailing out Greece, Spain, Portugal, Italy and other troubled European economies.

Arsonists-R-Us Preaching Fire Protection? Time to Beware!
European Council president Herman Van Rompuy declared: "The early entry into force of this permanent firewall will prevent contagion in the euro area and further restore confidence."

The German audience that IMF chief Lagarde selected to pitch the new $1 trillion IMF firewall was carefully chosen: the German Council on Foreign Relations, or GCFR (in German, it is the Deutsche Gesellschaft für Auswärtige Politik, or DGAP). Like its interlocking counterparts in the United States (the Council on Foreign Relations, CFR), Britain (the Royal Institute of International Affairs, RIIA), and other countries, the GCFR represents the globalist elites of corporate, banking, political, and academic circles that are promoting convergence toward world government. Selling the German public on the massive new funding for the ESM and IMF “firewalls” will be critical, and the influential voices represented by the GCFR will be key to accomplishing that. It remains to be seen whether the GCFR members and their counterparts throughout the Eurozone will succeed in duping their fellow Europeans into giving even more matches and gasoline to the arsonists who have already burned through trillions of dollars in “quantitative easing” and “stimulus” funds.

Secretary Geithner, a CFR member, was only too happy to assist his fellow arsonists in throwing more gasoline on the global “liquidity” and “stimulus” fire. He was interviewed on the main stage at the WEF palaver before a packed audience by Fareed Zakaria, editor-at-large of Time magazine, as well as a host and commentator at CNN, and  — a member and director of the Council on Foreign Relations.

More Cash, More Power = Rosy Prognosis
Here is how the DGAP (GCFR) described Madame Lagarde’s speech in the opening paragraph of its report on January 23, on the DGAP web site:

In a cautiously optimistic address at the DGAP, IMF Managing Director Christine Lagarde said that 2012 could be a “year of healing.” But overcoming the crisis will require quick and coordinated action. The eurozone must introduce measures that will lead to more growth and integration – and increases to the euro bailout fund. This is the only way to build trust in the financial system. Lagarde also envisages a massive increase in the IMF’s crisis funds.

“2011 was not a successful year because many measures were not thought through, were half-heartedly implemented, or were not coordinated with other countries,” reports the DGAP, “But the IMF head sees a positive turnaround coming in 2012.”

“We know what needs to be done,” said Lagarde. “It is now up to governments to show the necessary political will.”

The DGAP agrees and predicts a rosy economic picture — if producers and taxpayers will only stop being so miserly and agree to give the IMF, the European Central Bank and other central banks the “tools” they desperately need to solve the problem. After all the wise wizards at the IMF, ECB, and the Fed have sterling track record already, right?

According to the DGAP:

Eurozone countries have already taken important steps, including the establishment of the temporary European System of Financial Supervisors (ESFS) and the permanent European Stability Mechanism (ESM). But these are only “parts of a more extensive solution."

But what kind of “more extensive solution” would these new creations bring? The kind of solution only the central bankers and their politically connected corporate cronies could love. As The New American’s Bob Adelman and Alex Newman point out, the ESFS and ESM are “the tools of international fiscal dictatorship.”

The EFSM and ESM are integral parts of the scheme to destroy the dollar and “Supersize" the IMF into a global Federal Reserve that this magazine has been exposing for the past several years.

The European Central Bank (ECB) admits that the ESFS and ESM are designed to fit into the IMF’s new globalized architecture, stating in the ECB Monthly Bulletin for July, 2011: “These design features of the European crisis management framework purposely resemble the main design features of the IMF-supported adjustment programmes.”

“Global crises call for global solutions” — GCFR

The German Council on Foreign Relations goes on to offer these points in favor of Lagarde’s arguments for supersizing the ECB and IMF (the enlarged, bold headings are their own):

Comprehensively Solving the Crisis
What would such a comprehensive solution look like? Lagarde thinks Europe needs stronger growth, higher financial firewalls, and more fiscal integration. Eurozone states now have a duty to expand financial firewalls to tackle the debt crisis: by increasing funds for the ESM, with further monetary easing through the European Central Bank, or through eurobonds (an idea that contradicts the German government’s present course)….

More Money to Avoid a Credit Crunch
Additionally, the eurozone bailout fund must be endowed with more than the planned 500 billion euros. “We need a larger firewall,” claimed Lagarde. The permanent bailout fund ESM should be expanded to include all funds set aside for the temporary EFSF… Lagarde thus sees stronger fiscal integration within the eurozone as a third essential task. “We cannot have seventeen completely independent fiscal systems and one common monetary policy.” Risks must be more strongly distributed beyond national borders….

Bulking Up the IMF
Lagarde envisions a massive increase in the IMF’s crisis reserves. This will allow the organization to help not only Europeans, but countries around the world that have been gripped by the crisis – even those without substantial debts of their own. “It is not about saving individual states or regions. Rather, it is about preventing a worldwide downward spiral.” Global crises call for global solutions. Lagarde estimates that 1 trillion dollars will be needed to fight the crisis in the coming years. A 500 billion dollar increase will be needed for the IMF ...

What Kind of Firewall?
"More fiscal integration," "more money," "bulking up the IMF," "global solutions," "higher financial firewalls." But what do the IMF and ECB mean when they talk about firewalls? Wikipedia offers this for its first definition of “firewall”:

“a barrier inside a building or vehicle, designed to limit the spread of fire, heat and structural collapse."

Christine Lagarde and the other Insiders at the IMF, the ECB, the Fed and the other central banks and Treasury departments obviously intend that definition and the image it evokes to win the support they need to pull off this enormous swindle. However, the firewall metaphor in this case not only is completely inappropriate, but ludicrous. Firewalls are made of noncombustible, “fireproof” materials, but the arsonists at the IMF and ECB are calling for throwing more paper and gasoline — more money and credit created out of thin air  — onto the global inferno.

However, Wikipedia offers a second definition for “firewall” that is entirely apropos to the IMF/ECB proposals:

“a technological barrier designed to prevent unauthorized or unwanted communications between computer networks or hosts."

The IMF, ECB, and the Fed do indeed intend to “prevent unauthorized or unwanted” inspection of their activities by citizens or national legislators. The so-called firewall they are constructing is, as Alex Newman puts it, “a massive, perpetual bailout machine.” It is a machine that they intend to be completely unlimited, unaccountable and untouchable.

Trader on the BBC says Eurozone Market will crash

World powers seek to contain Europe debt crisis

ArabNews
Gabriele Steinhauser

Saudi Arabia's Finance Minister Ibrahim Al-Assaf, center, attends the International
Monetary and Financial Committee (IMFC) meeting during the annual IMF-World Bank
meetings in Washington on Saturday.

WASHINGTON: Under pressure from skeptical financial markets, the world's economic powers scrambled on Saturday for ways to keep Europe's debt crisis from spiraling out of control.

The continent's financial woes grabbed the attention of the policy-setting committees of the 187-nation International Monetary Fund and the World Bank during the lending institutions' annual meetings.
Treasury Secretary Timothy Geithner told the IMF panel that the European debt crisis posed the most serious threat to the global economy and that failure to take bold action raised the risk of domino-style defaults by heavily indebted European countries.

He said the European Central Bank should try to ensure that governments pursuing sound reforms could get loans at affordable rates and that European banks have access to the capital they need to operate. The ECB is the central bank for the 17 nations that use the euro as a common currency.
Global financial markets plunged last week on fears of a possible default within weeks by Greece on its government debt and on worries a default would cause runs on major European banks with heavy exposure to Athens' debt.

"The threat of cascading default, bank runs and catastrophic risk must be taken off the table. Otherwise, it will undermine all other efforts, both within Europe and globally," Geithner said. "Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets even more severe."

Geithner was one of a number of finance leaders demanding forceful action.

Mark Carney, the head of Canada's central bank, called for "overwhelming" the problem with a big increase in Europe's rescue fund for heavily indebted countries.

In an interview with CBC radio, Carney suggested that a European financial stability fund should be increased from 440 billion euros to 1 trillion euros. At current exchange rates, that would be the equivalent of expanding a $590 billion fund to $1.35 trillion.

"You need a big pot of money," he said.
 
For Christine Lagarde, who took over as head of the IMF in June, the debt crisis has been a tough first test. Lagarde has warned that without strong and collective action, the world's major economies risk slipping back into recession.

To avoid that, finance officials of the Group of 20 major economies pledged on Thursday to "take all necessary actions to preserve the stability of banking systems and financial markets."
But private economists have questioned whether the plan goes far enough to deal with market concerns that a Greek default is a virtual certainty.

German Finance Minister Wolfgang Schaeuble said a second bailout package for Greece may have to be re-evaluated because of Athens' problems in fulfilling earlier financial promises.

This re-evaluation could include changing the terms of the voluntary contribution from banks and other private investors to Greece's rescue, two European officials said.

One of the officials said that Germany and other rich euro zone nations, including the Netherlands and Austria, are now pushing for an "orderly default" by Greece. That would entail losses for investors that go beyond the 21 percent cut in the face value of government bonds foreseen under the voluntary contribution. The officials spoke on condition of anonymity because of the sensitivity of the issue.
The comments underline how confidence is eroding among core euro zone countries over whether they can actually save Greece. The Greek debt is close to 160 percent of its gross domestic product and its economy looks set for a fourth straight year of recession.

Stock markets in Europe and the US recouped some of their previous day's hefty losses Friday, but investors remained skeptical about whether the world's leading economies can keep the global economy from going over the cliff.

Despite the modest gains Friday, the worries are piling up for investors. The Federal Reserve warned this week that the American economy is in significant difficulty, while there were several downbeat European and Asian economic indicators.

Sung Won Sohn, an economics professor at California State University's Martin Smith School of Business said the great concern is that if Greece doesn't make further painful cuts in government spending and ends up defaulting on its debt, the shock waves will rock big banks in Europe.
He said this would cause fearful investors to sell bonds of other heavily indebted countries such as Italy and Spain, countries with much bigger economies.

"The fear in markets is that the problem will spread to bigger economies such as Spain and Italy. Europe would not have the resources to handle a crisis of that magnitude," Sohn said.
The finance officials at the Washington meeting said they believed that the 17 nations that use the common euro currency were getting the message they needed to move more quickly to reform their surveillance procedures and increase economic support.

IMF chief faces French probe over deal

Al Jazeera

A French court has ordered that Christine Lagarde, the International Monetary Fund chief, be investigated for the role that she played in a financial settlement paid to a friend of President Nicolas Sarkozy during her tenure as finance minister.

Lagarde is accused of misconduct for overruling objections from advisers to approve a $407m arbitration payout to Bernard Tapie in 2008. Tapie had a long-running legal dispute with Credit Lyonnais, a former state-owned bank.

He claimed that the bank defrauded him when it sold his stake in Adidas sports clothing group in 1993.
Critics argue that the legal battle should not have gone to private arbitration, as it involved a state-owned bank.

Thursday's order came as no surprise to Lagarde.

Her lawyer, Yves Repiquet, said that Lagarde had been relieved to hear the news - as it ended months of speculation over whether a complaint submitted by opposition groups would result in a probe.
In an emailed statement, Repiquet said: "This procedure is in no way incompatible with the current functions of the managing director of the IMF."

Lagarde was appointed head of the IMF last month after her predecessor, Dominique Strauss-Kahn, was charged with sexually assaulting a New York hotel maid and quit.

EM expert says Europe focus harms IMF’s credibility

CityWire
Chris Sloley

Emerging markets are increasingly losing faith in the International Monetary Fund due to its overtly European focus and questionable handling of the ongoing sovereign debt crisis, Ashmore’s head of research Jerome Booth has said.

Speaking to Citywire Global, Booth said that growing disillusionment among managers of emerging market funds was valid given the IMF’s recent activity.

Most notably, the IMF has agreed to pledge €78.5 billion to Greece, Ireland and Portugal through to 2014 and, earlier this month, it was also involved in thrashing out the €109 billion rescue package for Greece.

Although it has not stated how much it intends to contribute to the second Greek bailout.

Commenting on its involvement, Booth said: ‘The IMF risks its credibility by putting more money into Greece and arguably it should not have participated anyway in the existing bailout programme. The criticism is that it is now throwing good money after bad and I think that is an extremely valid concern.’

Booth’s comments come in the wake of suggestions of IMF board members representing the BRIC regions allegedly taking umbrage with the IMF’s perceived European-bias, which, they claim, is exemplified by its extensive work on the eurozone debt crisis.

‘I think the IMF has a credibility issue relating to the situation in Greece and it is finally being raised at the board level of the IMF,’ said Booth. ‘But, it has been said for a while, so it is something of a belated suggestion from the emerging market board members.’

And, while Booth claimed that the board members are growing frustrated with the fund, he said that representatives of emerging markets have begun to question the relevance of the IMF.

He said this could be traced back to French finance minister Christine Lagarde being elected as former IMF managing director Dominic Strauss-Kahn’s successor ahead of Mexican candidate Agustin Carstens, the governor of the Bank of Mexico.

‘One of the issues was that Carstens didn’t get any momentum among emerging market members voting for him because lots of emerging markets see the IMF as having little relevance,’ said Booth.

IMF Chief Lagarde: Can’t Imagine U.S. Defaulting, Calls on US to Raise Borrowing Limit

Wall Street Journal
By Ian Talley

Christine Lagarde
Head of the IMF

WASHINGTON – A U.S. debt default could “shock” and destabilize the global economy, International Monetary Fund head Christine Lagarde warned Sunday, but added she doesn’t believe U.S. authorities would allow this to happen.

On ABC’s “This Week” news program, Ms. Lagarde called on lawmakers and the Obama administration to agree on a compromise budget package before an Aug. 2 deadline, when the U.S. could default on its obligations if Congress hasn’t raised the $14.29 trillion borrowing limit.
“I can’t imagine for a second that the U.S. would default,” Ms. Lagarde said. But if lawmakers fail to reach an accord, “that would be a real shock and it would be bad news for the U.S. economy” and would “certainly jeopardize the stability” of the global economy, Ms. Lagarde said.

“I would hope that there is enough bipartisan intelligence and understanding of the challenge that is ahead of the United States, but also of the rest of the world,” the former French finance minister added.
Losing credibility in the debt markets could potentially cause a sudden spike in the cost of debt and a downgrade by rating agencies, the IMF has said.

If no deal is reached, Ms. Lagarde said she would expect “interest hikes, stock markets taking a huge hit and real nasty consequences, not just for the United States, but for the entire global economy.’’
Democrats and Republican leaders are set to meet later Sunday at the White House to try to hash out a budget deal. But so far, Republican lawmakers and the White House are at an impasse, fighting over future budget cuts and tax policies.

Ms. Lagarde addressed the case of her predecessor, Dominique Strauss-Kahn, who resigned six weeks ago after being arrested on sexual-assault charges. The future of the case now is unclear amid reports raising questions about the accuser’s credibility. Ms. Lagarde said Mr. Strauss-Kahn had done an excellent job as fund chief, despite the damage from the fallout of his case.

“But when an institution loses its managing director under such circumstances, there are clearly wounds as a result,” she said. “Some people feel very hurt, other people feel betrayed, it’s a very strange chemistry, of frustration, irritation, sometimes anger, sometimes very deep sadness.”

Shut Down the Wasteful IMF

American Spectator
Doug Bandou

The International Monetary Fund often is in the news, but rarely in the U.S. That changed when Managing Director Dominique Strauss-Kahn ended up at New York's Rikers prison charged with rape. Strauss-Kahn's travail well symbolizes the IMF: an institution of entitlement and privilege focused on mulcting the rest of us.

The leading contender to replace Strauss-Kahn, who resigned while proclaiming his innocence, is French Finance Minister Christine Lagarde. The board plans to make its selection by June 30, but instead should shutter the organization.

The Fund was one of the "Bretton Woods" institutions created in 1945. Its purpose was to stabilize exchange rates. When the system of fixed exchange rates collapsed in 1971, the IMF effortlessly found a new job, promoting development. The Fund created a generous dole for Third World governments.
After Communism fell, such east European nations as Romania, Ukraine, and Hungary became major borrowers. The IMF now is a leading lender to Greece, Ireland, and Portugal. In fact, before his arrest Strauss-Kahn was heading back to Europe for talks on expanding the Greek bailout arranged last year.

The IMF is funded by its member governments, which also back its large-scale borrowing. The organization has steadily increased lending over time. In 1989 the IMF pressed to double its capital which, explained Managing Director Michel Camdessus, would be "the cheapest way for taxpayers in the richer countries to come to the aid of the poor." In 2009 the heavily indebted industrial states agreed to an immediate $100 billion increase in Fund resources in response to the financial crisis and approved the objective of trebling the Fund's $250 billion in resources. (The organization has a multitude of "credit facilities," credit "arrangements," and "credit lines.")

The IMF famously imposes policy changes as part of its lending programs. Unfortunately, there is no evidence that the organization has effectively promoted economic growth. Even its advocates can point to few successes.

Two decades ago Richard Feinberg and Catherine Gwin concluded that "the record of IMF-assisted adjustment efforts in Sub-Saharan Africa is discouraging." Back before he thought foreign aid could end poverty, economist Jeffrey Sachs warned that most agreements "are now honored in the breach."
The Fund spent decades subsidizing the world's economic basket cases, including Egypt, pre-reform India, Sudan, pre-reform Turkey, communist Yugoslavia, Bangladesh, Guinea-Bissau, Pakistan, Zaire (now Congo), and Zambia. None advanced because of Fund programs. In contrast, expanding private investment and trade offered development opportunities for countries that adopted sensible economic policies.

Now the IMF has become the bailout king. There always were better alternatives to throwing cash at countries suffering economic and financial crashes: bankruptcies, debt reschedulings, and forced work-outs. The common panic fomented by the Fund was rarely justified. Former Treasury Secretary and Secretary of State George Shultz opposed an earlier proposal to increase IMF resources: "typically crises are overrated in prospect and used to justify things that have big, big downsides, and in which the downsides are not quite seen at the time the intervention is being proposed."

However, the organization gloried in finding another purpose. Mexico became the Fund's biggest borrower. Then there was Asia.