[stop-imf] IMF: Today's Morning Press

[Robert Weissman]

Date: Thu, 6 Jun 2002 11:40:56 -0400
From: "Robert Naiman" <naiman@cepr.net>
Reply-To: "Robert Naiman" <naiman@cepr.net>


The continuing dispute over who is responsible for
the food crisis in Malawi is telling on the issue
of IMF transparency. What did the IMF tell the
government of Malawi? Why is this not a matter of
public record?

"Malawian President Bakili Muluzi rebuked the IMF
today, blaming it for a
biting food crisis and a reform agenda he said had
failed to improve the
lives of his people, Reuters reported from Durban.
Muluzi echoed comments
made last month by two of his ministers who
claimed the IMF asked his
government to sell maize from strategic reserves
to enable the state food
agency to meet obligations on a commercial loan.
He said persistent
shifting of goal-posts -- agreed reform
implementation benchmarks -- in
the governance area had also been used by the IMF
to withhold aid agreed
in December 2000, which had led to a freeze in
balance of payments
support. 'The IMF cannot refute this. I myself,
argued with them over this
issue of selling government reserves and they
insisted. It was their
decision imposed on us,' Muluzi told Reuters on
the sidelines of the World
Economic Forum`s Africa summit in Durban. 'If the
IMF policies had not
failed, we would not be where we are,' said
Muluzi, adding that he was at
loggerheads with the IMF for steadily increasing
conditions for its aid
while watching his citizens suffer under
structural reform failures."


                                        IMF
External Relations Department

Morning Press

Thursday, June 6, 2002
Today's Headlines
----------------------------
Argentina expects IMF mission to visit next week
ECB holds key rate steady at 3.25% as expected
Briefly noted
Op-eds/Letters/Editorials
Financial Markets

Argentina expects IMF mission to visit next week
--------------------------------------------------
-------------------

Argentine Economy Minister Roberto Lavagna said
yesterday he expected a
mission from the IMF to arrive in the country next
 week to start aid
negotiations, Reuters reported from Buenos Aires.
"Next week a negotiating
mission from the IMF will arrive (in Argentina),"
Lavagna said. "We have a
(telephone) conversation set up for (Thursday)
afternoon with [IMF First
Deputy Managing Director Anne] Krueger and
[Director of Special Operations
Anoop] Singh to finalize details, but we have been
exchanging information
today and in principle the mission arrives next
week," he added.

See in Clarín  and

Clarín and La Nación reported this morning that
Cabinet chief Alfredo
Atanasof asked IMF Managing Director Horst Köhler
to be "prudent", in
reference to his remarks about Argentina's slow
progress in agreeing on a
fiscal pact. Atanasof also said the Fund was "not
imposing any new
condition to Argentina." In a response to Köhler,
the Cabinet chief said
"prudence is highly needed" at the moment. He also
said that "if the Fund
wants us to move faster, it should help faster."


Reuters reported yesterday President Eduardo
Duhalde`s chief of staff
Anibal Fernandez told local television: "Lavagna
had made a kind of
complaint to the IMF for what the Fund said about
the foreign banks in our
country not agreeing with the voluntary swap."
"The reality is not exactly
this (.) the Argentine Banking Association had
expressed it was not the
best solution (.) but understood the situation of
the country did not
offer much alternative," the official added.


According to today's La Nación, the IMF did not
respond yesterday a
complaint made by the Argentine government, which
accused Anoop Singh of
misrepresenting in the Fund the opinions of
foreign banks on the
government`s plans to partially lift a bank
account freeze.
See in La Nación Política

The will to help Argentina, shown so far by
developed nations, should
become facts in order to facilitate the
negotiations with the IMF,
Argentine presidential secretary Aníbal Fernández
said, Europa Press
(Spanish service) reported today from Buenos
Aires. Fernández said
Argentina's crisis needed the support of the G-7
and American nations and
asked for them to "translate" the offers made into
"formal facts."


Argentine central bank head Mario Blejer plans to
leave his post once the
government reaches an agreement with the IMF and
the country`s economy
begins to recover, bank spokesmen said yesterday,
EFE reported from Buenos
Aires. Bank officials said Blejer would fulfill
the pledge he made to
President Eduardo Duhalde to stay on until the
pact with the IMF was in
place and signs emerge of a recovery. They said he
was currently at work
on the monetary plan to be implemented after the
six-month-old
restrictions on bank withdrawals are lifted. The
bank spokesmen said
Blejer, formerly with the IMF, would likely remain
in his post until next
August.


U.S. Treasury under secretary for international
affairs John Taylor
yesterday downplayed fears that Argentina`s
long-running crisis was
spreading to other economies in Latin America, DJ
reported from
Washington. He told a group of investors that
financial markets now appear
to be more focused on the fundamentals of
individual countries in Latin
America than in previous bouts of financial
crisis. Still, he urged
Argentina to tackle its economic weaknesses for
its own sake.
Taylor said Argentina`s economy would eventually
turn around. In the
meantime, international governments are supporting
South American
countries, like Uruguay and Brazil, through loan
programs with the IMF.




ECB holds key rate steady at 3.25% as expected
--------------------------------------------------
-------------------

The ECB today left interest rates unchanged as
expected as euro zone
recovery remains soft while the euro`s rally helps
dampen inflation,
Reuters reported from Frankfurt. The bank said in
a statement it had left
its key refinancing rate at 3.25%, unchanged since
last November.


The Bank of England`s Monetary Policy Committee
today left its key lending
rate unchanged at 4.0% for a seventh month running
as it awaited concrete
signs that the economy has shaken off its
downturn, Reuters reported from
London. The decision to leave its repo rate at a
38-year low had been
widely forecast by economists, although many
expect borrowing costs to
rise as soon as next month.




Briefly noted
--------------------------------------------------
-------------------

The IMF said yesterday Hungary must keep a tight
monetary policy and
reduce its budget deficit to prevent a spike in
inflation, Reuters
reported from Budapest. "Directors emphasized the
need to reverse the
considerable fiscal expansion underway at the
earliest opportunity," the
IMF said in its annual review of the country. The
IMF praised Hungary`s
efforts to cut inflation and keep economic growth
at relatively strong
levels despite a global slowdown as it prepares
for EU membership in 2004
and euro zone accession a few years later.
However, it warned that fiscal
expansion in 2001 and 2002, without offsetting
measures, posed upwards
risks on inflation and would make convergence more
difficult. The IMF
recommended a continued tight monetary policy to
prevent rekindling
inflation pressures, particularly with economic
activity seen picking up.


The IMF said yesterday it will close its
Budapest-based Central European
regional office in July as countries in the region
were near joining the
EU, Reuters reported from Budapest. IMF Senior
Resident Representative
Roger Nord said the office responsible for Hungary
and the Czech Republic,
as well as regional issues including EU accession,
will be shut when his
tenure ends in July. The IMF offices in Warsaw and
Bratislava will
continue to operate, but these are also likely to
close in the coming
years, Nord said. "IMF has offices in mainly those
countries where we have
financial operations," he said. "That is no longer
the case in Central
Europe."


Ailing Turkish Prime Minister Bulent Ecevit will
decide on Friday whether
he will attend a crucial meeting of party leaders,
after he has seen his
doctors, a member of his Democratic Left Party
(DSP) said today, Reuters
reported from Ankara.


Croatia is determined to press on with reforms and
cut its deficits in a
bid to accelerate growth and create more jobs, as
the IMF suggests, Slavko
Linic, deputy prime minister for economic issues,
said today, Reuters
reported from Zagreb. Yesterday, an IMF mission
completed two weeks of
annual consultations on economic policy and
implementation, warning
Croatia to watch public spending and debts that
threaten to undermine
further growth prospects. Its visit was also
designed to kickstart talks
on a new one-year stand-by deal, but they were
adjourned to the autumn to
allow time for the government to draft
consolidated state spending data
and projections for 2003.


Germany`s Bundesbank said today it would close 56
branch offices by April
2007, in a move that would affect 1,800 employees,
Reuters reported from
Frankfurt. Employees would partly get offered new
jobs or be able to
retire early, the bank said in a statement.


The EC rejected yesterday a suggestion by British
Prime Minister Tony
Blair that the EU should make aid to developing
countries conditional on
their agreement to take back illegal migrants,
Reuters reported from
Brussels. "Development aid is not an instrument to
compensate countries or
to punish those whose performance is not up to
scratch on migration,"
Commission development spokesman Michael Curtis
said. "It wouldn`t make
sense and it`s not logical."


Switzerland wants to create a joint task force
with the U.S. to root out
terrorist funding networks, a senior U.S. Treasury
official said
yesterday, Reuters reported from Berne. U.S.
Treasury Undersecretary Jimmy
Gurule welcomed the proposal from Switzerland.
Under the proposal, teams
of officials from each country would be based in
the other`s capital to
share information on al Qaeda, he said.


A team of IMF and external experts began today an
assessment of Japan`s
financial system, an IMF official said, AFP
reported from Tokyo. The
mission led by Director of the IMF`s Monetary and
Exchange Affairs
Department Stefan Ingves will hold meetings with
officials from the Bank
of Japan, the Ministry of Finance, and the
financial sector watchdog, the
Financial Services Agency (FSA), as well as
industry professionals from
now until June 19, said IMF spokeswoman, Kei
Shigaki. "This is the first
substantive meeting," Shigaki said.

The World Bank said today it planned to extend
between $1b and $1.7b in
loans to the Philippines over the next three years
to boost economic
growth, Reuters reported from Manila. The bank
said in a statement its
executive board recently discussed a new country
assistance strategy for
the Southeast Asian country from July 1 this year
to June 30, 2005, and
agreed with its focus on assisting the Philippines
to re-establish a
pattern of rapid and sustained poverty reduction.


Russian lawmakers voted yesterday to curb some of
the central bank`s
powers, backing the establishment of a new
supervisory body to put the
country`s main financial institution under closer
public scrutiny, Reuters
reported from Moscow. The State Duma lower house
of parliament strongly
backed in a third and final reading amendments to
the central bank law,
which call for a 12-member National Banking
Council made up of
parliamentary deputies, government officials and
the central bank chief.
The council will be authorized to review the
bank`s annual report, appoint
the bank`s auditors and approve its bookkeeping.


Russia`s central bank cut several more deposit
rates yesterday, sending
the rouble lower and making good on a promise to
make its rates a market
benchmark and regulate money supply, bankers said,
Reuters reported from
Moscow.


Malawian President Bakili Muluzi rebuked the IMF
today, blaming it for a
biting food crisis and a reform agenda he said had
failed to improve the
lives of his people, Reuters reported from Durban.
Muluzi echoed comments
made last month by two of his ministers who
claimed the IMF asked his
government to sell maize from strategic reserves
to enable the state food
agency to meet obligations on a commercial loan.
He said persistent
shifting of goal-posts -- agreed reform
implementation benchmarks -- in
the governance area had also been used by the IMF
to withhold aid agreed
in December 2000, which had led to a freeze in
balance of payments
support. "The IMF cannot refute this. I myself,
argued with them over this
issue of selling government reserves and they
insisted. It was their
decision imposed on us," Muluzi told Reuters on
the sidelines of the World
Economic Forum`s Africa summit in Durban. "If the
IMF policies had not
failed, we would not be where we are," said
Muluzi, adding that he was at
loggerheads with the IMF for steadily increasing
conditions for its aid
while watching his citizens suffer under
structural reform failures.


African leaders pledged yesterday to fix regional
conflicts, promote good
governance and fight epidemics they say could
scuttle their ambitious plan
to help Africa stand on its own feet, Reuters
reported from Durban. At
World Economic Forum`s Africa summit, leaders said
that the continent`s
goal of a single voice in seeking to raise finance
for its grand projects
would fail without peace.


The Democratic Republic of Congo has launched a
$1.7b infrastructure
rehabilitation plan whose success could still be
undermined by regional
conflict, the country`s central bank governor said
yesterday, Reuters
reported from Durban. Jean-Claude Masangu Mulongo
told Reuters that the
government was working with the World Bank on an
"emergency program" to
fix roads, water, transport, and urban
infrastructure to attract foreign
investment.


Madagascar`s two rival leaders agreed to meet in
Dakar at the weekend to
discuss the crisis, hours after saboteurs blew up
two bridges in the
north, state radio and UN sources said yesterday,
Reuters reported from
Antananarivo.


East African countries should avoid the World Bank
and the IMF if they
expect their economies to grow, East African
Standard (Kenya) said in a
report today. Ugandan MP Sheila Mishembi Kawamara
charged that countries
such as China, Mauritius, Vietnam and Thailand had
refused to take World
Bank and IMF prescriptions and their economies
were thriving. "It is a
pity that our leaders are always on the footsteps
of these two
institutions wherever they go," she added.
Kawamara criticized the bank
and IMF saying they were to blame for the
increasing poverty in the three
states owing to their "nonsensical
prescriptions"...


Zambia drew up a four-point plan yesterday to
diversify its copper-reliant
economy and Finance Minister Emmanuel Kasonde said
he would present it to
Western donors next month for financing, Reuters
reported from Kitwe.
Zambia and economic experts meeting in Kitwe said
the country could
enhance economic growth and reduce poverty by
promoting tourism,
manufacturing, agriculture and gemstone mining.


U.S. Treasury Secretary Paul O`Neill said
yesterday that clean water,
primary education and health care are top
priorities for developing
African nations and foreign donors, DJ reported
from Washington. He said
in remarks to the Carnegie Endowment for Peace
that he saw signs of
progress during his trip to Africa with Bono. Aid
is helping and standards
of living are getting better, O`Neill said, but
foreign aid by itself is
unlikely to fix the system. "You cannot airdrop
solutions to local
problems. You can only offer air support," he
said. "Local leadership must
implement the solutions on the ground and be
accountable for success."

See also in the FT

In response to an audience question at Georgetown
University, O`Neill said
yesterday he believed that international financial
institutions such as
the IMF and the World Bank needed to overhaul
their operations in order to
increase their success rate, AP reported from
Washington. O`Neill said
World Bank President James Wolfensohn is
"sometimes very defensive" about
the secretary`s criticism of failed aid efforts in
the past. "I keep
saying to him it is not my purpose to find fault
with you personally or to
ignore the great successes that have come from
these institutions,"
O`Neill said.

Brazil's central bank governor Arminio Fraga said
that election-year
volatility is manageable and that investors "are
overestimating the
risks," the Wall Street Journal reported today. He
said in an interview
Brazil`s next government will inherit a sound
economy with low inflation,
healthy banks and unprecedented checks and
balances on public spending. To
be sure, Brazil has made economic strides under
President Fernando
Henrique Cardoso. But the changes are far from
complete, and some
legacies, such as heavy public debt, keep Brazil
vulnerable. Fraga said
that he "wouldn`t rule out working for any
government that was inclined to
respect contracts, to stick with the rule of law .
. . [that] understood
and made it clear that fiscal responsibility is
important, that low
inflation is a precondition for development."


"In Wall Street`s eyes, Colombian President-elect
Alvaro Uribe couldn`t
have done much better when he chose Roberto
Junguito, an alumni of New
Jersey`s Lawrenceville High School, to be his
finance minister," DJ
reported yesterday from Bogota. "Junguito is
Colombia`s current
representative to the IMF, has an advanced degree
from Princeton, and
built a reputation for fiscal austerity as the
country`s finance minister
in 1984-1985. But analysts say markets haven`t yet
rallied strongly around
Uribe and Junguito because there are still more
questions than answers
about how the new administration will manage this
war-torn country`s $82b
economy."


Uribe has appointed economist Santiago Montenegro
as national planning
director in the next government, a spokeswoman for
Uribe said yesterday,
DJ reported from Bogota. Montenegro, 47, is
currently president of the
National Association of Financial Institutions.


Venezuela said yesterday that the Andean
Development Corporation (CAF) had
approved a $100m financing project, the nation`s
first multilateral loan
since announcing fiscal reform and international
aid proposals to shore up
its ailing economy, Reuters reported from Caracas.


Foreign investors shied away from the U.S. in
2001, as direct foreign
investment fell by more than 60% from 2000, the
Commerce Department said
yesterday, Reuters reported from Washington.
Foreign direct investment to
buy or establish U.S. businesses dropped by 60.4%
to $132.94b from the
record $335.63b in 2000, Commerce said in an
annual report. "The decrease
reflected weakness in the U.S. and world economies
and a sharp drop in
overall merger and acquisition activity
worldwide," Commerce said.


At least 700,000 and possibly as many as 4m
persons are bought, sold,
transported and held against their will through
fraud, coercion and
outright kidnapping, Secretary of State Colin
Powell said yesterday, AP
reported from Washington. In the State
Department`s second annual
Trafficking in Persons Report, Powell said the
report helps "to bolster
the will of the international community to combat
this unconscionable
crime." He said the U.S. is ready to help
countries design programs to
address the problem, but starting next year will
impose sanctions on
countries that do not make such an effort. Nancy
Ely-Raphel, an adviser to
Powell, said sanctions could include actions such
as voting against loans
from the IMF and the World Bank.




Op-eds/Letters/Editorials
--------------------------------------------------
-------------------

Inflation can be too low as well as too high
Samuel Brittan commented today in the FT that
despite the apparent world
economic upturn, excessively tight monetary
targets could be dangerous if
recession returns.

"The last IMF World Economic Outlook contained a
section entitled 'Can
inflation be too low?' The suggested answer was
'Yes.' Coming from an
organization regularly attacked as a pillar of
western capitalist
orthodoxy, the conclusion is pretty remarkable. It
is also highly topical
when so many central banks are pondering when to
raise interest rates(.)
If inflation is absent, nominal interest rates
cannot fall below zero,
where they have more or less been in Japan for
several years(.) If a
near-zero base rate or prime rate is not enough to
boost consumption or
stimulate investment sufficiently in a recession,
the economy will not
easily recover. That is why the IMF warns that
'deflation blunts the
effectiveness of monetary policy . There is a
danger that with real
interest rates prevented from falling, output
recovers only slowly and
deflation gathers force . If the shocks hitting
the economy are large
enough, this dynamic interaction can lead to a
downward spiral that cannot
be tackled by short-term interest rate policy
alone.' This situation
resembles what John Maynard Keynes called a
liquidity trap, although the
mechanics are somewhat different. The IMF authors
suggest pre-emptive
measures to prevent depression from gathering
force(.)

"The problem of interest rate floors may seem
remote if, as forecasters
suggest, the world economy is moving towards a
restoration of normal
growth rates; but suppose they are wrong?
Unfortunately, we cannot rule
out the possibility of one or more large-scale
terrorist attacks in the
U.S. or Europe. Nor can we dismiss the worries of
those who believe that
the U.S. recovery cannot continue for long on the
basis of negative saving
and rising consumption. The American consumer has
been buttressed by
rising real wealth from home ownership, and until
recently from equity
holdings. Stocks may still be overvalued; and the
property bubble could
burst at any time. The mere possibility of these
events makes one need to
look at economic defences against renewed
recession, even if it is not the
most likely short-term danger."


Meanwhile...
The Guardian (U.K.) commented yesterday in a
leader that Africa
desperately needs more aid. "There are now more
reasons to help than when
Nepad was first being planned. On present trends
Africa will get poorer
not richer. There are alarming warnings of famine
in southern Africa. The
mess in Malawi, where a row between the IMF and
the government over who
sold vital grain reserves and where the money has
gone, raises the ugly
possibility that corruption has caused the
starvation of millions. The
mismanagement of Zimbabwe (.) by Robert Mugabe has
resulted in more
imports. Uganda (.) is in danger of needing debt
relief because of
depressed coffee prices. Africa`s plight is making
headlines, partly
thanks to a tour of the continent by the oddest
couple in globalization,
Bono and U.S. Treasury Secretary Paul O`Neill.

"Bononomics appears a mixture of self-reliance and
global assistance. The
U.S. prefers the former to the latter and, worse,
preaches free trade but
in practice hands out billions of subsidies to its
rich farmers which
artificially depress commodity prices such as
cotton. This is crucial to
an African economic renaissance(.) The EU`s
protectionism attracts
Africa`s ire and last week Ghana rightly objected
to the EU`s tariffs on
processed cocoa. Worse still is the EU`s aid
policy. This has increasingly
been bent to fit the foreign policy requirements
of member states(.) At
least $5bn is required to educate African children
and extra cash is
needed for health projects. Just how much emphasis
to place on trade over
aid is part of the process. But without both, the
vision of Africa in
years to come will be as blighted as it today."


The Africa tour: First, do no harm
Mark Weisbrot, co-director of the Center for
Economic and Policy Research,
commented on Monday in The Sacramento Bee that:
"(.)Uganda was a showcase
for the tour [of U.S. Treasury Secretary Paul O'
Neill and Bono], as one of
the few countries that has benefited from the
IMF/World Bank`s HIPC
initiative. But even Uganda`s debt burden remains
unsustainable, according
to the World Bank`s own criteria. Six years into
HIPC, most of the 41 HIPC
countries are still spending more on debt service
than on health care or
education. What is the justification for
extracting this kind of debt
service from a continent where three quarters of
the 600m inhabitants live
on less than two dollars a day?(.) O`Neill should
have to answer these
questions, since his Treasury Department has veto
power at the IMF-the
world`s most powerful debt collector.

"The creditor nations also use their power-mainly
through the IMF and the
World Bank-to impose conditions on loans and debt
relief. Such conditions
can be hazardous to people`s health: in Ghana,
these included a 95%
increase in fees for water(.) Of course there are
African economists who
know much more than foreign creditors about
Africa`s development needs(.)
Such ideas are not on the agenda, because
Washington has decided that its
formula of opening up to trade and investment,
combined with
privatization, can substitute for a development
strategy(.) Much more than
increasing aid, [the U.S. and Europe] need to
respect a more modest
principle: first, do no harm."


Rebuilding the tiger
John Thornhill commented yesterday in the FT that
five years after east
Asia suffered a devastating financial crisis, the
region has gone a long
way towards improving corporate governance.

"This year the economic forecast across east Asia
looks surprisingly rosy
(.) The region`s economic growth may not match the
heady rates it achieved
during the era of the east Asian 'miracle.' But at
least it appears to be
based on firmer foundations(.) At the
macroeconomic level, much of east
Asia has changed beyond recognition since the
crisis. Voluntarily or not,
most countries have abandoned fixed exchange rate
regimes(.) and adopted
'managed floats' of their currencies. The five
countries most affected by
the 1997 financial crisis have also paid down more
than $100b in external
debt since 1997, while rebuilding their foreign
exchange reserves. The
decline of imports after 1997, followed by a rapid
expansion of exports,
has also led to a sharp turnaround in the region`s
current account.(.)All
these changes have made Asia`s economies more
flexible and resistant to
external shocks; the recent collapse of the
Argentine economy barely
ruffled emerging Asia.

"Sun Bae Kim, regional economist at Goldman Sachs
in Hong Kong, says the
remedies peddled by the IMF following the
financial crisis may have caused
intense short-term pain. But - eventually - they
helped stabilize the
region`s economies and have enabled interest rates
to be cut to their
lowest levels in postwar history. 'When the IMF
came to town, the
cookie-cutter approach was to jack up interest
rates and stabilize the
currency,' he says. 'There is still a debate about
whether the cure was
worse than the disease. When you are so leveraged
and you jack up interest
rates, you stare at the face of death.' But this
financial shock has
changed the way capital is allocated in these
economies, with many
state-directed banks being either unable or
unwilling to extend fresh
credit to troubled corporations, Mr Kim says(.)
But the latest upswing in
Asia`s economies  may well take the pressure off
many governments to
complete corporate sector reforms and
restructuring.

"Bill Kaye, senior managing director of The
Pacific Group, a Hong
Kong-based investment company, says that, although
he is generally upbeat
about the region`s economic prospects, he doubts
whether Asia will become
a lot more friendly for outside investors(.) If
that view gains hold, the
currently favorable investor sentiment towards
Asia may swing against the
region yet again(.) But if the past five years
have proved anything, it is
that most Asian countries are resilient enough to
reshape their own
economies if the need arises."