Record Reserve Accumulation in 2009?

The IMF’s data on the Currency Composition of Official Foreign Exchange Reserves (COFER), the most comprehensive data on foreign exchange reserves, showed that global foreign exchange reserves exceeded US$7.5 trillion at the end of Q3 2009, up from US7.2 trillion at the end of Q2 2009. The COFER data also suggest that the USD share of global reserves continues to drift downward. The dollar share of countries that report the currency composition of their reserves fell to 62% in Q3, from 63% in Q2. However, 40% of global reserves are held by countries like China that do not report the composition of their reserves. (RGE analysis of IMF data)

Too Important to Fail?

Jose Vinals (IMF) Dec 9, 2009 7:19PM

Over the past two years, disruptive failures, shotgun marriages, and government bailouts of some household names in the financial industry have placed the age-old issue of “too big to fail” at the center of financial sector policy discussions. As well, the Lehman bankruptcy and government support for AIG extended the “too-big-to-fail” notion from banks to include nonbank financial institutions.

And in some cases, the financial institutions in distress were not even particularly big; rather, they were too interconnected, and too important for the functioning of the global financial system, to be allowed to fail.

IWF mahnt zu mehr Risikovorsorge in Osteuropa

aus orf.on:

Der Internationale Währungsfonds (IWF) hat die in Mittel- und Osteuropa tätigen Banken davor gewarnt, das Risiko von Kreditausfällen zu unterschätzen. Diese Geldhäuser hätten den Spielraum der Bilanzierungsregeln ausgenutzt und Vorsorgen für faule Kredite zu langsam aufgebaut, sagte IWF-Berater Christoph Rosenberg gestern auf einer Bankenkonferenz in Wien.

Zwar würden die meisten Banken dadurch in diesem Jahr einen Gewinn erzielen. Es bestehe aber die Vermutung, dass Banken zu lange an nicht werthaltigen Krediten festhielten, ohne dass diese zurückgezahlt würden. Langfristig sei das nicht im Sinne des Finanzsektors.

Fitch Downgrades Ukraine After Uncertain IMF Support: Ukraine Back on the Brink?

In November 2009, the IMF delayed the loan disbursement after the Ukrainian parliament defied the IMF prerequisite for disbursement of the tranche of US$3.4 billion by adopting a minimum wage and pension law and refusing to raise domestic fuel prices. The bill raises minimum wages and pensions by 20% and will be in effect by the end of 2010. Following the IMF suspension, Fitch downgraded Ukraine’s long-term foreign-currency rating to ‘B-’ with a negative outlook. Fitch argued that the „unaffordable minimum wage and pension law has effectively forced Ukraine’s IMF program off-track and has materially increased risks to fiscal financing, macroeconomic stability and creditworthiness.“  (Bloomberg)

G20 Finance Ministers: Is the Agenda too Broad?

Overview: The G-20 has emerged as the key economic grouping in the response to the global financial crisis as it is more representative than the smaller G-7.  G-20 finance ministers have been meeting frequently ever few months to coordinate the crisis response and to promote economic stabilization and growth but the topics of focus. 

G-20 finance ministers meeting in Scotland Nov 6-7 provided more details on policies approved at past meetings including a timeline for implementing the sustainable growth framework and financial reforms. However major economies remained divided on the implementation of compensation reforms and a Tobin Tax scheme to fund any future financial bailouts as well as ways of funding carbon emission reductions. 

Latvia, Lithuania, and the IMF

Anders Aslund | Nov 5, 2009 RGE Monitor

The International Monetary Fund (IMF) has had a good year in Eastern Europe. It has been called to help numerous countries and it has acted fast and generously. It has learned several lessons from the East Asia financial crisis of 1997–98, which was very similar. The East European crisis is primarily a current-account crisis, not a systemic or structural crisis. The external payment crisis has resulted in sharp falls in output, which in turn has resulted in temporary but large budget deficits after a long time of more or less balanced budgets and tiny public debt.

Sensibly, the IMF has focused on macroeconomic balances and bank restructuring. It has provided much more financing than before and not only for central bank reserves but also for budget financing. Yet Latvia stands out as a case particularly poorly managed by the IMF. The shortcomings stand out when comparing Latvia with its neighbor Lithuania, which faces a very similar conundrum.

IMF Begins to Sell Gold: What Effect Do Central Banks Have on the Gold Price?

As of November 2, 2009, the IMF had sold 200 tons of gold to India’s central bank, half of what it plans to sell. It did so gradually over the latter half of October 2009 based on the daily price levels. Izabella Kaminski of Financial Times Alphaville suggests the move may explain „gold’s recent unusual and simultaneous moves against the four main currencies that comprise the SDR basket: the dollar, the yen, sterling and the euro. India might indeed be the first country to use its SDRs for currencies to buy IMF gold.“  The IMF has promised to let market actors know before any on-market sales of gold take place so as to limit any disruption.

An IMF Just for Emerging Markets

Developing countries don’t trust the fund to serve their interests. Solution: An EMF

By Simon Johnson

Fresh from its annual meeting in Istanbul on Oct.6-7, the International Monetary Fund is taking a moment to celebrate itself. The IMF rediscovered its role as a lender of last resort in the global crisis (with Iceland a notable rescue). Earlier this year it got an extra $500 billion from member countries to triple its lending capacity. And it is positioned to manage the G-20’s much-hyped peer review of countries’ monetary, fiscal, and financial policies.

But below the surface, problems are intensifying: The IMF’s ability to stabilize the global economy may hit a wall because of resentment among emerging economies. Developing nations have long complained about the extent to which the U.S. and Western Europe dominate the 186-member group—and about

Romania Politics: IMF Agreement at Risk?

After months of uncomfortable alliance, Romania’s coalition government collapsed in October 2009, putting in question Romania’s ability to enact painful reforms required under its €20 billion (US$26.9 billion) IMF loan agreement. •President Basescu: „The [IMF] agreemeent for 2010 must be revised. It is clear that certain changes must be made, (…) because Romania will not be able to fulfill all its commitments by Dec. 31.“ (AP, 10/27/09) •

IMF’s Terms for Ukrainian Tranche: ‘Veto Wage and Pension Bill’

Ukraine’s economy contracted by nearly 20% in Q1 2009 and 18% in Q2 2009 despite the IMF’s US$16.5 billion loan made in November 2008. The deteriorating political climate in the country had put the disbursement of this loan at risk but subsequent macro-economic policy compromises allowed the delivery of the second and third tranches •IMF has asked Ukraine to veto its wage and pension bill as a precondition to disbursing a US$ 3.4 billion loan tranche.