Reuters News - IMF calls for action as euro zone crisis festers

 International Monetary Fund (IMF) Managing Director Christine Lagarde (2nd R) and Liberian President Ellen Johnson Sirleaf (R) shake hands with Japan's Finance Minister Koriki Jojima (L) and moderator Kaori Iida at the end of a debate program of seminars at the annual meetings of the International Monetary Fund and the World Bank Group in Tokyo October 11, 2012.

Credit: Reuters/Issei Kato

By Tetsushi Kajimoto and Julien Toyer

TOKYO | Thu Oct 11, 2012 3:07am EDT

(Reuters) - The IMF prodded the world's rich countries for swifter action on Thursday as Europe's debt crisis drags on while the United States andJapan show scant progress handling their budget deficits.

Christine Lagarde, managing director of the International Monetary Fund, said political wrangling added to economic uncertainty, slowing growth in both advanced and emerging economies. The IMF cut its global growth forecast this week for the second time since April.

"We expect action and we expect courageous and cooperative action on the part of our members," Lagarde told reporters ahead of the IMF's twice-yearly meetings in Tokyo.

The slowdown has not spared emerging market economies, which were instrumental in pulling the global economy out of recession in 2009. Brazil cut interest rates on Wednesday and South Korea on Thursday.

"Developing countries, which have been the engine of growth, will not be immune the increased uncertainty in the global economy," said World Bank President Jim Yong Kim.

"The economic announcements emanating in recent weeks have been sobering. Everyone is vulnerable in times of uncertainty but especially the poor who have few, if any, safety nets and resources and live from day to day."

The IMF has expressed frustration with Europe's piecemeal response to its debt crisis and warned that a recent respite in borrowing costs for debt-laden countries such as Spain may prove short-lived unless euro zone leaders come up with a comprehensive and credible plan.

In its financial stability report on Wednesday, the IMF said that without swift policy action, including the triggering of the European Central Bank's bond-buying program, the premium that investors demand to hold Spanish and Italian debt instead of safer German bonds would nearly double.

Standard & Poor's cut its rating on Spain on Wednesday to a level just above junk territory, and Moody's may soon follow.

The IMF has said it stands ready to support a European bailout for Spain, should Madrid ask. Reuters reported on October 1 that Spain was ready to seek help, but that Germany was blocking an aid request because it preferred to combine a Spanish rescue with additional assistance for other struggling countries such as Greece.

Jose Vinals, the head of the IMF's monetary and capital markets department, warned that countries must not withhold help if Spain were to ask the European Central Bank to buy its bonds under a new bailout program, known as OMT for Outright Monetary Transaction.

"If it were to be the case that they decide to activate this mechanism and they can submit to the proper degree of conditionality, it would be essential that the creditor countries do not negate this activation of the OMT for Spain or for any of the countries," Vinals told Reuters.

TRUE MONETARY UNION

Japan's finance minister, Koriki Jojima, called the euro zone's debt and financial sector problems the biggest risk to the global economy and said it was crucial for Europe to quickly implement agreed steps to resolve the crisis.

"We hope that European countries will overcome conflicts in opinions and strengthen their efforts to unite together and establish a monetary union in the true meaning," he said.

But Japan also drew criticism from the IMF for failing to come up with a medium-term plan to address its own debt difficulties. In its financial stability report, the IMF said Europe's troubles provided a "cautionary tale" for Japan that waiting to address its towering debt - estimated at more than twice its annual gross domestic product - could be costly.

European officials are keen to ensure their region is not the sole topic of discussion, and want more attention placed on the difficulties Washington faces addressing its "fiscal cliff" of automatic spending cuts and tax increases that will take effect early next year unless Congress acts.

The IMF projected that the fiscal contraction would amount to more than 4 percent of total U.S. economic output and plunge the world's biggest economy back into recession.

The Fund itself is struggling to muster the sort of decisive action that Lagarde wants to see from world leaders. Its 188 member countries meet on Friday and Saturday, and will fall short of a goal to implement voting reforms that would give large emerging economies greater say and elevate China to the No. 3 spot in IMF power.

A territorial dispute between Japan and China added another element of disharmony. China's top central bank and finance ministry officials backed out of the meetings and sent deputies to Tokyo instead. Lagarde said she hoped the world's second- and third-largest economies could resolve their differences "harmoniously and expeditiously."

"I think they lose out by not attending the meeting," she said of the Chinese officials. "And they will be missing something great."

(Writing by Emily Kaiser; Editing by Tim Ahmann)

BBC News - Global financial risks have increased, says IMF

Risks to global financial stability have increased in the past six months despite efforts by policymakers to make the financial system safer, according to the International Monetary Fund.

It said little progress had been made in making the system more transparent and less complex, and that confidence in it had become "very fragile".

The eurozone debt crisis remained the main cause of concern, the fund said.

On Monday, the IMF downgraded its forecast for global growth.

It estimated growth in 2013 to be 3.6%, down from 3.9% in its previous forecast in July. This included sharp downgrades for the UK, Brazil and India.

Remaining risks

In its latest Global Financial Stability Report, published every six months, the IMF said "significant efforts" by European policymakers had "allayed investors' biggest fears".

The European Central Bank offered cheap loans to banks early this year; the bank's chief Mario Draghi said he was prepared to do whatever it took to save the euro in the summer; while on Monday, eurozone governments announced the launch of the long-awaited European Stability Mechanism (ESM), the bloc's new permanent fund to bail out struggling economies and banks.

The ESM, with 500bn euros (£400bn; $650bn) at its disposal by 2014, will be able to lend directly to governments, but it will also be able to buy their sovereign debts, which could help reduce the borrowing costs of highly-indebted countries such as Italy and Spain.

However, the IMF said that "despite recent favourable developments in financial markets, risks to financial stability have increased since April".

It said concerns about countries leaving the eurozone had led to "capital flight" away from the bloc that "undermined the very foundation of the union".

It added that the need for banks to build up capital protection, together with high borrowing costs for governments, was "generating very strong headwinds for the corporate sector".

The fund talked of a benchmark set of goals for the financial sector - institutions and markets that are "more transparent, less complex, and less leveraged".

"Although there has been some progress over the past five years, financial systems have not come much closer to those desirable features.

They are still overly complex, with strong domestic inter-bank [links], with the too-important-to-fail issues unresolved".

US debt

The IMF highlighted a number of measures that were needed to help resolve the crisis.

It said individual governments needed to cut debt levels without choking off growth and push through reforms to clean up the banking sector, including recapitalising viable banks.

The ECB would need to help in this process, it said. The IMF also reasserted its view that much closer ties were needed between eurozone banks.

Outside the eurozone, the fund pointed to risks in the US and Japan.

It highlighted the looming so-called fiscal cliff in the US, when automatic spending cuts and tax increases kick in at the beginning of next year.

In Japan, the fund highlighted high budget deficits and record debt levels, as well a "growing interdependence" between banks and the state.

Measures to tackle these issues were needed "without further delay".

BBC News - Eurozone rescue fund launched

The eurozone's new permanent fund to bail out struggling economies and banks has been formally launched at a meeting of finance ministers in Luxembourg.

Jean-Claude Juncker, chair of the Eurogroup: "The ESM is not a stand-alone instrument, but part of a comprehensive plan"

The European Stability Mechanism (ESM) will have a full lending capacity of 500bn euros (£400bn; $650bn) by 2014.

It will initially run alongside, and then eventually replace, the European Financial Stability Facility (EFSF).

Europe's largest economy, Germany, will make the biggest contribution to the fund, about 27% of its total.

The ESM, which is a new European Union agency, will be chaired by Jean-Claude Juncker, the Prime Minister of Luxembourg and chair of the Eurogroup.

The launch of the ESM "marks an historic milestone in shaping the future of monetary union", Mr Juncker said after the inaugural meeting of the Eurogroup of finance ministers that makes up the fund's board.

Countries will make their first payments towards the fund this week.

Earlier, the EU economic and monetary affairs commissioner, Olli Rehn, said: "It provides the eurozone with a robust and permanent firewall and it provides us with a strong toolbox of effective and flexible instruments.

"Thinking of where we were two-and-a-half years ago when we had no instruments of crisis management, we had to create the Greek loan facility and the temporary European facility, we are moving forward and we are supplementing the economic and monetary union with one important building block," he said as he arrived at the meeting.

"Nobody is in party mood, but I am less pessimistic for the moment for the eurozone than in the spring."

Firepower concerns

The temporary EFSF has already lent 190bn euros to Greece, the Republic of Ireland and Portugal.

Some critics believe that the 500bn-euro firepower of the ESM will still not be large enough to save the eurozone.

"The good news is that by using the funding in a wise way to support bond purchases, you can probably stretch that money quite a long way," Sarah Hewin, head of global research at Standard Chartered, told the BBC.

"The real concern is if Italy becomes involved, if there's a big shock to the system and a full bailout is required. Even 500bn euros isn't enough to cover Spain and Italy for a full three-year programme."

Having officially launched the ESM, finance ministers will now turn their attention to Greece's bailout and Spain as talks continue until Tuesday.

Continue reading the main sto

Spain has already been granted help for its banks and will receive up to 100bn euros to be targeted at its financial sector. It is widely expected to formally request a sovereign bailout.

But upon arriving in Luxembourg, German Finance Minister Wolfgang Schaeuble said that Madrid did not need any further help.

"Spain needs no aid programme. Spain is doing everything necessary, in fiscal policy, in structural reforms," he said.

"Spain has a problem with its banks as a consequence of the real estate bubble of the past years. That's why Spain is getting [EU] help with banking recapitalisation."

Greece will also be on the Eurogroup's agenda, as negotiations continue between Athens and the "troika" of inspectors from the International Monetary Fund, European Commission and European Central Bank.

But Mr Juncker said: "I don't think that we will have any major decisions on Greece."

Reuters News - IMF warns global economic slowdown deepens, prods U.S., Europe

 International Monetary Fund's Economic Counsellor and Director of Research Department Olivier Blanchard and IMF Division Chief Thomas Heibling (R) hold a news briefing on the World Economic Outlook (WEO), at the Tokyo International Forum in Tokyo October 9, 2012.

Credit: Reuters/International Monetary Fund/Stephen Jaffe/Handout

By Emily Kaiser and Lesley Wroughton

TOKYO | Tue Oct 9, 2012 2:51am EDT

(Reuters) - The IMF said the global economic slowdown is worsening as it cut its growth forecasts for the second time since April and warned U.S. and European policymakers that failure to fix their economic ills would prolong the slump.

Global growth in advanced economies is too weak to bring down unemployment and what little momentum exists is coming primarily from central banks, the International Monetary Fund said in its World Economic Outlook, released ahead of its twice-yearly meeting, which will be held in Tokyo later this week.

"A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component," it said.

"The answer depends on whether European and U.S. policymakers deal proactively with their major short-term economic challenges."

Ahead of the Tokyo meeting, policymakers have flagged the U.S. "fiscal cliff" -- government spending cuts and tax raises due to take affect early in 2013 -- and resolving the euro area's debt crisis as the top issues facing the global economy.

Europe's debt crisis is "a clear and present danger", Canadian Finance Minister Jim Flaherty said last week.

The IMF forecast in its latest health check on the world economy that global output in 2012 would grow just 3.3 percent, down from a July estimate of 3.5 percent.

That would make this the slowest year of growth since 2009 when the world was struggling to pull out of the global financial crisis. It predicted only a modest pickup next year to 3.6 percent, below its July estimate of 3.9 percent.

It projected U.S. growth would be a little more than 2 percent this year and next, but forecast a contraction in the euro area this year by 0.4 percent and modest growth in 2013 of 0.2 percent.

Emerging markets are still expected to grow four times as fast as advanced economies, but the IMF took a sharp knife to its estimates for India and Brazil, with the latter now seen growing slower than the United States this year.

It also cut its expectations for China in 2012 and 2013 but warned against being overly pessimistic about the prospects of these economies, which were major engines of growth in the global financial crisis.

"Let me be clear. We do not see these developments as signs of a hard landing in any of these countries," IMF Chief Economist Olivier Blanchard said at a briefing, referring to China, India and Brazil.

MORE AT WORK

The IMF said "familiar" forces were dragging down advanced economy growth: fiscal consolidation and a still-weak financial system, the same problems that have plagued the world since the global financial crisis exploded in 2008.

"More seems to be at work, however, than these mechanical forces - namely, a general feeling of uncertainty," Blanchard said in a commentary on the forecasts.

Measures of risk and uncertainty, such as the VIX volatility gauge in the United States, remain at low levels, Blanchard pointed out, which makes it difficult to assess the nature of the uncertainty.

"Worries about the ability of European policymakers to control the euro crisis and worries about the failure to date of U.S. policymakers to agree on a fiscal plan surely play an important role, but one that is hard to nail down," Blanchard said.

Concerns about the health of the global economy and corporate earnings prospects have weighed on financial markets. World shares as measured by the MSCI world equity index fell 0.7 percent on Monday. The index was flat in Asia on Tuesday.

S&P 500 earnings for the third quarter are forecast to have fallen more than 2 percent from the year-earlier period, which would be the first decline in three years, Thomson Reuters data shows.

The IMF said financial conditions are likely to remain "very fragile" over the near term because repairing euro zone problems will take time and there are concerns about how the U.S. economy will cope with the expected spending cuts and tax increases.

The "urgent policy priorities" for the United States should include avoiding the fiscal cliff, which the IMF said at the extreme would amount to a fiscal withdrawal of more than 4 percent of GDP in 2013, and economic growth would stall.

"Both sides of the political isle (should) signal that they are willing to compromise and that they're willing to get this done ... that could help lower the level of uncertainty that is affecting U.S. investors and consumers," IMF First Deputy Managing Director David Lipton told Reuters in an interview on Monday.

Resolving the euro area crisis would require progress in adopting and implementing the various measures discussed, including banking and fiscal union, the IMF report said.

"If the complex puzzle can be rapidly completed, one can reasonably hope that the worst might be behind us," Blanchard said.

Euro zone finance ministers on Monday unveiled the European Stability Mechanism (ESM), a 500 billion euro rescue mechanism for lending to distressed economies in the 17-country bloc.

But perhaps the biggest contagion risk for the region is Spain, which a British finance ministry source suggested will be the top issue for finance ministers in Tokyo.

"We have always been very clear that the euro zone needs to take significant action," the source said.

The euro zone has already set aside 100 billion euros for Spain to recapitalize its banks but financial markets believe a government bailout will follow in coming weeks or months.

(Additional reporting by Anna Yukhananov in TOKYO and David Milliken in LONDON; Editing by Neil Fullick)

Reuters News - World Bank cuts East Asia GDP outlook, flags China risks

An employee makes a check on steel products at a workshop of Kunming Iron and Steel Co. Ltd. in Kunming, Yunnan province June 16, 2008.

Credit: Reuters/Stringer

By Kevin Lim

SINGAPORE | Mon Oct 8, 2012 12:21am EDT

(Reuters) - The World Bank cut its economic growth forecasts for the East Asia and Pacific region on Monday and said there was a risk the slowdown inChina could worsen and last longer than many analysts have forecast.

"Unlike the rest of the region, China is experiencing a double whammy -- the growth slowdown is driven by weaker exports as well as domestic demand, in particular investment growth," World Bank Chief Economist for East Asia and the Pacific Bert Hofman said at a briefing in Singapore.

He stressed, however, that the World Bank, like many economists, still expects China to have a soft landing as seen from the bank's revised 7.7 percent growth forecast for this year and 8.1 percent for next year.

The World Bank earlier on Monday released its latest East Asia and Pacific Data Monitor, warning China's that slowdown could accelerate.

In the report, the international lender said that ambitious investment plans announced by several local governments in China could face funding constraints, "not least because governments are feeling the pinch of a cooling real estate market, which lowers land sales revenues".

The World Bank said the central government was unlikely to come up with a major fiscal stimulus package as policymakers were concerned about a rebound in home prices and a possible reversal of hot money flows.

Nevertheless, the bank expects growth in China to pick up in 2013, helped by monetary policy measures introduced earlier this year and an acceleration of central government investment spending.

The World Bank had earlier this year forecast 8.2 percent GDP growth for China in 2012 and 8.6 percent in 2013.

For the region as a whole, the World Bank now expects developing East Asia to grow by 7.2 percent this year and 7.6 percent in 2013, down from earlier estimates of 7.6 percent and 8.0 percent, respectively.

"This is the slowest growth rate in the Asia Pacific region since 2001. It's even slower than the peak of the financial crisis in 2009," Hofman said.

The World Bank last week cut its 2012 growth forecast for sub-Saharan Africa to 4.8 percent from 5.2 percent, and lowered its outlook for Latin America to 3 percent from the previous 3.5 to 4 percent, citing the global economic slowdown.

"Economic projections for EAP (East Asia and Pacific) are surrounded by considerable uncertainties, and a variety of risks continue to loom over the global and regional economy," the bank said.

"Although recent policy moves have reduced the risk stemming from the Eurozone, financial market disruptions still constitute the main risk to this outlook, followed by the 'fiscal cliff' risk in the United States," it added, referring to the sharp cuts in U.S. government spending that could be triggered next year if lawmakers fail to reach a new agreement.

SOUTHEAST ASIA, QE3

The World Bank was bullish about Southeast Asia due to strong domestic demand and noted investment spending in Thailand, Malaysia and Indonesia was booming. For Indonesia, the ratio of investment to gross domestic product has now returned to pre-Asian financial crisis levels.

The multilateral lender kept its 2012 GDP forecasts for Indonesia and Thailand at 6.1 percent and 4.5 percent, respectively, and raised its 2012 growth outlook for Malaysia to 4.8 percent from 4.6 percent.

The 2012 forecast for the Philippines was increased to 5.0 percent from 4.2 percent.

"In the Philippines, the acceleration of government infrastructure spending has contributed to the strong growth performance in the first half, while revenue growth is supported by tax administration reforms as well as strong GDP growth," the World Bank said.

Most developing East Asian economies were well positioned to weather troubles in the global economy as they enjoyed current account surpluses or only modest deficits and held high levels of foreign exchange reserves relative to their international payment obligations, the World Bank added.

Hofman said the latest round of "quantitative easing" by Western central banks will not be as disruptive to East Asia as previously, as weakening exports coupled with still strong imports mean overall inflows to the region were not as large as they had been in the past.

"It was a problem almost two years ago and even one year ago but it seems less of a problem now," he said.

The U.S. Federal Reserve last month unveiled a third round of quantitative easing, whereby it will inject new money into the system by buying mortgage securities. The European Central Bank has also announced plans to buy the bonds of trouble eurozone countries such as Spain to bring borrowing costs down.

The World Bank, however, warned that countries such as Mongolia, Laos, Timor Leste, Fiji and Papua New Guinea could experience a sharp terms-of-trade shock in a major slowdown, as commodities accounted for at least 80 percent of total exports.

It added the recent spikes in global food prices were less of a risk to the East Asia and Pacific region as rice markets had not been affected.

"Rice prices have been relatively stable, with most of the price risks on the downside as stocks in Thailand continue to build as a result of the new floor price policy, and good crops in Cambodia, Vietnam and the Philippines," it said.

(Reporting by Kevin Lim; Editing by Sanjeev Miglani and John Mair)

Reuters News - Global growth worries hit shares and oil

LONDON | Mon Oct 8, 2012 3:49am EDT

(Reuters) - European stocks, oil and gold fell on Monday as concerns over the global economic outlook and its impact on the coming corporateearnings season weighed on investor sentiment.

The World Bank cut its estimate for East Asian growth including for China, and this has undone some of the positive sentiment that followed Friday's sharp drop in U.S. unemployment for September.

"The big bogeyman in the closet is China and everyone is trying to guesstimate if it's going to have a hard landing or a soft landing," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

However, national holidays in Japan and the United States on Monday were expected to limit trading activity.

The pan-European FTSEurofirst 300 .FTEU3 was down 0.7 percent at 1,103.51 points in early trade with the German DAX .GDAXI down 0.8 percent despite data showing an unexpected jump in German exports during August.

Seasonally adjusted exports jumped 2.4 percent month-on-month, far outperforming expectations for a drop of 0.5 percent and beating even the highest forecast in a Reuters poll of 17 economists for a 0.5 percent rise.

"It is incredible how German exports are winning in such a tough environment," said DekaBank economist Andreas Scheuerle.

The signs of strength in Europe's biggest economy failed to help to the euro which was down 0.4 percent at $1.2975.

The fragile economic outlook saw Brent crude for November delivery fall 90 cents at $111.12 a barrel, while the gold price edged down 0.2 percent to $1,777.89 an ounce.

In Europe investors are also focused on a meeting of euro zone finance ministers later. They will formally launch the region's new permanent bailout fund and are expected to discuss the problems facing Spain and Greece.

But they are not expected to make major progress in solving the debt crisis so German government bond futures were ticking higher in early trade.

(Reporting by Richard Hubbard; Editing by Anna Willard)

BBC News - Defence firms 'not open about anti-corruption measures'

By Caroline WyattDefence correspondent, BBC News

Two-thirds of the world's biggest defence companies do not provide enough evidence about how they fight corruption, a pressure group has said.

British defence contractor BAE Systems is one of those named in the study

Transparency International looked at firms from the 10 largest arms exporting nations including the UK, US, Russia, Germany, France and China.

The 129 firms it studied are worth more than $10tn (£6tn) and are responsible for over 90% of global arms sales.

It says corruption in the industry puts "international security at risk".

The study analyses what the biggest defence companies around the world do, or fail to do, to prevent corruption.

Transparency International rates them both on the amount of information publicly available about how they tackle corruption, but also - for the 34 companies who submitted answers - on their internal ethics and compliance methods.

Limited information

The companies - with a combined revenue of more than £300bn - are graded from A to F, with A representing the most extensive evidence of firms' anti-corruption systems.

Only one firm, the American Fluor Corporation, gets an A overall, while the British defence giant, BAE Systems, rates a B in both categories.

Continue reading the main story

The European aerospace company EADS rates a C for the information it makes public on its anti-corruption practices, while British firms Serco group and Qinetiq each get a B in that category.

French company Dassault aviation rates a D, for limited information, while 47 companies from countries ranging from China and Russia to Pakistan rate an F, for putting up little or no evidence of the anti-corruption systems they may have in place.

The Transparency International Defence Companies anti-corruption index 2012 finds that 85% of defence industry leaders are not speaking up enough about the importance of ethics and preventing corruption.

It also says that only 10% of companies have good disclosure of what they do to stop it, although Transparency says that's better than a decade ago.

Secret contracts

Study author Mark Pyman says that one of the reasons the defence industry has been prone to corruption in the past is that so many defence contracts have been secret, with little public pressure brought to bear.

He describes corruption in defence as "dangerous, divisive and wasteful".

"It puts international security at risk, and billions can be wasted in dishonest arms deals," he said.

Former Nato Secretary General Lord Robertson believes that legislation, in the form of the British bribery act, has helped to galvanize defence companies to act to tackle corruption.

Commenting on the index, he says companies "must have a reputation for zero tolerance to corruption."

He said: "By having the right anti-corruption systems in place, companies can avoid a drop in stock prices, blacklists, and even prison.

"It is in their interest to take action, and this index provides the guidance to do so."

Transparency International hopes that its defence companies' anti-corruption index will encourage good practice, and raise standards globally.