The US government is concerned about overall demand for Treasuries, not appetite from individual countries, said david Dollar, the US Treasury Department's economic and financial emissary to China.
"The interest rate on long-term treasury bonds is at a very low level by historical standards," Dollar said yesterday at the World Economic Forum meeting in Dalian, China.
"That says that the market has confidence the US will get the fiscal problem under control."
Chinese Premier Wen Jiabao said in March that the Asian nation was "worried" about the safety of its investment in US debt, as a weakening dollar erodes the value of its record US$2.1 trillion (Bt68 trillion) of foreign-exchange reserves.
President Barack Obama is relying on China to sustain buying of Treasuries amid record amounts of debt sales to fund a %787-billion stimulus spending package.
Treasuries of all maturities have lost 2.88 per cent so far this year, after returning 14 per cent in 2008, indexes from Merrill Lynch show.
The Dollar Index, which tracks the greenback against the currencies of six major US trading partners, fell yesterday to the lowest level since September, 2008.
Chinese investors have doubled their holdings of US government bonds in the past three years to $776 billion as of June, acording to Treasury data.
Diversification of currency reserves by China "makes some sense" due to their huge scale, said Dollar, who was formerly the World Bank's country director for China and Mongolia and ws named emissary to China in June.
"It is healthy to have a veriety of different reserve-type of currencies," he said.
In an interview with Bloomberg Television, Dollar said that countries still favoured holding reserves in dollars because of the breadth of the US market.
"The US dollar happens to be the best choice," he said. "It is one of the few very good places where you can put large amounts of assets and have confidence of their future value."
People's Bank of China governor Zhou Xiaochuan urged the International Monetary Fund in March to create a "super-sovereign reserve currency" to replace the dollar.
The goal is to have a currency "disconnected" from individual nations and one that remains stable in the long run, Zhou said.
Ten-year Tresuries yielded 3.34 per cent yesterday compared with the year's high of 4 per cent reached in June. The 30-year bond offered 4.28 per cent, dropping from its June peak of 4.84 per cent.
Dollar said the US welcomes foreign investment, but it is not especially dependent onthat to fund its fiscal deficit. He said the shortfall is about 10 per cent of the nation's economy.
The People's Bank of China governor urged the International Monetary Fund to create a super-sovereign reserve currency to replace the dollar.
Sunday, September 13, 2009
Friday, September 11, 2009
US paints mixed picture on housing
The lowest mortgage rates in three months had US consumers clamouring for home loans last week even as the government said on Wednesday it expected millions more foreclosures.
The Treasury Department followed up with a report saying only 12% of US homeowners eligible for loan modifications under the Obama administration's housing rescue plan have had their mortgages modified.
But aside from the mixed picture on housing, the Federal Reserve said the overall economic situation was improving in spite of weakness in the housing and labour markets, while Treasury Secretary Timothy Geithner added that the economy was starting to grow again.
The housing market has been showing signs of stabilisation in recent months,with sales on the increase and home price declines moderating in many regions of the country. In fact, home prices in some areas have risen.
Mounting foreclosures could mean another leg down for home prices and perhaps send the sector into a vicious cycle, analysts say.
The Treasury said 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.
"The recent crisis in the housing sector has devastated families and communities across the country and is at the centre of our financial crisis and economic downturn," Michael Barr, assistant Treasury secretary for financial institutions, told a House of Representatives Financial Services subcommittee.
But the housing crisis is showing signs of easing. The Federal Reserve's Beige Book survey said most regions reported some improvement in hard-hit residential real estate markets.
And US mortgage applications surged last week to their highest since late May as consumers sought to take advantage of the lowest interest rates in months,data from the Mortgage Bankers Association showed.
The MBA said rates on 30-year fixed-rate mortgages tumbled to a threemonth low, spurring a surge in demand for home refinancing loans. Applications to buy a home, a tentative early indicator of sales, also climbed, hitting their highest since early January.
Low mortgage rates, high affordability and the government's $8,000 tax credit - part of the economic stimulus bill for first-time home buyers have helped pave the way for stabilisation.
The Fed report said half of Federal Reserve districts saw evidence the US economy had improved by the end of August, although labour markets remained weak and retail sales were flat overall.
"Most districts noted that the outlook for economic activity among their business contacts remained cautiously positive," the Fed said.
But it also said there was still downward pressure on housing prices, and that business people in some areas believed recently higher vehicle sales levels were likely not sustainable after the government's "cash for clunkers"' incentive programme lapses.
Geithner, however, said the government's efforts to help the financial sector were paying off and helping the overall economy.
"The economy is now growing again.We've seen the cost of credit start to come down. Banks are repaying the investments the government had to make in them with a significant... return," he said during a speech at Syracuse University in New York.
"We are going to keep at this until we fix it - until we get it back on track,"he added.
The Treasury Department followed up with a report saying only 12% of US homeowners eligible for loan modifications under the Obama administration's housing rescue plan have had their mortgages modified.
But aside from the mixed picture on housing, the Federal Reserve said the overall economic situation was improving in spite of weakness in the housing and labour markets, while Treasury Secretary Timothy Geithner added that the economy was starting to grow again.
The housing market has been showing signs of stabilisation in recent months,with sales on the increase and home price declines moderating in many regions of the country. In fact, home prices in some areas have risen.
Mounting foreclosures could mean another leg down for home prices and perhaps send the sector into a vicious cycle, analysts say.
The Treasury said 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.
"The recent crisis in the housing sector has devastated families and communities across the country and is at the centre of our financial crisis and economic downturn," Michael Barr, assistant Treasury secretary for financial institutions, told a House of Representatives Financial Services subcommittee.
But the housing crisis is showing signs of easing. The Federal Reserve's Beige Book survey said most regions reported some improvement in hard-hit residential real estate markets.
And US mortgage applications surged last week to their highest since late May as consumers sought to take advantage of the lowest interest rates in months,data from the Mortgage Bankers Association showed.
The MBA said rates on 30-year fixed-rate mortgages tumbled to a threemonth low, spurring a surge in demand for home refinancing loans. Applications to buy a home, a tentative early indicator of sales, also climbed, hitting their highest since early January.
Low mortgage rates, high affordability and the government's $8,000 tax credit - part of the economic stimulus bill for first-time home buyers have helped pave the way for stabilisation.
The Fed report said half of Federal Reserve districts saw evidence the US economy had improved by the end of August, although labour markets remained weak and retail sales were flat overall.
"Most districts noted that the outlook for economic activity among their business contacts remained cautiously positive," the Fed said.
But it also said there was still downward pressure on housing prices, and that business people in some areas believed recently higher vehicle sales levels were likely not sustainable after the government's "cash for clunkers"' incentive programme lapses.
Geithner, however, said the government's efforts to help the financial sector were paying off and helping the overall economy.
"The economy is now growing again.We've seen the cost of credit start to come down. Banks are repaying the investments the government had to make in them with a significant... return," he said during a speech at Syracuse University in New York.
"We are going to keep at this until we fix it - until we get it back on track,"he added.
Tuesday, September 8, 2009
REVISITING THE GLOBAL TURMOIL AND INEPT US RESCUE EFFORTS
Marking the first anniversary of the Hamburger crisis, Jean Jacques Bouflet, ministercounsellor of the European Commission's delegation in Bangkok, said yesterday that it was too early to call the economic meltdown over. Some countries in the European Union, such as France and Germany, have jumped on the up escalator.
However, not all countries are celebrating a return to growth. After the first year of the crisis has passed into history, the economy should be on the sustainable expansion path next year, he said.
Pornsilp Patcharintanakul, deputy secretarygeneral of the Board of Trade of Thailand, believes that the global economic downturn is levelling out after one year of suffering worldwide.
"Economic growth is expected to recover like a 'correction mark' []. Exports will gradually grow from dramatically shrinking, while foreign direct investment is expected to enter the Kingdom soon on positive factors, including political stability, and the government's measures to booster economic growth," he said.
The world economy should expand slightly from now, if there are no more serious negative factors to hammer down the green sprouts.
The oil price should not be a concern, as it is gradually increasing due to higher demand in the market, not to speculation, she added.
BLINDED
Looking back, the warning was ominous: "Massive global wealth destruction".
That's what Lehman Brothers Holding executives predicted before they filed the biggest bankruptcy in US history.
"Impacts all financial institutions" read one bullet point ina confidential memo prepared for government officials obtained by Bloomberg News.
"Retail investors/retirees assets are devastated."
The message didn't get through. Two dozen of the world's most powerful bankers, brought together by US Treasury Secretary Henry Paulson and Federal Reserve Bank of New York president Timothy Geithner on the weekend of September 13, 2008 to devise a rescue plan for Lehman, were to busy saving themselves to see the larger therat.
"The discussion among the CEOs was 'How do we prevent the next firm from going under?'" former Merrill Lynch CEO John Thain, who cut a deal to sell his company that weekend, said in an interview. "There should have been much more discussion about the impact directly on the markets if Lehman went bankrupt."
While everyone assembled at the New York Fed was aware that unbridled sub-primemortgage lending and the packaging of such inferior loans into investment vehicles such as collateralised-debt obligations has pushed the financial system to the breaking point, what the bankers missed almost destroyed them - and the rest of the global eocnomy.
BLANKFEIN, DIMON
Lehman's downfall on Monday, September 15, sparked a run on the US$3.6 trillion (Bt124 trillion) money market industry, which provides short-term loans called commercial paper used by businesses worldwide to cover everyday expenses, including payroll and utilities.
The panic left companies such as Goodyear Tire & Bubber stranded with insufficient cash and ravaged the accounts of millions of people.
For Goldman Sachs Group CEO Lloyd Blankfein, JPMorgan Chase's Jamie Dimon and the rest of the financial chieftains who spent a weekend trying to unwind derivatives trades and keep bank-to-bank loans flowng, ignoring the comercialpaper market, the lifeblood of the economy, proved a catastrophic oversight.
Within a week, the US stepped in to halt withdrawals from money market funds, leading to a $13.2 trillion it has committed to beating back the worst financial crisis since the Great Depression.
'SYSTEM AT RISK'
Of all the quakes of 2008 - the fall of Bear Stearns in March, the takeover of mortgage buyers Fannie Mae and Freddie Mac and the salvaging of American International Group in September - the failure to account for the effects of Lehman's demise was the most critical because its aftershocks came closest to wrecking the world economy.
"They put the entire financial system at risk, and they didn't have to," said Harvey Miller, a partner at Weil Gotshal & Manges in New York who represented Lehman in the bankruptcy, referring to government officials. "They were warned.
"I told them, 'Armageddon is coming. You don't know what the consequences will be'. Their response was, 'We have it covered'."
Paulson and Geithner, who succeeded him as Treasury secretary, both declined to comment.
INVITING 'CATASTROPHE'
One year later, policymakers haven't learned the lesson of the bankruptcy, said Richard Bernstein, CEO of Richard Bernstein Capital Management in New York and former chief investment strategist for Merrill Lynch.
Rather that break up institutions such as Bank of America and Citigroup, or limit their expansion, the US has given them billions of dollars in tax incentives and loan guarantees that enabled them to grow even bigger.
To protect against a bank collapse touching off another free fall, President Barack Obama has proposed regulatory changes that rely on the wisdom of bankers and government overseers - the same people who created the conditions that led to Lehman's bankruptcy and were unable to foresee its consequences.
"Dsignating certain institutions as too big to fail, and not having a thorough regulatory process to match, practically invites another catastrophe," Bernstein said.
Rescue efforts exposed a financial system with so many moving parts that US regulators and the world's top bankers couldn't keep track of them all.
A reconstruction of the meeting sat the New York Fed that preceded Lehman's bankruptcy, drawn from more than a dozen interviews with participants, reveals a failure to understand the importance of commerical paper and how that market would be affected by the collapse of the New York investment bank.
Rather than break up institutions such as Bank of America and Citigroup, or limit their expansion, the US has given them billions of dollars in tax incentives and loan guarantees that enabled them to grow even bigger.
However, not all countries are celebrating a return to growth. After the first year of the crisis has passed into history, the economy should be on the sustainable expansion path next year, he said.
Pornsilp Patcharintanakul, deputy secretarygeneral of the Board of Trade of Thailand, believes that the global economic downturn is levelling out after one year of suffering worldwide.
"Economic growth is expected to recover like a 'correction mark' []. Exports will gradually grow from dramatically shrinking, while foreign direct investment is expected to enter the Kingdom soon on positive factors, including political stability, and the government's measures to booster economic growth," he said.
The world economy should expand slightly from now, if there are no more serious negative factors to hammer down the green sprouts.
The oil price should not be a concern, as it is gradually increasing due to higher demand in the market, not to speculation, she added.
BLINDED
Looking back, the warning was ominous: "Massive global wealth destruction".
That's what Lehman Brothers Holding executives predicted before they filed the biggest bankruptcy in US history.
"Impacts all financial institutions" read one bullet point ina confidential memo prepared for government officials obtained by Bloomberg News.
"Retail investors/retirees assets are devastated."
The message didn't get through. Two dozen of the world's most powerful bankers, brought together by US Treasury Secretary Henry Paulson and Federal Reserve Bank of New York president Timothy Geithner on the weekend of September 13, 2008 to devise a rescue plan for Lehman, were to busy saving themselves to see the larger therat.
"The discussion among the CEOs was 'How do we prevent the next firm from going under?'" former Merrill Lynch CEO John Thain, who cut a deal to sell his company that weekend, said in an interview. "There should have been much more discussion about the impact directly on the markets if Lehman went bankrupt."
While everyone assembled at the New York Fed was aware that unbridled sub-primemortgage lending and the packaging of such inferior loans into investment vehicles such as collateralised-debt obligations has pushed the financial system to the breaking point, what the bankers missed almost destroyed them - and the rest of the global eocnomy.
BLANKFEIN, DIMON
Lehman's downfall on Monday, September 15, sparked a run on the US$3.6 trillion (Bt124 trillion) money market industry, which provides short-term loans called commercial paper used by businesses worldwide to cover everyday expenses, including payroll and utilities.
The panic left companies such as Goodyear Tire & Bubber stranded with insufficient cash and ravaged the accounts of millions of people.
For Goldman Sachs Group CEO Lloyd Blankfein, JPMorgan Chase's Jamie Dimon and the rest of the financial chieftains who spent a weekend trying to unwind derivatives trades and keep bank-to-bank loans flowng, ignoring the comercialpaper market, the lifeblood of the economy, proved a catastrophic oversight.
Within a week, the US stepped in to halt withdrawals from money market funds, leading to a $13.2 trillion it has committed to beating back the worst financial crisis since the Great Depression.
'SYSTEM AT RISK'
Of all the quakes of 2008 - the fall of Bear Stearns in March, the takeover of mortgage buyers Fannie Mae and Freddie Mac and the salvaging of American International Group in September - the failure to account for the effects of Lehman's demise was the most critical because its aftershocks came closest to wrecking the world economy.
"They put the entire financial system at risk, and they didn't have to," said Harvey Miller, a partner at Weil Gotshal & Manges in New York who represented Lehman in the bankruptcy, referring to government officials. "They were warned.
"I told them, 'Armageddon is coming. You don't know what the consequences will be'. Their response was, 'We have it covered'."
Paulson and Geithner, who succeeded him as Treasury secretary, both declined to comment.
INVITING 'CATASTROPHE'
One year later, policymakers haven't learned the lesson of the bankruptcy, said Richard Bernstein, CEO of Richard Bernstein Capital Management in New York and former chief investment strategist for Merrill Lynch.
Rather that break up institutions such as Bank of America and Citigroup, or limit their expansion, the US has given them billions of dollars in tax incentives and loan guarantees that enabled them to grow even bigger.
To protect against a bank collapse touching off another free fall, President Barack Obama has proposed regulatory changes that rely on the wisdom of bankers and government overseers - the same people who created the conditions that led to Lehman's bankruptcy and were unable to foresee its consequences.
"Dsignating certain institutions as too big to fail, and not having a thorough regulatory process to match, practically invites another catastrophe," Bernstein said.
Rescue efforts exposed a financial system with so many moving parts that US regulators and the world's top bankers couldn't keep track of them all.
A reconstruction of the meeting sat the New York Fed that preceded Lehman's bankruptcy, drawn from more than a dozen interviews with participants, reveals a failure to understand the importance of commerical paper and how that market would be affected by the collapse of the New York investment bank.
Rather than break up institutions such as Bank of America and Citigroup, or limit their expansion, the US has given them billions of dollars in tax incentives and loan guarantees that enabled them to grow even bigger.
Monday, September 7, 2009
TOP CENTRAL BANKS AGREE TO TOUGHER REGULATIONS
International central bankrs and regulators establish "new standards" for the global financial insutry in a step to prevent a repeat of the worst economic crisis since the Great Depression.
The measures should "substantilly reduce the probability and severity of economic and financial streess", a statement released by the Baselbased Bank for International Settlements (BIS) said.
The drive to revamp regulation comes after excessive risk-taking by the world's banks led to US$1.61 trillion (Bt54.5 trillion) in losses and write-downs, taxpayer-funded bailouts and a global recession. Meeting less than three weeks before a Pittsburgh summit of their nations' leaders, G-20 finance chiefs on Sunday united on a plan to have banks rein in compensation and hold more capital.
The approval set in motion and enhances revised "basel II" measures finalsed in July, that remedy flaws exposed by the collapse in credit and financial markets last year.
"The agreements reached today [Sunday] among 27 major countries of the world are essential as they set the new standards for banking regulation and supervision at the global level," said European Central Bank chief Jean - Claude Trichet, who president over the meeting.
National financial supervisors wre also urged to ensure that pay or compensation for commercial bankers was "properly aligned with long-term performance and prudent risk-taking", added Nout Wellink, the chairman of the Basel Committee and Dutch central bank chief.
However, the meeting did not set a firm deate for implementation of the package, which will be fleshed out over the coming months.
The central bank governors and supervisors who met in Basel form the oversight body of the Basel Committee on Banking Supervision.
A draft of the measures was first unviled in January.
The principles agreed notably to bolster standards for key "Tier 1" capital requirements for commercial banks to raise their "quality, consistency and trnsparency", the statement said.
"Banks will be required to move expeditiously to raise the level and quality of capital to the new standards, but in a manner that promotes stability of national banking systems and the broader economy," it added.
The central bankers endorsed the principle f a minimum global standard to fund liquidity, as well as a framework to oblige banks to build permanent "counter-cyclical" capital buffers that can be used during periods of financial turmoil.
"These measures will result over time in higher capital and liquidity requirements and less leverage in the banking system, less cyclicality and greater banking sector resilience to stress," said Willink.
The measures will be detailed by the end of the year and tested and refined through to the end of 2010, according to the statement.
They will be phased in a manner "that does not impede the recovery of the real economy".
The central bankers' meeting came swiftly on the heels of a meeting of G-20 finance ministers in London on Saturday that painfully hatched a compromise on bankers' pay and left several financial issues outstanding.
US Treasury Secretary Tim Geithner notably went to London seeking an agreement ensuring that banks were better prepared for tougher times.
Amid disagreement in their ranks, the G-20 ministers fell short of capping bankers' pay but pledged to reward long-term, not short-term success. Most of the issues were left for a crucial meeting of G-20 leaders in Pittsburgh on September 24-25.
The measures should "substantilly reduce the probability and severity of economic and financial streess", a statement released by the Baselbased Bank for International Settlements (BIS) said.
The drive to revamp regulation comes after excessive risk-taking by the world's banks led to US$1.61 trillion (Bt54.5 trillion) in losses and write-downs, taxpayer-funded bailouts and a global recession. Meeting less than three weeks before a Pittsburgh summit of their nations' leaders, G-20 finance chiefs on Sunday united on a plan to have banks rein in compensation and hold more capital.
The approval set in motion and enhances revised "basel II" measures finalsed in July, that remedy flaws exposed by the collapse in credit and financial markets last year.
"The agreements reached today [Sunday] among 27 major countries of the world are essential as they set the new standards for banking regulation and supervision at the global level," said European Central Bank chief Jean - Claude Trichet, who president over the meeting.
National financial supervisors wre also urged to ensure that pay or compensation for commercial bankers was "properly aligned with long-term performance and prudent risk-taking", added Nout Wellink, the chairman of the Basel Committee and Dutch central bank chief.
However, the meeting did not set a firm deate for implementation of the package, which will be fleshed out over the coming months.
The central bank governors and supervisors who met in Basel form the oversight body of the Basel Committee on Banking Supervision.
A draft of the measures was first unviled in January.
The principles agreed notably to bolster standards for key "Tier 1" capital requirements for commercial banks to raise their "quality, consistency and trnsparency", the statement said.
"Banks will be required to move expeditiously to raise the level and quality of capital to the new standards, but in a manner that promotes stability of national banking systems and the broader economy," it added.
The central bankers endorsed the principle f a minimum global standard to fund liquidity, as well as a framework to oblige banks to build permanent "counter-cyclical" capital buffers that can be used during periods of financial turmoil.
"These measures will result over time in higher capital and liquidity requirements and less leverage in the banking system, less cyclicality and greater banking sector resilience to stress," said Willink.
The measures will be detailed by the end of the year and tested and refined through to the end of 2010, according to the statement.
They will be phased in a manner "that does not impede the recovery of the real economy".
The central bankers' meeting came swiftly on the heels of a meeting of G-20 finance ministers in London on Saturday that painfully hatched a compromise on bankers' pay and left several financial issues outstanding.
US Treasury Secretary Tim Geithner notably went to London seeking an agreement ensuring that banks were better prepared for tougher times.
Amid disagreement in their ranks, the G-20 ministers fell short of capping bankers' pay but pledged to reward long-term, not short-term success. Most of the issues were left for a crucial meeting of G-20 leaders in Pittsburgh on September 24-25.
Sunday, September 6, 2009
G-20 to maintain stimulus measures
Top finance officials from rich and developing countries have agreed to curb hefty bankers' bonuses,but the proposed crackdown on excessive payouts so far falls short of European demands after the US and Britain shied away from imposing a cap.
The Group of 20 finance ministers also pledged on Saturday to maintain stimulus measures such as extra government spending and low interest rates to boost the global economy, warning that the fledgling recovery that provided the backdrop to their meeting here is by no means assured."The financial system is showing signs of repair," said US Treasury Secretary Timothy Geithner."Growth is now under way. However,we still face significant challenges ahead."
The G-20 joint statement issued at the end of their London meeting said that fiscal and monetary policy will stay "expansionary" for as long as needed to reduce the chances of a double-dip recession.
The International Monetary Fund has said the global economy is beginning a sluggish recovery from its worst recession since World War II, raising its estimate for global economic growth in 2010 to 2.5%, from an April projection of 1.9%.
But the IMF also downgraded its forecast for this year, saying it would shrink by 1.4%, instead of 1.3%.
The group also pushed ahead with plans to reform the financial system,including tougher action against tax havens and giving developing countries a greater say in global governance.
French Finance Minister Christine Lagarde said this ensured "things will not go back to business as usual ... that there are no dark areas anymore to hide."
But while the gathering - a preparatory session for the G-20 leaders' summit in Pittsburgh later this month - reached agreement on the need for ongoing growth-boosting measures and some regulatory reform, it compromised on the hot topic of bankers' bonuses.
Curtailing bankers' pay and bonuses has been seen as key by some countries after the risk-promoting payment culture was blamed for fueling the current financial crisis.
British Treasury chief and meeting host Alistair Darling said that there must be no more cases in which "people are being rewarded for reckless behaviour."
Heading into the talks in the British capital, European countries had pushed for the G-20, which represents 80% of the world's economic output, to enforce an official cap on both individual payouts and collective bonus pots at financial institutions.
Britain supported the general effort to reign in bonuses, but not the cap,while the US was more intent on pushing its proposal for a global accord to force banks to hold more capital reserves.
In the event, the G-20 agreed to give the Financial Stability Board, a body set up at the London Summit of G-20 leaders in April, the task of drawing up practical proposals the Sept 24-25 leaders meeting in Pittsburgh could agree on.
The G-20 communique failed to directly address a proposal from Mr Geithner for a new international accord to increase bank's capital reserves, but he said he was encouraged by "support around the room."
Mr Geithner wanted to reach agree-ment on an accord by 2010, with implementation by the end of 2012.
The communique did not directly address that plan, but called for rapid progress in developing stronger regulation, including a requirement that banks hold more and better capital once recovery is assured.
Mr Geithner also stressed the need for discussions on a so-called exit strategy to withdraw government support for the economy and pay off trillions of dollars in debt, saying a recovery strategy would not be effective "unless we can make fully credible our commitment to reverse those actions as soon as conditions permit."
British Prime Minister Gordon Brown won support for his push to take tougher action against tax havens,with the G-20 agreeing to a March 2010 deadline to start sanctions against tax havens which refuse to comply with new transparency rules agreed at the April G-20 leaders' summit in London.
The Group of 20 finance ministers also pledged on Saturday to maintain stimulus measures such as extra government spending and low interest rates to boost the global economy, warning that the fledgling recovery that provided the backdrop to their meeting here is by no means assured."The financial system is showing signs of repair," said US Treasury Secretary Timothy Geithner."Growth is now under way. However,we still face significant challenges ahead."
The G-20 joint statement issued at the end of their London meeting said that fiscal and monetary policy will stay "expansionary" for as long as needed to reduce the chances of a double-dip recession.
The International Monetary Fund has said the global economy is beginning a sluggish recovery from its worst recession since World War II, raising its estimate for global economic growth in 2010 to 2.5%, from an April projection of 1.9%.
But the IMF also downgraded its forecast for this year, saying it would shrink by 1.4%, instead of 1.3%.
The group also pushed ahead with plans to reform the financial system,including tougher action against tax havens and giving developing countries a greater say in global governance.
French Finance Minister Christine Lagarde said this ensured "things will not go back to business as usual ... that there are no dark areas anymore to hide."
But while the gathering - a preparatory session for the G-20 leaders' summit in Pittsburgh later this month - reached agreement on the need for ongoing growth-boosting measures and some regulatory reform, it compromised on the hot topic of bankers' bonuses.
Curtailing bankers' pay and bonuses has been seen as key by some countries after the risk-promoting payment culture was blamed for fueling the current financial crisis.
British Treasury chief and meeting host Alistair Darling said that there must be no more cases in which "people are being rewarded for reckless behaviour."
Heading into the talks in the British capital, European countries had pushed for the G-20, which represents 80% of the world's economic output, to enforce an official cap on both individual payouts and collective bonus pots at financial institutions.
Britain supported the general effort to reign in bonuses, but not the cap,while the US was more intent on pushing its proposal for a global accord to force banks to hold more capital reserves.
In the event, the G-20 agreed to give the Financial Stability Board, a body set up at the London Summit of G-20 leaders in April, the task of drawing up practical proposals the Sept 24-25 leaders meeting in Pittsburgh could agree on.
The G-20 communique failed to directly address a proposal from Mr Geithner for a new international accord to increase bank's capital reserves, but he said he was encouraged by "support around the room."
Mr Geithner wanted to reach agree-ment on an accord by 2010, with implementation by the end of 2012.
The communique did not directly address that plan, but called for rapid progress in developing stronger regulation, including a requirement that banks hold more and better capital once recovery is assured.
Mr Geithner also stressed the need for discussions on a so-called exit strategy to withdraw government support for the economy and pay off trillions of dollars in debt, saying a recovery strategy would not be effective "unless we can make fully credible our commitment to reverse those actions as soon as conditions permit."
British Prime Minister Gordon Brown won support for his push to take tougher action against tax havens,with the G-20 agreeing to a March 2010 deadline to start sanctions against tax havens which refuse to comply with new transparency rules agreed at the April G-20 leaders' summit in London.
IMF CHIEF URGES NATIONS TO MOP UP SEA OF CASH
The global economy "appears to be emerging" from a steep slump and countries should plan to wind down stimulus efforts, International Monetary Fund chief Dominique Strauss-Kahn said yesterday. "The global economy appears to be emerging at last from the worst economic downturn in our lifetimes," Strauss-Kahn said in a speech in Berlin.
The risks of the fragile recovery stalling appeared to be dominishing, as several advanced economies-including France and Germany-had already returned to growth and emerging economies were "recovering even more strongly",he said.
But the warned that problems in the financial sector could persist or even intensify,particularly if efforts to restore banks to health are not completed.
In light of the fragility of recovery, Strauss-Kahn cautioned there was "a real danger" countries may end their extraordinary monetary and fiscal crisis measures prematurely.
"Having said this, the time is right for policy-makers to formulate their exit strategies," he added.
The former French finance minister said international coordimation of exit strategies would perhaps be even "more important" than the well-coordinated crisis response.
"Greater clarity in communicating policy intentions to the public is also essential to shore up confidence," he said.
Strauss-Kahn was due to trave to London for a two-day meeting of finance chiefs from the Group of 20 developed and developing countries in advance of a September 24-25 summit in Pittsburgh, Pennsylvania.
The global recovery Strauss-Kahn said, would likely be "relatively sluggish", with unemployment continuing to rise through next year.
"A jobless recovery remains a risk.Having so many people out of work has significant economic costs, ranging from lower private demand to a decline in potential growth if structural unemployment rises," he said. "The social consequences are potentially even more worrisome."
Regulatory reform momentum was lacklustre, he noted, urging countries to avoid "complacency" as financial markets improve.
"The reform effort is not proceeding as quickly as is necessary to address the problems raised by the crisis," he said.
The IMF managing director addressed concerns about the international monetary system and the dollar's role as the world's reserve currency in the wake of the financial crisis.
Critics have noted the role of the dollar may have been "undermined" by US economic and financial troubles, he acknowledged.
The risks of the fragile recovery stalling appeared to be dominishing, as several advanced economies-including France and Germany-had already returned to growth and emerging economies were "recovering even more strongly",he said.
But the warned that problems in the financial sector could persist or even intensify,particularly if efforts to restore banks to health are not completed.
In light of the fragility of recovery, Strauss-Kahn cautioned there was "a real danger" countries may end their extraordinary monetary and fiscal crisis measures prematurely.
"Having said this, the time is right for policy-makers to formulate their exit strategies," he added.
The former French finance minister said international coordimation of exit strategies would perhaps be even "more important" than the well-coordinated crisis response.
"Greater clarity in communicating policy intentions to the public is also essential to shore up confidence," he said.
Strauss-Kahn was due to trave to London for a two-day meeting of finance chiefs from the Group of 20 developed and developing countries in advance of a September 24-25 summit in Pittsburgh, Pennsylvania.
The global recovery Strauss-Kahn said, would likely be "relatively sluggish", with unemployment continuing to rise through next year.
"A jobless recovery remains a risk.Having so many people out of work has significant economic costs, ranging from lower private demand to a decline in potential growth if structural unemployment rises," he said. "The social consequences are potentially even more worrisome."
Regulatory reform momentum was lacklustre, he noted, urging countries to avoid "complacency" as financial markets improve.
"The reform effort is not proceeding as quickly as is necessary to address the problems raised by the crisis," he said.
The IMF managing director addressed concerns about the international monetary system and the dollar's role as the world's reserve currency in the wake of the financial crisis.
Critics have noted the role of the dollar may have been "undermined" by US economic and financial troubles, he acknowledged.
Thursday, September 3, 2009
Central bank says rates appropriate
The Bank of Thailand will not raise interest rates until it is sure the economic recovery is sustainable, according to deputy governor Atchana Waiquamdee, who played down the chance of further rate cuts following improved data.
Interest rates in Thailand were already low and further cuts might not benefit the country much, she said.
"The rate at 1.25% is appropriate....If we cut it by another 25 or 50 basis points, will it help spending? I think not,at a time when the economy is bad,"she said in an interview.
Dr Atchana said there was still room for rate cuts, but only if the economy deteriorated, and she said she saw little chance of the global economy slipping again.
"We have to reserve some bullets for the unforeseen," Dr Atchana said.
The central bank's Monetary Policy Committee (MPC) kept its policy rate unchanged at a record 1.25% for the third meeting last week, after four cuts of a total 2.50 percentage points from December to April to help pull the economy out of its worst recession in 11 years.
Dr Atchana said a rate rise was not likely until the economic recovery was sustainable.
"Recovery should mean a clear momentum of sustained quarterly growth for at least two consecutive, or two or three, quarters. There should also be annual GDP growth at the same time,"she said.
"When we want to change our stance,we need to be sure that the Thai economy has recovered and demand-pull inflationary pressure poses a risk.
"For policymakers, they should first ascertain that the recovery is strong and sustainable at least for a period of time.Slight improvements in data should not be hastily interpreted as showing the economy is out of the woods."
The economy grew 2.3% in the second quarter from the first, so the recession is over, but the state planning agency said political risks and weak global demand could impede the recovery.
Dr Atchana said the annual economic contraction was likely to moderate in the third quarter and GDP should grow slightly in the final quarter of 2009 compared with a year before.
The central bank has forecast the economy would shrink 3.0-4.5% this year,which would be the weakest performance since the 1998 Asian financial crisis, before growing 3.0-5.0% in 2010.
Economists polled by Reuters expect the central bank to leave rates unchanged until the middle of next year, when it is likely to start raising them to tackle an increase in inflation.
Like central banks elsewhere in Asia,the central bank has paused in its aggressive rate-cutting to assess the impact of earlier cuts amid signs that the worst of the economic downturn may be over.
Core consumer prices, which exclude fresh food and energy were 0.2% lower in August than a year before.
The central bank targets core inflation and has just agreed a new, slightly narrower target of 0.5 to 3.0% with the government.
Interest rates in Thailand were already low and further cuts might not benefit the country much, she said.
"The rate at 1.25% is appropriate....If we cut it by another 25 or 50 basis points, will it help spending? I think not,at a time when the economy is bad,"she said in an interview.
Dr Atchana said there was still room for rate cuts, but only if the economy deteriorated, and she said she saw little chance of the global economy slipping again.
"We have to reserve some bullets for the unforeseen," Dr Atchana said.
The central bank's Monetary Policy Committee (MPC) kept its policy rate unchanged at a record 1.25% for the third meeting last week, after four cuts of a total 2.50 percentage points from December to April to help pull the economy out of its worst recession in 11 years.
Dr Atchana said a rate rise was not likely until the economic recovery was sustainable.
"Recovery should mean a clear momentum of sustained quarterly growth for at least two consecutive, or two or three, quarters. There should also be annual GDP growth at the same time,"she said.
"When we want to change our stance,we need to be sure that the Thai economy has recovered and demand-pull inflationary pressure poses a risk.
"For policymakers, they should first ascertain that the recovery is strong and sustainable at least for a period of time.Slight improvements in data should not be hastily interpreted as showing the economy is out of the woods."
The economy grew 2.3% in the second quarter from the first, so the recession is over, but the state planning agency said political risks and weak global demand could impede the recovery.
Dr Atchana said the annual economic contraction was likely to moderate in the third quarter and GDP should grow slightly in the final quarter of 2009 compared with a year before.
The central bank has forecast the economy would shrink 3.0-4.5% this year,which would be the weakest performance since the 1998 Asian financial crisis, before growing 3.0-5.0% in 2010.
Economists polled by Reuters expect the central bank to leave rates unchanged until the middle of next year, when it is likely to start raising them to tackle an increase in inflation.
Like central banks elsewhere in Asia,the central bank has paused in its aggressive rate-cutting to assess the impact of earlier cuts amid signs that the worst of the economic downturn may be over.
Core consumer prices, which exclude fresh food and energy were 0.2% lower in August than a year before.
The central bank targets core inflation and has just agreed a new, slightly narrower target of 0.5 to 3.0% with the government.
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