Now we’re into serious money

The Wall Street Journal (subs. req’d) says that Romania will announce that it is receiving a $26 billion aid package, with 2/3 of the money coming from the IMF and the rest from European institutions and the World Bank.

The Fund appears to be tolerating a massive deterioration in Romania’s budget outlook due to collapsing growth.  But in addition, the cumulative price tab for the multilateral bailouts is getting very large, adding urgency to the G20 agenda of getting increased lending capacity for the IMF.  Japan has already come through with the cash and the EU has a 75 billon euro promise that will presumably be finalized soon, but with the Fund apparently looking for a total boost in its lending ability to $500 billion, some more deep pockets have to be found.  The phone lines to Riyadh and Beijing must be red hot.

One other thing: the list of political casualties is growing and there appears to be an EU jinx.  Hungarian PM Ferenc Gyurcsány went to the EU Council meeting and quit the next day.  And now Council president Mirek Topolánek has been told to quit his day job by the Czech parliament.  Are we having our own version of 1848?

7 thoughts on “Now we’re into serious money

  1. Topolánek’s case is slightly different, at the moment his popularity was growing, although at the expense of his government partners. Maybe the crisis contributed to the fall of his cabinet indirectly, but it is a hard fought and long struggle between him and Paroubek. For a while I can’t see any suitable candidate for the role of the next victim in the region (although Ukraine is ready and willing to host the next similar scene, I suppose), both Fico and the Romanian cabinet has a strong parliamentary background. But the EU elections could turn the situation upside down as popularity of governing parties is either already very low or rapidly shrinking accross Europe. Moreover, I wouldn’t be really in the boots of Donald Tusk if it would be turn out that Poland is more severly hit by the crisis as it is believed and presented up to this point.

  2. Oh, I almost forget: the IMF announced yesterday a rewritig its rules and conditition, introduction of new types of financial assitance etc. What about these modifications?
    I suspect, that the whole package, besides being a stpe forward to the new role of the Fund envisioned by Strauss Kahn, seems to be aimed at making easier for counties to apply for help, without being downgraded at the very moment or facing a rush from their currency, and let the others have a more flexible policy among rapily changing (i.e. worsening) circumstances without exposing them to consecutive downgradings using the IMF’s assessment of their situation as a pretext. Maybe it can ease the pressure of markets a bit…(Well, I suppose there are pactical reasons as well, but the news I’ve read was not very detailed.)

  3. Hi Wolff,

    “I suspect, that the whole package, besides being a stpe forward to the new role of the Fund envisioned by Strauss Kahn”

    Well I suspect no one really knows where the IMF is headed at the moment. The problem is that these countries are getting a lot of lending at the moment, but while this is a temporary respite, they don’t need loans, they need WRITEDOWNS or “debt restructuring” (if you prefer). In any event, they can’t pay the loans they already have, so how does anyone expect they will be able to pay more.

    They are not having a liquididty flow problem (balance of payments crisis), but a long term structural declining and ageing population one, which means, with all the liabilities they have outsanding to the older age groups they are effectively insolvent.

    So this is not like previous lending to Argentina, Ecuador, Pakistan or even Turkey.

    As I am arguing, those countries who are in the EU will need to have the “erstructuring” under the fiscal umbrella of the EU, but those who are outside – Ukraine, Belarus, Serbia etc, they have nowhere to go, so my feeling is that the IMF are now – de facto – going to have to create a new category of “fiancial protectorates” of countrieds who become and permanently depend on them for life support.

    This situation isn’t going to end when this “crisis” is over (whenever that will be), since for them the problem is just begininng.

  4. Hi Edward,

    I only dared to suppose that the rule of thumb of sociology that every burocratic organization tends to accumulate more and more competencies with the time applies for the IMF as well and Strauss Kahn’s – who anyway is a French socialist, therefore not really a fun of the invisble hand-free market ideas – earlier remarks on a new role of the Fund fit very well into this pattern. It is not necessary to know where they are heading to suppose that they are eager to become more and more important in administrative terms as well.

    Otherwise I don’t see real contradiction between your opinion on the long term problems (and I basically agree with your anaylsis, not that it is really matters) and the resulting need of writedowns instead of securing capital flows, but
    a, if the guys at the IMF view it otherwise they will act accordingly (well, it is a banality, I know)
    b, in an environment where every minor news can bring a currency to the brink of disaster it can be advantageous in the short term not to make news of IMF visits in countries with running agreements or of new countries applying for a loan.

    As I recall even you wrote something on the deathly spiral of the raising costs of debt after downgrading leading to another downgrading and raising costs. (The Hungarian sepcialist media seriously diccussed the possibility that the IMF deleagtion visting Budapest in February will announce the suspension of the agreement and you can easily imagine the mood of the market following those sepcualtions and the reults, even though shirt term ones.) I don’t know whether these measures are effective or not (I tend to think that not as effective as the IMF would like to believe) but at the moment I can’t hope for more action from international actors.

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