The International Monetary Fund is holding talks with Poland, central Europe’s largest economy, on a possible loan to fend off contagion from the global financial crisis that forced the Fund to intervene in Hungary.
“The Poles are saying that they are okay today and I think they are right,” IMF Managing Director Dominique Strauss-Kahn said on Saturday after he attended a central bankers meeting in Kuala Lumpur. “They also say its not impossible that in the future they may be under pressure, so we are discussing with them to see if they need or don’t need more global (agreement) with the Fund,” Strauss-Kahn said.
According to research from investment bank UBS, Poland is the sixth most vulnerable of its universe of emerging market economies based on its short term financing requirements as a percentage of gross domestic product versus its reserves. That means it is reliant on market financing, something that is in short supply as banks shy away from lending outside home markets and credit is in any case in short supply.
You can read the background to the present situation in my two posts “Poland To Consider Interbank Guarantees As The Forex Lending Crisis Deepens” (October 2008) and “The Forex Lending Crunch Means Trouble Is Looming Large In Poland” (January 2009).
We also learned last week that Romania has started “informal talks” with both the European Commission and the IMF on a potential rescue loan to shore up its budget. An EU delegation arrived in Bucharest last week, parallel to a regular mission from the International Monetary Fund, and talks on EU aid were likely after Romanian President Traian Basescu said this week a 6-7 billion euro loan may be needed.
“A mission of experts from the Commission is in Bucharest. They will discuss macroeconomic stability and probably they will talk about the possibility of giving Romania financial support,” Nicolae Idu, head of the EU delegation in Bucharest, told Reuters. “President Basescu … has discussed (with the EU Commission) the possibility of getting European financial aid worth 6-7 billion euros. This discussion is now initiated.”
Basically the opinion is that Brussels will insist any EU loan is part of a joint plan together with the IMF, due to concerns about Romania’s ability to tighten budget strings and clean up its loose fiscal policy. Bucharest’s new centre-left coalition government, which has only been in power since November’s parliamentary election, has so far been reluctant to seek help from the IMF, due to concerns over any stringent conditions imposed by the Fund. Keeping to protocol the IMF has said a rescue package is not on the agenda of its mission at the present time.
Bulgaria Denies It Needs Help – For The Time Being
Bulgaria’s banks have not asked for state rescue aid so far and the government is not worried about the banking system’s health for now, according to the Finance Minister Plamen Oresharski last Friday.
But this view is not shared by his junior coalition partner NMS who are arguing that Bulgaria should sign a precautionary agreement with the International Monetary Fund worth at least 2 billion euros “to shield the country’s emerging economy from the negative global financial turmoil”.
Bulgaria’s economy is rapidly heading towards recession on the back of a slump in house prices and construction activity which is feeling the effects of a sharp credit crunch. At the same time a pegged currency and years of high inflation have left Bulgarian industry and agriculture in a very uncompetitive state. Only this week Bulgarian milk producers blocked the country’s sole bridge over the Danube, which links Bulgaria and Romania, and interrupted ferry services between the two countries as a protest against large scale imports of milk and meat products (Romania’s currency, the Leu, has been falling steadily of late).
Uncertainty about the future of the peg is causing a flight to euros, and there is a shortage of lev liquidity, as a result of which nterest rates for lev deposits almost doubled to 8.03 percent in December 2008, from 4.66 percent in December 2007 as banks desperately try to attract cash.
Running a quick headcount, and considering that Slovenia and Slovakia are already in the eurozone, that now only leaves us with the Czech Republic whose name has not been associated in some way or other with the IMF.