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Posts tagged ‘Christine Lagarde’

Relief Around the World as US Avoids Debt Default.

Image: Relief Around the World as US Avoids Debt Default

IMF managing director Christine Lagarde.

BEIJING — The International Monetary Fund (IMF) appealed Thursday to Washington for more stable management of the nation’s finances as Asian stock markets rose after U.S. leaders agreed to avoid a default and end a 16-day government shutdown.

With only hours to spare until the $16.7 trillion debt limit was reached, Congress passed late Wednesday and President Barack Obama quickly signed legislation to allow more borrowing and reopen government agencies.

“World heaves sigh of relief as U.S. barely averts debt default,” said the Times of India newspaper in a headline.

IMF managing director Christine Lagarde welcomed the deal but said the shaky American economy needs more stable long-term finances. The deal only permits the Treasury to borrow normally through Feb. 7 and fund the government through Jan. 15.

“It will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner,” Lagarde said in a statement.

The Tokyo stock market, the region’s heavyweight, gained as much as 1.1 percent. Markets in China, Hong Kong and South Korea also rebounded from losses.

China and Japan, which each own more than $1 trillion of Treasury securities, appealed earlier to Washington for a quick settlement. There was no indication whether either government had altered its debt holdings.

China’s official Xinhua News Agency had accused Washington of jeopardizing other countries’ dollar-denominated assets. It called for “building a de-Americanized world,” though analysts say global financial markets have few alternatives to the dollar and U.S. government debt for trading and holding currency reserves.

Asian companies and investors had expressed confidence the United States would avoid a default. But had sold Treasurys to avoid possible losses if Washington delayed repayment. Others put off buying stocks that might be exposed to a U.S. downturn.

© Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


IMF’s Lagarde Predicts Massive Disruption if Debt Ceiling Isn’t Lifted.

International Monetary Fund Managing Director Christine Lagarde said the Congressional deadlock over the U.S. debt ceiling is threatening the U.S. and world economies and cautioned against “creative accounting” to avoid default.

“If there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over,” Lagarde said in an interview with NBC’sMeet the Press” about the impact of not raising the borrowing limit. “And we would be at risk of tipping, yet again, into recession.”

Lagarde said the U.S. stalemate “transformed” the discussions of global finance officials gathered in Washington this weekend at the IMF annual meetings.

Editor’s Note22 Hidden Taxes and Fees Set to Hit You With Obamacare. Read the Guide to Protect Yourself. 

Senate leaders of both parties began negotiations to avert a default even as senators blocked legislation to prevent one, and talks between the White House and House Republicans hit an impasse.

With a partial government shutdown in its 13th day and a lapse in borrowing authority four days away, the best prospects for a deal shifted from the House to the Senate, where Majority Leader Harry Reid and Minority Leader Mitch McConnell held their first negotiating session since the shutdown began Oct. 1.

© Copyright 2013 Bloomberg News. All rights reserved.


US Default Could Have ‘Terrible’ Global Consequences.

U.S. Capitol
The sun sets behind the U.S. Capitol in Washington, Oct. 6, 2013. Republican House Speaker John Boehner vowed on Sunday not to raise the U.S. debt ceiling without a “serious conversation” about what is driving the debt, while Democrats said it was irresponsible and reckless to raise the possibility of a U.S. default. (Jonathan Ernst/Reuters)

The government shutdown isn’t the only battle facing government leaders. A more critical deadline, the raising of the U.S. debt ceiling, is Oct. 17.

If the nation’s borrowing limit is not raised, the United States could default.

Christine Lagarde, head of the International Monetary Fund, warns the consequences could be terrible worldwide. It could strip the dollar of its status as the world’s reserve currency.

Maury Fertig, chief investment officer of Relative Value Partners, agrees, saying a default “would be so catastrophic and such a self-inflicted wound that you can’t imagine we would let it happen.”

What would happen to the economy and the markets if there is no agreement to raise the debt ceiling? Seton Motley, president of Less Government, addressed that question and more, on CBN Newswatch, Oct. 4.

“But the fact is that every day we get closer to it the possibility increases, even though it’s remote,” he said.

Speaker of the House John Boehner’s office says he would not let the government default on its debt.

But Boehner’s spokesman says if the debt limit is raised, the U.S. needs a bill with cuts and reforms to get the economy moving again.


IMF’s Lagarde Pleads: Fed Tapering Will Be ‘Arduous’ on Global Economy.

The head of the International Monetary Fund cautioned the world’s major central banks Friday not to withdraw their unconventional support for weak economies too soon. IMF Managing Director Christine Lagarde said stimulative policies are still needed in key regions, especially Europe and Japan, which have struggled with prolonged weakness.

Lagarde and many global central bank officials fear the increased risks of a sharp economic slowdown in emerging markets while the U.S. Federal Reserve is signaling that it could slow its bond purchases later this year if the U.S. economy continues to improve. The Fed’s bond buying has helped keep U.S. interest rates near record lows.

“Even if managed well,” Lagarde said of a central bank’s exit from easy-money policies, that could still present an “arduous obstacle course” for other countries. Lagarde said what’s needed is greater policy coordination and cooperation for the sake of the entire globe.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

“No country is an island,” she said Friday at the Fed’s annual conference in Jackson Hole, Wyo.. “Looking at the wider effect is in your self-interest,” she said. “It is in all of our interests.”

Lagarde said central banks must carefully develop strategies for scaling back their efforts to keep borrowing rates low. Any pullback should be determined by the strength of individual economies, she said.

Unconventional monetary policy is still needed in all places it is being used, albeit longer for some than for others,” Lagarde said in her speech to the conference.

The anticipation of a slowdown in Fed bond buying has unsettled U.S. stock and bond markets and sent interest rates up. Rising U.S. rates have, in turn, triggered turmoil in some emerging economies, such as Turkey, India and Indonesia. Officials in those countries have tried to halt declines in the value of their currencies as investors have shifted money into higher-yielding investments elsewhere.

Lagarde took note of the market declines that have followed Fed Chairman Ben Bernanke‘s signal in June that the Fed could begin slowing its bond purchases later this year if the U.S. economy strengthens further.

She said finance officials should prepare contingency plans in case market turbulence worsens.

Some investors think the Fed could announce at its next meeting in September that it’s reducing its bond purchases. But comments from Fed officials at Jackson Hole suggested some disagreement within the central bank over the proper timing for a slowdown to begin.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, suggested in an interview with CNBC that he might be ready to endorse a bond-buying slowdown in September. But James Bullard, president of the St. Louis Fed, said he thought the economy remains too uncertain for a pullback next month.

“I don’t think we have to be in any hurry,” Bullard said in a separate interview with CNBC. “I think we want to take our time and assess what is going on.”

Bullard is a voting member of the Fed’s interest rate panel this year. Lockhart takes part in discussions but doesn’t have a vote this year. Their remarks mirrored the divided opinion that was evident in the minutes of the Fed’s July meeting released this week.

In her speech, Lagarde said the support being provided by major central banks is buying time for nations to implement key economic reforms.

“Push ahead with deeper reforms to lay the foundation for durable and lasting growth,” Lagarde said. “Do not waste the space provided by unconventional monetary policies.”

For example, she said troubled nations in Europe must repair their financial systems before credit can start flowing normally again.

Lagarde said some emerging market countries have taken steps to prepare for the shocks that could occur as the United States and other major economies withdraw their extraordinary support and borrowing rates rise to historically normal levels. But she said more work would be needed.

She said the IMF will provide support where possible, including emergency loans to countries that need them.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

© 2013 Newsmax. All rights reserved.

By Newsmax Wires

IMF’s Lagarde urges governments to push ahead with banking reforms.

FRANKFURT (Reuters) – International Monetary Fund chief Christine Lagarde called on Tuesday for governments to shore up or wind down weak banks and push ahead with financial regulation reform to help the global economy recover.

In a speech in Frankfurt entitled “The Global Financial Sector – Transforming the Landscape”, Lagarde said she was concerned about the uneven implementation of bank regulation, “particularly the delay of Basel III in major jurisdictions”.

“Weak banks are still a drag on growth. Balance sheet repair needs to be tackled at the same time as regulatory reform, in a mutually reinforcing manner,” Lagarde said.

She said troubled banks needed to be recapitalised or wound down and for systemically relevant European banks the European Stability Mechanism (ESM) could be used as a backstop.

It was “unacceptable” that some banks were still considered “too-important-to-fail” and this needed to be fixed, she said.

(Writing by Paul Carrel; Editing by Catherine Evans)



IMF backs Cyprus bid to help small depositors – Lagarde.

FRANKFURT (Reuters) – The International Monetary Fund supports the Cypriot government‘s efforts to ease the pain for smaller depositors under a levy that is part of an international bailout for the island, IMF Managing Director Christine Lagarde said on Tuesday.

“We are also obviously extremely supportive of the Cypriot authorities’ intentions to introduce more progressive rates in the one-off levy or deposit-share swap within the agreed financial envelope of 5.8 billion (euros),” she told a conference.

Lagarde also said Cyprus needed to reduce the size of its banking sector and restructure it.

(Reporting by Paul Carrel, writing by Gareth Jones)



IMF official says good progress made in Egypt talks.

CAIRO (Reuters) – Egypt and the International Monetary Fund made very good progress in talks on Sunday, an IMF official said after meeting Prime Minister Hisham Kandil.

“We’ve had very good progress,” Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department told reporters, describing the discussions as “very constructive”.

“The next step is that the technical work will continue,” he added.

Egypt is seeking a $4.8 billion loan from the IMF as the country grapples with a currency and budget crisis.



Cyprus secures $13 bn bailout from eurozone, IMF.


BRUSSELS (AP)Cash-strapped Cyprus secured a €10 billion ($13 billion) bailout package from its European partners and the International Monetary Fund in a bid to prevent the island nation from entering a bankruptcy that could rekindle the region’s debt crisis, officials said early Saturday.

In a major departure from established policies, the package foresees a one-time levy on the money held in bank accounts in Cyprus. Analysts have warned that making depositors take a hit threatens to undermine investors’ confidence in other weaker eurozone economies and might possibly lead to bank runs.

In return for the rescue loans, Cyprus will trim its deficit, significantly shrink its troubled banking sector, raise taxes and privatize state assets, said the Netherlands‘ Jeroen Dijsselbloem, president of the Eurogroup meetings of the 17-nation eurozone’s finance ministers.

“The assistance is warranted to safeguard financial stability in Cyprus and the eurozone as a whole,” he said, briefing reporters after almost 10 hours of negotiations.

People with less than €100,000 in their Cypriot bank accounts will have to pay a one-time tax of 6.75 percent, those owning more money will lose 9.9 percent. The measure will be carried out early next week and is expected to net €5.8 billion in additional revenues, Dijsselbloem added, thereby greatly reducing the country’s financing need.

“We found it justified in terms of burden sharing to also involve the depositors,” said Dijsselbloem, noting that it was a “unique measure” because of Cyprus’ outsized banking system.

“As it is a contribution to the financial stability of Cyprus, it seems just to ask a contribution of all deposit holders,” Dijsselbloem added.

Analysts have warned that imposing such a drastic measure could be seen as a watershed moment, undermining the eurozone’s credibility. Although the leaders stressed the levy was a unique measure for Cyprus, they said the same when private holders of government bonds were forced to accept losses in Greece.

The measure therefore risks scaring investors in Europe’s weaker economies, which could lead them to move their deposits to more stable eurozone countries like Germany. In that case, banks in southern Europe’s economies might be considerably weakened and could possibly require new bailouts. That could then weaken the respective governments, which might then need further assistance from their eurozone partners — possibly setting off a vicious spiral.

But Joerg Asmussen, a member of the European Central Bank’s governing council, sought to dismiss fears of bank troubles stemming from the levy, saying the ECB stands ready to provide financial institutions with emergency liquidity assistance.

“The levy, it’s an appropriate tool. It’s really tailor-made to the situation in Cyprus,” he said. “It’s a country in extreme financing need, and what you do is to expand the tax base, not only to residents but also to non-residents,” he said.

Russian citizens are estimated to have at least €20 billion in deposits in Cyprus.

Asmussen stressed that there was no risk of such a levy being implemented in other countries that have already received bailouts, such as Greece, Ireland or Portugal, because those countries’ financing needs are covered by their international rescue loans.

In a sign of how exceptional and urgent a decision the one-time levy is, Cypriot banks are already implementing measures to make sure that depositors cannot withdraw money to shrink the tax basis, Asmussen said. The remainder of their holdings can be withdrawn, he added.

But Cypriot Finance Minister Michalis Sarris added that electronic bank transfers won’t be possible before Tuesday, Monday being a regular holiday in the country. In return for their one-time tax payment, depositors will get an equivalent stake in the bank where they have their account, he said.

“It was a very difficult decision,” Sarris acknowledged, but added that “much more money could have been lost in a bankruptcy of the banking system or indeed the country.”

Cypriot lawmakers are expected to approve a law on the bank levy over the weekend, and the money will be levied starting Tuesday.

“I want to underscore that this is a once and for all levy. We wanted to do it in a way, in a decisive way … to remove any doubt about the future,” Sarris said. “There is no reason whatsoever that deposit holders in Cyprus, existing and new ones, should have any concerns.”

While the Cypriot bailout is many times smaller than Greece’s €240 billion package or Ireland’s €67.5 billion, it is still considered crucial to the future of the eurozone because a default even by a small country could roil financial markets and undermine investor confidence.

Cyprus’ financing needs to recapitalize its banks and keep the government afloat were initially estimated to total €17 billion, which is almost the equivalent of Cyprus’ annual economic output and would have ballooned the country’s public debt to about 140 percent of its economy, a level the IMF considers unsustainable.

The creditors therefore sought to exhaust all avenues to have Cyprus raise more revenue to reduce the need for external financing.

Losses will also be imposed on the banks’ junior bondholders, the officials said. In addition, Cyprus agreed to increase its capital gains tax, and to raise its corporate tax by a quarter, from 10 to 25 percent, Dijsselbloem said.

To further reduce the financing needs, Russia was expected to significantly extend the maturity of a €2.5 billion loan granted in 2011 after the country could no longer tap international markets.

The ministers also agreed to make sizeable Greek operations of the country’s two largest banks, Bank of Cyprus and Laiki, eligible for spare rescue cash from Greece’s bailout accord.

Under the bailout deal, Cyprus debt is forecast to reach about 100% of GDP by 2020.

The economy of Cyprus, an eastern Mediterranean island of just over a million people, represents less than 0.2 percent of the eurozone’s annual economic output.

Cyprus, which first applied for a bailout last summer, wasn’t in imminent danger of bankruptcy, as it faces its next bond redemption in June. But the European Central Bank, concerned that prolonged uncertainty over Cyprus could hurt market sentiment across the eurozone, had pushed for a swift deal, even threatening to cut the country’s financial system off from emergency funding.

The finance ministers’ agreement still has to be approved by parliaments in several eurozone nations. EU officials say everything should be done by the end of the month.

To appease its potential rescue creditors, Cyprus has already accepted an independent audit of its banks, which hold billions in Russian deposits, to soothe concerns voiced by Germany, France and others that they launder dirty Russian money.


Don Melvin in Brussels contributed to this report.


Juergen Baetz can be reached on Twitter at


By JUERGEN BAETZ | Associated Press

EU finance experts seeking ways to get Cyprus bailout deal.

By Luke Baker and Annika Breidthardt

BRUSSELS (Reuters) – EU officials worked on a rescue package for Cyprus on Friday, hoping to get approval from the IMF and euro zone finance ministers later in the day.

Senior sources involved in the negotiations said the package is expected to contain a mixture of tax increases, one-off revenue raising measures, plans for privatizations and the overhaul of Cyprus’s banking sector to ensure that funding for the bailout is sustainable.

It is possible Russia will help finance the program by extending a 2.5 billion euro loan already made to Cyprus and potentially reducing the interest rate, officials have said.

Cyprus, with gross domestic product of barely 0.2 percent of the bloc’s overall output, applied for financial aid last June after its banks suffered huge losses following a European Union- approved writedown of Greek debt.

Progress was slow under a previous Cypriot government but without help Cyprus would slide into default, threatening progress made last year in convincing investors that the euro bloc can manage its debt problems.


The currency area’s finance ministers, joined by International Monetary Fund chief Christine Lagarde, will meet in Brussels later on Friday. But even if ministers agree a plan it will not be definitive.

The troika of IMF, European Commission and European Central Bank has not yet presented a report on the state of Cyprus’ banking sector, its economy and possible solutions, and a source said it would likely not do so on Friday either, making anything more than a political agreement impossible.

German Finance Minister Wolfgang Schaeuble on Thursday indicated, however, that he expected the troika report to be ready in time for discussions on a bailout.

Cypriot Finance Minister Michael Sarris will travel to Moscow for meetings on Monday, a Cypriot diplomat said, raising the possibility that an agreement on participation can be struck with the Russians that would be included in a final deal.

“I can’t give a prognosis on how far the finance ministers will get,” German Chancellor Angela Merkel told reporters. “Of course, swift negotiations are desirable, but things take as long as they do until they are solved with quality because we need a sustainable solution.”

Cyprus originally estimated that it needed about 17 billion euros – or the size of its entire annual economic output – to restore its economy to health. Up to 10 billion euros of that were earmarked to recapitalize its banks and 7 billion required for servicing debt and running general government operations.

However, officials are working on a bailout of 10-13 billion euros, the chairman of euro zone finance ministers said on Wednesday, which should help ensure Cyprus’s debt-to-GDP ratio is not pushed too high by the bailout.

The IMF has pushed the idea that depositors in Cypriot banks should bear some of the costs of bailing out the island, a process dubbed “bail-in”. But that approach is rejected by Cyprus, the European Commission and some members of the ECB, so it remains unclear whether it will be part of the final package.

Instead, officials indicated a deal would comprise revenues from an increase in the corporate tax rate, income from a one-off tax on bank deposits, or alternatively a tax on income from deposits, and other steps such as privatization.

“There is movement now. I am quite confident we can achieve a political deal in the early hours of Saturday,” said one source involved in designing a the framework of a deal.

Once the framework of the program is agreed, it will be presented to the Eurogroup Working Group at 1230 local time (07.30 a.m. EDT), officials said. The Eurogroup Working Group comprises senior treasury officials from euro zone member states and other experts and prepares meetings of euro zone finance ministers.

The group will assess whether the plan is politically feasible for member states, goes far enough in steadily cutting Cyprus’ debt in coming years and ensuring that the bailout can be paid back – that it is, in EU and IMF jargon, “sustainable”.

Euro zone finance ministers will then meet at 12.00 p.m. EDT to consider the package for what many expect will be discussions that will drag on into the early hours of Saturday.

Officials said the best that could be hoped for was a “political agreement” on the proposal, since there was no formal troika report yet and as input may still be required from Russia to finalize the terms.

Plans are already being made for another meeting of euro zone finance ministers next week, once the Cypriot finance minister has returned from Moscow and officials have a more precise idea of the shape of the rescue deal.

(Writing by Luke Baker, editing by Jeremy Gaunt)


By Luke Baker and Annika Breidthardt | Reuters

Cyprus OKs audit of anti-money-laundering policies.


BRUSSELS (AP) — European finance ministers on Monday pushed cash-strapped Cyprus into accepting an independent audit probing whether the country’s financial institutions comply with international rules aimed at combatting money-laundering, officials said.

Cyprus, the euro region’s third-smallest economy, urgently needs money from its European partners to prop up its ailing banks and keep its government afloat after getting caught up in Greece‘s debt crisis.

But on Monday night, the 17-nation eurozone’s finance ministers failed to clarify how to fund the long-delayed rescue loan package for Cyprus without burdening the country with an unsustainably high debt.

Eurogroup chairman Jeroen Dijsselbloem declined to answer questions on whether Cypriot bank bondholders — and possibly even depositors — should be forced to pay a share of the cost of the bailout, saying the negotiations with Cyprus’ new government were only starting. Dijsselbloem reiterated that the eurozone seeks to finalize the bailout by the end of the month.

The southern European island nation is seeking a bailout of up to €17 billion ($22 billion) — equivalent to the country’s annual economic output. Analysts say the bailout would balloon Cyprus’ debt to about 145 percent of its economic output, a level most economists consider unsustainable for such a small economy.

Cyprus can no longer refinance its debt, which forced the country to request a bailout from its eurozone partners last June. Talks on the bailout have dragged on ever since, but no agreement was reached with the last, Communist-led government. A new, conservative administration took office last month, and negotiations are now expected to pick up speed.

The idea of making bondholders and owners of large bank deposits take a hit is controversial, because many economists and leaders fear it might set a precedent that could spook markets, undermining recently regained confidence in the eurozone as whole. Cyprus has vehemently rejected the proposals, adding the discussion already has led some depositors to withdraw their money.

The leaders, however, managed to clear one hurdle for Cyprus, with the new government agreeing to an independent evaluation of the policies aimed at combatting money-laundering in financial institutions by a private auditor, Dijsselbloem said.

Germany, France and other nations had raised concerns that Cyprus’ banks facilitate money laundering and tax evasion, especially for its many Russian clients. German lawmakers, who have to approve each European bailout agreement, threatened to veto helping Cyprus unless it comes with tough oversight of Cyprus’ financial institutions.

Much remains to be sorted out, not least because the IMF apparently still has serious doubts about the viability of the bailout program.

“Cyprus is difficult,” acknowledged Irish Finance Minister Michael Noonan ahead of the meeting. “The conditions are not yet in place for the board of the IMF to make a decision to participate” in the bailout, added Noonan, whose country holds the rotating EU presidency.

In a sign of the persistent unresolved issues, IMF chief Christine Lagarde and a group of nations including heavyweights Germany and France met with new Cypriot Finance Minister Michalis Sarris after the official meeting’s end, an EU diplomat said. He spoke on condition of anonymity because he was not allowed to discuss the unofficial meeting.

The meeting also failed to reach a conclusion on the thorny issue of the conditions under which Europe’s new permanent €500 billion bailout fund will be allowed to prop up ailing banks.

A deal struck last year allowing the European Stability Mechanism (ESM) to directly recapitalize banks was one of the eurozone’s most important steps in seeking to break the link between banks and governments. Over the past few years, the cost of rescuing ailing banks has dragged down several governments’ finances, some of whom had to seek a bailout from their European partners.

Ireland, Spain and other countries that have pumped billions of euros into recapitalizing their ailing banks now want the ESM to foot the bill for past bank bailouts, or at least partly, which would lower the governments’ debt burdens. But Germany, the bloc’s biggest economy, and others remain opposed to the idea of using taxpayers’ money to retroactively fund bank bailouts in other nations. They say the instrument can only be used in future banking crises, once the bloc has centralized bank oversight, from 2014 onward.

The ministers “made progress” on the issue “but nothing is agreed until everything is agreed,” said Dijsselbloem, adding that the matter will again be discussed at the group’s next meetings.

The ministers, who are responsible for shaping the policies governing the currency used by some 330 million Europeans, also discussed granting relief to Ireland and Portugal, which have already received bailouts, by giving them more time to pay back their debt. Dijsselbloem hinted that there was wide backing for the measure, but before an announcement it will be discussed with the finance ministers from the 10 European Union countries that do not use the euro at a regular meeting Tuesday.


Juergen Baetz can be reached on Twitter at


By JUERGEN BAETZ | Associated Press

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