Monday, October 22, 2007

G7/IMF/WORLD BANK MEETINGS At-a-glance guide to the main points

WASHINGTON (Thomson Financial) - Following is an at-a-glance guide to the weekend meetings of G7 finance ministers and central bank governors, and the IMF and World Bank annual meetings.


-G7 finance ministers and central bankers said the recent turbulence in financial markets, high oil prices and weakness in the US housing sector are likely to 'moderate' global growth from its recent robust levels.

-But they said economic fundamentals are still strong and emerging markets are providing critical impetus to the strength of the world economy.

-They said central banks will continue to take appropriate action to ensure that markets function properly, while also taking action to contain inflation where necessary.

-'We remain committed to doing our part in sustaining strong global growth. We have acted resolutely to protect the systemic stability of global financial markets, and monetary policy must remain vigilant in maintaining price stability,' they said.

-IMF managing director Rodrigo de Rato said the tightening of credit conditions and market turmoil over the summer will continue to impact markets for some time, but the IMF does not expect growth to turn negative. At the same time, he said downside economic risks are 'bigger than they were only a few months ago'.

-The IMF's International Monetary and Financial Committee (IMFC) said the global economy may not yet have seen the full effects of the recent financial turbulence and further slowdown may yet be on the cards. 'Recent disturbances in financial markets in advanced economies are expected to have a moderating effect on growth in the near term, and downside risks to the outlook have increased,' the IMF's main policymaking body said.

-And EU economic and monetary affairs commissioner Joaquin Almunia told the IMFC that the 'the risks for the global economy are now clearly tilted to the downside'. He added that it is unclear how persistent the US slowdown will be.

-UK Chancellor of the Exchequer Alistair Darling said he expects growth in the US, Europe and and Japan to fall to somewhere between 2.0 and 2.5 pct. 'Although the continued dynamism in emerging market economies is expected to balance this slowdown in the United States and other advanced economies, global growth should moderate in the rest of 2007 and into 2008,' he said.

-Bank of France governor Christian Noyer said the recent crisis in credit markets has not yet had any major impact on global economic activity.


-The G7 did not mention the dollar's decline against the euro in the communique issued at the end of its meeting, despite European concerns about the euro's appreciation.

-US Treasury Secretary Henry Paulson reiterated that a strong dollar is still in the US economic interest.

-Euro group president Jean-Claude Juncker said the euro zone had noted Paulson's comments 'with great attention', and said investors should be aware of the risks of one-way bets in currency markets.

-Rato said the dollar is still 'overvalued' against other currencies overall and financial markets are 'betting right now' that the overvaluation has not yet run its course.

-The G7 stepped up its call for an appreciation of the yuan, urging China to allow an 'accelerated appreciation' of its effective exchange rate. The language used by the G7 was considerably stronger than April's diplomatic statement that 'it is desirable' that exchange rates move to reduce current account surpluses.

-Paulson said he believes China agrees with other countries on currency matters, but that the question of pace is still in dispute.

-Wu Xiaoling, deputy governor of the People's Bank (nasdaq: PBCT - news - people ) of China, acknowledged that China's large trade surplus is becoming a burden to China, but reiterated China's position that revaluing its currency is not the answer to rebalancing trade.

-Fan Gang, a member of the PBoC's monetary policy committee, said the value of the yuan is not a primary cause of China's large trade surplus. China's high and growing savings rate is much more a direct cause of global trade imbalances, he said.

-A visit to China by Juncker, Almunia, and European Central Bank president Jean-Claude Trichet to discuss economic and foreign exchange policy with the Chinese authorities has now been set for Nov 27-28.

-The G7 did not mention the weakness of the Japanese yen either in its communique but Japanese Finance Minister Fukushiro Nukaga said the yen should reflect Japan's continuing economic recovery.

-Otherwise the G7 stuck to standard language on exchange rates, reiterating that 'excess volatility and disorderly movements in exchange rates are undesirable for economic growth' and that 'exchange rates should reflect economic fundamentals'.


-G7 finance ministers and central bankers said the functioning of financial markets is now improving following the recent credit crisis.

-'Strong global fundamentals and well capitalised financial institutions provide a sound and resilient basis but uneven conditions are likely to persist for some time and will require close monitoring,' they said.

-Paulson said the market turmoil 'dominated the discussion' at the G7 meeting, but said he continues to believe market fundamentals are sound.

-German Finance Minister Peer Steinbrueck said the recent turbulence in financial markets is likely to continue for some time yet. 'It will continue to occupy us for several quarters more until well into 2008,' he said.

-Brazilian Finance Minister Guido Mantega criticized the IMF for having been lax in its handling of the US housing-related credit crisis.

-Rato defended the IMF's response to the financial market crisis, saying that back in April 'we were already clearly stating our concerns about the subprime market, the increased used of leveraged loans and the wider market for structured products.'

-But the G24 group of developing and emerging market countries said the turmoil shows that the IMF should pay as much attention to weaknesses in the advanced economies as in emerging economies.

-The IMFC called for strong international cooperation on financial stability issues. Specifically, it said risk management of complex structured finance products, liquidity management, off-balance sheet instruments and ratings agencies should all be put under examination and review by both national regulators and international agencies.

-Trichet said there is no need for 'heavy-handed regulation' to address the problems highlighted by the recent turmoil in credit markets. Trichet said more transparency and disclosure of information by banks and non-regulated entities would help reduce uncertainties among market participants, and this would in turn lead to less disruptive market movements and overshooting.

-Trichet said banks' capital bases remain solid despite the impact of the US subprime mortgage crisis on their earnings.

-Former Federal Reserve chairman Alan Greenspan told a World Bank meeting that the financial turmoil that erupted in August was 'an accident waiting to happen,' and would have taken place in some other sector of the market if it were not started by changing views about the subprime mortgage loans.

-ECB board member Juergen Stark told a seminar on the sidelines of the annual meetings that hedge funds were not responsible for causing or worsening the recent turbulence in financial markets, adding that they contribute positively to the smooth functioning of markets.

-The EU is set to examine the way credit rating agencies are run in order to prevent a future financial crisis of the kind that happened in late summer, said Portuguese finance minister Fernando Teixeira dos Santos, whose country currently holds the rotating EU presidency.


-Despite the recent credit crunch and a 4 pct decline in the US stock market Friday, Paulson gave an upbeat report on the US and world economy at the G7 meeting.

-'In the US I believe we have a healthy, diversified economy that will continue to grow,' he said.

-The IMFC said the US needs continued fiscal consolidation and a higher national savings rate.


-The IMFC called for continued structural economic reform in Europe.

-French Finance Minister Christine Lagarde said inflation remains 'well controlled' in France despite rising oil prices. Inflation is expected to be around 1.6 pct next year and is running at around 1.3-1.4 pct this year, she said.


-The IMFC said Japan needs lower deficits and further structural reforms of the economy.


-David Burton, director of the IMF's Asia and Pacific Department, said China's economy will likely grow by at least 10 pct in 2008, but the country faces a number of economic challenges that it must deal with in order to create more sustainable growth. 'A major challenge is to rebalance economic growth. Right now it's very heavily dependent on both net exports and investment,' he said.

-While the IMF reported that China's foreign reserves have topped 1.3 trillion usd, IMF officials declined to say whether this has led to increased scrutiny of China.

-China's rural poor need greater access to banks and agricultural insurance to improve their living standards and ensure sustainable development, the World Bank said in its world development report, adding that China should use funds allotted to rural development more efficiently.


-The IMF is projecting growth in the Latin American region at 5 pct this year and 4.25 pct next year, said Western Hemisphere department director Anoop Singh.


-Bundesbank president Axel Weber said on the sidelines of the G7 meeting that he does not expect the latest rise in oil prices to continue.

-Mohammad Alipour-Jeddi, head of OPEC's petroleum market analysis department, said oil inventory levels remain 'comfortable' despite the recent sharp rise in oil prices.

-World Bank chief economist Francois Bourguignon said it has been 'surprising' how well developing as well as industrial nations' economies have held up under the threat of record oil price rises.

-French Finance Minister Christine Lagarde said Saudi Arabia indicated that it is ready to increase oil output if needed to meet strong demand. She said earlier that the G7 would like OPEC oil producing countries to increase output.


-G7 officials agreed that sovereign wealth funds (SWFs), the large pools of capital controlled by governments, are 'increasingly important participants' in the global financial system and contributors to the cross-border investment that supports global growth.

-But they said more transparency and accountability are needed in the funds' operations.

-The US, Europe and the rest of the developed world should work together to create a common set of standards regarding the oversight of SWFs, Almunia said.

-Paulson and other finance ministers met with China, Saudi Arabia and other governments that control large SWFs, which Paulson said is the first step toward a possible agreement on best practices for SWFs.

-Paulson said one concern raised by G7 members is that SWFs make investment decisions abroad for commercial motives, rather than other motives. He also said he has 'some sense' that countries want more investment reciprocity before agreeing to open their markets wide to large sovereign wealth funds looking to take a stake in companies.

-Lagarde said the main concerns of the recipient countries relate to the longevity of any investment, how politically geared the funds are, the strategic nature of their investments and their long-term goals.

-The IMFC called for a 'dialogue' on best practices and resisting protectionism on sovereign wealth funds, which it said played a 'positive role in enhancing market liquidity and financial resource allocation'.


-The World Bank said rich countries need to reform agricultural policies which hurt poor economies. 'For example, it is vital that the US reduces cotton subsidies which depress prices for African smallholders,' it said in its annual world development report.

-Paulson said the World Bank is still a valuable institution that can help to alleviate poverty for the world's poorest countries even as private foundations spring up to do what used to be the Bank's exclusive domain. But he said the Bank should cut back on its funding to middle income countries like China and India.

-The World Bank said it is to launch a 5 bln usd fund to invest in emerging economies' local currency bond markets, called the Global Emerging Markets Local Currency Bond Fund (GEMLOC). It will mobilise money from public and private institutional investors and will invest initially in 15-20 emerging markets.


-World Trade Organization members only have a few more weeks to make a breakthrough in the ongoing Doha round of trade talks, director general Pascal Lamy told the IMFC.


-The IMFC pledged to boost the role of developing and poor countries in its decision-making. It said that the total quota increase should be of the order of 10 pct, with at least a doubling of basic votes.

-It said reforming the IMF 'should enhance the representation of dynamic economies, many of which are emerging market economies, whose weight and role in the global economy have increased.'

-Such countries should see their voting share increased, the committee said, adding that 'the voice and representation' of poor countries would also be strengthened.

-It said all elements for an internal reform package should be in place by the time of its next meeting in April 2008.

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