‘Reprofiling’ is a controversial word in the world of sovereign debt at the moment. The IMF is gathering responses on a proposal to extend bond maturities when a country’s debt looks like it might be unsustainable going into a programme.
In this post, Lee Buchheit, Mitu Gulati and Ignacio Tirado review criticisms of the proposal — and suggest some responses. Read more
Sweden’s Riksbank cut its key interest rate to zero last week because inflation was too low. The Riksbank has been noted – and criticised – for raising rates in 2011 to tackle a credit and housing bubble. Peter Doyle, an economist and former mission chief for Sweden for the IMF, argues that the recent experience of the world’s oldest central bank has more to teach policymakers.
One view of the Swedish Riksbank’s cutting its repo rate to zero is that this is a defeat for the use of monetary instruments to lean against financial fragilities. That conclusion is premature. It misses three more important implications for other monetary policymakers. Read more
It’s that time of year again for the IMF-World Bank annual meetings in Washington – which means time for reflection on the fund’s attitude to changes in sovereign debt restructuring. Gabriel Sterne, Head of Global Macro Investor Relations at Oxford Economics, argues why it might be time for less procrastination, and more ‘forward guidance’…
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Ukraine claimed at pixel time to have fired on a number of Russian tanks crossing its borders.
Being invaded by Russia is not very conducive to a country’s GDP. But also, bizarre as it seems if its armour really is aflame in the Donbas, Russia is also the owner of Ukrainian sovereign debt. This has some precarious terms (for the borrower) restricting growth in debt to GDP to below 60 per cent. Read more
The IMF has picked its week to publish another paper on changing its sovereign debt restructuring policy…
Although the paper released on Friday — which follows an initial review last year — isn’t about Argentina, pari passu, and holdout issues. It’s about Greece. Read more
A tick up in sovereign bond yields has followed Friday’s late announcement by the Portuguese Constitutional Court that some budget austerity measures are a no-no, for violating principles of equality and proportionality.
Benchmark 10-year yields rose 7 basis points to 3.72 percent, according to Reuters, with weakness also seen in other euro zone peripheral government bonds.
The FT notes the need for tax rises and, while the country has exited the official bailout programme, there are still risks to a further package of rescue loans. Read more
There was no bald supervillain stroking a white cat, but other than that the City of London hosted a conspiracy theorists’ perfect scenario yesterday: a meeting organised by the Rothschilds, sponsored by the Rockefellers and with managers of $30tn, or more than a tenth of all financial assets worldwide, in the room. Even the British royal family was represented, essential for any decent conspiracy, although usually Prince Philip is preferred to the Prince of Wales.
Perhaps there were shape-shifting reptilians present, as per David Icke. But if so, they were keeping their heads down: rather than discussing how to rule the world, the focus was on “inclusive capitalism”. Read more
The currency devaluation and official borrowing (to help finance a still-wide government deficit) are expected to push public sector debt up to 57 percent of GDP…
– IMF announcement of $17bn loan programme for Ukraine
Although don’t worry — that’s a whole 3 per cent before a unique debt threshold clause conceivably allows the Russian government to convert $3bn of Ukrainian bonds, which it owns, into demand money. Read more
This year’s IMF-World Bank Spring Meeting is likely to include discussion of proposals to change the fund’s policy on sovereign debt restructuring. Gabriel Sterne, senior economist at Exotix with IMF experience, and Charles Blitzer, Principal at Blitzer Consulting and a former IMF staff member, argue in favour of a case-by-case approach.
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Those rascal short sellers are at it again, daring to ask awkward questions of the European project. This time the manifesto comes from New York based Tortus, who have a plan to “rehabilitate” Portugal. (H/T @Pawelmorski and @IyerC).
Before rehabilitation, however, there must come acceptance, and Tortus is short “certain Portugese sovereign bonds” because it does not think the status quo is sustainable. Read more
FT Alphaville is a little bit late to this appreciation of the outgoing Bank of Israel governor (and former deputy IMF managing director), penned by Peter Doyle — also formerly of the IMF.
But we think it should be read far and wide. (Click for the full doc) Read more
Sign of the times perhaps, though in any case easy to overlook (as we did)…
That’s a box on “one-off capital levies” — or wealth taxes — burrowed away on page 49 of the IMF’s latest Fiscal Monitor. Click to enlarge. Hat-tip to Societe Generale’s rates strategists.
Just in case you thought the Cypriot precedent had been forgotten. Read more
The IMF has released to the public an earlier policy paper that includes an extended section about the reassessment of fiscal policy as a macroeconomic stabilisation tool.
The fund’s change of mind on post-crisis fiscal policy in recent years is already widely known, but we thought this paper worth passing along for its comprehensive parsing of the latest research. Read more
Did you hear the one about the IMF sending an amicus curiae brief to the highest court in the United States in favour of taking up the pari passu case of its infamous lost cause, Argentina?
Well here’s the punchline: US opposition has abruptly killed the plan. Read more
The International Monetary Fund’s “ex post evaluation” of its involvement in the Greek bailout continues to generate debate over the weaknesses revealed. Gabriel Sterne, a senior economist at Exotix with two decades of public sector experience including at the IMF, argues that the issues for the fund go much deeper.
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Click for the IMF’s “ex post evaluation” of its role in the Greek bailout. Its mea culpa.
And if you thought we were being harsh here, parts of the real thing are excoriating.
This is even though the report decides Greece’s exceptional access to IMF lending was justified (generally), and it still says much fiscal adjustment could not be avoided. Policies were “broadly correct”. But it does strongly suggest that debt restructuring should have come sooner.
So, the International Monetary Fund (effectively) wishes to apologise to all concerned for that little thing where it turned into Dominique Strauss-Kahn’s presidential election campaign a few years back.
Sorry if a country got broken along the way: Read more
Quite a lot to ponder really. Members of the IMF’s executive board were set to meet on Wednesday to discuss whether to approve lending to Cyprus, more or less behind closed doors.
But maybe not so much this time. It looks like Stockwatch in Cyprus has obtained a copy of the members’ comments on the Cypriot bailout — a rather high-level internal document to find its way to the public… and it makes for fascinating reading. Read more
Dromeus Capital. The name might ring a bell. It’s the fund which did its homework on underpriced Greek assets last year, making a killing.
Pretty striking, then, that they’ve now gone cautious on Greece. Read more
Now that Cypriots have elected the guy who’ll have to negotiate how to pay for the costliest bank bailout in history (relative to the size of the economy on the world’s 81st-biggest island)…
He (and they) could do worse than look at these charts, courtesy of Gabriel Sterne at Exotix: Read more
Yes the IMF calls for common eurozone deposit insurance, in this new banking union paper. But also look at what they suggest on emergency liquidity assistance:
Lender of last resort. The lender of last resort makes liquidity support available to solvent yet illiquid banks. Centralizing all LOLR functions at the ECB would in the steady state eliminate bank-sovereign linkages present in the current ELA scheme (see Box 1). This would require changes to the ECB’s collateral policy, as by definition euro area banks that tap ELA cannot access Eurosystem liquidity owing to collateral constraints. Until such time as all banks are brought under the ECB’s supervisory oversight, ELA would be sourced through both the ECB (for banks brought under its purview) as well as national central banks (for banks that remain under national supervision, albeit with adjustments made to the national ELA limits).
Which would be nothing short of a revolution. Read more
Yep, China again.
Here’s a table from a fresh IMF paper pondering the country’s Lewis Turning Point, the moment when people streaming into cities from farms will be fully absorbed, industrial wages will take off, and — an estimated 350m jobs later after it began — the era of cheap Chinese labour will end. Click to enlarge. Read more
We saw this coming from the IMF all the way back in March 2012 — when Greece’s PSI was just over, and vague notions of OSI were already in the air. Read more
It’s fair to say that Latvia’s post-crisis economic trajectory divides opinion. Some see its ultra-austerity approach as a triumph, others as deeply regressive. But it’s hard to argue with the notion that the country has taken a lot of pain and that things are gradually improving. Read more
You’re just not cool these days if you aren’t operating some sort of circular mechanism to reduce your debt levels in the eyes of the outside world. And it appears that Greece, sick of being bullied by the circular crew, is looking to get in on the act.
We’re talking about the Greek debt buyback, which should be completed on Friday if deadline talk is to be believed. Read more
The IMF’s desired target of a 120 per cent debt-to-GDP ratio by 2020 has been replaced by 124 per cent by the same date — thanks in large part to official creditors taking a lower interest rate on repayments from the original bailout. A lot also seems to hinge on the Greek debt ‘buyback boondoggle’, which is now well and truly on the table. Read more
The Eurogroup meets on Monday for the third time in as many weeks to discuss Greece’s finances. Maybe third time’s the charm?
The focus remains on getting an agreement on the country’s medium-term debt sustainability. The reason for that is two-fold. First, it’s necessary to appease the IMF given its insistence on a haircut (which is politically very difficult for many of the member countries). Second, with the German elections taking place next September, it’s seen as best for all concerned to agree some sort of solution that will allow the question of Greece’s longer-term sustainability to be ignored until late 2013. Read more
About that meeting of eurozone finance ministers, ECB and IMF officials that collapsed in the early hours of this morning (at least, until Monday) for ‘further technical work’…
First: looks like our bold call was correct. Um, yay?
Second, Reuters says it has the document prepared for the meeting and circulated among the ministers. Read more