‘Expected triumph of Francois Hollande could shift balance of power in European Union’

I’m forecasting a loooooong hot Summer all over Europe

‘we will enforce this policy under all circumstances’

Simples

He’s baaaaaaack!!!

Latest from Liam.

The eurozone is lucky its got Christine at the helm of the IMF is all I’m sayin.

‘U.S. Treasury Secretary Timothy Geithner said Saturday that the euro zone needed stronger action from authorities, including the European Central Bank, to tame a potential deterioration in the debt crisis.’

Reuters article.

Latest from David Smith at economicsuk.com

–Low Income Countries Have Less Fiscal Space, Less Mon Pol Flexibility
–IMF’s Lagarde: Risk Of External Shock To Low Income Countries

By Brai Odion-Esene

WASHINGTON (MNI) – The path ahead for the economies of low income
nations will be “tricky,” as they deal with the spillover effects from
the crisis in the Eurozone, outgoing World Bank President Robert
Zoellick said Saturday.

Speaking alongside him at the press conference following the
meeting of the IMF and World Bank’s Development Committee, IMF Managing
Director Christine Lagarde warned that low-income countries have “less
room for maneuver” should conditions in the global economy take a turn
for the worse.

In a communique released after the meeting, the Development
Committee noted that “the global economic outlook remains challenging,”
but that “policy adjustments and improved economic activity have reduced
the threat of a sharp global slowdown.”

However, growth in emerging and developing economies continues to
be relatively strong, but poor countries still need support, it said.

The communique emphasized the key role of the private sector, and
Zoellick told reporters that the global recovery depends on proper
incentives for private financing, which in turn should boost job
creation.

“At the end of the day, the best safety net is a job,” he said,
adding, “It’s more vital than ever that support be continued to help
developing countries to navigate the tricky road ahead.”

Lagarde agreed, noting that low income countries are facing
“specific risks.”

The main risk is of the external shock coming out of the advanced
economies in crisis, she said, and low income nations have less room to
maneuver because “they have used much of the buffers that they had
before entering into the crisis, they have less scope to use policies.”

Zoellick echoed this sentiment, as these countries have “less
fiscal movement,” and less flexibility in monetary policy should things
take a turn for the worse.

Echoing the communique, Lagarde stressed the need to improve the
quality of growth, saying that it needs to be “more inclusive.”

Zoellick was asked if the over $430 billion increase in the IMF’s
resources by members indicated less concern for the plight of poor
countries, but he countered that the additional funds are earmarked for
the global economy, “so developing nations would certainly benefit.”

In addition to macroeconomic stability, it will also be important to
focus on structural reforms that will drive future growth, Zoellick
said, underlining the communique’s main urging that: ” Implementing
policies and structural reforms to promote poverty reduction and
inclusive growth must continue.”

** MNI Washington Bureau: 202-371-2121 **

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WASHINGTON (MNI) – The Eurozone must address banking sector
problems in a pan-European way, European Central Bank Vice-President
Vitor Constancio said Saturday.

“We need to address in a pan-European way the problem if the
banking sector in Europe,” Constancio said during a conference organized
by the Bank of France.

The Eurozone needs cross boarder institutions, cross-boarder
resolution funds and a European supervisors for big baning groups,
Constancio said.

Constancio also called on Eurozone governments to implement all the
commitments made over recent months “because that will be vital to over
come the crisis.”

–Frankfurt newsroom +49 69 72 01 42; e-mail frankfurt@marketnews.com

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WASHINGTON (MNI) – Monetary policy will likely remain
unconventional for some time but there should be no doubt at all action
is being geared towards price stability, European Central Bank Governing
Council member Christian Noyer said Saturday.

“Monetary policy will likely for some time rely on a diversity of
instruments,” Noyer said during a panel discussion organized by the Bank
of France, which he heads, at the IMF-World Bank spring meetings.

Noyer said that in this “complex situation” it is essential that
there is a “clarity on the objectives” of central bank action. “There
should be no ambiguity about the reason why they have been doing so and
there should be no doubt about their commitment to price stability, he
said.

Should they lose that anchor [on expectations], they would also
lose any ability to intervene and the world would become an even more
dangerous place.

–Frankfurt newsroom +49 69 72 01 42; e-mail frankfurt@marketnews.com

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WASHINGTON (MNI) – Without sustainable fiscal developments, a
central bank cannot properly work, Bank of Japan Governor Masaaki
Shirakawa said Saturday.

Speaking at a panel discussion at the IMF, Shirakawa said, “Fiscal
sustainability itself is an important precondition for the proper
functioning of a central bank.”

Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

[TOPICS: MT$$$$,MGX$$$,M$$CR$,M$$J$$]

–’Very Important Nuance’ in Communique Relates to Infl Expectations

By Denny Gulino

WASHINGTON (MNI) – Advanced and emerging economies have agreed that
the easy monetary policy of the U.S. and developed Europe can remain
accommodative only so long as inflation expectations remain firmly
anchored, the chair of the IMF’s steering committee told reporters
Saturday.

The head of the International Monetary Fund and the chairman of its
guiding committee described many European states — now the
beneficiaries of contributions from often less advanced, less prosperous
nations — taking “courageous” and vastly unpopular steps to put their
problems behind them with everyone else’s support.

“What was really critical in all our minds,” said the chairman of
the International Monetary and Financial Committee at the conclusion of
its meeting, “was to get back to normal growth over the medium term and
preferably sooner rather than later.”

IMFC Chair Tharman Shanmugaratnam said the medium term means
“within two or three years” and that “if we don’t get back to normal
growth, if we don’t get GDP back to its potential levels, then fiscal
sustainability isn’t possible.”

Combining fiscal reforms with structural reforms is necessary to
“bring confidence and investment back into our economies,” he said.

The 24 central bank governors, finance ministers and other top-rank
economic figures drawn from the governors of the IMF’s 188 member
countries were mostly in a mood of consensus and agreement, he and IMF
Managing Director Christine Lagarde told the reporters attending the
news conference. The gathering is one of the major concluding events of
the spring meetings of the IMF and World Bank.

Amid criticism from Latin America countries of the way central
banks in the U.S. and Europe were prolonging their low interest rates to
spur growth at the cost of many emerging economies’ less competitive
exchange rates, Tharman said even the critics are not insisting on a
monetary tightening reaction any time soon — with one condition.

“There’s a very important nuance in the statement on monetary
policy,” Tharman said. “It doesn’t just say that monetary policy needs
to remain accommodative, it says it needs to remain accommodative as
long as inflation prospects remain anchored and weak growth persists.”

He said meeting participants, many from outside the G20 and from
emerging countries, “were all pretty much of the same mind, on the
importance of ensuring that inflation expectations remain anchored, in
other words low and in check.”

At the first signs that “we’re likely to lose control of inflation
further down the road there was a general sense that monetary policy,
being very easy, would no longer be advisable,” Tharman said.

IMF Managing Director Christine Lagarde, answering questions with
Tharman, attributed some of what she saw as an encouraging impulse
toward consensus as the result of a new seating arrangement, which
intermingled the participants instead of having them facing each other
“protected” by their tables.

Lagarde said that, on the sensitive subject of IMF advice to
countries about their exchange rate regimes, that such bilateral and
multilateral surveillance would remain “one of the components” of the
Fund’s role. China has resisted the idea that the IMF should be
encouraged to keep track of whose currencies are undervalued and whose
overvalued.

Tharman said, on the delicate subject of capital controls and
exchange rate manipulation, “Compared to a year ago, we had a good
meeting of minds, pretty much a consensus, among emerging countries and
advanced countries, whether we’re talking about China or Brazil or
anyone else, we all agreed there had to be some greater flexibility in
exchange rates over time.”

“We agreed we are getting there, and we also agreed from time to
time capital flows can be very troublesome,” he continued. “The Fund has
shifted its thinking on the matter and we’ve all shifted our thinking as
to what’s a sensible took kit when faced with volatile capital flows.”

He said “there was a recognition that in instances where you face
severe volatility of capital flows some form of management of those
capital flows could be sensible.” These, he said, “were statements that
were agreed to on all sides” representing some movement of “some
distance in the last year.”

Lagarde said there is research work under way at the Fund “so that
we can really analyze in depth the relationship of capital flows and
monetary policies.”

“There is work that will continue to be done at the Fund so that we
can really analyze in depth the relationship between movement of capital
flows and monetary policies — that’s another matter which was of
interest — and there is not at this stage definite evidence of a close
correlation between the two,” she said.

Lagarde also said that Portugal’s IMF program is “on track,” and
was newly endorsed by the IMFC. “I don’t see any reason for any change
in the Portugal program,” she said.

Asked how well the advanced economies, presumably in Europe for the
most part, are prepared to undergo two to three years of austerity and
adjustment, Tharman responded, among the “Western economies there’s a
very strong resolve to get the heart of issues of competitiveness,
thrift, rebuilding of household and government balance sheets.”

He said of this resolve, “politically, it’s quite courageous” since
it’s not necessarily what the citizens expect even now. “There have been
very strong expectations built up over the years for more of the same
and it has taken tremendous political courage, particularly in the last
year, to begin to switch course and to paint a vision that leads to a
better future,” Tharman said.

“We know it’s going to be a long road. This is a multi-year
journey,” he continued. “There will be pitfalls along the way” which is
why the new resources of the IMF are “extremely important.”

“It’s going to be a very challenging journey, with politics
intersecting in economics,” he said, adding “I’m a lot more confident
now than I was a few years ago.”

“We’ll have to avoid thinking that we’ve got it all right, whether
it’s on fiscal policies or savings policies or competitiveness policies
that we’ve discovered the new golden equilibrium,” he said. “There’s a
lot of learning to do on both side.”

The IMF is not neglecting poor countries while it amasses a huge
war chest, now $430 billion larger and growing, to help much richer
countries, Lagarde said. “We don’t talk enough about the work the Fund
does with the low-income countries,” she said. “Of the 48 programs or so
that we have around the world, more than half of them are with low
income countries. They’re not for huge amounts, because everything is
proportionate.”

The “highest, largest number of technical assistance hours, days,
man or woman hours, in all sorts of matters” is now being provided to
the “Arab Spring” countries in transition, she said.

She and Tharman stressed that the new pledges of contributions will
add to the IMF’s regular resources, not to any special bailout fund, and
that the same rigorous Fund requirements will apply to everyone who
borrows, even if they are advanced European countries.

** MNI Washington Bureau: 202-371-2121 **

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WASHINGTON (MNI) – The cooperation between Germany and France does
not rest on the outcome of the elections to take place soon in France,
German Finance Minister Wolfgang Schaeuble said Saturday.

Speaking to the press on the margins of meetings at the IMF and
World Bank, Schaeuble said, “The Franco-German cooperation is
independent of the outcome of the election for both countries … and
nothing about this will change.”

French President Nicolas Sarkozy is facing a stiff challenge from
the Socialist candidate, Francois Hollande, who is leading in polls and
who has expressed his desire to renegotiate the Fiscal Compact agreed on
by European countries.

Asked whether he would be willing to take over the chair of the
Eurogroup of Eurozone finance ministers when current head Jean-Claude
Juncker steps down, Schaeuble spoke of a misperception outside of Europe
according to which Germany effectively stands for the rest of Europe.

In any case, he said, such decisions were not discussed here.

As to what was discussed at the meetings, in particular the
increase in IMF resources, Schaeuble praised the high solidarity of the
international community, which he said makes it “capable of acting and
reacting in crisis situations.”

European countries presented a united front here, he said, which
inspired the trust of their international partners. “We convinced them,”
he said. This “was one of the conditions for having brought about
yesterday’s agreement.”

“We are not out of the woods yet, but we have made good progress,”
he said.

In other comments, Schaeuble reported that European Central Bank
President Mario Draghi had said during the meetings that “financial
markets tend to underestimate risks for a long time … and then they
tend to overestimate risks.”

–Frankfurt Bureau: +49-69-720142; Email: dbarwick@marketnews.com

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WASHINGTON (MNI) – The following is the communique issued Saturday
at the conclusion of the 25th meeting of the International Monetary
Fund’s steering committee, the IMFC:

Chaired by Mr. Tharman Shanmugaratnam, Deputy Prime Minister of
Singapore and Minister for Finance

The global economy is recovering gradually. Since we last met,
important policy actions have been taken in the euro area, both at the
national and regional levels, including through an enhancement of the
European firewall. Economic indicators in the United States have
improved. Emerging market and developing countries on the whole remain a
source of strength for the world economy. But more remains to be done.
The outlook remains one of moderate growth globally, and risks remain
high. We will continue to act collectively to restore confidence,
rekindle growth, and create jobs.

— In advanced economies, further actions are needed in many
countries to achieve credible fiscal consolidation and government debt
reduction, while avoiding excessively contractionary fiscal policies.
Where conditions permit, automatic fiscal stabilizers should be allowed
to operate. In all countries, viable medium-term consolidation
strategies should be in place. Monetary policy will need to remain
accommodative as long as inflation prospects remain anchored and weak
growth persists. The potential impact and cross-border spillovers of
such a policy should be closely monitored. Structural reforms to boost
potential output and employment are critical, and need further momentum.
In the euro area, continued progress on ensuring debt sustainability,
securing financial stability, and undertaking bold structural reforms
will be crucial to boosting confidence and productivity, facilitating
rebalancing within the monetary union, and promoting strong and balanced
growth.

— Emerging market and developing countries continue to grow, while
facing spillovers from the advanced economies. Ongoing stresses in
Europe, high and volatile oil and commodity prices, and large and
volatile capital flows pose significant policy challenges. This requires
the right balance between attenuating downside risks with appropriate
policies to support growth and curbing inflationary pressures. Rapid
credit growth in some economies warrants attention. Low-income countries
should preserve macroeconomic stability and debt sustainability while
pursuing their development objectives and addressing infrastructure gaps
to enhance their growth potential. We call on the membership to complete
the low-income-country financing package under the Poverty Reduction and
Growth Trust through 2014-15, and will consider proposals to ensure its
long-term sustainability, by our 2012 Annual Meetings. We call on the
Fund to support the efforts of Arab countries in transition with policy
advice, technical assistance, and appropriate financing at this historic
time; we support these efforts, including through collaboration with the
Deauville Partnership, to facilitate economic transition while
safeguarding financial stability. We encourage the Fund to enhance
attention to small states, especially those that are most vulnerable to
external shocks.

— Global collaboration is key to sustaining growth everywhere and
ensuring stability. Further actions are needed to build on the progress
made to date in reducing global imbalances. In general, deficit
countries need to continue with their efforts to strengthen national
saving while enhancing export competitiveness, and surplus countries
need to continue to implement structural reforms to strengthen domestic
demand, supported by continued efforts that achieve greater exchange
rate flexibility. It is also crucial to press ahead cooperatively in
strengthening financial systems by completing and implementing the
agreed international financial reform agenda in an internationally
consistent and non-discriminatory manner, including in the area of Basel
standards, derivatives, and cross-border resolution of financial
institutions. In addition, fostering and protecting investment is
crucial for the global recovery. We reaffirm our collective
responsibility to avoid protectionism in all its forms.

The next Consolidated Multilateral Surveillance Report provides an
opportunity to assess progress in our efforts.

We will ensure that the IMF has the tools and resources to
effectively support the membership and welcome the directions in the
Managing Director’s Action Plan.

— Resources. We remain committed to take the necessary actions to
secure global financial stability. We welcome the euro area members’
decisions in March to strengthen European firewalls as part of broader
reform efforts and the availability of central bank swap lines. Together
with the G-20, we have reached agreement to enhance IMF resources for
crisis prevention and resolution. This is the result of a broad
international cooperative effort that includes a significant number of
countries. There are firm commitments to increase resources made
available to the IMF by over $430 billion in addition to the quota
increase under the 2010 reform. These resources will be available for
the whole membership of the IMF, and not earmarked for any particular
region. The resources would be channelled through temporary bilateral
loans and note purchase agreements to the IMF’s General Resources
Account. Should it become necessary to use these resources, adequate
risk mitigation features, conditionality, and adequate burden sharing
among official creditors would apply, as approved by the IMF Board. This
effort, together with the national and regional structural, fiscal, and
monetary actions that have been put in place in the past months, shows
the commitment of the international community to safeguard global
financial stability and put the global economic recovery on a sounder
footing.

— Governance. We reaffirm the urgency of making the 2010 quota and
governance reforms effective by the 2012 Annual Meetings, to enhance the
Fund’s legitimacy and credibility. We urge members to ratify these
reforms expeditiously and call on the Fund to monitor progress
transparently and more frequently. We look forward to an agreement, by
January 2013, on a simple and transparent quota formula that better
reflects members’ relative positions in the world economy. We reaffirm
our commitment to complete the Fifteenth General Review of Quotas by
January 2014. Any realignment is expected to result in increases in the
quota shares of dynamic economies in line with their relative positions
in the world economy, and hence likely in the share of emerging market
and developing countries as a whole. Steps shall be taken to protect the
voice and representation of the poorest members. We call on the Fund
with the input from our Deputies to report on progress at our next
meeting.

— Surveillance. We welcome recent initiatives on Fund
surveillance, and agree that the current surveillance framework should
be significantly enhanced. We welcome the progress by the Fund in
advancing consideration of an integrated surveillance decision and
commit to support the decision process. Strengthening surveillance
should bring together bilateral and multilateral perspectives in Fund
policy advice and enable better assessment of global and country level
risks and spillovers to economic and financial stability, and engage
more effectively with policymakers. The IMFC has a key role to play in
regularly guiding strategic and operational priorities for Fund
surveillance.

The next Action Plan provides an opportunity to report on progress.

Next IMFC meeting. Our next meeting will be held in Tokyo on
October 12-13, 2012.

** MNI Washington Bureau: 202-371-2121 **

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‘Dutch prime minister Mark Rutte said Saturday that the key budget talks negotiations broke down, making early elections a “highly likely” option.’

–Updates With Statement From Danish Economic Affairs Minister
–De Jager: Delaying Fiscal Consolidation Because Of Weak Growth ‘Risky’
–Belgian Deputy FinMin: But Success Depends On Restoring Growth
–Danish EconMin: Risks From IMF Lending To Inter-linked Countries

By Chris Cermak

WASHINGTON (MNI) – Dutch Finance Minister Jan Kees de Jager
Saturday warned of a “dangerous” overemphasis on accommodative monetary
policy over structural reform and said delaying fiscal consolidation in
Europe in the face of weak growth is “particularly risky.”

De Jager said markets have already shown the costs of relaxing
fiscal targets in terms of higher yields. Efforts to improve growth
prospects in Europe must therefore come “first and foremost” from
structural reform, de Jager said in prepared remarks for the
International Monetary Fund’s Spring Meetings.

The point was underlined by Danish Minister for Economic Affairs
Margrethe Vestager, who in her own statement warned, “Renewed
uncertainty in financial markets and underlying economic and financial
vulnerabilities clearly demonstrate that there is no room for fiscal or
structural policy relaxation.”

Vestager also said the IMF must “mitigate risks” to its lending
resources, which were doubled Friday by $430 billion. In an indirect
reference to programs for peripheral European nations, she said the
“high concentration of lending to closely inter-linked countries and
regions accentuates the importance” of ensuring resources are “firmly
safeguarded.

De Jager said monetary policy measures are providing “critical
breathing space but do not provide a fundamental solution to the
underlying problems many countries face today.

“Moreover, overemphasizing the role of accommodative monetary
policies while underemphasizing the urgency for fiscal consolidation can
be dangerous,” he said in the statement to the IMF’s steering committee,
the International Monetary and Financial Committee.

“Delaying fiscal consolidation in the face of weak growth appears
particularly risky in the current circumstances, where the debt crisis
has shown that market sentiment can change rapidly and unexpectedly to
the worse,” de Jager said. “Market pressures could exacerbate the costs
of delayed consolidation by a significant and possibly unsustainable
amount.”

But Belgium’s Deputy Finance Minister Steven Vanackere in his own
statement to the IMFC stressed that, while countries with high debt
levels have to reduce their deficits at an “adequate pace,”
consolidation must not come at the expense of economic growth.

“Success with this task (of fiscal consolidation) critically
depends on resuming more vigorous growth, reducing unemployment and
preserve social cohesion,” Vanackere said.

“The ‘paradox of the thrift’ under which aggressive upfront fiscal
consolidation lowers growth, worsens debt dynamics and paradoxically
triggers a loss of confidence, must be avoided,” he said.

Vanackere also said accommodative monetary policies and central
bank liquidity “remain justified” given the “period of fragile
recovery.” But outside of short-term support, he agreed the “far more
important task” involved structural reforms that could “enhance
productivity and international competitiveness.”

All three ministers agreed medium-term risks stem from outside the
Eurozone, especially from high budget deficits in the United States and
Japan, and also called for continued exchange rate rebalancing in
emerging countries like China.

In an indirect jab at the United States and China, de Jager said
that global imbalances and excessive global liquidity have “not been
adequately addressed” and said “accommodative monetary policies and
inflexible exchange rate policies could even aggravate these risks.”

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,M$X$$$,M$$EC$,MGU$$$,MI$$$]

By Johanna Treeck

WASHINGTON (MNI) – The crisis continues to threaten the
liquidity and solvency of financial institutions and whole countries in
the Eurozone and there should be ongoing fiscal adjustment efforts,
German Finance Minister Wolfgnag Schaeuble said Saturday.

“There is substantial progress in reducing deficits in Europe. But
the crisis is still threatening the liquidity and solvency of financial
institutions and whole countries. This is why — for us Europeans — it
is so important and crucial to pursue credible fiscal adjustment,” said
in remarks prepared for the IMFC meeting.

Schaeuble said that the “successful fiscal reform and sustainable
growth are important to be able to exit from very expansionary and
unorthodox monetary policies.”

“We all know that such policies are not without serious risks
especially if maintained for too long,” he cautioned.

Schaeuble turned the tables on the U.S. that has been pushing
Europe to be more aggressive in fighting its crisis.

“Not only Europe is facing major fiscal challenges, the United
States and Japan in particular need to tackle their public deficits and
debt,” he said. “This requires a credible medium-term strategy. We
understand the political constraints but there is no way around it and
there is urgency.”

–Frankfurt bureau tel.: +49-69-720 142 Email: jtreeck@marketnews.com

** MNI Washington Bureau: 202-371-2121 **

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By Steven K. Beckner

WASHINGTON (MNI) – British Chancellor of the Exchequer George
Osborne said Saturday that “ongoing instability” in the euro zone shows
that the single currency area’s financial system is “fragile” and in
great need of reform.

Osborne, speaking to finance ministers and central bank governors
representing 188 member nations of the International Monetary Fund, also
stressed the need for fiscal reform and consolidation, including in the
United Kingdom.

The top economic policymaker of the UK, which has refused to adopt
the euro even though it is a member of the European Union, was
bluntspoken about the euro-zone’s problems in remarks prepared for the
IMF’s policymaking International Monetary and Financial Committee.

“Ongoing instability in the euro area serves to underline the
fragility of the financial system and reinforce the need to complete the
repair and reform process,” he said.

“In the euro area, the banking system still needs strengthening,
including through the timely resolution of nonviable institutions,”
Osborne continued. “More generally, we need to ensure the full,
consistent and nondiscriminatory implementation of the Basel capital and
liquidity standards, and to address the risks posed by global
systemically important financial institutions (GSIFIs).”

Osborne acknowledged that “this is particularly challenging for a
global financial centre like the UK.”

Speaking of advanced economies more generally, he said “the
priority is still the development and implementation of credible and
comprehensive fiscal consolidation plans.”

But Osborne said “the pace and scale of consolidation should vary
depending on particular country circumstances.”

“The UK faces significant fiscal vulnerabilities and has a globally
systemic financial sector,” he said. “For those reasons, it has been
necessary to implement a strong consolidation plan that has won the
backing of the IMF and the international community.”

“This has been important not just for domestic stability, but also
for the stability of the global financial system,” he added.

Turning in the direction of Britain’s former colony, Osborne opined
that ‘in contrast, the U.S. has the security of the global reserve
currency, which affords it more fiscal space.”

Returning to the euro area, Osborne said “a differentiated approach
to the pace and scale of fiscal consolidation will play an important
role in the rebalancing effort within the region.”

“However, other complementary reforms will be required,” he went
on. “The euro area’s ‘fiscal compact’ represents a significant step
towards greater fiscal integration and coordination of budgetary
policies.”

“However, as the IMF suggests, the euro area should also develop
some form of fiscal risk sharing,” he added.

Echoing other finance ministers, Osborne said the global economic
outlook “has improved this year, in large part thanks to the significant
action taken by the ECB, but more recent volatility demonstrates that
the recovery remains fragile.”

“While significant progress has been made to restore faith in
policymakers, further decisive action is necessary to restore stability
and strengthen growth,” he said.

** MNI Washington Bureau: 202-371-2121 **

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By Steven K. Beckner

WASHINGTON (MNI) – Brazilian Finance Minister Guido Mantega charged
Saturday that developing or “emerging market” countries are “paying a
high price” for the “ultra-loose” monetary policies of the
industrialized nations.

Mantega also complained that the IMF is giving the major central
banks a green light to pursue lax monetary policies while withholding
its approval of “defensive” measures which Brazil and others have taken
against those policies as he spoke to finance ministers and central bank
governors representing 188 member nations of the International Monetary
Fund,

It is not the first time that Mantega has alleged that easy money
policies in the industrialized world are generating inflationary
pressures in the developing world.

While opposing monetary stimulus measures, though, Mantega drew
attention to the problem those policies are designed to address — high
unemployment.

“Some economies are paying a high price for the ultra-loose
monetary policies in advanced economies,” he said in remarks prepared
for the IMF’s policymaking International Monetary and Financial
Committee.

“The increase in global liquidity very quickly finds its way into
emerging market economies, especially the ones with stronger economic
fundamentals, such as Brazil,” he said.

Mantega, who was speaking on behalf of a group of Latin American
countries, vowed, “The Brazilian government remains committed to doing
whatever it judges necessary to contain excessive and volatile capital
inflows through a combination of intervention in spot and future
exchange markets, macroprudential measures and capital controls.”

But he suggested that the IMF is being insensitive to Brazil’s
efforts.

“The IMF has given strong endorsement to the monetary policies in
advanced countries, including the recent measures taken by the European
Central Bank,” he observed. “It has been more reluctant, however, to
support the defensive measures that some emerging economies are being
forced to deploy in response to spill-over effects of these policies.”

“Capital account management policies have yet to be fully accepted
by the Fund as a normal part of economic policy toolkit,” he complained.

A big reason, of course, why the Federal Reserve, among others, is
holding short-term interest rates near zero and using “quantitative
easing” to hold down long-term rates is to fight unemployment that
remains above 8%. And Mantega acknowledged the problem, even while
griping about the remedy.

“A particular concern is the looming job crisis,” he said.

“High levels of unemployment and underemployment are by no means a
new phenomenon in developing countries,” Mantega continued. “In many
advanced countries, however, high unemployment, including longer-term,
is a problem that a whole generation has never really experienced.”

“In the European Union, unemployment currently affects more than
10% of the labor force, exceeding 20% in a few cases,” he went on.
“Youth unemployment rates are even higher, reaching as much as 50% in
Spain and Greece.”

Mantega said “economic and social policies need to address this
problem more forcefully, including by increasing the
employment-intensity of GDP growth.”

Mantega said the spring meetings of the IMF and World Bank are
occurring “in a period of exceptional economic and financial
uncertainty.”

“It is true that the outlook has improved somewhat since the end of
last year, but this is no reason for complacency,” he said. “We have
ahead of us enormous challenges to foster inclusive growth, job creation
and make further progress in poverty reduction.”

“We also need to work to ensure fiscal sustainability, especially
in advanced economies, and to better regulate and supervise the
financial sector to avoid the buildup of new tensions or the resurgence
of the kind of vulnerabilities experienced in recent years in the United
States and advanced Europe,” he added.

Mantega noted that “growth forecasts for 2012 and 2013 remain well
below pre-crisis rates” and that the euro area is “expected to drop back
into recession this year.”

The IMF has projected that emerging market and developing economies
will grow more than four times faster than advanced economies in 2012
and three times faster in 2013.

But Mantega warned that “geopolitical tensions are a new
destabilizing factor.” Cautioning that a new Iran-related oil price
spike would put the global recovery “at jeopardy,” he said “economic
sanctions, especially unilateral ones, tend to be
counter-productive.”

We urge all the parties involved to maintain dialogue in a
constructive spirit and welcome recent signs of progress in
negotiations.

Oil aside, Mantega said “the most important short-term risks to
international stability continue to lie in the periphery of the euro
area.”

“A number of economies are experiencing the painful combination of
fiscal adjustment with ‘internal devaluation,’” he said. “This has led
in some cases to a vicious cycle where falling wages and prices combined
with cuts in spending and increased taxation trigger a deeper
contraction in economic activity, further undermining fiscal
sustainability and the stability of the financial sector.”

Despite his criticism of the ECB and other central banks, Mantega
noted that “the euro area authorities have been acting on several fronts
to attempt to stabilize their economies and contain contagion” and
welcomed the recently announced increase in the euro area “firewall.”

He said “these recent measures will need to be reassessed as the
crisis unfolds.”

While monetary policy is being kept highly accommodative, Mantega
noted disapprovingly that “fiscal consolidation is weighing on growth in
many advanced economies.”

He recommended that some advanced economies “could even introduce
some fiscal stimulus. Germany and other Northern European countries, for
example, may be able to adopt more flexible fiscal policies. This would
not only help global demand but also facilitate the rebalancing within
the euro area.”

** MNI Washington Bureau: 202-371-2121 **

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