IMF bullish on Philippines, other emerging markets

MANILA, Philippines - The International Monetary Fund expects emerging markets like the Philippines to withstand the adverse effects of the lingering weakness of the global economy that is being driven by the crisis in Europe and the sluggish growth of the United States.

In the latest issue of its World Economic Outlook, the IMF said most emerging markets have become resilient to external shocks because of prudent policies implemented over the past decade.

It said these policies have strengthened the domestic economies of emerging markets and made them less vulnerable to unfavorable developments in advanced economies.

The IMF was referring partly to measures intended to cut government budget deficits and, in turn, slash the percentage share of their debts to the size of their economies.

It was also pointing to measures implemented by central banks that aided in the accumulation of foreign exchange reserves and the stability of the banking sector.

"The recent decade has really been exceptional-for the first time, emerging market and developing economies have performed better than advanced economies as measures by time spent in expansion," the IMF said in the report.

Emerging economies have benefited from their "improved policy frameworks and the ample policy space-room to manoeuvre without undermining sustainability-these improvements have created," the IMF added.

In the case of the Philippines, the percentage share of the government's debts to gross domestic product has declined consistently from about 74 per cent in 2004 to just 50.5 per cent in 2011.

The decline in the debt-to-GDP ratio was attributed largely to measures aimed at shoring up tax collections.

The country's gross international reserves have likewise risen over the years to an all-time high of about $80 billion.

The rise in the foreign exchange reserves of the Philippines was driven by strong inflows of remittances, foreign investments in the business process outsourcing sector and foreign portfolio investments.

In the first semester, the Philippine economy grew 6.1 per cent even as advanced economies remained weak. The growth in the first six months made the government's official target of 5 to 6 per cent for the full year attainable.

Meantime, the outlook for the United States and the eurozone, which serve as key export markets, remains uncertain. The US economy continues to suffer from high unemployment and lackluster growth while many European countries are facing a prolonged fiscal and banking crises.

The IMF said the Philippines and other emerging economies were expected to remain generally healthy despite the ongoing economic problems in the West. However, the IMF also said that adjustments of government policies might be needed from time to time to ensure these remained appropriate to address the impact of a potential deterioration of conditions in the West.

China's economy to rebound in second half: IMF

BEIJING: China's economy will rebound in the second half of 2012 to achieve annual growth of eight percent as government policies to spur growth take effect, the International Monetary Fund said Wednesday.

"Growth is expected to bottom out in the second quarter, and then accelerate in the second half of the year," the IMF said in an annual report on China's economy, predicting China's economy would expand by 8.5 percent in 2013.

The Fund noted that Chinese authorities, whose views are included in the report, said they had been pursuing policies to achieve a more sustainable pace of economic growth.

"This managed slowdown, however, has run into stronger-than-anticipated headwinds from the worsening of the euro area crisis," the IMF said.

"Measures to support growth are now being given more prominence and the authorities are confident that growth will be at least 7.5 percent this year."

China's slowing economy has prompted authorities to slash interest rates and loosen requirements for the amount of reserves banks must maintain as ways to spur lending and boost activity.

Growth in the world's second-largest economy slowed to a more than three-year low of 7.6 percent in the second quarter, marking the sixth straight three-month period in which it had weakened.

The Washington-based IMF said the projection, reached in consultation with Chinese authorities, was based on the premise that China maintains policies aimed at such a result.

It cited the ongoing eurozone sovereign debt crisis as the biggest external risk facing China's economy.

"The authorities were concerned about the external outlook, especially the risk of a worsening of the euro area crisis and the lack, so far, of a sufficiently strong policy response within Europe," the IMF said.

Chinese leaders have repeatedly expressed concern over the weakening economy and vowed to take further measures.

Premier Wen Jiabao has called stabilising growth the government's top priority.

IMF warns of rising risks to global economy

WASHINGTON: The International Monetary Fund stepped up its warnings Monday on risks to the global economy, mainly from the crisis-mired eurozone, as it trimmed its growth forecast for the rest of the year.

IMF economists said that the frail situations in Spain and Italy especially could quickly turn worse amid market doubts over eurozone leaders' resolve in implementing pledged reforms.

But they also pointed to the US "fiscal cliff" trajectory which, if not corrected, could crunch the US economy and heavily impact the rest of the world.

"In the past three months, the global recovery, which was not strong to start with, has shown signs of further weakness," the fund said in its quarterly economic forecast.

"Financial market and sovereign stress in the euro-area periphery have ratcheted up," it said, while growth has fallen below expectations in a number of major emerging-market economies.

If policy reactions in major economies remain inadequate or too slow, the IMF said, fissures could deepen, they added.

"The main risk is obvious," IMF chief economist Olivier Blanchard told reporters.

"It is that the vicious circle in Spain and Italy becomes stronger, that output falls even more than it does, that one of these countries loses its financial access to markets," he told reporters.

"The implications of such an event could easily derail the world recovery."

The IMF said that largely due to sharper-than-expected slowdowns in newly industrialized Asia and in large emerging economies like China, India, and Brazil, it had cut 0.1 per cent off its April forecast for global growth, to a rounded 3.5 per cent.

For 2013, the forecast is 3.9 per cent, down from 4.1 per cent.

Emerging economies were generally taking correct measures to deal with slowdowns, the IMF said. But many "have also been hit by increases in investor risk aversion and perceived growth uncertainty, which have led not only to equity price declines, but also to capital outflows and currency depreciation."

Growth forecasts were also cut for the United States, to 2.0 per cent; Britain, to 0.2 per cent, and France, to 0.3 per cent. In Spain, the recession will persist through 2013, the Fund said.

On the bright side, forecasts for this year for Germany and Japan were revised higher -- to 1.0 per cent and 2.4 per cent, respectively, though the 2013 prediction for each was also trimmed slightly.

Also getting an upgrade was the Middle East and North Africa region, much of which has been struggling through deep political turmoil in the past two years. The IMF said the region would grow about 5.5 per cent this year, much better than the 4.2 per cent predicted in April.

The IMF said that major economies were making progress on cutting their fiscal deficit burdens, despite stiff challenges in risk-averse debt markets which have sent the borrowing costs of the troubled eurozone periphery countries skyrocketing.

The global lender reiterated its prescriptions of recent months: short-term fiscal balance targets for troubled economies like Spain and Italy can be de-emphasized to allow for growth while more focus is placed on medium-term adjustments and reforms.

"A steady pace of adjustment focused on the measures to be implemented rather than on headline deficit targets is preferable, especially in light of heightened downside risks to the outlook."

Moreover, the IMF suggested, the political stress of too much austerity -- set to meet fiscal targets -- could backfire in countries with IMF or IMF-linked bailout programs, like Ireland, Portugal and Spain.

"The recent deterioration in the political and economic climate in Greece serves as a warning about the potential onset of 'adjustment fatigue,' which remains a threat to continued program implementation."

Meanwhile the IMF singled out the overhanging risk from US political stasis that could send the country over a "fiscal cliff" due to laws that, if not changed, will force massive government spending cuts coupled with automatic tax hikes on January 1 which would severely crunch the world's largest economy.

"Avoiding the fiscal cliff, promptly raising the debt ceiling, and developing a medium-term fiscal plan are of the essence," the global crisis lender said in recommendations for the United States.

Europe chooses closer integration to fix euro crisis

LOS CABOS, Mexico: Europe's major powers moved towards greater financial integration on Tuesday, in a G20 summit declaration aimed at boosting confidence in the bloc's plans to fix its spiraling debt crisis.

"We support the intention to consider concrete steps towards a more integrated financial architecture, encompassing banking supervision, resolution and recapitalization, and deposit insurance," the joint G20 statement said.

Backed by key EU members including Germany, France and Britain, the communique followed two days of talks in the Mexican beach resort of Los Cabos in which European leaders came under strong pressure to take firm and quick action.

Beyond the moat-ringed conference center in the hills above San Jose del Cabo, bond markets jacked up rates on Spanish and Italian debt amid self-fulfilling fears that the debt crisis that sank Greece was spreading once again.

The G20 statement said eurozone members will "take all necessary measures" to stabilize the single currency bloc, including moves to "break the feedback loop" that has weak governments piling on more and more debt to bail out their banks.

In addition, should economic conditions worsen, the countries with more financial flexibility "stand ready to coordinate and implement discretionary fiscal actions to support domestic demand," it said.

The United States, the International Monetary Fund and the European Central Bank have all urged greater banking integration in Europe, hoping to instill more confidence as banks falter in some of the worst-hit nations.

US President Barack Obama, worried Europe was not moving resolutely enough to contend with the debt crisis, huddled in a special meeting with European leaders, fearful that economic turmoil could torpedo his hopes of re-election in November.

Obama met Tuesday with Germany's Angela Merkel, France's Francois Hollande, Spain's Mariano Rajoy, Italy's Mario Monti and Britain's David Cameron as well as European Union chiefs Jose Manuel Barroso and Herman van Rompuy.

Shortly after the Obama-EU meeting, the wording of the final G20 communique was confirmed but there were few clues given about the path forward -- perhaps because Europe's leaders gather in Brussels at the end of the month.

The new element was the move towards a banking union. Europe-wide guarantees on deposits and a central authority to close banks that go bust are seen as a way to promote the flow of cash through the system and give more confidence to lend.

Supporters believe union would break a cycle in which banks are obliged to rely on their own troubled countries' governments and central banks, creating a vicious cycle of mounting debt that brings down all of the institutions.

Germany, the largest economy in Europe, has resisted debt burden-sharing out of concern that its own comparatively healthy system will be obliged to help out weaker banks in countries that have lacked discipline.

Merkel remains the driving force behind the eurozone's determination to privilege austere deficit busting over stimulus spending, although US officials say her position is softening.

"In Los Cabos the seeds of a pan-European recovery plan were planted," said IMF managing director Christine Lagarde.

"European leaders committed to take all measures necessary to safeguard the integrity and stability of the euro area and break the feedback loop between sovereigns and banks," Lagarde said.

"Their intention to consider concrete steps towards a more integrated financial architecture is important."

The G20 summit followed hot on the heels of Sunday's pivotal polls in debt-ridden Greece, where parties committed to the terms of their EU and IMF-led bailout held off a strong challenge by a leftist anti-austerity party.

The IMF has indicated that it could now be open to a renegotiation of Greece's 130-billion-euro ($165 billion) bailout program.

But hopes that the Greek vote had helped the single currency bloc turn a corner in the crisis were dashed as attention moved onto the fragile economies of other EU members and Spanish borrowing costs soared to record levels.

US officials have called for Greece to be given more time to get its affairs in order, but Merkel remained unmoved.

"Elections cannot call into question the commitments Greece made. We cannot compromise on the reform steps we agreed on," she told reporters on Monday.

Progress was made in Los Cabos in boosting the resources available to the IMF to help protect vulnerable countries from the backwash of the eurozone crisis.

China led emerging powers in topping up pledges to bring the new pool for emergency loans up to $456 billion (361 billion euros), though only in exchange for a greater say in Fund affairs.

US has no plans to lend money to IMF

WASHINGTON: The US has no plans to lend money directly to the International Monetary Fund, a senior Treasury official said Friday, as the Fund pitches to boost its resources in the case of financial emergency.

The official, who would not be identified, said the US believes the IMF has enough resources for its needs.

Currently the IMF has $389 billion (291 billion euros) available to lend to its member countries.

IMF Managing Director Christine Lagarde has said it needs to boost its resources to be able to cope with potential large-scale financial meltdown -- with all eyes in recent months on Europe.

On Friday, IMF spokesman Gerry Rice said the Fund "will need more resources should the crisis deepen further," suggesting one source could be bilateral loans from central banks, including the European Central Bank.

"The European authorities -- like some other IMF member countries -- are exploring bilateral loans to the IMF," Rice said in a statement.

"As we have also noted, such loans could indeed come from member country central banks," some of which are already lending to the Fund, he added.

Bilateral loans to the IMF could be turned around and lent on to countries in need, under the Fund's strict conditions for fiscal probity.

Analysts see that Spain and Italy, their finances deeply out of balance and markets pushing up their costs to borrow, could be in line for rescue packages from the IMF.

But the Fund's board, which is already suspicious of committing any more money to the crisis-wracked eurozone, would have to sign off on how any funds are used, including those from bilateral loans.

EU warns of recession in 2012

BRUSSELS: Europe warned on Thursday that its debt crisis was dragging the region towards a new recession, deepening the sense of foreboding as Italy and Greece struggled to put together new governments.

Amid a call by the head of the International Monetary Fund for an end to the political wrangling, it was still unclear who would emerge as the new leaders of Greece and Italy after both countries' premiers threw in the towel.

After doubts grew over Italy's ability to keep servicing its debts, the European Union's new economy tsar said the bloc faced tipping back into recession in 2012 due to a "vicious circle" of government debt, vulnerable banks and collapsed spending.

"Growth has stalled in Europe, and there is a risk of a new recession," Olli Rehn said as the EU released detailed forecasts for the eurozone and broader econonomy for the next two years, with GDP "now projected to stagnate until well into 2012."

Growth across the eurozone in 2012 would collapse to 0.5 percent, said the forecast, a steep drop from its previous prediction of 1.8 percent. The forecast for this year was also revised downwards from 1.6 to 1.5 percent.

The economy in Italy, the eurozone's third largest economy, would virtually stagnate in 2012 with growth of just 0.1 percent, according to the forecast.

Italy's growing crisis has already prompted Prime Minister Silvio Berlusconi to announce his resignation. He will stand down after parliamentary approval this weekend of a package of economic reforms aimed at calming investor fears, which have pushed Italy's borrowing rates to alarming levels of seven percent.

The handover of power has led to fevered backroom negotiations, with former EU commissioner Mario Monti seen as the frontrunner to succeed Berlusconi.

Monti received the backing on Thursday of Berlusconi, with the outgoing premier saying that he would work "in the interests of the country".

The 68-year-old Monti earned a fearless reputation as the European Union's competition commissioner taking on US corporate giants Microsoft and General Electric and is seen as a possible head of a national unity government.

Monti's appointment was not a done deal however after several leading members of Berlusconi's centre-right coalition insisted on early elections.

"Italy is facing a difficult time and particularly arduous choices to overcome the crisis," said President Giorgio Napolitano, who will be forced to call early elections if there is no consensus on a new government.

"Europe is urgently awaiting important signals of a taking on of responsibility by one of its founders. We will be up to the task."

On Wednesday, Italy's 10-year bond yields flew over 7.0-percent to heights that could make it impossible for Rome to keep financing its 1.9-trillion euro ($2.6 trillion) debt.

In a key test after Berlusconi's resignation announcement, Italy paid record rates of over six percent at an auction of treasury bills on Thursday.

Greece is also been in political turmoil since Prime Minister George Papandreou announced on Sunday he was standing down, triggering days of bickering between political leaders over the succession.

There was hope however that a new transitional government could be announced on Thursday whose first task will be to ratify a crucial EU bailout deal.

A meeting between President Carolos Papoulias and top political leaders opened at 0800 GMT with reports indicating that former European Central Bank vice-president Lucas Papademos would be given the reins of government in Greece's worst post-war crisis.

The Athens stock exchange was up 2.19 percent in morning trade in expectation of a deal on the fourth day of secrecy-veiled negotiations between Papandreou and the head of the opposition, conservative leader Antonis Samaras.

Europe's main markets plunged in early trading but staged a slight rally later in the morning. Frankfurt rebounded 1.04 percent and Paris added 0.98 percent, despite rising pressures in the French bond market.

Christine Lagarde, the head of the IMF, said both Greece and Italy urgently needed to sort out their leadership difficulties.

"Political clarity is conducive to more stability ... it is much needed in Greece, it is much needed in Italy," the IMF chief told journalists in Beijing.

Confusion over the future leadership of both countries was "conducive to volatility," added Lagarde, who is on a two-day visit to China.

The turmoil in parts of the eurozone has prompted questions about the single currency's whole future, including in the continent's economic powerhouse Germany.

According to a report in the German business daily Handelsblatt, MPs in Chancellor Angela Merkel's governing conservative party are mulling a move to permit countries to exit the eurozone without leaving the EU.

A motion from a group of lawmakers, which calls for any country's departure to be on a voluntary basis, is set to be discussed at the Christian Democrats' (CDU) party congress next week, Handelsblatt said.

Key lesson from Iceland crisis is 'let banks fail': analysts

REYKJAVIK - Three years after Iceland's banks collapsed and the country teetered on the brink, its economy is recovering, proof that governments should let failing lenders go bust and protect taxpayers, analysts say.

The North Atlantic island saw its three biggest banks go belly-up in the October 2008 as its overstretched financial sector collapsed under the weight of the global crisis sparked by the crash of US investment giant Lehman Brothers.

The banks became insolvent within a matter of weeks and Reykjavik was forced to let them fail and seek a $2.25 billion bailout from the International Monetary Fund.

After three years of harsh austerity measures, the country's economy is now showing signs of health despite the current global financial and economic crisis that has Greece verging on default and other eurozone states under pressure.

"The lesson that could be learned from Iceland's way of handling its crisis is that it is important to shield taxpayers and government finances from bearing the cost of a financial crisis to the extent possible," Islandsbanki analyst Jon Bjarki Bentsson told AFP.

"Even if our way of dealing with the crisis was not by choice but due to the inability of the government to support the banks back in 2008 due to their size relative to the economy, this has turned out relatively well for us," Bentsson said.

Iceland's banking sector had assets worth 11 times the country's total gross domestic product (GDP) at their peak.

Nobel Prize-winning US economist Paul Krugman echoed Bentsson.

"Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net," he wrote in a recent commentary in the New York Times.

"Where everyone else was fixated on trying to placate international investors, Iceland imposed temporary controls on the movement of capital to give itself room to maneuver," he said.

During a visit to Reykjavik last week, Krugman also said Iceland has the krona to thank for its recovery, warning against the notion that adopting the euro can protect against economic imbalances.

"Iceland's economic rebound shows the advantages of being outside the euro. This notion that by joining the euro you would be safe would come as news to the Spaniards," he said, referring to one of the key eurozone states struggling to put its public finances in order.

Iceland's example cannot be directly compared to the dramatic problems currently seen in Greece or Italy, however.

"The big difference between Greece, Italy, etc at the moment and Iceland back in 2008 is that the latter was a banking crisis caused by the collapse of an oversized banking sector while the former is the result of a sovereign debt crisis that has spilled over into the European banking sector," Bentsson said.

"In Iceland, the government was actually in a sound position debt-wise before the crisis."

Iceland's former prime minister Geir Haarde, in power during the 2008 meltdown and currently facing trial over his handling of the crisis, has insisted his government did the right thing early on by letting the banks fail and making creditors carry the losses.

"We saved the country from going bankrupt," Haarde, 68, told AFP in an interview in July.

"That is evident if you look at our situation now and you compare it to Ireland or not to mention Greece," he said, adding that the two debt-wracked EU countries "made mistakes that we did not make ... We did not guarantee the external debts of the banking system."

Like Ireland and Latvia, also rescued by international bailout packages and now in recovery, Iceland implemented strict austerity measures and is now reaping the fruits of its efforts.

So much so that its central bank on Wednesday raised its key interest rate by a quarter point to 4.75 percent, in sharp contrast to most other developed countries which have slashed their borrowing costs amid the current crises.

It said economic growth in the first half of 2011 was 2.5 percent and was forecast to be just over 3.0 percent for the year as a whole.

David Stefansson, a research analyst at Arion Bank, told AFP Iceland hiked its rates because it "is in a different place in the economic (cycle) than other countries.

"The central bank thinks that other central banks in similar circumstances can afford to keep interest rates low, and even lower them, because expected inflation abroad is in general quite (a bit) lower," he said.