The IMF Urgently Needs Money

As the world’s largest economies slide into recession, the IMF announced today that it needs at least $100 billion more to assist countries most affected by the financial crisis.

Japan has slipped into its first recession in seven years, recording a 0.1 percent economic decline in the third quarter, marking the second consecutive quarter of contraction. The Eurozone officially entered recession last week, while Britain and the US are on the brink of recession, and China’s economic growth is slowing. The largest British employers’ association announced today an estimate that the number of unemployed could rise to nearly three million by 2010, and that the economy there will record the largest decline in the last two decades next year.

The French central bank announced that the economy is expected to decline by 0.5 percent in the fourth quarter, after narrowly avoiding recession with a meager 0.1 percent GDP growth in the previous quarter. The US economy is in recession, but official confirmation will have to wait until January. Meanwhile, a survey by the National Association for Business Economists (NABE) indicates that the US GDP could fall by 2.6 percent in the fourth quarter, following a 0.3 percent decline in the third quarter.

The US Congress will begin discussions today on a possible bailout for the struggling American automotive industry. They will discuss a $25 billion aid package for the Detroit Three. However, there are increasing indications that the crisis in the automotive industry will extend to parts suppliers. Various solutions are being sought. In Europe, the German government has expressed a willingness to negotiate with Opel, which is owned by General Motors, regarding assistance. However, it is not prepared to issue a blank check for the entire industry suffering from the financial crisis. German Chancellor Angela Merkel is expected to meet with Opel representatives today. Tens of thousands of jobs are directly and indirectly linked to this company in Germany.

The crisis has also affected the world’s largest car manufacturer, Japan’s Toyota. Rating agency Fitch announced that it may downgrade Toyota’s rating due to global slowdown and a strong yen. It cited ‘unprecedented challenges in the automotive industry’ as justification. Toyota is one of the few companies with a top rating of triple A. Meanwhile, IMF Managing Director Dominique Strauss-Kahn told the BBC that the organization will likely need at least $100 billion in additional funds over the next six months to help countries pull themselves out of the mire.

Over the weekend, the IMF arranged an emergency loan of $7.6 billion with Pakistan to help the country alleviate its balance of payments crisis and pave the way for a more comprehensive economic rescue plan. On Sunday, Iceland finally reached an agreement with several European Union members on how to compensate thousands of foreign savers whose deposits have been frozen in the accounts of failed Icelandic banks. It was agreed that small and large foreign savers would receive approximately €20,000 per account.

This will particularly please British savers, of whom as many as 300,000, equivalent to the entire population of Iceland, had around £4 billion in savings in the failed Icesave bank. This paves the way for obtaining an IMF loan worth $6 billion for this country severely affected by the crisis. The news of Japan’s slide into recession has pushed oil prices below $56 per barrel in Asian markets today. Investors fear that the global economic slowdown will lead to reduced demand for crude oil.

The December futures price for oil fell 1.29 percent this morning to $55.75. On Saturday, Iran called on OPEC for a new reduction in production quotas, by 1.5 million barrels per day. However, the president of the oil cartel, Chakib Khelil, dismissed such a possibility, emphasizing that the cartel needs more data before it reduces its production again. “The short-term trend in oil prices is likely to remain negative. However, as OPEC’s cuts drain excess from the market, the reduction in supply will eventually support oil prices,” explains David Moore, a commodities strategist at the Commonwealth Bank of Australia.

Stock prices are also falling on global exchanges. The MSCI World Index fell half a percent this morning and is currently down 46 percent since the beginning of the year. On European exchanges, after initial meager gains, stock prices fell today. Leading indices in London, Frankfurt, and Paris were down more than 1 percent around noon. In the foreign exchange markets, the dollar weakened this morning against the major international currencies, primarily due to a surge in the British pound against the dollar. This followed profit-taking sales of dollars against the pound after its exchange rate reached the highest level in the last 6.5 years last week. Currently, the pound stands at $1.4931, which is 1.25 percent higher than on Friday. Against the yen, the dollar’s exchange rate does not fluctuate much, hovering around 97 yen. Against the euro, the US currency weakened by 0.4 percent, making the euro worth $1.2675. (H)