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What worries IMF's chief? - Views on News from Equitymaster
 
 
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  • Feb 18, 2009

    What worries IMF's chief?

    IMF chief is worried
    The Japanese have said it. Many experts are also of a similar opinion. And now the IMF chief joins a long list of people who believe that perhaps not enough is being done by the US to restore confidence back into the economy. In an interview to French radio, IMF's Managing Director, Dominique Strauss-Kahn let it clear in no uncertain terms that ridding the banks' balance sheets of toxic assets should be the utmost priority of the governments. And unless that is done, trust cannot come back.

    He was also critical of the policy of launching both fiscal as well as monetary stimuli simultaneously since without free flowing credit, fiscal stimulus will not make a lot of sense. Furthermore, spending money on fiscal stimulus would mean that the governments have less money to spend on monetary stimulus.

    The end result? Half baked outcomes that will only prolong the current economic slump.

    Is China recovering?
    Unlike its developed counterparts, the Chinese banking system does not suffer from the problem of toxic assets and hence, it can fully concentrate on letting loose its fiscal purse strings. Also, by virtue of being the largest hoarder of dollars, it is perhaps the best positioned nation to do so. If the country's loan growth data for the month of January is any indication, it does seem to be going all out in boosting its economic growth.

    As per reports, January loan growth has come in higher by a whopping 101%. This means that the Chinese banks were able to lend more than twice of what they managed during same month last year. However, a closer look reveals that nearly 40% of this new lending has been towards bill discounting and not new projects.

    Furthermore, there seems to be no evidence that the Chinese consumption has been increasing. The new lending is perhaps getting translated into higher exports as the country's trade surplus has increased in recent times. Thus, unless there is a sustained uptick in the country's infrastructure spending and its consumption patterns, positive news emanating out of the Chinese economy should be taken with a pinch of salt.

    However, this has not stopped the country's stock market index to jump nearly 27% since the start of the year. In comparison, the Indian benchmark has actually slid 6% over the same time period.

     

     

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