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US$ 4.1 trillion crisis - Views on News from Equitymaster
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  • Apr 23, 2009

    US$ 4.1 trillion crisis

    IMF's gloomy forecast
    Going by the latest projections of the IMF and the World Bank, it looks like the global financial crisis is far from over. The IMF has pegged the losses from the global economic crisis at a mind boggling US$ 4.1 trillion and is of the opinion that around US$ 1.1 trillion will be needed to fix this problem. These numbers more than amply highlight the depth of the crisis. Out of these losses, US$ 2.7 trillion is from loans and assets originating in the US, followed by Western Europe, whose financial institutions will have to write down US$ 1.2 trillion in loans and securities originating there. The silver lining in the cloud is that IMF has spotted the first glimmers of stabilization in the global financial system. But the hard work is not yet over and rather than resting on laurels, the IMF has stressed on the need for "continued decisive and effective action" by governments, banks and institutions like itself if the system has to be prevented from going down under. While many world leaders pledged US$ 1.1 trillion more for the fund this month, the latter's mettle will now be tested as it will have to work out a way of bailing out economies on the brink of a collapse.

    Worldwide, banks have been caught in a vicious cycle. Mounting losses translated into serious liquidity problems as a result of which banks became vary of lending further. This in turn impacted the corporate world resulting in shrinking economic activity which in turn has again impacted the balance sheets of banks. India and China, despite the slowdown in their respective economies, seem to be in a better shape than their developed peers. Further as per IMF, Europe is likely to be hit harder than the US as the former has been slower than its American counterpart in addressing the crisis.

    Some respite from regulatory authorities
    Indian pharma companies have in the past year been receiving the short end of the stick as regulatory authorities (especially the US FDA) found many deficiencies in their manufacturing plants. The biggest one to suffer has been Ranbaxy. But audits of companies such as Cipla, Sun Pharma and Lupin amongst others have also brought to the fore inaccuracies though not on the same scale as Ranbaxy.

    Similarly, the Indian vaccines industry was disqualified in 2007 by the World Health Organisation (WHO) after it was found that the vaccines were not up to the mark. But there has now emerged light at the end of the tunnel. In a recent move, the WHO has reversed its earlier decision which means that Indian vaccine manufacturers can once again start exporting new vaccines to countries. As per a leading business daily, the Indian vaccine industry is valued at around Rs 20 bn, of which at least Rs 16 bn is generated from exports. India exports vaccines to 150 countries.

    Therefore, while the Indian vaccines industry has something to cheer about, no such luck has emerged for Indian drugmakers especially Ranbaxy. And given the stringency of the US FDA of late, Indian pharma companies will have to constantly be on their toes to make sure that all is well in their manufacturing processes.



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