IMF wags its finger at central banks – but are they listening? | Phillip Inman

IInternational agencies saw their influence wane after the 2008 financial crash as the support for multilateral agreements gave way to quick-fix solutions between governments. The International Monetary Fund and the World Bank, which hold their joint spring meetings next week, have suffered like many others.

So when the IMF boss, Kristalina Georgieva, wags a finger at the major central banks – the US Federal Reserve, the European Central Bank, the People’s Bank of China, the Bank of Japan and the Bank of England – the question is: are any of them listening?

After a flirtation with austerity in 2009 and 2010, IMF officials largely rejected cuts in government spending as a route to growth but it was a message that went unheeded in most major capitals. The Washington-based organization has produced reams of literature arguing that inequality is bad economics and that climate change is an emergency, only to be met by loud applause and little in the way of action.

Georgieva said on Thursday in a scene-setting speech that inflation “is a threat to financial stability and a tax on ordinary people struggling to make ends meet”. She subscribes to the orthodox view that central banks should take “decisive action”, which is a euphemism for jacking up interest rates.

She also warned them to be careful about the spillover effects and urged governments to mitigate the impact on those countries that have to borrow to survive. While developed countries are suffering from spiraling inflation and higher interest rates, the biggest threat is to emerging and developing economies that not only face “the added risk of higher borrowing costs but also the risk of capital outflows”.

But is anyone taking notice? Zambia, Chad, Ethiopia and Sri Lanka head a long list of countries that have already found it impossible to finance their debts. Many of them owe money to foreign investors that buy distressed government debt via institutions such as BlackRock, the world’s largest fund manager.

There could be deals next week brokered by the IMF, the World Bank and ministers sitting on the G20 board to alleviate current debt payments, but the outcome will probably mean existing loans provided by western governments, or the IMF and World Bank themselves, are rescheduled over a longer time period. No one is expecting a confrontation with private lenders.

Such small steps are not enough. These countries should have a proportion of their debts written off. And not just by public bodies, but by all lenders, which must be forced to concede, much as high street banks are forced to do, that when a borrowers’ circumstances have changed, sometimes long after the original loans were made, repayments on whatever basis will prevent a sustainable recovery.

End of the rent boom?

Residential property rents are soaring in the UK and so are property values: two trends that have been increasing the costs of bringing up a family ever since the 2008 financial crash. Whether you buy a house or rent, the cost has been increasing for some time. Ultra-low mortgages have encouraged the trend, enticing young people to take on larger home loans stretched over 30 years or more.

Taking a global view, a decade-long property boom has doubled the value of the real estate market to reach $350tn (£270tn), four times the size of the $90tn global economy. More than 80% of global investment is in property. Dhaval Joshi, the chief European strategist of BCA Research, describes that incredible wealth stored in the housing market as “eyewatering”. It’s not just Brits. Everyone is betting on the same thing.

During this unprecedented boom, investors have extracted massive gains. Rents on average are up 40% globally over the last 10 years. Can it keep going? Will young people keep working to pay the ever increasing rent/mortgage bills? All eyes are on the central banks and whether they keep raising interest rates. If they do, that may tip the balance.

Musk makes Twitter a target

It’s not clear why Elon Musk wants to buy Twitter. He says it would be a better company if it were privately owned by him. It is not making the best of the opportunities open to it, he said, adding in a letter to the board that the company is “the platform for free speech around the world” but cannot achieve this “societal imperative” in its current form and “needs to be transformed as a private company”.

One thing is for sure, he has put Twitter in play as a takeover target. Mark Cuban, the maverick US financier, says some of the big tech companies that are swimming in cash – Google, Amazon, Facebook – will consider a buyout. At a cost north of $43bn, that looks unlikely.

Leave a Comment