Ukraine asks IMF for new bailout funds – Davos 2015 live
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Rolling coverage of the first day of the World Economic Forum, including appearances by former US vice-president Al Gore, Ukraine’s president Poroshenko and Chinese premier Li Keqiang. Watch live on the WEF website here
Larry Elliott: China tells Davos 'no hard landing ahead'
And finally.... Larry Elliott has the full story on Chinese premier Li’s speech to Davos tonight:
China’s premier Li Keqiang said his country would avoid a hard landing as he shrugged off concerns about his country’s slowing growth rate.
In his keynote address to the World Economic Forum, Li admitted that 2015 would be a tough year for the economy as it adjusted to a slower pace of expansion.
“China’s economy will face substantial further downward pressure in 2015”, the Chinese premier said as he insisted that there would be no deviation from the focus on structural reform and better-balanced growth.”
At present, China has entered the stage of the new normal, shifting from high speed to medium to high speed. That makes structural reform all the more necessary.”
China’s grew at 7.4% in 2014, its slowest rate in 15 years, with the annual growth rate in the fourth quarter of the year just above 6%. The slowdown is part of a deliberate strategy by Beijing to deal with the problems caused by the enormous stimulus programme introduced after the financial crisis of 2008, which saw credit expansion and large-scale investment in infrastructure.
Li said:
“A financial crisis will not happen in China and China will not head for a hard landing.”
In answer to a question from the WEF’s founder, Klaus Schwab, Li said that the easing of restrictions on the use of China’s currency, the renminbi, would continue gradually.
He added:
“Internationalisation is a long term process. China is still a developing country”.
And I think that’s all from Davos tonight. We’ll be back in the morning. Thanks for reading and commenting. GW.
The Ukrainian government just released a statement, confirming it has asked the IMF for more support (as reported earlier).
In it, Ukraine Minister of Finance Natalie Jaresko argues that investors should welcome it (even though Ukraine is also planning to restructure its debt).
“The markets were expecting this step and should welcome it as it will provide the financial support Ukraine requires to jumpstart its economic recovery while yielding acceptable outcomes for all of our stakeholders.
Today’s decision gives international financial partners and creditors’ reassurance of the Ukrainian Government’s continued commitment to its ambitious reform programme and macro-economic stability.”
I have just received a request from president Porosheko, in the presence of his finance minister and the head of his central bank, for a new extended fund facility, or EFF, to replace the current SBA or standby arrangement.
This request I will submit to the board, which will be convened as quickly as possible in order to review the relevance of this EFF programme which I would certainly propose to support.
The EFF is for an extended period of time, so it is longer than the SBA. As a result its financing is also larger.
The existing SBA is around $17bn, and not enough to cover the damage suffered since the conflict with Russia started. Ukranian bonds have been tumbling in value in recent months, with traders concluding that it may default.
Lagarde also offered Poroshenko some support, saying:
This clearly is a demonstration of the Ukranian authorities to conduct serious long-term structural reforms in addition to also adjusting their fiscal policy to make sure the Ukranian economy is in a position to recover.
Breaking News: Ukraine is requesting an extended fund facility from the IMF, following the bilateral meeting between President Poroshenko and Christine Lagarde.
Natalia Yaresko, finance minister, and Lagarde just met the press to announce it.
Yaresko added that “We will also consult with the holders of our sovereign debt with a view to improving medium-term debt sustainability”.
The former PM also told Davos that education is the only long-term solution to an ideology based on a perversion of religion. Otherwise, young people are being brought up not to tolerate those who are different.
Interesting... Christine Lagarde, head of the IMF, just went into a bilateral meeting with Petro Poroshenko, presumably to discuss his need for a new bailout package (or ‘pillow’ as he dubbed it today).
Reuters has a good summary of the Ukrainian president’s appearance at Davos (highlights start here).
Ukrainian President Petro Poroshenko told the World Economic Forum on Wednesday that Russia had 9,000 troops on Ukrainian soil and he called on Moscow to withdraw them.
In a speech to the forum in Davos, Switzerland, he said the Russian troops were backed by a range of heavy weapons including tanks and artillery systems.
“If this is not aggression, what is aggression?” Poroshenko asked. He called on Moscow to comply with a peace plan and cooperate in closing the long joint border with Ukraine and withdrawing Russian forces.
At a session on “volatility as the new normal”, Russia’s deputy prime minister, Arkady Dvorkovich, downplayed the impact of crashing oil prices on Moscow.
“There is some level where they will stabilise and that point is not far away”, he said.
Dvorkovich attacked sanctions against Russia as “stupid” and admitted that lower oil prices were hurting. But he said Moscow would use the reserves built up when oil prices were high to cover shortfalls in the budget.
“That’s why the oil price is not important for Russia as it was before,” he claimed.
At the same session, Ken Rogoff, Harvard professor and former chief economist at the IMF, said the impact of lower oil prices would be “pretty big”
The IMF has just cut its growth forecasts for 2015 but Rogoff argued that :
“People are underestimating how much it (the lower oil price) will help.”
Larry Summers, a leading economist and former US Treasury Secretary, had some strong words on the outlook for the eurozone economy. He thinks it looks a lot like Japan did 20 years ago.
A day before the European Central Bank is expected to announce full-scale quantitative easing through a sovereign bond purchasing programme - €50bn a month is the latest speculation - Summers told Bloomberg Television the cost of disappointing markets would be potentially very high.
However, he suspects that QE won’t be enough to prevent a bad situation in the eurozone - which is barely growing and has already slipped into deflation - from getting worse. The responsibility also rests with individual eurozone leaders, Summers said, (also suggesting Germany should relax its stance).
[A disappointment] won’t be good. [ECB President Mario Draghi] is an extraordinary guy. He’s had extraordinary pressure for years. The decisions he has made have been the right ones, but he’s been getting much less help than he should have.
I’m not sure monetary tools are going to be enough to reverse the situation. Europe is on the brink of a deflationary spiral that could threaten living standards for a decade.
The [eurozone] patient needs a different attitude from Germany, a substantially strengthened effort to stand behind its financial institutions, and a set of reforms on the structural side. To try and starve the patient with austerity is a strategy that will produce spasmodic radicalism. It is setting back the cause of reform. Europe needs to change course.
Quantitative easing is one piece of the puzzle. The fundamental truth people have to recognise is this: the era of central bank improvisation as a central growth strategy has to come to an end if we are to avoid the fate of secular stagnation.
What is striking in Europe is how much it looks like Japan several years after the bubble. Europe is very much in the place Japan found itself in the mid 1990s. Japan did not succeed in breaking out of that. That is the risk for Europe, if there isn’t a growth strategy beyond Draghi doing his best.
The historical evidence is clear that this idea that austerity drives productive reform is not supported by any of experience of human nature. Any policy for changing a human institution has to have carrots and sticks.
Meanwhile some excitement ahead of the ECB meeting tomorrow, with a reported leak of what the central bank is proposing regarding quantitative easing:
Kathleen Brooks at Forex.com said:
This would disappoint the market. A €500bn one-off QE package may be considered too paltry to make a difference, especially since the Bank of Japan has committed to do more than this each year until its CPI rate rises to 2%.
We would expect a sharp knee jerk reaction lower in stocks, bond yields could also rise, which could put upward pressure on the euro in the short term. Overall, we think a QE disappointment would be a long-term negative for the euro, as it would increase pressure to take action in the coming months.
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