Tag Archives: IMF

IMF Sees Japan Inc.’s Cash Hoard as Excessive and Wages Too Low

Bloomberg, Sep 28, 2016

The rich and powerful versus the weak and underpaid.

That’s how the International Monetary Fund sees Japan’s relationship between employers and workers. Unless more is done to address the problems in the country’s labor market, Japan as a whole will be the loser, according to the IMF’s mission chief for the country, Luc Everaert.

“We are concerned the reduction in the wage bargaining power of labor has gone too far,” Everaert said in an interview in Tokyo. “We have introduced too much flexibility in the Japanese labor market in favor of employers.”

Everaert, 55, was speaking after data from the Bank of Japan on Monday showed corporate cash and deposits rose to a record 242 trillion yen ($2.4 trillion) last quarter, underscoring employers’ reluctance to heed calls for stronger wage growth and capital investment. Stagnation in salaries is undermining consumer spending in Japan and efforts to spur inflation and sustained economic expansion.

It is not the first time Everaert has waded into the wages debate since becoming the IMF’s mission chief for Japan in September last year. He has advocated using moral suasion to name and shame highly profitable companies that won’t raise salaries much, and suggested using tax incentives to promote pay hikes.

Japan’s company-based labor unions have focused on trying to maintain lifetime employment for full-time workers at the expense of pushing for more pay, and have provided little or no representation for the rising number of people on part-time, contract and temporary positions. This second category of employees, collectively known as non-regular workers, now account for about 40 percent of the labor market.

Everaert views Japan as having gone from one extreme — a rigid lifetime model that handicaps companies’ ability to adapt to economic changes — to another that provides so little job security and benefits to non-regular workers, which ultimately harms the economy because it crimps consumer spending.

“The lifetime model has served the Japanese economy well from a historical perspective in the 60s and 70s,” he said. “I think the system has outlived its usefulness.”

Labor Mobility

Japan needs employment contracts somewhere in between these extremes, which would allow companies to restructure their workforces, while providing reasonable severance conditions and benefits to workers, including portable pension plans, he said. Everaert noted that boosting the mobility of full-time, regular employees would be good for wage dynamics and the efficient allocation of labor.

He does give the government credit for efforts to raise the minimum wage and pay for nursing care workers.

Everaert said the government should do away with a spousal tax deduction that reduces the incentive of many married women to work full-time.

Without labor-market reforms, the central bank’s monetary easing and the fiscal stimulus from Prime Minister Shinzo Abe’s government will fall short of changing the course of the Japanese economy, Everaert said.

“It’s crucial if Abenomics want to achieve their targets within the time-frame that they set for themselves,” he said. Without boosting wage growth and getting the right amount of flexibility into the labor market, Japan won’t see growth rates much higher than those of today, he said.


Fed Resists IMF Call to Allow Some Overshoot of Inflation Goal

Bloomberg, July 12, 2016

The Federal Reserve resisted a recommendation by the International Monetary Fund that the central bank be willing to let inflation modestly exceed its target, saying such a move could be counterproductive to its objectives, an IMF report showed.

The IMF last month recommended the Fed accept “some modest, temporary overshooting” of its 2 percent inflation target, given the risk that price increases will slow and the central bank may have to reverse course after raising its benchmark rate in December for the first time since 2006. The IMF made the call in a June 22 statement following the fund’s annual review of the world’s biggest economy.

The full version of the staff report released Tuesday revealed that U.S. authorities have “no intention to engineer an overshoot” and said the case for doing so wasn’t compelling. The Fed’s view also got support from “many directors” on the IMF’s board representing member countries, who “were concerned over the risks of de-anchoring inflation expectations and eroding monetary policy credibility.”

“Aiming to overshoot the medium-term target would create the risk of being behind the curve and potentially being faced with a need to raise rates more quickly especially if the labor market tightening led to a faster increase in inflation than seen until now,” according to the IMF report, which attributed the comments to U.S. officials. “This could be disruptive and undermine the achievement of the Federal Reserve’s mandates of maximum employment and stable prices.”

While the report, dated June 24, doesn’t specify if the U.S. officials were from the Fed or Treasury Department, IMF official Nigel Chalk told reporters on a conference call that monetary policy comments typically come from the central bank. As part of the fund’s consultations with the U.S., IMF Managing Director Christine Lagarde met with Fed Chair Janet Yellen and Treasury Secretary Jacob J. Lew in late-June, the report said.

“If incoming data shows economic growth continuing to pick up, labor market conditions continuing to strengthen, and inflation making progress toward 2 percent, then it likely would be appropriate to gradually increase the federal funds rate in the coming months,” according to a section that Chalk attributed to the Fed’s thinking when the IMF met with Yellen as well as with staffers in late May and early June.

The 24 executive directors of the fund, which was conceived during World War II to oversee the global monetary system, represent its 189 member nations.

While the impact on the U.S. of the British vote to leave the European Union should be small, risks are skewed to the downside, IMF staff said in an update dated July 8 and included in Tuesday’s release. If downside risks materialize, the Fed should delay interest-rate increases, IMF staff said.

Brexit hasn’t pushed up the dollar as much as expected, while declining Treasury yields have actually loosened financial conditions for consumers and businesses, muting the impact on the U.S., Chalk said. “The net effect on growth is pretty negligible,” he said.

Overall, the U.S. economy is in good shape, the IMF said. The U.S. faces anemic long-term growth, though, unless it takes steps to address a slow-growing labor force, weak productivity and a widening gap between the rich and poor, IMF staff said in the report.

The IMF reiterated its forecast from last month that the U.S. economy will grow 2.2 percent this year and 2.5 percent in 2017.

IMF Warns Brexit Could Cause Contagion and ‘Severe’ Market Reaction

Bloomberg, May 13, 2016


The International Monetary Fund capped a week of warnings by heavy-hitting supporters of Britain staying in the European Union, all unanimous in their view of the dire consequences of a so-called Brexit.

A vote to leave the bloc could lead to a “protracted period of heightened uncertainty,” triggering financial-market volatility and hurting economic output, the Washington-based fund said in its Article IV report on the U.K. published on Friday. An exit could also erode London’s position as a financial center and cause “sharp” drops in house and equity prices, the IMF warned. The risk of a vote to leave in the June 23 referendum is already hitting investment and hiring decisions and economic activity, it said.

The process of a renegotiation of Britain’s trading relationships “could well remain unresolved for years, weighing heavily on investment and economic sentiment during the interim and depressing output,” the IMF said. “In addition, volatility in key financial markets would likely rise as markets adjust to new circumstances.”

The intervention of IMF Managing Director Christine Lagarde, presenting the report in London, is the culmination of a week of warnings delivered by supporters of the “Remain” campaign, from Prime Minister David Cameron and his predecessor, Gordon Brown, through Chancellor of the Exchequer George Osborne to Bank of England governor Mark Carney, putting “Leave” campaigners on the back foot. The IMF had already warned in April that Brexit could cause severe damage to global growth.

Recession Warning

As Cameron and Brown stressed the potential risk to security and peace in Europe from leaving, Carney delivered his strongest warning yet Thursday, evoking the risk of recession as the BOE’s Monetary Policy Committee cut its growth forecast citing Brexit risks. A day earlier, Osborne said the central bank and the Treasury were putting in place contingency plans to manage potential shocks in financial markets if Britons vote to leave.

The “Leave” campaign fought back with Boris Johnson, its most prominent supporter, embarking on a nationwide bus tour to push for Brexit.

 The fund warned that investors anticipating the adverse economic effects of the U.K. quitting the bloc could also accelerate the impact of a vote to leave, potentially entailing “sharp drops in equity and house prices, increased borrowing costs for households and businesses, and even a sudden stop of investment inflows into key sectors such as commercial real estate and finance.”

By contrast, it said that economic growth is expected to rebound during the second half of the year in the event of Britain staying in the EU.



IMF’s Lagarde: We’re not in a crisis, yet

CNBC, Apr 5, 2016


The world economy is continuing to recover but it’s still at a delicate stage, IMF Managing Director Christine Lagarde has warned. 

“We have growth; we are not in a crisis. The not-so-good news is that the recovery remains too slow, too fragile, and risks to its durability are increasing,” Lagarde said in a speech Tuesday in Frankfurt, Germany.

She warned that because growth had been “too low for too long”, too many people were “simply not feeling it”.

“Let me be clear: We are on alert, not alarm. There has been a loss of growth momentum. However, if policymakers can confront the challenges, and act together, the positive effects on global confidence—and the global economy—will be substantial,” Lagarde said.

In its January World Economic Outlook, the organization cut its global growth forecast to 3.4 percent for 2016 and 3.6 percent in 2017. It warned that the pick-up in global activity was projected to be more gradual than in its October outlook.

“The slowdown and rebalancing of the Chinese economy, lower commodity prices, and strains in some large emerging market economies will continue to weigh on growth prospects in 2016–17,” the IMF’s January report said.

The IMF releases its latest set of forecasts next week.

Lagarde warned that the global outlook had weakened further over the last six months—exacerbated by China’s relative slowdown, lower commodity prices, and the prospect of financial tightening for many countries.

“In the United States, growth is flat due partly to the strong dollar; in the euro area, low investment, high unemployment and weak balance sheets weigh on growth; in Japan, both growth and inflation are weaker than expected,” she said.

Meanwhile, China’s transition to a more sustainable economic model has led to a slowdown in growth, while downturns in Brazil and Russia were larger than expected, she added. On top of this, the Middle East had been hit hard by the oil price decline.

Lagarde said further easing from the European Central Bank, which unleashed a bigger-than-expected package of stimulus measures last month, and the Federal Reserve’s “apparent shift to a slower pace of rate increases” had improved economic sentiment.

But longstanding “crisis legacies” – high debt, low inflation, low investment, low productivity, and, for some, high unemployment – posed a risk for advanced economies. Emerging economies meanwhile were at risk from lower commodity prices, higher corporate debt, volatile capital flows, she warned.

Lagarde stressed these risks could, in adverse circumstances, create feedback loops to sovereign balance sheets.


Russia becomes world’s top gold buyer

RT, Mar 29, 2016

© Ilya Naymushin

The Central Bank of Russia bought 356,000 ounces of gold in February becoming the largest buyer of the precious metal among the world’s central banks, business daily Vedomosti reports, quoting the IMF data.

Last week, Russian foreign reserves increased by another $5.8 billion to $386.9 billion. The international reserves consist of foreign exchange, special drawing rights (SDR) holdings, the reserve position in the IMF and monetary gold.

In June 2015, the First Deputy Governor of the Central Bank Dmitry Tulin said the regulator intends to increase Russia’s international reserves to $500 billion within three to five years.

The Central Bank had previously been spending the reserves to prop up the ruble. In November 2014 the regulator switched to a floating exchange rate and started increasing the reserves which reached $510.5 billion in early 2015.

The IMF has not yet included China in its February statistics; however the People’s Bank of China reported it had bought about 320,000 ounces of gold that month.

The largest seller was Turkey which sold about 1.2 million ounces, more than seven percent of its gold reserves.

Canada, which is in the top 10 of gold producers, has sold off its reserves maintaining a symbolic 100 ounces.

In February, Canada’s Finance Department spokesman David Barnabe said the government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in easily tradable financial assets.