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Greece Reaches a Deal for More Bailout Money

April 16, 2013 by Leave a Comment

“We wrapped it up; we have a deal with the troika,” Yannis Stournaras, the nation’s finance minister, told reporters.

Greece has been offered two bailouts worth 240 billion euros, or about $310 billion, over the last three years through a memorandum of understanding with the troika, which comprises the European Commission, the European Central Bank and the International Monetary Fund.

In a televised address, Prime Minister Antonis Samaras said the deal showed that years of austerity were beginning to pay off.

“The situation is changing,” he said. “Until recently, Greece had been the example to avoid. In two years, Greece will no longer depend on the memorandum. It will be a country with growth.”

The troika issued a joint statement saying that Greece was on course to curb its huge debt burden, which stood at 160 percent of gross domestic product at the end of last year.

“Fiscal performance is on track to meet the program targets, and the government is committed to fully implement all agreed fiscal measures for 2013 to 2014 that are not yet in place,” the troika said, adding that the release of a loan installment of 2.8 billion euros that had been due in March “could be agreed soon by the euro area member states.”

Poul M. Thomsen, the I.M.F. envoy to Athens, said in a conference organized by The Economist that the 2.8 billion euros, as well as an additional 7.2 billion euros for the recapitalization of Greek banks, could be released as early as next week

The troika said that an agreement had been reached on streamlining the Greek civil service and emphasized the importance of recapitalizing Greek banks without delay.

It added that Greece would probably return to growth next year.

Mr. Stournaras was even more upbeat, saying Greece aimed to achieve a primary surplus this year, which would allow it to seek more debt relief, according to an agreement with creditors.

The issue that caused negotiations to stall in mid-March was the overhaul of the civil service, a contentious topic that has tested the cohesion of Greece’s fragile coalition government.

The two sides finally agreed over the weekend that 15,000 civil servants would be dismissed by the end of next year, including 4,000 this year, according to reports in the Greek news media. The departures are to include employees close to retirement and an estimated 2,000 who have been accused of disciplinary offenses.

In his address, Mr. Samaras said the 15,000 layoffs in the state sector would be replaced by new recruits as part of “a qualitative upgrade of the civil service.”

“The same number of new young people will be recruited in their place,” he said.

Mr. Thomsen of the I.M.F. had said earlier that there would be new hires in the civil service, without specifying how many or in which areas, though the troika is believed to be eager to see the bolstering of tax collection services.

The plan for the civil service overhaul prompted vehement reactions from the government’s political rivals, with Alexis Tsipras, the head of Syriza, the main leftist opposition party, calling it “a human sacrifice” that would merely swell the ranks of the unemployed, who now make up 27 percent of the population.

Others have said they suspect the hiring pledge is a way to start laying people off without strong protests.

Antonis Manitakis, the administrative reform minister who has been assigned the task of overseeing the public sector overhaul, said on Monday that the Greek civil service, which had just under 800,000 employees in 2010 when the country signed the first of its two foreign bailouts, was expected to shrink by a quarter by 2015, with 180,000 departures. These departures would include layoffs but would chiefly be early retirements, Mr. Manitakis said, without offering a breakdown of the figures.

As Mr. Samaras confirmed in his speech, foreign inspectors also accepted Greek demands to reduce by 15 percent a property tax that was introduced as an emergency measure in 2011 but has been extended.

The two sides were also said to have agreed on allowing Greeks who owe taxes and social security debts to pay them off in up to 48 monthly installments.

Mr. Thomsen said that widespread tax evasion “remains a huge problem,” though he added that Greece had “indeed come a long way.”

“The fiscal adjustment has been exceptional by any standard,” he said.

Article source: http://www.nytimes.com/2013/04/16/business/global/greece-reaches-new-deal-with-lenders.html?partner=rss&emc=rss

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National Bank of Greece and Eurobank Suspend Talks

April 8, 2013 by Leave a Comment

The move followed reports that the international lenders overseeing a bailout of Greece had feared the creation of a megabank that would be too big to fail. It came amid growing concern in Europe about the threat posed by large banks in small countries in the wake of the banking crisis in Cyprus.

The new bank would have been the biggest in Greece, with assets of around 180 billion euros, or $234 billion. Greece’s gross domestic product stood at around 190 billion euros last year and is expected to contract 4.5 percent in 2013.

The Bank of Greece, the country’s central bank, said late Sunday it had received letters from Eurobank and National Bank of Greece saying they had been unable to ensure that 10 percent of their share offerings would be taken up by the private sector, in accordance with the country’s agreement with its foreign creditors.

Authorities have not ruled out the eventual resumption of talks to complete the merger. The deal was announced in October and talks were already at an advanced stage. A state banking support fund is to decide whether the merger should proceed once the recapitalization of Greece’s four main banks — NBG, Eurobank, Alpha Bank and Piraeus Bank — — is completed, probably by the end of April.

Deposits at all Greek banks are guaranteed, the central bank’s statement added.

NBG took over 84.3 percent of Eurobank in February through a share swap as part of a broader plan to bolster Greece’s banking sector, which has been shaken by bad loans and a private debt write-down last year.

On Sunday, Finance Minister Yannis Stournaras reported “significant progress on many levels” in discussions over Greece’s compliance with the terms of its 130 billion-euro international bailout, and said he expected negotiations could be completed “in the next few days.”

Mr. Stournaras said there would be no further austerity measures such as cuts to pensions and salaries. He said he hoped to conclude talks with the so-called troika of international lenders — the European Central Bank, the European Commission and the International Monetary Fund — before an informal meeting of euro zone finance ministers in Dublin on Friday, when Greek progress in economic reforms is to be examined.

The two sides are also close to agreeing on the number of installments with which Greeks will be permitted to pay off debts to the state, a Finance Ministry official said, referring to some 55 billion euros in outstanding tax and social security payments. The official spoke on customary condition of anonymity.

The troika has yet to respond to Greek requests to soften a contentious property tax, which was introduced in 2011 as an emergency levy.

The mood in the Greek government’s talks with the troika over the weekend appeared to be calmer than it had been at the end of last week, when Mr. Stournaras reportedly challenged officials pushing for more austerity to “take the keys to the ministry and give them to Tsipras.” That was a reference to Alexis Tsipras, who leads the main leftist opposition party, Syriza, which opposes the bailout.

A meeting on Sunday between Prime Minister Antonis Samaras and the foreign envoys, during which he emphasized that austerity-weary Greeks are unable to take more pain, appears to have helped ease the tensions.

Article source: http://www.nytimes.com/2013/04/09/business/global/national-bank-of-greece-and-eurobank-suspend-talks.html?partner=rss&emc=rss

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German Officials Welcome Offshore Tax Havens Leak

April 6, 2013 by Leave a Comment

“I am pleased about these reports,” Finance Minister Wolfgang Schäuble said on German radio.

Berlin is hoping the disclosures will provide some leverage in the country’s efforts to drum up support for its long-running fight against international financial systems that make it easy for the wealthy to hide their money.

Germany has lobbied for years within international organizations, including the Group of 20 and the Organization for Economic Cooperation and Development, to clearly define tax havens in an effort to pressure such jurisdictions to fight tax avoidance and comply with money-laundering statutes and other measures aimed at dirty money. But the efforts have been hampered by reluctance among some of its international partners, including some within the European Union, that do not share the German sense of outrage.

“I think that such things as have been made known will increase the pressure internationally, and we will be able to increase the cooperation with those who have been more reticent,” Mr. Schäuble said in an interview with Deutschlandfunk radio.

He was among those who made sure that Cyprus, the tax haven that received a bailout last month, would impose levies on its largest depositors in exchange for the European Union’s support. “We don’t like this business model, and we hope it is not successful,” Mr. Schäuble said. “And when it becomes insolvent, as in Cyprus, they can’t expect it to keep being financed.”

But the information that has trickled out has also tarnished German banks, and clearly the German authorities hoped to use the leak to gain ground in their own struggle to bring tax evaders to justice. Many Germans are listed among the wealthy in the data dump that was obtained by the International Consortium of Investigative Journalists, based in Washington, and shared with select news media outlets around the globe, including two in Germany.

Economic justice has been a hot topic in Germany. The nation’s sense of social justice is strong, and the government has gone to great lengths to obtain information about its wealthiest residents who sneak money into Switzerland or Liechtenstein in order to avoid the country’s hefty income tax, which can be as high as 45 percent.

German banks, too, may feel the pressure from the release of the information, which states that international financial institutions have “aggressively worked” to help wealthy clients use offshore banking facilities in places like the British Virgin Islands. Deutsche Bank, Germany’s largest lender, vigorously defended the legality of its management services and insisted that clients were advised to properly report all of their taxes.

Mr. Schäuble conceded that the information in the report was not necessarily evidence of wrongdoing. He nevertheless called for the German news outlets with access to the information to make it available to the authorities.

The leaked records reported on Thursday include data mainly from the British Virgin Islands, the Cook Islands and Singapore. Not all of those named necessarily have secret bank accounts. Some only conducted business through companies they control that are registered offshore.

Article source: http://www.nytimes.com/2013/04/06/world/europe/german-officials-welcome-offshore-tax-havens-leak.html?partner=rss&emc=rss

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Tensions With North Korea Unsettle South’s Economy

April 5, 2013 by Leave a Comment

The development magnified the challenge Seoul and Washington face. The two powers are trying to show the North’s novice leader, Kim Jong-un, that they will not be blackmailed by his bluff and bluster. But at the same time, they do not want to escalate the tensions to an extent that they hurt the South Korean economy, the pride of the local population here, and Park Geun-hye’s political standing at home.

“In the past, North Korea-related events had little impact or the markets recovered quickly,” the South’s vice finance minister, Choo Kyung-ho, told a meeting of top finance officials on Friday. “But recent threats from North Korea are stronger and the impact may therefore not disappear quickly.”

His comment came hours after General Motors’ chief executive, Dan Akerson, underscored the increased worry by saying that his company was making contingency plans for employee safety at its South Korean plants and that further increases in tensions would even prompt GM to look at moving production elsewhere long term. In an interview with CNBC, he said, “If there were something to happen in Korea, it’s going to affect our entire industry, not just General Motors.”

South Korean stocks slumped 1.64 percent on Friday in a selling spree among foreign investors that analysts attributed to jitters over North Korea. The Korean won also sank against the U.S. dollar.

Although South Koreans have become almost nonchalant after decades of on-and-off threats from North Korea, they believe that when things get ugly with the North, their globalized economy has much more to lose than the North’s isolated and already highly sanctioned economy.

“The North Koreans are now using the propaganda in an extreme form to try to damage foreign direct investments into South Korea,” said Tom Coyner, a member of the American Chamber of Commerce in Korea and author of “Doing Business in Korea.” “They are in a sense at this point winning in an asymmetrical psychological warfare, attacking the economic strength of South Korea.”

War cries from North Korea have been factored into the stock market for decades. Still its threats have grown in their intensity and frequency since the country upheld Mr. Kim as its top leader in late 2011, and especially after the United Nations imposed sanctions against the North following its nuclear test in February. The sanctions took direct aim at North Korea’s Achilles’ heel by targeting cash transfers and luxury items which the Kim regime uses to buy the loyalty of the elite.

North Korea has since called the Korean Peninsula “back to a state of war” and declared that it would launch “pre-emptive nuclear strikes” at the United States and its allies. It also said it would never bargain away its nuclear arsenal but rather expand it.

What made the situation different too was the way Washington and Seoul responded. South Korea matched the tone by declaring that if provoked, it would target the North Korean military leadership, and revised the rules of engagement to let its military respond more swiftly, forcefully and “without political consideration.” Meanwhile, the United States flew nuclear-capable bombers over the peninsula on training sorties and signed an agreement with Seoul to respond jointly to any North Korean provocation.

“The relentless show of force on a daily basis by not just North Korea, but also the U.S. and South Korea as part of their annual military exercises has captured the attention of the world, and made the Korean Peninsula a place associated not with ‘Gangnam Style’ but with nuclear weapons and stealth bombers,” said John Delury, an American scholar who teaches at Yonsei University in Seoul.

“Markets hate risk, even if it is the perception rather than reality of risk,” he added. “This poses a serious challenge to President Park, who was elected on the basis of promises to keep growing the South Korean economy and improve relations with the North.”

Government officials said that the military tensions have so far had only limited impact on the markets. But for the South Korean economy, the North Korean imbroglio is an additional drag that comes at an inopportune time. In the face of the weakening Japanese yen, which hurts South Korean exporters, South Korea recently announced a sharp cut in growth forecasts.

Officials vowed to ensure stability if the situation worsens.

Article source: http://www.nytimes.com/2013/04/06/world/asia/tensions-with-north-korea-unsettle-souths-economy.html?partner=rss&emc=rss

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As Bailout Deadline Approaches, Cyprus Scrambles to Find Funds

March 21, 2013 by Leave a Comment

The proposals are meant to sharply reduce the amount of money that would be raised by a controversial tax on bank deposits, as originally planned in an international bailout package totaling €10 billion, or about $13 billion, that the Cypriot Parliament rejected the night before.

But even the revised plan contains a bank tax that, while much smaller than originally proposed, might still not be palatable to Parliament. Under the new plan, all Cypriot bank deposits of up to €100,000 would be hit by a one-time tax of 2 percent. Deposits above that threshold would be subject to a 5 percent levy.

The fallback was being cobbled together as Cyprus’s finance minister pressed his case in Moscow on Wednesday in hopes of securing additional aid from Russia, many of whose wealthiest citizens have big deposits in Cypriot banks.

At the same time, the Cypriot government decided to keep banks closed through the end of the week in an effort to prevent a run on Cyprus’s financial institutions. Banks, which would reopen Tuesday after a national holiday on Monday, have frozen all accounts in a financial crisis here that risks tipping the country into default and sowing turmoil across the euro zone.

Banks have been closed since Saturday, and the authorities have ordered banks to keep automated bank machines filled with cash as long as their doors remain shut. But that has been of little help to the thousands of international companies who do banking in Cyprus, which cannot transfer money in and out of those accounts to conduct business.

The extended bank holiday is designed to buy time for the Cypriot authorities to reach an agreement with the so-called troika of rescuers — the International Monetary Fund, the European Central Bank and the European Commission — whose representatives were in Nicosia on Wednesday but were not certain to sign off on Cyprus’s latest plan.

Three banks dominate the economy, and each is edging close to collapse. The government was also making tentative plans to merge at least two of them — Cyprus Popular Bank and Bank of Cyprus — and place the healthy assets into a one entity, while moving troubled assets into a so-called bad bank.

With all sides fearing that a crisis is imminent, even the Church of Cyprus, one of this Mediterranean island’s biggest investors, was offering to throw its considerable wealth behind the rescue effort.

European officials, and especially the European Central Bank, are watching the situation with alarm, said a person close to the discussions who was not authorized to speak publicly. Right now, Cypriot banks, crippled by their heavy exposure to Greece’s collapsed economy, are heavily dependent on low-interest financing from the E.C.B., which could be cut off if the banks do not remain solvent.

If Cyprus does not soon receive a financial lifeline, European officials fear that “the damage would be enormous, and the country itself would be at risk of collapse,” the person close to the discussions said. Officials are concerned about the risk that Cyprus might need to leave the euro currency union, creating “a painful situation that would spur chaos,” this person said.

On Wednesday morning, the finance minister of Cyprus, Michalis Sarris, met with his Russian counterpart, Anton G. Siluanov, at the Russian Finance Ministry. In the afternoon Mr. Sarris met for about 90 minutes with a deputy prime minister, Igor I. Shuvalov, at the main government offices in the Russian White House.

Cypriot banks racked up huge losses in the past several years by issuing loans to businesses in Greece that are now virtually worthless as that country grapples with the fourth year of a severe recession. The banks also took huge financial losses on large holdings of Greek government debt, which they bought when times were good in order to profit from attractive interest rates. The bailout crisis has outraged average Cypriots, many of whom oppose the government’s skimming their accounts to pay for the banks’ mistakes.

This article has been revised to reflect the following correction:

Correction: March 20, 2013

An earlier version of this article incorrectly described the days the banks would be closed. They were scheduled to reopen on Tuesday.

Article source: http://www.nytimes.com/2013/03/21/business/global/after-deal-is-rejected-cyprus-scrambles-to-find-funds.html?partner=rss&emc=rss

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After Negotiations, Cyprus Agrees to a Euro Zone Bailout Package

March 16, 2013 by Leave a Comment

BRUSSELS — Cyprus reached a long-awaited bailout agreement early Saturday that puts some of the burden for shoring up the island’s beleaguered economy on its bank depositors.

The most contentious issue in months of negotiations was whether to force Cypriot depositors to take losses in order to make the country’s debt more manageable. The Cypriot authorities had sought to head off any such initiatives on the grounds that they would do lasting damage to their financial services sector.

In the early hours of Saturday morning, after 10 hours of talks, finance ministers from euro area countries, the International Monetary Fund and the European Central Bank agreed on terms that include a one-time tax of 9.9 percent on Cypriot bank deposits of more than 100,000 euros, and a tax of 6.75 percent on smaller deposits, European Union officials said..

“It’s not a pleasant outcome especially for the people involved,” Michalis Sarris, the Cypriot finance minister, told reporters. “This is a once and for all levy,” he added, saying it should ensure no further flight of depositors from Cypriot banks.

Jeroen Dijsselbloem, the president of the group of ministers, told a separate news conference that lenders had reached “a political agreement” to aid Cyprus. The challenges to reaching a deal were “of an exceptional nature,” he said.

The latest bailout for the euro zone broke new ground by requiring haircuts, or losses, for all Cypriot bank depositors. A previous bailout for Greece required a significant haircut for Greek bondholders in early 2012 — something that European Union officials said at the time would be a one-of-a-kind measure.

Mr. Dijsselbloem declined to rule out taxes on depositors in other countries besides Cyprus in the future, but insisted that such a measure was not being considered. He said the tax would generate 5.8 billion euros.

Going into the meeting, finance ministers sought to limit the overall costs of the rescue plan while Christine Lagarde, managing director of the I.M.F., pushed for a deal that is generous enough to enable Cyprus eventually to pay the money back.

The Cypriot authorities wanted a plan that ensures that the island remains attractive to investors, who include many Russians with large deposits in the country’s banks.

Ms. Lagarde was blunt about the need for ministers to agree to a realistic package of measures. “All I know is that we don’t want a Band-Aid,” she said. “We want something that lasts, something that is durable and that will be sustainable.”

The key to a breakthrough was finding a way to bring down the bailout package, estimated at 17 billion euros ($22.2 billion). That amount is small compared with the rescue deal for Greece, but represents almost as much as Cyprus’s gross domestic product, which is about 18 billion euros.

The deal that emerged on Saturday morning was for a bailout of up to 10 billion euros, Mr. Dijsselbloem said.

Cyprus asked for the bailout in June last year. But talks faltered when the former president Demetris Christofias, a Communist, balked at measures like privatizations. The talks sped up after the election last month of Nicos Anastasiades of the Democratic Rally, a center-right party, to the presidency.

Some of the other elements of the deal involved Cyprus raising its low corporate tax rate to 12.5 percent from 10 percent, privatizing state assets and overhauling its banks to ensure that they are not havens for money laundering.

Russia also was expected to contribute to the arrangement, perhaps by agreeing to lower the interest rate on a loan worth 2.5 billion euros it has already made to Cyprus.

Mujtaba Rahman, a senior analyst with the Eurasia Group, a political risk research and consulting firm, said it was likely that countries like Germany and Finland would ultimately reach a deal with the I.M.F.

“The fact is that some governments in the north of Europe need the I.M.F. also to be contributing money to Cyprus in order to convince their parliaments to give approval to a deal,” Mr. Rahman said.

This article has been revised to reflect the following correction:

Correction: March 15, 2013

Because of an editing error, a headline on an earlier version of this article misspelled the name of the country in talks to receive a bailout. It is Cyprus, not Cypress.

Article source: http://www.nytimes.com/2013/03/16/business/global/showdown-looms-over-cyprus-bailout-deal.html?partner=rss&emc=rss

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Britain Takes On Brussels in Fight Over Bank Pay

March 4, 2013 by Leave a Comment

BRUSSELS — The British finance minister, George Osborne, is expected Tuesday to urge his European Union counterparts to water down proposed rules restricting the size of bankers’ bonuses.

The proposal is a sore point for Britain, which is home to Europe’s main financial hub, and where many in government and the financial industry worry that mandated limit to bonuses could make it harder for London to compete in international banking circles.

A failure by Mr. Osborne to win concessions during a monthly meeting here on Tuesday of the European Union’s 27 finance ministers could fuel disenchantment with the Union among restive members of Britain’s ruling Conservative party. Prime Minister David Cameron has already called for a referendum on Britain’s membership in the Union.

Yet if Mr. Osborne pushes too hard against the bonus cap, his government risks criticism at home for succoring bankers. They are unpopular with large swaths of the British electorate for earning lavish salaries even as a prolonged economic downturn forces many households to scrimp. Many voters also resent the banking industry for receiving a series of giant bailouts paid for by taxpayers.

The meeting Tuesday will follow a Monday evening session by 17 of the same finance ministers, representatives of the euro currency union, who discussed but deferred action on a bailout request by Cyprus. That country is seeking about €17 billion, $22 billion, to shore up government finances and its banks, which were badly exposed to a debt write-down in Greece.

But for Britain, which is not a member of the euro zone, the banker bonus proposal is the main issue. The Cameron government considers the bonus cap “misguided and fear it could impact negatively on London without even combating the excessive risk-taking it was meant to address,” said Simon Tilford, chief economist at the Center for European Reform, a research organization based in London.

“But London is caught between a rock and a hard place, as there’s much popular antipathy toward the bankers,” Mr. Tilford said. The issue of banker remuneration “is pretty toxic stuff Britain,” he added.

Further undermining Britain’s position ahead of the meeting is the result of a referendum over the weekend in Switzerland, also known for its business-friendly climate but where voters approved tighter restrictions on executive compensation. That vote will give shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors.

The bonus cap legislation that concerns the British leadership cleared an important hurdle last week when representatives of E.U. governments and the European Parliament agreed that the coveted bonuses many bankers receive would be capped at no more than their annual salaries, starting next year. Only if a bank’s shareholders approved could a bonus be higher — and even then it would be limited to no more than double the salary.

The rules are drafted so that a banker working in New York for a British bank like Barclays would be subject to the rules, as would a banker in London working for a U.S. bank like Citigroup.

Another reason Mr. Osborne may be hesitant to oppose the bonus rules too vociferously is that they are part of a legislative package that includes something his government favors: tougher rules about how much capital European banks most hold in reserve to protect against losses.

Britain and Mr. Osborne have strongly backed the higher capital requirements as essential for preventing another financial crisis.

In any event, European Union diplomats said ministers were unlikely to formally approve the rules on Tuesday because details still needed to be nailed down. That could still give Britain weeks, or even months, to press for concessions.

There are also questions among some European countries about how strictly to apply parts of the legislation requiring banks to publish detailed information on profits, taxes and subsidies on a country-by-country basis across the globe.

In the case of the separate Cyprus bailout discussions Monday evening, euro zone finance ministers were taking up talks that stalled with the country’s previous, Communist-led government. That government was replaced late last month by a center-right administration, a change that has been welcomed in other European capitals.

Article source: http://www.nytimes.com/2013/03/05/business/global/05iht-euro05.html?partner=rss&emc=rss

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Uncertainty Mounts Ahead of Hungarian Bank Chief Selection

February 28, 2013 by Leave a Comment

FRANKFURT — The change coming at the top of the Hungarian central bank has raised fears that monetary policy could soon be subverted to politics, with the government resorting to printing money to revive its slumping economy.

The results of looser money, many economists say, could pose risks not just for the country but for Eastern Europe and even the euro zone.

Prime Minister Viktor Orban is expected to appoint a successor to Andras Simor, whose term as governor of the Hungarian central bank is expiring, as early as Friday. The front-runner appears to be Gyorgy Matolcsy, the Hungarian economics minister, a maverick who is close to Mr. Orban and whose statements often cause the forint, the country’s currency, to gyrate on money markets.

Mr. Orban might also turn to Mihaly Varga, a former finance minister and ally who led Hungary’s negotiations with the International Monetary Fund for financial support.

Whoever gets the job is expected to be in step with Mr. Orban and pursue unorthodox policies designed to jolt the Hungarian economy out of recession in time to help the government win re-election next year.

The appointment would also consolidate Mr. Orban’s control of one of the nation’s last independent institutions.

“There is no doubt that the last institution in Hungary that has been able to withstand Orban’s pressure is the central bank,” said Peter Rona, an economist and senior fellow at Oxford University who is a member of the Hungarian central bank’s supervisory board. “If that goes under his control, the last point of resistance is gone.”

Mr. Matolcsy’s past statements suggest he would be willing to throw out the rule book of central banking if he got the job.

“He is wholly inappropriate for this position, as he has neither the professional background nor the temperament to guide the bank,” Mr. Rona said.

Mr. Matolcsy, or another Orban appointee, is expected to try to emulate the quantitative easing used by the U.S. Federal Reserve or Bank of England. But policies designed to stimulate growth in big countries like the United States or Britain could be disastrous when applied to a small country like Hungary that cannot finance itself without foreign capital, economists said.

Dismay about Mr. Orban’s economic policies have already contributed to the flight of capital from the country. Funds equal to 2 percent of gross domestic product, or about €4 billion, left Hungary in the third quarter of 2012, according to the European Bank for Reconstruction and Development.

Along with Slovenia, which is in the middle of a banking crisis, Hungary suffered the worst capital flight of any country in Eastern Europe or the Balkans.

Since becoming prime minister in 2010, Mr. Orban has used his two-thirds majority in Parliament to expand his control over the judiciary and the media.

That he would do the same to the central bank has raised concerns because it would violate the fundamental principle that monetary policy should not be dictated by politics.

“A key prerequisite for a credible monetary policy is the independence of the central bank,” Mario Draghi, the president of the European Central Bank, said in Budapest in December, in a clear expression of his concern about developments there.

But foreign central bankers may have little room to criticize unorthodox policies by the Hungarian central bank when they have themselves stretched the boundaries of monetary policy.

People loyal to Mr. Orban already hold a majority on the central bank committee that sets monetary policy. They have cut the benchmark interest rate to 5.25 percent from 7 percent last year. That is still well above the E.C.B. benchmark rate of 0.75 percent.

Though wary of criticizing Mr. Matolcsy directly, local bankers have expressed concern.

“Will he stick to the fundamental objectives of the central bank, or will he try to get out of this box to get more in alignment with the government?” asked Heinz Wiedner, head of the Hungarian unit of Raiffeisen Bank, an Austrian lender. “We have to see.”

Mr. Matolcsy, 57, has already created plenty of controversy as economics minister. He helped impose the highest bank levy in Europe and nationalized private pension funds.

Those steps helped push the government deficit below 3 percent of gross domestic product, allowing Hungary to sell $3.25 billion in 5-year and 10-year government bonds this month.

Article source: http://www.nytimes.com/2013/03/01/business/global/uncertainty-mounts-ahead-of-hungarian-bank-chief-selection.html?partner=rss&emc=rss

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Central Bank Candidate Is Under Fire in Indonesia

February 25, 2013 by Leave a Comment

JAKARTA — The Indonesian president’s candidate to replace the chief of the central bank ran into opposition Monday, as one member of a parliamentary panel that has the last word on selection doubted his integrity and another doubted his grasp of macroeconomics.

Late Friday, President Susilo Bambang Yudhoyono unexpectedly nominated Finance Minister Agus Martowardojo to replace Darmin Nasution, whose term as the Bank Indonesia governor ends in May. The president has given no reason for not reappointing Mr. Darmin, who is generally seen as having kept a firm hold on monetary policy, with inflation under control. However, the Indonesian currency, the rupiah, has weakened sharply during his tenure.

“For the B.I. governor nomination, we don’t only look at technical capability. We also look at integrity and national interest,” said Dolfi O.F.P., a member of the parliamentary commission on financial affairs. “Agus Martowardojo’s involvement” in a graft case “makes us doubt his integrity.”

Mr. Dolfi, a member of the opposition Indonesia Democratic Party-Struggle, was referring to a corruption scandal surrounding the construction of the Hambalang sports complex. The controversy has toppled one minister and the chairman of Mr. Yudhoyono’s governing, but increasingly unpopular, Democratic Party.

Mr. Martowardojo was questioned last week by the Indonesian anti-corruption agency as a witness in relation to the case.

The government issued a statement saying Mr. Martowardojo had been selected for the central bank post because of his success as finance minister, including his fiscal management, his banking and finance expertise, and his professionalism and integrity. It made no mention of the departing governor.

Harry Azhar Azis, another member of the financial commission, who belongs to the Golkar Party, which is part of the governing coalition, questioned Mr. Martowardojo’s qualifications.

“Agus’s understanding of macroeconomics is insufficient, which is important for a B.I. governor,” Mr. Azis was quoted as saying by the Kontan daily newspaper. Mr. Azis belongs to the Golkar Party, a member of the governing coalition.

It is the second time Mr. Yudhoyono has nominated Mr. Martowardojo, a career banker, to head the central bank. Mr. Martowardojo was rejected in 2008, along with another candidate proposed by the president, though that was seen more as an attempt by Parliament to flex its political muscle than as a reflection of any particular dislike of Mr. Martowardojo.

Article source: http://www.nytimes.com/2013/02/26/business/global/central-bank-candidate-is-under-fire-in-indonesia.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Group of 7 Says It Will Let Market Decide Currency Values

February 12, 2013 by Leave a Comment

The statement by the Group of 7 prompted relief in Japan, where policy makers have been under fire for unfairly seeking to give their economy a shot in the arm by bringing down the value of the yen. The statement “properly recognizes that steps we are taking to beat deflation are not aimed at influencing currency markets,” said Taro Aso, the Japanese finance minister.

But a Group of 20 official said that the statement was meant to warn Japan not to target its exchange rates in its efforts to lift its moribund economy, and that concerns about Japan’s policies and the prospect of competitive currency devaluation would be a major topic at a coming G-20 meeting in Russia.

The statement and conflicting follow-ups from economic officials and finance ministries around the world caused significant confusion on Tuesday, with some market participants interpreting them as quelling fears of a so-called currency war and others interpreting them as stoking them. The yen climbed against the dollar and the euro as officials aired their concerns about Japan’s policies.

In a statement, the G-7 nations said they would consult closely to avoid moves that could hurt stability. But they restated a commitment to market-determined exchange rates.

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” the G-7 said in the statement, which was posted on the Web site of the Bank of England.

Concerns had been mounting in recent weeks about the effects of an ultraloose monetary policy in Japan that has pushed the yen lower against major currencies. The yen’s weakness also had prompted talk of a so-called currency war if other parts of the world followed suit in a competitive devaluation.

Some international economic officials have brushed off the growing accusations of unfair or competitive currency manipulation.

“This increasing talk of currency wars is very much overblown,” said Olivier Blanchard, the chief economist at the International Monetary Fund, in January. “Countries have to take the right measures to get their own economies back to health.”

But loose monetary policy designed to increase growth often has the effect of devaluing a currency, thus making a given country’s exports more affordable and its competitors’ exports more expensive. In the past few years, emerging market countries like Brazil have vocally accused slow-growing advanced countries like the United States of unfairly pushing down the value of their currencies with their aggressive monetary policies.

For years, of course, the United States has dinged export-reliant emerging economies, in particular China, for manipulating their currencies, too.

This week, the Obama administration said that it supported countries’ efforts to increase economic growth and lower unemployment, but not by manipulating their exchange rates.

“We support the effort to reinvigorate growth and to end inflation in Japan,” Lael Brainard, the Treasury undersecretary for international affairs, said during a briefing Monday. But she emphasized that the G-7 had a “longstanding set of rules” committing its members to float their currencies except during very rare instances of market turbulence.

As some officials in Japan have argued the country should target the value of the yen, some officials in Europe have supported doing the same for the euro. The euro’s rise in value has become a particular concern as it could make exports more expensive and dent growth if demand for European products falls. Those concerns had prompted France to call for some kind of exchange-rate policy.

On Monday, Pierre Moscovici, the French finance minister, said he wanted the Europeans to present a common plan this week during the meeting of finance ministers and central bankers of the Group of 20 nations to be held in Moscow.

But the head of the German Bundesbank, Jens Weidmann, said Monday that the French initiative was a poor substitute for policy overhauls that, if implemented, would do more for growth.

On Tuesday in Brussels, following a regular monthly meeting of E.U. finance ministers, Wolfgang Schäuble, the German finance minister, said that there was “no foreign exchange problem in Europe” and that such issues should be discussed at the G-20 meeting in Moscow.

Annie Lowrey reported from Washington.

Article source: http://www.nytimes.com/2013/02/13/business/global/group-of-7-says-it-will-let-market-decide-currency-values.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,
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