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IMF: China slump and tax avoidance to dominate Peru talks IMF: China slump and tax avoidance to dominate Peru talks
(34 minutes later)
The International Monetary Fund’s annual meeting gets under way this week against a backdrop of rising concern over the health of the global economy. From the travails of emerging economies to the scale of the Chinese downturn, there is much to debate at the gathering in Lima, alongside tackling longstanding problems such as cracking down on the tax affairs of multinational corporations. The International Monetary Fund’s annual meeting gets under way against a backdrop of rising concern over the health of the global economy. From the travails of emerging economies to the scale of the Chinese downturn, there is much to debate at the gathering in Lima, alongside tackling longstanding problems such as cracking down on the tax affairs of multinational corporations.
Emerging economies on the brinkEmerging economies on the brink
The IMF’s annual meetings are a moment for the finance ministers and central bankers from the Washington-based lender’s 188 member-countries to share their concerns about the state of the financial world.The IMF’s annual meetings are a moment for the finance ministers and central bankers from the Washington-based lender’s 188 member-countries to share their concerns about the state of the financial world.
This year, it is the emerging economies, which helped to lift global growth in the aftermath of the sub-prime mortgage crisis, that are provoking most anxiety.This year, it is the emerging economies, which helped to lift global growth in the aftermath of the sub-prime mortgage crisis, that are provoking most anxiety.
Brazil and Russia are in recession, China is slowing sharply, and a string of other emerging countries, including Turkey and Venezuela, look vulnerable to the combination of falling commodity prices and a strengthening dollar. Finance ministers will discuss how to prevent this weakness from spiralling into a full-blown financial crisis.Brazil and Russia are in recession, China is slowing sharply, and a string of other emerging countries, including Turkey and Venezuela, look vulnerable to the combination of falling commodity prices and a strengthening dollar. Finance ministers will discuss how to prevent this weakness from spiralling into a full-blown financial crisis.
China downturnChina downturn
China’s downturn has come just as it had hoped to gain admission to the club of fully fledged, grown-up IMF members. Beijing has long hoped that China’s currency, the yuan, would be admitted to the so-called special drawing rights basket — the small list of currencies in which member-countries’ claims on the IMF are denominated.China’s downturn has come just as it had hoped to gain admission to the club of fully fledged, grown-up IMF members. Beijing has long hoped that China’s currency, the yuan, would be admitted to the so-called special drawing rights basket — the small list of currencies in which member-countries’ claims on the IMF are denominated.
China hopes this stamp of approval from the IMF will increase the yuan’s desirability as a reserve currency for investors, and undermine the hegemony of the dollar as a global reserve currency.China hopes this stamp of approval from the IMF will increase the yuan’s desirability as a reserve currency for investors, and undermine the hegemony of the dollar as a global reserve currency.
A decision is due to be made by the IMF’s board in November, and Beijing’s unexpected devaluation in the summer was badged as a move towards allowing the market, instead of the government, to fix the renminbi’s value — a precondition of inclusion.A decision is due to be made by the IMF’s board in November, and Beijing’s unexpected devaluation in the summer was badged as a move towards allowing the market, instead of the government, to fix the renminbi’s value — a precondition of inclusion.
Chinese officials are expected to lobby their colleagues in Lima to set aside the short-term wobbles, and back the yuan.Chinese officials are expected to lobby their colleagues in Lima to set aside the short-term wobbles, and back the yuan.
Diana Choyleva, of City consultancy Lombard Street Research, says the decision will be crucial to global financial stability: “If the IMF adds the yuan to the SDR – and the omens now look good – China is much more likely to continue to be a responsible global citizen and liberalise its exchange rate, while intervening to ensure a gradual decline. If entry is denied, a sharper one-off devaluation is much more likely,” she said recently.Diana Choyleva, of City consultancy Lombard Street Research, says the decision will be crucial to global financial stability: “If the IMF adds the yuan to the SDR – and the omens now look good – China is much more likely to continue to be a responsible global citizen and liberalise its exchange rate, while intervening to ensure a gradual decline. If entry is denied, a sharper one-off devaluation is much more likely,” she said recently.
Greek financesGreek finances
The IMF has so far contributed expertise, but no money, towards the latest, third bailout of the recession-scarred Greek economy, insisting it would be unwilling to commit resources until Athens’ European partners made an “explicit and concrete” offer to write off some of its unsustainable debts.The IMF has so far contributed expertise, but no money, towards the latest, third bailout of the recession-scarred Greek economy, insisting it would be unwilling to commit resources until Athens’ European partners made an “explicit and concrete” offer to write off some of its unsustainable debts.
Discussion in Lima is likely to focus on whether Greece is showing enough progress in meeting the tough policy objectives it has been set by its creditors; and when the IMF will join the rescue programme. But with its debt-to-GDP ratio expected to peak at 206%, according to the IMF’s latest estimates, pressure remains on the eurozone to offer substantial debt forgiveness.Discussion in Lima is likely to focus on whether Greece is showing enough progress in meeting the tough policy objectives it has been set by its creditors; and when the IMF will join the rescue programme. But with its debt-to-GDP ratio expected to peak at 206%, according to the IMF’s latest estimates, pressure remains on the eurozone to offer substantial debt forgiveness.
Tax avoidanceTax avoidance
George Osborne, who will fly to Lima fresh from the Conservative party conference in Manchester, will be focusing on the latest global efforts to prevent multinational companies from avoiding paying their fair share of corporation tax.George Osborne, who will fly to Lima fresh from the Conservative party conference in Manchester, will be focusing on the latest global efforts to prevent multinational companies from avoiding paying their fair share of corporation tax.
The Organisation of Economic Cooperation and Development published proposals earlier this week for combating “base erosion and profit shifting” – the accounting tricks used to shuffle profits into low-tax jurisdictions.The Organisation of Economic Cooperation and Development published proposals earlier this week for combating “base erosion and profit shifting” – the accounting tricks used to shuffle profits into low-tax jurisdictions.
The UK chancellor will speak at an event to launch the plans, and pledge to continue Britain’s efforts to force multinationals to pay up; and finance ministers are expected to throw their weight behind them. However, campaigners claim lobbying by multinationals has led to the plans being watered down.The UK chancellor will speak at an event to launch the plans, and pledge to continue Britain’s efforts to force multinationals to pay up; and finance ministers are expected to throw their weight behind them. However, campaigners claim lobbying by multinationals has led to the plans being watered down.
Interest rate ‘normalisation’Interest rate ‘normalisation’
In a flurry of documents published in the runup to this week’s meetings, the IMF warned repeatedly about the potential impact of rising Federal Reserve interest rates on the rest of the world.In a flurry of documents published in the runup to this week’s meetings, the IMF warned repeatedly about the potential impact of rising Federal Reserve interest rates on the rest of the world.
Like many in the policymaking establishment, the IMF’s experts would love rates to be higher, because of the excessive risks that investors and businesses tend to take when borrowing costs are so low. But they fear the chaos that may be unleashed as rates start to rise.Like many in the policymaking establishment, the IMF’s experts would love rates to be higher, because of the excessive risks that investors and businesses tend to take when borrowing costs are so low. But they fear the chaos that may be unleashed as rates start to rise.
Janet Yellen, the chair of the US Federal Reserve, made clear in September when it delayed a long-signalled rate rise that she was concerned about the impact on emerging markets.Janet Yellen, the chair of the US Federal Reserve, made clear in September when it delayed a long-signalled rate rise that she was concerned about the impact on emerging markets.
In Lima this week, she, and US Treasury secretary Jack Lew, will hear plenty of representations, particularly from policymakers in emerging economies, about the impact higher US rates would have on their economies.In Lima this week, she, and US Treasury secretary Jack Lew, will hear plenty of representations, particularly from policymakers in emerging economies, about the impact higher US rates would have on their economies.
Lagarde’s next career moveLagarde’s next career move
Christine Lagarde, a former French finance minister, is nearing the end of her five-year term as managing director of the IMF, a job traditionally held by a European.Christine Lagarde, a former French finance minister, is nearing the end of her five-year term as managing director of the IMF, a job traditionally held by a European.
Her tenure has sometimes been controversial. For instance, the IMF’s role in the Greek sovereign debt crisis, always viewed with scepticism by emerging economy members, has come under scrutiny. But she steadied the ship after her flamboyant predecessor, Dominique Strauss-Kahn, left the job suddenly amid claims of sexual assault (a case that was later dropped).Her tenure has sometimes been controversial. For instance, the IMF’s role in the Greek sovereign debt crisis, always viewed with scepticism by emerging economy members, has come under scrutiny. But she steadied the ship after her flamboyant predecessor, Dominique Strauss-Kahn, left the job suddenly amid claims of sexual assault (a case that was later dropped).
Lagarde said in a recent interview that she would choose at the end of this year whether she wants to run for a second term in Washington. “Then I’ll have to really decide … with a personal and family agenda, what I can do.”Lagarde said in a recent interview that she would choose at the end of this year whether she wants to run for a second term in Washington. “Then I’ll have to really decide … with a personal and family agenda, what I can do.”
Some commentators believe she may have her eyes on a greater prize: the French presidency, which will become vacant in 2017. And there will inevitably be chatter in Lima about who may succeed her.Some commentators believe she may have her eyes on a greater prize: the French presidency, which will become vacant in 2017. And there will inevitably be chatter in Lima about who may succeed her.