What will the Federal Reserve do?

After on Tuesday and Wednesday's regular policy meeting, the Fed is widely expected to announce that it will start to "taper" its $85bn-a-month quantitative easing (QE) programme, perhaps cutting its monthly purchases of assets such as government bonds by $10bn or $15bn.

Is that good news?

It should be: it means the governors of the Fed, led by the chairman, Bernanke, believe the US economy is strong enough to stand on its own, without support from a constant flow of cheap, electronically created money – though they still have no plans to raise base interest rates from the record low of 0.25%, and they expect to stop adding to QE over a period of up to a year. "We really want to see a situation where central banks should not be pumping money into markets. It's not a healthy thing to be doing," says Chris Williamson, chief economist at data provider Markit.

Why are they doing it now?

Economic data is pointing to a modest but steady recovery. House prices have turned, rising by 12% in the year to June. Unemployment has fallen to 7.3%, its lowest level since the end of 2008, albeit partly because many women and retirees have left the workforce.

Since QE on such a huge scale carries its own risks – it can distort financial markets, for example – the Fed is keen to withdraw it once it thinks an upturn is well underway. However, some recent data, including worse-than-expected retail sales figures on Friday, have raised doubts about the health of the upturn.

There's another reason too: Bernanke's term as governor ends in January next year, and he may feel that at least making a start on the process of tapering – marking the beginning of the end of the policy emergency that started more than five years ago – would be a fitting end to his tenure.

How will the markets react?

With a shrug, the Fed hopes, since it has carefully communicated its intentions. Scotiabank's Alan Clarke said: "I think it's pretty much priced in ... Speculation began months ago, the market has already moved and we are still seeing some very robust data. The foot is on the accelerator pedal just a bit more lightly."

However, a larger-than-expected move could still cause ripples – and a decision not to taper at all would be a shock, though some analysts believe it remains a possibility. Paul Ashworth, US economist at Capital Economics, said: "I don't think they've actually decided on this ahead of time."

What will investors be looking for?

First, the scale of the reduction in asset purchases. No taper at all might suggest Bernanke and his colleagues have lingering concerns about the health of the economy; a reduction of $20bn a month or more would come as a shock. The tone of the statement, and the chairman's subsequent press conference, will also be scrutinised, with markets hoping for reassurance that even once tapering is underway, there is no immediate plan to raise interest rates: Bernanke has previously said he doesn't expect this to take place until unemployment has fallen to 6.5% or below. Williamson said: "I think they will accompany the announcement with a very dovish statement designed not to scare people that the economy is too weak but to reassure stimulus won't be taken away too quickly."

What does it mean for the UK?

Long-term interest rates in UK markets have risen sharply since the early summer, at least in part because of the Fed's announcement on tapering, and that shift, which has a knock-on effect on some mortgage and other loan rates, is likely to continue as the stimulus is progressively withdrawn.

If tapering occurs without setting off a market crash or choking off recovery, it may help to reassure policymakers in the UK that they can tighten policy once the recovery gets firmly under way, without sparking a renewed crisis. David Kern, economic adviser to the British Chamber of Commerce, said: "it will strengthen for me the argument against doing more QE in the UK."

How will the eurozone be affected?

It could cut both ways: a strengthening US economy is a welcome market for Europe's exporters, and if the value of the dollar increases against the euro on the prospect of higher interest rates, that will make eurozone goods cheaper.

However, the prospect of an end to QE in the US has also caused bond yields in all major markets to rise, pushing up borrowing costs – including for many governments. That could make life harder for countries such as Spain and Italy that are already in a fiscal tight spot.

What about emerging markets?

Back in May, Bernanke merely had to moot the idea of ending QE to send emerging markets reeling. A side-effect of the unprecedented flood of cheap money under QE has been that banks and other investors have used the cash to make riskier investments in emerging markets. The prospect of that tap being turned off has already seen capital pouring out of emerging markets and currencies, potentially exposing underlying weaknesses in economies that have been flourishing on a ready supply of cheap credit.

"It has triggered all sorts of significant movements around the world out of emerging markets. It's had big ramifications for India and other parts of Asia," said Clarke.

Central banks in Brazil and India have been forced to take action to shore up their currencies; Turkey and Indonesia also look vulnerable. Many of these markets have looked calmer in recent weeks, but the concrete fact of tapering could set off a fresh panic.

Christine Lagarde, one of the most powerful women in the world as head of the International Monetary Fund, is facing acute embarrassment after a letter in which she urged former French President Nicolas Sarkozy to "use me" was found during a police raid on her Paris flat. An undated copy of the letter was found at Mrs Lagarde’s flat in Paris during a raid by police investigating a spiraling financial scandal surrounding payments to businessman Bernard Tapie.

"I'm on your side to serve you and serve your projects for France," she said in the letter.

"Use me during the time that suits you best and fits your action and your cast....If you decide to use me, I need you as guide and supporter: without guide, I might be ineffective, without support I might be implausible."

She signed off: “With my immense admiration, Christine L.”

She also claimed that she does not have "personal political ambitions" and remarked she does not want to become "an ambitious servant", referring to some members of Sarkozy's entourage.

The letter was leaked to French newspaper Le Monde, and its publication has caused acute embarrassment for the head of the IMF.

Ms Lagarde was finance minister during Mr Sarkozy's term as President, before stepping down to become managing director of the Washington-based IMF in 2011.

Her Paris flat was raided as part of an investigation into her handling of a 2008 compensation payment to a businessman supporter of ex-president Nicolas Sarkozy, her lawyer said.

Police are investigating claims that Lagarde, when French Finance Minister under Sarkozy, acted illegally in approving the €285m arbitration payout to Bernard Tapie. Ms Lagarde denies any wrongdoing.

Poor countries with loans from the IMF can continue to pay no interest until the end of 2014, the Fund's board said on Friday, as their economies are still recovering from the global economic crisis. The IMF's zero-interest loan program for low-income countries had been set to expire at the end of this year. "The executive board decision to keep interest rates at zero ... is testament to the Fund's continued support for low-income countries since the global economic crisis hit in 2009," IMF Managing Director Christine Lagarde said in a statement. The IMF decided in 2009 to allow countries eligible for its anti-poverty loan program to pay zero interest on loans in light of the financial crisis.
The Fund also set a target to raise $17 billion to lend to the poorest countries, which are threatened by the risk of euro-zone contagion and by a drop-off in foreign aid after the global recession. IMF's Lagarde has pushed to meet that goal, seeking to ease concerns that the IMF and donor nations may turn a blind eye to the world's poor as they focus on containing the euro zone crisis.
In September, the IMF said it would distribute a $3.8 billion windfall from gold sales to its 188 member countries if they agreed to commit most of the money to the anti-poverty loan program.

On the german news-front:

- Just breaking: the SPD has apparently decided its Chancellor Candidate for 2013. Peer Steinbrück, ex-finance minister in Merkel's first coalition, will be Merkel's challenger. The best choice. He recently called for the splitting up of german universal banks (deutsche- and commerzbank), picking up the suggestion from the Vickers report.

But my favourite Steinbrück piece in english remains: Germany's outspoken finance minister on the hopeless search for 'the Great Rescue Plan.' (from 2008, english, newsweek) featuring the "crass keynesianism" quote, aimed at Gordon Browne.

- On Banking Union: Weidmann of the Bundesbank is also against taking on historic liabilities, as were the three "northern" finance ministers early in the weekreports SZ (not going to happen)

- also on banking reform, a sharp attack on german "backsliding" by the euro-friendly economist blogger charlemagne The other moral hazard: If the euro zone is to survive, Germany too must keep its promises to reform

- the daily dose of CSU-politicians-throwing-their-weight-around comes from Bavaria's Finance Minister Söder. who wants a german veto at the ECB. "The one who is liable and pays, decides" (SZ, german)

IMF ....explained ...

IMF in context (explained) : As of mid 2008, the IMF had around $1,6 billion in the bank. Compared to the sums involved in the designed financial collapse, this represents a grain of sand on Peblle Beach. There was a story about the IMF selling off 400 tons of gold. We don't know if this was real gold, tungsten coated bars, or pure make believe gold?? There were stories floating around that India would pay hard cash for this imaginary gold, but then all went quiet.....Whatever reserves the IMF has acquired since the designed financial collapse, they are digitally created Monopoly Money reserves. The IMF is a global extortion racket...they force cuts, force payments to bust banks, in exchange for Monopoly Money created out of thin air, that states will pay back with REAL money, plus interest....nice business !!!...The US is already broke. Britain is broke and Canada wants to stay solvent. Why would anyone in their right mind impose more sacrifices on their own people to prop up an insane political project like the Euro?The argument that it is in their own self-interests doesn't wash as there will inevitably be a day of reckoning for this mess and delaying it will make the pain worse all around, not better; so its time for Europe to bite the bullet rather than taking everyone else down with them.....And... the news item : Global politics and economic theory don’t lend themselves easily to punch lines. But in January this year, Christine Lagarde managed to inject a little light relief into proceedings at the World Economic Forum. Holding up her Louis Vuitton handbag, the new managing director of the International Monetary Fund (IMF) turned to her fellow power brokers in one session and said: “I am here, with my little bag, to collect a bit of money.” The joke broke the ice and the room rippled with laughter. But, beneath the disarming charm, Lagarde was deadly serious. For months now, the IMF has been trying to coerce its 187 members into committing as much as $600bn (£378bn) more to the fund to build what she described at the Brookings Institute in Washington last week as a “global firewall” to defeat once and for all the European sovereign debt crisis.

European finance ministers urged a prompt decision on ramping up the International Monetary Fund's crisis-fighting resources, a day after they agreed to commit more funds to their own so-called firewall. After two days of talks on efforts to enhance their response to the sovereign-debt crisis, finance ministers from the 27 member nations of the European Union and central bank governors said that despite signs of stability and easing tensions in the financial markets there shouldn't be complacency. Danish economy minister Margrethe Vestager, who hosted the talks, said on Saturday that it is crucial that a global agreement is reached on boosting IMF's resources. "It's important to ensure the IMF has sufficient resources to play its systemic role in the global economy," Ms. Vestager told a news conference at the end of the talks. "Yesterday's decision…is very important in this respect. What we are hoping for is an agreement in Washington." On Friday, euro-zone finance ministers agreed to expand the currency bloc's capacity for crisis lending to €700 billion ($934 billion) by combining new funds into a permanent rescue mechanism with existing bailout loans. But funds available for new loans will be capped at €500 billion after July 2013, when a temporary bailout mechanism will expire. The combined lending ceiling of €700 billion includes €200 billion in existing loans to Greece, Portugal and Ireland. Source : WSJ

The following is a statement issued by Standard & Poor's announcing the downgrade in US government debt from AAA to AA+

Overview :
• We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.

• We have also removed both the short- and long-term ratings from CreditWatch negative.

• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.

• More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.

• The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Rating Action
On August 5, 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'. The outlook on the long-term rating is negative. At the same time, Standard & Poor's affirmed its 'A-1+' short-term rating on the US. In addition, Standard & Poor's removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications. The transfer and convertibility (T&C) assessment of the US – our assessment of the likelihood of official interference in the ability of US-based public- and private-sector issuers to secure foreign exchange for debt service – remains 'AAA'.

In a strongly worded report to German parliamentarians, Wolfgang Schaeuble explained that the €159bn Greek bail-out was a one-off. He said: "In the future such purchases must only take place under very tight conditions, when the European Central Bank establishes that there are extraordinary circumstances in financial markets and dangers to financial stability." Mr Schaeuble echoed German Chancellor Angela Merkel, who said the union's bail-out fund, the European Financial Stability Facility (EFSF), should not be allowed to engage in "unconditional" buying of bonds from stricken members. Traders interpreted the letter as a strong signal Germany could not be depended upon for standing by the euro indefinitely. Just a week after European authorities united to rescue Greece, experts fear authorities are already again struggling to contain the region's sovereign debt crisis. Cyprus threatened to become the fourth eurozone country to need a bail-out after Standard & Poor's downgraded its debt further into junk territory, lowering it to CC from CCC. The rating agency raised concerns that Cyprus' large exposure to Greek bonds - which is among the highest in the eurozone - might hamper its ability to service its own sovereign debt. According to the European Banking Authority, Bank of Cyprus holds €2.4bn in Greek debt and Marfin Popular Bank holds €3.4bn. Yields on Cypriot bonds maturing in 2014 soared to 10.18pc - above the borrowing rates of Ireland and Portugal, which have both been bailed out.

Although Fitch welcomed the agreement that was unveiled in Brussels, it has also decided to assign Greece a "restricted default" rating. The decision is based on the fact that private sector investors will contribute up to €50bn by rolling debt over or writing some off altogether. "Fitch considers the nature of private sector involvement in a new financial programme of support for Greece to constitute a restricted default event," said David Riley, head of sovereign ratings at Fitch. "However, the reduction in interest rates and extension of maturities potentially offers Greece a window of opportunity to regain solvency, despite the formidable challenges that it faces." Under the agreement announced last night, investors holding Greek debt can swap it for new securities maturing in 30 years, with higher interest rates on offer if they take a haircut on the size of the loan. More encouragingly for Athens, Fitch said it expects to assign a "low speculative grade" rating to Greece's future bonds. That suggests they would still be treated as "junk", but several notches above default. Fitch also undermined Europe's efforts to build a firewall to stop the crisis spreading, predicting that Ireland or Portugal had just 18 months to avoid the same fate. "If the Irish and Portuguese economies and public finances are not firmly on a sustainable path going into 2013, when both will need to regain access to medium-term market funding, the potential precedent set by PSI [public sector involvement] in the Greek package will be incorporated into Fitch's assessment of the risks to bondholders and reflected in its sovereign rating opinions and actions," said the agency.

Was that careless phrasing or a change of policy from the European Central Bank (ECB)? Ewald Nowotny, head of the Austrian central bank and a member of the governing council of the ECB, on Tuesday appeared to admit to CNBC that it would be possible to accept Greek bonds as collateral even after a default. If he meant it, it would be a significant change of policy by the ECB. The bank's president, Jean-Claude Trichet, has been fundamentalist on the point: accepting duff assets as collateral would damage the ECB's status as the anchor of stability in the eurozone, he thinks. That is why Trichet is so opposed to a Greek default. And his hard line is one reason why eurozone leaders have tied themselves in knots trying to find a way to keep an insolvent Greece inside the single currency. Nowotny later "clarified" his remarks to say he was in complete agreement with Trichet – but without explaining the point he was trying to make. Confusion reigned. In one sense, though, Nowotny's remark may be thought encouraging. It might suggest the ECB is ready to slaughter a few sacred cows to give the politicians greater room for manoeuvre in their hour of need. Don't hold your breath, though. Amazingly, there are still few signs that German chancellor Angela Merkel recognises how high the stakes have become for the single currency. She suggested Wednesday's summit of eurozone leaders will not deliver a spectacular solution. Oh dear. A spectacular – or, at least, comprehensive – solution is exactly what is needed for the eurozone's sovereign debt crisis. The International Monetary Fund was delivering stale news when it said on Tuesday that the risk of contagion in the eurozone is high, that the effect could be global, and that immediate action is required. Stale – but wholly accurate.

Europe's new banking regulator warned that an escalation in the eurozone crisis could pose "significant" challenges even as it announced only eight banks out of 90 had failed an annual check of their financial strength. A further 16 banks were also deemed to be in a potential danger zone as they only just passed the tests, which looked at the impact on banks' capital cushions of a deterioration in the economy and house prices. However, the tests failed to consider what may happen to banks if a major European country – such as Greece – defaulted on its debt, promoting many analysts to argue the hurdles were set too low. As the results of the tests were announced by the European Banking Authority (EBA), European Union president Herman Van Rompuy called the leaders of the 17 members of the eurozone to a summit next Thursday to thrash out the much anticipated second bailout for Greece. Anxiety about Greece continues to put the eurozone under severe stress and Andrea Enria, chairman of the EBA, described current market conditions as "under severe strain" as he said: "Further deterioration in the sovereign debt crisis might raise serious challenges." All Britain's banks – bailed out Royal Bank of Scotland and Lloyds Banking Group as well as Barclays and HSBC – passed though they suffered a 25% reduction in their capital cushion during the adverse scenarios imposed upon them by the Europe's banking authorities. Only Greek banks suffered a larger fall – of 40% – demonstrating the wide range of exposures of Britain's banks.

IMF: New Agreement Aims Keeping Romania On The Right Track "I know that we have an ambitious agenda with the government in the new program, and I realize that not everything in that program is going to happen. But it's not a question whether you get everything you want, is a question whether you're moving the country in the right direction," Franks said in an interview for Romanian public television channel TVR.

"We're hoping we're helping Romania to move in the right direction," he added

Romania's Government announced a few days ago that the country decided to sign a follow-up agreement, worth EUR5 billion, with the IMF and the European Union to be enforced after a two-year EUR20 billion stand-by deal ends in May. The new agreement will be signed for two years and will be a precautionary deal. Joint teams from the IMF and the EU visited Romania between January 25 and February 8 to review the country's progress under the standby agreement and discuss the terms of a follow-up deal.

The Romanian National Bank has a forex reserve nearly double as high as Romania's short-term external debt, and can be considered excessive when compared with that of other central banks in the region, after having received nearly 10 billion euros from the International Monetary Fund (IMF) in the past two years via an arrangement concluded precisely out of fear that the reserve may not be high enough to cover the debt in case of an external shock. The reserve became so big that, all of a sudden, the NBR decided it no longer wanted money from the IMF, so Romania will not draw the last 1 billion-euro instalment of the loan. In other words, the loan taken out proved to be bigger than needed, especially since 3.5 billion euros went straight into the budget instead of going into the NBR's reserve. But it is still the NBR who will have to pay back the money taken out from the IMF.
"As far as forex reserves are concerned, things have been good for some time. The reserves have been kept at this level in order to calm the financial markets, which had become too jittery," comments financial analyst Aurelian Dochia. He believes aside from the high level of forex reserves, the last instalment of the IMF loan was no longer important also because economic forecasts point to an economic improvement in 2011.
The NBR reserves amounted to around 35.9 billion euros at the end of January, which includes the 3.2 billion-euro value of the 103.7 tonnes of gold.

Two of the leading Petrom top managers, who were in the company's management team ever since the privatisation of the oil and gas producer in 2004, have this year left to carry out the reorganisation of OMV's latest acquisition: Petrol Ofisi."I won't be talking about Petrom today because it is already going in the right direction, of integration. Let's talk about Turkey." This was one of the opening messages conveyed by Wolfgang Ruttenstorfer, CEO of OMV in London, at the latest media summit organised by the Austrian oil group, Petrom's majority shareholder.
In mid-October, OMV finalised the acquisition of Turkey's biggest petrol station chain, Petrol Ofisi, for which it paid one billion euros, securing a significant share of a market credited with the biggest chances of growth in the next period.Reinhard Pichler, 49, former CFO of Petrom, left his position last week, being replaced by Daniel Turnheim, a member of the OMV group since back in 2002. Pichler is not leaving the group, however, but will go to Turkey, where he will fill the same position he has occupied in Petrom since 2004.At the beginning of this year Tamas Mayer, who used to be in charge of Petrom's marketing operations, i.e. of the nearly 550 distribution stations, left the position to become Vice Chairman of the Board of Directors of Petrol Ofisi. According to some sources, Mayer will be running marketing operations within Petrol Ofisi, as well.Agerpres, Mediafax, Romanian Vancouver Sun,Global News, Financial Times,Tribune, ,Wall Street Journal,The Washington Times,Athens News,The New York Times,USA Today,Le Monde

"Who knows?"

William Hague, the foreign secretary, has raised doubts about the future of the euro, saying it was impossible to know whether the currency would collapse. The Foreign Secretary, a vociferous and long-standing critic of European monetary union, said he "hoped" that the euro would survive, but added: "Who knows?" His comments came as talks continued about the possible need to bail out debt-ridden Ireland, the latest crisis-hit eurozone member. Asked whether the euro could collapse, Mr Hague told BBC Radio 4's Today programme: "Well I hope not. The Treasury has not ruled out any options for financial aid to Ireland, including the possibility of a bilateral bail-out, although that appears unlikely.
Britain would be required to guarantee up to about £6 billion of support as part of the European stability mechanism, if that option is pursued. Many Tory MPs are deeply opposed to the use of UK taxpayers' money to bail out Ireland. Earlier this week, Edward Leigh warned: "The British people want to be assured at a time when very painful cuts are being made here that good money is not being thrown after bad in driving the Irish further into the sclerotic arms of the euro which caused the problems in the first place."

OECD - Fast growing economies

Fast-growing economies in the east should spend the vast savings accumulated through trade on their own people rather than use it to accumulate bonds and shares in the west, an influential thinktank said today.
The organisation for Economic Co-operation and Development (OECD) warned that policies designed to rebalance currencies would fail unless countries adopted more far-reaching and fundamental reforms.
The Paris-based research group, often described as the rich nations' thinktank, said in a webcast that world leaders needed to go beyond discussions about currencies at the G20 summit in South Korea next week and examine conflicts that hold back growth in the world economy.
It said: "Structural reforms, such as the strengthening of social safety nets and the development of financial markets in emerging economies, should be employed to reduce their savings and dependence on financial markets in advanced economies. The OECD sees structural reforms, such as the liberalisation of product markets, also as crucial to recover the output losses associated with the crisis and to help put public finances back on a sustainable path."
The pace of the global economy recovery had slowed since earlier this year, the OECD said, while public debt in most OECD countries was set to reach all-time highs.
"With support from fiscal stimulus fading, output and trade have softened," it said. "Average GDP growth across OECD countries is expected to be between 2.5% to 3% this year, between 2% and 2.5% in 2011 and between 2.5% and 3% in 2012. Activity is projected to vary widely across countries, particularly within the euro area.
"The US is expected to gain considerable momentum in 2012, while the Japanese recovery is expected to lose some steam. In many emerging-market economies growth is continuing robustly, although at a slightly slower pace than earlier in the recovery.
With public deficits and debt at "unsustainable levels", stabilising debt relative to GDP in most countries would require a historical consolidation effort of between 6% to 9% of GDP, said OECD secretary general Angel Gurría. "But in fact even more is needed to bring debt back to sustainable levels."
The OECD, which has promoted free trade as a route to promoting growth and easing poverty, urged the eurozone to cut taxes on employment that could reduced their ability to bring down unemployment over the next few years.
It also backed moves in the west to cut public spending as a way to "strengthen the cost-effectiveness of expenditures that enhance growth, in areas such as health care, education, innovation and infrastructure development".
Gurría said interest rates would remain at historic lows until 2012 and could be maintained at low levels if the world economy continued to struggle over the medium term.
Monetary easing by the US, the UK and Japan will brings its own problems as investors turn away from low-yielding western markets, the OECD warned. "Continued monetary easing in many advanced economies prompts capital flows to emerging economies where they risk creating asset bubbles while putting upward pressure on their exchange rates. The recent unilateral interventions in foreign exchange markets and the resulting volatility could prompt protectionist responses. Better to reach a common understanding on how global imbalances are to be reduced."

China - the new frontier for EU Investors

China's rapid growth is easing to a manageable pace and Beijing can do more to reconfigure its economy to promote domestic consumption and reduce reliance on trade, the World Bank said Wednesday. Inflation that has risen steadily this year should level off and is unlikely to be a serious problem, the bank said in a quarterly China outlook. The Washington-based bank raised its 2010 growth forecast from 9.5 percent to 10 percent and said the expansion should slow to 8.7 percent next year. Growth eased to 9.6 percent in the three months ending in September, down from 10.3 percent the previous quarter, as the government imposed lending and investment curbs.
"We think that coming from this very strong growth, China should be able to ease into a more sustainable growth rate in the long term," said the report's main author, Louis Kuijs, at a news conference.
The outlook reflects China's status as the first major economy to rebound from the global crisis on the strength of a flood of stimulus spending and bank lending. While Washington and others are trying to shore up growth, Beijing faces the challenge of cooling inflation and restoring normal conditions.
Beijing needs to boost wages and consumer spending and promote growth of private and service businesses to reduce reliance on exports and energy-intensive heavy industry, the World Bank said.
"The need to rebalance to more domestic demand-led, service sector-oriented growth seems stronger now than five years ago," said Kuijs. "Internationally the environment is less favorable than it was."
Communist leaders made raising domestic consumption a priority in their latest five-year economic plan crafted at a meeting last month. But it also was a goal in their previous plan and private sector analysts say Beijing has yet to take major steps to shift emphasis away from manufacturing and construction. The World Bank recommended opening up more industries to private business, changing the way energy prices are set to encourage efficiency and nurturing private-sector research and development. The bank cautioned against abrupt steps such as mandating sharp wage hikes, saying Beijing instead should look at gradual changes such as allowing more rural workers to move to cities and changing energy prices that favor heavy industry."We are looking for a market-oriented, market-friendly way of getting this consumption growth, consistent with continued strong growth," Kuijs said. Inflation that hit 3.6 percent in September, well above the 3 percent government target, should level off but might stay as high as 3.3 percent next year, the bank said. Kuijs said that in developing economies such as China, inflation of 3 to 5 percent might be acceptable as industries grow rapidly and demand for resources shifts."We still do not think China's inflation is at a very serious risk of escalating but we also do not think China will go back to the very low rate of inflation it saw in 2005," he said.
The bank also cautioned that China's politically contentious trade surplus is likely to rebound in 2011 after narrowing temporarily this year.
The multibillion-dollar trade gap has strained relations with Washington and other trading partners and prompted some U.S. lawmakers to demand sanctions over Chinese currency controls blamed for widening the surplus.

IMF to relax deficit targets for the co-funding of more EU projects

The IMF should relax budgetary gap targets for Romania so that more EU projects could be co-funded, states Andreas Treichl, a CEO with Erste Group, which controls BCR. "Romania is in a situation of conflicting objectives: its strong advantage are the funds available from the EU, but governmental funding is also necessary for these funds to be used. If money from the budget is allotted, deficit targets agreed on with the IMF are overshot and a conflict of 'interests' emerges. The IMF could relax the targets for the European funds to be used. This will be a very interesting exercise in the following months," Treichl stated.Banks have a direct interest in the success of such a move, considering many entrepreneurs and public authorities need loans to be able to co-fund the European funds they try to get. It remains to be seen whether the banking lobby in this respect will be as strong as in the case of modifications requested for Ordinance 50 regarding retail loan contracts.

Romania's international foreign currency reserves

Romania's international foreign currency reserves do not necessarily need to grow as they stand at a comfortable level, according to the governor of Romania's Central Bank (BNR), Mugur Isarescu.
He mentioned we have to give up the idea that it is a good thing if the international reserve is growing, NewsIn states.
As to the gold reserves of the neighbor countries, he said the central lender of Bulgaria has a reserve of 39.8 tons, that from Latvia 7.8 tons, that from Lithuania 5.9 tons, that from Poland 103 tons and that from Slovakia 31.7 tons. Romania's gold reserve stands at 103.7 tons.
The governor also talked about the gain from administering the international reserves, which dropped dramatically from 2008 and 2009 and even more in 2010.
The price of gold rose 2.5 times in the past five years.
Romania's foreign currency reserves lowered by 1.13 percent in June from the previous month, to 31.62 billion euros, according to a release issued by the central lender BNR.
Romania's international reserves – foreign currency and gold – eased 0.7 percent at the end of June to 34.99 billion euros, from 35.25 billion euros at the end of May.
The gold reserve maintained at 103.7 tons, but the evolution of international prices increased its value by 3.37 percent to 3.37 billion euros, from 3.26 billion euros in the previous month.