Sent: Sunday, March 01, 2009 5:04 AM

Subject: [frameup] Nations Near Bankruptcy, But IMF Too Poor To Help

 

The global recession could bankrupt as many as 16 countries

1- Iceland

2- Romania

3- Latvia

4- Ukraine

5- Hungary

6- Seychelles

7- Belarus

8- Pakistan

9- Former Yugoslav Republic of Macedonia

10- Sierra Leone

11- Republic of Kazakhstan

12- Federated States of Micronesia

13- Republic of Croatia

14- Banco de la Republica, Bogota, Colombia

15- Some of Latin America Countries

16- Some of CIS Countries

17- The Scandinavian country

18- Mexico

19- Italy??

20- Spain??

21- Canada

The Daily Bankruptcy News

http://bkinformation.com/News/DailyNews.htm

Nations Near Bankruptcy, But IMF Too Poor To Help

THE GLOBE AND MAIL | FEBRUARY 27, 2009

By Kevin Carmichael And Brian Milner

http://www.theglobeandmail.com/servlet/story/RTGAM.20090226.wIMFreport0226/BNStory/Business

OTTAWA and TORONTO — The global recession could bankrupt as many as 16 countries, and the world's lender of last resort says it doesn't have anywhere near enough money to bail them all out.

That's the hard message contained in a report released yesterday by the International Monetary Fund, as Latvia's Prime Minister-designate warned that the government is on the edge of financial collapse, Romania's central bank chief said the country may need IMF aid to stabilize its deteriorating finances and several other countries showed widening cracks stemming from the rising tide of financial and economic woes swamping the globe.

Since January, when the IMF advised its board of directors of the potential shortfall, managing director Dominique Strauss-Kahn has been on a campaign to double the fund's cash resources to $500-billion (U.S.).

A month on, Mr. Strauss-Kahn and allies such as British Prime Minister Gordon Brown have rounded up only one contributor, albeit a generous one - Japan, which earlier this month agreed to lend the IMF as much as $100-billion (U.S.).

The Group of 20 nations agreed last autumn to ensure the IMF had the resources it needed to face the crisis. Canada is still considering if it needs to contribute.

"Canada stands ready to support the institution to ensure IMF members and markets have confidence that the fund will be able to fulfill its stability mandate," said Chisholm Pothier, a spokesman for Finance Minister Jim Flaherty.

"Canada will consider any proposals by the IMF to boost its lending resources on a temporary basis, including by issuing bonds."

The pressure on the IMF has only grown more intense in recent weeks as a raft of small economies teeter on the brink. Besides Latvia, the list of basket cases includes Ukraine, Hungary and a handful of other countries that racked up huge debts and massive imbalances even before the global credit freeze crippled their financial capacity.

Some have already received emergency aid, but will need more to meet their obligations, both government officials and analysts say.

"These [emerging European] countries were already the most vulnerable, particularly Latvia," before the global recession turned a serious problem into a full-blown crisis, said Charles Movit, IHS Global Insight's Washington-based research director for emerging Europe.

Former Latvian finance minister Valdis Dombrovskis, who is attempting to cobble together a coalition government and end a period of paralyzing political infighting, yesterday declared that "the state is on the verge of bankruptcy."

The credit ratings of both Latvia and Ukraine were slashed yesterday to low junk status by Standard & Poor's, effectively cutting them off from the capital markets. And government revenues have been shattered by the severe economic slump.

Both the IMF and European Union are determined to prevent defaults on debt, not least because of the damage this would cause to the balance sheets of some large Western European banks. Swedish institutions, for example, are by far the biggest lenders to the small Baltic countries, including Latvia.

"Until the tide of deleveraging and more general pullback by investors from emerging markets turns, there appears to be a strong possibility that further demand for fund credit will put severe strain on the fund's liquidity," said the IMF staff report.

To press the point, the authors presented three scenarios of how the crisis could unfold in emerging markets, which have watched capital from richer countries flee as banks, private equity firms and hedge funds repatriate their investments.

The best case, according to the fund, will see 10 countries call on the IMF for help, with three of them needing aid equal to 5 per cent of gross domestic product.

The worst case, which the authors conceded could be conservative, would result in 16 members needing help, with 10 of them desperate for loans amounting to 5 per cent of GDP.

"In normal times we would have enough resources," Andrew Tweedie, director of the IMF's finance division and one of the authors of the report, said at press briefing. "These are not normal times."

Mr. Tweedie and his co-authors recommend that the IMF raise the cash by issuing debt to member countries, which the fund has done in the past, although on a much smaller scale.

The report attempts to discourage member countries from simply increasing their stakes in the fund because of the thorny issue of reallocating power within the institution.

For years, the fund has been locked in debate over redistributing shares to reflect the emergence of new players such as China and India. While some adjustments have been made, control of the IMF sill is skewed toward European countries, which had greater influence when the fund was created in the aftermath of the Second World War.

Mr. Strauss-Kahn is paying the price for richer countries' refusal to yield more power, said Bessma Momani, a senior fellow at the Waterloo, Ont.-based Centre for International Governance Innovation, who studies the IMF.

Asian countries have piled up hundreds of billions in foreign exchange reserves since the continent's currency crisis in the late 1990s in part because they felt the fund mishandled the situation.

Middle Eastern countries, which also hold massive reserves, are similarly reluctant to help an institution they regard as under the thumb of the United States, which is the IMF's largest shareholder