"Pakistan needs $4bn-$5bn for the financial year to June 2009 to meet debt payments and other liabilities, according to finance ministry officials in Islamabad.Mr. Steinmeier pledged to support Pakistan's case in the IMF and in the "Friends of Pakistan" donor conference--an association formed at the UN General Assembly meeting last month including the US, the European Union, the UAE, and China.
An official at the central bank said the country’s foreign currency reserves stood at $4bn and were likely to run out by the end of November. 'We have a very narrow space to put the country back on the rails,' he said.
An IMF programme is expected to last till June 2010 and could be worth a total of $12bn-$15bn, officials say."
2. In an op-ed at the Financial Times Jeffrey Sachs prescribes the following:
"Now China must make a policy U-turn, to boost its internal demand and support a co-ordinated expansion throughout east Asia.I've mentioned that some might consider Americans giving financial prescriptions to other countries at this stage a bit of a faux pas in yesterday's post, but I suppose at least Jeffrey Sachs does have a lot of experience doing so. And from a rhetorical perspective stressing, even if it is in the final paragraph, how it would help those being asked to make the largest policy shifts--as opposed to the West--is probably wise.
Any co-ordinated expansion should include the following actions. First, the US Federal Reserve, the European Central Bank and the Bank of Japan should extend swap lines to all main emerging markets, including Brazil, Hungary, Poland and Turkey, to prevent a drain of reserves. Second, the International Monetary Fund should extend low-conditionality loans to all countries that request it, starting with Pakistan. Third, the US and European central banks and bank regulators should work with their big banks to discourage them from abruptly withdrawing credit lines from overseas operations. Spain has a role to play with its banks in Latin America.
Fourth, China, Japan and South Korea should undertake a co-ordinated macroeconomic expansion. In China, this would mean raising spending on public housing and infrastructure. In Japan, this would mean a boost in infrastructure but also in loans to developing nations in Asia and Africa to finance projects built by Japanese and local companies. Development financing can be a powerful macroeonomic stabiliser. China, Japan and South Korea should work with other regional central banks to bolster expansionary policies backed by government-to-government loans.
Fifth, the Middle East, flush with cash, should fund investment projects in emerging markets and low-income countries. Moreover, it should keep up domestic spending despite a fall in oil prices. Indeed, the faster a global macroeconomic expansion is in place the sooner oil prices will recover.
Sixth, the US and Europe should expand export credits for low and middle-income developing countries, not only to meet their unfulfilled aid promises but also as a counter-cyclical stimulus. It would be a tragedy for big infrastructure companies to suffer when the developing world is crying out for infrastructure investment.
Finally, there is scope for expansionary fiscal policy in the US and Europe, despite large budget deficits. The US expansion should focus on infrastructure and transfers to cash-strapped state governments, not tax cuts. This package will not stop a recession in the US and parts of Europe, but could stop a recession in Asia and the developing countries."
On the other hand, officials in Beijing, Seoul, and Tokyo might be somewhat reluctant to accept the advice of Sachs, who is held responsible by many for the state of affairs in Russia where a pell mell privatization program led to an economy dominated by an oligarchy of crooks and finally, at the advice of Paul Volcker and Graham Allison's Special Economic Task Force on Russia at the Council on Foreign Relations, to the (re)-nationalization of strategic corporations which is today what causes so much gnashing of teeth in opinion pieces throughout the land.
It is already clear that the Gulf nations are scratching their heads, so to speak. AFP reports OPEC Secretary General Abdalla Salem El-Badri exclaimed at an oil industry conference today: "What is surprising me is everybody looking at OPEC to bail out this crisis. In Opec, we are most of us very poor countries, we cannot bail out this crisis." Though this might be in response to the news reported by Laurence Norman at the Wall Street Journal that UK Prime Minister Gordon Brown is seeking support from France and Germany for a plan to boost IMF resources with monies from oil-rich nations and other countries with strong current account balances, as well.
3. Anton Doroshev and Robin Paxton at Reuters report that China and Russia struck a deal today where Transneft and CNPC would build a spur of the trans-Siberian pipeline to China, carrying 300 kb/d from 2009 in return for multi-billion dollar loans to Russian companies. 300 kb/d represents about 4% of projected total consumption in China and about 8.5% of projected average daily crude imports in 2008.
"The new export-backed loan would come at a time when Russian companies find it difficult to refinance Western loans they have amassed to fuel growth at home and abroad in the past years. Rosneft owes over $20 billion to creditors.Igor Sechin, First Deputy Prime Minister in charge of oil, refused to give exact loan numbers, the breadth of Russian industry involved, or a sense, beyond the spur of the pipeline, of how much oil supply Moscow committed in return.
Transneft also needs cash to finish construction of Russia's first pipeline to Asia, which will have a spur to China and a link to the Pacific.
The 600,000-barrels-per-day pipeline is estimated to cost over $14 billion and it needs to be finished by the end of next year. It will become the main link for exports of crude from East Siberia, mainly from Rosneft's fields, to China."
4. Martin Fackler at the New York Times reports that finance ministers from the G7 issued a joint statement yesterday saying that the association was "concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability." However, the yen continued to appreciate against the dollar and other world currencies. Most analysts ascribe the rise in the yen to the "unwinding of the carry trade," where investors purchased debt in yen--because interest rates in Japan were low--and then used the capital to invest in high yielding financial instruments in other countries.
5. David Wethe at Bloomberg reports that analysts believe the credit crunch will take 20% of the orders for new offshore drilling rigs off the books as prospective purchasers cancel the deals. The company's plans most likely to be hit by financing difficulties is Petrobras, which is set to add 63 deepwater rigs by 2018 to develop the Tupi field in the Santos Basin. Takeo Kumagai at Platts reports that the volatile market has forced Petrobras to review domestic and international investments. Already plans to upgrade two 100 kb/d refineries in Texas and southern Japan look as if they are being reconsidered. The two refineries would have been upgraded to handle heavy crudes like Marlim and Roncador with an average API of around 18-25 and the products sold into the Chinese and American markets. Petrobras had been hoping to reroute the 2 million tonnes / month (471-487 kb/d) of heavy crudes it was selling directly to Sinopec in China to those refineries. Even with demand dropping in the US, I would guess that plans for refinery expansions in Japan would be dropped before expansions in America, given a large product import market in the US and price controls--which probably killed the SK Energy refinery as reported yesterday--in China.
6. Jamie Dale at Lloyd's List reports that the rate for very large crude carriers is falling, but not as steeply as the Baltic Dry Index would imply. Rates from the Middle East to Japan for very large crude carriers fell to about 67% of the standard industry rate. There are rumors that Iran is about to, or already has, leased some very large crude carriers for offshore storage. (Iran has done this in the past to take supply off the market, waiting for prices to firm before selling their heavier crudes.) As of June, Iran had as many as 15 VLCCs offshore, but by August all had been released to the spot market, which likely helped bring prices for them down.
7. Juan Cole writes that an Arabic paper is reporting that the high Shia clergy in Najaf--the refuge from which Ayatollah Khomenei crafted most of his rhetorical barbs at the Shah--is signaling that they are not backing any one party, but that followers are encouraged to vote for any party, so long as they believe it competent to address Iraq's problems. Previously, Najaf's grand ayatollah's, and most significantly Grand Ayatollah Sistani, had urged voters to back the United Iraqi Alliance, a coalition of Shiite fundamentalist parties. As Prof. Cole notes, if this report is correct, this is a very important shift away from Iran. Mary Beth Sheridan at the Washington Post reports that the political difficulty facing the Iraq Security Pact with the US is driven by al-Maliki's reluctance to alienate the Islamic Supreme Council of Iraq--an organization which until recently accepted Iran's Supreme Leader as their ultimate chief--because without their support he cannot sustain a majority. In that context, Alissa J. Rubin at the New York Times reports that the Iraqi Parliament's refusal to pass the oil law is a result of a legislative slow down instigated by the Kurdish leadership which wants its borders to include Kirkuk and the right to develop oil independently of the central government.
8. Saeed Ali Achakzai at Reuters reports that Afghani and Pakistani officials have agreed to set up joint talks with Talibani representatives regarding peace. The Taliban apparently refuses to join such talks as they have been endorsed by General Petraeus as per Yochi J. Dreazen, Siobhan Gorman and Jay Solomon at the Wall Street Journal. Remember that Pakistani President Zadari is more or less in a family feud with elements of the Taliban in Pakistan and that those same elements have pissed off, so to speak, the Pakistani military. The talks themselves in Pakistan have been supported by opposition leader, Nawaz Sharif. Still, support for Zadari in the US has not appeared to be tempered by his refusal to reinstate the Chief Justice of Pakistan's Supreme Court.
9. Ann Scott Tyson and Ellen Knickmeyer at the Washington Post report that DC officials have called the recent incursion into Syria by US troops as a warning to Damascus. Whether or not this is the genuine purpose, the timing is suspicious and will be regarded as so in the region. To what purpose? I dunno.
10. Reuters reports that Iceland's central bank lifted benchmark lending rates by 6% to 18% today! This follows the easing of fiscal policy two weeks ago when Iceland's central bank relaxed benchmark lending rates by 3.5% to 13%. Some believe the move today was part of what the IMF required in return for the recent loan made to the island nation.
11. (The Emergency Food Alliance Program) TEFAP Alliance blog reports that the Congress is considering a new stimulus plan for the economy. Members are reportedly considering two central moves: 1) an extension unemployment benefits and 2) an increase in Supplemental Nutrition Assistance Program (SNAP) or food stamp benefits. The notion is to increase consumption immediately by funneling money to folks who will likely immediately turn around and use it on a retail level. I also hear tell that food banks are empty in major cities across the US, however, and suspect this is an initial go at increasing food security. (h/t Parke Wilde at U.S. Food Policy)
12. Michael M. Grymbaum at the New York Times reports that Standard & Poor's Case-Shiller Home Price Index showed a 16.6% fall in August versus a year ago. "Phoenix and Las Vegas were hit hardest, with prices down 31 percent in both cities. Prices declined more than 25 percent in Los Angeles, Miami, San Diego and San Francisco." The Conference Board released new consumer confidence survey findings today with confidence readings falling 38.0 in October from 61.4 in September.