Brazil, the IMF’s A-List, and Currency Swaps

Following up on my earlier post in response to this Guardian story that offered an un-attributed claim that Brazil was appealing to the IMF for loans, it now looks like the Guardian wasn’t so much wrong as just a little inaccurate fuzzy on the details. Whereas the original Guardian story had spun the situation as though the wealthy nations of the Global South had come to D.C. with hat in hand, it looks like a totally different situation is in fact unfolding. The new liquidity fund is meant to offer stable “A-list” economies of the South the chance to strengthen their currency reserves in the event that foreign investment flows continue to run dry. According to the WSJ:

The IMF’s new program, called the Short Term Liquidity Facility, would be used largely to pad a country’s reserves, which could help the recipient defend its currency. But the funds could also be used to help recapitalize banks or cover import bills.

The IMF plan is its clearest recognition that its insistence on tough conditions is driving away potential borrowers that might need its help. But the new plan also puts the IMF in the position of deciding who can have money with few strings attached, and who can’t.

The attempt to draw a bright clear line between “responsible” and “irresponsible” borrowers is certainly new. It will be interesting to see where it leads.

Back to Brazil, though.

Reuters (via the Economic Times of India) actually found someone in Brasilia to do some reporting and added the following:

Brazil welcomes a new liquidity fund proposed by the International Monetary Fund to help emerging markets but does not see a need to draw on the funds for now, a source close to President Luiz Inacio Lula da Silva said on Wednesday.

“I don’t know if we will draw (on the fund) in the future. But we don’t need the money now,” the source said on condition of anonymity. The IMF board is considering a proposal for the Fund on Wednesday and an announcement is expected later in the day.

The Folha de São Paulo added even more critical details in its coverage, also noting that the IMF actions came in conjunction with an announcement that the US Federal Reserve will begin offering Brazil currency swaps at no cost in an effort to help the Lula government pump liquidity into the national economy:

The Central Bank [of Brazil] noted that, “these central banks of emerging economies with responsible fiscal policies and systemic importance,” will now be included in the global network of currency swaps.

The central banks of Australia, Canada, the Euro Zone, Denmark, the U.K., Norway, New Zealand, Sweden, Switzerland, and the U.S. Federal Reserve are currently part of that network. (my translation).

The Folha’s account was reiterated by Bloomberg as well, although the New York-based financial news agency did see fit to print at least one offensive, infantilizing quote that portrayed the poor countries of the world as naughty elementary school students:

“The Fed is there to support large emerging markets that have done their homework over the past several years like South Korea, Brazil, Singapore and Mexico,” said Alonso Cervera, a Latin America economist with Credit Suisse Group in New York.

If the central bankers of the world just needed to do their homework in order to build stable economic systems, I’d like to think that Alan Greenspan wouldn’t have had such a hard time.

Anyhow, if I understand this correctly, the actions taken by the IMF and the Fed signal an effort to treat these four middle income countries with an unprecedented level of parity in response to a crisis that has far exceeded anyone’s expectations. The implications for the post-election day Global Financial Summit are intriguing: will the members of the G22 now have a more substantive place at the bargaining table with an embattled Europe and U.S.? If so, will the Southern super-powers use their authority to defend the interests of their less well-off neighbors or will they merely seek a bigger slice of the pie?

IMF swoops in with cash, conditionalities

Iceland and Hungary are the first recipients of IMF loans as a result of the current global financial crisis.

In a sign of what’s to come, the Fund is already demonstrating its continued willingness to impose policy conditionalities on borrower states.

The Guardian has the story in Hungary:

This week the International Monetary Fund stepped in to stop any more investors from pulling their funds out of the country altogether. Hungary is now set to become the first EU state to receive an IMF lifebelt – of around €12.5bn.

The bail-out announcement received a mixed response in Budapest yesterday. “We have a credit noose around our necks,” declared the rightwing daily Magyar Hirlap, while another paper showed bundles of forint notes being sucked up by a cyclone.

“This is going to be tough,” said the tabloid Blikk, pointing out that a condition of the loan would be a 300bn forint cut in public spending, which will likely lead to high inflation and attacks on social benefits.

And the Financial Times covers Iceland:

The application will be presented to the IMF’s board on Thursday and the central bank said a condition attached to the loan was for a rate rise to 18 per cent.

The move reversed a 3.5 per cent rate cut announced just two weeks ago by David Oddsson, central bank governor, underlining the influence the IMF now has over policymaking in Iceland.

Brian Coulton, managing director at Fitch Ratings, the credit rating agency, said Iceland’s central bank had “no choice but to work very closely with the fund”.

While the policy conditionalities attached to the loans appear less extensive than the intrusive demands the IMF and World Bank used to place on its borrowers, the persistent willingness of the Fund to dictate borrower fiscal policy suggest that the D.C.-based institution has failed to learn from experience. IMF-sponsored structural adjustment policies implemented throughout the 1980’s and 90’s precipitated a string of fiscal crises in the economies of the Global South.

While I’ll have to dig around in the academic journals to assess whether there’s any evidence that IMF-loans caused later crises among borrower countries in the 80’s and 90’s, the historical record in places like Argentina, Mexico, and Brazil is pretty clear: in the process of imposing conditionalities had profound flaws that facilitated the collapse of otherwise strong currencies.

The obvious difference this time around is that the borrowers are in Europe – it will be interesting to see how this affects outcomes.

de-facto win for Google Books

The landmark settlement between Google and a group of authors & publishers looks like a de-facto victory for Google and those of us with an interest in searchable books online. Other than putting themselves on the right side of history, what’s the upside for the publishers here?

Dean, Goldwater, and the Netroots

My discussion with Jon Henke and Patrick Ruffini at The Next Right made it into kos’s Sunday reading and he responded with a lengthy reflection on Howard Dean, the Goldwater Republicans, and the netroots (past, present and future).

Mulling over Henke’s and Ruffini’s respective suggestions that Romney or Palin take the lead of the RNC, kos pulls out an intriguing alternative:

While I’m not keen to offer the GOP advice, here’s who I think (in a genuine, non-concern-troll way) would be their best candidate: Mike Huckabee. He is exactly the GOP’s version of Howard Dean — a popular governor of a small state, with a huge, energized following who briefly led his party’s nomination contest before being kneecapped by his party’s establishment. Like Dean, Huckabee isn’t an insider, isn’t one of them, and as such, isn’t bound by their outdated and obsolete conventions. Like Dean, Huckabee offers a different direction from his party. Dean wanted muscular, unapologetic progressivism. Huckabee wants a more compassionate version of conservatism — not fake “compassion” like Bush’s, but the real stuff. “Big government conservatism”, as his fiercest detractors charge.

kos then goes on to argue that while Huckabee has the support of the theocratic base, the internal divisions between theocons (e.g. Huckabee and Palin) and corporate-cons (e.g. Giuliani and Romney) are likely to sabotage efforts to achieve party unity for quite some time. He also lays out an important obstacle that Huckabee never quite overcame:

But if Huckabee has the ground troops, what is he missing? The money. He got far in his primary race without any, winning Iowa with something like $27. But he won’t be able to rebuild his party on shoe leather alone.

Us Demcoratic rebels bypassed the Terry McAuliffe wing of our party by building our own alternate small-dollar fundraising mechanism. Without that cash, Dean would’ve never existed, and the establishment’s favorite candidate, Hillary Clinton, would’ve been (for better or for worse) our nominee and future president. Her hundred million dollars wasn’t enough because Obama was able to match her dollar for dollar in 2007, and ultimately blow by her in early 2008.

Huckabee, for all his talents, has been unable to motivate his ardent supporters to pony up. That’s the challenge for the GOP’s Huckabees — to create their own independent funding mechanism distinct from the corporate con spigot. Once they have that figured out (perhaps Sarah Palin’s role in the process?), their civil war will be fully engaged.

Conservatives laughed when Dean took the DNC’s helm and look how that turned out. But our differences with the DLC types was a matter of degree and strategy — a little more populist, a lot more aggressive. The fundamentals that united us as a party were not ideologically mutually exclusive.

kos’ assessment takes it for granted that we’re witnessing the collapse of the Goldwater/Reagan alliance of cultural and fiscal conservatism that has been the bread-and-butter of the Republican party for the better part of 50 years. If that is the case, the resulting shake-up may do more than merely re-structure the composition of the Right; it may provide the basis for a much broader realignment of the electorate.

Before I get to that, however, I should point out that the parallel between Dean and Goldwater is illustrative for several reasons, all of which support the view that the Right today faces a totally different sort of challenge. In both cases, the candidate represented a vocal and growing faction within his party. It also helped that these respective factions could boast of robust organizational strategies that successfully scaled at the national level.

Can the same be said of the Palin/Huckabee supporters within the Republican party today? I don’t think so, although I’d welcome evidence to the contrary.

Now, to the question of re-alignment. If the subsequent struggle for power is half as scornful as Peggy Noonan, the GOP will splinter even further than it already has. It’s still too difficult to predict the impact this might have on the national political scene, but the profound demographic and cultural changes that have taken place since Goldwater could facilitate the rise of a new conservative alliance to replace the old.

What would that new alliance look like? Clearly, there are potential constituencies among the Huckabee and Ron Paul acolytes. However, in order to rise to national power, any new conservative movement will need to take a substantial bite out of the groups currently supporting Democrats. I don’t have any insights into how that will happen, but the current jockeying for position within the Republican party will likely determine the available options.

My Fair Election

Check it out

mashup democracy...

Quite an impressive tool that could enhance electoral transparency – although I suspect it might get wider use if the code could be embedded in social networking sites and other services that people are already using.

This kind of “political weather” usage of the google maps code is an interesting trend.

(h/t AF)

Strategy vs. Tactics (again)

Also in today’s NYT: A revealing comparison of the candidates’ respective endgames.

Just like Al Giordano said, Obama’s coming full-circle on a long-term effort to persuade voters of his vision for a more perfect union. The closing argument will echo his national debut at the Democratic Convention in 2004:

From here on out, Mr. Obama’s aides said, attacks on Mr. McCain will be joined by an emphasis on broader and less partisan themes, like the need to unify the country after a difficult election.

Go back and watch the video from the debates. Obama does this every. single. time. and the little squigglies go off the charts as he builds towards his conclusion. I can only imagine that this approach will prove even more effective on a massive scale, when the concerted media spotlight amplifies the effect.

Meanwhile in Mavericktown:

Mr. McCain will stick with the message he has embraced over the last week, presenting Mr. Obama as an advocate of big government and raising taxes. His advisers say they will limit the numbers of rallies where he and Ms. Palin appear together, to cover more ground in the final days.

What part of “these attacks aren’t sticking” does the McCain crew not understand? This didn’t work during the debates, it hasn’t worked during the past two weeks, and it’s reinforcing the perception that McCain, Palin, and co. are simply out of touch with the substantive concerns of the electorate.

Everybody’s favorite corrupt D.C. has-been has a pitch-perfect soundbyte summary of the situation:

“Any serious Republican has to ask, ‘How did we get into this mess?’ ” Newt Gingrich, the former Republican house speaker, said in an interview. “It’s not where we should be, and it’s not where we had to be. This was not bad luck.”

Newt’s transparently trying to sell the commentariat on the (misleading) idea that he could have done better, but the man has a point…

Spare tire or fifth wheel?

In an NYT op-ed today, Glenn Reynolds performs dizzying feats of illogic, twisting and stretching a strict-constructionist definition of the vice-presidency like a balloon animal at a children’s birthday party:

The most important function of a vice president is to serve as a spare president. Using the spare president in the ordinary course of business is as unwise as driving on one’s spare tire. Spares should be kept pristine, for when they are really needed.

If the president resigns or is removed from office, a vice president who has been involved in the activities of the executive branch is also likely to be at risk for impeachment. Just as important, a vice president who is enmeshed in the affairs of the president cannot offer a fresh start for the executive branch.

This odd line of defense of Sarah Palin’s ignorant statements on the subject has very little basis in either precedent or case-law (and last time I checked, that was still the way our legal system was supposed to operate).

Reynolds has been making the same case for years, but has still not found a way around earlier critiques of his underlying assumption that it is illegal for the president to delegate executive powers to elected officials.

In calling for congress to legislate the responsibilities of the VP’s office, Reynolds thus endorses a strangely activist interpretation of the constitution that does not reflect the evolution of the executive branch during the last half century. Forgive me if I’m missing something here, but I just don’t see the point (beyond reading this as a chivalrous effort to save Palin from herself).

If the congress wants to take action to prevent Cheney-esque abuses of power in the future, there are more restrained and direct ways of doing so that do not involve such precious legal reasoning.

Stuff White Pundits Like

Despite taking the UK Guardian to task for perpetuating some unsubstantiated rumors about the Brazilian economy, I am enjoying the series of encomia they’ve been running on their editorial page lately.

Here’s the first one I saw In Praise of Larry Lessig.

More recent contributions include pieces on The New York Review of Books, Hawaii, and Literary Bequests.

Global leaders <3 the IMF, but Brazil?

Didn’t see this story until after I had posted earlier today. The lede from the Guardian:

Asian and European leaders today called for more international regulation and a stronger role for the International Monetary Fund in response to the worst financial crisis since the 1930s.

No surprise there. All the questions I outline in my post below still apply.

Meanwhile, the story goes on to include at least the second mention I’ve seen that Brazil is considering going to the IMF for funds in response to the crisis.

The problem is there is no attribution for this assertion, which (if it were true) would constitute a major about-face for the Lula government and a big news item in Latin America’s most populous nation and most globally integrated economy.

So, did the author just make it up? I don’t know, but I can’t find any evidence to support his claim in the financial section of Brazil’s most reputable paper, the Folha de Sao Paulo. Similarly, other English language publications, such as the Christian Science Monitor, have run stories suggesting that Brazil is among the best prepared countries to weather the crisis in terms of its cash reserves.

Given the sensitivity of global markets right now, I hope the Guardian editors will consider investigating this rumor before it gets out of control. Bond rating agencies read this kind of stuff and they won’t like it even if it is just an irresponsible slip.

Reinventing the IMF?

With the continued decline of financial markets and the threat of radical destablization throughout the Global South, I suspect that a consensus view that the IMF must step in to ensure the solvency of developing countries is already spreading quickly among the punditocracy and major news outlets.

The IMF (photo by Kyrion cc-by-nc-nd)

Given the weakened condition of wealthy states and corporations, the IMF will play a major role in any sort of multilateral bailout. Indeed the crisis presents an opportunity for the Fund to resurrect itself after a number of very, very bad decisions made in the Neoliberal 1980’s and 90’s finally came home to roost, bringing shame upon the organization and its ideas.

The question is what kind of an IMF will we get this time around? The critical work of Joseph Stiglitz, Ngaire Woods, and others has provided ample evidence that the Fund’s proclivities for anti-poor policies were not an accident, but a systematic result of the organization’s structure and culture.

Since 2002 (when such positions first gained widespread traction), there has been much talk of reform – a trend which will no doubt continue well past November’s Global Financial Summit – but precious little action.

The U.S. and Europe still retain a ridiculous share of the voting power within the IMF, World Bank, and the WTO, virtually guaranteeing that they will strong arm through whatever solutions they deem fit. While Ambassadors, Trade Representatives, and their ilk may talk a good game about promoting equality through increased multilateral liberalization, the bottom line is that truly equitable trade will not come about without a substantial sacrifice by the traditional “Great Powers” of the West. The recent trend of the U.S. and E.U. pursuing absurd schemes to evade accountability and transparency by undermining global forums also belies any rhetoric of good will.

Does the IMF have what it takes to bring about a true shift in the underlying structures of the global financial system? I doubt it, but it will be revealing to see just how hard Dominique Strauss-Khan (if he holds onto his job now that he has officially held onto his job despite a sex scandal) and his colleagues will try.