WASHINGTON: The International Monetary Fund on Thursday called for a “policy game changer” in the euro zone to arrest the spread of the debt crisis it now says is clearly engulfing the entire currency bloc and its smaller neighbours.

An IMF spillover report that looks at how the economic policies of the so-called systemic five economies - the United States, China, euro zone, Japan and the United Kingdom - affect each other and the rest of the world said the euro area crisis was by far the biggest concern weighing on policymakers’ minds.

The IMF said it had consulted 35 countries for the report including select number of emerging economies Brazil, Czech Republic, India, South Africa, Turkey, Russia, South Korea, Poland, Mexico and Saudi Arabia.

“Despite progress in the face of constraints, the sense is that not enough has been done to stop the spread of stresses and attenuate fiscal-growth-banking feedback loops,” the IMF said of the euro zone’s policy actions so far.

In a worst-case scenario simulated by the IMF, it found that euro zone output could be cut by five percentage points if policymakers did not act and the euro zone crisis worsened.

If the euro zone crisis intensified, the IMF estimated that the impact to the world’s poorest countries would be somewhere between mild to severe, and could push up their external financing needs by some $27 billion by the end of 2013.

But the IMF said the euro zone was not the only global worry.

Weighing possible spillovers elsewhere, the IMF also said the United States must remove the threat of a so-called “fiscal cliff” in 2013, with $4 trillion worth of expiring tax cuts and automatic government spending reductions next year, and not enough fiscal adjustments over the medium term.

Most analysts believe that Congress will not act until after the congressional and presidential elections in November.

Of China, the IMF said there was a concern that slower investment, while necessary to rebalance demand to consumption, would hit trade partners and world prices. A one percentage point cut in Chinese investment growth would have a large impact on its Asian suppliers, while effects on Japan and Germany would also not be trivial, it added.

High public debt in Japan makes it vulnerable to an abrupt shift in market sentiments, while the United Kingdom should take further steps to fortify its financial system and underpin confidence in banks, the IMF said.

Ranjit Teja, the report’s lead economist, said emerging economies had complained that easy monetary policy in the United States, Europe and Japan had created a surge in capital inflows, higher commodity prices and raised the risk of asset bubbles.

Teja said the impact of monetary easing measures was not clear-cut but it did not mean that emerging economies have not been affected.

The Daily Sun/Bangladesh/ 4th Aug 2012

The Bangladesh Bank has taken a special move to increase the inflow of remittance along with boosting sales of three bonds and holding investment fair in a bid to build up foreign exchange reserve.

On the basis of the latest move taken by the Bangladesh Bank, a high-powered team of the central bank will visit the United Kingdom and United States in the second and third week of September this year to create awareness among non-resident Bangladeshis (NRBs) through arranging road shows.

The three bonds are: US Dollar Premium Bond, US Dollar Investment Bond and Wage Earner Development Bond.

The decision was taken at a meeting with managing directors of different commercial banks of the country at the Bangladesh Bank’s conference room Thursday with Dr Atiur Rahman, Governor of Bangladesh Bank in the chair.

Abul Kashem, Deputy Governor of Bangladesh Bank, Senior Executives of BB and other Chief Executives Officers of different commercial banks were present at the meeting.

Giving emphasis of the present government’s importance on the increase of selling bonds, the BB Chief said the central bank has taken a wide-ranging activities for selling the bonds to the NRBs that will contribute to development in Bangladesh.

In this regard the bank has already been providing advertisements to the print and electronics media, distributing leaflets and giving information about bonds related matters through different help desk of the bank.

"The delegation will go to the United Stats after completing visit to the UK," the BB chief Boss told daily sun after the meeting, adding they have also planned to visit the Kingdom of Saudi Arabia (KSA) in the near future.

During the awareness building campaign, the delegation will take help of Bangladeshi banks' exchange houses abroad to arrange road shows.

The bank took an initiative to arrange road show in the United Kingdom, United States, Kuwait, Malaysia, Singapore and UAE.

Remittances from expatriate Bangladeshis came US$1.2 billion in the first month of the current fiscal, exchange companies of abroad played an important role in this regard, the BB Governor said.

The Daily Sun/Bangladesh/ 4th Aug 2012

Merchant banks yesterday urged the National Board of Revenue (NBR) to incorporate interest waiver and margin loan impairment costs into expenses for small investors.

“Fair treatment of impairment and waiver in tax will allow merchant banks to mitigate the impact of negative equity in client portfolio,” said Mohammad A Hafiz, president of Bangladesh Merchant Bankers Association (BMBA).

Merchant banks need loan rescheduling at 10 percent rate and capital support by way of a refinancing scheme of Tk 900 crore to implement the investors' incentive package, Hafiz said at a seminar, 'Solving the Merchant Banks' Fund Crisis' at Hotel Purbani International in the city.

“The refinancing scheme will perk up the trading activities of merchant banks,” he said.

Hafiz said that around Tk 5,500 crore of margin loans, as per BMBA estimates, is stuck due to the market downturn, and is on the verge of becoming bad loans.

“Some valued clients now have negative equity,” said Hafiz, laying bare the damages caused by the market downswing.

Due to the margin loan rescheduling and interest waiver, merchant banks will have to incur a loss of Tk 340.75 crore over the next three years, he added.

The small investors, who lost money to market downswings in 2011, will get a waiver of 50 percent of interest on their margin loans.

“The securities regulator should allow premium IPOs (initial public offerings) to be listed on the bourses to increase the supply of good shares to the market,” said Akter H Sannamat, managing director and chief executive officer of Union Capital.

The good companies will not be interested in listing otherwise, said Sannamat.

He also asked for a special IPO quota for institutional investors on the grounds that prices would be more stable if the institutional investors are allowed to fix them.

The Daily Star/Bangladesh/ 1st Aug 2012

Mario Draghi

Can Super Mario save the euro? Mario Draghi said last Thursday that the European Central Bank's job is to stop sovereign bond yields rising if these increases are caused by fears of a euro break-up. While this represents a sea-change in the ECB president's thinking, it risks sowing dissension within his ranks. He will struggle to come up with the right tools to achieve his goals.

Draghi seemingly stared into the abyss and had a fright. Spanish 10-year bond yields shot up to 7.6 percent on July 24 while Italian ones rose to 6.6 percent. The high borrowing costs are not simply a reflection of the two countries' high debts and struggling economies. Investors also fear “convertibility risk” -- or the possibility that the euro will break up and they will get repaid in devalued pesetas and liras.

The central banker's statement that dealing with convertibility risk is part of the ECB's mandate is therefore highly significant. He rammed home his message, saying: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

Markets responded swiftly. Spain's borrowing costs fell to 6.8 percent, while Italy's dropped just below six percent. But these yields have to drop below five percent -- and stay there -- before confidence in the euro project will return. What's more, it's unclear what Draghi will actually do.

One possibility, immediately latched onto by investors, is that the ECB will relaunch its programme of buying government bonds in the market. But such an operation would be tough to calibrate. If the ECB was prepared to do whatever it took to drive yields below a certain level, the pressure would certainly be off Spain and Italy. But politicians might then stop reforming their economies. When the ECB bought Italian bonds last summer, that's precisely what happened.

That's why Germany's Bundesbank, which has a powerful voice within the ECB but no veto over its actions, is opposed to bond-buying potentially setting the stage for a stormy meeting when the ECB governing council meets to discuss what to do on Aug 2. It's not yet clear how big a spoke the German central bank will be able to put into Draghi's plans.

On the other hand, if the ECB made its support conditional on good behaviour, investors might not be reassured. Their anxiety would be heightened if central bank bond-buying pushed private creditors down the pecking order. That's what happened when Greece's debt was restructured earlier this year: private bondholders suffered big losses while the ECB theoretically stands to make a profit. A half-hearted bond-buying programme might therefore simply encourage investors to dump their holdings on the ECB while having no lasting effect on Spain's and Italy's borrowing costs.

Draghi may think that the two countries' current leaders Spain's Mariano Rajoy and Italy's Mario Monti -- are more serious about reform than their predecessors Jose Luis Rodriguez Zapatero and Silvio Berlusconi. But even the new leaders have shown signs of losing momentum. Rajoy's latest spurt of action -- further budget-tightening and a plan to recapitalise the country's struggling banks -- only occurred because his back was to the wall. In Italy, meanwhile, Monti says he will stop being prime minister next spring. It's not clear whether his successor will be committed to reform.

For these reasons, Draghi seems reluctant for the ECB just to buy bonds on its own. Rather, he seems to want to do so in combination with the euro zone's bailout funds, which have the ability to buy bonds directly from governments -- something the ECB is banned from doing. One advantage is that Madrid and Rome would have to sign memorandums of understanding setting out their reform plans in order to access the bailout funds. It would then be easier to hold them to their commitments.

A further idea, reported by Reuters, could help deal with private creditors being pushed down the pecking order. Policymakers are working on a “last chance” option to cut Athens' debt -- involving the ECB taking a haircut on its Greek bond holdings. If that happened, investors would worry less about being unfairly treated if Spain or Italy ever needed to restructure their debts. They might then not view bond-buying as the perfect chance to offload their holdings onto the public sector.

The two-pronged approach is preferable to the ECB buying bonds solo. But it would still put the central bank in the front line of rescuing governments. A better approach would be to scale up the euro zone's bailout funds and get them to do the entire job of lending to Spain and Italy, if they need help. This could be achieved by letting the soon-to-be-created European Stability Mechanism (ESM) borrow money from the ECB.

Draghi should prefer lending to the ESM than buying Spanish or Italian bonds because, if either country got into trouble, the bailout fund not the ECB would take the first losses. Unfortunately, the ECB said last year that extending loans to the ESM would contravene the Maastricht Treaty -- a position Draghi himself repeated after he took over as president, even though there are plenty of lawyers who think the opposite.

Super Mario is now warming to the idea of lending to the ESM, according to Bloomberg, even though that's not part of his immediate plan. If Draghi does this, he'll have to find a way to eat his words without losing credibility. If not, he will have to rely on second-best options with all their drawbacks. Mind you, it's the job of super heroes to get out of tight spots.

The Daily Star/Bangladesh/ 1st Aug 2012

A Bangladeshi Islamic bank went to court to take three Jeddah-based terror-link suspected entities off its shareholders' list in an attempt to avoid international business restrictions.

Social Islami Bank Ltd, known as SIBL, has filed a lawsuit with the Fifth Joint District Judge's Court in Dhaka on Monday, said Ahsanul Karim, a lawyer for the Bank.

The case was filed against two non-government organisations -- International Islamic Relief Organisation (IIRO) and Islamic Charitable Society (ICS) -- and one Saudi individual named Shahir Abdulraouf Batterjee, the scion of a wealthy Saudi family. There are allegations against them that they have terrorist financing links.

“The Bank (SIBL) has filed the case seeking the court's direction on how to take them off its shareholders' list,” Karim told The Daily Star.

He said the SIBL has also sought the court's directive on the fate of the three entities' investments in the bank.

The IIRO and ICS came under the spotlight last month in the media after disclosure of a probe report by the US Senate Permanent Subcommittee on Investigations, on HSBC's lax governance to control money laundering.

The report detected that two Bangladeshi private banks -- Islami Bank and SIBL -- have foreign shareholders who are allegedly involved in terrorist financing.

According to SIBL data, both the IIRO and ICS became the bank's shareholders at the time of its inception in 1995.

Though the IIRO owned 8 percent shares of the Bank's Tk 20 crore paid-up capital in 1995, it is not a promoter. The IIRO, which is allegedly linked with Al-Qaeda founder Osama bin Laden's brother-in-law, now owns only 1.61 percent shares, equivalent to Tk 10.29 crore of the Tk 639.4 crore paid-up capital of the bank.

The ICS now owns only 0.14 percent shares of the bank, equivalent to Tk 89 lakh. Batterjee also has an insignificant number of shares, Bank officials said.

“Their names on our shareholders' list will hamper our international business. We want to get rid of them,” said Muhammad Ali, managing director of the Bank.

"After all the bank has to do business as it deals with Tk 8,000 crore (nearly $1 billion) deposits," he said.

Ali said the IIRO, ICS and the Saudi national have been implicated in terrorist financing by the US government and included on the list of those prohibited to do business in the US.

These organisations also face sanctions from the US Treasury Office of Foreign Asset Control (OFAC) and the United Nations.

“None of these three shareholders has transacted any amount from their accounts till date,” Ali said.

AMM Farhad, deputy managing director of the Bank, said they have communicated several times with these shareholders, including IIRO's Dhaka office, after the central bank asked the bank in 2006 not to transact with these terror-suspect organisations and person. But the Bank did not get any response from them.

“We had no way but to seek the court's intervention to remove them,” said Farhad. “We have taken the move for public interest,” he added.

Bangladesh Bank, the country's central bank, in 2006 took actions against Islami Bank and SIBL for their involvement in money laundering. The central bank in 2006 banned IIRO and ICS and prohibited transactions with them.

“We stopped depositing dividends to IIRO and ICS's accounts since the ban. But we credited dividends after the BB withdrew the restriction in 2010,” said the deputy managing director.

SIBL again froze these organisations' share accounts after their names came in the US Senate probe committee, said Farhad.

Ali said the three became the shareholders of the Bank when MA Mannan, one of the founders of the bank, was in Saudi Arabia on his job in the Organisation of Islamic Conference (OIC) and collected money from there for setting up the Bank.

Ali said, at that time Hamid Algabid, the then OIC secretary general (1989-1996) and a Nigerian politician, also bought some shares of the Bank that now values at Tk 7-Tk 8 lakh.

The Daily Star/Bangladesh/ 1st Aug 2012