Posts tagged ‘IMF’

Wednesday, April 14, 2021

Trans-Pacific Press Review (TPPR), April 14

Happy reading …

Date Item
April 1 Argentina has sought Chinese support in its negotiations with the International Monetary Fund (IMF). Argentina started with reaching an agreement with the IMF. China is one of Argentina’s biggest trade and investment partners. According to a report by Argentina’s embassy to China, Argentina’s ambassador to China, Sabino Vaca Narvaja, has had meetings with high-level Chinese officials. The purpose was to ask China to support Argentina in its talks to have deadlines extended and interest on debt lowered.
April 9 Prince Philip, the Duke of Edinburgh and a master of innocuous small talk, died last Friday.
April 9 Also on Friday, the world’s biggest Mazu pilgrimage started in Dajia District, Taichung, Taiwan.
April 9 Still on Friday, China’s ambassador to Canada had reassuring news for Michael Spavor‘s and Michael Kovrig‘s fellow citizens: the “vast majority” should not worry about being kidnapped by the police, he reportedly told a Zoom audience Memorial University of St. John’s.
(I suppose his wording was a bit different from kidnapped by the police, rather something like “people engage in those criminal activities, whether it’s Canadians or other nationalities”.)
April 12 Gao Fu (高福), head of the Chinese Centres for Disease Control and Prevention, has been quoted as saying that China’s current vaccines  “don’t have very high rates of protection”, but later referred to this statement as a “complete misunderstanding”.
April 14 US climate envoy John Kerry is in China, and two authors on Foreign Policy have some advice for him.
April 14 Also, a US delegation is in Taiwan at President Joe Biden‘s request. President Tsai Ing-wen will reportedly meet with the delegation on Thursday morning.

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Related

Universal topics, Mar 22, 2018
RAE adds Chinese programs, Jun 10, 2013

Tuesday, June 14, 2011

Euroland, Aching to Grow

Our Beautiful Money

When I listened to the Voice of Greece last time, probably on a Sunday morning in May, while doing my share of the chores, I caught myself thinking something like: Why the heck are they still broadcasting on shortwave, while other countries, including mine, are cutting their foreign radio stations’ budgets? My brain didn’t add “It’s our money”, because, despite reading Germany’s biggest tabloid once in a while, I know that things are a bit more complicated. It’s more like the banks’ money, or it’s becoming the money of the German state, several other European states, and the European central bank’s in that they are trying to save not only the commercial creditors’ existence, but actually every Eurocent the Greek state owes to the commercial banks.

I hope the Greek government won’t get this influential blog wrong. I love shortwave radio, and I don’t care how the Greeks find their feet again, as long as they do manage to bounce back at all. And while I do feel that, once upon a time, a Greek government did fool Berlin and many other Euroland capitals when it provided numbers seemingly consistent with the convergence criteria and joined Euroland – apparently in 2002 -, its European partners were only too willing to be fooled at the time. And I guess that next time a similar opportunity arises, they will be only too willing to be fooled, once again.

It would be heartening to think that even the most skeptical German might have some sympathy for the average Greek,

Inside Greece wrote in May, given that the average Greek, knowing nothing more than you or I about political economics, was still facing a barrage of opinions on debt restructuring.

Which is true. But it would be heartening, too, to think that even the most skeptical Greeks might have some sympathy for the average German, who has lived with very little growth in individual purchasing power ever since the mid-1990s, who has seen restructuring which spelled upheaval of sorts, and who is under the impression that this was exactly the restructuring the Greeks saved themselves, at about the same time, and at our costs.

Either way, the main question is no longer how we got into the mess, but how we get out of it again – as Europeans, if possible.

Want of Fresh Ideas

Premature Concept

Science and Politics

The Economist is in no doubt about which European state can do most to prevent the situation from aggravating further. But

[Germany’s] strategy, in so far as there is one, has followed a twin track. One has been to push others to adopt Germanic rigour through tougher fiscal rules and a “fitness programme” to make economies more competitive. This is meant to prevent a future crisis. As for today’s ills, caused by the sins of the past, the answer has often been just to play for time: to try to repair Europe’s banks, insist on deficits being trimmed and hope that growth makes the problem more manageable. (May 14, 2011, page 40)

And the same article pointed out that Germany had opposed Eurobonds, resisted immediately imposing losses on bondholders (while insisting that they had to share the pain from 2013), and backed arguments against Ireland burning its bank creditors.

What strikes me most is how resentful – and at the same time fatalistic – many of my compatriots seem to react to the bad  news they are showered with. Granted – Germans and revolutions live on two different planets. But innovative thought should be nothing outlandish here.

I am skeptical of too innovative ways of thinking, and frequently, what is meant to be innovative is in fact only dogmatic. The political Left and the Vatican aren’t as different from each other as they may like to think. But this country would deserve a much more open press which would discuss real political alternatives. There will be no change without new concepts. Christian Y. Schmidt, a journalist living in China, stated correctly in a talk half a year ago that even though the German press criticized the government – and the opposition – frequently and with pleasure, there were limits. Germany’s economic order wasn’t questioned. The idea that banks could be nationalized, as a result of the recent financial crisis, hadn’t been discussed in the aftermath of the global financial crisis.

Not that nationalizing the banks would necessarily be a great idea. But legislation that would make banks more responsible creditors, and less prepared to bet on bailouts with public money, is mandatory. Unfortunately, German politicians have preferred to defame the Greek pension system, rather than to address the actual issues.

I have shifted somewhat during the past few years, from reading mainstream printed papers to more “exotic” stuff online. Der Spiegelfechter is a website which provides posts from fresh (usually rather leftist) perspectives, and its contributors aren’t shying away from explaining  the background to the issues in the news (in German).

In many cases, I disagree with hopeful leftist articles about a European preparedness to address the real issues. When – mostly young – Spaniards began to protest at Madrid’s Puerta del Sol, for example, I heard some of them vent their frustrations in front of a BBC microphone – in Spanish. It struck me because, whenever they can, BBC reporters seem to use  English-language statements from foreigners in their coverage, even from Joe Blow. Could it be that there were no protesters with sufficient confidence in their English language skills available? If so, don’t blame the state for that.

And am I jumping to conclusions when thinking that many “people in the street”  are just as prepared to have their lives subsidized, as are many commercial banks?

Change don’t come Easy

In the Grapes of Wrath (1939), chapter 14, John Steinbeck wrote:

The causes lie deep and simply – the causes are a hunger in a stomach, multiplied a million times; a hunger in a single soul, hunger for joy and some security, multiplied a million times; muscles and mind aching to grow, to work, to create, multiplied a million times. The last clear definite function of man – muscles aching to work, minds aching to create beyond the single need – this is man. To build a wall, to build a house, a dam, and in the wall and house and dam to put something of Manself, and to Manself take back something of the wall, the house, the dam; to take hard muscles from the lifting, to take the clear lines and form from conceiving. For man, unlike anything organic or inorganic in the universe, grows beyond his work, walks up the stairs of his concepts, emerges ahead of his accomplishments. This you may say of man – when theories change and crash, when schools, philosophies, when narrow dark alleys of thought, national, religious, economic, grow and disintegrate, man reaches, stumbles forward, painfully, mistakenly sometimes. Having stepped forward, he may slip back, but only half a step, never the full step back.

I hope this is true. And I hope that what followed in the same chapter, is not:

This you may say and know it and know it. This you may know when the bombs plummet out of the black planes on the market-place, when prisoners are stuck like pigs, when the crushed bodies drain filthily in the dust. You may know it in this way. If the step were not being taken, if the stumbling-forward ache were not alive, the bombs would not fall, the throats would not be cut. Fear the time when the bombs stop falling while the bombers live – for every bomb is proof that the spirit has not died. And fear the time when the strikes stop while the great owners live – for every little beaten strike is proof that the step is being taken. And this you can know – fear the time when Manself will not suffer and die for a concept, for this one quality is the foundation of Manself, and this one quality is man, distinctive in the universe.

Human brains will need to be aching to work and to create, too.

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Related
» Creative Destruction or Development, March 15, 2010
» From Confederacy to Federation, Joschka Fischer, May 12, 2000

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Sunday, October 10, 2010

RMB Appreciation: the Specter of a “Lost Decade”

Maybe as a contribution to reported efforts by Japanese premier Naoto Kan and Chinese chief state councillor Wen Jiabao to mend bilateral ties, Takatoshi Ito, a Japanese economist and University of Tokyo professor, has some words of advice for the guardians of China’s currency, especially those who disapprove of a rise in the Yuan RMB’s exchange rate. On October 7, Ito wrote in an article for the Handelsblatt that

A specter haunts China’s exchange-rate system: the long-standing dispute between the US and Japan during the 1980s and early 90s about the Japanese Yen’s value. The dispute only ended when Japan’s economy entered its “lost decade”. The Chinese are determined not to repeat this experience. Obviously, history – and the history of finance in particular – never repeats itself to the letter. But the arguments one can hear concerning the Yuan these days do generate a strong sense of déjà-vu among the Japanese.

From JR's foreign currency reserves

From JR's foreign currency reserves

Just as back then, US Congress – preparing retaliatory action – is the center of American anger, reacting to pressure within the US, writes Ito, citing the September 1985 Plaza Agreement as China’s main argument against RMB appreciation. After America, Britain, France, Japan and West Germany had agreed to common efforts to depreciate the US dollar, the Yen’s exchange rate rushed from 240 to 178 Yen per USD by March 1986. Japan intervened into the opposite direction: lowering interest rates, selling Yen and buying Dollars. Low interest rates discouraged capital inflow and pushed inflation of assets.

Ito:

The bubble of Japanese property and share prices didn’t build and burst because Japan had given in to US pressure to revaluate the Yen, but because it resisted [appreciation]. If China wants to draw the right conclusions from Japan’s experience, it needs to know what really happened in Japan back then.

China should look carefully if there are indications of overheating within the domestic economy, and if prices for shares are rising sharply. To allow for a rise in the Yuan’s value would be a good approach to avoid both.

Michael Pettis believes that the rise of the RMB’s value will be inexorable, and adds a warning:

This is the problem China faces.  It must raise the value of the renminbi as part of its rebalancing towards greater domestic consumption, but if it does so too quickly, the rebalancing will occur not as an increase in consumption relative to rising production, but rather as a drop in production relative to declining consumption.

This may seem like a confusing point, but it is worth understanding.  China can rebalance with high unemployment as well as with low unemployment, and the difference has to do with the speed of the rebalancing.  If China adjusts too quickly, consumption will actually decline, and production will decline even faster.  In that case China rebalances (consumption rises as a share of GDP), but under conditions of rising unemployment.

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Related
“Full of Expectations”, October 5, 2010
Geithner/Soros/Summers: “Growth Now”, June 23, 2010
Laobaixing against RMB appreciation, April 26, 2010

Wednesday, June 2, 2010

Press Review: “a Hate-Filled Press Campaign”

Asked to comment on the resignation of Koehler, Chinese Foreign Ministry spokesman Ma Zhaoxu said China hopes to work with Germany to develop a stable and long-term bilateral relationship.  “This is in the interests of the two nations and their people,” he told a regular press conference in Beijing.  Ma said Koehler is an old friend of the Chinese people, who had made important contributions to further mutual understanding and cooperation between China and Germany.

Xinhua, June 1, 2010, on German president Horst Köhler’s resignation one day earlier.

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“As on my previous visits, I raised the issue of exchange rate policy. The IMF has for some time believed that it would be in China’s best interests to move gradually toward a more flexible exchange rate system. Such a move would improve the central bank’s ability to control money and credit growth, and also help cushion China’s economy from domestic and external shocks. The authorities continue to see exchange rate flexibility as a desirable goal as China integrates further into the global economy. However, they feel that the time is not yet right to move in that direction. As regards capital account liberalization, I fully support the authorities’ cautious and deliberate approach.”

Horst Köhler, in his capacity as IMF managing director, September 2003

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The sudden departure of a good man as Germany’s president is profoundly destabilising for Europe. Horst Köhler has resigned following a hate-filled press campaign against him fuelled by headline-pandering German politicians who fail to see that 21st-century Germany is no longer the post-1945 dwarf orphan of world politics. […]

Köhler has resigned with honour and dignity. But those whose loud voices called for his head are now part of the problem and will never contribute to the solution. The anti-politics and anti-politician mood now unleashed in Germany and elsewhere in Europe is ugly and is doing damage to representative democracy.

Denis MacShane, Labour MP and politician, in The Guardian, June 1, 2010

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Horst Köhler’s resignation isn’t only the first one by a federal president with immediate effect, but also one with significant blog participation. […] The issue was first picked up by blogs and identified as a scandal. […] Stefan Graunke’s Unpolitik Blog picks up the Deutschlandfunk report [quoting from Köhler’s interview] […] and asks: “Really, Mr. Köhler? A public call to enforce economic interests by military force?

[Following: a description on how Deutschlandfunk (a nationwide radio broadcaster), Der Spiegel, and christian democrat MP Ruprecht Polenz pick up the interview again and more critically, reportedly after several more blog entries.]

Horst Köhler: Ein Rücktritt unter Blog-Mitwirkung, Carta, May 31, 2010

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Is a civic president allowed to invoke lèse-majesté? Horst Köhler can’t seriously expect that the German public will comprehend his interpretation of his resignation.

Frankfurter Rundschau, quoted by Deutschlandfunk / Tagesschau, June 1, 2010

Monday, October 12, 2009

Wanted: Changes on the Global Supply Side

Justin Yifu Lin (林毅夫), chief economist with the World Bank, credits China’s stimulus program with the country’s current growth: government reflation works better in low-to-middle-income countries (such as China) than in high-income countries, because the former have a larger deficit in infrastructure, and therefore more demand for investment in it. At the same time, Lin suggests, the stimulus renders the task of getting exports under control a good service: the investments don’t contribute directly to (an increase in) production capacity.

Less could be more: container ship heading for Hamburg, Germany, September 2009

Less could be more: container ship heading for Hamburg, Germany, September 2009

Michael Pettis, professor at Beijing University’s Guanghua School of Management, is less optimistic. He remains focused on problems with China’s exports. US economic growth is expected to be at 3%, he writes, but s far as China is concerned it is not the future growth in the US economy that matters so much as future growth in US consumption. [For a link to Pettis’ blog, see footnote at the end of this post.1)] Jobless people – and the US numbers remain ugly – won’t help to push consumption. The IMF, Pettis suggests, starts agreeing that there are imbalances in global trade, and quotes from the institution’s report that many economies that have followed export-led growth strategies and have run current account surpluses will need to rely more on domestic demand and imports. The IMF report adds that

to accommodate demand-side shifts, there will need to be changes on the supply side. This will require actions on many fronts, including measures to repair financial systems, improve corporate governance and financial intermediation, support public investment, and reform social safety nets to lower precautionary saving.

Beijing has addressed some of these required actions, partly in deed, partly in words – much of it in words. Loan security in the provinces is mostly in the dark, and as for financial intermediation, Lin, China’s man at the World Bank, certainly sees problems:

“Common people put their money into the financial system and their earnings from it are relatively low. So they are subsidizing big corporations. That’s the reason why big corporations have such high profit. They are subsidized through lower wages and lower capital costs.”

Support for public investment in China, at least at first glance, leaves little to be desired – the stimulus is huge. And when it comes to reforming social safety nets to lower precautionary saving, Chinese premier Wen Jiabao habitually demonstrates awareness:

“Matters of the peoples’ livelihood are related to clothing, food, and accommodation, but what is now most important is equal opportunities in education, carrying out vigorous employment policies, narrowing the gaps in income distribution, and building and covering urban and countryside social security systems.”
“民生问题涉及人们的衣食住行,但当前最重要的是促进教育机会的均等,实施积极的就业政策,逐步缩小收入分配的差距,建立覆盖城乡的社会保障体系。”

Commenting on Wen’s (apparently March 2007) speech, filmmaker and freelance journalist Shi Ming recently pointed out in an interview with the Voice of Germany 2) that the Chinese government “has made this a declared goal now, but as an open-ended process”, and that first reforms, as early in the 1980s, had already been aiming at making basic healthcare accessible for everyone. Once again, Shi says, social security reforms are declared as goals, while huge US-$ reserves are stockpiled in China. “This is rather an oath of disclosure, than an assurance for the future”.

Just as employment, social insurance (and therefore less incentives to save money) would be ingredients for rebalancing foreign trade. Maybe that’s why China’s government is – feelgood speeches aside – so reluctant to subscribe to that goal.

But for all that, the Economist argued in June that the BRIC (Brazil, Russia, India, and China) nations are more decoupled from the global economy than both high-income and low-income countries. That doesn’t remove the challenges as described by Pettis or the IMF – but might reclassify their weight to some extent.

You would expect less decoupling as a result of globalisation, writes the Economist. The cycles of output, consumption and investment should become more closely aligned in countries engaged in world trade. But a 2008 study by Ayhan Kose of the IMF, Christopher Otrok of the University of Virginia and Eswar Prasad of Cornell University found that

the cycles of output, consumption and investment did indeed become more closely aligned in rich countries. And the same thing happened in emerging markets. But when the authors compared the two groups, they found they were diverging. The business cycles of America and Europe converged. The business cycles of India and China converged. The business cycles of rich and emerging markets had decoupled.

The BRIC countries, explains the paper, depend less on export than many other emerging markets. Even China’s exports are smaller in value than they look. Though exports were 34% of GDP in 2008, these included “processing exports”—goods imported into China, processed and exported without much value having been added. In addition, these countries’ size – and the diversity of their economies – helped to keep them comparatively immune against the global crisis.

But obviously, this doesn’t mean that exports channels can be ditched without substitution. The Economist predicts a rise in the role of government: such a rise

is probably inevitable. China and, to a lesser extent, Brazil and India, benefited hugely from America’s appetite for imports in 2000-08. That appetite has fallen and is likely to remain low for years, as American consumers adjust their spending and savings habits. The rise may also be difficult to reverse: the experience of the West has been that the public sector expands relentlessly until it reaches between 40% and 50% of GDP. But if the BRICs cannot export their way out of recession, the expansion of government is the main alternative to the slump being endured in those other big capital exporters, Germany and Japan.

Even if the Chinese people were as acquiescent as adscript peasants in czarist Russia, Wen Jiabao and his successors would still have a lot of good reasons to talk less, and to do more.

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1) The permalink system on Mr Pettis’ blog has been out of order for a while. To find this particular post of October 3rd nevertheless, I recommend to enter Although I think most economists are expecting that US economic growth in the third quarter was a fairly healthy 3% – with quotation marks – at Google and to add site:mpettis.com.
Update (Oct 18 2009): The permalink system is back.

2) Deutsche Welle (German service), “Welt im Fokus”, Sept. 30, 2009
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Related:
Reform without Zijiren, October 5, 2009
The Great Trade Surficit, September 19, 2009

Saturday, April 4, 2009

G20 London Summit – A Difference for Africa?

World leaders are ready to govern together. I think that, in addition, world leaders can now turn to the electorate and say: ‘We have done our fair share, we have committed trillions of dollars by way of fiscal stimulae, we have dropped interest rates to the lowest possible level, we have recapitalized the balance sheets of banks, and now it is up to the banks to continue lending so that there can be renewed economic activity.

(South Africa’s finance minister Trevor Manuel, Channel Africa, April 2, 2009)

Colonial self-portrait

Colonial self-portrait

When the London G-20 summit started presenting its results on April 2 in London, it was the headline on Channel Africa’s radio program, but only among others. Other topics were how Kenyan farming benefits from the expertise of expatriate Zimbabwean farmers, and issues of social norms and practices at South Africa’s national AIDS conference. And on the BBC’s Africa program with Alex Jakana, there was a debate about how useful or counterproductive more financial aid for Africa would be. Simon Maxwell, challenged about how aid only corrupted its recipients, defended the practise:

“One of the calculations (..) that I often do when I go to an African country is to look at the total budget. Never mind the trillions and the billions and the hundreds of this – how many dollars does the country have to spend for each person in the country. And if you do that calculation, you can be very surprised. In the UK, the figure is about 10,000 pounds a year, let’s say 15,000-a-bit-more dollars. In a typical African country, it is probably under a hundred dollars. (…..) And when people talk about aid being unnecessary in Africa, I [ask] myself, why are the people who say that (…) just go to Darfur, and stand in a refugee camp or go to some other places in Zimbabwe, where relief is being handed out, or go to some of the places where roads are being built for the first time, and say: ‘Thank you very much, we don’t want this aid’. And if they do so, that I think they’ll find people will die as a result.”

You don’t find too much of this debate on the internet, and the reason seems obvious – Africa’s access to the internet, and its presence on the internet is almost non-existent. That’s bad for global awareness of African debates, but it doesn’t mean that telecommunication in Africa wouldn’t work. It only works differently.
There is a public, there is a debate, and it is to a large extent created by radio – on FM, and just as often, on shortwave.

When it’s about business rather than about talking, there is the mobile phone. In it’s March 12 2005 edition, the Economist described how it works:

Anecdotal evidence for mobile phones’ ability to boost economic activity is abundant: they enable fishermen or farmers to check prices at different markets before selling produce, make it easier for people to look for jobs, and prevent wasted journeys. Mobile phones reduce transaction costs, broaden trade networks and substitute for costly physical transport. They are of particular value when other means of communication (such as roads, post or fixed-line phones) are poor or non-existent. (…..)
In particular, phones are widely shared. One person in a village buys a mobile phone, perhaps using a micro-credit loan. Others then rent it out by the minute; the small profit margin enables its owner to pay back the loan and make a living. When the phone rings, its owner carries it to the home of the person being called who then takes the call. Other entrepreneurs can set up as “text message interpreters”, sending and receiving text messages (which are generally cheaper then voice calls) on behalf of their customers, who may be illiterate. (…..)
(Economist, March 12, 2005, p. 78)

So if there are global corporations which benefit from investment in Africa, it will be Vodafone, rather than Microsoft. The good news is that expanding telecommunication can be good for the African economies, too – and in most countries, it doesn’t even have to be “one computer per village, per student, per household”, per whatever.

A extra 750 bn dollars for the IMF to help poorer countries (beyond Africa, of course) can make a difference – if the framework is right. African countries need accountable governments. Drying up “safe tax havens” – traditionally also good addresses for embezzled public money – can be of help here, too. But it also takes freer access for African products to the global market – this is exactly where the G-20 need to show a responsible attitude towards those who were not represented at the summit. Pledges “against protectionism” are not enough. After the G-20 summit is before the next Doha Round.

Friday, March 27, 2009

Simon Johnson: Through the Eyes of the IMF

[…..]

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

[…..]

Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change. As an unnamed senior bank official said to The New York Times last fall, “It doesn’t matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns.” But there’s the rub: the economy can’t recover until the banks are healthy and willing to lend.

[…..]

The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.

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