Finance & Business World

The United Arab Emirates’ central bank set up an emergency facility on Sunday to support bank liquidity in the first policy response to Dubai’s debt woes that threatened to paralyze lending and derail economic recovery.

Dubai rocked the financial world on November 25 when it said it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring.

As a result, banks face heavy losses and the risk that fearful depositors could rush to remove cash from the system, and threatening interbank lending with the second largest Arab economy still facing a downturn this year.

“It might support the market a little bit but I don’t think it is enough,” said Shawkut Raslan, head of brokerage at Prime Emirates brokerage.

“I think some foreigners will take their money of the country and others will be afraid to put their money into these markets.” The central bank policy move came late on Sunday as Dubai’s Supreme Fiscal Committee gathered to prepare a statement before market open on Monday in an attempt to reassure investors.

The central bank said the banking system was more sound and liquid than a year ago, when the global crisis ended the oil and real estate fueled boom in Arab Gulf, the world’s top oil producing region.

The monetary authority said on Saturday it was closely watching events stemming from the Dubai debt crisis to ensure there is no negative impact on the UAE economy.

Before the Dubai debt crisis, the UAE economy was seen falling by 1.1 percent this year before returning to a 2.9 percent growth in 2010, a Reuters poll of analysts showed earlier this month.

PREVENTIVE MOVE

Analysts said the central bank’s move was a preventive measure to avoid a possible capital flight and a run on deposits when markets reopen on Monday after a four-day holiday break.

“It is important because the main concern is that there might be some panic behavior by depositors in Dubai and by bankers who want to take deposits out of the banking system,” said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.

Senior bankers in Abu Dhabi, Dubai’s oil-rich cousin in the UAE federation, told Reuters on Friday Abu Dhabi banks have built up an exposure to Dubai-based companies worth at least 30 percent of their loan books.

In reaction to Dubai’s debt problems, Fitch Ratings has said it downgraded Dubai Bank, Tamweel and Bahrain’s TAIB Bank.

“It (the facility) would cover the immediate concerns related to deposits in the UAE banks,” said Ghanem Nuseibeh, senior analyst at Political Capital consultancy.

“It doesn’t mean that lending would necessarily ease. It is no guarantee for depositors. We still don’t know the extent of the UAE banks’ exposure to Dubai’s problems,” he said. 

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Despite the frenetic pace of bank failures this year, 552 lenders are still at risk of going under, according to a government report published Tuesday.

The Federal Deposit Insurance Corp. said that the number of banks on its so-called problem list climbed to its highest level since the end of 1993. At that time, the agency red-flagged 575 banks.

Mounting bank failures have proven costly for the FDIC, the government agency created to cover the deposits of consumers and businesses in the event that a bank is shut down.

On Tuesday, the agency revealed its deposit insurance fund, as a result, slipped into the red for the first time since 1991.

At the end of the quarter on Sept. 30, the value of the fund was $8.2 billion in the hole. But that number accounts for $21.7 billion the agency has set aside in anticipation of future bank failures.

FDIC Chairman Sheila Bair, who has won praise both in Washington and on Main Street for shepherding the industry through a particularly difficult period, said the industry’s fate is tied to the broader recovery.

"I think that it really is all about the economy at this point," said Bair.

The banks that end up on the problem list are considered the most likely to fail because of difficulties with their finances, operations or management.

Still, history has shown just 13% of banks on the list have failed on average.

Regulators however, never make public the names of the banks on the list out of fear the publicity could cause customers to pull out their deposits.

Tuesday’s report did reveal that the number of assets controlled by those institutions climbed to $345.9 billion from $299.8 billion in the previous quarter.

The ongoing recession has already claimed 124 banks so far this year. But fears persist that the number will multiply in months ahead because banks are still taking losses on mortgage-related loans and face growing problems with commercial real estate.

In the event of a failure, the FDIC fully insures individual accounts up to $250,000 for single accounts.

Fund in focus

In anticipation of future bank failures, the FDIC has been scrambling to shore up its ailing deposit insurance fund low fee payday loans.

Earlier this year, the agency imposed a special assessment on all banks. And just recently, it approved having banks prepay their insurance premiums for the next three years.

The move is expected to generate roughly $45 billion for the FDIC. However, due to accounting rules, the fund would not be back in the black until 2012.

One lingering question is whether, at some point, the agency would need to tap its $500 billion credit line with the Treasury Department, which was approved earlier this year.

The agency however, has been averse to the idea, hoping instead it can instead navigate the crisis using the tools already at its disposal.

Mixed signals

Tuesday’s report however, wasn’t all bad news.

The roughly 8,100 institutions that make up the nation’s banking industry earned $2.8 billion during the third quarter. In the previous quarter, banks were in the red, losing a combined $4.3 billion.

Stronger sales and the rising values of some securities certainly helped, but those gains were capped as lenders again set aside massive amount of cash to cope with future loan losses. All told, banks earmarked $62.5 billion for future loan losses.

While that was down slightly from the previous quarter, Bair cautioned not to read too much into the numbers, adding that number could jump back up in the current quarter.

"I think we need to live with this a bit longer," she said. "I wouldn’t read too much in quarter-to-quarter trends."

One persistent trend, however, was that credit continued to remain tight. In fact, loan balances at the nation’s lenders fell 2.8% of $210.4 billion, representing the largest quarterly decline since banks started reporting this figure in 1984.

Some economists have argued that the lack of available credit to borrowers, such as small business owners, is choking off the economic recovery. Banks, on the other hand, have argued that demand for loans is way off, as both consumers and businesses try to pay down debt. 

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WASHINGTON — Toyota plans to replace the gas pedals on 4 million vehicles in the United States because the pedals can get stuck in the floor mats and cause sudden acceleration.

The massive recall is the largest in the U.S. for Toyota Motor Corp. The Japanese automaker earlier told owners to remove the driver’s side floor mats to keep the gas pedal from becoming jammed.

A deadly crash in California brought attention to the problem. Investigators of the accident, in which four died, determined that a rubber all-weather floor mat found in the wreckage was slightly longer than the mat that belonged in the vehicle, and it could have snared or covered the gas pedal.

The government has attributed at least five deaths and two injuries to floor mat-related acceleration in the Toyota vehicles. Regulators have received reports of more than 100 other incidents.

Dealers will offer to shorten the gas pedals by three-fourths of an inch beginning in January as a stopgap measure while the company develops replacement pedals. New pedals will be installed by dealers on a rolling basis beginning in April, and some vehicles will get a brake override system as a precaution.

The recall involves 3.8 million vehicles, including the 2007-10 Camry, 2005-10 Avalon, 2004-09 Prius, 2005-10 Tacoma, 2007-10 Tundra, 2007-10 Lexus ES350 and 2006-10 Lexus IS250/350. Owners of the ES350, the Camry and the Avalon will get first notification because the cars are believed to be at most risk.

For more information, owners can contact Toyota at 1-800-331-4331 or the National Highway Traffic Safety Administration hot line at 1-888-327-4236.

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Liberty Bancorp Inc. announced the results of a tender offer for common stock held by investors with 99 or fewer shares, part of its effort to get below the 300 shareholder limit, which would enable it to go private.

The Liberty-based company (Nasdaq: LBCP), the holding company for BankLiberty, said in a Tuesday release that it had acquired 4,631 shares for $15 a share, for a total of $69,465. The company also offered a $50 bonus for all trades executed before the deadline, but it did not say how many shareholders were involved in the trades.

The company didn’t say whether it reached the goal of reducing the number of shareholders to fewer than 300.

Liberty Bancorp CEO Brent Giles couldn’t immediately be reached for comment Wednesday cash advance loans.

Giles had said in October that the bank’s board determined that Securities and Exchange Commission regulations and legislation, such as the Sarbanes-Oxley Act of 2002, which the bank will be subject to starting in 2010, were getting too burdensome on the company’s financial and personnel resources.

“We hope that by reducing the number of shareholders and, if eligible, deregistering with the SEC, the company will substantially reduce the costs associated with complying with these regulations and reporting requirements,” Giles said in an earlier release.

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German business confidence probably increased to a 14-month high in November, suggesting the economic recovery may gather pace next year.

The Ifo institute in Munich will say its business climate index, based on a survey of 7,000 executives, increased to 92.5 from 91.9 in October, according to the median of 37 forecasts in a Bloomberg News survey of economists. That would be the highest reading since September last year. The index reached a 26-year low of 82.2 in March. Ifo releases the report at 10 a.m. today.

Economic growth accelerated in the third quarter as export orders rose and companies increased production and investment. The manufacturing industry expanded for a second month in November and the country’s benchmark DAX share index has advanced 19 percent this year. Unemployment, the euro’s strength and the expiry of government stimulus measures may still damp growth in 2010.

“New orders are strong, the inventory cycle is turning around and the manufacturing sector has just left recession, which means there’s a lot of room for improvement in the economy,” said Carsten Brzeski, senior economist at ING Group in Brussels. “Germany should continue leading the euro-zone economies for quite some time.”

The government last month raised its economic outlook, forecasting growth of about 1.2 percent in 2010 after a 5 percent contraction this year.

GDP Breakdown

Gross domestic product rose 0.7 percent in the third quarter from the second quarter, preliminary figures showed on Nov. 13. The Federal Statistics Office in Wiesbaden will release a detailed breakdown at 8 a.m. today.

Germany’s Beiersdorf AG, the maker of Nivea products, on Nov. 3 raised margin forecasts after reporting third-quarter profit that beat analysts’ estimates, saying its tape-making Tesa unit is seeing a “trend reversal in its industrial business.”

Ifo’s gauge of the current situation will increase to 88 from 87.3 while an index of executives’ expectations will advance to 97.3 from 96.8, according to the survey of economists.

Chancellor Angela Merkel’s government is spending about 85 billion euros ($127 billion) on measures to stimulate growth, including infrastructure projects and a 2,500-euro payment for people who junk an old car and buy a new one. The so-called cash-for-clunkers fund ran dry in September.

‘Propped Up’

“Growth so far has been propped up by stimulus,” said Costa Brunner, an economist at Natixis in Frankfurt. “There’s not a self-supporting recovery and the stimulus will run out. We see a W-shaped recovery, and a recession in the second half of 2010 isn’t out of the question.”

German investor confidence declined more than economists forecast in November on concern that the economic upswing isn’t sustainable.

Exports, the motor of German economic expansion this decade, have so far weathered the euro’s 20 percent appreciation against the dollar since mid-February.

“Exports will continue to steam ahead on the recovery in world trade and the pick-up in the global economy,” said Aline Schuiling, an economist at Fortis Bank Nederland in Amsterdam. “Ifo will continue, slowly, to move ahead.”

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Norway must remove government stimulus or risk faster interest-rate increases that would strengthen the krone and stifle an export recovery, Finance Minister Sigbjoern Johnsen said.

“My main task is to try to prevent fiscal policy putting an extra burden on the krone,” Johnsen, named to the post last month, said in a Nov. 20 interview in Oslo. “The extraordinary efforts of the fiscal policy should be phased out.”

Prime Minister Jens Stoltenberg’s Labor-led government, which was re-elected in September, will breach expenditure guidelines for a second consecutive year after using a record amount of the nation’s $440 billion oil wealth to revive the economy in 2009. The pre-election pledge to spend more came after the world’s sixth-biggest oil exporter, which boasts Europe’s lowest unemployment rate, had already emerged from recession in the second quarter.

Norway’s recovery trajectory has forced interest rates higher. Norges Bank on Oct. 28 became the first rate-setter in Europe to lift borrowing costs since the height of the global slump. Governor Svein Gjedrem increased the deposit rate by a quarter point to 1.5 percent and his bank predicts the rate will average 1.75 percent this year and 2.25 percent in 2010, rising to an average of 4.25 percent by 2012.

“If we spend too much money” it would lead “to a faster increase in interest rates and this could have an impact on the exchange rate and on the competitiveness of our businesses,” Johnsen said.

Krone Best Performer

The prospect of higher rates has helped the krone, making it the best performer of the 16 major currencies tracked by Bloomberg since the end of June. The krone is up 7.3 percent against the euro and 14 percent against the dollar in the period.

That’s cutting into profits at manufacturers like Norsk Hydro ASA, Europe’s second-largest aluminum producer. For every krone the Norwegian currency strengthens against the dollar, based on an exchange rate of 5 instant payday loan.5 kroner, Norsk Hydro’s earnings before interest and tax would be cut by 1.6 billion kroner ($282 million), according to its third-quarter presentation.

Norway’s mainland economy, which excludes oil, gas and shipping, will grow 2.8 percent next year and 3.2 percent in 2011, according to the Organization for Economic Cooperation and Development.

OECD Warning

The government’s spending plans have attracted criticism from the Paris-based organization, which on Nov. 19 warned of the need for “strong fiscal consolidation” and said that “sizeable” policy tightening is “desirable” after a “tremendous” stimulus.

Johnsen, who served as finance minister under Prime Minister Gro Harlem Brundtland from 1990 to 1996, faces the challenge of reining in public spending while keeping his party’s election pledge to support welfare and employment.

Norway, which is also the world’s second biggest natural gas exporter, puts most of its petroleum revenue in a sovereign wealth fund established during Johnsen’s first term in office.

The Government Pension Fund - Global, which started to invest Norway’s oil wealth in 1996, was created to avoid stoking inflation by preventing oil and gas income from seeping through to consumption. Fiscal spending guidelines limit the use of oil money to plug budget deficits to 4 percent of the fund.

Johnsen isn’t promising a sudden shift in his government’s stance.

The return to the spending rule “must be gradual,” Johnsen said. “I will try what I can in order to get back on the 4 percent path during this period. But it is going to be difficult.”

Editors: Chris Kirkham, Tasneem Brogger.

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California, Delaware, South Carolina and Florida registered record rates of unemployment in October as weakness in the labor market stretches from coast to coast and limits the economic recovery.

Joblessness rose in 29 U.S. states last month compared with 22 in September, the Labor Department said today in Washington. Michigan had the highest jobless rate at 15.1 percent, followed by Nevada at 13 percent and Rhode Island at 12.9 percent.

The national rate last month reached a 26-year high of 10.2 percent, weighing on consumer spending that accounts for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke said Nov. 17 that joblessness “likely will decline only slowly,” a reason policy makers will keep interest rates near zero to ensure growth is sustained.

“We’ve had a surprisingly sharp jump in the jobless rate,” said Richard DeKaser, president of Woodley Park Research in Washington. “Businesses have truly been doing an extraordinary job of wringing out productivity from the labor force.”

Stocks fell for a third day, with the Standard & Poor’s 500 Index declining 0.3 percent to 1,091.38 at 4:03 p.m. in New York. Dell Inc., the third-largest maker of personal computers, dropped 10 percent after reporting a 54 percent drop in profit.

Declines in 13 States

The unemployment rate fell in 13 states, including Massachusetts, where it declined to 8.9 percent from 9.3 percent; New Hampshire, with a drop to 6.8 percent from 7.2 percent; and West Virginia, which fell to 8.5 percent from 8.9 percent.

The number of states with at least 10 percent unemployment held at 14 last month, the Labor Department’s report showed. The states reporting a record jobless rate were California at 12.5 percent, South Carolina at 12.1 percent, Florida at 11.2 percent and Delaware at 8.7 percent. The District of Columbia also set a high with an 11.9 percent rate.

“Virtually every sector aside from the health-care sector is losing jobs,” said Sean Snaith, University of Central Florida economist in Orlando. “Housing has been central to Florida’s economic story throughout the entire cycle. Unfortunately, it has spread well beyond the sectors directly involved in the housing market.”

President Barack Obama on Nov. 6 signed into law a plan to extend jobless benefits, expand a tax credit for first-time homebuyers and provide tax refunds to money-losing companies. The measure gives jobless people as many as 20 additional weeks of unemployment assistance.

The president has also announced plans to convene a jobs summit at the White House next month.

State Payrolls

Payrolls declined last month in 21 states, today’s report showed. New York showed the biggest drop, with a loss of 15,300. Florida had 8,500 job losses, followed by Georgia with 7,500 and Virginia with 7,100.

“When you apply for a job, because there are so many other people looking for jobs, you have to be the absolute perfect candidate and lucky, or be someone’s brother-in-law, to get a job,” said Mary Kough of Tellico Plains, Tennessee. “In this economy there are very few jobs for which to even apply.”

Kough has been looking for work for four months, applying for as many as 25 positions. She’s been interviewed once. The 47-year-old said she has about 20 years of experience, including jobs as a customer service manager, supervisor and purchasing agent. Tennessee’s unemployment rate held at 10.5 percent in October, the Labor Department’s report showed.

Taking Comfort

“I try not to get discouraged,” Kough said. “I know that you will get a certain percentage of what you apply for, and since there are less jobs to apply for, I know it will just take a little longer. I take comfort in knowing that. I have faith.”

Applied Materials Inc. is among companies still planning to cut jobs. The world’s biggest maker of chip equipment, based in Santa Clara, California, said Nov. 11 it plans to eliminate as many as 1,500 positions within 18 months.

Over the last year, California showed the biggest loss of jobs, with payrolls falling by 687,700 workers, today’s report showed.

Nationally, payrolls fell by 190,000 in October, the Labor Department said Nov. 6. The U.S. has lost 7.3 million jobs since the start of the recession in December 2007, the most of any downturn since the Great Depression.

Other measures corroborate that while firms are firing fewer workers, it is harder for the unemployed to find work. The number of people getting extended payments jumped in the week ended Oct. 31 even as the number of Americans filing first-time claims for unemployment benefits held at a 10-month low last week, according to government data released yesterday.

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The health of most pension plans continues to improve as stock markets recover, but it will be a long time before plan members in private industry can rest easy.

The blow of last year’s investment losses is forcing more employers to question their ability to continue paying the same level or type of pension benefits in future.

Meanwhile, pensioners at companies other than Nortel Networks Corp., AbitibiBowater Inc. and others in bankruptcy protection could see their payouts reduced.

Canada’s main stock market has produced a promising investment return of about 30 per cent so far this year. But other major markets have not done nearly as well when translated into our dollars.

A return above 55 per cent on Canadian stocks would have been required to offset last year’s losses, combined with the effect of a half percentage point decline in the interest rates used to estimate the cost of purchasing life annuities when a pension plan is wound up.

"Obviously what is happening on the growth in pension assets side is good news," says Doug Chandler of Watson Wyatt Worldwide. "But the cost is going up to either pay a lump sum (to a departing employee) or buy annuities (if a plan is wound up)."

Even Ontario teachers, who have taxpayers to cover half the cost of their enviable pensions, have been warned not to count on returns to stabilize their plan.

Watson Wyatt estimates a typical mature pension plan could only have paid about 81 per cent of benefits earned to date if the plan had been shut down in October.

The potential 19 per cent shortfall was a big improvement from 40 per cent in February. But it was still far below the 5 per cent shortfall in late 2007.

Rowena McDougall, a spokesperson for the Financial Services Commission of Ontario, says 113 plans of 421 pension plans for non-executive staff sought extra time to bring their plans up to full funding, based on actuarial reports filed since Sept. 30 of last year. Other companies could come forward.

Most are only seeking to defer special payments for a year, or to consolidate new and old special payment schedules over the same five-year period, she said.

Only 16 are seeking the 10-year payment schedule that Ontario Finance Minister Dwight Duncan granted, on the condition the company get the consent of plan members and pensioners.

Jim Leech, president of the Ontario Teachers’ Pension Plan Board, predicts last year’s investment losses and the dim prospects for investment returns could result in changes to either teachers’ contributions or benefits.

Only those already retired or near retirement would be protected under pension law . Teachers and the province will have another two years to negotiate a solution to a funding shortfall. They have already agreed that, if necessary, half of inflation protection on benefits earned starting next year would be made contingent on future investment returns.

"The teachers’ plan still must absorb $19.5 billion in losses (a blend of gains and losses recorded over the five years ending in 2008)," notes the fall of 2009 Pensionwise report to teachers.

"Even if financial markets improved, investment returns aren’t expected to cover the annual cost of paying pensions as well as the 2008 investment losses that must be recognized in the future."

The Teacher’s plan takes in about $2 billion less per year than it pays to a growing, and increasingly long-lived group of pensioners. Other plans are also under stress.

Tom Levy, a veteran actuary and senior vice-president of The Segal Co., says pension plans that serve large groups of employees may have to cut future benefits, and even pensions of retirees.

"It is certainly being discussed," he says, even if Duncan and other provincial finance ministers agree to extend a three-year moratorium on requiring multi-employer plans to set aside enough money to pay pensions on the small chance that all or most employers contributing to a plan were to disappear.

Such multi-employer plans are common in the construction trades, many supermarkets, food factories and natural resource industries. Their retirees are not protected from benefit reductions under pension law.

"(Plan trustees) are looking at everything from lowering future accruals of benefits to taking away early retirement subsidies, to, in some cases, reducing accrued benefits and deducting from pensioners," he said. "Obviously that is not something you want to do, but it is not out of the question."

Wayne Hanley, president of the United Food and Commercial Workers, wrote to members recently to say employers have not responded favourably to a second request to make special extra payments to what is the largest but also one of the worst-funded multi-employer plans in the country.

"UFCW Canada is extremely disappointed that employers feel little or no obligation to ensure your pension is properly funded," he wrote Oct. 30.

jdaw@thestar.ca

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Last year’s market meltdown loosened Wall Street’s decades-old grip on the prime brokerage business, and ferocious competition over supporting hedge funds means the old ranks may be shaken up for good.

The collapse of Bear Stearns and Lehman Brothers sparked a run on Morgan Stanley and to a lesser extent Goldman Sachs Group Inc, prompting hedge funds to move cash and securities to more stable appearing banks like Credit Suisse, Deutsche Bank and JPMorgan Chase & Co.

Goldman and Morgan Stanley quickly righted this year as markets snapped back, yet the second-tier players have no intention of giving up their newly won premier status, according to a series of interviews with Wall Street’s top prime brokerage executives.

“You had an industry that changed at a glacial pace for 20 years go through two years of rapid change,” said Barry Bausano, a Deutsche Bank co-head of global prime finance. “Over the past few months, the cement has set.”

Behind every hedge fund is at least one prime broker, which lends cash and securities as well as provides custody and other services. It is a high-margin business, one that will generate an estimated $8 billion this year and $10 billion next year, according to the research firm Tabb Group.

Hedge funds also taketh away, as seen last year when anxious fund managers fled the struggling Bear and Lehman and accelerated their collapse. In the darkest days of September, hedge funds worried Morgan and Goldman would be next.

Global Custodian magazine said 44 percent of hedge funds reduced balances with Goldman and 70 percent pulled back from Morgan Stanley.

According to Hedge Fund Intelligence, Goldman earlier this year was top of the heap with $108 billion in Americas hedge fund client assets, followed by JPMorgan at $97 billion, with Morgan Stanley slipping to third with $66 billion cash til payday loan.

What emerged was a new order, where JPMorgan, Credit Suisse, Deutsche and Swiss bank UBS AG which picked up meaningful market share in 2008.

“There is much more of an even distribution of business,” said Glen Dailey, head of prime brokerage at Jefferies Group Inc, a middle-market firm that also picked up share.

JPMorgan, which acquired a nearly bankrupt Bear Stearns in March 2008 and emerged as a Wall Street leader, gained a top domestic U.S. prime brokerage business that was gutted when hedge funds fled Bear. By the end of last year, JPMorgan says it had lured back many clients and gained new business.

“We had a tremendous amount of new business come in as a result of the flight to quality.” said Louis Lebedin, JPMorgan’s co-head of prime brokerage. “In terms of exposure to the top 100, the $1 billion-plus funds, we’ve tripled our share to the highest it’s ever been.”

Now that most fund managers maintain accounts with two or three prime brokers, partly as a result of last year’s collapses, Lebedin said JPMorgan is promoting iSophis, a technology that lets fund managers monitor positions across the various brokers. The big bank also is expanding into Europe and Asia, markets where Bear had little presence.

Another winner of the financial crisis, Credit Suisse, has cautiously added assets from about 70 fund firms, giving it 470 clients, global prime services head Philip Vasan said.

“The lion’s share of the business we took in came from existing clients, clients who knew us and felt we had maintained a steady hand,” he said. 

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The imperative of greater global currency stability means the world can no longer rely, as it has done since the end of the gold standard, on a currency issued by a single country, the head of the IMF said on Tuesday.

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, restated his view that a new global currency might evolve out of the Special Drawing Right, the Fund’s in-house unit of account.

“That probably has to be a basket,” Strauss-Kahn said of the eventual replacement for the dollar. “In a globalized world there is no domestic solution,” he told a forum.

Speaking later at a news conference, Strauss-Kahn reiterated the message that has been a constant refrain during his visit — that China needs a stronger yuan as part of a package of policies to help rebalance its economy by promoting domestic demand.

“For us, because it just is consistent with the new economic policy in China, the sooner the better. How fast? It will take time. It is not something which will change in one step overnight,” Strauss-Kahn said.

China has kept the yuan, also known as the renminbi (RMB), pegged around 6.83 per dollar since July 2008, following a 21 percent rise over the previous three years, to help its exporters weather the global economic crisis.

“We do believe firmly in the IMF that the RMB is undervalued and that it is not only in the interests of the global economy but also in the interests of China to have a revaluation of the currency,” he said no credit check payday loans.

An undervalued currency introduces economic distortions, which might confer certain advantages but at a cost to other parts of economy, Strauss-Kahn explained.

“So China has a trade advantage, but it also has the wrong prices, leading to wrong decisions about investment in the long run. It is now time for China, having accumulated a lot of advantages from an undervalued currency, to look more forward to investment and long-term stability, and this long-term stability goes with getting rid of this distortion,” he said.

The United States in particular has argued that an undervalued yuan is exacerbating economic imbalances that were a root cause of the global financial crisis.

However, visiting U.S. President Barack Obama referred only fleetingly to the issue after talks with President Hu Jintao.

“I was pleased to note the Chinese commitment made in past statements to move toward a more market-oriented exchange rate over time,” Obama said.

NO TIME TO LOSE

Strauss-Kahn expressed concern that political willingness to overhaul the international monetary system will falter if, in a year’s time, the visible signs of the economic crisis have faded.

He said the momentum to cooperate had already eased somewhat, six months after the London summit of the Group of 20 agreed on a need for change to ensure a more stable global financial order. 

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