Bird flu a small dark cloud on world financial stability: IMF
Bird flu a small dark cloud on world financial stability: IMF
http://news.monstersandcritics.com/business/article_1154423.php/Bird_flu_a_small_dark_cloud_on_world_financial_stability_IMF
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Bird flu a small dark cloud on world financial stability: IMF
By DPA
Apr 11, 2006, 19:00 GMT
Washington - Despite an upbeat report card on the workings of the world\'s financial systems, the
International Monetary Fund Tuesday saw a few dark clouds on the horizon - including worries about the impact of a potential bird-flu pandemic.
A
global avian flu outbreak in humans could cause high absenteeism in the financial industry, interfering with payments, clearing, settlements, trading and communications, the IMF warned in its periodic evaluation of the international finance systems, the Global Financial Stability Report.
In addition, the IMF noted that rising interest rates and tighter credit for the corporate and private sectors may have have \'somewhat\' increased medium-term risks to financial stability in the last six months.
Elsewhere on the financial scene, the good news seemed to counterbalance concerns, and any cyclical uncertainties for financial markets in 2006 could be defined as \'not bad, but not as good as the stellar year 2005,\' the IMF said.
Concerns over bird flu - which has killed 109 people over the last few years but not made the feared leap to a human epidemic -
prompted the IMF to urge large financial institutions to plan \'for work from home, heavy demand for cash by the public and transport of key personnel whose functions cannot be done from home.\'
\'The outbreak of avian flu could threaten global financial markets,\' the IMF warned. It could also lead to a \'significant but temporary reduction\' in net capital flows to emerging economies, the IMF said.
The
IMF urged countries that do not yet have bird-flu plans for their financial systems to establish emergency committees that include central bank officials.
The report was based in part on informal discussions with commercial and investment banks, securities firms, asset management companies and other elements of the world financial system.
In other conclusions from the report, the IMF said:
- Financial systems have strengthened in emerging markets, attracting a 41 per cent increase in direct investments last year over 2003, the report said. That increase applied to emerging Europe, Central Asia, Asia and Latin America. In 2004 alone, 180 billion dollars flowed to emerging markets.
- Credit risk has been dispersed in the ever diversifying international banking sector, though the trend carries \'brave new world\' worries, such as a lower level of information about how the risk is distributed, the report said.
- Low interest rates have \'supported a solid global economic recovery\' while \'corporate balance sheets have strengthened beyond expectations\', especially in the United States, European countries and Japan compared to 2001, the report said. Global property insurance and reinsurance firms have adequately absorbed losses related to the August 2005 Hurricane Katrina disaster in the US.
- \'The centre of gravity of growth in financial services continues to shift toward the large and rapidly growing economies of India and China,\' the IMF said.
The organization warned that there were risks in the rapid growth of private credit in \'a number of Southeast Asian countries\' and in the dominance of state-owned banks in India and China.
The main risk for Eastern Europe, the report said, was rapid credit growth \'driven by the expansion of large foreign banks competing for market share.\'
The IMF lauded Latin America for improved performance indicators, including \'in countries emerging from financial crises or affected by political turbulence.\'
\'African government bonds have become more sought after\' as investors move into cash bond markets, and foreign dealers are interested in countries such as Kenya, Nigeria, Tanzania, Botswana, Zaire and Malawi, the IMF said.
In the Middle East, Central Asia and Africa, high commodity prices were driving developments, and the IMF warned that a sharp reversal in oil prices \'could have adverse effects on the financial systems in some of these countries.\'
Further hikes in oil prices could \'create headwinds in financial markets\' by pushing up interest rates, slowing growth and putting downward pressure on equity markets, the IMF warned.
- A cooling off of the US housing market, where hothouse growth has been a worry for the IMF, was greeted because it could mean US home owners will start saving more and help reduce the large US current-account deficit. But it also pointed out the downside, which was an expected drop in US consumer spending.
Average US house price increases have slowed from the annual rate of nearly 13 per cent a year in the fourth quarter of 2005, the IMF said. But the organization expected that even if the rate of increase declines, there would be a \'soft landing\' similar to the experiences in the United Kingdom and Australia.
The report warned that global imbalances continued to widen, not only in the US with a current-account deficit now at 6.5 per cent of GDP, but also among emerging markets, which have a total current- account surplus of 500 billion dollars in 2005 and 2006.
\'At present, there seems to be a willingness in the rest of the world to accumulate US assets - without any visible risk premium attached,\' the IMF wrote.
The US attracts so much capital because of its \'large, deep, flexible, sophisticated and ... well-regulated financial markets,\' and because its growth rate is so much stronger than the euro area and Japan, the IMF said.
Much of the oil export windfall in the last year flowed into \'offshore bank deposits, predominantly in US dollars,\' or through US treasury and agency securities bought from British dealers. In 2005 alone, such officially managed assets of large oil-exporting nations may have risen by 300 to 450 billion dollars - at a rate the IMF compared to the annual accumulation by Japan through early 2004, and the accumulation by China through mid-2005.
China, the IMF said, has an estimated total of 600 billion dollars in officially managed assets in the global finance system in 2005.
? 2006 dpa - Deutsche Presse-Agentur
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Interesting that the IMF is NOT completely ignoring BF risk.
