Revista-E

• The first of a two-loan program will protect poorest during the economic contraction

Washington (Revista E) - The World Bank’s Board of Executive Directors today approved the First Safety Net and Social Sector Reform Special Development Policy Loan for Latvia in the amount of Euro 100 million (US$ 143,9 million equivalent) to ensure that local governments have the resources they need to keep providing basic social services. This loan is part of the international financial support program led by the International Monetary Fund and the EU aimed at mitigating the impact of the global financial crisis and rapid economic contraction.

The main objectives of the loan are:

-to protect vulnerable groups with emergency safety net support during the economic contraction

-to mitigate the social costs of fiscal consolidation, and

-to support important structural reforms in social sector programs.

“The Latvian government has implemented a significant decrease of the budget deficit and at the same time established a social security network that is planned for supporting socially vulnerable groups in society. The loan approved today will help us to achieve these goals – fiscal stability and social security. I am grateful for the support that The World Bank has provided us in establishment of a social safety net,” said Einars Repše, the Latvian Minister of Finance.

The proposed program of World Bank support will focus on measures designed to respond to household needs in the wake of Latvia’s severe economic contraction and to mitigate the social impact of fiscal consolidation by supporting implementation of the Government’s cross sector Emergency Social Safety Net Strategy. As necessary but difficult structural reforms are implemented, the Government is committed to alleviating the social costs of the transition to new financing and service delivery models in the education and health sectors, in order to ensure an adequate level of service provision is maintained across the country.

As part of this program, the World Bank will also start technical cooperation with the authorities to ensure close monitoring of how the emergency safety net measures are implemented and continued timely response to household needs. It will also review medium-term social sector issues.

“The main goal of the loan approved today is to provide financial assistance to the national government and to local governments so they can keep essential emergency programs running in the difficult times of the crisis,” said Peter Harrold, World Bank Director for Central Europe and the Baltic Countries. “In 2008 and 2009, we saw how the crisis hit the most vulnerable groups, so with this loan the World Bank will try to ensure that local governments have the resources they need to keep providing basic social services. This includes keeping pre-schools open, ensuring transportation to schools for students that need it, providing free medical care and medication for families with very low incomes, and paying social assistance benefits for the poorest people.”

This loan is the first of a proposed program of two loans focused on Safety Net Support and social sector reform. The program is part of the Special Development Policy Lending (SDPL) and technical assistance from the World Bank to the Republic of Latvia which is being delivered through two parallel vehicles:

- one supporting reforms to strengthen the financial sector (the Financial Sector Development Policy loan of EUR 200 million was approved by the World Bank’s Board of Directors on September, 22, 2009).

- and the other that this loan is a part of, providing support for an emergency safety net and social sector reform

“The Republic of Latvia is committed to managing a very painful but necessary fiscal adjustment in a responsible way that ensures critical services are provided to people in need,” said Truman Packard, World Bank Lead Economist in the Europe and Central Asia Region. “The government has made available a whole range of emergency assistance programs for households affected by the economic crisis. The first step that people need to take to get the assistance is to check with their local authority (local municipality) and find out whether they and their families are eligible for these programs. The main objective of the loan is to support local governments, who are closest to the people who have suffered the most as a result of the economic crisis.”

The loan will be signed on March 12, 2010, at the Ministry of Finance in Riga.

Washington (Revista E) - In its regular press briefing, the IMF  encouraged the Greek authorities to develop and implement reforms to boost productivity and growth.  Caroline Atkinson, Director of External Relations at the International Monetary Fund (IMF), issued the following statement in Washington:

“We welcome the substantial fiscal measures announced by the Greek authorities today. The authorities have put together a very strong fiscal package for 2010. The implementation of the fiscal program will be a crucial step forward in a multi-year process.

We also encourage the authorities to develop and implement soon significant reforms to boost productivity and growth, complementing the fiscal consolidation that is now underway. We stand ready to support the implementation of the authorities’ plans by sharing our technical expertise in these matters.”

Washington (Revista E) - In the International Monetary Fund’s regular briefing, Senior Advisor David Hawley said the IMF is ready to send another mission to Greece to offer technical assistance, if asked. Hawley stated that they welcome support for Greece from its European Union partners, and the IMF is prepared to offer expertise and support as necessary.

Denver (Revista E) - In light of the recent U.S. Supreme Court ruling that corporations can contribute to political candidates, University of Denver (DU) Daniels College of Business Professor John Holcomb, PhD. is available for comment and analysis. Prof. Holcomb has performed extensive research on campaign finance and corporate responsibility, as well as corporate governance and criminal liability.

Davos (Revista E) - 2,500 leaders from business, government and civil society are in Davos for the World Economic Forum Annual Meeting. The theme is a call to action for decision-makers to use the opportunity of the five-day Meeting to “Improve the State of the World: Rethink, Redesign, Rebuild”. Nicolas Sarkozy, President of France, will deliver the opening address in a plenary session following the traditional welcome by the Swiss President, Doris Leuthard. Leaders will participate in over 200 working sessions on topics including Haiti, the Millennium Development Goals, the environment and the economy.

E.E.U.U. (revista E) - IMF spokeswoman Caroline Atkinson explained in a press briefing that a proposed $100 million loan will not accrue interest until the end of 2011, and no principal for over five years. This statement comes one week after the IMF came out with their loan in response to the earthquake-ravaged country.

Hong Kong (Revista E) - More than 1,500 delegates from 31 countries and regions are in Hong Kong for the third Asian Financial Forum (AFF), which opened on Jan 20-21 at the Hong Kong Convention and Exhibition Centre (HKCEC). The delegate total marks a new AFF attendance record, with more than half of the senior business and government leaders here from outside Hong Kong.

Beijing (Revista E) - IMF’s Managing Director is in Beijing  saying that China is leading the world out of recession and has a key role to play in the longer-term reform and rebalancing of the global economy. The IMF projects China to grow at 8.5 percent in 2009, and at 9 percent in 2010, greatly exceeding average global growth rates. Mr. Strauss-Kahn set his comments in the context of the major challenges facing the world as it begins to emerge from the global crisis.

At the third plenary session of the WAIPA conference held yesterday in Milan, a select group of world-class economists engaged in an insightful and lively discussion on ways to identify and provide the needed liquidity to the financial system. The stalled financial market, lack of confidence and unavailability of once traditional sorts of funding has created a new world investment scenario. Marked by a slowdown of developed economies and significant growth of emerging ones, the crisis is generating new financial vehicles and new players to take on new roles.

The following participants took part in this panel session:

Emmanuel D. Ole-Naiko, CEO, Tanzania Investment Center

Dr. Jeffrey Chwieroth, Professor, London School of Economics

Enrico Vitali, Member of the Strategic Committee for the Italian Ministry of Foreign Affairs

Josep Borrell Fontelles, Former President of the European Parliament

Walter Ambrogi, Head of Global Services, Intesa San Paolo Bank

Norbert Walter, Deutsche Bank Research Manager

From left to right: Josep Borrell Fontelles, Norbert Walter, Emmanuel D. Ole-Naiko

Even though the crisis began in a few countries, the spillover effect of worldwide investment decline was felt globally. According to Mr. Walter, Japan and Germany went into a depression because world trade stopped, Malaysia and Taiwan suffered from the decline in IT, and developing countries, which experienced a raw material boom until 2008, were now in reverse gear.

Therefore no country has been left untouched by the crisis. The fall of FDI was felt globally, including in emerging economies. “Developing countries lost 4.5 basic points in terms of investments. In the Asian crisis, the lost was 2.5 points, making the current crisis twice as much,” stressed Mr. Borrell Fontelles.

When asked what impact the crisis had on traditional forces of lending, the majority of panellists agreed that it has been dramatic. “While central banks reacted immediately to the crisis with appropriate measures aligned to individual countries, these days banks are much more hesitant to lend due to the high risk premium,” explained Mr. Walter. He continued that sectors particularly hard hit, which are on the brink of bankruptcy, will have difficulty securing a loan. This will also cause problems for large projects that need loans from many banks. Renewable energy and pipeline projects will not succeed without government intervention.

“There is a radical change in the evaluation of risk,” insisted Mr. Borrell Fontelles. Risk assessment has become more stringent. Mr. Vitali refers to banks’ stricter criteria to lending as a “more social approach to banking”. Having said that, he explained that banks are willing to step in to support good business cases and institutions not hurt by the crisis. He gave the example of cooperative banks, which are continuing to lend.

Non-traditional mechanisms of finance and new financial avenues have the potential to take on the important role of providing needed liquidity to the financial system. Experts believed that SWF will be the great new investor and the next engine of the world, following China’s example.

Emerging markets are set for growth as the most important flow of funds will be from the countries richly endowed (Asia, Latin America and Africa) with commodities such as energy, metals and agriculture. As there is a shift from financial institutions to other institutions, trade will move in the direction of FDI flows. According to Mr. Walter, countries like China, that has amassed a great surplus, are in a good position to grab ownership in mature and developing parts of the world.

Dr. Chwieroth provided a summary of the panel’s concerns with SWF. Firstly, SWF are not all the same, for example, some are revenue smoothing, while others offer pure strategic and diplomatic influence. Secondly, many SWF are less than democratic, which increases the demand for financial protectionism.

“SWF will continue to develop because the developed, and especially the developing countries, need them. But it also makes us fearful because there is a political power behind it,” insisted Mr. Borrell Fontelles. In fact, some SWF have pledged not to engage in activist management; therefore they buy the company but choose not be on the Board of Directors.

Milan (Revista E) – The World Association of Investment Promotion Agencies (WAIPA) in cooperation with PROMOS and APEX (The Brazilian Trade and Investment Promotion Agency) is being held in Milan, Italy,  the 14 edition of WAIPA World Investment Conference. The financial turmoil that has swept throug global markets uncovered hidden, desirable assets crowned with R&D and other intangibles, as a result, became targets. Synergies unveiled and assets now at value affordable. A threatening wave of bankrupticies, and assets now at bargain or otherwise calling for rescue. A surge of M&A activity is experienced in multiple sectors and across national borders. Erosion of anti-competitive attitude, giving way to opnness. The shifting sand redefinig the landscape of opportunities to now include once sensitive sectors. Market entry barriers torn down by forceful winds. Strategic alliances unveiled by the winds of change. Opportunities for growth abound.