Global Economic News

Pakistan Demands That IMF Restructure $10 Billion Loan

Aug. 20 (EIRNS)—Faced with catastrophic floods and skyrocketing prices of basic commodities, Pakistan is demanding that the International Monetary Fund ease the conditionalities on a $10 billion loan program it had agreed to in 2008. Finance Minister Abdul Hafeez Shaikh will travel to Washington on Aug. 23 to meet with the IMF and tell them that the current program is unsustainable as the country, hit by a natural disaster of an enormous magnitude, needs help.

A front-page London Financial Times story quotes one Pakistani official: "Meeting the IMF performance criteria of the current program is impossible under the present circumstances. The losses from the floods are huge and we are in no position to meet targets on critical areas such as budget deficit, reducing inflation or even economic growth."

Pakistan has received about $7.3 billion (EU5.7 billion) from the IMF loan, reports the Financial Times. The conditionalities on this $10 billion loan include cutting subsidies, increasing taxes, including the introduction of a value-added tax, and a so-called "reform" of the public sector enterprises. Implementing those measures under the present circumstances is nigh on impossible, and would likely destroy what is left of the country.

Although it is still too early to assess how much Pakistan would need in the coming days to build back its basic infrastructure and provide the essentials to the people who have lost everything, Islamabad believes it would need at least $43 billion to get back to where Pakistan was before the floods. Foreign Minister Shah Mehmood Qureshi told the UN General Assembly's emergency fundraising session in New York that his country needs at least $460 million in emergency food relief.

At least 4.6 million people are still without shelter, while at least 20 million more have been affected, and one-fifth of the country is underwater, with the risk of cholera, typhoid, and hepatitis growing by the hour. The Pakistani High Commissioner (ambassador) to London said that it will take $10-15 billion just to repair the infrastructure. This compares with the tiny $7.74 billion allocated for development and infrastructure in the current budget.

World Bank President Robert Zoellick said on Aug. 20, that floods have destroyed crops worth around $1 billion. While the World Bank said it will release $900 million to help fund relief efforts, this will not be new money, but rather will be taken from other projects.

An estimated 500,000 tons of wheat stocked with farmers has been lost. A comparable amount of sugar production has been lost. Two million bales of cotton have been destroyed, which means imports will be required to provide for the Pakistani textile industry, a major source of export revenue. The prices of wheat, sugar, and cotton have all skyrocketed.

Japan Mobilizing Behind Major Nuclear Export Drive

Aug. 21 (EIRNS)—The top members of Japanese industry and government are mobilizing to promote their nuclear export program, a reading of the Japanese press reveals. Simultaneously, the Japanese Trade Union Confederation has for the first time spelled out a policy in favor of "steadily promoting" construction of nuclear power plants.

According to Yomiuri Shimbun, a delegation consisting of Trade Minister Masayuki Naoshima and the directors of the following companies: Tokyo Electric Chairman, Toshiba, Hitachi, Mitsubishi Heavy, Kansai Electric, Chubu Electric, and Japan Atomic Power Co., will arrive in Vietnam Aug. 24 to push for a Japanese role in the Vietnamese nuclear program. Tokyo Electric and Toshiba together with other companies set up an office last month ahead of forming a joint nuclear export venture this autumn, tentatively to be named the International Nuclear Energy Development of Japan.

Asahi Shimbun reflects the same drive, by publishing four articles on Japan's nuclear export prospects in its Aug. 21 edition. Not long ago, the same paper had taken a "green" outlook on virtually every issue.

Europe: Hyperinflation Is Real, Official Inflation Figures Lie

Aug. 17 (EIRNS)—Raw materials prices continue to show dramatic increases, with aluminum, zinc, natural rubber, and crude oil all doubling over the past 12 months. Lead and copper prices tripled in the same time period. As previously reported in the briefing, the most drastic increases are in agricultural commodities, entirely as a result of speculation.

One consequence is that British food prices have increased 58% since the financial collapse of 2007. Next January, all goods and services will increase in price by another 2.5%, when the value added tax is increased from 17.5% to 20%.

As for the official inflation rates, the U.K.'s Office of National Statistics reported today that consumer prices rose 3.1% from a year earlier, compared with 3.2% in June—but that conveniently excludes housing. If one uses the Retail Price Index, which is used in Euroland, then UK inflation is 4.8%.

Since the beginning of 2010, inflation has been accelerating in the 16 countries of the eurozone. Official basic inflation remained around 1%, while the rest is supposed to be "mere price inflation," resulting from higher energy prices driving up consumer prices. Prices of transport increased by 4.5%, alcohol and tobacco by 3.3%, and housing by 2.7%.