Bounced out: The chequebook could be abolished by 2018 after the number issued every day has fallen drastically

After 350 years, cheques to be consigned to the history books

The Federation of Small Businesses said it will ’strongly oppose’ any move to get rid of cheques.

Daily Mail | Nov 23, 2009

By Becky Barrow

Cheques are to be abolished under controversial plans being drawn up by bankers.

Yesterday, the move was criticised by consumer groups, business lobbyists and charities representing the elderly.

They raised fears that vulnerable people, who have relied on their chequebook all their lives, will be left confused.

Many others simply prefer to pay by cheque, instead of by direct debit or bank transfer.

The Payments Council said its research shows the number of cheques being written every day has fallen dramatically in recent years.

At their peak in 1990, around 11million cheques were written every day. Latest figures show the number has dropped to around 3.8million.

Cheques, which were first used in Britain 350 years ago, are also an expensive form of payment for banks.

They cost around £1 each to process, which is four times as much as electronic payments.

The council’s 15-strong board – made up of 11 banking representatives and four independents – will take a decision on December 16.

The most likely date for cheques to be phased out in the UK is 2018.

A growing number of stores including John Lewis and Tesco have stopped accepting cheques.

Stores claim they are the most insecure form of payment and that abolishing them cuts queues at checkouts.

But cheques are still widely used for making payments to local tradesmen and for utility bills.

Government departments, such as HM Revenue & Customs and the Department for Work and Pensions, rely on cheques to make millions of payments each year.

Andrew Harrop, head of public policy at Age Concern and Help the Aged, said: ‘Many older people use cheques and cash for all their transactions and are uncomfortable with alternative payment methods, such as credit or debit cards with PIN numbers.

‘To prevent older people becoming financially excluded, any plans to end the use of cheques must ensure there are alternative ways of paying which they are happy using.’

Vera Cottrell, of the consumer lobby group Which?, said: ‘There are still no cheap, safe alternatives to cheques. Until that time, cheques should not be withdrawn.’

The Federation of Small Businesses said it will ’strongly oppose’ any move to get rid of cheques.

Sandra Quinn, a director of the Payments Council, said: ‘We are completely aware that elderly, disabled and disadvantaged people need alternatives to be in place.

‘If the decision is made [to end the cheque], there will be a long time before it comes into effect.’

Unless lawmakers make big changes, the interest Americans will have to pay to keep the country running over the next decade will reach unheard of levels.

CNN | Nov 19, 2009

By Jeanne Sahadi

NEW YORK (CNNMoney.com) — Here’s a new way to think about the U.S. government’s epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest.

More than half. In fact, $4.8 trillion.

If that’s hard to grasp, here’s another way to look at why that’s a problem.

In 2015 alone, the estimated interest due – $533 billion – is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.

On the bright side – such as it is – the record levels of debt issued lately have paid for stimulus and other rescue programs that prevented the economy from falling off a cliff. And the money was borrowed at very low rates.

But accumulating any more interest on what the United States owes at this point is like extreme sport: dangerous.

All the more so because interest rates will rise when private sector borrowers return to the debt market and compete with the government for capital. At that point, the country’s interest payments could jack up very fast.

“When interest rates rise even a small amount, the interest payments go up a lot because of the size of the debt,” Konigsberg said.

The Congressional Budget Office, which made the $4.8 trillion forecast, already baked some increase in rates into the cake. But there is always a chance those estimates may prove too conservative.

And then it’s Vicious Circle 101 – well known to anyone who has gotten too into hock with Visa and MasterCard.

The country depends heavily on borrowing to fund what it wants to do. But the more debt it racks up, the more likely it becomes that creditors could demand a higher interest rate for making new loans to the government.

Higher rates in turn make it harder to pay off the underlying debt because more and more money is going to pay off interest – money, by the way, which is also borrowed.

And as more money goes to interest, creditors may become concerned that the country can’t pay down its principal and lawmakers will have less to fund all the things government is supposed to do.

“[P]olicymakers would be less able to pay for other national spending priorities and would have less flexibility to deal with unexpected developments (such as a war or recession). Moreover, rising interest costs would make the economy more vulnerable to a meltdown in financial markets,” the CBO wrote in its most recent long-term budget outlook.

So far, that crisis of confidence hasn’t happened. And no one can predict with any certainty whether or when it could occur.

But should it occur, the change could be abrupt.

That’s because the government frequently rolls over – or refinances – the debt it has issued as it comes due.

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Lloyd Blankfein, Chairman and CEO of Goldman Sachs, speaks during a panel discussion at the Clinton Global Initiative in New York September 23, 2009.

Reuters | Nov 8, 2009

LONDON (Reuters) – The chief executive of Goldman Sachs, which has attracted widespread media attention over the size of its staff bonuses, believes banks serve a social purpose and are doing “God’s work.”

In an interview with London’s Sunday Times newspaper, Lloyd Blankfein also said he believed big profits and bonuses at banks were a sign that the world economy was recovering.

“We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. We have a social purpose,” he told the paper.

The dominant Wall Street bank posted third-quarter earnings of $3 billion and plans to hand out more than $20 billion in year-end bonuses.

Blankfein told the Sunday Times that the bank’s compensation practices correlated with long-term performance.

“Others made no money and still paid large bonuses. Some are not around anymore. I wonder why?”

He added that he understood, however, that people were angry with bankers’ actions: “I know I could slit my wrists and people would cheer.”

Liu Mingjie (C) and a customer discuss Liu’s bag and t-shirt ‘Oba Mao’designs in which he superimposed the face of US President Barack Obama over that of China’s late revolutionary leader Mao Zedong for sale at his shop in the tourist Houhai district of Beijing on September 23, 2009. The entrepreneur who goes by the English name Stefan is a former engineer who worked for Germany’s Siemens AG and US-based Cisco Systems before starting his business three years ago, according to state media, introduced the Oba Mao design bags and t-shirts, including coin purses, earlier this summer and says the shirts have been selling well. Getty Images

China’s Role as U.S. Lender Alters Dynamics for Obama

NY Times | Nov 15, 2009

by Helene Cooper, Michael Wines and David E. Sanger.

When President Obama visits China for the first time on Sunday, he will, in many ways, be assuming the role of profligate spender coming to pay his respects to his banker.

That stark fact — China is the largest foreign lender to the United States — has changed the core of the relationship between the United States and the only country with a reasonable chance of challenging its status as the world’s sole superpower.

The result: unlike his immediate predecessors, who publicly pushed and prodded China to follow the Western model and become more open politically and economically, Mr. Obama will be spending less time exhorting Beijing and more time reassuring it.

In a July meeting, Chinese officials asked their American counterparts detailed questions about the health care legislation making its way through Congress. The president’s budget director, Peter R. Orszag, answered most of their questions. But the Chinese were not particularly interested in the public option or universal care for all Americans.

“They wanted to know, in painstaking detail, how the health care plan would affect the deficit,” one participant in the conversation recalled. Chinese officials expect that they will help finance whatever Congress and the White House settle on, mostly through buying Treasury debt, and like any banker, they wanted evidence that the United States had a plan to pay them back.

It is a long way from the days when President George W. Bush hectored China about currency manipulation, or when President Bill Clinton exhorted the Chinese to improve human rights.

Mr. Obama has struck a mollifying note with China. He pointedly singled out the emerging dynamic at play between the United States and China during a wide-ranging speech in Tokyo on Saturday that was meant to outline a new American relationship with Asia.

“The United States does not seek to contain China,” Mr. Obama said. “On the contrary, the rise of a strong, prosperous China can be a source of strength for the community of nations.”

He alluded to human rights but did not get specific. “We will not agree on every issue,” he said, “and the United States will never waver in speaking up for the fundamental values that we hold dear — and that includes respect for the religion and cultures of all people.”

White House officials have been working for months to make sure that Mr. Obama’s three-day visit to Shanghai and Beijing conveys a conciliatory image. For instance, in June, the White House told the Dalai Lama that while Mr. Obama would meet him at some point, he would not do so in October, when the Tibetan spiritual leader visited Washington, because it was too close to Mr. Obama’s visit to China.

Greeting the Dalai Lama, whom China condemns as a separatist, weeks before Mr. Obama’s first presidential trip to the country could alienate Beijing, administration officials said. Every president since George H. W. Bush in 1991 has met the Dalai Lama when he visited Washington, usually in private encounters at the White House, although in 2007 George W. Bush became the first president to welcome him publicly, bestowing the Congressional Gold Medal on him at the Capitol. Mr. Obama met the Dalai Lama as a senator.

Similarly, while he was campaigning for the presidency, Mr. Obama several times accused China of manipulating its currency, an allegation that the current Treasury secretary, Timothy F. Geithner, repeated during his confirmation hearings. But in April, the Treasury Department retreated from that criticism, issuing a report that said China was not manipulating its currency to increase its exports.

While American officials said privately that they remained frustrated that China’s currency policies lowered the cost of Chinese goods and made American products more expensive in foreign markets, they said that they were relieved that China was fighting the global recession with an enormous fiscal stimulus program to spur domestic growth, and added that now was not the time to antagonize Beijing.

China is not viewed as a trouble spot for the United States. But this administration, like its predecessor, has had difficulty grappling with a rising power that seems eager to avoid direct clashes with the United States but affects its interests in many areas, including currency policy, nuclear proliferation, climate change and military spending.

In that regard, two members of Mr. Obama’s foreign policy team said that the United States’ interactions with the Chinese had been far too narrow in past years, focusing on counterterrorism and North Korea. Too little was done, they said, to address China’s energy and environmental policies, or its expansion of influence in Southeast Asia, South Asia and Africa, where China has invested heavily and used billions of dollars in aid to advance its political influence.

One hint of the Obama administration’s new approach came in a speech this fall by James B. Steinberg, the deputy secretary of state, who has deep roots in China policy. He argued that China needed to adopt a policy of “strategic reassurance” to the rest of the world, a phrase that appeared intended to be the successor to the framework of the Bush era, when China was urged to embrace a role as a “responsible stakeholder.”

“Strategic reassurance rests on a core, if tacit, bargain,” Mr. Steinberg said. “Just as we and our allies must make clear that we are prepared to welcome China’s ‘arrival,’ ” he argued, the Chinese “must reassure the rest of the world that its development and growing global role will not come at the expense of security and well-being of others.”

The Chinese reaction has been mixed, at best. The official China Daily newspaper ran a column just before Mr. Obama’s arrival suggesting that the United States needed to provide some assurance of its own — to “respect China’s sovereignty and territorial integrity,” code words for entirely backing away from the issues of how China deals with Taiwan and Tibet.

In the United States, the phrase “strategic reassurance” has been attacked by conservative commentators, who argue that any reassurance that the United States provides to China would be an acknowledgment of a decline in American power.

In an op-ed article in The Washington Post, the analysts Robert Kagan and Dan Blumenthal argued that the policy had echoes of Europe “ceding the Western Hemisphere to American hegemony” a century ago. “Lingering behind this concept is an assumption of America’s inevitable decline,” they wrote. White House officials shot back, insisting that it is China that needs to do the reassurance, not the United States.

In China, Mr. Obama will meet with local political leaders and will host an American-style town hall meeting with students in Shanghai. He will then spend two days in Beijing meeting with President Hu Jintao.

It seems unlikely that Mr. Obama will get the same celebrity-type reception in Beijing that he received in Cairo, Ghana, Paris and London. China seems mostly immune to the Obama fever that swept other parts of the world, and the Chinese are growing more confident that their country has the wherewithal to compete with the United States on the world stage, analysts say.

“Obama is still a positive guy, and all over the world most people think he’s more energetic, more sincere, than Bush, more a reformist,” said Shi Yinhong, a professor and an expert on United States-China relations at People’s University in Beijing. “But in China, Obama’s popularity is less than in Europe, than Japan or Southeast Asia.” In China, he said, “there is no worship of Obama.”

For instance, during the Bush and Clinton years, China might release a few political dissidents on the eve of a visit by the president as a good-will gesture. This time, American officials say, they do not expect any similar gestures, although they say that Mr. Obama will raise human rights issues privately with Mr. Hu.

“This time China will agree to have a human rights dialogue with the U.S. on some cases,” Mr. Shi said, but “the arguments have changed compared to the past. Now we say, ‘We are a different country, we have our own system, our own culture.’ ”

Leading bankers study Pope’s encyclical on social teaching

indcatholicnews.com | Oct 21, 2009

A private seminar was held this morning at Schroders Bank to explore the relevance of the Pope’s encyclical on social teaching, Caritas in Veritate, for the financial sector.

The seminar was organised by Archbishop Vincent Nichols and brought together a number of leading figures in the City to look at issues of ethics and values in the light of the moral principles of Catholic social teaching, and the various challenges facing leaders of the financial sector in the UK.

A message  from Cardinal Bertone, Secretary of State  to Pope Benedict,  said: ‘The Holy Father was pleased to be informed of the meeting .. he sends his cordial greetings to all participants. He is gratified to learn that leading figures in the world of finance  are responding to the challenge to explore ways of building ‘authentically human social relationships of friendship, solidarity and reciprocity.’ And he encourages them always to promote the integral human development that is rooted in a transcendent vision of the person. He assures all those taking part in the seminar of his blessing and prayers.’

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Inequality is good, says Goldman Sachs chief, Lord Griffiths

All participants attended in a personal capacity. They were (listed alphabetically): Marcus Agius, Chairman, Barclays Bank; Helen Alexander, President, CBI; Bishop John Arnold, Auxiliary Bishop in Westminster; Ben Andradi, Managing Partner, Syntel and Trustee of Catholic Trust for England and Wales; Sir Win Bischoff, Chairman, Lloyds TSB; Geoff Boisi, Chairman and CEO, Roundtable Investment Partners; Gavin Boyle, CEO, Tudor Capital UK; Robin Buchanan, Senior Adviser, Bain & Co; Mel Carvill, President, PPF Partners Ltd; Dominic Casserley, Managing Partner UK and Ireland, McKinsey & Co; Sr Catherine Cowley, Lecturer in Christian Ethics, Heythrop College, University of London; Michael Dobson, Chief Executive, Schroders; Stephen Green, Group Chairman, HSBC Holdings; Lord Brian Griffiths, Vice Chairman, Goldman Sachs International;  Field Marshal Lord Peter Inge, former Chief of the Defence Staff; Louis Jordan, Vice Chairman, Deloitte;  Rt  Hon John McFall, MP Chairman, Treasury Select Committee; George Mallinckcrodt, W KBE, President, Schroders; Philip Mallinckrodt, Group Head of Private Banking, Schroders;  Paul Marshall, Founder and Chairman, Marshall Wace; Archbishop Vincent Nichols, President, Catholic Bishops’ Conference of England and Wales; Andrea Ponti, Global Head, Healthcare JP Morgan; Anthony Salz, Director, Rothschild’s; Archbishop Peter Smith, Vice-President, Catholic Bishops’ Conference of England and Wales; Keith Wade, Chief Economist, Schroders; Charles Wookey, Assistant General Secretary, Catholic Bishops’ Conference of England and Wales;  and Professor Stefano Zamagni, Professor of Economics, University of Bologna, adviser to the Pontifical Council for Justice and Peace on Caritas in Veritate.

Lord Griffiths has echoed the ‘Greed is good’ maxim by Gordon Gekko, played by Michael Douglas in the film Wall Street, by saying inequality is good

Inequality is good, says Goldman chief, echoing Gordon Gekko as he defends huge bank bonuses

Daily Mail | Oct 21, 2009

By Rupert Steiner

The vice-chairman of Goldman Sachs has launched an astonishing defence of bumper bonuses just a year after bankers brought the world’s economy to the brink of collapse.

In a speech likely to recall fictional banker Gordon Gekko in the film Wall Street – whose mantra ‘greed is good’ came to sum up the excesses of the 1980s – Lord Griffiths claimed taxpayers should ‘tolerate the inequality’.

And he insisted that banks should not be ashamed of rewarding staff.

His comments came as it was revealed that President Barack Obama is set to slash bonus payouts by as much as 90 per cent to executives at Wall Street banks that received billions of dollars in taxpayers’ cash.

Last week, Goldman Sachs provoked anger after revealing that it planned to lavish a record £13.4billion in pay and bonuses on its staff.

Around 5,500 of its employees work in London and are in line to pocket an average of £440,000 each after the bank revealed a sharp rise in profits.

Lord Griffiths, who was speaking at a debate on ethics held at St Paul’s Cathedral, said: ‘We have to accept that inequality is a way of achieving greater opportunity and prosperity for all.

‘We should not be ashamed of offering compensation in an internationally competitive market to ensure that businesses stay here and employ British people.’

The 67-year- old, a former adviser to Lady Thatcher, also said government attempts to rein in bonuses would only result in banks quitting Britain, causing huge damage to the economy.

‘We should think about the mediumterm common good and make sure that going forward we have one cluster of industry here in London – the financial sector,’ he said.

Lord Griffiths’s comments will be a major embarrassment for Chancellor Alistair Darling and Treasury minister Lord Myners, who have already promised to slam the brakes on corporate excesses.

They are also likely to enrage millions of credit-starved businesses and families hit by the credit crunch.

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NY Times | Oct 14, 2009

By ERIC DASH

A year after the financial system was brought to its knees, a resurgent JPMorgan Chase reported a second consecutive quarter of surprisingly strong profit on Wednesday, solidifying its position at the pinnacle of American banking.

JPMorgan’s results — $3.6 billion in profit for the third quarter — fanned hopes on Wall Street that the nation’s financial sector was entering a new period of prosperity, despite lingering troubles. The bank’s robust showing, amid tentative signs that its consumer loan losses might soon peak, has set the pace for other big banks that will report results in coming days.

JPMorgan’s profit was powered by its investment banking division, where earnings more than doubled from the period a year earlier because of trading in the fixed-income markets and a flurry of deals. The unit’s results more than offset the bank’s losses on credit card loans and home mortgages, which continued to rise as consumers struggled with a weak economy.

The earnings seemed to light a fire under Wall Street. The Dow Jones industrial average rose 144.80 points, closing above 10,000 for the first time in a year.

Although the recession weighed heavily on its businesses, JPMorgan appeared to be taking advantage of the financial crisis to leapfrog investment banking rivals in the rankings and expand its consumer lending franchise. Meanwhile, it added $2 billion to its consumer credit reserves for future losses, bringing the total amount it has set aside to $31.5 billion.

Net income rose to 82 cents a share, far surpassing analysts’ estimates for the third quarter. The bank reported a profit of $527 million, or 9 cents a share, in the third quarter of 2008.

“The revenue growth was very impressive,” said Anthony Polini, an analyst at Raymond James & Associates. “They’re benefiting from a turn in the economy, and they’re asserting their dominance.”

The results also reflected the broader rebound in once-stymied financial markets, with companies again issuing stock, raising money from bond markets and signing merger deals. After being forced to take huge write-downs on the value of some its assets a year ago, JPMorgan said it booked about a $400 million gain on the sale of mortgage securities and buyout loans.

Jamie Dimon, JPMorgan’s chairman and chief executive, said the earnings reflected growth across several business lines, but he gave only a cautious outlook. “While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue,” he said in a statement.

Consumer loss rates remain high, but there were upbeat signs in the bank’s numbers. Bank officials said they saw “a little bit of stabilization” in home values, especially for lower price properties and in states like California. And while delinquencies remain high, fewer borrowers were falling behind on mortgages.

Michael J. Cavanagh, the bank’s chief financial officer, called that a “hopeful sign” but stopped short of declaring that heavy losses were over. “We have to watch the economy and see where it heads,” he said in a conference call with reporters.

JPMorgan was the first of the nation’s biggest banks to report third-quarter earnings. Bank of America, Citigroup and Goldman Sachs also release results this week. As one of the first major banks to warn of troubles with subprime mortgages, home equity loans and credit cards, JPMorgan is seen as a bellwether for the financial industry.

Although the housing market and economy remain weak, analysts expect to see a slowdown in consumer loan losses at the biggest banks and for them to start setting aside less money in their reserves. Meanwhile, the troubles are quickly moving to commercial real estate loans, which will place a heavier burden on smaller lenders.

Mr. Dimon still must contend with several problems. His decision last month to replace the two co-heads of the investment banking division with a single leader, James E. Staley, raised concern within the ranks. JPMorgan’s credit card division is unlikely to turn a profit until 2011, and, like most of the industry, its consumer franchise has seen a fall-off in new mortgage lending.

Mr. Dimon also faces obstacles in Washington. He must balance paying bonuses to JPMorgan investment bankers based on blow-out earnings with public furor over Wall Street pay. New regulations on credit cards threaten to lower the profitability of that business, and lenders face other legislative efforts to curb bank fees and derivatives trading.

Despite repaying its $25 billion taxpayer investment in June, JPMorgan is still waiting for the government to sell warrants it was given last year. Their value, now at nearly $2 billion, has risen almost $800 million since rivals like Goldman Sachs cut deals to buy them back this summer, according to Linus Wilson, a finance professor at the University of Louisiana at Lafayette. That could be a windfall for taxpayers but would not affect the bank’s capital.

Even so, JPMorgan is emerging from the crisis with renewed confidence. Its investment bank, which posted a $1.9 billion profit, reported strong trading revenue, though short of the record levels earlier this year when the markets were in constant flux and prices skyrocketed.

The bank’s consumer businesses are still bleeding from bad loans. Its mortgage and consumer banking operations posted a narrow $7 million profit, while its credit card division lost $700 million in the quarter. By next year, charge-offs could reach 11 percent of loan balances.

“You are seeing the underlying earnings power is there, albeit challenged by the need in this quarter to add to reserves,” Mr. Cavanagh said. “Stabilization is just the first phase; we need losses to return to more normalized levels.”

When Lord Mandelson pays tribute to President Lula of Brazil at the Banqueting House in Whitehall on Bonfire Night, his Brazilian-born boyfriend, Reinaldo da Silva, will not be the only one hoping for friendships to sparkle. The Business Secretary’s holiday host Nat Rothschild has decided to expand massively his interests in Brazil.

Telegraph | Oct 10, 2009

By Richard Eden

Lord Rothschild’s heir has invested £75 million in BR Properties to take advantage of Brazil’s booming economy.

Nat, from whose villa in Corfu Peter Mandelson reportedly ran Britain while Gordon Brown was on holiday in August, is expected to take a seat on the board of BR Properties. His father is the chairman of the RIT Capital investment group, which is also taking a minority stake in the company.

Nat’s previous property interests centred on Montenegro, where he is investing with another of Mandelson’s chums, Oleg Deripaska, the controversial Russian oligarch.

Mandelson’s relationship with Nat became a major talking point when Mandrake disclosed last year that the former European trade commissioner had, while staying with Nat in Corfu, been entertained aboard the yacht of Deripaska, an aluminium tycoon, whose businesses benefited from tariffs the commission set.

Nat, who is the co-chairman of the hedge fund Atticus Capital, has been linked to the son of the Libyan dictator Muammar Gaddafi, Saif al-Islam Muammar al-Gaddafi. In 2009, Saif threw his 37th birthday party at the Splendid Hotel in Becici, Montenegro.

Agence France-Presse | Oct 4, 2009

The crisis is redrawing the world map of economic power as the influence of US consumer spending declines and major emerging markets like China and India take the lead, finance chiefs said.

“One of the legacies of this crisis may be a recognition of changed economic power relations,” World Bank president Robert Zoellick said Friday in Istanbul ahead of annual meetings of the World Bank and the International Monetary Fund.

“Recent forecasts show that China and India are helping to pull the global economy out of recession…. A multipolar economy less reliant on the US consumer will be a more stable world economy,” he added.

Consumer spending accounts for around two-thirds of economic activity in the United States — by far the world’s biggest economy — and experts say lower spending could have radical effects on the US’s world standing.

The IMF on Thursday forecast emerging and developing economies would grow 5.1 percent in 2010 — in contrast with just 1.3 percent in advanced economies.

China’s economy was projected to grow by 9.0 percent next year and India’s by 6.4 percent — far ahead of 1.5 percent expansion in the US economy.

“The American engine is not as strong as it was before,” IMF managing director Dominique Strauss-Kahn said in a speech in which he called for emerging markets to be given more say in the IMF’s decisions.

“Emerging economies are becoming more and more the real partners,” he said.

In a BBC World debate on the crisis held in Istanbul, Niall Ferguson, a professor of business administration at Harvard Business School in the United States, said: “The crisis has accelerated a shift from west to east.”

“That means rebalancing not only economically… but rebalancing geopolitically, which I think makes some people nervous,” Ferguson said.

“For the foreseeable future the US will be growing at a much lower rate while China is in fact growing at a much faster rate,” he added.

The shift is having far-reaching effects around the world.

In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the United States or, like Brazil, they have more links with China.

“If it was not for China we wouldn’t have seen positive growth in the second quarter in Brazil,” Ilan Goldfajn, chief economist at Brazilian bank Itau Unibanco, said at an IMF-organised conference in Istanbul.

Goldfajn said the world would now start to “rebalance towards Asia.”

Marek Belka, head of the IMF’s European department, cautioned however that for European countries, “demand from Asia is not enough — the recovery rests on the shoulders of European consumers and investors.”

This upheaval is changing institutions too, with the G20 group of developed and emerging economies turning into the main forum for international economic policy and strengthening the IMF as a guarantor of global stability.

The IMF has bailed out countries around the world in recent months and its members have tripled its lending resources to 750 billion dollars (515 billion euros).

Strauss-Kahn has more ambitious plans yet and is seeking more funding to strengthen the IMF’s role as a global lender of last resort.

“Our ultimate goal is financial and economic stability,” he said in a speech in Istanbul at which he outlined plans to even out global economic imbalances.

The G20 summit in the US city of Pittsburgh last month also agreed to give more voting shares to emerging and developing economies in the IMF and the World Bank — a reflection of the shift in economic power.

The World Bank’s Zoellick has also argued that developing countries in Southeast Asia, Latin Amercia, the Middle East and Africa should be seen as future “engines of growth” rather than recipients of charity from rich nations.

In a recent speech in Washington, Zoellick said: “The old international economic order was struggling to keep up with change before the crisis…. It is time we caught up and moved ahead.”

IMF Gets New Role of Serving the G-20

WSJ | Oct 5, 2009

By BOB DAVIS

ISTANBUL — International Monetary Fund Managing Director Dominique Strauss-Kahn is using the IMF’s annual meeting here to campaign for turning the fund into a kind of global central bank with at least $1 trillion for lending developing nations in a crisis.

But a very different reality is taking shape: The IMF is essentially being turned into the staff of the Group of 20, an organization of industrialized and developing nations that doesn’t have a headquarters, staff or rules for membership. With the leaders of the G-20 effectively functioning as the board of directors of the global economy, they need the IMF’s help to carry out their role.

While the IMF’s new assignment was discussed at the G-20 leaders’ summit in Pittsburgh recently, it was more fully fleshed out — and widely endorsed by non-G-20 countries — in Istanbul over the weekend. It was also backed by finance ministers from some of the world’s largest industrialized countries and won a nod from an IMF policy committee that convenes at the annual meeting. And while Mr. Strauss-Kahn would like the IMF to do more, he too has embraced the emerging G-20 role.

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Essentially the arrangement is designed to answer problems faced by both the IMF and the G-20. The IMF has long responded to requests from its largest shareholders — such as pressing China over currency issues at the behest of the U.S. But the assignments were often met by grumbling among IMF staff and led developing countries to see the IMF as a tool of U.S. foreign policy.

Significant now are the breadth of the G-20 move and the fact that it is seen as truly multilateral — coming from a larger group of major countries. And it addresses a continuing political failure: The IMF’s biggest shareholders often ignore its advice.

Now the G-20 will handle the politics of the global economy, largely by member countries peer-reviewing each other’s policies — and by pressing countries to stick to their pledges. In the case of China, that means relying less on exports — and by implication letting its currency appreciate — and in the case of the U.S., cutting its long-term debt.

For the G-20, relying on the IMF’s staff also could relieve political pressure, in this case from nations that aren’t members of the club. Egyptian Finance Minister Youssef Boutros-Ghali, who chairs the IMF’s policy committee, said, “What’s the role [at the G-20] of the [IMF's] other 165 nations? That’s two billion people” being left out. He said he thought those members would be satisfied if IMF staff working for the G-20 went through the IMF’s regular channels — such as presenting documents for review to the fund’s executive board, which represents all IMF members.

But Israeli central banker Stanley Fischer, a former IMF deputy managing director, said deeper change is needed. Eventually, he said, the G-20 should become the governing board of the IMF and have the responsibility of representing the IMF’s other members.

The G-20 finance ministers plan to start figuring out the precise procedures during a November meeting in Scotland.

Among tasks already assigned to the IMF is the analysis of plans by G-20 nations to boost growth and monitoring whether nations are carrying them out. Along with the Financial Stability Board, an organization of central bankers and regulators, the IMF will perform similar work on regulatory proposals. The G-20 is also counting on the IMF to develop early warnings of asset bubbles and other major problems.

European Central Bank governing-council member Axel Weber was skeptical of Mr. Strauss-Kahn’s goal of turning the IMF into a global lender of last resort. But Mr. Strauss-Kahn said he had made progress in winning support, pointing to a policy-committee recommendation that the IMF should “review its mandate.”