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Rambler's Top100

The IMF has exhausted its credit

By Jeff Randall, 16.09.2001

JUST occasionally one reads a prediction so egregiously ill-judged that it jumps at you like a frog from a bucket. Last week, just such a forecast leapt at me as I read a Reuters report on the International Monetary Fund's latest musings.

The IMF said that despite the scale of human tragedy at the World Trade Centre, "these terrible events will have only a limited impact on the international economy". At best this is a brazen attempt to talk up market sentiment; at worst, it is a risible assessment of global prospects.

Had the statement come from a more creditable organisation, it might have given us cause to feel less worried. But emanating from that sunset home for second-rate bankers and third-rate bureaucrats, I think we can file its prognostication in the bin marked "BS". Let's consider where America, the world's biggest economy, was heading before Tuesday and what has happened to it since.

For months, corporations have been slashing investment in a desperate bid to bring costs into line with falling demand. Not suprisingly, US jobless figures have started to rise. Amidst this retrenchment, consumer confidence remained surprisingly buoyant.

Now, do we believe that US consumers are going to be feeling more or less confident after the suicide assault? All the historical evidence points to the latter. The 1990 Gulf War, which was nowhere near American soil, prompted drastic cutbacks on discretionary US spending, drove up oil prices, and contributed directly to the sharp downturn in 1991.

It's hard to see why the mayhem in Manhattan will have a less debilitating effect on Joe Sixpack's spending than a war fought in Kuwait. European stockmarkets have identified the sectors likely to be hardest hit: airlines, banks, insurance, real estate and tourism. This will be confirmed when Wall Street reopens tomorrow.

Add to these negatives the huge loss of intellectual capital caused by about 5,000 deaths, and the likelihood that oil prices are for some time going to be higher than they were before Tuesday, and you can see why Wells Fargo's chief economist concedes that "a full-blown global recession" is on the cards.

On the other hand, we could believe the IMF's Panglossian forecast. But why would any rational investor do that? It is, after all, the institution that poured $20bn of Western taxpayers' cash into post-communist Russia without checking where the "loans" (what chance of repayment?) would go.

The problem was that the crooks who run Moscow trousered the money and are doubtless supping vodka in their luxury dachas as we speak.

The IMF was set up to promote currency stability. It has become, however, a sprawling job-creation unit that makes conditions inside the European Commission seem like a Dickensian workhouse. Its time is over.

A s I stared up at the World Trade Centre's twin peaks, I could just about see them poking holes in the clouds. There was something unsettling about being so tiny, so feeble, so utterly irrelevant against the immensity of this man-made monster.

It was 1982 and I was on my first overseas assignment. My employer, an aviation magazine, had sent me to interview a hot-shot analyst. Anxious not to keep this Wall Street superstar waiting, I had rushed from our modest offices without checking out downtown Manhattan's many attractions.

On arriving, however, I looked up and immediately suffered ground-level vertigo. I was standing before a tower that dwarfed anything I had seen before.

It was, as the Americans like to say, truly awesome: 1,300ft of brilliantly crafted bricks and glass that seemed to touch the sky. I remember thinking, "This is what New York is all about: a bigger, bolder and brasher place than anywhere else on the planet." Moving through the vast halls, one could feel the buzz. At the very top, it was possible to look down on passing helicopters. The complex symbolised the heart of US free enterprise; it was a great place to visit, and an even better place to work.

It represented a pioneering spirit that will sustain Americans through this darkest of hours and ensure that they bounce back to confound their murderous enemies.

Call me cynical, but when bad-news corporate stories creep out after an earth-shattering event like the World Trade Centre carnage, I become suspicious.

We all know about clever-dick companies that issue profits warnings on Christmas Eve, but surely no British group would deliberately slip out a difficult message under the cover of carnage in New York? Or would it?

Two reports last week set me thinking. The first was a leak that BT will admit in listing particulars for its mmO2 mobiles business that it cannot guarantee third-generation technology will be an improvement on existing services.

Worse still, its current network of radio masts will be insufficient for 3G technology, but the construction of new masts could be hampered by planning restrictions.

So there you have it: BT has paid billions for a 3G licence which may turn out to be worth less than the price of a cheap-rate call. The other nasty was Equitable Life's decision to pile insult on top of injury by increasing the exit penalty for policyholders from 7.5 to 10 per cent.

Equitable's handling of its customers' assets has been so inept that I rule out nothing, except to repeat the view of Professor Roy Goode QC, who asked in Friday's Financial Times: "What confidence can be placed in a management which, while claiming to honour contracts, so flagrantly breaches them?"


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