IMF says more countries seek help, Banks and Auto industries struggle

Japan's economy minister said recession in the world's second-biggest economy could last longer than feared. In the United States and Britain measures of inflation fell sharply, paving the way for further interest rate cuts.

And in an illustration of the alarm gripping America's auto industry and the impact of U.S. troubles on economies well beyond its frontiers, Ford Motor Co decided to sell its controlling interest in Japan's Mazda Motor Corp.

Banking, seat of a crisis inflicting the sharp international slowdown, also showed the strain. Britain's Barclays altered fund-raising plans to quell shareholder anger and profits in Japan's largest bank tumbled.

In Washington, Bush administration officials defended the decision to use bailout funds to recapitalize financial institutions, instead of buying bad assets as had been originally proposed.

U.S. Treasury Secretary Henry Paulson, in testimony to the House of Representatives Financial Services Committee, said the global slump had become so severe that "an asset purchase program would not be effective enough, quickly enough."

In a rare spot of positive corporate news, though, U.S. computer maker Hewlett-Packard Co said it expects its fiscal fourth-quarter earnings to beat Wall Street forecasts, and predicted a profit for the coming year that topped analysts' estimates.

Technology had been seen as an area particularly vulnerable to cutbacks in corporate spending, and HP's comments offset worries about the economic slump to help send U.S. stocks up at the opening. European shares turned flat after declines in Japan.

The economic crisis has spread steadily in recent weeks beyond major developed countries, with states from Ukraine and Iceland to Pakistan seeking help from the IMF.

"It is true to say that because of globalization the amount which the IMF is asking for is increasing, and increasing rapidly, and the list of countries asking for some support is increasing every day," IMF Managing Director Dominique Strauss-Kahn told a news conference on a visit to Libya.

He had said his organization was likely to need at least $100 billion in extra funding over the next six months to help countries out of the mire.

Latvia Central bank confidence on IMFs loan to add currency stability

The Chief of Latvia's central bank said on Friday that aid from the International Monetary Fund would boost the stability of the country's currency, the lat, rather than undermine it.

The prime minister said he saw no worries at the moment over the currency after a weekend rush of people selling it for euros.

The government on Thursday decided to seek help from the European Commission and the IMF as the economy has slid and the government had to take over the country's second-largest bank.

Latvia would become the second EU country after Hungary to get a bail out.

Central bank chief Ilmars Rimsevics said the amount of money which Latvia would need from the Fund would be known within about three or four weeks, when the government will draw up an economic plan and hold talks with the Washington-based lender.

"This money can only be an extra buffer, a cushion, to the stability of the lat and not the other way around," Rimsevics told public radio when asked whether the Fund could ask for the lat to be devalued or its peg changed.

Prime Minister Ivars Godmanis, speaking at a Baltic prime ministers meeting in the Estonian town of Tartu, said the sum would not be in the billions.

Asked about a newspaper's report that 1 billion euros could be needed, he said: " ... we have just started these talks with the European Commission and the IMF about some reserves' support."

"We are seeking additional help for our reserves. We will not be borrowing billions of euros," he told reporters.

He also saw little threat to the currency.

"I have to say that we have had such waves of rumours (about a devaluation) both in February and now before our national holiday. It is over now. There is no more. Our national bank has enough reserves."

The lat is pegged to the euro at a central rate of 0.7028 euros, with a 1 percent fluctuation band. It has been stuck at the weak end of its band, 0.7098 euros, for six weeks and the central bank has spent more than 600 million euros ($751.5 million) to support it.

The bank has more than 4 billion euros of reserves.

Rimsevics said the government would draw up a plan for economic steps and present it to the Fund, which would then decide how much extra money the government would need.

"We will know that at the earliest after three or four weeks," Rimsevics said.

Latvia got into trouble after state revenues began to slide due to the economic downturn and then it had to take over second-largest bank, Parex Bank, to save it from a run on deposits. The state is guarantor for more than 700 million euros of Parex syndicated credits, which will have to repaid if refinancing efforts fail.

Russia Transfer $1 Billion To IMF

Russia will transfer $1 billion to the International Monetary Fund (IMF) to help finance rescue packages for countries hit by the world financial crisis, Prime Minister Vladimir Putin said on Thursday.

"The decision has been taken to transfer $1 billion to the International Monetary Fund to help countries who found themselves in an especially difficult situations," Putin told the United Russia party congress in Moscow.

IMF Expected From Hungary to recover slowly From Crisis

The IMF expects the economy to contract by 1 percent next year and grow by only 0.6 percent in 2010, the text of the report, linked to Hungary's request for a standby loan last month, said. The report was published on the IMF's website on Monday,

Hungary's current account deficit, meanwhile, is projected to narrow to 2 percent of gross domestic product next year from an expected 6.2 percent this year, the report said.

"It is projected to drop by more than 4 percentage points of GDP between 2008 and 2009, mainly due to the depreciation of the real exchange rate ... and lower growth. The process will be driven primarily by a sharp contraction of imports," the IMF said.

It said economic growth is expected to reach its estimated potential of 3 percent only after 2011, due to a slowdown in Western Europe, Hungary's main export market, and the global deleveraging process.

"In a difficult global environment and with low domestic demand, the economy is projected to recover only gradually," it said.

Hungary secured a $25.1 billion financial rescue package from the IMF, the European Union and the World Bank last month in a bid to shore up its falling currency and financial markets.

The IMF financing was linked to strong commitments on the government's side to cut the budget deficit further and cut spending, mainly public sector wages and pensions.

The IMF said sticking to these plans was of key importance and urged broad political consensus on structural reforms.

It also highlighted the fact that Hungary's external financing need would stay high despite a sharp fall in the current account gap next year.

The gross external financing requirement is still projected at about 39 billion euros through the end of 2009, the IMF said.

Much of this financing is expected to be covered through foreign direct investment, net positive capital transfers with the European Union, portfolio flows, and bank and corporate foreign financing, leaving a 20 billion euro financing gap.

"Commitments by the European Union (6.5 billion euros) and the World Bank (1 billion euros) will lower the financing gap. Absent such financing, gross reserves would deteriorate substantially," the IMF said.

Hungary expects to sign the loan with the EU soon.

The IMF also warned monetary policy must remain cautious, after the central bank hiked interest rates by 300 basis points to 11.5 percent last month.

"With the risk that global deleveraging may continue to put downward pressure on the exchange rate (which could have inflationary consequences), monetary policy will need to remain vigilant and premature easing will be avoided," it said.

Pakistani rupee gain slightly after IMF help

- The Pakistani rupee firmed 0.4 percent on Monday, following the government's agreement with the International Monetary Fund (IMF) for a $7.6 billion emergency loan, dealers said.

The rupee was quoted closing at 79.80/90 to the dollar, compared with Saturday's close of 80.15/25.

Dealers said they expected the rupee to stabilise, at least in the short term, following the IMF accord, having already lost 23 percent against the dollar this year as a balance of payments crisis developed.

"There were few payments today but the rupee seems to have firmed following the IMF announcement on Saturday," said a currency dealer.

The IMF said on Saturday its executive board is expected to meet shortly on the 23-month standby credit after IMF and Pakistan agreed on a reform programme.

Pakistan had been in talks with the IMF for months, but officials had been coy about admitting they were seeking an IMF package because of the harsh conditions the Fund often proposes.

An IMF programme usually involves cutting spending, raising taxes, accelerating privatizaton, increasing interest rates, and exchange rate flexibility to correct fiscal and external imbalances and control inflation.

The central bank last week raised the key interest rate by 200 basis points to 15 percent.

The rupee has lost 22.8 percent against the dollar since the start of the year.

However, analysts said the rupee would only stabilise in the long-term when there is an improvement in inflation and the current account deficit.

Inflation is running at over 25 percent, and Pakistan's current account and fiscal deficits are unsustainable.

The central bank's currency reserves, at $3.5 billion on Nov. 8, were just enough to cover nine weeks worth imports.

But the government's top economic adviser, Shaukat Tarin, said on Saturday he expected the first tranche of an IMF standby credit to be released this month.

The interest rate on the credit facility would vary between 3.51 and 4.51 percent, and would be payable between fiscal 2011/12 and 2015/16.

Pakistan also faced defaulting on international debt obligations in February next year unless it received a multi-billion dollar infusion.

After an IMF deal, Pakistan's thinly-traded five-year CDS were quoted around 2,600 basis points, compared with 3,000 bps late on Friday, one trader said.

He warned though it was difficult to get a reliable quote because the market was so thinly traded.

Potential donors including Saudi Arabia, China and the United States are gathering in Abu Dhabi on Monday for a "Friends of Pakistan" conference, but government officials said they are not expecting any financial pledges at the meeting.

However analysts said on Monday the IMF accord would help bring in funding from bi-lateral donors, possibly including agreements by oil exporters in the Gulf to let Pakistan pay for imports on a deferred basis.

The IMF news made no impact on a stock market. Trading dried up weeks ago due to an artificial floor authorities placed under the benchmark index at the end of August to protect a Karachi market that has dropped 35 percent so far this year.

The Karachi Stock Exchange (KSE) benchmark 100-share index ended flat at 9,184.09 points, just 40 points above its floor and turnover was 2,200 shares.

Dealers said stocks were trading at least 20 to 25 percent lower in off-market transactions and those losses will be reflected once a floor on the main index is removed.