Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic.
Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad…
Many of my readers have inquired as to why the IMF has been so inaccurate in their estimates throughout the crisis. I doubt very seriously that it is a case of ineptitude. If one were to be a skeptic, and realize that the IMF charges stringent rates and can (and does) usurp the hierarchy of the claims upon assets upon its entrance, then one can clearly see a motivation in undershooting certain estimates. I am not saying that this is the case, but I would be remiss in failing to broach the topic. Remember, this is not your typical mainstream media publication, It's BoomBustBlog, and nothing is off limits.
|IMF Economic Forecasts (%)||2010||2011||2012||2013||2014|
|Debt as % of GDP||133.3||145.1||148.6||149.1||144.3|
The year 2013, with a IMF-proclaimed debt ratio of a tad under 150%, is the time when Greece will have to refinance the debt to pay the IMF (remember the charts above that show how optimistic the IMF has been historically). However, since the current debt raised by Greece is at fairly high rates, new debt will only be available at much higher rates (as markets should price-in the risk of high debt rollover) unless there is some saving grace of a drastic plunge in world wide interest rates and a concomitant plunge in the risk profile of Greece. At a 150% debt ratio, historically low artificially suppressed global interest rates that have nowhere to go but higher and prospective junk ratings from the US rating agencies, we don' t see this happening. Thus, the cost of borrowing for in 2013 is likely to be much higher in the market than the nearly five percent for the existing debt. Greece will either be unable to fund itself in the markets at all, and will have to convince the Euro Members and the IMF to extend the three-year lending facility just announced (reference What We Know About the Pan European Bailout Thus Far) or, it will get the debt refinanced at very high rates. In both cases the total debt as a percentage of GDP will continue to rise, and this is not a sustainable scenario over the longer-term. In addition, if it accepts the EU/IMF package and there is an event of default or restructuring, the IMF will force a haircut upon the private and public debtors beyond what would have normally been the case. This essentially devalues the debt upon the involvement of the IMF, a scenario that we believe many sovereign bondholders (particularly Greek, Spanish and Irish) may not have taken into consideration. This also leaves the possibility of a significant need for many banks to revalue their sovereign debt - particularly Greek sovereign debt - holdings.
As illustrated above, there is a higher probability for a Greek sovereign debt restructuring in 2013, which will definitely not hurt IMF (since it has a preferred right) but the Euro Members and other investors who will be holding the Greek debt.
So, now that we know who loses, who actually benefits?
Members' quotas and voting power, and Board of Governors
Table showing the top 20 member countries in terms of voting power (2,220,817 votes in total):
|IMF member country||Quota: millions of SDRs||Quota: percentage of total||Governor||Alternate Governor||Votes: number||Votes: percentage of total|
|United States||37149.3||17.09||Timothy F. Geithner||Ben Bernanke||371743||16.74|
|Japan||13312.8||6.12||Naoto Kan||Masaaki Shirakawa||133378||6.01|
|Germany||13008.2||5.98||Axel A. Weber||Wolfgang Schäuble||130332||5.87|
|United Kingdom||10738.5||4.94||Alistair Darling||Mervyn King||107635||4.85|
|France||10738.5||4.94||Christine Lagarde||Christian Noyer||107635||4.85|
|China||8090.1||3.72||Zhou Xiaochuan||Hu Xiaolian||81151||3.66|