IMF Chief Calls Oil Prices an `Increasing' Risk to World Growth
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Sept. 3 (Bloomberg) -- International Monetary Fund Managing Director Rodrigo de Rato called high oil prices an ``increasing'' risk to global economic growth, which has remained ``resilient'' in the face of rising fuel costs.
The Washington-based lender is scheduled to issue revised estimates for the world economy this month after predicting growth of 4.3 percent in 2005 and 4.4 percent next year on April 13. The IMF expects global growth to remain ``clearly above'' 4 percent this year ``and probably next year too,'' de Rato said today.
``That proves that the world is more resilient than in previous moments to quite a rapid increase in oil prices,'' he said today at a media briefing in Singapore. ``Nevertheless, oil prices have become one of the clear risks to the world economy along with global imbalance. The risk is not decreasing, but is increasing.''
Crude oil for October delivery fell $1.90, or 2.7 percent, to close at $67.57 a barrel on the New York Mercantile Exchange yesterday. The contract touched a record $70.85 on Aug. 30. Oil is up 54 percent in a year.
``The impact from oil so far has been rather limited, but going forward, there is still a danger that the impact could rise,'' said Chua Hak Bin, a Singapore-based economist at DBS Group Holdings Ltd., Southeast Asia's biggest lender. ``Oil is reaching a certain threshold where we see pain on certain countries like Thailand and Indonesia and can't dismiss it for India.''
Lower Subsidies
Crude prices aren't expected to retreat to levels seen early last year, de Rato said today. He urged governments to reduce fuel subsidies and focus social spending on low-income groups. The IMF chief was speaking after a daylong seminar on Asian financial integration attended by central-bank chiefs and top finance officials from 13 Asia-Pacific nations.
Indonesia's budget deficit may widen to 48.3 trillion rupiah ($4.3 billion) as higher oil prices boost the cost of capping gasoline, diesel and kerosene prices, President Susilo Bambang Yudhoyono said Aug. 31. That would be almost double a 26.2 trillion-rupiah estimate from the middle of last month.
In Malaysia, Prime Minister Abdullah Ahmad Badawi's government has raised fuel prices five times since the start of 2004 to reduce the budgetary impact of subsidies, which cost 6.25 billion ringgit ($1.7 billion) last year. The last increase, announced July 31, was expected to save 1 billion ringgit in subsidies.
92 Billion Baht
Thailand has already abolished fuel subsidies. Retail diesel prices have risen 29 percent since Prime Minister Thaksin Shinawatra's government abandoned its cap on the fuel on June 1 after spending 92 billion baht ($2.2 billion) in subsidies in the previous 19 months. The nation posted its first current-account surplus in five months in July.
India's cabinet is reviewing a policy that forces Indian Oil Corp., Hindustan Petroleum Corp. and Bharat Petroleum Corp. to subsidize fuel prices. Prime Minister Manmohan Singh has allowed gasoline prices to rise 20 percent since he gained power in May 2004, compared with a 72 percent jump in crude prices.
Price controls in China mean that PetroChina Co. and China Petroleum Chemical Corp., or Sinopec, the country's two biggest oil refiners, lose money on making and selling fuel. Pump prices are too low to cover costs for some retailers, prompting them to halt supplies and causing shortages in Shanghai, the country's financial center, and provinces such as Guangdong, the nation's biggest manufacturing hub.
``Inefficient subsidies should be addressed and reduced in all countries,'' the IMF chief said today. ``This is a clear moment to take stock of polices that maybe have lasted too long.''
Interest Rates
De Rato also repeated his Aug. 25 call to Indonesia to cut government spending on oil subsidies and tackle inflationary pressures by raising interest rates.
Indonesian President Yudhoyono on Aug. 31 said he will hold off raising fuel prices until ``after October,'' even as subsidies soar to about 138.6 trillion rupiah this year. The government will ``reduce subsidies, not abolish them,'' he said.
Credit-rating company Standard & Poor's on Sept. 2 changed its outlook for Indonesia's debt ratings to ``stable'' from ``positive,'' citing concern at the government's inability to stem the rupiah's decline.
The Indonesian currency on Aug. 30 slumped as low as 11,800 per dollar, the weakest since April 30, 2001, as record crude prices spurred demand for dollars to buy oil and threatened plans to reduce the budget deficit. The rupiah recovered to end the week at 10,175 per dollar after the central bank on Aug. 30 raised its benchmark interest rate by three-quarters of a percentage point.
Credibility
Indonesia's economic fundamentals are strong, and the rate increase will help to improve the country's credibility and calm financial makets, de Rato said. The country's currency woes won't affect Asia, he added.
Indonesia needs ``clear, credible anti-inflationary policies'' and at the same time must pursue ``structural reforms and efficient budgetary policy,'' de Rato said. ``As for the impact on the rest of the region, we don't see any reason to have special worries about that.''
Speaking at the same media briefing, Tharman Shanmugaratnam, deputy chairman of Singapore's central bank, said the Indonesian government has ``embarked on a credible set of measures'' that will help Southeast Asia's biggest economy overcome the ``blip'' in investor confidence that triggered a decline in its currency earlier this week.
Sept. 3 (Bloomberg) -- International Monetary Fund Managing Director Rodrigo de Rato called high oil prices an ``increasing'' risk to global economic growth, which has remained ``resilient'' in the face of rising fuel costs.
The Washington-based lender is scheduled to issue revised estimates for the world economy this month after predicting growth of 4.3 percent in 2005 and 4.4 percent next year on April 13. The IMF expects global growth to remain ``clearly above'' 4 percent this year ``and probably next year too,'' de Rato said today.
``That proves that the world is more resilient than in previous moments to quite a rapid increase in oil prices,'' he said today at a media briefing in Singapore. ``Nevertheless, oil prices have become one of the clear risks to the world economy along with global imbalance. The risk is not decreasing, but is increasing.''
Crude oil for October delivery fell $1.90, or 2.7 percent, to close at $67.57 a barrel on the New York Mercantile Exchange yesterday. The contract touched a record $70.85 on Aug. 30. Oil is up 54 percent in a year.
``The impact from oil so far has been rather limited, but going forward, there is still a danger that the impact could rise,'' said Chua Hak Bin, a Singapore-based economist at DBS Group Holdings Ltd., Southeast Asia's biggest lender. ``Oil is reaching a certain threshold where we see pain on certain countries like Thailand and Indonesia and can't dismiss it for India.''
Lower Subsidies
Crude prices aren't expected to retreat to levels seen early last year, de Rato said today. He urged governments to reduce fuel subsidies and focus social spending on low-income groups. The IMF chief was speaking after a daylong seminar on Asian financial integration attended by central-bank chiefs and top finance officials from 13 Asia-Pacific nations.
Indonesia's budget deficit may widen to 48.3 trillion rupiah ($4.3 billion) as higher oil prices boost the cost of capping gasoline, diesel and kerosene prices, President Susilo Bambang Yudhoyono said Aug. 31. That would be almost double a 26.2 trillion-rupiah estimate from the middle of last month.
In Malaysia, Prime Minister Abdullah Ahmad Badawi's government has raised fuel prices five times since the start of 2004 to reduce the budgetary impact of subsidies, which cost 6.25 billion ringgit ($1.7 billion) last year. The last increase, announced July 31, was expected to save 1 billion ringgit in subsidies.
92 Billion Baht
Thailand has already abolished fuel subsidies. Retail diesel prices have risen 29 percent since Prime Minister Thaksin Shinawatra's government abandoned its cap on the fuel on June 1 after spending 92 billion baht ($2.2 billion) in subsidies in the previous 19 months. The nation posted its first current-account surplus in five months in July.
India's cabinet is reviewing a policy that forces Indian Oil Corp., Hindustan Petroleum Corp. and Bharat Petroleum Corp. to subsidize fuel prices. Prime Minister Manmohan Singh has allowed gasoline prices to rise 20 percent since he gained power in May 2004, compared with a 72 percent jump in crude prices.
Price controls in China mean that PetroChina Co. and China Petroleum Chemical Corp., or Sinopec, the country's two biggest oil refiners, lose money on making and selling fuel. Pump prices are too low to cover costs for some retailers, prompting them to halt supplies and causing shortages in Shanghai, the country's financial center, and provinces such as Guangdong, the nation's biggest manufacturing hub.
``Inefficient subsidies should be addressed and reduced in all countries,'' the IMF chief said today. ``This is a clear moment to take stock of polices that maybe have lasted too long.''
Interest Rates
De Rato also repeated his Aug. 25 call to Indonesia to cut government spending on oil subsidies and tackle inflationary pressures by raising interest rates.
Indonesian President Yudhoyono on Aug. 31 said he will hold off raising fuel prices until ``after October,'' even as subsidies soar to about 138.6 trillion rupiah this year. The government will ``reduce subsidies, not abolish them,'' he said.
Credit-rating company Standard & Poor's on Sept. 2 changed its outlook for Indonesia's debt ratings to ``stable'' from ``positive,'' citing concern at the government's inability to stem the rupiah's decline.
The Indonesian currency on Aug. 30 slumped as low as 11,800 per dollar, the weakest since April 30, 2001, as record crude prices spurred demand for dollars to buy oil and threatened plans to reduce the budget deficit. The rupiah recovered to end the week at 10,175 per dollar after the central bank on Aug. 30 raised its benchmark interest rate by three-quarters of a percentage point.
Credibility
Indonesia's economic fundamentals are strong, and the rate increase will help to improve the country's credibility and calm financial makets, de Rato said. The country's currency woes won't affect Asia, he added.
Indonesia needs ``clear, credible anti-inflationary policies'' and at the same time must pursue ``structural reforms and efficient budgetary policy,'' de Rato said. ``As for the impact on the rest of the region, we don't see any reason to have special worries about that.''
Speaking at the same media briefing, Tharman Shanmugaratnam, deputy chairman of Singapore's central bank, said the Indonesian government has ``embarked on a credible set of measures'' that will help Southeast Asia's biggest economy overcome the ``blip'' in investor confidence that triggered a decline in its currency earlier this week.
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