Governor of the Czech National Bank (ČNB) Miroslav Singer has cast fresh doubt about whether the Czech Republic should participate in a loan to the International Monetary Fund (IMF) aimed at helping to bolster the endangered eurozone.
Writing in the business paper Hospodářské noviny (HN), Singer said in a two-page article that the risks attached to the Kč 89 billion (€3.5 billion) loan had to be seriously weighed up even though the IMF could be considered “an exceptionally safe” financial institution.
Singer warned that, if agreed, the new loan would double the Czech central bank’s loan exposure to the IMF from the current Kč 92 billion to almost Kč 180 billion, or from around 12 percent of the bank’s reserves to around 23 percent of them.
“I am convinced that at a time when unprecedented doubts have been cast over what were previously regarded as certainties, such an exposure to whatever institution should be cause for reflection over the risks,” he added.
‘Such an exposure to whatever institution should be cause for reflection over the risks.’
The Czech government is currently weighing up whether to contribute to the €200 billion IMF loan aimed at supporting the eurozone and sign up to the parallel fiscal discipline pact agreed at the EU heads of government summit in Brussels on Dec. 8-9.
The Czech government has called for more information about both aspects of the deal aimed at bolstering the besieged eurozone with Prime Minister Petr Nečas (Civic Democrat, ODS) expressing his personal doubts about the twin measures. He had said the final decision on whether to sign to the agreements lies with the government, although Nečas stressed he would seriously weigh up the comments from Singer and the ČNB board, adding that he would in no way impinge on the bank’s independence.
The government office told Czech Position on Tuesday that the IMF loan was not on the Cabinet agenda for Wednesday’s discussions, adding that it would not be meeting the following week. It was unclear when the government would have sufficient information to make a decision, the spokeswoman added. The main left-of-center opposition, the Social Democrats (ČSSD), have accused the government of sitting on the fence until it is clear which way most EU member states, especially those outside the eurozone, will decide on the loan.
Ironically, Singer’s high-profile comments increase the pressure on Nečas to deliver a negative verdict over the IMF loan, though the prime minister will probably not be complaining. The sole backer of the IMF within the three-way center-right coalition is the TOP 09 party with party leader and Foreign Minister Karel Schwarzenberg warning that the country risks isolation within the EU if it does not agree the loan.
The loan issue is quickly develoing into an argument between Czech europhiles and europhobes, with the central bank board seen on the latter side of the argument especially given that they have been nominated by the fiercely eurosceptic President Václav Klaus.
Singer’s article in Tuesday’s Hospodářské noviny also cast serious doubts on whether the latest proposed loan would be sufficient to address the eurozone’s woes. Together with already unused funds, he said it would boost the loan funds available to €500 billion,” which will not be sufficient for the eurozone.” “The minimum needed to calm the markets and to be an effective help is estimated at around €700 billion,” he added. He described the likelihood of new loans from non-European countries as “rather unlikely.”
‘The minimum needed to calm the markets and to be an effective help is estimated at around €700 billion.’
That would mean finding a missing sum of around €200 billion from non-EU member states. He added that three out the previous four IMF loan packages for the eurozone (two to Greece and one to Portugal) had not been successes.
The IMF’s cast iron, or rather gold, risk-free loans reputation was also built on an unwritten rule that it gave priority to paying back creators, Singer said. “But that priority does not have any basis in the documents related to the [bank] agreements and is based on the usual practice between members of the IMF,” he added.
If the IMF started facing problems and had to call for increased contribution, around half of the burden of stumping up more money would fall in its main shareholders, the already heavily debt-burdened Japan, the US, and Britain, Singer said.
“I am convinced that if the IMF wants to increase its means and at the same time safeguard its exceptional financial trustworthiness, it should, rather than seeking new sources of loans, concentrate on boosting its capital, which in the end would mean increasing contributions,” Singer added.
He concluded that the ČNB’s bank reserves — which can be used, for example, for intervening in foreign currency markets to support or depress the Czech crown or for other interventions to underpin the Czech financial and banking system — needed to be more and not less accessible in times of turbulence and crisis and therefore treated with “respect.”
Scrambling for cash
Reports following a conference call of EU finance ministers on Monday said that they had agreed on a seven-day deadline to work out how to meet the original €200 billion target for the IMF loan after Britain announced it would not be taking part. This makes it difficult to see when the Czech cabinet could come to a quick decision. Russia and China have hinted that they could contribute to the loan, although the US has expressed concerns about the IMF’s increased exposure to the eurozone.
Czech Finance Minister Miroslav Kalousek (TOP 09) was reported to have complained during the conference call that loan conditions for EU countries outside the eurozone were more disadvantageous than for eurozone counties. He underlined afterwards that the government still had to take a decision about the loan, refuting speculation that the Czech Republic had already agreed in principle to it.
