April 20 (Reuters) – The Group of 20 leading industrial and
emerging countries pledged more than $430 billion on Friday,
roughly doubling the International Monetary Fund’s fire-fighting
power and ward off financial contagion from Europe.
Following are comments from analysts on the agreement:
KARL SCHAMOTTA, SENIOR STRATEGIST, WESTERN UNION BUSINESS
SOLUTIONS, CALGARY
“The first impact it will have is creating a put under the
markets. That amount of firepower is not something traders will
want to take a position against. It will also parallel a set of
stiffer requirements before the IMF does step in for bailouts.
Ultimately, the safety net is elastic. If we have a situation
where Spain or Italy gets into trouble, the IMF will have to
raise more money.”
ROBERT TIPP, CHIEF INVESTMENT STRATEGIST, PRUDENTIAL FIXED
INCOME, NEWARK, NEW JERSEY
“Having an extra G20 commitment to the IMF is still a number
of steps removed from Spain and Italy being able to meet the
markets day in and day out and raise money. So on one hand,
these programs being out there are not a part of the real
day-to-day financing activities. But you don’t want these
countries to be going through the process of trying to raise
money without a safety net. So in that sense, this is an
important step. It is significant. During the Lehman crisis, a
real turning point was when the G20 unconditionally guaranteed
the Libor market. That stopped trend widening trends. And the
economic situation has become more dire. There are more
countries in recession, which increases the odds of them missing
their targets.”
DAVID SONG, CURRENCY ANALYST, DAILYFX, NEW YORK
“From what we’ve seen so far, the additional $400
billion-plus for the IMF has propped up risk-taking behavior,
but the effort to shore up investor confidence does little to
address the sovereign debt crisis. We’ve seen the European
Central Bank try to flood the system with cash, which certainly
helped to buy time, but heightening growth concerns surrounding
the region continues to dampen the outlook for the single
currency as European policy makers continue to look for
additional monetary support. Compared to last year, it seems as
though the EU is reverting back to its reactionary approach
after setting up the 800 billion-euro firewall, and the
Governing Council looks poised to carry out its easing cycle
throughout 2012 in an effort to stem the risk for a prolonged
recession.”
DAVID KEEBLE, GLOBAL HEAD OF INTEREST RATE STRATEGY, CREDIT
AGRICOLE CORPORATE & INVESTMENT BANK, NEW YORK
“The $430 billion is a nice enough size. I’m guessing that
they’ll get a few billion more, although the market will no
doubt come to the conclusion that no number is big enough. And
the comments about the tail risk diminishing is reassuring.”
“I don’t know what they can really do about oil prices. The
only way for the G20 to stop oil prices rises is to induce a
recession, They do not control the amount of short-term spare
capacity in the oil industry and releasing reserves is a
pointless exercise.”
GENNADIY GOLDBERG, FIXED INCOME STRATEGIST, 4CAST LTD INC.,
NEW YORK
“It’s certainly a step in the right direction that the IMF
is trying to increase its firepower, but the reluctance of some
major nations (such as the U.S.) to increase their contributions
could significantly dent the IMF’s ability to raise more funds.”
“There is a highly unpopular aspect to sending money abroad
when so many ‘domestic’ economies are hurting, making increasing
commitments more difficult. The issue here however, is that IMF
money comes with quite a lot of strings attached and as we saw
during the Greek bailout, troubled nations have to jump through
quite a few hoops to earn it.”
(Reporting by New York markets team)
