A little Schadenfreude after IMF slip-up

May 13, 2009


The International Monetary Fund’s bumbled calculations on the financing needs of some eastern European countries revealed last week were met in Austria with disbelief, ridicule but also a quiet smile.


The IMF said it had overstated external financing needs of some countries in its Global Financial Stability Report, released on April 21, largely because of double-counting errors. The corrections have trickled in.


Worrying reports earlier this year indicating west European banks had lent $1.7 trillion to IMF-bailed-out states like Ukraine and Hungary worsened a steep selloff in the region’s assets. Policymakers lashed back at the time, saying the fear was blown out of proportion.


The IMF mistakes were front page news in many newspapers – especially in Austria, where the exposure of its banks to the emerging Europe region has been a topic of fierce debate.


Austrian banks have lent the equivalent of 70 percent of the country’s gross domestic product to emerging Europe and the exposure has driven market concerns that they could need a massive government bailout. The worries have driven up the price of Austrian government debt and prompted some, like U.S.economist Paul Krugman, to speculate that Austria could be on the brink of default.


This has made the Austrian central bank pretty angry, not to mention rankling politicians, bankers and the media. This one in The Telegraph really got them going.


Even before the IMF correction, many in Austria blamed an Anglo-American conspiracy trying to divert attention away from their own banking troubles by painting a bleak picture of Austria’s stake in emerging Europe.


“Would we be better off if we were active in the United States, in Great Britain or in Germany?,” Herbert Stepic, the chief executive of emerging Europe’s No.2 bank Raiffeisen International asked last month. “I can only say: categorically no.”


So the financial stability of the emerging Europe region, a motor of Austrian growth in recent years, is close to the Alpine republic’s heart and the IMF mess-up gave room for a touch of Schadenfreude.


“An embarassing calculation mistake — (Finance Minister) Proell sees himself justified,” on state broadcaster ORF, “Not the first mistake” popular daily Kurier and Die Presse  said, pointing out a previous IMF miscalculation and emphasising Austria’s battle against the negative flow of news from the region. 


“There is a serious risk that policymakers will now use this in order to avoid addressing the issues that have been there all the time,” said Lars Christensen, Emerging Markets Chief Analyst at Danske Bank.


Austria likes to point out that ratings agencies have confirmed its triple-A debt rating and have dismissed concerns of a downgrade like that of fellow eurozone member Ireland — let alone the prospect of an Iceland-style default.


When the IMF got its figures on Eastern Europe wrong, Central Bank Governor Ewald Nowotny also told Die Presse newspaper that he felt his position strengthened.


“We just couldn’t believe it,” he is quoted as saying in reference to the original figures. He does add that the IMF is a reputable institute and that the exposure problem should not be dismissed “We have to be realistic and say there are big problems in the region, one of them being the proportion of credit in foreign currencies as a proportion of total credit,” he said.


Nowotny has been keen to make clear the distinction between different countries in the region and stresses over and over again that Austrian banks are stable, invested mainly in EU member states, that Austria has a banking package and will not pull out of the region.


“It’s highly embarrassing that the IMF made this slip-up and it has led some to question whether Central and Eastern Europe was in such bad shape. But the numbers have been blown out of proportion in both directions.” Christensen from Dankse Bank said.


Worries about the region cannot be based or dismissed using just these figures, he says. Concerns are based on more than one set of data. “But the revised IMF figures are still pretty terrifying.”

It is sure to be a topic when IMF Managing Director Dominique Strauss-Kahn visits Vienna later this week. 


International Monetary Fund Managing Director Dominique Strauss-Kahn, Washington, April 26, 2009. REUTERS/Yuri Gripas

Austrian Vice Chancellor and Finance Minister Josef Proell, Vienna, May 12, 2009. REUTERS/Leonhard Foeger

Austrian central bank (OeNB) Governor Ewald Nowotny, Vienna, December 9, 2008. REUTERS/Heinz-Peter Bader



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