Washington/London, October 11
The US government pushed on Saturday to finalise a plan to buy direct stakes in American banks as the International Monetary Fund (IMF) warned markets could drop another 20 per cent in a worst-case scenario.

Global stocks plunged to five-year lows on Friday, as panic gripped. The US
S&P index and European stocks suffered their worst week ever, losing around
a fifth of their value.

“In a worst-case scenario, governments will need a few more weeks to take the correct measures and the markets could fall another 20 per cent. Then, we’ll turn around,” IMF’s chief economist Olivier Blanchard was quoted as saying in Italian daily Corriere della Sera.

The world’s rich nations vowed on Friday to take all necessary steps to unfreeze credit markets and ensure banks could raise money, but they offered no collective course of action to avert a deep global recession.

In a surprisingly brief statement after a 3-1/2 hour meeting, the Group of Seven stopped short of backing a British plan to guarantee lending between banks, something many on Wall Street saw as vital to end growing market panic.

However, an emergency meeting of euro zone leaders on Sunday would discuss a bank rescue package taking Britain’s initiative as a reference point, a source close to the French presidency said, even though as a non-euro member Britain would not attend. Reports say Germany is thinking along the same lines.

Britain’s rescue plan, launched last week, involved injecting 50 billion pounds ($86 billion) of taxpayers’ money into its banks and, crucially, to underwrite interbank lending, which has all but frozen around the globe.

Treasury secretary Henry Paulson said the US government would buy shares of financial institutions if necessary to halt market turmoil that has wiped out trillions of dollars of wealth and threatens to throw the global economy into a major recession.

“We’re going to do it as we can do it in a proper way that will be effective. Trust me, we’re not wasting time, we’re working around the clock,” Paulson said late on Friday after the G7 meeting broke up.

He declined to discuss the size of the US bank equity purchases, but said details were being developed quickly.

The Treasury will use authority granted by Congress in last week’s $700 billion financial rescue legislation to buy shares in financial firms in addition to buying some of their distressed assets such as soured mortgages and illiquid securities.

The move would clear some of the bad assets off the banks’ balance sheets, theoretically freeing them up to lend again. Paulson said a two-pronged approach would be more effective.

“We can use the taxpayers’ money more effectively and more efficiently, have it go farther and get more for their dollars and more protection if we develop a standardised programme for making and encouraging equity participation,” he said.

Japan’s finance minister said his country was also considering injecting capital
into banks.

Analysts said the G7 statement was unlikely to allay the panic that swept through markets in recent weeks.

“Right now, everybody’s scared, they’re panicking,” said Mark Waggoner, president of Excel Futures Inc in California.

“No matter what they (G7) do it’s not going to be an instantaneous fix and everybody wants a fix that’s immediate.” The IMF’s Blanchard estimated there was about a 50 per cent chance of a recession in the US and Europe.

Leaders of euro zone countries will meet in Paris on Sunday. The Group of 20,
which includes reserve-rich emerging economies such as China and Russia, will
meet later on Saturday.

EU chiefs are due to hold a regular summit in Brussels on October 15, but the ferocity of this week’s turbulence persuaded French President Nicolas Sarkozy to summon the 15 states that had adopted the euro currency for emergency talks.

“There are two competing models. The American model, which no one wishes to draw inspiration from, and the British model. This is what everyone is talking about,” the source close to the French presidency said.

French economy minister Christine Lagarde told French Radio there would be new initiatives. “I am sure there will be new proposals,” she said, without elaborating.

Newspaper Die Welt reported on Friday that Berlin was also working on a British-style rescue plan, which could involve guarantees of over 100 billion euros and big capital injections.

Magazine Der Spiegel said on Saturday the German rescue package would be fast-tracked into law in the next few days.

Finance minister Peer Steinbrueck would only say the government was working on a plan, but did add that by Monday a signal would need to be sent “to calm things down”. — Reuters

Washington, October 11
US President George W. Bush said on Saturday the financial crisis would require a global, coordinated response and the top industrial nations would work together to solve it quickly, but cautioned it would not be fixed overnight.

“All of us recognise that this is a serious global crisis and therefore requires a serious global response,” he told reporters after an unusual Saturday gathering with the Group of Seven economic chiefs and leaders of the International Monetary Fund and World Bank.

“I’m confident that the world’s major economies can overcome the challenges we face,” Bush said. He argued the United States had a leadership role to play to resolve the crisis.

Bush has insisted the $700 billion bailout package approved a week ago by the US Congress is adequate to address the problems but it will take time to implement.

“These extraordinary efforts are being implemented as quickly and as effectively as possible,” he said, flanked by the G7 finance ministers as well as key members of his own Cabinet, including Treasury Secretary Henry Paulson.

“The benefits will not be realised overnight, but as these actions take effect, they will help restore stability to our markets and confidence to our financial institutions,” Bush said.

Bush urged the Group of Seven leading industrial nations to continue to work collaboratively and coordinate their responses to help thaw frozen credit markets, pointing to that interest rate cut by central banks this week as a good example.

“As our nations confront challenges unique to our individual financial systems, we must continue to work collaboratively and ensure that our actions are coordinated,” he said.

Bush said the G7 would do what it takes to address the crisis and praised the work by the group to implement measures to get credit flowing again and ensure banks could raise money again.

“As our nations carry out this plan we must ensure the actions of one country do not contradict or undermine the actions of another,” Bush said. "We're in this together, we will come through it together." — Reuters

Mumbai, October 11
India’s foreign exchange reserves have dropped $7.87 billion during the week ended October 3, on account of market interventions by the central bank to stabilise the rupee and heavy selling by foreign funds.

The reserves, which include foreign currency assets, and gold, stood at $283.94 billion as on that date, as per the latest data with the Reserve Bank of India (RBI).

The fresh data comes against the backdrop of leading industry chambers asking the government to set up a $7-$8 billion fund with reserve money available as foreign exchange to invest in Indian securities and debt markets.

“This fund will ultimately make a profit as Indian asset prices are likely to increase in the longer term,” the Confederation of Indian Industry (CII) said in a statement.

“This will also have the benefit of creating a floor for asset prices and prevent further depreciation in the rupee.”

Since the beginning of the current fiscal, foreign exchange reserves are down as much as $25.78 billion taking into account the actual position and the account the effect of appreciation or depreciation of non-US currencies like Euro, Pound-Sterling and Yen, held in reserves.

One of the main reasons for the depletion can be attributed to the net sales in equity markets by foreign funds, which sold equity worth $883 million during the four days of trading for the week ended Friday. — IANS

New Delhi, October 11
The International Monetary Fund (IMF) says while tighter global liquidity conditions will have a bearing on India, its growth performance will continue to be robust.

“We are projecting that the growth in India will come down from 8 per cent in 2008 to 7 per cent in 2009. But 7 per cent is still a strong rate of growth,” Olivier Blanchard, Economic Counsellor and Director of the IMF’s Research Department, recently said while releasing the World Economic Outlook Report.

“Like all other countries, India will be affected by the global slowdown. That reflects the fact that India is still largely a closed economy, has strong internal growth dynamics, from rapid productive growth, from its process of integration into the global economy that is still continuing,” he said.

The official said there was some impact from tighter global liquidity conditions, but the IMF did not see a major drag from this impact on India. — UNI

Q: I have four questions regarding Section 54EC bonds —
(1) Whether capital gain from commercial property purchased by my parents and inherited by us after their death since 2001 would qualify for capital gain exemption under Section 54EC by investing in bonds?
(2) Which are the bonds that qualify for exemption for sale of commercial property?
(3) From where can I get these bonds at 20 per cent discount upfront?
(4) As the property is held jointly by my brother and me, will the sale proceed
divided equally between us and invested individually in the bonds also to qualify
for exemption?
— Dinesh Jangla

A: 1. Yes, it will. The investment has to be made within 6 months of earning the capital gain.

2. There are only two types of bonds that qualify for any kind of taxable long-term capital gain. The NHAI and the REC issue this kind of bonds currently.

3. There is no 20% discount upfront. You get a tax break on capital gains by investing in these bonds and since the tax rate is 20%, 20% is what you effectively save by investing in the bonds.