Latin America launches regional development bank, IMF plans job cuts, Kosovo independence talks resume, and inflation surges in eastern Europe
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Latin America launches regional development bank, IMF plans job cuts, Kosovo independence talks resume, and inflation surges in eastern Europe

Seven south American countries inaugurated a new development bank on Sunday, set up to rival the IMF and World Bank’s influence on the continent. The Banco del Sur (Bank of the South) will be funded chiefly by economic heavyweights Argentina, Brazil and Venezuela, offering Latin American countries an alternative source of credit to the US and EU-backed development institutions. Bolivian president Evo Morales hailed the agreement as a “historical moment” and criticized economic and political conditions attached to IMF and World Bank loans. Venezuelan president Hugo Chavez added: “The bank is aimed at freeing us from the chains of dependence and underdevelopment.” The founding countries - Bolivia, Ecuador, Paraguay and Uruguay in addition to the three major creditors - exchanged signatures at Argentina’s presidential palace, where Cristina Fernandez will officially take office today. (For more analysis on the significance of the Banco del Sur, please click here)

Between 300 and 400 IMF staff could lose their jobs as part of the Fund’s plan to cut costs by $100 million. Dominique Strauss-Kahn, who became the IMF’s managing director in November, insisted that the cuts would help root out unnecessary bureaucracy. He said: “The institution works very well with dedicated people and very high-level staff, but it’s a factory to produce paper.” In the last financial year, the IMF’s deficit hit $110 million and analysts suggest losses could double by the end of 2008. A commodity boom, a rapid build of foreign exchange reserves and a backlash against the economic conditions imposed by the global policy-lender for its loans have deterred many emerging markets, (particularly in Latin America), from borrowing from the Fund. (For an exclusive interview with Strauss-Kahn pledging to reform the ailing institution, please click here)

Kosovar leaders will resume independence talks with the international community today after the deadline for an agreement with Serbia expired. The EU, US and Russia-supervised talks broke down two weeks ago as Kosovan politicians would settle for nothing less than a total breakaway from Serbia by May next year. NATO confirmed on Friday it would keep its 17,000 troops stationed in the province to avoid violent clashes between Serbs in the north and the ethnic Albanians, which make up over 90% of its population. Although officially part of Serbia, Kosovo has been run by the UN and NATO since the 1999 Serbian crackdown on Albanian dissidents.

Surging fuel and food prices have caused inflation to rocket in eastern Europe. Lithuania’s consumer price index jumped to 7.8% last month, the highest since December 1997, and up from 7.6% in October. With GDP up 10.8% in the third quarter, Lithuania is the EU’s fastest growing economy after Latvia but food prices, which grew at twice the rate of inflation in November, are prompting fears the economy is overheating. [no explanation on why, we would need more info to run this startling fact]Meanwhile, food costs are at their highest for 15 years in the Czech Republic, which saw inflation increase to 5% in November, 100bps higher than in October. The country’s central bank expects this figure to rise another percentage point next year, double its 3% target. Similarly, inflation in Hungary is predicted to rise 0.5% to 7.2% when announced tomorrow. This will make it more difficult for the central bank to reduce its base rate, which at 7.5% is the highest in the EU.

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