Washington Update

Although much of the Washington-based development community is headed to Istanbul, there is quite a bit of news coming from headquarters.

First, IFC is teaming up with several private sector banks to launch a vehicle to purchase distressed assets in emerging markets. IFC will commit $1.5bn to the fund and is hoping to raise an additional $4bn from the private sector. A particular emphasis will be on Eastern Europe, which was home to 40 percent of pre-crisis foreign capital flows. Further details of the project will be announced in Istanbul. In the meantime, the FT reports:

The idea is to mimic the functions of a "bad bank" at an international level through a number of platforms rather than a single global investment vehicle.

As part of the initiative...the IFC is teaming up with HSBC to purchase and restructure distressed assets, in what it hopes will eventually be  $900m scheme.

IFC's chief executive, Lars Thunnel, is known for having managed Sweden's "bad bank" during its banking crisis in the early 1990s.

Next, the IMF has issued its October World Economic Outlook, with several upward revisions to growth in 2010:

 

Some key observations:

• Mexico and Russia are the hardest-hit emerging markets. China and India have fared the best.
• Russia and the Central Asian states have had their 2009 growth forecasts downgraded since July.
• The recovery forecasts for Eastern Europe and Central Asia (ECA) are lower than the emerging market average. More significantly, their recessions have been much deeper.

The timing of IFC's new initiative is apropos to the challenges facing ECA. The World Bank and European Bank for Reconstruction and Development (EBRD) are also taking action. As I noted last week, the World Bank has issued over $2bn in assistance to Hungary, Ukraine, and Latvia. The EBRD has requested a 50 percent capital increase in order to support a Central and Eastern European recovery.

Expect more information on the road to recovery to be unveiled during this week's meetings.