“Debt trap” may paralyze central banks with fear — BIS

Claudio Borio, the head of the monetary and economic department at the Bank for International Settlements, said it may be time for central banks to focus less on inflation and more on financial stability. (Reuters)
Updated 22 September 2017
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“Debt trap” may paralyze central banks with fear — BIS

LONDON: Central banks are in danger of falling into a “debt trap” where they can’t take needed action for fear of triggering defaults and economic turmoil, a senior Bank for International Settlements (BIS) official said on Friday.
In a speech in London, Claudio Borio, the head of the monetary and economic department at the central bank umbrella group, said it may be time for central banks to focus less on inflation and more on financial stability.
Low interest rates are encouraging record amounts of borrowing — as is the asset-buying stimulus employed by many central banks seeking to lift inflation.
But such policy in turn makes central banks more nervous about raising interest rates in case it sends their borrowers to the wall and causes a slump in their economies — known in economic textbooks as a debt trap.
“At a minimum, this suggests lengthening the horizon over which it would be desirable to bring inflation back toward target,” for central banks, he said.
“It would be desirable to use the additional room for maneuver to address the financial cycle more systematically.”
“This could improve overall macroeconomic performance and reduce the risk of a ‘debt trap.. A trap could arise if policy ran out of ammunition, and it became harder to raise interest rates,” Borio said.
He added that his remarks had been intentionally provocative.
“We may need to adjust monetary policy frameworks,” he said, highlighting “the desirability of greater tolerance for deviations of inflation from point targets while putting more weight on financial stability.”
Despite all the stimulus from loose monetary policy, inflation has remained stubbornly low in many places.
Borio said economists should not overestimate the ability of central banks to fine-tune inflation, especially in the current environment where new technologies, working practices and globalization are limiting the impact.


France’s Total has officially left Iran: oil minister

Updated 20 August 2018
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France’s Total has officially left Iran: oil minister

  • Total said it would be impossible to remain in Iran unless it received a specific waiver from Washington, which was not granted
  • Total would have been highly vulnerable to US penalties for remaining in Iran
TEHRAN: French energy giant Total has officially quit its multi-billion-dollar gas project in Iran, Oil Minister Bijan Namdar Zanganeh said on Monday, following the reimposition of US sanctions.
“Total has officially left the agreement for the development of phase 11 of South Pars (gas field). It has been more than two months that it announced that it would leave the contract,” he told parliament’s news agency ICANA.
Zanganeh also appeared before parliament to underline the dire state of Iran’s oil and gas facilities, which he said were “worn out” and in need of renovation that Iran could not afford.
The United States said in May that it was abandoning the 2015 nuclear deal and reimposing sanctions on Iran in two phases in August and November.
The second phase will target Iran’s oil industry.
The other parties to the nuclear deal — Britain, France, Germany, China and Russia — have vowed to stay in the accord but their companies risk huge penalties if they keep doing business in Iran.
Total had already said it would be impossible to remain in Iran unless it received a specific waiver from Washington, which was not granted.
Total signed up in July 2017 for the $4.8 billion project to develop the field off Iran’s southern coast, as the lead partner alongside the China National Petroleum Corporation (CNPC) and Iran’s Petropars.
It was due to make an initial $1 billion investment, but the company said in May that it had spent less than €40 million on the project to date, as uncertainty over US actions mounted.
Total would have been highly vulnerable to US penalties for remaining in Iran.
The company has $10 billion of capital employed in its US assets, and US banks are involved in 90 percent of its financing operations, Total said in May.
It remains unclear whether CNPC will take over Total’s stake in the project.
Iran remains wary of relying on Chinese firms after bad experiences in the past. A previous contract for CNPC to develop the field at South Pars was suspended in 2011 after it failed to make progress.
The urgent need for investment to upgrade Iran’s dilapidated energy infrastructure was a key motivator behind its decision to join the 2015 nuclear deal.
Zanganeh appeared in parliament on Monday to answer questions on safety concerns following a number of recent fires at refineries.
“A big part of the oil industry has been worn out and the necessary renovation has not taken place,” he told parliament, according to the official IRNA news agency.
He said there were 10 cases per day of tubes perforating in Iran’s southern facilities, and that some refineries were as much as 80 years old, “whereas the useful life of an industrial unit is 30 years.”
“We have no resources for renovating them,” he added.