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A global shortage of semiconductor chips in the automotive industry starting in 2020 has motivated many countries to increase their domestic manufacturing. The United States has allocated more than $50 billion to promote semiconductor production and research stateside as the global need for the chips is expected to double over the next decade. Keith Kocinski has more from New York.
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Sri Lanka looks set to get a sign-off on a long-awaited $2.9 billion four-year bailout from the International Monetary Fund (IMF) on March 20 after the crisis-hit country secured new financing support from China.

The IMF and the island nation confirmed on Tuesday that Sri Lanka had received assurances from all its major bilateral creditors, a key step to deploy financing and an important moment for the country engulfed in its worst economic crisis since independence from Britain in 1948.

Sri Lankan President Ranil Wickremesinghe told parliament there were signs the economy was improving, but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.

“Sri Lanka has completed all prior actions that were required by the IMF,” Wickremesinghe said, and that he and the central bank governor had sent a letter of intent to the IMF.

“I welcome the progress made by Sri Lankan authorities in taking decisive policy actions & obtaining financing assurances from all their major creditors, incl. China, India & the Paris Club,” IMF chief Kristalina Georgieva said on Twitter, adding that she looked forward to presenting the IMF-supported program to the executive board on March 20.

Approval is expected since the board generally will not add items to its agenda unless its members are ready to act.

The country’s international debt and currency soared higher on the news, with bonds adding around 3 cents in the dollar, while the Sri Lankan rupee jumped as much as 7.8% to a 10-month high. Stocks closed more than 2% higher.

A new letter by the Export-Import Bank of China (EXIM) sent on Monday to Sri Lanka resolved the stalemate. Sources close to the talks said EXIM provided “specific and credible” financing assurances for a debt restructuring, with a specific link to the IMF program and clear language on debt sustainability.

The first tranche of funding was expected to be released shortly after the board meeting, the sources added.

In a letter in January, EXIM had offered Sri Lanka a two-year debt moratorium, but sources said this was not enough to meet IMF conditions.

“This is a positive development: it might be the first time that China provides textbook financing assurances to the IMF outside of a Common Framework process,” said Theo Maret, senior research analyst at Global Sovereign Advisory, in Paris.

By end-2020, Sri Lanka owed EXIM $2.83 billion, or 3.5% of its external debt, according to IMF data. In total, Sri Lanka owed Chinese lenders $7.4 billion, or nearly a fifth of public external debt, by end-2022, calculations by the China Africa Research Initiative showed.

IMF financing provides an anchor for countries to unlock other funding sources. Sri Lanka was in negotiations with India, its second biggest creditor, to extend a $1 billon credit line due to expire by March 17, two sources said.

Sri Lanka needs to repay about $6 billion on average each year until 2029 and will have to keep engaging with the IMF, Wickremesinghe said.

Countries in debt distress such as Zambia and Sri Lanka have faced unprecedented delays in securing IMF bailouts as China and Western economies have clashed over how to provide debt relief.

Sri Lanka has been waiting for about 187 days to finalize a bailout after reaching a preliminary deal. This compares to a median of 55 days it took low- and middle-income countries over the past decade to go from preliminary deal to board sign-off, according to data compiled by Reuters.

“Debt restructurings both within and outside the Common Framework have been taking longer than usual due to issues with creditor coordination and foot-dragging by China,” said Patrick Curran at Tellimer. “The restructurings in Sri Lanka and Zambia are likely to set important precedents for future restructurings.”

Chinese Foreign Minister Qin Gang said on Tuesday that Beijing would continue to participate in the settlement of international debt problems in a constructive manner.

Responding to a question on the sidelines of an annual parliament meeting, Qin also said China should be the last to be accused of causing debt traps and called on other parties to share the burden.
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Federal Reserve Chair Jerome Powell said Tuesday the U.S. economy is advancing at a faster pace than expected, which could prompt central bank policy makers to raise interest rates at a faster pace than originally planned to curb spending and borrowing in hopes of reining in the continuing increase in consumer prices.

Policy makers at the central bank had signaled their intent to increase its benchmark interest rate by a quarter of a percentage point at upcoming meetings over several months. But Powell told the Senate Banking Committee that may not be enough to curb the U.S. inflation rate, which rose 6.4% over the 12 months ending in January, about three times the 2% pace the Fed considers acceptable.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

The Fed raised its benchmark interest rate, which affects borrowing costs for both businesses and consumers, by a quarter-point to a range between 4.5% and 4.75% last month, easing the pace of rate boosts following increases of a half percentage point in December and 0.75% in November.

The Fed had projected increasing the rate to between 5% and 5.5% and keeping it there until 2024, but the faster economic growth could alter those plans and push policy makers to increase the benchmark rate even higher.

“We will continue to make our decisions meeting by meeting,” Powell said. “Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”

Some U.S. economists have continued to predict that the economy, the world’s largest, will dip into a recession in the coming months, but that has yet to occur. Employers continue to add hundreds of thousands of new workers to their payrolls month after month — 517,000 in January alone — and the national unemployment rate is 3.4%, a 53-year low.

A report for hiring in February is due out Friday.

Fed policy makers last met February 1, but economic data revisions since then showed consumer price increases and the demand for more workers late last year didn’t slow as much as first reported.   

A robust labor market is usually favorable for workers looking for higher pay and hundreds of thousands of U.S. workers have switched jobs for bigger salaries as the country continues to recover from the 2020 coronavirus pandemic.

Powell told lawmakers that “strong wage growth is good for workers but only if it is not eroded by inflation.”

“We have more work to do,” he said. “Our policy actions are guided by our dual mandate to promote maximum employment and stable prices. Without price stability, the economy does not work for anyone.”
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