After reading so much about IMF, I decided to write my own IMF blog.

The International Monetary Fund (IMF) is an organization of 188 countries, for some it’s the devil for others the savior. By our book’s definition: “working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world”.

Recently IMF called for countries to work harder together on tax policies, as it finds increasingly pervasive cases of nations’ tax rules affecting each other. In a new paper, the IMF discusses tax issues like profit shifting – which has sparked outrage in Congress with cases involving Apple Inc. and Caterpillar Inc.

As we hear, read, and in my case experience, most multinational organizations use various ways to get around paying taxes, by maneuvering profits around the world for higher margins. As an example, PepsiCo has about 600 legal entities designed to move money around, establish transactions through entities that are established in countries like Ireland, Bermuda and Luxemburg to minimize taxes, fees associated with doing business in various countries, and foreign exchange rate impacts.

These multinational organizations serves as foreign direct investors, bring development and much needed jobs to these countries. E.g. One of Google’s major business hub is located in Cork, Ireland. IMF doesn’t mention any company by name in its report, but acknowledges that these efforts can create what the fund calls “a collective inefficiency” in the global economy. Congress is moving on its own to stop such deals to close tax loopholes for companies that take U.S. jobs overseas.

Result? In my opinion, this is all legal, and I admire multinational companies that can learn and implement business practices like this. Government seems to be slow at taking steps to prevent these approaches. As Marketwatch calls it: “Major U.S. tax legislation is virtually certain to go nowhere as lawmakers gear up for November’s midterm elections.”

Erol Menda

Going through various economic and social factors of why Prudential should invest in various countries reminds me to look at how we are doing here in the U.S. As we have learned, economies are interrelated and it’s tough to analyze US on its own, but looking over the first quarter results, economy is worse than everybody else has thought. We already feel the increase in the oil prices resulting from the crisis in the Middle East, and realize for the foreseeable future, oil will continue to be the lifeblood of the US and the global economy.

The Commerce Department revised its estimates of first-quarter GDP to show that the economy contracted at a 2.9 percent annual rate. A combination of shrinking business inventories, terrible winter weather and a surprise contraction in health care spending drove the first-quarter decline, which is the worst since the first quarter of 2009, when the economy shrank at a 5.4 percent rate. Below is a link to a short article that has further details.

Erol Menda

With two weeks remaining to the 2014 World Cup in Brazil, many Brazilians are skeptical about whether World Cup will help solve their economic problems or not. Thousands took part in street protests and riots during last year, they were upset with lavish spending on sports events at the expense of the social safety. There are contrasting reports on the actual long-term gains as a result of hosting the World Cup, considered as the most popular sport event in the World.

Forbes Magazine reported  that the World Cup, would add about $13.6 billion to the Brazilian economy, already the world’s seventh largest, in 2014 alone. Additional impact is on Brazil’s tourism with 3.7 million people expected to travel throughout 32 day event. It doesn’t stop there, a report by E&Y concluded that the tournament “should generate 3.63 million jobs/year and $28 billion income for the population in the period 2010-2014, besides an additional $8 billion in tax collections.” E&Y’s projected impact on the national production of goods and services stood at $50 billion, while the sectors most benefiting from the event—defined as economic activities with major increased output—were civil construction, food and beverage, business services, utilities, information services, and tourism and hospitality.

There have been contrasting reports on the actual long-term gains as a result of hosting the World Cup—and they aren’t quite as pretty. Moody’s report concluded that the event will provide short-lived sales increases that are unlikely to materially affect earnings and disruptions associated with traffic, crowding and lost work days will take a toll on business.”

All of these economic expectations are eye opening, and show us how a sport event could impact one of the biggest emerging economies in the world. I hope this information would enlarge everyone’s horizon when we sit in front of our TV’s in couple weeks during the games and help us also consider the the bigger economic picture around the fun games.

Erol