Singapore govt may weaken Sing dollar
Dreary: Cranes are seen at the Brani container terminal in Singapore. Trade numbers have fallen since New Year's Day. Pictures: Reuters, AFP
SINGAPORE
Thursday, January 22, 2009
SINGAPORE'S economy shrank the most on record in the last quarter of 2008 and the government forecast a five per cent contraction this year and a possible fall in consumer prices, which may prompt a one-off currency devaluation.
A government declaration that the economy was suffering its worst ever recession and official forecasts of a continued slump suggested to analysts the central bank could push down the centre of the trading band for the Singapore dollar, effectively devaluing it to help the key export sector.
The Brunei dollar is pegged against the Singapore dollar 1:1 under a bilateral agreement.
The grim figures, largely a reflection of Singapore's exposure to the slump in global trade, also pave the way for an expansionary budget today as the government scrambles to shelter the economy from the worst global financial crisis in decades.
"The Singapore economy is going through its sharpest, deepest and most protracted recession," the Trade Ministry's Second Permanent Secretary Ravi Menon told journalists.
Government data showed gross domestic product shrank in the fourth quarter at a deeper-than-expected and seasonally adjusted rate of 16.9 per cent, the biggest fall on record and the third consecutive quarterly contraction. Provisional figures had reported a 12.5 per cent slump.
From a year earlier, gross domestic product fell 3.7 per cent. That left 2008 growth at just 1.2 per cent, an abrupt turnaround from a 7.7 per cent expansion in 2007 when the stock market, financial services and property prices were booming.
The government downgraded its view of the economy for the second time in just three weeks, reflecting the rapid deterioration in the global economy that has seen much of the developed world slip into recession.
Singapore now sees GDP falling between two percent and five per cent this year, which would be the worst performance on record, with consumer prices flat to down one per cent.
"The official acknowledgement of deflation risks keeps alive a strong possibility that an eventual downward band re-centring could be on the cards in April," said Kit Wei Zheng at Citigroup, adding it could also restore some cost competitiveness.
However, the central bank said yesterday its monetary policy stance was intact after it moved to zero appreciation for the currency in October to counter the financial crisis.
It said it had no plans to review policy before a scheduled meeting in April.
Singapore manages monetary policy by adjusting the value of its currency in a secret trade-weighted band.
A sustained slide in prices can be damaging for an economy if it leads to a fall in demand as buyers hold back from making purchases in anticipation of yet lower prices.
However, Prakriti Sofat, an economist at HSBC, said in a note that the risk of sustained deflation in Singapore was remote since consumer prices would fall as the boost from high food and other commodity prices drops out of the annual price comparison.
The Singapore dollar fell to a low of S$1.512 against the US dollar after the GDP data.
The central bank said it saw no reason for a persistent weakening of the currency after it fell from a record high in July.
For key central bank and government quotes
"I'm bearish for the Singapore dollar," said Irene Cheung, currency strategist at Royal Bank of Scotland in Singapore.
"I expect monetary policy to remain accommodative they should have recentred the band earlier, but they might still do it the sooner the better."
The government expects non-oil domestic exports, which make up around 70 per cent of the city-state's economy, to shrink nine per cent to 11 per cent.Reuters
Showing posts with label crisis. Show all posts
Showing posts with label crisis. Show all posts
Thursday, January 22, 2009
Friday, January 2, 2009
National resilience can face new global challenges: HM
National resilience can face new global challenges: HM
New Year titah: His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam delivering his New Near titah at Istana Nurul Iman. Picture: BT/ Saifulizam
BANDAR SERI BEGAWAN
Thursday, January 1, 2009
Make effective time management part of our culture
HIS Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam in his New Year titah yesterday said the country, which is not free from new global challenges, can face them through national resilience.
The monarch affirmed that Brunei will continue holding consultations and making appropriate decisions in the international arena, as well as national level, adding that "plans and long-term solutions will be drawn up to face the unpredictable future."
"Even though we don't know the answers to the complex global challenges today, we need to prepare ourselves for the future. My government will always create evaluations and appropriate improvements wherever necessary," said the monarch, who was speaking in a customary titah delivered annually to mark the New Year.
"We are not free from various new challenges which no person can predict. This in turn will establish national resilience, which plays an important role in guaranteeing national development and prosperity." Citing the financial crisis, economic turmoil, social ills, environmental degradation and political instability experienced in the majority of countries worldwide, the monarch said: "With the blessing of Allah SWT, our country is free from problems and we are fortunate to enjoy peace and harmony."
His Majesty alluded to the Wawasan Brunei 2035 (National Vision 2035), which outlines strategies and policies for the development of all sectors in the country and also includes the National Development Plan (RKN 2007-2012).
"Wawasan consists of an outline for the future — driving development in a more systematic way in line with the aim of becoming a country with high-skilled, educated, quality and successful citizens — with a goal of possessing a dynamic and sustainable economy," His Majesty said.
The monarch underscored the significance of time, which he said is one of the more important factors in ensuring success in national development and productivity. "The characteristics of time is unique and different compared to those of knowledge, skill or wealth. It is not uncommon for humans to chase after knowledge and wealth — but not many are not aware of the importance of time, more than anything else," the monarch said.
"That said, time is one of the essence in carrying out the development of national productivity and other progresses."
"Every plan must be executed quickly and completed on time. This is the way to place value on time, by making it part of our culture."
"Efficiency creates change, and renewal and improvements are the usual practices of a successful country," he said.
The monarch in his titah expressed gratitude to all levels within the civil service, security forces, the private sector and all Bruneian citizens for their genuine efforts in conducting their duties and responsibilities in achieving happiness, prosperity and the development of the country. (HHM1)
The Brunei Times
New Year titah: His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam delivering his New Near titah at Istana Nurul Iman. Picture: BT/ Saifulizam
BANDAR SERI BEGAWAN
Thursday, January 1, 2009
Make effective time management part of our culture
HIS Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam in his New Year titah yesterday said the country, which is not free from new global challenges, can face them through national resilience.
The monarch affirmed that Brunei will continue holding consultations and making appropriate decisions in the international arena, as well as national level, adding that "plans and long-term solutions will be drawn up to face the unpredictable future."
"Even though we don't know the answers to the complex global challenges today, we need to prepare ourselves for the future. My government will always create evaluations and appropriate improvements wherever necessary," said the monarch, who was speaking in a customary titah delivered annually to mark the New Year.
"We are not free from various new challenges which no person can predict. This in turn will establish national resilience, which plays an important role in guaranteeing national development and prosperity." Citing the financial crisis, economic turmoil, social ills, environmental degradation and political instability experienced in the majority of countries worldwide, the monarch said: "With the blessing of Allah SWT, our country is free from problems and we are fortunate to enjoy peace and harmony."
His Majesty alluded to the Wawasan Brunei 2035 (National Vision 2035), which outlines strategies and policies for the development of all sectors in the country and also includes the National Development Plan (RKN 2007-2012).
"Wawasan consists of an outline for the future — driving development in a more systematic way in line with the aim of becoming a country with high-skilled, educated, quality and successful citizens — with a goal of possessing a dynamic and sustainable economy," His Majesty said.
The monarch underscored the significance of time, which he said is one of the more important factors in ensuring success in national development and productivity. "The characteristics of time is unique and different compared to those of knowledge, skill or wealth. It is not uncommon for humans to chase after knowledge and wealth — but not many are not aware of the importance of time, more than anything else," the monarch said.
"That said, time is one of the essence in carrying out the development of national productivity and other progresses."
"Every plan must be executed quickly and completed on time. This is the way to place value on time, by making it part of our culture."
"Efficiency creates change, and renewal and improvements are the usual practices of a successful country," he said.
The monarch in his titah expressed gratitude to all levels within the civil service, security forces, the private sector and all Bruneian citizens for their genuine efforts in conducting their duties and responsibilities in achieving happiness, prosperity and the development of the country. (HHM1)
The Brunei Times
Tuesday, December 23, 2008
Ooops, world jobless total could rise 25m, not 20m
Ooops, world jobless total could rise 25m, not 20m
PARIS
Tuesday, December 23, 2008
THE global economic crisis will push up unemployment by up to 25 million by 2010, the OECD head forecast yesterday, saying there had been a "truly scandalous failure" of regulatory supervision.
"We're heading for a loss of between eight and 10 million jobs in the OECD area... and 20 to 25 million in the world as a whole between now and 2010," Angel Gurria said on France's BFM radio.
The International Labour Organisation earlier forecast that the number of global unemployed could go up by 20 million to reach a record high point of 210 million people by the end of 2009.
The Organisation for Economic Co-operation and Development in Paris brings together 30 countries, including all the world's industrialised economies. The group conducts research and publishes economic forecasts.
Gurria also said that European countries should spend more in stimulus plans to kickstart their economies and suggested that the European Central Bank should lower interest rates because of falling inflation.
The European Union should "go beyond" the fiscal stimulus plans already announced, equivalent to around 1.4 per cent of GDP, since "all the other major countries are going beyond that", Gurria said.
He also said that the OECD economies were in recession in the current quarter and would remain so for at least the first two quarters of 2009, with many countries being in recession for most of 2009.
Commenting on the build-up to the crisis, Gurria said there had been "a truly scandalous failure of regulation... and supervision", and poor risk management and corporate governance by companies.AFP
PARIS
Tuesday, December 23, 2008
THE global economic crisis will push up unemployment by up to 25 million by 2010, the OECD head forecast yesterday, saying there had been a "truly scandalous failure" of regulatory supervision.
"We're heading for a loss of between eight and 10 million jobs in the OECD area... and 20 to 25 million in the world as a whole between now and 2010," Angel Gurria said on France's BFM radio.
The International Labour Organisation earlier forecast that the number of global unemployed could go up by 20 million to reach a record high point of 210 million people by the end of 2009.
The Organisation for Economic Co-operation and Development in Paris brings together 30 countries, including all the world's industrialised economies. The group conducts research and publishes economic forecasts.
Gurria also said that European countries should spend more in stimulus plans to kickstart their economies and suggested that the European Central Bank should lower interest rates because of falling inflation.
The European Union should "go beyond" the fiscal stimulus plans already announced, equivalent to around 1.4 per cent of GDP, since "all the other major countries are going beyond that", Gurria said.
He also said that the OECD economies were in recession in the current quarter and would remain so for at least the first two quarters of 2009, with many countries being in recession for most of 2009.
Commenting on the build-up to the crisis, Gurria said there had been "a truly scandalous failure of regulation... and supervision", and poor risk management and corporate governance by companies.AFP
Friday, December 19, 2008
New report says government intervention is counterproductive
New report says government intervention is counterproductive
On the eve of a meeting of government officials from the G20 group of leading economies, a new report from a global group of think-tanks, including the Malaysia Think Tank, argues that the attempts by governments to intervene in the financial crisis have been counterproductive and it calls for clearer thinking on how to manage the risks inherent in the financial system.
How Not To Solve A Crisis, written by Bill Stacey and Julian Morris, notes that the financial crisis was created in part by well-meaning market interventions intended to enable low-income US households to own homes, and in part by discriminatory regulations against certain classes of asset that resulted in ‘regulatory arbitrage,’ whereby financial institutions created off-balance-sheet structures in order to generate synthetic credit.
These factors drove lending to impecunious borrowers in the US, fuelling a housing boom. The subsequent bust has led to the collapse in value of the off-balance-sheet structures. Because those structures had been used to underpin loans, their collapse has caused banks to stop lending to one another.
Sequential attempts by governments around the world to intervene in the markets and bolster lending have been largely counterproductive – they have pre-empted private market solutions and in many cases generated further moral hazard, contributing to further erosion of trust and weakening of incentives to lend. As a result, what started as a financial crisis is turning into a full-scale economic catastrophe.
There is currently talk of creating stronger and more global regulatory structures. This would be a disaster on several counts. First, as the report notes, several smaller countries have suffered less in the crisis – seemingly because of different regulatory regimes. If there had been only one global rule and it had been the wrong one, everybody would have suffered equally and we would have less knowledge as to why – and what - to do. When governments compete with one another, they have stronger incentives to identify solutions rather than placate vested interests.
Second, stronger regulation is almost certainly the opposite of what is needed. The danger of creating further incentives for counterproductive regulatory arbitrage is large. The report concludes that from a regulatory perspective, the better solution would be to create governance structures based on simple, clear rules that do not discriminate in favour of or against any particular class of asset.
The report cautions against any direct intervention by government. It notes that: “Governments are terrible at allocating resources and their attempts to boost our economies will almost certainly backfire. Economic growth is the result of entrepreneurs identifying and filling niches by developing better products and production processes, thereby boosting production and productivity. In contrast, when governments throw money at the economy, they divert resources away from their most efficient and effective uses, undermining innovation and growth.”
Finally, the report concludes that: “The best way to stimulate the economies of the world would be to reduce the number of overbearing taxes and regulations that currently inhibit the development and delivery of all manner of products and services.”
The report "How Not to Solve a Crisis" can be downloaded here.
On the eve of a meeting of government officials from the G20 group of leading economies, a new report from a global group of think-tanks, including the Malaysia Think Tank, argues that the attempts by governments to intervene in the financial crisis have been counterproductive and it calls for clearer thinking on how to manage the risks inherent in the financial system.
How Not To Solve A Crisis, written by Bill Stacey and Julian Morris, notes that the financial crisis was created in part by well-meaning market interventions intended to enable low-income US households to own homes, and in part by discriminatory regulations against certain classes of asset that resulted in ‘regulatory arbitrage,’ whereby financial institutions created off-balance-sheet structures in order to generate synthetic credit.
These factors drove lending to impecunious borrowers in the US, fuelling a housing boom. The subsequent bust has led to the collapse in value of the off-balance-sheet structures. Because those structures had been used to underpin loans, their collapse has caused banks to stop lending to one another.
Sequential attempts by governments around the world to intervene in the markets and bolster lending have been largely counterproductive – they have pre-empted private market solutions and in many cases generated further moral hazard, contributing to further erosion of trust and weakening of incentives to lend. As a result, what started as a financial crisis is turning into a full-scale economic catastrophe.
There is currently talk of creating stronger and more global regulatory structures. This would be a disaster on several counts. First, as the report notes, several smaller countries have suffered less in the crisis – seemingly because of different regulatory regimes. If there had been only one global rule and it had been the wrong one, everybody would have suffered equally and we would have less knowledge as to why – and what - to do. When governments compete with one another, they have stronger incentives to identify solutions rather than placate vested interests.
Second, stronger regulation is almost certainly the opposite of what is needed. The danger of creating further incentives for counterproductive regulatory arbitrage is large. The report concludes that from a regulatory perspective, the better solution would be to create governance structures based on simple, clear rules that do not discriminate in favour of or against any particular class of asset.
The report cautions against any direct intervention by government. It notes that: “Governments are terrible at allocating resources and their attempts to boost our economies will almost certainly backfire. Economic growth is the result of entrepreneurs identifying and filling niches by developing better products and production processes, thereby boosting production and productivity. In contrast, when governments throw money at the economy, they divert resources away from their most efficient and effective uses, undermining innovation and growth.”
Finally, the report concludes that: “The best way to stimulate the economies of the world would be to reduce the number of overbearing taxes and regulations that currently inhibit the development and delivery of all manner of products and services.”
The report "How Not to Solve a Crisis" can be downloaded here.
Thursday, December 11, 2008
Deflation risks in China, Japan as demand slumps
Deflation risks in China, Japan as demand slumps
By Simon Rabinovitch and Hideyuki Sano
BEIJING/TOKYO, Dec 10 (Reuters) - Deflationary fears spreading over the global economy are crashing into Asia's manufacturing base as data on Wednesday showed a sharp slowdown in wholesale price growth in the region's top two economies, Japan and China.
Recessions in developed economies spawned by the financial crisis have whipsawed policy makers from battling upward cost pressures during the middle of the year to what is now a dire drop in prices, reflecting rapidly vanishing business and consumer demand.
Annual producer price inflation in China, Asia's second-biggest economy, collapsed for the third consecutive month to 2 percent in November, well down from October's reading of 6.6 percent. [ID:nPEK42337]
In Japan, which only emerged from a decade of falling prices in 2005, annual growth in factory-gate prices slowed rapidly in November to a one-year low of 2.8 percent from 5.0 percent in October. [ID:nT33767]
"The situation is quite severe. We are slipping into a deflationary recession risk pretty fast," said Isaac Meng, an economist with BNP Paribas in Beijing.
Global demand is weakening sharply with major markets including the United States, Japan and the euro zone all in recession.
China's growth is expected by the World Bank to slide in 2009 to 7.5 percent, below a level of 8 percent widely regarded as the minimum needed to absorb millions of people entering the work force each year. It expanded 11.9 percent in 2007.
LOOKING TO CONSUMER PRICE DATA
A drop in crude oil prices of more than $100 a barrel since a peak in July was a big factor putting pressure on prices in both China and Japan.
China, celebrating the 30th anniversary since the launch of reforms that opened its economy to the world, recently overhauled its domestic fuel pricing system, pledging to ease back on subsidies beginning next year.
Analysts said that if domestic fuel prices had been completely decided by the market last month, then producer prices would almost certainly have fallen.
For a graphic of the PPI, please click on: here
Consumer inflation figures for November, due on Thursday, are likely to underscore the dramatic retreat in price pressures as energy and commodity costs slide and domestic demand weakens in tandem with the global economic downturn.
The consumer price index is expected to have risen 3.0 percent from a year earlier, a marked reduction from a near 12-year high in February of 8.7 percent, a Reuters poll shows.
"We expect prices to decline further as external demand remains weak and surplus goods are targeted at the domestic market," Jing Ulrich, chairman of China equities with JPMorgan in Hong Kong, said in a note.
DEFLATION NATION?
Japanese machinery orders from foreign operators dived 37.2 percent in October, the second-largest fall on record, showing how the implosion in global markets since mid-September has disrupted economic activity around the globe.
Corporate investment has driven Japan's growth in recent years but is expected to slow now that major exporters such as Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) are curbing production and cutting jobs to cope with a global downturn. [ID:nT7887]
"In anticipation of a sharp fall in U.S. demand, Asian manufacturers, including subsidiaries of Japanese firms, are reducing production at an unprecedented pace," said Hideo Kumano, chief economist at Dai-ichi Life Research.
Policy makers continued to offer sobering assessments of their respective economic outlooks while firing every fiscal and monetary weapon to protect against the global recession.
The Japanese government is likely to issue its bleakest assessment of the economy in nearly seven years this month, downgrading its official view to say conditions are worsening, the Yomiuri newspaper reported on Wednesday.
Some economists speculate that the Bank of Japan may have to cut interest rates again by the end of its fiscal year in March.
However, swap contracts on Japan's benchmark rate -- already a slight 0.3 percent -- reflect a 20 to 30 percent chance of a 25-basis-point cut early next year.
The remarkable slackening of inflation in China, which Beijing declared the top economic problem at the start of the year, has given policy makers room to cut interest rates and focus fiscal efforts on the economy.
However, with China already having slashed rates and announced a 4 trillion yuan ($580 billion) stimulus package, concern is turning to whether these measures may prove too little, too late.
"Although various nations have rolled out stimulus policies, I think it is still too early for them to produce desirable effects," Zhang Yongjun, senior economist at the State Information Centre in Beijing, said.
In a rare bright spot for economic news, a survey in Australia showed a surprise jump in consumer confidence, a sign that falling interest rates and fuel prices, combined with fiscal stimulus, are having an affect.
Whether that cheer will translate into actual spending is unclear.
(Writing by Kevin Plumberg; Editing by Neil Fullick)
© Thomson Reuters 2008 All rights reserved
Globalisation Is The Solution Not Cause Of Current Crises
Globalisation Is The Solution Not Cause Of Current Crises
By Narissa Noor
Bandar Seri Begawan - Globalisation is not the cause of the current problems the world is facing, it is their solution.
His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam succinctly put it in his titah yesterday at the inaugural session of the 2008 Bali Democracy Forum, at the Grand Hyatt Hotel in Bali, Indonesia.
His Majesty shared the stage with Indonesian President Susilo Bambang Yudhoyono, Australian Prime Minister Kevin Rudd, Prime Minister of East Timor Xanana Gusmao and others to discuss efforts in strengthening democracy in the region beset by a myriad of crises.
Accompanying His Majesty was His Royal Highness Prince Mohamed Bolkiah, Minister of Foreign Affairs and Trade.
The forum was attended by Head of States and Government, Ministers from Asean, the Asia-Pacific, South and Central Asia and the Middle East.
Speaking about globalisation as a solution, His
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Majesty said, "It provides chances like this for us to meet, discuss and devise ways of working together to meet the latest challenges successfully and to do this as governments."
The monarch welcomed the positive approach to global crises such as food and energy problems and the financial crisis, implicit to the forum.
"In Brunei, our system of government has lived through seven hundred years of (near unremitting crises)," said His Majesty and added that the country has persevered through "good governance".
Albeit several types of governments that exist in the region, there is one system that links them all. "It is complex and closely bound in its own very old history but, in English, it can be defined as a 'Social Contract'."
"Like all contracts in any system, if it's maintained, we all succeed. If it lapses, we all suffer," said His Majesty and added that good governance remains the fundamental basis of its success.
"This means ensuring that we all meet the targets set in the Millennium Goals," stated the monarch, emphasising its precedence in fulfilling the government's responsibility in providing its people with confidence for the future.
"For us, this means providing maximum healthcare to all, good education from early childhood onwards, easy personal access to government and its departments and agencies, the rule of law applying to everyone and respect for each individual, each family and each community, whatever their background, culture or faith," said the ruler.
His Majesty also referred to the achievement of Brunei's 30-year national vision, or "Wawasan", and what it means for economic development in the form of employment and future prospects.
Reiterating the importance of the Millennium Goals, His Majesty described an end result which hopes to give a strong regional and world view on the part of the Brunei people, "one which promotes respect and understanding for every other country and government".
This, His Majesty said, is the basis on which Brunei seeks to play its part in the affairs of the region and international organisations to which it belongs.
Co-chaired by President Yudhoyono and Australian Premier Rudd, the two-day forum is being held at Nusa Dua in Bali, and carries the theme "Building and Consolidating Democracy: A Strategic Agenda for Asia".
The opening session of the forum was followed by a lunch hosted by President Yudhoyono for the Heads of State and Government, Ministers and Head of Delegations attending the forum.
His Majesty left Bali for Brunei yesterday afternoon.
A doa selamat was read by State Mufti Pehin Dato Seri Maharaja Dato Paduka Seri Setia Ustaz Hj Awang Abdul Aziz bin Juned.
His Majesty was bid farewell at the airport by senior Indonesian government officials and Brunei Ambassador to Indonesia, Pehin Datu Harimaupadang Major General (Rtd) Dato Paduka Seri Awang Hj Husin bin Ahmad. -- Courtesy of Borneo Bulletin
By Narissa Noor
Bandar Seri Begawan - Globalisation is not the cause of the current problems the world is facing, it is their solution.
His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam succinctly put it in his titah yesterday at the inaugural session of the 2008 Bali Democracy Forum, at the Grand Hyatt Hotel in Bali, Indonesia.
His Majesty shared the stage with Indonesian President Susilo Bambang Yudhoyono, Australian Prime Minister Kevin Rudd, Prime Minister of East Timor Xanana Gusmao and others to discuss efforts in strengthening democracy in the region beset by a myriad of crises.
Accompanying His Majesty was His Royal Highness Prince Mohamed Bolkiah, Minister of Foreign Affairs and Trade.
The forum was attended by Head of States and Government, Ministers from Asean, the Asia-Pacific, South and Central Asia and the Middle East.
Speaking about globalisation as a solution, His
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Majesty said, "It provides chances like this for us to meet, discuss and devise ways of working together to meet the latest challenges successfully and to do this as governments."
The monarch welcomed the positive approach to global crises such as food and energy problems and the financial crisis, implicit to the forum.
"In Brunei, our system of government has lived through seven hundred years of (near unremitting crises)," said His Majesty and added that the country has persevered through "good governance".
Albeit several types of governments that exist in the region, there is one system that links them all. "It is complex and closely bound in its own very old history but, in English, it can be defined as a 'Social Contract'."
"Like all contracts in any system, if it's maintained, we all succeed. If it lapses, we all suffer," said His Majesty and added that good governance remains the fundamental basis of its success.
"This means ensuring that we all meet the targets set in the Millennium Goals," stated the monarch, emphasising its precedence in fulfilling the government's responsibility in providing its people with confidence for the future.
"For us, this means providing maximum healthcare to all, good education from early childhood onwards, easy personal access to government and its departments and agencies, the rule of law applying to everyone and respect for each individual, each family and each community, whatever their background, culture or faith," said the ruler.
His Majesty also referred to the achievement of Brunei's 30-year national vision, or "Wawasan", and what it means for economic development in the form of employment and future prospects.
Reiterating the importance of the Millennium Goals, His Majesty described an end result which hopes to give a strong regional and world view on the part of the Brunei people, "one which promotes respect and understanding for every other country and government".
This, His Majesty said, is the basis on which Brunei seeks to play its part in the affairs of the region and international organisations to which it belongs.
Co-chaired by President Yudhoyono and Australian Premier Rudd, the two-day forum is being held at Nusa Dua in Bali, and carries the theme "Building and Consolidating Democracy: A Strategic Agenda for Asia".
The opening session of the forum was followed by a lunch hosted by President Yudhoyono for the Heads of State and Government, Ministers and Head of Delegations attending the forum.
His Majesty left Bali for Brunei yesterday afternoon.
A doa selamat was read by State Mufti Pehin Dato Seri Maharaja Dato Paduka Seri Setia Ustaz Hj Awang Abdul Aziz bin Juned.
His Majesty was bid farewell at the airport by senior Indonesian government officials and Brunei Ambassador to Indonesia, Pehin Datu Harimaupadang Major General (Rtd) Dato Paduka Seri Awang Hj Husin bin Ahmad. -- Courtesy of Borneo Bulletin
Wednesday, December 10, 2008
East Asia to slow, govts must spend more-World Bank
East Asia to slow, govts must spend more-World Bank
Editor: evewen
10 Dec 2008 07:08:44 GMT
SINGAPORE, Dec 10 - Economies in East Asia will slow substantially in 2009 as the credit crisis depresses capital flows, exports and investment despite government attempts to boost domestic demand, the World Bank said on Wednesday.
In its semi-annual report, the World Bank predicted, however, the East Asian region will a less severe slowdown than Europe, Central Asia or Latin America, which are similarly exposed to international trade and finance.
It also advised governments to use direct spending, particularly on ongoing infrastructure projects, to stimulate demand.
Economic growth in East Asia, excluding Japan, will slow to 5.3 percent in 2009 -- its slowest pace since 2001 - from a projected 7 percent this year and 9 percent in 2007, it said.
China's growth could ease to 7.5 percent in 2009 from 9.4 percent in 2008, the World Bank said.
(for a graphic with key forecasts, please click on: https://customers.reuters.com/d/graphics/AS_GDPFCST1208.gif)
It said the region had entered the crisis in far better shape than during the 1997 Asian financial crisis, with stronger public finances, external balances and healthier banks and companies.
"Nevertheless, the sudden withdrawal of liquid assets by non-resident investors, combined with capital flight by residents in some places, has pushed these economies back into the danger zone from which they had exited only a few years ago," the World Bank said.
Most expenditure components, barring increased government spending in some countries, will be under pressure in east Asia in 2009, the World Bank said. Export markets would also be sluggish.
"Investment looks likely to be constrained by receding capital inflows and poor prospects for exports.
"Private consumption will be under pressure from more sluggish earnings, weaker employment, and an increased desire to save in hard times," the World Bank said.
The projections could be skewed to the downside by a much longer and deeper downturn in developed economies and the risk of capital flows remaining weak for a prolonged period, the World Bank said.
Commodity prices may slump further should global growth weaken more substantially, bringing in challenges related to deflation, it said.
GOVERNMENT SPENDING
The World Bank said that even though aggressive monetary easing appeared to have cushioned the impact of the crisis on domestic liquidity, difficulties lay ahead.
"The authorities need to be mindful that companies and commercial banks will remain under financial stress that will probably get worse as economic activity slows, defaults accelerate and balance sheets deteriorate," it said, while advising further medium term efforts to improve banking and financial supervision.
Governments trying to buffer their economies through fiscal measures will find the market continuously shifting its assessment of how these countries can finance fiscal stimulus programs without endangering fiscal sustainability, it said.
While tax cuts could help consumer spending over a longer horizon, there is concern consumers would save rather than spend money under current circumstances, it said.
"Direct government spending at this point, therefore, is likely to be a superior option to boost economic activity," the World Bank said.
"New infrastructure spending, however, has long lags before making an impact on the economy, unless the authorities are accelerating projects already under implementation."
Social transfers have also typically been most effective in stimulating spending, and would also protect the poor from the worst effects of the crisis, it said.
(For a table on the World Bank's GDP forecasts, click on [ID:nSGE000084])
Editor: evewen
10 Dec 2008 07:08:44 GMT
SINGAPORE, Dec 10 - Economies in East Asia will slow substantially in 2009 as the credit crisis depresses capital flows, exports and investment despite government attempts to boost domestic demand, the World Bank said on Wednesday.
In its semi-annual report, the World Bank predicted, however, the East Asian region will a less severe slowdown than Europe, Central Asia or Latin America, which are similarly exposed to international trade and finance.
It also advised governments to use direct spending, particularly on ongoing infrastructure projects, to stimulate demand.
Economic growth in East Asia, excluding Japan, will slow to 5.3 percent in 2009 -- its slowest pace since 2001 - from a projected 7 percent this year and 9 percent in 2007, it said.
China's growth could ease to 7.5 percent in 2009 from 9.4 percent in 2008, the World Bank said.
(for a graphic with key forecasts, please click on: https://customers.reuters.com/d/graphics/AS_GDPFCST1208.gif)
It said the region had entered the crisis in far better shape than during the 1997 Asian financial crisis, with stronger public finances, external balances and healthier banks and companies.
"Nevertheless, the sudden withdrawal of liquid assets by non-resident investors, combined with capital flight by residents in some places, has pushed these economies back into the danger zone from which they had exited only a few years ago," the World Bank said.
Most expenditure components, barring increased government spending in some countries, will be under pressure in east Asia in 2009, the World Bank said. Export markets would also be sluggish.
"Investment looks likely to be constrained by receding capital inflows and poor prospects for exports.
"Private consumption will be under pressure from more sluggish earnings, weaker employment, and an increased desire to save in hard times," the World Bank said.
The projections could be skewed to the downside by a much longer and deeper downturn in developed economies and the risk of capital flows remaining weak for a prolonged period, the World Bank said.
Commodity prices may slump further should global growth weaken more substantially, bringing in challenges related to deflation, it said.
GOVERNMENT SPENDING
The World Bank said that even though aggressive monetary easing appeared to have cushioned the impact of the crisis on domestic liquidity, difficulties lay ahead.
"The authorities need to be mindful that companies and commercial banks will remain under financial stress that will probably get worse as economic activity slows, defaults accelerate and balance sheets deteriorate," it said, while advising further medium term efforts to improve banking and financial supervision.
Governments trying to buffer their economies through fiscal measures will find the market continuously shifting its assessment of how these countries can finance fiscal stimulus programs without endangering fiscal sustainability, it said.
While tax cuts could help consumer spending over a longer horizon, there is concern consumers would save rather than spend money under current circumstances, it said.
"Direct government spending at this point, therefore, is likely to be a superior option to boost economic activity," the World Bank said.
"New infrastructure spending, however, has long lags before making an impact on the economy, unless the authorities are accelerating projects already under implementation."
Social transfers have also typically been most effective in stimulating spending, and would also protect the poor from the worst effects of the crisis, it said.
(For a table on the World Bank's GDP forecasts, click on [ID:nSGE000084])
Thursday, December 4, 2008
Rate cuts spearhead battle against crisis
Rate cuts spearhead battle against crisis
BANGKOK/LONDON
Thursday, December 4, 2008
THAILAND led a global charge to cut interest rates yesterday, with countries from Europe to New Zealand expected to follow in the next few days to fight an unrelenting financial crisis.
South Korea took steps to help local banks through a cash crunch and US Treasury Secretary Hank Paulson was reportedly debating if he should ask lawmakers in Washington for the second half of a US$700 billion bank rescue package.
Russian state bank VEB reportedly asked the Kremlin for a US$34 billion cash injection in the latest sign that the major emerging market was also feeling the heat of a crisis that has forced the United States, Japan and Europe into recession.
Pressure for big rate cuts in Europe and Britain grew with a survey that showed the eurozone's services economy fell deeper into recession in November than first thought.
The Bank of Thailand slashed its main interest rate for the first time in 16 months to help an economy hit both by the global downturn and political unrest, cutting its main interest rate by a bigger-than-expected 100 basis points to 2.75 per cent.
Australia slashed rates on Tuesday and the eurozone, UK, Sweden and New Zealand all make rate decisions today.
The Markit Eurozone Purchasing Managers Index for services companies, which covers banks to bars in the eurozone, plunged to 42.5 in November from October's 45.8 level, the lowest in the survey's 10-year history.
It also showed inflationary pressures eased, making it easier for the European Central Bank to cut rates sharply.
"There is ample room for the ECB to cut rates ... We think 75 basis points will be the compromise, but we would not rule out a cut by 100 basis points," said Juergen Michels at Citi.
The equivalent survey for Britain showed its dominant services sector shrank in November at its fastest pace since the series began in 1996, boosting expectations the Bank of England will slash interest rates by a full point today.
The Federal Reserve, which is also expected to cut US rates again later this month, will release its closely-watched Beige Book of economic conditions later in the day.
Reuters
BANGKOK/LONDON
Thursday, December 4, 2008
THAILAND led a global charge to cut interest rates yesterday, with countries from Europe to New Zealand expected to follow in the next few days to fight an unrelenting financial crisis.
South Korea took steps to help local banks through a cash crunch and US Treasury Secretary Hank Paulson was reportedly debating if he should ask lawmakers in Washington for the second half of a US$700 billion bank rescue package.
Russian state bank VEB reportedly asked the Kremlin for a US$34 billion cash injection in the latest sign that the major emerging market was also feeling the heat of a crisis that has forced the United States, Japan and Europe into recession.
Pressure for big rate cuts in Europe and Britain grew with a survey that showed the eurozone's services economy fell deeper into recession in November than first thought.
The Bank of Thailand slashed its main interest rate for the first time in 16 months to help an economy hit both by the global downturn and political unrest, cutting its main interest rate by a bigger-than-expected 100 basis points to 2.75 per cent.
Australia slashed rates on Tuesday and the eurozone, UK, Sweden and New Zealand all make rate decisions today.
The Markit Eurozone Purchasing Managers Index for services companies, which covers banks to bars in the eurozone, plunged to 42.5 in November from October's 45.8 level, the lowest in the survey's 10-year history.
It also showed inflationary pressures eased, making it easier for the European Central Bank to cut rates sharply.
"There is ample room for the ECB to cut rates ... We think 75 basis points will be the compromise, but we would not rule out a cut by 100 basis points," said Juergen Michels at Citi.
The equivalent survey for Britain showed its dominant services sector shrank in November at its fastest pace since the series began in 1996, boosting expectations the Bank of England will slash interest rates by a full point today.
The Federal Reserve, which is also expected to cut US rates again later this month, will release its closely-watched Beige Book of economic conditions later in the day.
Reuters
Tuesday, December 2, 2008
Auto crisis worsens as global sales tumble
Auto crisis worsens as global sales tumble
Under the hood: Employees work at an assembly line of Hyundai Motor in Ulsan, southeast of Seoul in this undated photograph released by Hyundai Motor yesterday. Picture: Reuters
PARIS
Tuesday, December 2, 2008
AUTOMAKERS yesterday reported tumbling sales across Europe and Asia, taking fresh hits in the fight against plunging consumer confidence on the world's car lots.
"The financial crisis and the weaker economy is now hitting the auto market with full force," said Bertil Molden, chief executive of Swedish industry body Bil Sweden.
Spanish car sales nearly halved in November, the biggest fall in nearly 16 years and the seventh straight month of decline, as credit restrictions and soaring unemployment took their toll.
New car registrations in Sweden, home to struggling carmakers Volvo and Saab, nosedived by 36 per cent to 17,616 units in November, the largest monthly fall since 1993, according to industry data.
The Swedish government said it was talking to Saab and Volvo about loan guarantees but no specific sum had been discussed.
The Financial Times reported that GM and Ford had approached the Swedish government about financial aid "in anticipation of selling" their subsidiaries.
In France, headline sales at PSA fell over 17 per cent, with the Peugeot marque slumping by nearly 20 per cent and Citroen down 14.0 per cent.
Japan's overall car sales in November slid 18.2 per cent from a year ago, helping to push down platinum prices by seven per cent, while in South Korea, combined sales of domestic automakers, including Hyundai Motor Co, fell 8.6 per cent. Automakers worldwide are seeking help from governments to survive savage cutbacks in consumer spending and shift unsold cars.
In Europe, where car sales are already down 5.4 per cent in the first 10 months of the year according to industry association ACEA, manufacturers have announced production cuts and extended site closures in the fourth quarter to cope with the downturn.
Spain's government last week budgeted €800 million for its struggling car industry amid fears the sector could lose 50,000 jobs.
Spanish households have cut back spending on fears their economy will enter recession by year end and stay there much of 2009 as unemployment rises above 15 per cent.
The US Big Three car firms Ford, Chrysler and GM have called for aid from the Federal government to help them survive, while the European Commission has pledged to help the car industry. Reuters
Under the hood: Employees work at an assembly line of Hyundai Motor in Ulsan, southeast of Seoul in this undated photograph released by Hyundai Motor yesterday. Picture: Reuters
PARIS
Tuesday, December 2, 2008
AUTOMAKERS yesterday reported tumbling sales across Europe and Asia, taking fresh hits in the fight against plunging consumer confidence on the world's car lots.
"The financial crisis and the weaker economy is now hitting the auto market with full force," said Bertil Molden, chief executive of Swedish industry body Bil Sweden.
Spanish car sales nearly halved in November, the biggest fall in nearly 16 years and the seventh straight month of decline, as credit restrictions and soaring unemployment took their toll.
New car registrations in Sweden, home to struggling carmakers Volvo and Saab, nosedived by 36 per cent to 17,616 units in November, the largest monthly fall since 1993, according to industry data.
The Swedish government said it was talking to Saab and Volvo about loan guarantees but no specific sum had been discussed.
The Financial Times reported that GM and Ford had approached the Swedish government about financial aid "in anticipation of selling" their subsidiaries.
In France, headline sales at PSA fell over 17 per cent, with the Peugeot marque slumping by nearly 20 per cent and Citroen down 14.0 per cent.
Japan's overall car sales in November slid 18.2 per cent from a year ago, helping to push down platinum prices by seven per cent, while in South Korea, combined sales of domestic automakers, including Hyundai Motor Co, fell 8.6 per cent. Automakers worldwide are seeking help from governments to survive savage cutbacks in consumer spending and shift unsold cars.
In Europe, where car sales are already down 5.4 per cent in the first 10 months of the year according to industry association ACEA, manufacturers have announced production cuts and extended site closures in the fourth quarter to cope with the downturn.
Spain's government last week budgeted €800 million for its struggling car industry amid fears the sector could lose 50,000 jobs.
Spanish households have cut back spending on fears their economy will enter recession by year end and stay there much of 2009 as unemployment rises above 15 per cent.
The US Big Three car firms Ford, Chrysler and GM have called for aid from the Federal government to help them survive, while the European Commission has pledged to help the car industry. Reuters
World stocks, oil prices fall after grim economic data
World stocks, oil prices fall after grim economic data
LONDON
Tuesday, December 2, 2008
WORLD stocks ended six consecutive days of gains yesterday and oil prices tumbled, boosting flows into the low-yielding yen as data showing slumping manufacturing activity in China and Europe fanned concerns over the economy.
US Treasury prices rose across the board, driving the benchmark 10-year yield to a fresh five-decade low as investors flocked to safe and liquid government bonds.
A closely-watched survey showed eurozone manufacturing activity sank to a level not seen in its 11-year history in November. The grim reading reinforced expectations the European Central Bank would cut interest rates later this week to 2.5 per cent or even lower.
A similar survey from China also showed the manufacturing sector deteriorated.
"The data is just so terribly poor that it's going to be difficult for any kind of period of sustained uptrend in confidence," said Derek Halpenny, European head of global currency research at BTM UFJ.
"Until we're through the deterioration in the data then the likelihood is that risk aversion will remain elevated and we'll see renewed interest in lower-yielding currencies."
The MSCI world equity index fell 1.1 per cent after rising 12 per cent last week.
The FTSEurofirst 300 index of leading European shares fell three per cent following a gain of more than 13 per cent last week, with banks and mining companies leading the way down.
Equity markets had perked up last week after the US government rescued banking giant Citigroup, the Federal Reserve said it would buy up to US$800 billion of mortgage-related and consumer debt and China cut interest rates.
Trading was subdued due to the US Thanksgiving holiday last week, but fund tracker EPFR Global said there were sizeable inflows into European equity funds in the week.
Oil dropped by more than five per cent to US$51.57 a barrel after producer cartel Opec decided to delay a decision on a third supply cut until its next meeting later in December, as economic woes squeeze oil demand.
The low-yielding yen rose around 1.8 per cent to ¥93.78, only a few yen away from the level where finance chiefs from the Group of Seven issued a warning about excessive yen strength in October.
The yuan also tumbled against the US dollar.
Reuters
LONDON
Tuesday, December 2, 2008
WORLD stocks ended six consecutive days of gains yesterday and oil prices tumbled, boosting flows into the low-yielding yen as data showing slumping manufacturing activity in China and Europe fanned concerns over the economy.
US Treasury prices rose across the board, driving the benchmark 10-year yield to a fresh five-decade low as investors flocked to safe and liquid government bonds.
A closely-watched survey showed eurozone manufacturing activity sank to a level not seen in its 11-year history in November. The grim reading reinforced expectations the European Central Bank would cut interest rates later this week to 2.5 per cent or even lower.
A similar survey from China also showed the manufacturing sector deteriorated.
"The data is just so terribly poor that it's going to be difficult for any kind of period of sustained uptrend in confidence," said Derek Halpenny, European head of global currency research at BTM UFJ.
"Until we're through the deterioration in the data then the likelihood is that risk aversion will remain elevated and we'll see renewed interest in lower-yielding currencies."
The MSCI world equity index fell 1.1 per cent after rising 12 per cent last week.
The FTSEurofirst 300 index of leading European shares fell three per cent following a gain of more than 13 per cent last week, with banks and mining companies leading the way down.
Equity markets had perked up last week after the US government rescued banking giant Citigroup, the Federal Reserve said it would buy up to US$800 billion of mortgage-related and consumer debt and China cut interest rates.
Trading was subdued due to the US Thanksgiving holiday last week, but fund tracker EPFR Global said there were sizeable inflows into European equity funds in the week.
Oil dropped by more than five per cent to US$51.57 a barrel after producer cartel Opec decided to delay a decision on a third supply cut until its next meeting later in December, as economic woes squeeze oil demand.
The low-yielding yen rose around 1.8 per cent to ¥93.78, only a few yen away from the level where finance chiefs from the Group of Seven issued a warning about excessive yen strength in October.
The yuan also tumbled against the US dollar.
Reuters
Sunday, November 30, 2008
A long, winding road to great depression
A long, winding road to great depression
Bankruptcy sale: A woman walks past a store advertising a sale, on 'Black Friday' in Fairfax, Virginia on Friday. Shoppers turned up early for holiday sales at US stores on Friday, but the annual pilgrimage appeared thinner this year and many consumers vowed to keep spending down due to a shrinking economy.Picture: Reuters
J BRADFORD DELONG
BERKELEY
Sunday, November 30, 2008
FOR 15 months, the United States Federal Reserve, assisted by the financial regulators of the US Treasury, have been trying to make the macroeconomic consequences of the American mortgage-backed securities financial crisis as small as possible trying, above all, to avoid a deep depression.
They have also had three subsidiary objectives:
Keep as much economic activity as possible under private-sector control, in order to ensure that what is produced is what consumers really want.
Prevent the princes of Wall Street who led us into the crisis from profiting from the systemic risk that they created.
Ensure that homeowners and small investors do not absorb too much loss, for their only crime was to accept bad risks, which they would not have done in a world of properly diversified portfolios.
Now it is clear that the Fed and the Treasury have lost the game.
If a depression is to be avoided, it will have to be the work of other arms of the government, with other tools and powers.
The failure to contain the crisis will ultimately be traced, I think, to excessive concern with the first two subsidiary objectives: reining in Wall Street princes and keeping economic decision-making private.
Had the Fed and the Treasury given those two objectives their proper subsidiary weight, I suspect that we would not now be in this mess, and that the danger of a global depression would still be very far away. The desire to prevent the princes of Wall Street from profiting from the crisis was reflected in the Fed-Treasury decision to let Lehman Brothers collapse in an uncontrolled bankruptcy without oversight, supervision, or guarantees.
The logic behind that decision was that, previously in the crisis, equity shareholders had been severely punished when their firms were judged too big to fail.
The shareholders of Bear Stearns, AIG, Fannie Mae, and Freddie Mac essentially had ownership positions and all their wealth confiscated for pennies.
But this was not true of bondholders and counterparties, who were paid in full.
The Fed and Treasury feared that the lesson being taught in the last half of 2007 and the first half of 2008 was that the US government guaranteed all the debt and transactions of every bank and bank-like entity that was regarded as too big to fail.
That, the Fed and the Treasury believed, could not be healthy.
Lenders to very large overleveraged institutions had to have some incentive to calculate the risks.
But that required, at some point, allowing some bank to fail, and persuading some debt holders and counterparties that the government guarantee of support to institutions that were too big to fail was not certain.
In retrospect, this was a major mistake.
The extended web of finance as it existed in the summer of 2008 was the result of millions of calculations that the US government did, in fact, guarantee the unsecured debt of every very large bank and bank-like entity in America.
With that guarantee broken by Lehman Brothers collapse, every financial institution immediately sought to acquire a much greater capital cushion in order to avoid the need to draw on government support, but found it impossible to do so.
The Lehman Brothers bankruptcy created an extraordinary and immediate demand for additional bank capital, which the private sector could not supply.
It was at this point that the Treasury made the second mistake. Because it tried to keep the private sector private, it sought to avoid partial or full nationalisation of the components of the banking system deemed too big to fail.
In retrospect, the Treasury should have identified all such entities and started buying common stock in them whether they liked it or not until the crisis passed.
Yes, this is what might be called lemon socialism, creating grave dangers for corporate control, posing a threat of large-scale corruption, and establishing a precedent for intervention that could be very dangerous down the road.
But would that have been worse than what we face now?
The failure to sacrifice the subsidiary objective of keeping the private sector private meant that the Fed and the Treasury lost their opportunity to attain the principal objective of avoiding depression.
Of course, hindsight is always easy.
But if depression is to be avoided, it will be through old-fashioned Keynesian fiscal policy: the government must take a direct hand in boosting spending and deciding what goods and services will be in demand.
J Bradford DeLong is Professor of Economics at the University of California at Berkeley and a former Assistant US Treasury Secretary.
Project Syndicate
Bankruptcy sale: A woman walks past a store advertising a sale, on 'Black Friday' in Fairfax, Virginia on Friday. Shoppers turned up early for holiday sales at US stores on Friday, but the annual pilgrimage appeared thinner this year and many consumers vowed to keep spending down due to a shrinking economy.Picture: Reuters
J BRADFORD DELONG
BERKELEY
Sunday, November 30, 2008
FOR 15 months, the United States Federal Reserve, assisted by the financial regulators of the US Treasury, have been trying to make the macroeconomic consequences of the American mortgage-backed securities financial crisis as small as possible trying, above all, to avoid a deep depression.
They have also had three subsidiary objectives:
Keep as much economic activity as possible under private-sector control, in order to ensure that what is produced is what consumers really want.
Prevent the princes of Wall Street who led us into the crisis from profiting from the systemic risk that they created.
Ensure that homeowners and small investors do not absorb too much loss, for their only crime was to accept bad risks, which they would not have done in a world of properly diversified portfolios.
Now it is clear that the Fed and the Treasury have lost the game.
If a depression is to be avoided, it will have to be the work of other arms of the government, with other tools and powers.
The failure to contain the crisis will ultimately be traced, I think, to excessive concern with the first two subsidiary objectives: reining in Wall Street princes and keeping economic decision-making private.
Had the Fed and the Treasury given those two objectives their proper subsidiary weight, I suspect that we would not now be in this mess, and that the danger of a global depression would still be very far away. The desire to prevent the princes of Wall Street from profiting from the crisis was reflected in the Fed-Treasury decision to let Lehman Brothers collapse in an uncontrolled bankruptcy without oversight, supervision, or guarantees.
The logic behind that decision was that, previously in the crisis, equity shareholders had been severely punished when their firms were judged too big to fail.
The shareholders of Bear Stearns, AIG, Fannie Mae, and Freddie Mac essentially had ownership positions and all their wealth confiscated for pennies.
But this was not true of bondholders and counterparties, who were paid in full.
The Fed and Treasury feared that the lesson being taught in the last half of 2007 and the first half of 2008 was that the US government guaranteed all the debt and transactions of every bank and bank-like entity that was regarded as too big to fail.
That, the Fed and the Treasury believed, could not be healthy.
Lenders to very large overleveraged institutions had to have some incentive to calculate the risks.
But that required, at some point, allowing some bank to fail, and persuading some debt holders and counterparties that the government guarantee of support to institutions that were too big to fail was not certain.
In retrospect, this was a major mistake.
The extended web of finance as it existed in the summer of 2008 was the result of millions of calculations that the US government did, in fact, guarantee the unsecured debt of every very large bank and bank-like entity in America.
With that guarantee broken by Lehman Brothers collapse, every financial institution immediately sought to acquire a much greater capital cushion in order to avoid the need to draw on government support, but found it impossible to do so.
The Lehman Brothers bankruptcy created an extraordinary and immediate demand for additional bank capital, which the private sector could not supply.
It was at this point that the Treasury made the second mistake. Because it tried to keep the private sector private, it sought to avoid partial or full nationalisation of the components of the banking system deemed too big to fail.
In retrospect, the Treasury should have identified all such entities and started buying common stock in them whether they liked it or not until the crisis passed.
Yes, this is what might be called lemon socialism, creating grave dangers for corporate control, posing a threat of large-scale corruption, and establishing a precedent for intervention that could be very dangerous down the road.
But would that have been worse than what we face now?
The failure to sacrifice the subsidiary objective of keeping the private sector private meant that the Fed and the Treasury lost their opportunity to attain the principal objective of avoiding depression.
Of course, hindsight is always easy.
But if depression is to be avoided, it will be through old-fashioned Keynesian fiscal policy: the government must take a direct hand in boosting spending and deciding what goods and services will be in demand.
J Bradford DeLong is Professor of Economics at the University of California at Berkeley and a former Assistant US Treasury Secretary.
Project Syndicate
Friday, November 28, 2008
China economic downturn deepens
China economic downturn deepens
For long life: A group of Chinese chefs show off the art of noodle making in Xian, northern China's Shaanxi province on Wednesday. The Chinese have been feasting on noodles for approximately 2,000 years, dating back to the Han dynasty (206 BC-220 AD). Picture: AFP
SINGAPORE
Friday, November 28, 2008
CHINA yesterday warned its economic downturn was deepening with the spread of the global financial crisis, while a senior European policymaker said woes could extend beyond 2009.
In India, emerging Asia's other economic titan, financial markets were closed after Islamist militants killed more than 100 people in the commercial capital Mumbai.
The violence in Mumbai and the political unrest in Thailand showed that political risk is an extra potential threat to emerging markets reeling from the global crisis.
"These awful events are reinforcing the nervousness about emerging markets, which have been weak any way for some time after the U.S. slowdown and the domino effect," said Justin Urquhart Stewart, investment director at Seven Investment Management in London.
The economic warnings from China's top planner came a day after its central bank cut interest rates by the biggest margin in 11 years in response to the worst global downturn in decades.
China's State Information Centre, a government think-tank, forecast annual growth would slow to eight per cent this quarter from nine per cent in the third quarter, a rapid cooling from double-digit rates recorded in the past five years.
"The global financial crisis has not bottomed out yet. The impact is spreading globally and deepening in China. Some domestic economic indicators point to an accelerated slowdown in November," Zhang Ping, chairman of the National Development and Reform Commission, told a news conference.
With factories closing by the thousands, Chinese officials have grown increasingly concerned in recent weeks that slowing growth may threaten the stability that the ruling Communist party craves for its 1.3 billion people.
Slowing demand for Chinese exports in the West is curbing growth and there is no relief in sight.
The eurozone is likely to be in recession next year, European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said, reversing a forecast of slight growth made earlier this month.
Almunia would not give a specific forecast for 2009, but said next year may not mark the end of the eurozone's troubles. "The crisis may not end in 2009," he said.
Emphasising the bleak outlook, the eurozone's business climate indicator fell to its lowest in more than 15 years in November, European Commission data showed.
Reuters
For long life: A group of Chinese chefs show off the art of noodle making in Xian, northern China's Shaanxi province on Wednesday. The Chinese have been feasting on noodles for approximately 2,000 years, dating back to the Han dynasty (206 BC-220 AD). Picture: AFP
SINGAPORE
Friday, November 28, 2008
CHINA yesterday warned its economic downturn was deepening with the spread of the global financial crisis, while a senior European policymaker said woes could extend beyond 2009.
In India, emerging Asia's other economic titan, financial markets were closed after Islamist militants killed more than 100 people in the commercial capital Mumbai.
The violence in Mumbai and the political unrest in Thailand showed that political risk is an extra potential threat to emerging markets reeling from the global crisis.
"These awful events are reinforcing the nervousness about emerging markets, which have been weak any way for some time after the U.S. slowdown and the domino effect," said Justin Urquhart Stewart, investment director at Seven Investment Management in London.
The economic warnings from China's top planner came a day after its central bank cut interest rates by the biggest margin in 11 years in response to the worst global downturn in decades.
China's State Information Centre, a government think-tank, forecast annual growth would slow to eight per cent this quarter from nine per cent in the third quarter, a rapid cooling from double-digit rates recorded in the past five years.
"The global financial crisis has not bottomed out yet. The impact is spreading globally and deepening in China. Some domestic economic indicators point to an accelerated slowdown in November," Zhang Ping, chairman of the National Development and Reform Commission, told a news conference.
With factories closing by the thousands, Chinese officials have grown increasingly concerned in recent weeks that slowing growth may threaten the stability that the ruling Communist party craves for its 1.3 billion people.
Slowing demand for Chinese exports in the West is curbing growth and there is no relief in sight.
The eurozone is likely to be in recession next year, European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said, reversing a forecast of slight growth made earlier this month.
Almunia would not give a specific forecast for 2009, but said next year may not mark the end of the eurozone's troubles. "The crisis may not end in 2009," he said.
Emphasising the bleak outlook, the eurozone's business climate indicator fell to its lowest in more than 15 years in November, European Commission data showed.
Reuters
US$5 trillion lost in global financial crisis
US$5 trillion lost in global financial crisis
PARIS
Friday, November 28, 2008
A TOTAL of US$5 trillion has been lost in the global financial crisis, the head of the Davos economic forum said yesterday as he announced a record presence of world leaders at the conference in January.
Russian Prime Minister Vladimir Putin will give the opening speech at the World Economic Forum in the Swiss resort on January 28 where the theme will be "Shaping The Post Crisis World", said its founder Klaus Schwab.
The Swiss economist, on a visit to Paris, said: "As it stands now, about US$5 trillion has been lost in the financial crisis and now has to be reconstituted" by governments. The forum had forecast the crisis in the financial system in its annual risk report at the start of the year.
"I am not dramatically pessimistic about the future, just realistically pessimistic and I think there are also enormous opportunities in terms of using technology and changing the environment," Schwab said.
He said the turmoil, the worst financial crisis since the Great Depression, meant that the 39th annual Davos meeting would be the most important ever and it will have the biggest participation.
Schwab said there would be more than 160 leaders of head of state or government or ministerial rank among the 1,200 business, social and trade union leaders at the five-day forum.
Putin was the only world leader whose presence was confirmed, but forum officials said many leaders from the Group of Eight industrial powers and emerging economic powers were expected to attend. The full list will only be released in January.
The violence in India and political unrest in Thailand highlighted political risk as an extra potential threat to emerging markets battered by the global crisis.
A crisis that began last year with the collapse of the US housing market has spread around the world, bringing several financial institutions to their knees and pushing the US, Japan and Europe into recession or to the brink of it.
Central banks around the globe have slashed interest rates to try to ease the flow of credit and restart stalled economies.
Economic sentiment in Europe's single currency zone slumped to 15-year lows in November and inflation expectations plunged, boosting the case for a big rate cut by the European Central Bank (ECB) next week.
"The eurozone is in a deep recession, upping the pressure on the ECB to cut interest rates further," said Christoph Weil, economist at Commerzbank. "We envisage a first move next week on a scale of 75 basis points to 2.5 per cent."
Benchmark rates stand at 3.25 per cent in the eurozone, compared with one per cent in the US.
Amid the crisis, job cuts are also increasing across the globe. Steelmaker ArcelorMittal said it would slash up to 9,000 positions. AFP, Reuters
PARIS
Friday, November 28, 2008
A TOTAL of US$5 trillion has been lost in the global financial crisis, the head of the Davos economic forum said yesterday as he announced a record presence of world leaders at the conference in January.
Russian Prime Minister Vladimir Putin will give the opening speech at the World Economic Forum in the Swiss resort on January 28 where the theme will be "Shaping The Post Crisis World", said its founder Klaus Schwab.
The Swiss economist, on a visit to Paris, said: "As it stands now, about US$5 trillion has been lost in the financial crisis and now has to be reconstituted" by governments. The forum had forecast the crisis in the financial system in its annual risk report at the start of the year.
"I am not dramatically pessimistic about the future, just realistically pessimistic and I think there are also enormous opportunities in terms of using technology and changing the environment," Schwab said.
He said the turmoil, the worst financial crisis since the Great Depression, meant that the 39th annual Davos meeting would be the most important ever and it will have the biggest participation.
Schwab said there would be more than 160 leaders of head of state or government or ministerial rank among the 1,200 business, social and trade union leaders at the five-day forum.
Putin was the only world leader whose presence was confirmed, but forum officials said many leaders from the Group of Eight industrial powers and emerging economic powers were expected to attend. The full list will only be released in January.
The violence in India and political unrest in Thailand highlighted political risk as an extra potential threat to emerging markets battered by the global crisis.
A crisis that began last year with the collapse of the US housing market has spread around the world, bringing several financial institutions to their knees and pushing the US, Japan and Europe into recession or to the brink of it.
Central banks around the globe have slashed interest rates to try to ease the flow of credit and restart stalled economies.
Economic sentiment in Europe's single currency zone slumped to 15-year lows in November and inflation expectations plunged, boosting the case for a big rate cut by the European Central Bank (ECB) next week.
"The eurozone is in a deep recession, upping the pressure on the ECB to cut interest rates further," said Christoph Weil, economist at Commerzbank. "We envisage a first move next week on a scale of 75 basis points to 2.5 per cent."
Benchmark rates stand at 3.25 per cent in the eurozone, compared with one per cent in the US.
Amid the crisis, job cuts are also increasing across the globe. Steelmaker ArcelorMittal said it would slash up to 9,000 positions. AFP, Reuters
Banking Crises: Plus Ça Change
Banking Crises: Plus Ça Change …
By Steve Hanke
Banking crises are all too common. They are also costly. The potential cost of the most recent bail-out package in the United States is a staggering $2.25 trillion. That’s 16% of GDP. Compared to the actual bail-out costs following Indonesia’s banking crisis of 1997-98, for example, the US figure is small change. Indeed, Indonesia’s bail out costs amounted to 40% of GDP.
Today, facing the threat of a new banking crisis, many governments in this region have increased state guarantee on bank deposits (see table below) using taxpayers’ money. Malaysia too has guaranteed all ringgit and foreign currency deposits through the Malaysia Deposit Insurance Corporation (Perbadanan Insurans Deposit Malaysia).
New Zealand Guarantee retail deposits in New Zealand-registered banks, building societies, credit unions and deposit-taking finance companies (Oct 12)
Indonesia Raised bank deposit guarantees to 2 billion rupiah from 100 million rupiah per account (Oct 13)
Hong Kong Guaranteed all customer bank deposits until end of 2010 (Oct 14)
Malaysia Guaranteed all ringgit and foreign currency deposits with commercial, Islamic and investment banks, and deposit-taking development financial institutions regulated by the central bank until December, 2010 (Oct 16)
Singapore Guaranteed all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (Oct 16)
South Korea May expand deposit guarantee (Oct 17) Asia-Pacific governments most recent deposit guarantee policy changes
Australia Guarantee all deposits with financial institutions for the next three years (Oct 12)
Source: Bloomberg News
But the reality is, a potential crisis still lurks.
Is there a better way to organize banking, so that it would be safer, sounder and more stable? That is, so that it wouldn’t require backbreaking taxpayer bail outs?
Today, banks that accept deposits are not required to hold 100% liquid reserves against those deposits. Accordingly, banks operate under a fractional-reserve system that allows them to create liabilities: bank money.
To eliminate this element of discretion in the money circuit, fractional-reserve banking could be replaced by 100%-reserve banking. In short, banks would be required to cover all deposits they accept with 100% liquid reserves, which would restrict investments of depositors’ money into “safe” and liquid securities such as government bonds or bonds guaranteed by the government.
Under 100%-reserve banking, banks that accepted deposits would essentially be transformed into money-market mutual funds – “narrow banks” – which could not create credit.
Accordingly, depositors would no longer have to live in fear of being unable to withdraw their deposits because banks would have the liquid reserves to cover any withdrawals.
Banking panics, system-wide banking crises, and taxpayer bail outs would all be relegated to history.
Another important advantage of 100%-reserve banking is that banks would need very little equity capital to cover the small risks associated with the matching of their assets and deposit liabilities. This makes the 100%-reserve system particularly well-suited for emerging economies, where banks are usually notoriously undercapitalized.
How would credit be supplied in such a money and banking system? Merchant (or investment) banks that do not accept deposits would assume that function. They would intermediate savings and generate credit (not money) by issuing shares and subordinated debt instruments (unsecured bonds that have low-ranking claims on a company’s earnings and assets).
Safety, soundness, stability
This approach facilitates credit flows while separating money from credit. By doing so, it injects safety, soundness and stability into the credit circuit.
Indeed, shareholders would provide an important source of market discipline to the merchant banks because the banks’ owners would risk losing their investments in case of merchant bank failures.
The other element in the merchant banks’ capital structure would be provided by subordinated debt. This debt also provides an attractive source of market discipline because, as distinct from depositors, the holders of subordinated debt cannot withdraw their funds on demand when bad news surfaces.
The holders of subordinated debt would, therefore, have an incentive to monitor the merchant bankers carefully.
Would speculative entrepreneurial ventures never get loans because merchant banks would be too conservative? Not at all. Banks that specialized in riskier loans would simply issue subordinated debt at significantly higher interest rates. Investors would purchase these instruments, just as they purchase high yield junk bonds.
If banks that accept deposits were prohibited from creating bank money and were transformed into money-market mutual funds, bank runs would come to a halt. And more importantly, taxpayers would be off the hook, too.
----
Steve H. Hanke, contributing author to www.WauBebas.org, is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the CatoInstitute in Washington, D.C.
This article was published in Malaysiakini (28 Nov 08)
By Steve Hanke
Banking crises are all too common. They are also costly. The potential cost of the most recent bail-out package in the United States is a staggering $2.25 trillion. That’s 16% of GDP. Compared to the actual bail-out costs following Indonesia’s banking crisis of 1997-98, for example, the US figure is small change. Indeed, Indonesia’s bail out costs amounted to 40% of GDP.
Today, facing the threat of a new banking crisis, many governments in this region have increased state guarantee on bank deposits (see table below) using taxpayers’ money. Malaysia too has guaranteed all ringgit and foreign currency deposits through the Malaysia Deposit Insurance Corporation (Perbadanan Insurans Deposit Malaysia).
New Zealand Guarantee retail deposits in New Zealand-registered banks, building societies, credit unions and deposit-taking finance companies (Oct 12)
Indonesia Raised bank deposit guarantees to 2 billion rupiah from 100 million rupiah per account (Oct 13)
Hong Kong Guaranteed all customer bank deposits until end of 2010 (Oct 14)
Malaysia Guaranteed all ringgit and foreign currency deposits with commercial, Islamic and investment banks, and deposit-taking development financial institutions regulated by the central bank until December, 2010 (Oct 16)
Singapore Guaranteed all Singapore dollar and foreign currency deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore (Oct 16)
South Korea May expand deposit guarantee (Oct 17) Asia-Pacific governments most recent deposit guarantee policy changes
Australia Guarantee all deposits with financial institutions for the next three years (Oct 12)
Source: Bloomberg News
But the reality is, a potential crisis still lurks.
Is there a better way to organize banking, so that it would be safer, sounder and more stable? That is, so that it wouldn’t require backbreaking taxpayer bail outs?
Today, banks that accept deposits are not required to hold 100% liquid reserves against those deposits. Accordingly, banks operate under a fractional-reserve system that allows them to create liabilities: bank money.
To eliminate this element of discretion in the money circuit, fractional-reserve banking could be replaced by 100%-reserve banking. In short, banks would be required to cover all deposits they accept with 100% liquid reserves, which would restrict investments of depositors’ money into “safe” and liquid securities such as government bonds or bonds guaranteed by the government.
Under 100%-reserve banking, banks that accepted deposits would essentially be transformed into money-market mutual funds – “narrow banks” – which could not create credit.
Accordingly, depositors would no longer have to live in fear of being unable to withdraw their deposits because banks would have the liquid reserves to cover any withdrawals.
Banking panics, system-wide banking crises, and taxpayer bail outs would all be relegated to history.
Another important advantage of 100%-reserve banking is that banks would need very little equity capital to cover the small risks associated with the matching of their assets and deposit liabilities. This makes the 100%-reserve system particularly well-suited for emerging economies, where banks are usually notoriously undercapitalized.
How would credit be supplied in such a money and banking system? Merchant (or investment) banks that do not accept deposits would assume that function. They would intermediate savings and generate credit (not money) by issuing shares and subordinated debt instruments (unsecured bonds that have low-ranking claims on a company’s earnings and assets).
Safety, soundness, stability
This approach facilitates credit flows while separating money from credit. By doing so, it injects safety, soundness and stability into the credit circuit.
Indeed, shareholders would provide an important source of market discipline to the merchant banks because the banks’ owners would risk losing their investments in case of merchant bank failures.
The other element in the merchant banks’ capital structure would be provided by subordinated debt. This debt also provides an attractive source of market discipline because, as distinct from depositors, the holders of subordinated debt cannot withdraw their funds on demand when bad news surfaces.
The holders of subordinated debt would, therefore, have an incentive to monitor the merchant bankers carefully.
Would speculative entrepreneurial ventures never get loans because merchant banks would be too conservative? Not at all. Banks that specialized in riskier loans would simply issue subordinated debt at significantly higher interest rates. Investors would purchase these instruments, just as they purchase high yield junk bonds.
If banks that accept deposits were prohibited from creating bank money and were transformed into money-market mutual funds, bank runs would come to a halt. And more importantly, taxpayers would be off the hook, too.
----
Steve H. Hanke, contributing author to www.WauBebas.org, is a Professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the CatoInstitute in Washington, D.C.
This article was published in Malaysiakini (28 Nov 08)
US$5 trillion lost in global financial crisis
US$5 trillion lost in global financial crisis
PARIS
Friday, November 28, 2008
A TOTAL of US$5 trillion has been lost in the global financial crisis, the head of the Davos economic forum said yesterday as he announced a record presence of world leaders at the conference in January.
Russian Prime Minister Vladimir Putin will give the opening speech at the World Economic Forum in the Swiss resort on January 28 where the theme will be "Shaping The Post Crisis World", said its founder Klaus Schwab.
The Swiss economist, on a visit to Paris, said: "As it stands now, about US$5 trillion has been lost in the financial crisis and now has to be reconstituted" by governments. The forum had forecast the crisis in the financial system in its annual risk report at the start of the year.
"I am not dramatically pessimistic about the future, just realistically pessimistic and I think there are also enormous opportunities in terms of using technology and changing the environment," Schwab said.
He said the turmoil, the worst financial crisis since the Great Depression, meant that the 39th annual Davos meeting would be the most important ever and it will have the biggest participation.
Schwab said there would be more than 160 leaders of head of state or government or ministerial rank among the 1,200 business, social and trade union leaders at the five-day forum.
Putin was the only world leader whose presence was confirmed, but forum officials said many leaders from the Group of Eight industrial powers and emerging economic powers were expected to attend. The full list will only be released in January.
The violence in India and political unrest in Thailand highlighted political risk as an extra potential threat to emerging markets battered by the global crisis.
A crisis that began last year with the collapse of the US housing market has spread around the world, bringing several financial institutions to their knees and pushing the US, Japan and Europe into recession or to the brink of it.
Central banks around the globe have slashed interest rates to try to ease the flow of credit and restart stalled economies.
Economic sentiment in Europe's single currency zone slumped to 15-year lows in November and inflation expectations plunged, boosting the case for a big rate cut by the European Central Bank (ECB) next week.
"The eurozone is in a deep recession, upping the pressure on the ECB to cut interest rates further," said Christoph Weil, economist at Commerzbank. "We envisage a first move next week on a scale of 75 basis points to 2.5 per cent."
Benchmark rates stand at 3.25 per cent in the eurozone, compared with one per cent in the US.
Amid the crisis, job cuts are also increasing across the globe. Steelmaker ArcelorMittal said it would slash up to 9,000 positions. AFP, Reuters
PARIS
Friday, November 28, 2008
A TOTAL of US$5 trillion has been lost in the global financial crisis, the head of the Davos economic forum said yesterday as he announced a record presence of world leaders at the conference in January.
Russian Prime Minister Vladimir Putin will give the opening speech at the World Economic Forum in the Swiss resort on January 28 where the theme will be "Shaping The Post Crisis World", said its founder Klaus Schwab.
The Swiss economist, on a visit to Paris, said: "As it stands now, about US$5 trillion has been lost in the financial crisis and now has to be reconstituted" by governments. The forum had forecast the crisis in the financial system in its annual risk report at the start of the year.
"I am not dramatically pessimistic about the future, just realistically pessimistic and I think there are also enormous opportunities in terms of using technology and changing the environment," Schwab said.
He said the turmoil, the worst financial crisis since the Great Depression, meant that the 39th annual Davos meeting would be the most important ever and it will have the biggest participation.
Schwab said there would be more than 160 leaders of head of state or government or ministerial rank among the 1,200 business, social and trade union leaders at the five-day forum.
Putin was the only world leader whose presence was confirmed, but forum officials said many leaders from the Group of Eight industrial powers and emerging economic powers were expected to attend. The full list will only be released in January.
The violence in India and political unrest in Thailand highlighted political risk as an extra potential threat to emerging markets battered by the global crisis.
A crisis that began last year with the collapse of the US housing market has spread around the world, bringing several financial institutions to their knees and pushing the US, Japan and Europe into recession or to the brink of it.
Central banks around the globe have slashed interest rates to try to ease the flow of credit and restart stalled economies.
Economic sentiment in Europe's single currency zone slumped to 15-year lows in November and inflation expectations plunged, boosting the case for a big rate cut by the European Central Bank (ECB) next week.
"The eurozone is in a deep recession, upping the pressure on the ECB to cut interest rates further," said Christoph Weil, economist at Commerzbank. "We envisage a first move next week on a scale of 75 basis points to 2.5 per cent."
Benchmark rates stand at 3.25 per cent in the eurozone, compared with one per cent in the US.
Amid the crisis, job cuts are also increasing across the globe. Steelmaker ArcelorMittal said it would slash up to 9,000 positions. AFP, Reuters
Thursday, November 27, 2008
Crisis to take toll on pay: ILO
Crisis to take toll on pay: ILO
Stop the pain!: A worker, holds a cardboard of a screaming mouth, during the weekly demonstration over the global financial crisis in central Reykjavik on November 22. The ILO said the economic downturn will erode the wages of millions of workers. Picture: AFP
GENEVA
Thursday, November 27, 2008
ECONOMIC turmoil will erode the wages of millions of workers in 2009, fanning the flames of global recession, the International Labour Organisation (ILO) yesterday said.
Inflation-adjusted pay in rich nations will fall 0.5 per cent in the coming year the first wage decrease since before 2001 after having increased 0.8 per cent this year, according to new estimates from the United Nations agency.
Developing country wages should prove more resilient, led by continued gains in China and India, the ILO said.
On a global basis, it estimated real wages will rise 1.1 per cent in 2009, compared with 1.7 per cent in 2008.
"For the world's 1.5 billion wage earners, difficult times lie ahead," ILO Director-General Juan Somavia said in the Global Wage Report, whose comparable data only stretches back to 2001.
Somavia, a Chilean, called for strong collective bargaining to counter any decrease in wages linked to the world's financial and economic crises that the ILO has previously said will wipe out 20 million jobs by the end of 2009.
In previous periods of contraction, every one percentage point drop in gross domestic product (GDP) per capita brought about a 1.55 percentage point decline in average wages, making it even harder for people to spend and invest, according to ILO data.
"If this pattern were to be followed in the rapidly spreading global downturn, it would deepen the recession and delay the recovery," Somavia said.
But even when economic growth rates were buoyant, the ILO report said wages have failed to keep pace.
For each one percentage point of GDP growth from 1995 to 2007, average wages only increased 0.75 percentage points, with pay rates largely failing to increase in line with productivity growth levels, it found.
Inequalities between top and bottom wages have also risen, most notably in the US, Germany, Poland, Argentina, China and Thailand, the ILO said.
France, Spain, Brazil and Indonesia were found to have reduced those gaps somewhat in recent years.
Women's wages represent an average of 70 to 90 per cent of men's wages in most major economies, though some Asian nations have larger disparities, the report said.
People at the bottom of the wage ladder will be squeezed hardest by decreasing rates of pay in the coming period of economic contraction, according to ILO expert Manuela Tomei.
"If they fall too much, this will make the crisis even worse," she told a news briefing in Geneva.
Greater efforts to empower workers and enact minimum wage laws should help more people weather the coming storm, the ILO concluded.
"We think that it is important to encourage collective bargaining and social dialogue," Tomei said.
There have been a spate of job cuts from companies worldwide who have been hit hard by the financial turmoil.
International recruitment company Manpower had said employee numbers will be cut sharply in many Western nations as companies pare costs to survive the global financial crisis.
Reuters, AFP
Stop the pain!: A worker, holds a cardboard of a screaming mouth, during the weekly demonstration over the global financial crisis in central Reykjavik on November 22. The ILO said the economic downturn will erode the wages of millions of workers. Picture: AFP
GENEVA
Thursday, November 27, 2008
ECONOMIC turmoil will erode the wages of millions of workers in 2009, fanning the flames of global recession, the International Labour Organisation (ILO) yesterday said.
Inflation-adjusted pay in rich nations will fall 0.5 per cent in the coming year the first wage decrease since before 2001 after having increased 0.8 per cent this year, according to new estimates from the United Nations agency.
Developing country wages should prove more resilient, led by continued gains in China and India, the ILO said.
On a global basis, it estimated real wages will rise 1.1 per cent in 2009, compared with 1.7 per cent in 2008.
"For the world's 1.5 billion wage earners, difficult times lie ahead," ILO Director-General Juan Somavia said in the Global Wage Report, whose comparable data only stretches back to 2001.
Somavia, a Chilean, called for strong collective bargaining to counter any decrease in wages linked to the world's financial and economic crises that the ILO has previously said will wipe out 20 million jobs by the end of 2009.
In previous periods of contraction, every one percentage point drop in gross domestic product (GDP) per capita brought about a 1.55 percentage point decline in average wages, making it even harder for people to spend and invest, according to ILO data.
"If this pattern were to be followed in the rapidly spreading global downturn, it would deepen the recession and delay the recovery," Somavia said.
But even when economic growth rates were buoyant, the ILO report said wages have failed to keep pace.
For each one percentage point of GDP growth from 1995 to 2007, average wages only increased 0.75 percentage points, with pay rates largely failing to increase in line with productivity growth levels, it found.
Inequalities between top and bottom wages have also risen, most notably in the US, Germany, Poland, Argentina, China and Thailand, the ILO said.
France, Spain, Brazil and Indonesia were found to have reduced those gaps somewhat in recent years.
Women's wages represent an average of 70 to 90 per cent of men's wages in most major economies, though some Asian nations have larger disparities, the report said.
People at the bottom of the wage ladder will be squeezed hardest by decreasing rates of pay in the coming period of economic contraction, according to ILO expert Manuela Tomei.
"If they fall too much, this will make the crisis even worse," she told a news briefing in Geneva.
Greater efforts to empower workers and enact minimum wage laws should help more people weather the coming storm, the ILO concluded.
"We think that it is important to encourage collective bargaining and social dialogue," Tomei said.
There have been a spate of job cuts from companies worldwide who have been hit hard by the financial turmoil.
International recruitment company Manpower had said employee numbers will be cut sharply in many Western nations as companies pare costs to survive the global financial crisis.
Reuters, AFP
Monday, November 24, 2008
Europe and global food crisis
Europe and global food crisis
MICHEL BARNIER
PARIS
Monday, November 24, 2008
BUT there is more to finding a solution than simply identifying those nations that are capable of feeding the rest of the world. It is increasingly urgent that every nation gain the means of feeding itself. This means that agriculture should become an international priority, with the poorest countries helped to safeguard the security and independence of their food supplies.
Countries and organisations are already mobilising. The United Nations Food and Agriculture Organisation argues that rising food prices could lead to increasing global conflicts. The Davos World Economic Forum ranks food insecurity as a major risk to humanity. The World Bank has forcefully emphasised the importance of agriculture to jump-starting economic expansion and breaking the cycle of poverty. UN Secretary Ban Ki-moon has created a working group to define a common plan of action, and Frances President Nicolas Sarkozy has proposed a global partnership for food.
Sarkozy's proposed partnership has three pillars. First, an international group should draft a worldwide strategy for food security. Second, an international scientific platform should be charged with evaluating the worlds agricultural situation, sending out warnings of upcoming crises, and possibly facilitating governments adoption of political and other strategic tools to deal with food crises.
Finally, the international finance community, despite its current problems, must be mobilised.
The reliability and size of the European Unions farm output means that it can and should play the role of regulator in global markets. If Europe cut back on its agricultural production, the increase in its own food imports would contribute significantly to a worldwide increase in food prices. This makes it imperative that EU food production levels be held steady for the sake of Europeans and of people in the worlds poorest countries.
But Europe cannot build up its own agriculture to the detriment of the less fortunate. So the EU must harmonise its policies with poorer countries. At present, export subsidies and support payments represent less than 1 per cent of the European agricultural budget, and the EU has undertaken to eliminate them once it receives reciprocal undertakings from major food-exporting countries. Since 2001, with the Everything but Arms initiative, all products from poor countries with the exception of weapons and munitions can enter the EU single market on a duty-free basis. This has led to the EU becoming the primary market for the poorest countries products.
The EU is also developing ways to respond to new global challenges through changes to its Common Agricultural Policy. This was reflected in the decision to suspend the set aside rule that requires a proportion of agricultural land to lie fallow. Now the EU is preparing to increase dairy quotas progressively, and evaluating the impact on world markets of its decisions regarding bio-fuels.
But Europes focus must be on encouraging the development of local agriculture. Doing so is the only way to achieve greater global food security and reduce poverty. It will also make it possible to ensure that today's high prices for agricultural products are transformed into opportunity for poor farmers. This is vital because, according to the World Bank, growth in farming eliminates poverty twice as much as growth in any other economic sector. Indeed, agriculture remains the primary productive sector in the worlds poorest countries, employing 65 per cent of the working population and, on average, contributing more than 25 per cent to GDP.
But over the past 20 years, support for agricultural development has been declining. Only 4 per cent of public development assistance is now earmarked for agriculture. The European Commission and EU member states are therefore planning to increase their assistance, both through the European Development Fund and by developing new sources of financial support.
Further liberalisation of farm trade will not ensure food security. Faced with the erratic nature of agricultural markets, regulation is needed to soften the impact on poorer countries of volatile food prices. This does not mean that protectionism is the way forward, only that taking account of specific issues that affect international farm trade weather, price volatility, or health risks may be necessary from time to time.
But, in a world where productivity differentials can be as great as one to 1,000, it would be unwise to rely on markets alone to enable the poorest countries to expand their economies.
Nor is it likely that much economic expansion will result from competition between multinational food distributors and producers in countries where famine still stalks the land.
Instead, bringing together outside expertise and local knowledge of the geography and environmental and economic constraints in order to spread risks and share the management of resources and projects is far more likely to help poor countries achieve food independence.
It was such an approach that, in less than 20 years, helped postwar Europe achieve food sovereignty. Countries that have protected their agricultural development from the threats posed by international markets such as India or Vietnam have achieved substantial reductions in agricultural poverty.
The time has also come to prioritise agriculture in order to ensure growth with a more human face. At the heart of the EU, France wants to play its part in a collective effort that is fast becoming a major issue for us all.
Michel Barnier is Frances Minister of Agriculture and Fisheries, and was formerly Frances Foreign Minister and EU Commissioner in charge of Regional Policy and the Reform of European Institutions.
Project Syndicate
MICHEL BARNIER
PARIS
Monday, November 24, 2008
BUT there is more to finding a solution than simply identifying those nations that are capable of feeding the rest of the world. It is increasingly urgent that every nation gain the means of feeding itself. This means that agriculture should become an international priority, with the poorest countries helped to safeguard the security and independence of their food supplies.
Countries and organisations are already mobilising. The United Nations Food and Agriculture Organisation argues that rising food prices could lead to increasing global conflicts. The Davos World Economic Forum ranks food insecurity as a major risk to humanity. The World Bank has forcefully emphasised the importance of agriculture to jump-starting economic expansion and breaking the cycle of poverty. UN Secretary Ban Ki-moon has created a working group to define a common plan of action, and Frances President Nicolas Sarkozy has proposed a global partnership for food.
Sarkozy's proposed partnership has three pillars. First, an international group should draft a worldwide strategy for food security. Second, an international scientific platform should be charged with evaluating the worlds agricultural situation, sending out warnings of upcoming crises, and possibly facilitating governments adoption of political and other strategic tools to deal with food crises.
Finally, the international finance community, despite its current problems, must be mobilised.
The reliability and size of the European Unions farm output means that it can and should play the role of regulator in global markets. If Europe cut back on its agricultural production, the increase in its own food imports would contribute significantly to a worldwide increase in food prices. This makes it imperative that EU food production levels be held steady for the sake of Europeans and of people in the worlds poorest countries.
But Europe cannot build up its own agriculture to the detriment of the less fortunate. So the EU must harmonise its policies with poorer countries. At present, export subsidies and support payments represent less than 1 per cent of the European agricultural budget, and the EU has undertaken to eliminate them once it receives reciprocal undertakings from major food-exporting countries. Since 2001, with the Everything but Arms initiative, all products from poor countries with the exception of weapons and munitions can enter the EU single market on a duty-free basis. This has led to the EU becoming the primary market for the poorest countries products.
The EU is also developing ways to respond to new global challenges through changes to its Common Agricultural Policy. This was reflected in the decision to suspend the set aside rule that requires a proportion of agricultural land to lie fallow. Now the EU is preparing to increase dairy quotas progressively, and evaluating the impact on world markets of its decisions regarding bio-fuels.
But Europes focus must be on encouraging the development of local agriculture. Doing so is the only way to achieve greater global food security and reduce poverty. It will also make it possible to ensure that today's high prices for agricultural products are transformed into opportunity for poor farmers. This is vital because, according to the World Bank, growth in farming eliminates poverty twice as much as growth in any other economic sector. Indeed, agriculture remains the primary productive sector in the worlds poorest countries, employing 65 per cent of the working population and, on average, contributing more than 25 per cent to GDP.
But over the past 20 years, support for agricultural development has been declining. Only 4 per cent of public development assistance is now earmarked for agriculture. The European Commission and EU member states are therefore planning to increase their assistance, both through the European Development Fund and by developing new sources of financial support.
Further liberalisation of farm trade will not ensure food security. Faced with the erratic nature of agricultural markets, regulation is needed to soften the impact on poorer countries of volatile food prices. This does not mean that protectionism is the way forward, only that taking account of specific issues that affect international farm trade weather, price volatility, or health risks may be necessary from time to time.
But, in a world where productivity differentials can be as great as one to 1,000, it would be unwise to rely on markets alone to enable the poorest countries to expand their economies.
Nor is it likely that much economic expansion will result from competition between multinational food distributors and producers in countries where famine still stalks the land.
Instead, bringing together outside expertise and local knowledge of the geography and environmental and economic constraints in order to spread risks and share the management of resources and projects is far more likely to help poor countries achieve food independence.
It was such an approach that, in less than 20 years, helped postwar Europe achieve food sovereignty. Countries that have protected their agricultural development from the threats posed by international markets such as India or Vietnam have achieved substantial reductions in agricultural poverty.
The time has also come to prioritise agriculture in order to ensure growth with a more human face. At the heart of the EU, France wants to play its part in a collective effort that is fast becoming a major issue for us all.
Michel Barnier is Frances Minister of Agriculture and Fisheries, and was formerly Frances Foreign Minister and EU Commissioner in charge of Regional Policy and the Reform of European Institutions.
Project Syndicate
Talking crisis in rising Asia
Talking crisis in rising Asia
DAVID BURTON
DHAKA
Monday, November 24, 2008
THE global financial turmoil has intensified in recent weeks, and the world economy is entering a deep and protracted slowdown. Despite bold actions in US and Europe to tackle the crisis, credit is likely to remain constrained for some time, as financial institutions continue to reduce leverage, while growth in industrial countries is expected to be negative next year. What does this mean for Asia? And what can be done to limit the impact on the region?
Despite emerging Asia's strong fundamentals — notably its substantial cushion in official reserves and robust corporate and banking sector balance sheets (and limited exposure to US sub-prime mortgages and structured credit products) — any hope that the region would escape the crisis largely unscathed has evaporated.
Weak global growth will depress demand for Asia's exports; indeed a significant export slowdown is already underway. And global financial turmoil is making itself felt strongly in the region, including through much tighter funding conditions, more volatile capital flows, sharply depressed equity prices, weakening currencies, and higher sovereign and bank spreads.
Looking ahead, slowing domestic economies (and in some cases, cooling housing markets) will likely raise pressures on corporates, contributing to a rise in bad loans and credit costs for banks, and risking an adverse cycle of a tightening of credit conditions and deteriorating economic growth.
The IMF's Asia and Pacific Regional Economic Outlook, forthcoming early next week projects a significant slowdown across the region, with growth falling well below trend in almost all countries. While emerging Asia is expected to escape the sort of full-fledged recession now expected for the US, EU, and Japan, risks — notably from the global environment are large and clearly to the downside.
Policymakers in the region have responded to the worsening economic environment with a range of measures. Several governments have broadened or increased guarantees on bank deposits or other liabilities, while central banks have taken steps to provide both domestic and foreign currency liquidity on an emergency basis. The focus of monetary policy in the region has been shifted decisively to supporting growth, and a number of fiscal stimulus packages have been adopted or announced.
These efforts should all help limit the damage to the region, but going forward, more will need to be done, at both the global and national levels. At last weekend's G-20 Summit in Washington, Asian countries played a key role — in line with their growing economic power — in developing an international roadmap for containing the current crisis and avoiding future ones. And national policies will play a critical role in protecting core financial institutions and softening the economic slowdown.
First, Asian policymakers need to continue to focus on ensuring financial stability and the functioning of credit markets. Despite the financial stresses, conventional bank lending in the region has held up reasonably well so far and policy-makers need to stand ready to minimise the tightening of overall credit conditions and its spillovers to the economy.
Monetary authorities will need to continue to supply their banking systems with adequate domestic and foreign exchange liquidity; develop contingency plans to extend guarantees and recapitalise banks, if necessary; and consider steps to support trade credit, should serious difficulties emerge. In all this, transparency and communication will be key, to allow both citizens and global investors to understand what is being done and why.
Second, monetary policy in almost all countries in the region should maintain an accommodative bias. With weakening domestic demand and lower commodities prices contributing to sharply reduced inflation risks, monetary policy should now be aimed squarely at supporting growth. However, with inflation rates still above target in some countries, communication by central banks regarding the economic outlook and the expected path of inflation will play a key role in anchoring expectations.
Third, fiscal policy can play a key role. Given the progress with fiscal consolidation in the region, most countries have room to use fiscal policy to support growth, albeit to varying degrees.
While the best approach will vary across countries, fiscal stimulus is most effective when it is timely, temporary, and targeted to purposes providing the biggest "bang for the buck". Infrastructure spending can be part of the mix, provided that projects are high quality and can begin to be implemented quickly.
Fourth, intervention in the foreign exchange markets should be limited. A number of regional currencies have weakened sharply since September. While some intervention may be warranted to smooth excess exchange rate volatility and to address possible overshooting, sustained one-sided intervention may backfire, resulting in larger and more disruptive adjustments later.
Moreover, given the potential need for further foreign exchange liquidity provision in some countries, international reserves should be marshalled for their most critical purposes.
Finally, despite Asia's generally strong fundamentals and appropriate policy response so far, it cannot be ruled out, especially if the global financial crisis intensifies, that some Asian economies could experience liquidity difficulties.
The international community needs to stand ready to provide large-scale and rapid financial assistance in those circumstances.
The IMF is ready to do just that, and has already moved quickly to help emerging market countries in other regions. Last month, the Fund introduced a new short-term liquidity facility for countries with sound policies but which are facing short-term balance of payments pressures, and is moving to increase the pool of resources available to it.
Moreover, substantial foreign exchange swaps are already available to Asean +3 countries under the Chiang Mai Initiative, and there have been discussions to increase these amounts and step up regional policy coordination more broadly.
So, while the period ahead will undoubtedly be a difficult one, Asia's strong fundamentals, coupled with a focused and pro-active policy stance should limit the damage. Given Asia's role in recent years as a global engine of growth — the region contributed more than half of global growth in recent years — an effective policy response will be critical both within the region and for the global economy.
David Burton is Director, Asia and Pacific Department, IMF.
The Daily Star/ANN
DAVID BURTON
DHAKA
Monday, November 24, 2008
THE global financial turmoil has intensified in recent weeks, and the world economy is entering a deep and protracted slowdown. Despite bold actions in US and Europe to tackle the crisis, credit is likely to remain constrained for some time, as financial institutions continue to reduce leverage, while growth in industrial countries is expected to be negative next year. What does this mean for Asia? And what can be done to limit the impact on the region?
Despite emerging Asia's strong fundamentals — notably its substantial cushion in official reserves and robust corporate and banking sector balance sheets (and limited exposure to US sub-prime mortgages and structured credit products) — any hope that the region would escape the crisis largely unscathed has evaporated.
Weak global growth will depress demand for Asia's exports; indeed a significant export slowdown is already underway. And global financial turmoil is making itself felt strongly in the region, including through much tighter funding conditions, more volatile capital flows, sharply depressed equity prices, weakening currencies, and higher sovereign and bank spreads.
Looking ahead, slowing domestic economies (and in some cases, cooling housing markets) will likely raise pressures on corporates, contributing to a rise in bad loans and credit costs for banks, and risking an adverse cycle of a tightening of credit conditions and deteriorating economic growth.
The IMF's Asia and Pacific Regional Economic Outlook, forthcoming early next week projects a significant slowdown across the region, with growth falling well below trend in almost all countries. While emerging Asia is expected to escape the sort of full-fledged recession now expected for the US, EU, and Japan, risks — notably from the global environment are large and clearly to the downside.
Policymakers in the region have responded to the worsening economic environment with a range of measures. Several governments have broadened or increased guarantees on bank deposits or other liabilities, while central banks have taken steps to provide both domestic and foreign currency liquidity on an emergency basis. The focus of monetary policy in the region has been shifted decisively to supporting growth, and a number of fiscal stimulus packages have been adopted or announced.
These efforts should all help limit the damage to the region, but going forward, more will need to be done, at both the global and national levels. At last weekend's G-20 Summit in Washington, Asian countries played a key role — in line with their growing economic power — in developing an international roadmap for containing the current crisis and avoiding future ones. And national policies will play a critical role in protecting core financial institutions and softening the economic slowdown.
First, Asian policymakers need to continue to focus on ensuring financial stability and the functioning of credit markets. Despite the financial stresses, conventional bank lending in the region has held up reasonably well so far and policy-makers need to stand ready to minimise the tightening of overall credit conditions and its spillovers to the economy.
Monetary authorities will need to continue to supply their banking systems with adequate domestic and foreign exchange liquidity; develop contingency plans to extend guarantees and recapitalise banks, if necessary; and consider steps to support trade credit, should serious difficulties emerge. In all this, transparency and communication will be key, to allow both citizens and global investors to understand what is being done and why.
Second, monetary policy in almost all countries in the region should maintain an accommodative bias. With weakening domestic demand and lower commodities prices contributing to sharply reduced inflation risks, monetary policy should now be aimed squarely at supporting growth. However, with inflation rates still above target in some countries, communication by central banks regarding the economic outlook and the expected path of inflation will play a key role in anchoring expectations.
Third, fiscal policy can play a key role. Given the progress with fiscal consolidation in the region, most countries have room to use fiscal policy to support growth, albeit to varying degrees.
While the best approach will vary across countries, fiscal stimulus is most effective when it is timely, temporary, and targeted to purposes providing the biggest "bang for the buck". Infrastructure spending can be part of the mix, provided that projects are high quality and can begin to be implemented quickly.
Fourth, intervention in the foreign exchange markets should be limited. A number of regional currencies have weakened sharply since September. While some intervention may be warranted to smooth excess exchange rate volatility and to address possible overshooting, sustained one-sided intervention may backfire, resulting in larger and more disruptive adjustments later.
Moreover, given the potential need for further foreign exchange liquidity provision in some countries, international reserves should be marshalled for their most critical purposes.
Finally, despite Asia's generally strong fundamentals and appropriate policy response so far, it cannot be ruled out, especially if the global financial crisis intensifies, that some Asian economies could experience liquidity difficulties.
The international community needs to stand ready to provide large-scale and rapid financial assistance in those circumstances.
The IMF is ready to do just that, and has already moved quickly to help emerging market countries in other regions. Last month, the Fund introduced a new short-term liquidity facility for countries with sound policies but which are facing short-term balance of payments pressures, and is moving to increase the pool of resources available to it.
Moreover, substantial foreign exchange swaps are already available to Asean +3 countries under the Chiang Mai Initiative, and there have been discussions to increase these amounts and step up regional policy coordination more broadly.
So, while the period ahead will undoubtedly be a difficult one, Asia's strong fundamentals, coupled with a focused and pro-active policy stance should limit the damage. Given Asia's role in recent years as a global engine of growth — the region contributed more than half of global growth in recent years — an effective policy response will be critical both within the region and for the global economy.
David Burton is Director, Asia and Pacific Department, IMF.
The Daily Star/ANN
Thursday, November 20, 2008
Global liquidity crisis over: Nomura chief
Global liquidity crisis over: Nomura chief
Not so blue: A man stands in front of glass windows overlooking the Hong Kong harbour yesterday. Picture: AFP
TOKYO
Thursday, November 20, 2008
THE global liquidity crisis appears to be over but much work remains to be done to rebuild the economic damage wrought by months of financial turmoil, the head of Japan's top broker said yesterday.
"The liquidity crisis in the financial world is over. The next step is how to rebuild the real economy," Kenichi Watanabe, chief executive of Nomura Holdings, said.
"This of course involves each country's fiscal spending," he said.
"People are paying attention to how respective governments gun their engines," he said in reference to world leaders pledging at the recent G20 summit to galvanise economic growth.
Global banks and financial markets have been hammered by the credit crunch that began with a wave of defaults on US mortgages.
Watanabe said China would be vital in an Asian economic recovery. "When considering the Asian region as a whole, people's interest lies in how China ignites its engine," he said.
Nomura Holdings, which moved quickly to buy the Asian and European operations of failed Wall Street bank Lehman Brothers, lost about US$1.5 billion in the first half of this financial year because of turmoil in world markets. He said Nomura aims to return to profit "as soon as possible", helped by the acquisition of Lehman's customer base and expertise in financial products.
AFP
Not so blue: A man stands in front of glass windows overlooking the Hong Kong harbour yesterday. Picture: AFP
TOKYO
Thursday, November 20, 2008
THE global liquidity crisis appears to be over but much work remains to be done to rebuild the economic damage wrought by months of financial turmoil, the head of Japan's top broker said yesterday.
"The liquidity crisis in the financial world is over. The next step is how to rebuild the real economy," Kenichi Watanabe, chief executive of Nomura Holdings, said.
"This of course involves each country's fiscal spending," he said.
"People are paying attention to how respective governments gun their engines," he said in reference to world leaders pledging at the recent G20 summit to galvanise economic growth.
Global banks and financial markets have been hammered by the credit crunch that began with a wave of defaults on US mortgages.
Watanabe said China would be vital in an Asian economic recovery. "When considering the Asian region as a whole, people's interest lies in how China ignites its engine," he said.
Nomura Holdings, which moved quickly to buy the Asian and European operations of failed Wall Street bank Lehman Brothers, lost about US$1.5 billion in the first half of this financial year because of turmoil in world markets. He said Nomura aims to return to profit "as soon as possible", helped by the acquisition of Lehman's customer base and expertise in financial products.
AFP
Tuesday, November 18, 2008
Finance summit ends up with mild action
Finance summit ends up with mild action
MARTIN KHOR
KUALA LUMPUR
Tuesday, November 18, 2008
LEADERS of 20 countries met at the Finance Summit in Washington last Friday and Saturday and agreed to take a wide range of actions to counter the world economic recession and prevent future financial crisis like the one that almost engulfed the developed countries financial system.
It was quite striking how some of the actions proposed especially about the need to regulate financial speculation and cross-border capital flows are similar to the proposals that Malaysia had made ten years ago in the midst of the Asian financial crisis.
At that time, Malaysian leaders were heavily criticised for the then unorthodox policies such as lowering interest rates, boosting government spending, fixing the exchange rate and imposing controls over the outflow of portfolio capital.
Malaysian officials also advocated international financial reform, especially control over currency speculation, regulating the activities of hedge funds and credit agencies, and reducing the leverage that banks give in loans to speculators. These proposals were made at the meetings of the International Monetary Fund and at the United Nation's financing-for-development summit process. But the proposals were rejected outright.
For the next decade, the activities of the hedge funds multiplied, further deregulation took place and more and new financial instruments and products were introduced, such as the mortgage-backed securities that turned sour and sparked the problems that snowballed into the greatest financial crisis in 60 years.
Now that the crisis has taken place in the very heart of the financial system the United States and Europe the Western political leaders are at last paying close attention to its causes and to the solutions.
Egged on by France, the United States President George W. Bush hosted the Group of 20 to the two-day summit to discuss the crisis.
The group comprises the major Western countries, Japan, and several developing countries including China, India, Brazil, Indonesia, South Korea and South Africa.
Many developing countries are unhappy that an exclusive and unelected small group of countries have been invited to make global financial policy. They have advocated that the reform discussion be held within the United Nations instead.
But the US and Europe have so far rejected this role for the UN, despite its holding an international financing-for-development conference at the end of this month. And so it was the G20 which were convened for last weeks summit.
The Summit Declaration identified the root cause of the crisis as the market players seeking higher yield without appreciating the risks nor due diligence.
Other causes were weak underwriting standards, unsound risk management practices, complex and opaque financial products and excessive leverage.
Policy makers, regulators and supervisors in some advanced countries did not appreciate and address the risks building up in financial markets, keep pace with financial innovation or take into account the systemic ramifications of regulatory actions, said the declaration.
It then listed a set of principles to guide future policies. These included strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions.
The leaders also pledged their commitment to an open global economy, to reject trade protectionism and to try again to make progress in the WTOs Doha negotiations.
The declaration came with an action plan for reform. Its proposals included revamping accountancy standards, a review of present national regulations in banking, securities and insurance and proposals to improve them.
It added that credit agencies must abide by high standards and avoid conflict of interest. Banks must have adequate capital while new standards for capital requirements for their structured credit and securitisation activities.
Under international cooperation, the declaration also asked supervisors to set up supervisory colleges for all major cross-border financial institutions, and to strengthen cross-border crisis management arrangements.
On reforming international financial institutions, the declaration said the IMF should take the leading role in drawing lessons from the crisis and must review its lending instruments. Developing countries get a mention here. The leaders said they would explore ways to restore access to credit and resume capital flows for emerging and developing countries, which in turn should have greater voice and representation.
The advisory role of the IMF is also to be strengthened.
The Summits missing leader was Barrack Obama, who cleverly stayed away as after all this was Bush's show.
Thus, the summit and its declaration had the feel of being tentative, as it will have to wait for Obama to take actions for the US. Thus this was only an initial Summit.
Some actions agreed on are scheduled to complete by March 31 while other actions have only been proposed but when they are to be implemented is not stated.
There is thus to be a follow-up summit a more important one around April. By then it will be clear how much deeper in recession the world will be in.
The actions listed in the Declaration are mild for example, measures to regulate hedge funds and to stabilise exchange rates of different countries are missing and will likely prove inadequate for dealing with the crisis.
The Star/ANN
MARTIN KHOR
KUALA LUMPUR
Tuesday, November 18, 2008
LEADERS of 20 countries met at the Finance Summit in Washington last Friday and Saturday and agreed to take a wide range of actions to counter the world economic recession and prevent future financial crisis like the one that almost engulfed the developed countries financial system.
It was quite striking how some of the actions proposed especially about the need to regulate financial speculation and cross-border capital flows are similar to the proposals that Malaysia had made ten years ago in the midst of the Asian financial crisis.
At that time, Malaysian leaders were heavily criticised for the then unorthodox policies such as lowering interest rates, boosting government spending, fixing the exchange rate and imposing controls over the outflow of portfolio capital.
Malaysian officials also advocated international financial reform, especially control over currency speculation, regulating the activities of hedge funds and credit agencies, and reducing the leverage that banks give in loans to speculators. These proposals were made at the meetings of the International Monetary Fund and at the United Nation's financing-for-development summit process. But the proposals were rejected outright.
For the next decade, the activities of the hedge funds multiplied, further deregulation took place and more and new financial instruments and products were introduced, such as the mortgage-backed securities that turned sour and sparked the problems that snowballed into the greatest financial crisis in 60 years.
Now that the crisis has taken place in the very heart of the financial system the United States and Europe the Western political leaders are at last paying close attention to its causes and to the solutions.
Egged on by France, the United States President George W. Bush hosted the Group of 20 to the two-day summit to discuss the crisis.
The group comprises the major Western countries, Japan, and several developing countries including China, India, Brazil, Indonesia, South Korea and South Africa.
Many developing countries are unhappy that an exclusive and unelected small group of countries have been invited to make global financial policy. They have advocated that the reform discussion be held within the United Nations instead.
But the US and Europe have so far rejected this role for the UN, despite its holding an international financing-for-development conference at the end of this month. And so it was the G20 which were convened for last weeks summit.
The Summit Declaration identified the root cause of the crisis as the market players seeking higher yield without appreciating the risks nor due diligence.
Other causes were weak underwriting standards, unsound risk management practices, complex and opaque financial products and excessive leverage.
Policy makers, regulators and supervisors in some advanced countries did not appreciate and address the risks building up in financial markets, keep pace with financial innovation or take into account the systemic ramifications of regulatory actions, said the declaration.
It then listed a set of principles to guide future policies. These included strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions.
The leaders also pledged their commitment to an open global economy, to reject trade protectionism and to try again to make progress in the WTOs Doha negotiations.
The declaration came with an action plan for reform. Its proposals included revamping accountancy standards, a review of present national regulations in banking, securities and insurance and proposals to improve them.
It added that credit agencies must abide by high standards and avoid conflict of interest. Banks must have adequate capital while new standards for capital requirements for their structured credit and securitisation activities.
Under international cooperation, the declaration also asked supervisors to set up supervisory colleges for all major cross-border financial institutions, and to strengthen cross-border crisis management arrangements.
On reforming international financial institutions, the declaration said the IMF should take the leading role in drawing lessons from the crisis and must review its lending instruments. Developing countries get a mention here. The leaders said they would explore ways to restore access to credit and resume capital flows for emerging and developing countries, which in turn should have greater voice and representation.
The advisory role of the IMF is also to be strengthened.
The Summits missing leader was Barrack Obama, who cleverly stayed away as after all this was Bush's show.
Thus, the summit and its declaration had the feel of being tentative, as it will have to wait for Obama to take actions for the US. Thus this was only an initial Summit.
Some actions agreed on are scheduled to complete by March 31 while other actions have only been proposed but when they are to be implemented is not stated.
There is thus to be a follow-up summit a more important one around April. By then it will be clear how much deeper in recession the world will be in.
The actions listed in the Declaration are mild for example, measures to regulate hedge funds and to stabilise exchange rates of different countries are missing and will likely prove inadequate for dealing with the crisis.
The Star/ANN
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