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ANALYSTS’ PICKS: RELIANCE INDUSTRIES – MERRILL LYNCH RETAINS ‘BUY’ RATING ON RELIANCE INDUSTRIES

Posted by Gilmour Poincaree on November 26, 2008

24 Nov 2008, 0552 hrs IST, ET Bureau

RESEARCH: MERRILL LYNCH

RATING: BUY

CMP: Rs 1,127

MERRILL Lynch has retained it ‘buy’ rating on Reliance Industries (RIL). Its refining margin has consistently been higher than the benchmark Singapore complex refining margin. Analyses suggests RIL’s superior refining margin is due to its ability to refine heavier crude than Dubai. Compared to the last refining downturn, RIL is set to benefit more in FY10-FY 11E from its ability to refine heavier crude.

Reliance Petroleum’s (RPL) refinery, which is expected to start operations soon, can process even heavier crude than RIL and has a superior product slate. The average discount of Arab heavy to Dubai since FY01 is $2.4/bbl. The discount has sustained at over $5/bbl even in the past six weeks, despite the slump in oil prices.

Merrill Lynch estimates RPL’s refining margin at $12.9/bbl if it were to operate in Q3 FY09, vis-à-vis Singapore margin of $7.3/bbl. It will produce more gasoline than RIL. Gasoline cracks have always been at a premium to naphtha and LPG cracks. Merrill Lynch feels that a weakening in diesel and gasoline cracks is the main risk to RPL attaining such high margins when it begins operations.

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PUBLISHED BY ‘THE ECONOMIC TIMES’ (India)

Posted in COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, ENERGY, FINANCIAL MARKETS, GASOLINE, INDUSTRIAL PRODUCTION, INDUSTRIES, PETROL, REFINERIES - PETROL/BIOFUELS, STOCK MARKETS, THE FLOW OF INVESTMENTS | Leave a Comment »

MINING BILL WOULD TRIM EPA POWER – Pollution variances might be up to ODNR – A new bill would strip the Ohio Environmental Protection Agency of its power to limit water pollution from coal mines (USA)

Posted by Gilmour Poincaree on November 26, 2008

Tuesday, November 25, 2008 3:07 AM

by Spencer Hunt

THE COLUMBUS DISPATCH

The bill, to be introduced in the Ohio Senate this week, would transfer the EPA’s authority to grant coal companies permits to pollute water and to fill streams to mining officials with the Ohio Department of Natural Resources.

It also would give mining regulators a six-month deadline to approve or deny new mine plans. Sen. Timothy Grendell, R-Chesterland, sponsored the bill and said the EPA and Natural Resources officials often take years to review coal companies’ plans. That puts Ohio at risk of losing new mines and jobs to coal states such as West Virginia and Pennsylvania.

“We’re placing coal-mining jobs in jeopardy,” he said. “I’m confident the Department of Natural Resources can be a good steward of the environment and also make the right decisions to keep the coal-mining industry a viable part of Ohio’s economy.”

Grendell said his bill is similar to a 2001 state law that transferred Ohio EPA regulatory powers over large livestock farms to the Ohio Department of Agriculture.

Environmentalists said they believe the bill actually is meant to help one mining company, Murray Energy Corp., build a 1.85 billion-gallon coal slurry pond in Belmont County.

The EPA denied the permit.

“This is about one dissatisfied customer,” said Jack Shaner, lobbyist with the Ohio Environmental Council. “Unfortunately, this (bill) will open a door for all coal companies and their permits.”

Murray Energy wants to dam Casey Run, a 2-mile-long stream in Belmont County, to replace an old slurry pond that dates to the 1970s. The Casey Run site would hold as much as 1.85 billion gallons of wastewater from two washing plants.

In April, the EPA said the coal slurry would threaten nearby Captina Creek, home to the endangered eastern hellbender salamander.

The company is appealing and has said that without the lagoon, it would have to close two mines and lay off about 1,000 workers.

Rob Murray, a Murray Energy vice president, said in an e-mailed statement that the bill “has absolutely nothing to do with the Casey Run issue.”

Mike Carey, director of the Ohio Coal Association, said mining companies need a one-stop shop to quickly get the permits they need to open new mines.

“This is something we’ve been talking about for years,” Carey said.

EPA spokeswoman Melissa Fazekas said the agency eliminated a backlog of permit requests in September and now handles mining company permit requests within six months.

shunt@dispatch.com

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PUBLISHED BY ‘THE COLUMBUS DISPATCH’ (USA)

Posted in COAL, ECONOMY - USA, ENVIRONMENT, INDUSTRIAL PRODUCTION - USA, INDUSTRIES, INDUSTRIES - USA, JUDICIARY SYSTEMS, MINING INDUSTRIES, REGULATIONS AND BUSINESS TRANSPARENCY, USA | 1 Comment »

LOCKED OUT (UK)

Posted by Gilmour Poincaree on November 26, 2008

Wednesday November 26 2008 00.01 GMT

Editorial guardian.co.uk

The Guardian

This financial crisis began with housing, and any hope of its ending must lie with housing. That THE HOUSING MARKETdoes not just mean house prices finding some kind of bottom, but also would-be homeowners being able to get fairly priced mortgages, and securing a more stable supply of new homes. Consumers naturally focus on the prices quoted by estate agents, but yesterday both the government and the Bank of England were more worried about getting banks to lend. That is a big question in need of an urgent answer, but it is only one part of the housing puzzle. Until all the bits are solved, this boom and bust will be repeated over and over again.

Just how important is housing? Consider this. Politicians have spent the past couple of days arguing over the government’s £21bn boost to the economy. That is a big number, but it is dwarfed by what is going on in the mortgage market. There, last year’s net total of £108bn of new home loans has shrunk to around £40bn this year and could fall below zero next year. What was a hundred-billion-pound business will shrink to nearly nothing. No wonder Mervyn King, the governor of the Bank of England, told MPs yesterday that getting banks to lend “was more important than anything else at present”. Without that, he warned, “a steep recession” beckoned.

How to end the mortgage drought? Alistair Darling appointed Sir James Crosby, the former head of HBOS, to suggest ideas. His final report was published on Monday and went (understandably) underreported, but its recommendations are eye-popping. In the summer he was equivocal about government intervention; this time he is emphatic. He suggests that Mr Darling should help get the banks themselves greater access to finance that can then be passed on to would-be homebuyers. At the bubble’s peak nearly two-thirds of mortgage lending came not from deposits, but via money markets – which are nearly frozen. The Crosby report suggests that the government should auction its services as a guarantor to banks seeking to tap into financial markets. In return, the government must require that the funds go into new mortgages.

Like so much else the government has done over the past weeks, this a big, bold gamble – and Mr Darling is right to take it. True, matters have not been helped by the government’s arm’s-length management of the part-nationalised banks, when what is needed is much more hands-on direction of lending. But banks are themselves struggling to raise money to lend. This scheme could help ease the problem and Mr Darling is right to adopt it.

Still, there is a vast chasm between a technical scheme drawn up by a financier and a policy taken up by a government. That difference can be summed up in one word: vision. The short-term priority must be to allow the property bubble to deflate in as orderly a fashion as possible so as not to send further shocks through an already traumatised economy. But over the longer term, house prices must come down and orgiastic lending and wild property speculation must be curbed.

The challenge for Mr Darling is to manage this transition. What he must not do is restore the housing market to some kind of health, only for it all to soar away again. That means ministers changing their minds on what housing is for. Gordon Brown has long believed that as many people as possible should own their homes: “a home-owning, asset-owning, property-owning democracy” was his slogan. But housing is a public good: having enough houses at fair prices ultimately matters to any society that needs teachers and nurses. To turn property into a private asset is to court bubbles, buy-to-let madness and supply problems. This financial crisis has raised many questions over where the boundary between public and private interest should lie. The housing bubble is no different.

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PUBLISHED BY ‘LIBERTY STREET’

Posted in BANKING SYSTEMS, CENTRAL BANKS, CONSTRUCTION INDUSTRIES, ECONOMIC CONJUNCTURE, ECONOMY, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, INTERNATIONAL, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, THE FLOW OF INVESTMENTS, UNITED KINGDOM | Leave a Comment »

CABRISAS: LA ECONOMÍA NO PODÍA SEGUIR FUNCIONANDO COMO UN CASINO – Cabrisas en su participación en la cumbre del Alba, resaltó la incapacidad de los países de Europa y Estados Unidos de contribuir con las solicitudes de los organismos internacionales, para la ayuda de los países en vía de desarrollo, pero ”en pocos días fue capaz de invertir más de 30 millones de millones para salvar a los banqueros”

Posted by Gilmour Poincaree on November 26, 2008

TeleSur – Hace: 01 hora

El primer vicepresidente del Consejo de Ministros de Cuba, Ricardo Cabrisas indicó con relación a El primer vicepresidente del Consejo de Ministros de Cuba, Ricardo Cabrisasla crisis económica mundial que “la economía no puede seguir funcionando como un casino”.

Según Cabrisas el sistema económico funcionaba “para el beneficio de unos pocos especuladores y el sufrimiento para el 80 por ciento de la población del planeta”.

Las declaraciones fueron emitidas durante su participación en la reunión de los países del ALBA que se realiza este miércoles en la capital de Venezuela y donde se realiza un debate para buscar la respuesta de esta organización regional a la crisis financiera mundial.

Sobre la crisis destacó que “se trata de la crisis del orden económico mundial injusto, sin equidad alguna, sobre el cual se apoya en buena medida el orden social y político más injusto de nuestra época”

Asímismo indicó que esta crisis no es la repetición de otras anteriores, “ni siquiera de aquella que, en los años 30 del siglo 20, se conoció como la gran depresión, en la actualidad la crisis económica se acompaña de otros variados rostros de crisis, como la energética, la alimentaria, ecológica y por supuesta la social”

Cabrisas explicó que “La crisis actual tiene lugar cuando la globalización de la economía mundial es más extensa e intensa que nunca antes.”

Calificó la crisis como un reto a la capacidad de los humanos: “Ésta va más allá del neoliberalismo y de la crisis misma, para convertirse en un reto a la capacidad de los humanos para salvar la especie – mediante la construcción de un mundo mejor que éste – de las recurrentes y devastadoras crisis económicas, de la suicida destrucción del medio ambiente, de la guerra global del exterminio”.

De igual manera denunció que “el plan de rescate del Gobierno de Bush y el plan de rescate europeo priorizan el de los especuladores y banqueros que fueron declarados fracasados por el mercado. En pocos días han destinado unos tres millones de millones de dólares para salvar la estructura especulativa fracasada, pero durante décadas no fueron capaces como grupo de cumplir siquiera el compromiso contraído de destinar el 0,7 por ciento del Producto Interno Bruto para la ayuda oficial del desarrollo”.

” Y el país más rico de todos retrocedió en los años del gobierno de Bush hasta apenas el 0,2 por ciento en pocos días han destinado unos tres millones de millones de dolares para salvar la estructura especulativa fracasada pero durante décadas” enfatizó el Cabrisas.

De igual manera denunció la falta de cooperación económica para atender los reclamos de la FAO en el intento de mejorar la producción agrícola en el tercer mundo.

“Ni fueron capaces de reunir entre todos 20 mil millones para cumplir con el programa de educación para todos de la UNESCO o apenas 10 mil millones para resolver los problemas de salud reproductivas de las mujeres de los países pobres solicitada por la OMS”, destacó

Enfatizó que el reto requiere de un amplio y bien preparado debate, con la participación de todos los países sin exclusiones, el sistema monetario internacional surgido en Breton Woods “basado en el papel privilegiado del dólar de EE.UU es un factor central en el nudo de contradicciones de la actual crisis económica”

En cuanto a los conflictos que mantiene EE.UU. reflexionó: “Hacer fabulosos gastos militares sin aumentar impuestos es como una aspiradora que absorbe alrededor de tres mil millones de dólares diarios del resto del mundo para sostener sus déficit y consumismo”.

Realzó el papel de los países miembros del ALBA y su propuesta a la crisis, “hemos optado por una formula avanzada de relación basada en la solidaridad, en la cooperación, en las ventajas compartidas y en la sensibilidad para encontrar solución a la deuda social acumulada en contra de los pueblos”.

“La más importante contribución de América Latina y los países del caribe pueden hacer a la comprensión de la naturaleza de esta crisis global y reducir su impacto es la efectiva integración regional no basada en el lucro del mercado no atrapada por la especulación financiera no diseñada para que los países de menor desarrollo queden rezagados”.

El vicepresidente cubano, Ricardo Cabrisas, relató que ” Durante casi 50 años, sucesivos gobiernos norteamericanos intentaron ahogar a la Revolución Cubana imponiéndole el bloqueo económico más largo, intenso y con mayor desproporción de fuerzas entre el bloqueador y el bloqueado que registre la historia. Pretendieron imponerle al pueblo cubano una situación económica tan severa que lo asfixiara y obligara a rendirse”.

Destacó la contribución de Cuba en base a su dura experiencia por el bloqueo económico ejercido por Estados Unidos contra la Isla “nuestra modesta experiencia de resistencia y creación y nuestra sincera voluntad de trabajar por el ALBA y por una América Latina y el Caribe integrados y unidos”.

TeleSUR / fc / PLL

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PUBLISHED BY ‘TeleSur’ (Venezuela)

Posted in BANKING SYSTEM - USA, CUBA, ECONOMY, ENVIRONMENT, FINANCIAL CRISIS - USA - 2008/2009, FOREIGN POLICIES - USA, HISTORY, INTERNATIONAL, INTERNATIONAL RELATIONS, THE OCCUPATION WAR IN IRAQ, USA, WAR IN AFGHANISTAN, WARS AND ARMED CONFLICTS | Leave a Comment »

FOR A BETTER FINANCIAL ORDER – Chinese leaders and scholars suggest reforms to strengthen the international financial system

Posted by Gilmour Poincaree on November 26, 2008

November-26-2008 NO. 48 NOV. 27, 2008

by Ding Ying

As the international financial crisis plunges many countries into economic turmoil, China’s relatively stable economic growth is reassuring to the international community.

As a result, the world is paying more and more attention to China’s opinions about the ongoing crisis and possible solutions. Chinese leaders and economists recently made a series of suggestions for reforming the current international financial system.

China’s efforts

Chinese President Hu Jintao participated in the Group of 20 (G-20) Summit on Financial Markets and the World Economy held on November 15 in Washington, D.C., where he delivered a speech calling for international cooperation to get through this “difficult moment.”

In his speech, Hu clearly stated the Chinese stance on international financial reform. “Reform of the international financial system should aim at establishing a new international financial order that is fair, just, inclusive and orderly and fostering an institutional environment conducive to sound global economic development,” he said.

The Chinese Government has taken many measures to safeguard economic development and financial stability. After the crisis began, China made timely adjustments to its policies and strengthened macroeconomic regulation, Hu said. These adjustments included lowering the bank required reserve ratio, lowering interest rates and easing corporate tax burdens. Hu also promised to play a “constructive role” in restoring the international financial system and suggested four key reforms: increased international cooperation in financial supervision, reform of international financial organizations, increased regional financial cooperation and diversification of the international monetary system.

As the world’s most populous developing country, China would make an important contribution to international financial stability and world economic growth simply by maintaining steady economic growth, the president said. Several days before the summit, China announced a 4-trillion-yuan ($586 billion) economic stimulus plan. Observers believe that the plan, which concentrates on stimulating domestic consumption in China, may restore confidence in world economic development.

In a November 16 Xinhua report, Chinese Foreign Minister Yang Jiechi outlined five achievements that came from Hu’s participation in the financial summit. First, he met with other G-20 leaders to discuss the root causes of the financial crisis and possible solutions and reforms, which they described in a joint statement. Second, Hu introduced measures the Chinese Government has taken to safeguard economic growth and financial stability. Third, he helped guide the direction of international financial reform. Fourth, Hu called for international efforts to help developing countries. Finally, Hu promoted China’s bilateral relationships with several countries by meeting with their leaders during the summit.

Cooperation, not competition

Chinese economists also had opinions on the current world economic situation. They provided suggestions for reforming the international financial system and maintaining economic and financial stability in China.

Zhang Ming, a researcher from the Institute of World Economics and Politics, Chinese Academy of Social Sciences, said in World Affairs on November 16 that there were resemblances between the current international economic and financial situation and the Great Depression. The U.S. dollar has been greatly weakened by the subprime mortgage crisis, but the euro is struggling as well. “The supreme financial structure is on the edge of collapse,” he said.

The countries affected by the crisis have two options, Zhang said. One is to unite and cope with the crisis together by building new international financial and monetary systems, which could cushion the U.S. dollar’s fall. The other is for each country to look out for itself, which might cause discord and competition among the largest economies and lead the dollar system to collapse completely.

“The latter way further undermines the global economic and financial order. Then a new crisis, or even wars, will break out,” said Zhang, arguing the world must join hands to deal with the current financial crisis.

Regarding international monetary reform, independent economist Xiang Songzuo said in Elite Reference on November 16 that there is little possibility the International Monetary Fund will be recast as the world’s central bank. Instead, the crisis might cause new regional currencies to emerge. “Influential currencies, like the euro, yen and the renminbi, can play an important role in stabilizing regional economies,” he said.

Su Jingxiang from the Center for Globalization Studies, China Institutes of Contemporary International Relations, said in People’s Daily that since the financial sector is the weak point of the Asian economy, Asian countries must enhance both regional and global cooperation. He said that based on the foreign reserves held by China, Japan, South Korea and ASEAN members, Asia could become a leader in international financial fields. “Only through strengthened cooperation can China protect its interests well and perform its function better in the international cooperative system,” Su said.

“China’s top priority is to deal with the crisis with caution and run its own business well,” said Xiang Lanxin, an observer of world affairs, in Global Times. Xiang urged China to promote domestic demand over exports in its response to the crisis. Massive exports could push other countries into trade protectionism and make China a target of international criticism.

Highlights of the G-20 Financial Summit

Leaders attending the G-20 financial summit agreed on an action plan to combat the current financial crisis on November 15 in Washington, D.C. After discussing the reasons behind the current crisis, the leaders issued a statement pledging to “enhance our cooperation and work together to restore global growth and achieve needed reforms in the world’s financial systems.”

The leaders agreed that the current financial system has vulnerabilities such as weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage.

Further, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms and unsustainable global macroeconomic outcomes are the combined elements that resulted in the current financial crisis.

The leaders stressed that free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, well-regulated financial systems, are essential to economic growth.

They vowed to take “strong and significant actions” to reform current financial systems, stimulate their economies, provide liquidity, strengthen the capital of financial institutions, protect savings and deposits, address regulatory deficiencies, unfreeze credit markets and ensure that international financial institutions can provide critical support to the global economy.

The plan is based on five principles: strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets, reinforcing international cooperation and reforming international financial institutions. The principles have been broken down into immediate and medium-term actions to be taken by March 31, 2009.

The leaders also agreed to meet again by April 30, 2009, to review the plan’s implementation.

(Source: Xinhua News Agency)

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PUBLISHED BY ‘BEIJING REVIEW’ (China)

Posted in CHINA, DOLLAR (USA), ECONOMIC CONJUNCTURE, ECONOMY, EUROPE, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, FOREIGN POLICIES, G20, INTERNATIONAL, INTERNATIONAL RELATIONS, MACROECONOMY, REGULATIONS AND BUSINESS TRANSPARENCY, THE FLOW OF INVESTMENTS, USA, WARS AND ARMED CONFLICTS | Leave a Comment »

CHINA TO INVEST $18 BLN IN 2ND RAILWAY FOR XINJIANG

Posted by Gilmour Poincaree on November 26, 2008

UPDATED: November-26-2008

Construction is expected to begin next year, with investment from the central and local governments and other sources

China will spend 120 billion yuan (17.6 billion U.S. dollars) to build a second railway linking the northwestern Xinjiang Uygur Autonomous Region with inland cities, according to information from a meeting of the Xinjiang committee of the Communist Party of China on Tuesday.

Construction is expected to begin next year, with investment from the central and local governments and other sources.

The new line will be parallel to the existing Lanxin Railway linking Gansu, Qinghai and Xinjiang. Only passenger trains will run on it.

When the new line is completed, the old Lanxin railway, running1,892 kilometers, will be used by cargo trains only.

Xinjiang, a vast region in China’s far west, boasts rich oil, coal and other resources and is the country’s major cotton producer. Lanxin is currently the only railway linking Xinjiang and other parts of China.

Railway officials said the new rail line will break the bottleneck of transport for Xinjiang in its economic development, ease the pressure on the Euro-Asian continental bridge and facilitate exchanges between China and its west neighbors.

Another 100 billion yuan would be injected to improve Xinjiang’s highway network between 2009 and 2013, according to information from the meeting.

(Xinhua News Agency)

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PUBLISHED BY ‘BEIJING REVIEW’ (China)

Posted in CENTRAL BANKS, CHINA, ECONOMIC CONJUNCTURE, ECONOMY, INDUSTRIAL PRODUCTION, INDUSTRIES, INTERNATIONAL, MACROECONOMY, RAILWAY TRANSPORT, THE FLOW OF INVESTMENTS, THE WORK MARKET, TRANSPORT INDUSTRIES | Leave a Comment »

UAE FIRM WANTS TO SET UP COAL-BASED POWER PLANT (Pakistan)

Posted by Gilmour Poincaree on November 26, 2008

November 26, 2008 Wednesday – Ziqa’ad 27, 1429

ABU DHABI, Nov 25: The Abu Dhabi National Energy Company has expressed interest in setting up TAQA - The Abu Dhabi National Energy Companya coal-based power plant in Pakistan.

The company’s vice-president, Mr Abdullah Khunji, called on President Asif Ali Zardari here on Tuesday and indicated willingness to invest in power sector.

The president assured him of government’s full support and cooperation.

Mr Khunji later told reporters that Pakistan was the best place for investment and his company would soon launch its energy projects in the country.

Emirates Investment Group chairman Tariq Al Qasimi also called on President Zardari and exchanged views with him on global and regional economic situation. He expressed his group’s desire to invest in Pakistan’s financial sector.

The president said his government encouraged foreign investments in energy, agriculture, construction, infrastructure development and banking and financial sectors.

Mr Qasimi told reporters his company had its presence in Pakistan and was exploring new avenues of investment in agriculture and banking sectors.

UAE Minister for Petroleum Mohammad Dhaen Al Halimi also met President Zardari and discussed with him prospects of cooperation in energy and oil and gas sectors.

Mr Halimi said his government was encouraging its private sector to invest in Pakistan’s energy and petroleum sectors.

The president praised the UAE for investing $5 billion on a refinery in Balochistan and expressed the hope the private sector would invest more in joint venture projects in petroleum and energy sectors. He offered Pakistan’s technical expertise to the UAE in energy sector development.

Mr Halimi told reporters that during the meeting various areas of joint ventures had been identified. Prospects of investment in oil and gas exploration were also discussed.

Foreign Minister Makhdoom Shah Mehmood Qureshi, PM’s Adviser on Finance Shaukat Tarin, Pakistan’s Ambassador Khurshid Ahmad Junejo, Ambassador-at-Large Javed Malik and Board of Investment Chairman Salim Mandviwala attended the meetings.

President Zardari also visited the mausoleum of Shaikh Zayed bin Sultan al Nahyan, the founder of the United Arab Emirates, and offered fateha.

APP

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PUBLISHED BY ‘DAWN’ (Pakistan)

Posted in ABU DHABI, BANKING SYSTEMS, COAL, COMMERCE, COMMODITIES MARKET, ECONOMIC CONJUNCTURE, ECONOMY, ENERGY, FINANCIAL MARKETS, FOREIGN POLICIES, INDUSTRIAL PRODUCTION, INDUSTRIES, INTERNATIONAL, INTERNATIONAL RELATIONS, THE FLOW OF INVESTMENTS, UNITED ARAB EMIRATES | Leave a Comment »

IMF TERMS PACKAGE A STRONG SIGNAL TO DONORS: $3BN TO BE RELEASED INITIALLY, $13BN NEEDED FOR ‘STABILISATION’ (Pakistan)

Posted by Gilmour Poincaree on November 26, 2008

November 26, 2008 Wednesday Ziqa’ad 27, 1429

by Anwar Iqbal

WASHINGTON, Nov 25: The executive board of the International Monetary Fund has approved a $7.6 billion loan for Pakistan under a programme that also requires Islamabad to reduce its fiscal deficit to 3.3 per cent of the GDP and bring down inflation to six per cent.

“By providing large financial support to Pakistan, the IMF is sending a strong signal to the donor community about the country’s improved macroeconomic prospects,” said IMF Deputy Managing Director Takatoshi Kato. The programme was approved at a board meeting at the IMF headquarters in Washington on Monday.

“The programme aims to restore the confidence of domestic and foreign investors with a tightening of fiscal and monetary policies, while maintaining social stability through targeted spending,” the IMF said.

Hours after the approval, IMF’s mission chief to Pakistan, Juan Carlos Di Tata, told a news briefing on Tuesday that most of the adjustments for reducing fiscal deficit would come from eliminating fuel and electricity subsidies and from eliminating exemptions on income and agriculture taxes.

The government has already withdrawn fuel subsidies, while its efforts to increase electricity rates caused widespread protests this summer. Any measure that leads to an increase in fuel prices or electricity rates is bound to cause more violent reactions and may further reduce the already depleting popularity of the current government.

But the IMF assured the people of Pakistan that “expenditure on the social safety net will be increased to protect the poor through both cash transfers and targeted electricity subsidies”.

While many in Pakistan questioned the government’s wisdom in going to the IMF, the Fund’s mission chief for the country warned that Pakistan was not out of the woods yet. He said the country needed as much as $13 billion during the current financial year to stabilise its economy.

Mr Di Tata spelled out some of the conditions attached to the loan, but said the IMF had not asked Pakistan to reduce defence spending because it was for the government to determine how it wanted to bring down its expenditure.

He said that out of the $7.6 billion pledged on Monday, Pakistan would get a total of $4.7 billion during the current fiscal year. The rest will be disbursed after quarterly reviews during the next 23 months.

“The regular monitoring of the economy … will show how the macroeconomic objectives set by the government are being met and whether they need to be adjusted in the light of changing circumstances,” the IMF said.

Besides the IMF, the World Bank and the Islamic Development Bank will also give $3.8 billion to Pakistan during the current fiscal year, while $4.5 billion will come from the Friends of Pakistan club and other donors.

Earlier, the IMF issued a statement saying that Pakistan would get immediate access to $3.1 billion from the $7.6 billion pledged and this amount may be deposited into Pakistan’s account at the US Federal Reserve in New York as early as Thursday.

The IMF expects Pakistan’s economic growth to slow to 3.4 per cent in the current fiscal year from 5.8 per cent the previous year. It is forecast to recover to five per cent next fiscal year.

The Fund expects the country’s budget deficit to be reduced to 4.2 per cent of gross domestic product in the current fiscal year and 3.3 per cent the following year — from 7.4 per cent at the end of June.

“The reduction will be achieved primarily by phasing out energy subsidies, better-prioritising development spending and implementing tax policy and tax administration reforms,” Mr Kato said.

The State Bank of Pakistan, which recently conducted a two-percentage point hike in the discount rate, is expected to bring down inflation and shore up reserves, the IMF said. The central bank is also expected to stop financing the government.

The programme includes measures to improve monetary management and enhance the SBP’s bank resolution capacity, and avoid the use of public resources to support the stock market.

Mr Di Tata noted that the reduction in expenditures would create room to increase spending on the social safety net.

The fiscal programme for 2008-09 envisaged an increase in spending on the social safety net of 0.6 percentage points of GDP to 0.9 per cent of GDP, the IMF said.

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PUBLISHED BY ‘DAWN’ (Pakistan)

Posted in BANKING SYSTEMS, CENTRAL BANKS, ECONOMIC CONJUNCTURE, ECONOMY, ENVIRONMENT, FINANCIAL CRISIS 2008/2009, FINANCIAL MARKETS, GASOLINE, IMF, INTERNATIONAL, ISLAMIC DEVELOPMENT BANK, MACROECONOMY, MILITARY CONTRACTS, NATIONAL WORK FORCES, PAKISTAN, RECESSION, REGULATIONS AND BUSINESS TRANSPARENCY, THE ARMS INDUSTRY, THE FLOW OF INVESTMENTS, WORLD BANK | 1 Comment »

TOWARDS A NEW ECONOMIC NARRATIVE (Ireland)

Posted by Gilmour Poincaree on November 26, 2008

Published: November 26th, 2008

Author: Michael Taft of Notes on the Front

Crisis? It’s baby-crunching time. We no longer have the luxury of attacking others’ prescriptions – OH ... those darn stairs againthose issued by the Government, employers’ spokespersons and stockbroker economists. The proverbial punter at the bar is impatient: ‘So what’s your big idea?’ It’s a fair question.

Let’s be under no illusion. The right is driving this debate. And the main ‘opposition’ in all this has been Fine Gael who wants more of the same. A debate? You need two sides to have a debate. All we have is the sound of one hand slapping us about.

So far, the Left, with some exceptions, has staked out a small ground. It opposes cutbacks, proposes infrastructural projects and more training places, and suggests alternative revenue streams such as cutting tax reliefs. Some good ideas but, to date, they do not cohere into a programme of expansion and renewal. They do not, as yet, constitute a new narrative.

And neither will this. It is, instead, an invitation to progressives to draft up their own programmes and proposals, to put forward their own contributions; to do better than what’s contained here. But the foundational principles must be to:

– Expand fiscally – junk the cutback vs. tax increase trap. We need money, lots of it, to put back into the economy.

– Expand demand – more spending, not less, is what the economy needs to maintain and expand business activity

– Expand indigenous enterprise: Lay the structural foundations for a new enterprise base – public and private; this will take time, so we have to start soon, tomorrow, this evening

That’s the ticket – expand, expand, expand. For illustrative purposes I have come up with a 10-point programme but no single programme can address all issues. For instance, I have not addressed recapitalising our banking system, educational investment, reducing poverty and labour market issues. In a fully-blown progressive project, these will take centre-stage.

But paramount in all this: the Left must become audacious. It must put forward its vision with courage and confidence. For the Left is right and the Right is wrong. We must defend our programme against all nay-sayers, pessimists, neo-liberals and shills for vested interests: on the doorstep, at community meetings, on RTE panels, in the Dail. No fear, no capitulation.

In short, we have to go on the offensive, all economic guns blazing. So let’s start.

Expand Fiscally

1. Borrow ‘Til We Drop

The fiscal meltdown is the result of the economic decline, not the cause. To prioritise the budget A DRAWING BY UMBERTO BOCCIONIdeficit is to obsess over the symptoms, not the disease. Cutting public spending and increasing taxes will result in less consumption and business activity. This, in turn, will create further fiscal imbalances, which will in turn prompt more right-wingers to demand even further cuts – and round and down we go. The patient sickens.

We need to borrow. We need to borrow big time. You can’t cut-and-tax your way out of a recession – you spend. And borrowing is the main instrument. Borrowing will get us ‘over the hump’. We won’t take money out, we will put money in. In times of recession, borrowing is good.

Don’t mind the fiscal reactionaries: we have plenty of scope to borrow. Our debt repayments come to only 1.5 percent of overall wealth. If an average industrial worker had the same level of debt repayments as Ireland Ltd., it would come to €50 per month. Even if this repayment were doubled, most households would light many candles in a fiscal hosanna.

– So, expand overall net debt to 55% of GDP over the next three years and aim to balance the current budget at the end of downward business cycle (it could take up to six-seven years before we close the output gap and get the economy operating at optimal level). This could provide us with between €30 and €40 billion additional resources above the Government’s projected expenditure – an enormous investment to spend and invest, lend and expand. A NARRATIVE TALE

2. Tax Lay-About Capital, Not Work

Just to ensure that we don’t get caught in a debt-spiral, buttress our borrowing with new tax measures – but only on capital and higher incomes. It’s okay to tax these folk – they have higher liquidity which doesn’t end up getting spent or invested productively. Here are two proposals:

– A once-off, Donald Trump-like, tax on capital assets over €1 million. This tax could be paid off over a seven year period. It could raise some serious dosh, but it’s important that productive assets aren’t hit.

– Phase out all tax relief (save for relief on productive investments) for people earning in excess of €100,000. Why should we subsidise their VHI premiums for private hospitals?

These are just two suggestions to give the wealthy, if not a soaking, then a right good splash. We are only limited by our imaginations and by the fact that the top 75,000 households in this country own over €300 billion in wealth. There’s a lot of lay-about capital running about. Let’s grab it and put it work for all of us.

[Another way to turn down the fiscal heat is to open up the Pension Reserve Fund for investment in infrastructure and enterprise projects on a commercial basis – see below.]

3. Public Safety Committees

Robespierre – where are you when we need you? If the Left is to argue for higher spending and A DRAWING BY M.C. ESCHERborrowing, people will need confidence that this ‘expansion’ is being spent wisely. So let’s establish the equivalent of public safety committees in every Government Department and major public agency (HSE, Public Works, etc.) through a substantial expansion of the Comptroller and Auditor General’s office. This would enable the office to examine in real-time not only the expenditure, but the expenditure process itself. All results, observations, requests for information (and replies) should be made immediately available on a new website dedicated to Government spending.

A further initiative would be to subject every line of expenditure – including tax expenditures (reliefs, allowances, exemptions, etc.) – to stress-tests that measure both economic efficiency and social equity. If they don’t pass these tests, get rid of them (e.g. subsidies to private fee-paying schools). Inefficient and inequitable expenditure remains out of inertia – or because it benefits a vested interest. Roll out the guillotine.

Expand Demand

4. Spread it Around

How can we get more money into people’s pockets? Especially when tax cuts are not a viable option? First stop is the national wage agreement. The current agreement is not a recession buster. It spreads wage increases equally throughout all income groups, rather than concentrating them in those groups that have a higher propensity to spend; namely, low and average income-earners. Secondly, it doesn’t allow the workforce to maximise their wages, even if local conditions permit. If a multi-national is making shed-loads of profit, wouldn’t it be more economically beneficial to allow employees to negotiate additional wage increases within the social partnership framework? Rather than having profit shipped out of the country, the money would be retained and circulated here.

A recession-busting wage agreement would contain two elements:

– A flat-rate base pay increase: an example would be between €25 and €30 per week (this doesn’t rule out an additional percentage increase, but that increase should be small)

– Provision for local bargaining.

Employers would have little cause to complain. They would still be protected by the ‘inability to pay clause’. If they can’t pay some or all of the flat-rate pay increase, or any local bargaining LANDSCAPE NARRATIVEtop-up, they won’t have to, provided they come clean with the Labour Court.

Additional measures to increase demand in the economy would be to:

– Introduce the right to collective bargaining: Study after study shows that those who negotiate through their unions earn more for the same job than those who don’t. IBEC warns the multi-nationals won’t wear this. The fact is nearly two-thirds of multi-nationals deal with the unions. It’s our home-grown enterprises that don’t recognise unions (and they wonder why they’re so unproductive). Organised workforces will strike better deals – again, win-win.

– Re-introduce pay-related unemployment benefit. At least if people are left temporarily jobless, they shouldn’t be left income-less. This cushion will help people take full advantage of retraining opportunities if needed, and maintain their spending power.

There is still a lot of profit out there. In 2007, 500 companies made over €26 billion in profits while 90 percent of the top 1000 companies were in profit. Even if the recession reduces this, there’s NARRATIVE THRU SECURITY VIDEO CAMERASstill a lot of money there to spread around. So renegotiate the wage deal (it’s been done on two previous occasions so there can be no objection from precedent); or bring forward the next wage deal. Whatever we do, make sure that social partnership remains relevant to the times.

5. Competition This!

Inflation is falling – recessions are great for that sort of thing. But there are still sectors where unjustifiably high prices are being maintained. And this costs households and businesses. So let’s really do this competition thing and put more money in people’s pockets.

Strip the Energy Regulator of the power to set ESB tariffs (which he sets above the market level to incentivise private sector investment); strip him of the power to prevent competition between energy companies (currently, the ESB is required to lose market share); in other words, let the market set the rate. The Regulator should only intervene if any company is abusing their market position. This alone will bring down energy costs, benefiting businesses and households.

Take up Colm Rapple’s excellent idea to require retailers to provide real-time price information to a revamped National Consumer Agency which would put up the information on an interactive, regionally based website. The Tanaiste said people should shop around – well, let them shop around on the website; and shame the price gougers. In addition, this new NCA should be given statutory powers to examine price setting mechanisms (including profit margins and management remuneration) in comparison with other countries, and to issue pricing guidelines where there are real violations of the competitive code.

6. Go on a (Social) Binge

While the last thing we need is to artificially inflate the construction sector to previously unsustainable levels – the last thing we need is to throw building workers on to the dole queue or let valuable skills leave the country, especially with all the social and environmental work that needs to be done. Soaking up this excess capacity (and it doesn’t stop at building workers: materials suppliers, transport, manufacturing – all have a stake in this) can provide a needed stimulus and leave us with enhanced assets. On this point, the Labour Party has been strong:

– Launch a new social housing programme – let’s start housing people who can’t make it on to the property ladder

– If we need schools, hospitals, public leisure centres, community centres, etc. – now’s the time to build them

– Launch a conservation maintenance programme on our older housing stock (this need not cost INTERACTIVE NARRATIVEthe taxpayer any money in the long-term).

Let’s be clear – this is not a substitute for expanding our enterprise base; it can only be a stop-gap, a means of limiting the decline, ameliorating the worst effects of the recession. If it is to be part of a long-term strategy it will be complementary within a broad capital programme.

The biggest drag on demand and the biggest drain on the Government’s budget is unemployment so these measures give us room to manoeuvre, a breathing space – and ensure that people have a warm place to live in and children aren’t taught under leaky roofs.

A New Enterprise Pact
7. A New Green Deal
Ireland’s infrastructure is so bad (it’s ranked 64th in the world by the Davos crowd) that there’s more than enough to keep us busy for years to come. Roads, rail, public transport, telecommunications (we need to bring Eircom back into public ownership); crikey, our port infrastructure ranks worst than some landlocked countries.

Front-loading our infrastructural investment will not only increase our long-term competitiveness, it will help increase demand and reduce Government current expenditure (saving on unemployment benefits, increase in tax revenue).

But there’s one area that deserves particular mention because the idea that the environment must take second place to the economic agenda is starting to circulate – one more example of the short-sightedness and failure of imagination that got us in this mess. The green agenda (as distinct from the Green Party’s agenda) is not only absolutely necessary to our environmental health and competitiveness, it is one more instrument to tackle the recession and return us to growth.

Renewable energy and conservation technologies: For god’s sake, even the Bush-appointed US ambassador has to remind Ireland about exploiting its’ natural resources – off-shore wind, tidal, and wave. We can muck about with ‘market signals’, ‘tax incentives’ and, of course, the old reliable – pleading with foreign capital to nod in our direction; or we can just do it ourselves. When we needed to electrify the country the ESB did the job – at times being hobbled by its very shareholder, the Government. So give them their head; get the ESB, Bord Gais, public agencies and private companies working to one sectoral agenda: research, product development, trials and tests, commercialisation in:

– ICT innovation (hardware and software) to optimise multiple renewable energy systems on a micro scale

– Wave and tidal, wind (especially off-shore), geothermal and innovating solar energy applications,

– Eco-construction, energy efficiency services, anaerobic digestion technologies,

– Water and wastewater treatment along with waste management, recovery and recycling

These are examples of public sector-led job creation in the private sector, building capacity in the home market and preparing for a new export industry when the inter-connectors with the rest of Europe come on line.

If these weren’t enough, there’s wider work in the whole area of green collar activity in manufacturing and services, and prioritising green public investment and procurement.

Going green means stepping up, not cutting back, our expansionary programme.

8. Money’s Too Tight to Mention

Finance is the servant of economic activity. Credit is an instrument of economic growth. Financial institutions are products of society and its laws, not the other way around.

But even in a new dispensation of recapitalisation and tighter regulation, alternative investment streams will have to be found. There is a fundamental deleveraging process at work – both among banks and households; we can’t short-cut this process but neither can we wait for it to purge the system. We will need to prise open new credit streams. Beating banks about the head will only get so far (no matter how much fun it is). Expansionist policies need expanded credit to turn it into sales, exports, jobs and profits. Beyond traditional regulatory instruments we can:

– Establish of a network of Development Banks, modelled on the US community development banks, which would work within their local regions, providing credit and saving facilities to EAST NEUK NARRATIVEhouseholds and businesses. If this were linked up to An Post Banking, it could become a considerable public-led force in Irish banking – needed all the more if the number of banks contract and competition is reduced.

– ‘Socialise’ a small percentage of the deposit base of Irish banks. All deposit-taking institutions would ‘lend over’, say, one percent of their deposits to Enterprise Development Funds which would, in turn, act as a type of venture-capital or seed-capital fund for development enterprises – private or public (see below).

– Establish SSIA-type savings instruments to supplement the Enterprise Development Funds – attracting small and large investors, making money work for the economy while guaranteeing a competitive rate of return on such savings.

– Open up the Pension Reserve Fund to invest in capital and enterprise projects on a commercial basis. Not only would this take the heat out of our borrowing requirement, it would mean Fund monies are investing in Irish enterprise, not arms manufacturers.

9. The Enterprise Guarantee

There are a lot of things wrong with the current social partnership model: (a) its historical reliance on providing low wage increases in return for tax cuts, (b) the refusal of one partner to recognise the other (the employers’ and government’s refusal to recognise the right to collective bargaining), and (c) a ‘partnership’ at the top, a jungle at the local level.

We need a deep-rooted, democratic partnership of all stakeholders working throughout all layers of the economy. We need a new enterprise guarantee – as wide-ranging as any undertaking given to banks. Specifically, sector-wide strategies should be created, pursued and monitored through these new structures with the participation of employers, trade unions, the state and other stakeholders. Extra-ordinary benefit would be given to high-road enterprises – private and public – that fulfil the social and economic criteria:

Benefit: A new Premiership-league set of supports would be granted to progressive enterprises to overcome all the obstacles to expansion: training personnel for internationalisation, working capital to finance exports, information to locate/analyse markets, identifying foreign business opportunities, contacting potential overseas customers, developing new products for foreign markets, learning foreign business practices, meeting export product quality/standards/specifications, assistance with exporting procedures/paperwork. All this would be buttressed by access to Enterprise Development Funds.

Responsibility: Recognition of trade unions, family-friendly work practices, employment of people with disabilities, environmental audits, employee participation structures, in-kind benefits (health insurance, crèche costs), commitment to high R&D expenditure, transparency in company accounts; all in all – a full democratic partnership.

This is the New Enterprise Pact, the high-road to jobs, profits and wealth; this is the new face of Irish enterprise. This, and not the slash n’ burn model, will set the ground for sustainable growth in the future. Make no mistake: creating a new generation of indigenous, progressive companies – which will take time – is one of the most urgent items on the economic agenda.

10. Reinventing Public Economic Activity

The Left should argue for a truly pluralist ‘mixed market economy’. Already, we have ‘private sector’ companies who are reliant on the public sector (through PPPS, procurement, grant-aiding, tax relief, etc.). Now we must create new models where the private and the public can develop to their maximum potential and mutual benefit.

A starting place is the local or the regional. Unfortunately, local government is practically irrelevant to the local economy. While it is beyond the scope here to discuss institutional reforms, whatever new structures emerge must have the capability to invest in local/regional economic activity, from its own resources and from access to Enterprise Development Funds.

What kind of new models? We don’t have to reinvent the wheel. Some forms have been around a long-time, some are getting a second wind, and some are being created to rise to the challenges of globalisation and the new recessionary environment. Each of these deserves their own detailed research. But let’s do a quick jaunt through the pluralist typology:

Community-Owned Companies: Companies owned primarily by people living in a local community. In the US this is becoming a fast growing model – communities have established everything from cafes to shopping districts, cinemas, shops, even sports clubs; maintaining business activity and jobs.

Non-profit Companies: While traditionally focused on social services (hospitals, charities, educational institutions), many in the US have broken out of this mould and have expanded into competitive manufacturing and service sectors.

Municipal Enterprises: This is local public enterprise – companies established to fill a need in a local area. There are over thousands of these enterprises throughout the EU.

Community Development Corporations: These are companies established in local areas with Boards representing all the stakeholders, that seek to invest in local business activity – both start-up and expanding companies.

Consumer Cooperatives and Employee Ownership: These are more traditional forms, going back decades. However, they are getting a revival as local communities and regions find ways of reinvigorating their economies.

Of course, many companies are a mixture of the above (e.g. employee ownership/community owned, etc.) This is only a brief survey. But it shows that we do not have to remain reliant on traditional private sector or large public enterprise models. We won’t build a new economy on these alone – we will build a new economy based on a plurality of enterprises, with the different degrees of public and private sector penetration.

There’s a name for this: mixed-market economy. The Left should argue for participatory pluralism, not a corporatist/statist one-size-fits-all.

* * *

So there you have it:

– Overcoming the fiscal trap by borrowing, taxing capital assets and opening up the Pension Reserve Fund to infrastructural and enterprise investment

– Increasing demand and consumption through a new pay deal, extension of welfare benefits, anti-inflation measures
– Putting our enterprise base on a new footing through a new Green deal, opening up new investment streams, an Enterprise Guarantee and new models of public economic activity.

Do with these proposals what you will. Improve on them. Come up with better ones. Add and subtract.

But however we go about the business of creating a new progressive programme for the economy, let’s make one binding and irrevocable commitment: that it will be done. That we won’t let the Right set the agenda. We will fight them every step of the way.

It’s not just that the future of the Left depends on it; the future prosperity of the economy is in the firing line.

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LET’S GO BOYS … WE’VE GOT A LONG HAUL AHEAD …

Posted by Gilmour Poincaree on November 26, 2008

Wednesday 26 November 2008 (29 Dhul Qa`dah 1429)

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MIDDLE CLASS

Posted by Gilmour Poincaree on November 26, 2008

November 26, 2008 at 8:18 am

Written by Chief

I read somewhere, some time ago that Henry Ford is reported to have said, when he raised the THE DREAM IS OVERwage for his assembly line workers to $5 a day, that he wanted his employees to be able to buy the car they were making. Truth-be-told, Henry Ford didn’t give a rat’s ass about his workers, he just wanted to be able to sell as many cars as he could make.

And, that is the point. To have vibrant capitalistic system, you need a large middle class. Wikipedia offers this description of ‘middle class:’

The size of the middle class depends on how it is defined, whether by education, wealth, environment of upbringing, genetic relationships, social network, manners or values, etc. These are all related, though far from deterministically dependent. The following factors are often ascribed in modern usage to a “middle class”:

Achievement of tertiary education.

Holding professional qualifications, including academics, lawyers, engineers, doctors, and clergymen regardless of their leisure or wealth.

Belief in bourgeois values, such as high rates of house or long-term lease ownership and jobs which are perceived to be “secure.”

Lifestyle. In the United Kingdom, social status has historically been linked less directly to wealth than in the United States, and has also been judged by pointers such as accent, manners, place of education, occupation and the class of a person’s family, circle of friends and acquaintances.

Cultural identification. Often in the United States, the middle class are the most eager participants in pop culture. The second generation of new immigrants will often enthusiastically forsake their traditional folk culture as a sign of having arrived in the middle class.

I think the important take-away from any definition of middle class is that people are economically secure, have medical insurance and see a brighter future for themselves and their children.

Henry Ford was astute enough to realize that by paying his employees more money, he could sell more cars. In the United States for at least the last two generations, the Chamber of Commerce, the Business Roundtable, Republicans and the business community in general have worked mightily to eliminate the middle class.

Many major employers do not provide health care for their employees and offer wages barely above the minimum wage. If income were graphed, the United States would look like a third world country, with a huge portion of the population earning below $40,000.

Huge disparities between social classes make for a situation where wedge politices, the politics of division, can be employed, exacerbating the gap between the haves and the have-less.

Some entity, whether in be the government, Congress or a union organization, but somebody must stand up to big business for the rights of the middle class. Education must be affordable. And education must be of a quality to allow its graduates to compete in a world-wide economic system.

We need educated people to be able to create the 21st century industries similar to what Henry Ford did 100 years ago.

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WHAT ROLE SHOULD EXPANSION OF DOMESTIC DEMAND PLAY ? (China)

Posted by Gilmour Poincaree on November 26, 2008

07:37, October 28, 2008

As the global economic downturn triggered by the subprime lending crisis progresses, the changes of China’s major economic indexes is fairly meaningful. The third quarter GDP growth stands at 9.9 percent this year, a year-on-year increase of 2.3 percent, while the contribution rate of foreign trade to economic experienced a yearly decrease of 8.9 percent.

China, which heavily depends on external economy, is facing a severe challenge as the financial tsunami is spreading to the substantial economy. The external demand is weakening and rgw decrease of export can not be offset in a short period of time. The expansion of domestic demand is imminent. What role should the expansion of domestic demand play in such a grave situation? Where does its emphasis lay? And is there any policy for it to develop?

Investment

Maintaining a reasonable pace, ensuring job opportunities

There are two parts in expansion of domestic: increasing investment and encouraging consumption. Yang Yiyong, director of Institute of Social Development under National Development and Reform Commission (NDRC) noted that it was much in evidence to witness the role of consumption on economic growth. However, China should attach more emphasis to investment now, the public investment in particular.

China has taken a series of macro-control measure to tackle major economic problem resulted from over-heated investment. The narrowing difference between investment and consumption does not mean the current investment scale is reasonable. Judged from a global economic perspective and China’s development, investment should always be a vital driving force of growth.

China witnessed a 27 percent increase of social fixed assets investment in the first three quarters this year. The growth was mainly generated by projects in construction, and the new projects are in great need of investment, for instance, the investment in textile has dropped below the ten-year average line.

The slowdown of industrial growth and the shrink of corporate profit have brought enterprises’ profits down to 19.4 percent, a yearly decrease of 17.6 percent. The investment and trade in Yangtze and Pearl Rive Delta Regions cooled down, and enterprises’ new credit demand declined. The slowing growth of investment in real estate sector will bring great pressure on future assets investment.

Li Xiaochao, spokesperson with National Bureau of Statistics, said stable growth of investment is a precondition of steady economic development. The focus now should be on government investment, reconstruction of quake-hit areas and project development in terms of agriculture, water conservancy, power, communication, urban construction as well as people’s livelihood.

Investment contributed to 40.9 percent of GDP growth last year, and the public investment in infrastructure construction has provided people with jobs and income. Yu Yongding, director of Institute of World Economics and Politics under Chinese Academy of Social Sciences, noted the expansion of domestic demand could achieved through enlargement of government investment, but a new round of blind expansion and waste of resources must be avoid. Apart from Beijing-Shanghai high speed railway, metropolitan underground, nuclear power, the emphasis of investment should be place on consumption expansion and structure improvement, increase of public products supplying, people’s livelihood and service industry, namely, community nursery, kindergarten, hospital, school, convenience-for-people facilities, which will boost consumption demand.

According to one CPPCC member, the corporate investment, which is of weak staying power, needs to be granted more favorite policies, especially for those SMEs that created the majority of jobs, in terms of reducing tax and arousing enterprises’ passion in investment. The restriction on private capital should be lifted, which will make the private investment yield well.

Consumption

Focusing on improvement of people’s livelihood, raising income and stabilizing expectation

The expansion of domestic demand is dependent on enlargement of consumption

China took actions to improve inadequate consumption in past years, which pushed economy to grow by 4.5 percent. The retail volume of social commodities in the first three quarters this year grew by 22 percent, a 6.1 percent increase over the same period last year, and it will be 14 percent, the highest level since China adopted reform and opening-up policy 30 years ago, if price factor were not considered. It is thought to be the golden period for national consumption to grow.

However, the consumption rate in China is still relatively low, with that in 2007 registering only a disappointing 49 percent, lower than world’s average level of 61 percent and the average for the developing countries. The imperfect urban and rural social security system and ambiguous resident’s income expectation bring about limitation for the growth of consumption demand.

The core of consumption stimulation lies on income growth. Yang maintained the top priority is to adjust the pattern of national income distribution, increase consumption and expand the proportion of middle-income people. Many experts put forward a series of measures such as the setting up a CPI-pegged salary growth mechanism, carrying out salary increase policy for public servants by the end of this year, expanding consumption, raising the starting point for levying personal income tax, issuing subsidies to low-income residents and ensuring more social benefits to low-income families. Government should issue a package of measures to stimulate economy and develop capital market in view of the sluggish market.

Additionally, government also needs to take initiative in improving people’s livelihood, increasing public expenditure, strengthening social security system, and finding solution to the pressing issues of aging, medical care and unemployment.

With public savings hitting as much as two trillion yuan, experts believe more favorite policies should be issued to encourage consumption. Meanwhile, restriction on service industry, such as tourism, culture, recreation, fitness should be lifted, and auto business encouraged. Additionally, tax on house trading should be lowered, supervision on consumption safety be strengthened and export of commodities be expanded.

Rural demand

The expansion of domestic demand relies heavily on the exploration of rural market.

The countryside is the first place where domestic demand should be expanded. 800 million farmers, which account for two thirds of the total population consume one third of the domestic commodities. According to statistics, urban consumption is four times higher than that of farmers, and farmers’ consumption power is the weakest though they have strong desire in consumption. Besides motor bikes, rural consumption on durable consumption goods among per 100 farmers is 50 percent less than the urban level. The per capita cash income in rural areas this years has exceeded urban per capita disposable income. Furthermore, the current global economic downturn did not affect China’s rural economy, which shows the development potential and lucrative prospect in rural market.

According to the Third Plenary Session of the 17th CPC Central Committee, farmer’s personal income will be doubled by 2020 compared to this year’s level. The average net income for farmers was 4140 yuan last year. There is still large room to help farmers increase their income, specifically, to raise rural subsidies and the grain purchase price.

Xie Yang, deputy director of the Agriculture Department under Development and Research centre of the State Council, held the best way to speed up urbanization in rural areas is to raise farmer’s income. It is estimated that roughly 1.5 million farmers will move to urban areas if urbanization process progresses by one percent, which will create great opportunities and accelerate rural consumption.

There are many weak links in rural area, which call for more fiscal benefits. The infrastructure and distribution network in rural areas need large amount of investment, and so do the rural education, medication as well as reduction of burdens. In that way, China’s economy will not be vitalized until rural consumption is developed.

By People’s Daily Online

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