Finance news. My opinion.

May 31, 2009

GM bankruptcy still likely despite deal

Filed under: term — Tags: , , — Professor @ 9:33 am

The Treasury Department and a committee of major bondholders at General Motors have reached a deal that could give creditors a larger stake in GM than previously offered. But bankruptcy is still likely in the next few days despite the deal.

The agreement, revealed in a Securities and Exchange Commission filing by GM (GM, Fortune 500) early Thursday, would essentially give the bondholders 10% of the company but also give them the rights to buy an additional 15% of the company’s stock at a low price.

The deal is unlikely to allow GM to avoid bankruptcy, however. If anything, it might clear potential obstacles to the government’s plans to use bankruptcy as a way to turn around the nation’s largest automaker. That’s because bondholders accepting the new offer agreed not to fight the government’s plans for a quick bankruptcy at GM.

As part of such a filing, GM would emerge with only its more profitable plants, brands, dealerships and contracts. GM’s unprofitable plants, contracts and other liabilities that the company can no longer afford would be left behind in bankruptcy court.

According to Thursday’s filing, the new offer is structured so that the portion of GM that would remain in bankruptcy would receive a 10% stake in a "new GM" that would be used to pay bondholders. The old GM would also receive the right to buy the 15% stake in the new company that emerges from bankruptcy.

The bondholders would likely receive the overwhelming majority of the old company’s assets, including the shares in the new company, as part of the bankruptcy process.

In the original offer to bondholders, creditors would only receive a 10% stake in a new GM.

The filing also disclosed that GM will not repay the loans it has already received from the government or much of the additional federal aid it will get as part of the bankruptcy.

The government has already given GM $19.4 billion to fund operations and cover losses this year, and total help is expected to exceed $50 billion.

GM will pay back $8 billion of that sum. The government will also receive $2.5 billion in preferred shares of GM that pay a dividend and are more similar to a loan than stock.

But more than $40 billion of federal help to GM will be converted into a 72.5% stake in the new company. This means that for taxpayers to make back any of the money loaned to GM, it will have to be because shares of the new GM increase dramatically in value following an exit from bankruptcy.

A senior administration official conceded Thursday that while the Treasury Department hopes the new GM will be financially viable even if auto sales remain weak, it will be difficult for taxpayers to recover its full investment in GM.

"I don’t know how much we’re going to recover," he said.

A trust fund run by the United Auto Workers union would also have a 17.5% stake in the new GM, as well as the right to buy an additional 2.5% stake. UAW President Ron Gettelfinger said earlier this month the company hopes to sell its stake in GM as soon as possible.

But the administration official said that it is unlikely GM’s stock will be publicly traded while the company is in bankruptcy. Even though the "new GM" could emerge from bankruptcy in two to three months, the process for the assets remaining in bankruptcy could last between 6 and 18 months.

That will make it difficult for the government and the union trust fund to quickly sell their shares in GM.

Bondholders blink

According to GM’s filing, advisors to the unofficial committee of major bondholders which accepted the deal hold about 20% of $27 billion in unsecured bonds cheap payday loans.

The administration official said that about 15% of the bondholders not represented by the committee accepted the original deal. The official added it will now be up to the committee to round up additional support from other bondholders.

The remaining bondholders have until Saturday afternoon to indicate whether they support the new offer. But the administration official said there is no particular threshold of support for the new deal that needs to be achieved.

The official said Treasury will look at which bondholders have accepted the deal and which different classes of investors they represent to determine whether there is "sufficient" support. GM had previously said it needs approval from 90% of these creditors in order for any offer to take effect.

About 20% of the bonds are held by individual investors, with the rest owned by institutional investors, including pension funds, endowments and bond funds. A group representing some of the individual investors issued a statement Thursday afternoon saying the deal was still not fair, and vowed to fight the reorganization plan in bankruptcy court.

But the bondholders’ committee said in its own statement that the government’s decision to convert more of its debt into equity was one of the factors that led it to endorse this new deal, along with the chance to have a larger stake in the company.

GM is expected to have about $17 billion in debt following bankruptcy, significantly less than the $54.4 billion it owed as of March 31.

The committee said the reduced debt burden on the new GM "gives the bondholders the opportunity to recover a greater portion of their original investment than was previously offered." But the committee also acknowledged that bondholders, who hold debt that is not backed by company assets, had little choice but to accept the deal.

"Rejecting this offer in the expectation that the bondholders will do better [in bankruptcy court] was a risk the committee is unwilling to take," the committee said in its statement.

In its own statement, GM said it "appreciates the unwavering support of the U.S. Treasury and the President’s Task Force on Autos and thanks the unofficial committee of bondholders for their support of the proposal."

GM faces a June 1 deadline to make $1 billion in interest payments to its bondholders, money the company says it does not have.

The company also faces a government-imposed deadline on that day to reach a restructuring plan or file for bankruptcy. While the company has continued to insist it hopes to avoid bankruptcy, a filing is still widely believed to be inevitable — even with Thursday’s agreement with bondholders.

The plan to have the healthy parts of GM leave the bankruptcy process quickly as a slimmed down entity is similar to what is now taking place with GM rival Chrysler LLC, which was pushed into bankruptcy by the government last month. The judge overseeing that case is hearing motions on that plan this week.

Bob Schulz, senior auto credit analyst for rating agency Standard & Poor’s, said that if GM follows Chrysler into bankruptcy, the new company will clearly emerge with a more manageable debt level. Still, he said it is too soon to say just how a new GM will do going forward.

"We’ll have to see the whole plan of reorganization, what exactly gets left behind," he said, adding that the outlook for auto sales remains uncertain. 

Source

May 30, 2009

Japan’s Industrial Production Surges Most in 56 Years

Filed under: marketing — Tags: , , — Professor @ 4:21 pm

Japan’s industrial output surged the most in 56 years in April as a rebound in exports helps the economy emerge from its worst recession since World War II.

Production rose 5.2 percent from March, the second monthly gain, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent economists estimated, and companies said they planned to boost output in May and June as well.

The yen gained on speculation funds will flow into Japan as the economy resumes growing after last quarter’s record contraction. Still, output is running at two-thirds last year’s levels, saddling manufacturers such as Nikon Corp. with workers they no longer need and driving the jobless rate to a five-year high of 5 percent.

“This is not so much a green shoot as it is a green tree,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “Optimism on Japan is certainly not misplaced as we look at a reasonably strong quarter of growth in April to June.”

The yen traded at 96.33 per dollar at 1:01 p.m. in Tokyo from 96.76 before the report was published. The Nikkei 225 Stock Average headed for its third monthly gain. The gauge has risen 34 percent from a 26-year low on March 10. The yield on Japan’s 10-year bond rose a basis point to 1.49 percent.

The increase in production was the biggest since March 1953, a year after the U.S. military occupation ended and as the Korean War was drawing to a close.

BOJ’s Shirakawa

Bank of Japan Governor Masaaki Shirakawa said this week the economy will resume growing this quarter after shrinking a record 15.2 percent in the three months ended March 31. Stimulus spending by governments around the world totaling $2.2 trillion has helped to prop up demand from abroad. Exports rose 1.9 percent in April from March, a second monthly gain.

Companies are making more cars and electronics to replenish stockpiles they managed to drain during the export slump. Inventories fell 2.7 percent in April, a fourth monthly drop. Businesses surveyed by the Trade Ministry said production will increase 8.8 percent in May and 2.7 percent in June.

Prospects for consumers were less reassuring.

The 5 percent jobless rate is the highest since November 2003, the statistics bureau said today. Job seekers found it harder to secure work as the ratio of positions available to each applicant slid to 0.46, matching the lowest ever in June 1999, a Labor Ministry report showed. Household spending slumped for a 14th month, a record losing streak installment payday loans.

Unemployment Toll

“Japan’s economy may return to growth in the second quarter, but looking beyond, there will be strong downside risks,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “The deterioration in employment and income conditions will likely become clearer in the months ahead, taking a toll on consumers and the economy.”

Weakening domestic demand is increasing the risk that deflation will once again plague the world’s second-largest economy. Consumer prices excluding fresh food fell 0.1 percent in April from a year earlier, a second straight drop. In Tokyo, prices slid 0.7 percent in May, the most in six years, signaling nationwide declines may accelerate this month.

“Underlying deflation is worsening and set to persist for a prolonged period,” said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo.

Nikon Cuts Jobs

Nikon, a camera maker which is forecasting its biggest loss in 11 years, said this week it will eliminate 1,000 jobs and Nisshin Steel Co. said yesterday it plans to cut 9 percent of its workforce.

China’s $586 billion stimulus plan has been a boon to Japanese manufacturers struggling with depressed sales in the U.S. Goldman Sachs Group Inc. last week raised its ratings of equipment-makers Hitachi Construction Machinery Co. and Komatsu Ltd., citing the prospect of increased business from China, where government spending is driving building investment.

Government incentives in Europe are also helping sales at carmakers including Mazda Motor Corp. The automaker said last week it will cancel plans to suspend production at a plant in Hiroshima in order to meet demand from Germany and France, where governments are encouraging consumers to trade in their old cars for more fuel-efficient models.

Even as demand picks up, exports and production remain about a third lower than they were before the global financial crisis deepened in September. Output slid 31.2 percent in April from a year earlier and exports dropped 39.1 percent.

“It’s dangerous to be too pleased with the economy bottoming out,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “Japan’s economy will fly low and experience more turbulence until the second half of next year.”

Source

May 29, 2009

Banks lobby regulators on derivatives rules: report

Filed under: legal — Tags: , , — Professor @ 7:39 pm

A group of banks and money managers plan to release a letter to the Federal Reserve Bank of New York and other U.S. and overseas regulators to help fend off some rules proposed by the Obama administration that seek to control trading in the derivatives market, the Wall Street Journal reported.

The letter, which is expected to be released next week, will reiterate a commitment by the banks to meet the government’s goal of transparency, the paper said, citing people familiar with the matter.

The Journal said that while the banks are taking care not to oppose any rules publicly, they are also trying to stymie legislation that could seriously hurt their ability to generate fees free car insurance quotes.

The industry will detail plans to expand central clearing of credit-default swaps to investment funds and other market participants, the paper said.

It will also propose that customized credit derivatives like the ones that nearly brought down American International Group Inc be reported to a trade-information warehouse run by Depository Trust & Clearing Corp, the paper added.

(Reporting by Esha Dey in Bangalore; Editing by Erica Billingham)

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May 28, 2009

Japan May Scrap 50 Trillion-Yen Plan to Prop Up Stock Market

Filed under: money — Tags: , , — Professor @ 12:18 pm

Japan’s ruling Liberal Democratic Party may abandon a bill that would set aside 50 trillion yen ($520 billion) to buy shares from the market because stocks have rebounded from a 26-year low, lawmakers said.

“A system of buying stocks directly may provide a sense of relief when shares plunge,” Naokazu Takemoto, chief director of the LDP’s lower house finance committee, said in an interview in Tokyo on May 26. “But stocks have been stable, so the measures aren’t necessarily that essential.”

Investor optimism that the worst of Japan’s deepest postwar recession is over has led the recovery in the Nikkei 225 Stock Average, which tumbled a record 42 percent last year. Direct purchases would be the first among the Group of Seven industrialized nations and would affect prices more than the Bank of Japan’s program of buying shares from lenders to cushion their balance sheets.

“I don’t think there’s really a crisis in Japanese stocks to begin with,” said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “It might even undermine Japanese equities because foreigners are going to say ‘wow, the government is propping up prices and how do we know whether it actually reflects the value of the firms or not?’”

The bill was submitted to parliament on April 27 as part of Prime Minister Taro Aso’s record 15.4 trillion yen stimulus package. Under the plan, the government would set up a state- owned entity to buy exchange-traded funds, which are instruments that track stock indexes, as well as equities listed in the indexes and related derivatives for three years.

Raise Money

The body would raise money by borrowing from the Bank of Japan or commercial lenders as well as issuing bonds, and the government would set aside 50 trillion yen to guarantee the investments.

Deliberations on the law haven’t taken place because the opposition Democratic Party of Japan, which controls the upper house, is against the measure easy payday loans. While the ruling coalition can use its two-thirds majority in the lower house to pass the bill if it’s rejected, Takemoto, 68, signaled the LDP may not force the bill through parliament.

“Whether we need to revote and pass the bill even after it’s defeated in the upper house depends on economic conditions,” Takemoto said. “People were split about the bill to begin with and even a majority of lawmakers regarded as economic experts in our party are opposed to the idea.”

Finance Minister Kaoru Yosano said on May 22 that “the argument is losing force” given that stock prices are recovering. The Nikkei has risen 34 percent since March 10, when it fell to 7,054.98, the lowest since October 1982.

Distort Prices

Masaharu Nakagawa, the DPJ’s shadow finance minister, said the party opposes the measure because it may distort stock prices. He said the government should consider buying stakes in financial institutions should plunging equities erode their capital.

“It goes against the market’s mechanisms to begin with,” Nakagawa, 58, said in an interview on May 26. “We’re absolutely against it. Even discussing it would look bad.”

As a separate measure, the government has already set aside 20 trillion yen to purchase stocks owned by banks to bolster their capital. The Bank of Japan has decided to buy 1 trillion yen of shares held by lenders to ease a credit squeeze.

The government last bought stocks owned by financial institutions from 2002 to 2006.

Yoshinori Ohno, an LDP lawmaker who compiled the bill, said even though equities have recovered, it’s important to show the government is committed to preventing a plunge of stock prices given the severity of the current financial crisis.

Source

Edinburgh Money Managers Forecast ‘Volatile’ Recovery

Filed under: news — Tags: , , — Professor @ 3:33 am

The U.K. recession probably will end in the second half of this year, according to strategists in Edinburgh at fund managers overseeing 237 billion pounds ($378 billion). Then growth may stall again over the next two years.

The shape of the global economic recovery might be a “W,” a “U,” an “L” or a “square root,” though definitely not a “classic V,” as job losses escalate and governments and consumers struggle with debt, the strategists said.

“It’s a square-root recovery, where you see the sharp upward move and then it goes sideways,” said Andrew Milligan, head of strategy at Standard Life Investments, which manages 118 billion pounds. “Expect volatile economic data, expect volatile corporate reports, expect volatile consumer spending.”

The fund managers’ views from the Scottish capital are at odds with British Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling, Scots whose constituencies are in or adjacent to Edinburgh.

Darling predicted in his annual budget April 22 that the British economy will start to rebound later this year and that economic growth in 2011 will be 3.5 percent. That optimism about a “V”-shaped recovery isn’t shared by the International Monetary Fund. The U.K. recovery will be “relatively slow and protracted” as lending takes longer to resume than previously thought, Bank of England Governor Mervyn King said May 13.

Growth Forecasts

The U.K. economy likely will contract 4.1 percent this year, the IMF said May 20. That compares with a 3.5 percent decline Darling forecast in his budget. The IMF also wants the British government to cut debt faster than it’s planning and keep a lid on spending, it said in its annual health check on the British economy.

Standard & Poor’s cut the outlook on its AAA rating on the British economy to “negative” from “stable” the day after the IMF delivered its verdict and the ratings company said there was a one-in-three chance it would downgrade the U.K.

“Recoveries are normally like a ‘V,’ other people have talked about a ‘W’-shaped recovery where you get another downturn,” said Bill Dinning, 49, strategist at Aegon Asset Management, the unit of the Dutch insurer that runs 42 billion pounds in Edinburgh. “It’s difficult to argue that we’re going from darkness to nothing but sunshine.”

The recovery, when it comes, will be anemic and choppy, said Ken Adams, head of global strategy at Scottish Widows Investment Partnership, the fund unit of Lloyds Banking Group Plc, which oversees 77 billion pounds for clients.

‘Clear Headwinds’

“It is hard to get excited about growth,” said Adams, 43. “The trend could be less than we are used to. It’s very hard to forecast the trajectory of the recovery in terms of time as there are some clear headwinds in place guaranteed cash loans.”

Adams, like Milligan, is anticipating periods of rapid growth and others when it slows. “Quarter-on-quarter the data could be quite weak,” said Adams. “I am prepared for a reasonable amount of economic volatility with lower than average growth over the next five years.”

Aegon, SWIP and Standard Life Investments are all “overweight” on investment-grade corporate credit and equities, the strategists said.

Standard Life has more money than usual invested in U.K. and U.S. government bonds as well as in stocks in the two countries, said Milligan.

The U.S. recovery will likely be weaker than previously estimated when the economy comes out of recession during the next quarter, according to a survey of business economists published today.

The bounce in markets since March came as investor confidence increased in governments’ ability and willingness to devise policy initiatives, said Milligan.

Investor Confidence

Investor confidence turned a long way ahead of everyone else’s attitude, according to Gerry Celaya, 44, head of research at Redtower Research in Angus, northeast Scotland. By the end of this year, or early in 2010, it will be clear that markets “bottomed” in March, he said.

The MSCI World Index has surged 39 percent since reaching its lowest since 1995 on March 9, while the Standard & Poor’s 500 Index has jumped 35 percent in the same period and FTSE 100 Index has gained 26 percent since falling to a six-year low on March 3.

“A U-shape recovery kind of makes sense,” said Celaya. “Some sort of a long drawn-out base with a gradual acceleration.” Still, the markets may behave like Japan in the 1990s where after an initial collapse they “plateaued,” creating an L-shaped recovery, Celaya said. “So, L is probably the biggest risk we are looking at. But we are still in the U camp.”

Question Mark

Dinning, who expects the pace of recovery to be “relatively slow,” said there is a “big question mark about future growth rates in the economy and future growth rates of profitability, particularly as we went into this downturn with profits at historically high levels.”

Predicting the shape of the global recovery is complicated by the scale of banks’ toxic assets which triggered the recession, said the strategists. The cost of bailing out Britain’s banks may be 175 billion pounds, the second-highest in the world as a share of national output, the IMF said April 21. Bank losses since the start of the credit crunch in 2008 now total almost $1.5 trillion, according to data compiled by Bloomberg.

“This is the worst economic and financial crisis for 70 years,” said Milligan, 52. “How we come out of it is still extremely uncertain.”

Source

May 26, 2009

German Export Plunge Sparked Record Economic Slump

Filed under: term — Tags: , , — Professor @ 10:09 pm

German exports and company spending plunged in the first quarter, dragging Europe’s largest economy into its deepest slump on record.

Exports dropped 9.7 percent from the fourth quarter and company investment declined 7.9 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product fell a seasonally adjusted 3.8 percent from the previous three months, the office said, confirming an initial estimate from May 15. That’s the steepest drop since quarterly data were first compiled in 1970.

The worst global recession since World War II has exposed Germany’s reliance on exports as an Achilles Heel, forcing companies to slash output and cut jobs. Chancellor Angela Merkel’s government, which expects the economy to contract 6 percent this year, will spend about 82 billion euros ($115 billion) to fight the crisis. German business confidence rose for a second month in May and investors also grew more optimistic, suggesting the economic slump is bottoming out.

“The year’s first three months were certainly the worst,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “The economy probably continued to shrink in the current quarter but that should be followed by a stabilization in the second half.”

Consumer spending rose 0.5 percent in the first quarter from the fourth, even as households’ disposable incomes declined 0.9 percent, the statistics office said.

‘A Winner’

Eckhard Cordes, chief executive officer of Metro AG, said on May 13 that Germany’s largest retailer “is not part of the economic downturn.” The Dusseldorf-based company will emerge as “a winner” from the recession, he said.

Still, company investment in machinery and equipment slumped 16.2 percent and construction spending declined 2.6 percent, today’s report showed. Imports fell 5.4 percent in the three months through March, almost half the slump in exports, so that net trade reduced GDP by 2.2 percentage points.

Bayerische Motoren Werke AG, the world’s largest maker of luxury cars based in Munich, said on May 14 that 2009 will be a “challenging” year payday loans. Schaeffler Group, the ball-bearing maker that owns Continental AG, said earlier this month it plans to cut labor costs by 250 million euros on declining orders.

‘Ongoing Recession’

“We expect an ongoing recession in the rest of 2009,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “However, the speed of the deterioration should at least decelerate. This also seems true for foreign demand, thus the export sector should hardly give impulses for the German economy in the next few months but the drag should be smaller.”

The first-quarter drop in GDP marked an unprecedented fourth successive quarterly contraction for Germany’s economy.

In the economy of the 16 euro nations, Germany’s largest export market, GDP declined 2.5 percent in the first quarter from the previous three months. That’s the biggest drop since the data were first compiled in 1995.

While policy makers have expressed optimism that the world recession may be easing, any recovery is likely to be slow. The global economy will shrink 1.3 percent this year and only return to growth in 2010, the International Monetary Fund says.

There are signs of stabilization. European confidence in the economic outlook increased for the first time in 11 months in April and the recession in the region’s manufacturing industry eased for a third month in May.

Germany’s benchmark DAX Index has gained 18 percent since the beginning of the second quarter after declining 15 percent over the previous three months, reflecting increasing optimism among investors and executives.

European Central Bank council member Axel Weber said yesterday that while “rays of light” are positive, there’s “no reliable indication that the global economy is past the worst.” The euro-region economy may only “gradually stabilize during the latter part of 2009,” he said.

Source

May 25, 2009

Thailand’s GDP Contracts as Exports, Spending Slump

Filed under: online — Tags: , , — Professor @ 3:15 pm

Thailand’s economy shrank the most in a decade as exports and spending slumped, pushing the nation into its first recession since the Asian financial crisis.

Gross domestic product fell 7.1 percent last quarter from a year earlier, after declining a revised 4.2 percent in the previous three months, the government said today. The median estimate of 17 economists in a Bloomberg survey was for a 6.5 percent drop.

“The first quarter should be the worst,” said Rajeev Malik, a Singapore-based economist at Macquarie Group Ltd. “There is a strong likelihood the economy will grow in the fourth quarter.”

Exports, Thailand’s main economic driver, sank 16.4 percent last quarter, prompting companies including General Motors Corp. and Seagate Technology Inc. to cut production and fire workers. The central bank said last week there are signs the contraction is moderating, and the stock market is poised for its best quarterly advance since 2003.

“We can see light at the end of the tunnel,” Ampon Kittiampon, secretary-general at the National Economic and Social Development Board, said at a briefing on the economic report today. “We hope the government’s second stimulus package can jump-start the economy by the fourth quarter.”

The government “will do whatever we can” to ensure economic expansion by this year’s final quarter, Prime Minister Abhisit Vejjajiva said on May 20. The same day, the Bank of Thailand ended its most aggressive string of rate cuts ever, keeping borrowing costs at 1.25 percent even while saying risks to the economy remain.

‘Worst is Behind’

Production has picked up in electronic and automotive industries and exports, and consumer demand is recovering, Finance Minister Korn Chatikavanij said May 7.

“Orders have started to come back,” said Santi Vilassakdanont, chairman of the Federation of Thai Industries, a group of manufacturers. “The worst is behind us and things should get better now.”

Thailand’s economy will contract less each quarter before returning to growth in the final three months of this year, the median estimate of the economists surveyed by Bloomberg shows. The Bank of Japan on May 22 raised its view of the economy on signs that a record contraction in the first quarter represented the worst of the recession. Singapore and Taiwan last week said their economies may be past the worst.

Stocks, Baht

Exports have fallen for six months through April, the longest contraction in seven years.

Thailand’s SET Index of stocks declined 0.3 percent to 552.42 as of 10:30 a.m., trimming the quarterly advance to 28 percent. The baht slipped 0.1 percent against the dollar.

“I don’t see any strong sign of recovery yet,” said Veeravat Kanchanadul, Senior Executive Vice President at Charoen Pokphand Group, Asia’s biggest animal-feed producer free credit score. “We can’t be sure about the state of the economy when small players are still struggling.”

Manufacturing declined 14.9 percent in the first quarter, compared with a revised 6.7 percent drop in the previous three months. Private consumption fell 2.6 percent. Total investment retreated 15.8 percent.

GDP may shrink as much as 3.5 percent this year, the government’s economic adviser, the NESDB, said today. That would be the first annual contraction in 11 years and matches the median estimate of economists surveyed by Bloomberg. The economy grew 2.6 percent last year.

Far From Good

Consumer confidence is at its lowest level in seven years. An emergency decree was imposed for 13 days in Bangkok last month to quell anti-government riots that left two people dead.

“Business was really bad after the riots,” said Doris Gerecht, general manager at Bangkok’s Montien Hotel, adding that occupancy has averaged about 50 percent so far this year compared with 75 percent a year ago. “We’re starting to see a bit of a pickup in corporate bookings, but things are still far from good.”

Thailand’s economy hasn’t shrunk for two straight quarters since the first three months of 1999. That was the last of eight quarterly contractions triggered two years earlier, when the nation cut a peg to the dollar that had overvalued the baht and slashed exports. The economic crisis eventually extended to the Philippines, Indonesia, Malaysia, Taiwan and South Korea.

Political Rifts

Premier Abhisit has pledged to call elections once stability is restored in the nation of 66 million people. The protesters say the prime minister’s rule is illegitimate because he came to office after a court dissolved the former ruling party.

Power in Thailand has shifted between parties allied to former Prime Minister Thaksin Shinawatra and his opponents since the 2006 coup that ousted him, hurting successive governments’ ability to implement spending plans.

Abhisit’s seven-party coalition is strong enough to pass a borrowing plan and next year’s 1.7 trillion-baht ($49 billion) budget, he said last week. That’s in addition to a 1.4 trillion- baht, four-year investment plan, and a 116.7 billion-baht stimulus package aimed at stemming this year’s economic slide.

GDP contracted a seasonally adjusted 1.9 percent in the first quarter from the previous three months, according to today’s statement. Economists surveyed by Bloomberg expected a 1.7 percent decline.

Source

May 24, 2009

Mukherjee the ‘Deliverer’ Takes Over as Indian Finance Minister

Filed under: term — Tags: , , — Professor @ 8:24 pm

Pranab Mukherjee earned a reputation as a trouble shooter in Prime Minister Manmohan Singh’s cabinet since 2004 by resolving spats among ministries and coalition partners. Now he’s got the job of reviving the economy.

The 73-year-old Congress party veteran was appointed finance minister yesterday, a position he has been acting in since January as Singh, 76, recovered from surgery. He held the defense and then the foreign portfolio for the bulk of Singh’s first term.

Mukherjee, who ran a closed economy as the finance minister in Indira Gandhi’s cabinet from 1982 to 1984, inherits one that is now open and exposed to the global recession. He has called for “accelerating” reforms in banking and insurance to make the economy more competitive and accelerate growth.

“He is a deliverer,” said Alastair Newton, a political analyst at Nomura International Plc in London. “He will have challenges in the economic portfolio given the political realities — market expectations are high.”

The Bombay Stock Exchange’s benchmark stock index surged by a record 17 percent on May 18, the first day after Singh’s re- election, as investors bet the resounding victory will enable the new finance minister to ease foreign investment rules and sell state assets — policies that were stalled by Singh’s communist partners in his previous term.

Congress has the support of 322 lawmakers in the lower house of parliament, with the party getting 206 lawmakers of its own. That’s the most since 1991, when Singh as finance minister abandoned Soviet-style state planning and introduced free-market policies that have helped India’s economy quadruple in size.

‘Strong Endorsement’

The victory was as much Mukherjee’s as Singh’s. As the No. 2 in the cabinet, he backed the prime minister’s policies ranging from creating jobs in rural areas and writing off farmers’ loans to closer ties with the U.S., renewing a relationship that began in the early 1980s when he appointed Singh as the central bank governor.

“Despite the strong endorsement from voters, the finance minister may have a tough job pushing through some much-needed reforms,” said Nikhilesh Bhattacharyya, an economist at Moody’s Economy.com in Sydney. “It’s very hard for politicians, for example, to do away with subsidies, which may result in a backlash. Expectations should be tempered.”

India spends one trillion rupees ($21 billion), or a tenth of its budget, on food, fuel and other subsidies each year in a country where the World Bank estimates three-quarters of the people live on less than $2 a day. About 13 percent of spending goes to defense and 20 percent to pay interest on national debt. That leaves little for other needs, such as health, education and power plants, boosting borrowings.

Ballooning Deficit

The federal government budget deficit was at 6 percent of gross domestic product for the year ended March 31, more than double the target of 2.5 percent of GDP.

Moody’s Investors Service places India’s long-term local currency rating at Ba2, two levels below investment grade, and lower than the ratings assigned to Colombia, Romania and Kazakhstan no fax payday advance. S&P has a BBB- long term credit rating on India, the lowest investment-grade level.

Investors will be looking at how much fiscal stimulus Mukherjee, who was on the boards of the International Monetary Fund and the World Bank in the 1980s, can provide in his first policy statement — the budget for this year — expected in early July.

Singh’s government said before the elections that stimulus of at least another 1 percent of GDP is needed to prop up an economy that’s growing at its slowest pace since 2003.

Policy Conflicts

Mukherjee, who first became a minister in 1973, estimated in February that India may need to raise a record 3.62 trillion rupees from bond sales in the fiscal year that started April 1. The central bank governor Duvvuri Subbarao said May 22 that borrowings have “already expanded rapidly” and that it goes against his efforts to keep borrowing costs low.

“The government faces a challenge to balance two conflicting issues — to stimulate the economy while preventing fiscal position from further erosion,” said Takahira Ogawa, S&P’s director of sovereign ratings. “There is a possibility for the government to implement various measures to further expand the economy and consolidate the fiscal situation.”

Singh’s administration, which doesn’t need communists’ support for a majority in parliament, could raise as much as $20 billion from sale of state-run companies, according to Rashesh Shah, chief executive officer of Edelweiss Capital Ltd.

Asset Sales

Among the companies that could be placed on the block are NHPC Ltd., India’s largest producer of electricity from water, explorer Oil India Ltd. and fuel retailer Hindustan Petroleum Corp., according to Mumbai-based brokerage Religare Capital Markets Ltd.

Still, analysts such as Seema Desai at Eurasia Group, a London-based political-risk advisory firm, expect economic changes will be “selective and gradual.”

“There is a significant segment within the party that is suspicious of sweeping pro-market reforms,” Desai said.

Mukherjee, who last year successfully rallied China, Japan, Russia and 42 other nations to end India’s nuclear isolation and resume supplies without signing the Nuclear Non-Proliferation Treaty, needs to bring the same acumen to gain support of his party colleagues, many of whom are still tied to the original socialist principles of the Congress party.

At stake is a bill to raise the foreign investment ceiling for Prudential Plc and other insurers to 49 percent from 26 percent, and other proposed legislation aimed at removing a 10 percent cap on the voting rights of foreign investors in non- state banks. The government also wants to allow global retailers such as Wal-Mart Stores Inc. into India.

“Mukherjee is a seasoned politician with excellent skills to bring people around,” said N. Bhaskara Rao, chairman at the Centre for Media Studies in New Delhi. “Expectations from him will be high.”

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May 23, 2009

India Will Seek to Pass Budget by July 31, Chidambaram Says

Filed under: online — Tags: , , — Professor @ 4:36 pm

India’s newly elected government will seek to get the fiscal budget approved by parliament by July 31, cabinet minister P. Chidambaram said today.

The first session of parliament will be held starting June 1, and lawmakers will select a speaker, Chidambaram told reporters in New Delhi today health insurance plans.

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May 22, 2009

Bean Says BOE Faces ‘Tricky Judgment’ on Policy Stimulus Exit

Filed under: term — Tags: , , — Professor @ 9:12 pm

Bank of England Deputy Governor Charles Bean said policy makers face a “tricky judgment” on when to exit its money-printing strategy as the lending squeeze keeps Britain’s economy mired in recession.

“It is possible that the supply of credit will remain impaired for some while,” Bean said in a speech in Sheffield, England yesterday. “We are still some way from having banks that feel sufficiently secure that they can lend normally, and investors that have enough confidence in the banks to provide them with sufficient funds.”

Bean said the central bank has flexibility in how it unwinds its strategy to aid the economy by buying assets with newly created money, and will be guided by its 2 percent inflation target. The Monetary Policy Committee can also raise the benchmark interest rate from the current record low of 0.5 percent, he said.

“It is not necessary to unwind the asset purchases before raising bank rate,” he said. “The timing of the withdrawal of the monetary stimulus will be governed by the need to meet the MPC’s inflation objective, not by the government’s financing needs,” he said.

Bean noted the bank may also stagger gilt sales by swapping them for short-term central bank bills.

Policy makers voted this month to increase to 125 billion pounds ($197 billion) the bank’s asset purchase program to fight Britain’s worst recession in a generation. Standard & Poor’s yesterday cut its outlook on the U payday loan cash advance loan.K.’s top AAA credit rating to negative from stable for the first time ever after the slump hammered tax receipts and swelled the government’s deficit.

Purchase Effects

The asset purchases have had a “beneficial impact” in cutting spreads on commercial paper and corporate bonds, and in boosting issuance of company debt, Bean said. He noted that the strategy may be helping to push down the cost of borrowing between banks, through it will “take some time” before policy makers can assess the full effects on the economy.

“Business surveys around the world do suggest that the rate of contraction in activity has been moderating over that past few months and that business confidence has started to improve,” Bean said. “So the bottom in economic activity may not be far off.”

The bank’s actions and the drop in the pound may also help the economy, Bean said.

“Our latest assessment is that the combined stimulus from policy easing and the lower value of sterling should be sufficient to lead to growth resuming as we move towards the end of the year,” he said.

Still, the squeeze on credit across the economy remains “very much at the forefront of our concerns,” Bean said.

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