BUSINESS
26
Thursday, July 22, 2010
Fed chief focused on keeping recovery alive
Federal Reserve Chairman Ben S Bernanke listens during a forum at J Sergeant Reynolds Community College in Richmond, Virginia. — AP
WASHINGTON: Federal Reserve Chairman Ben Bernanke heads to Congress on Wednesday with a message of reassurance: The Fed stands ready to take new steps to bolster the recovery if the economy worsens. The Fed chief kicks off back-to-back appearances on Capitol Hill at a delicate time for the economy. The recovery, which had been flashing signs of strengthening earlier this year, is losing momentum. And fears are growing that it could stall. Consumer have cut spending. Businesses, uncertain about the strength of their own sales or the economic recovery, are sitting on cash, reluctant to beef up hiring and expand operations. A stalled housing market, near double-digit unemployment and an edgy Wall Street shaken by Europe’s debt crisis are other factors playing into the economic slowdown. Bernanke, who is scheduled to deliver his twice-ayear economic report to the Senate Banking Committee on Wednesday afternoon, will probably again downplay the odds that the economy will slide
back into a “double dip” recession. But at the same time, he’ll strike a more cautious tone, pointing out that the fragile economy is still vulnerable to shocks. To strengthen the economy, the Fed is likely to hold a key bank lending rate at a record low near zero well into 2011, or possibly into 2012, economists predict. That would mean rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans would stay at their lowest point in decades. Ultra-low lending rates, however, haven’t done much lately to rev up the economy. Consumers and businesses are cautious and aren’t showing an appetite to spend as lavishly as they usually do in the early stages of economic recoveries. Even though the prospects of deflation — a widespread and prolonged drop in prices for goods, the value of stocks and homes and in wages — is remote, some Fed officials are worried about it. Keeping rates low would help prevent deflationary forces from taking hold. Against such a backdrop, Fed officials at their June meeting cut their forecasts for growth this
year. They also saw the need to explore new options for energizing the rebound. That’s a turnaround from earlier this year when they were moving to wind down crisis-era supports. If the recovery were to deteriorate, the Fed could revive programs to buy mortgage securities or government debt. It could lower the interest rate paid to banks on money left at the Fed or cut the rate banks pay for emergency Fed loans. The Fed also could create a new program to spark more lending to businesses and consumers in a bid to lure them to ratchet up spending and grow the economy. The economic hurdles to taking such steps would be high, analysts say. There’s also unease within the Fed about taking additional stimulative steps because of fear they could spur inflation or speculative excesses by investors later on. Bernanke will be under more pressure than usual because it’s an election year. Upset by high unemployment, rising foreclosures and lackluster wage gains, voters may seek to punish incumbent Democrats and Republicans in Congress if the econo-
my doesn’t get better. The unemployment rate, now at 9.5 percent, is expected to stay high — in the 9 percent range — through the end of this year, under the Fed’s forecast. Despite the wobbly recovery, there’s little appetite in Congress to enact a major new stimulus package. Senate Republicans in particular have balked at spending more when the government is already saddled with record high budget deficits. Bernanke appears before the House Financial Services Committee today. When Bernanke delivered his economic report to Congress in February, he struck a confident note that the rebound would endure. But he warned it would not be robust enough to quickly lower unemployment. At the same time, he was laying the groundwork for the Fed to start boosting rates once the recovery was firmly entrenched. Now, given rising threats to the rebound, prospects of a rate increase this year have disappeared, and the Fed is more focused on keeping the recovery alive. — AP
Deficit drops to 137 million dinars in Jan-May
Jordan budget gap shrinks as spending freeze bites AMMAN: J orda n’s budget deficit more tha n ha lved in the first five months of the yea r a s the government ma inta ined a freeze on nonessentia l ca pita l spending, fina nce ministry sources sa id yesterda y. They sa id the shortfa ll shra nk to 137 million dina rs ($193 million) from 348.3 million dina rs in the sa me period of 2009 - a yea r w hich ended
w ith a record deficit of nine percent of gross domestic product (GDP). The a uthorities ha ve sca led dow n tens of millions of dolla rs w orth of non-essentia l ca pita l projects a s pa rt of a usterity mea sures to sla sh its deficit to 6.3 pct of GDP this yea r a nd help its economy ride out the globa l dow nturn.
JAKARTA: An investor monitors Indonesian stocks prices at a bank in Jakarta yesterday. Indonesia’s stock market reached an all-time closing high of 3,013.40 boosted by markets around Asia and optimism about first-half corporate earnings. — AFP
Sugar trade’s sweet spot turns sour in Thailand BANGKOK: Bangkok’s ubiquitous street food vendors who feed millions of the Thai capital’s residents each day are being hit by surging costs for sugar after a government failure to ensure adequate supplies of the sweetener forced Thailand to import it for the first time in 30 years. Eggs are becoming much more expensive too after fewer layer hens were imported in a deliberate move by producers to push up prices. For now, vendors are not passing on the higher costs. But if prices continue to rise, many say it’s only a matter of time before customers pay more for sugary treats, khai jiaao — Thai omelet — and other popular dishes. Thailand, the world’s second-biggest sugar exporter, produces roughly 7 million metric tons of sugar per year. Usually about two million tons of that production is reserved for sale to ordinary Thais but the stockpile has been exhausted after world sugar prices hit a three decade high of $750 a ton in January. Prices have fallen from the January peak but remain higher than a year earlier. To alleviate the shortage the Thai government bought 74,350 tons of sugar at $705 to $720 per ton last week. Street food vendors who rely on the commodity say they have yet to feel any relief. “There’s nothing I can do, I have to sell my fruit every day,” said Charoen Saengsilp, 51, a Bangkok fruit vendor from Kamphaengphet in northern Thailand, who now pays 28 baht ($0.87) for a kilo of sugar, up 10 baht ($0.31) from last year. That’s higher than the government mandated retail price for sugar of 23.5 baht a kilo, which is often flouted by
shops because enforcement of the price controls is patchy. Charoen has not passed on the cost increase to his customers for the sugar, salt and chili paste he serves with guava and mango, but says he may be forced to if prices continue to rise. He says sugar is also harder to find in shops. A sign in a downtown Tops supermarket asks customers to limit their sugar purchases to 3 kilograms per family. Some believe the shortage is due to greedy traders selling sugar meant for the local market to buyers overseas to profit from the high world price. “The government tried to tell the producer: you are supposed to fulfill domestic demand first and then send abroad,” says Thanawat Polvichai, an economist and director of the Center for Economic and Business Forecasting at the Thai Chamber of Commerce University. But “world prices were quite high and the traders wanted to get more profit.” Prasert Tapaneeyangkul, secretary-general to the Industry Ministry’s Cane and Sugar board, said the shortage of sugar on shop shelves was mainly due to the country’s growing demand — particularly in the beverage industry, which has grown by a quarter in the first six months of 2010 over a year earlier. Thanawat, however, says that would only point to big problems in the sugar market since industrial buyers are supposed to get their sugar from the quota available for export rather than the stockpile intended to supply shops. Thailand plans to set aside at least 2.3 million tons of next year’s expected sugar crop of 6
million tons to be sure to meet local demand, Prasert said. A nationwide egg shortage, meanwhile, is compounding the problem for some street vendors. Lek Saetang, 58, serves omelets and hard boiled eggs to hungry city folks in a downtown Bangkok alley. The four dozen eggs she buys each day now cost 4 baht ($0.12) each, twice the price a few months back. Korbsak Sabhavasu, the director of the egg board, said the reason behind the price hike is “a little bit nasty ... you might say collusion of some sort.” The nine companies authorized to import layer hens chose privately to import less than the 400,000 they informally agreed on with the Egg Board. For two years in a row, they imported only 360,000 hens, in a bid to boost prices, said Korbsak, who investigated at the request of Prime Minister Abhisit Vejjajiva. “This is a big market. Each egg costs 3 baht a piece but you are talking about 30 million eggs a day. That’s 90 million baht a day and 30 billion baht ($929 million) a year,” said Korbsak. In response to the egg price increase, the government scrapped the hen import quota, opened hen importation to new companies, and asked a local university this month to make recommendations for a revamped egg board in the next 60 days. Lek hopes they will be successful. “It’s inevitable if the prices go up that I must pass the price increase onto consumers,” or reduce the menu, she said. “The government must control the price or vendors and consumers will be negatively affected.” — AP
Total expenditure, mainly civil service pay and debt servicing, fell 8.3 percent to 2.144 billion dinars until May against 2.338 billion dinars in the same period last year, according to the official data obtained by Reuters. Last year the aid-dependent country ran up a record budget deficit of 1.45 billion dinars or 9 percent of GDP, much bigger than expected, as public finances came under strain after the global downturn hurt domestic demand and foreign cash flows, including remittances from expatriates in the Gulf. The International Monetary Fund (IMF) and major donors have expressed concern at the high level of government spending relative to the size of the economy. It accounts for more than 45 percent of the country’s GDP. Most of the savings came from a sharp 45 percent drop in capital expenditure by 224 million dinars in the first five months of 2010 against the same period 2009, the data showed. As part of the public spending cuts the government is offering major infrastructure projects through private-public partnerships under lucrative terms that attract foreign investors. The finance ministry data showed total state revenues, which include general sales tax, income taxes and foreign grants, rose a marginal 0.8 percent to 2.007 billion dinars against 1.990 billion dinars in the same period last year. The latest figures include a rise in foreign aid to 129 million dinars in grants from major Western donors-the United States, the European Union and Japan-from 95.9 million dinars. The government has since January undertaken two rounds of hefty tax hikes, including on gasoline, to offset lower revenues due to the double impact of the global downturn and major personal tax breaks to spur investments and domestic consumption. Top economic policymakers pin their hopes of boosting revenues on an improved business climate that attracts more capital inflows as the economy begins to recover from the downturn. Officials say they expect in 2010 nearly $1 billion in grants and loans from major Western donors and Gulf Arab states — almost double last year’s levels. Foreign aid has long cushioned Jordan’s economy from disruptions and helped finance almost half of its budget deficit. A sharp decrease in aid contributed to the budget deficit spiralling to record levels in 2009, officials say. — Reuters
KUALA LUMPUR: A vendor updates sales register inside her shop for women shoes and slippers in downtown Kuala Lumpur. Malaysia surprisingly hiked fuel and sugar prices last week to reduce expensive subsidies. —AFP
Turkish cement sector faces energy cost hit ISTANBUL: Turkey’s cement sector growth could hit double-digits this year on domestic demand, although higher energy prices will likely sap profits, Turkey’s Cement Manufacturers’ Association (TCMA) said. Chairman Adnan Ignebekcili told Reuters the industry association expected growth of 8 percent to 10 percent would feed into higher revenues, although profits would lag 2009. “Revenues will rise slightly as prices increase, but costs will increase by a larger amount. Import coal and petrocoke prices have risen 100 percent since the start of the year,” he added. Energy costs amount for more than 50 percent of costs. “Profits are seen below 2009 figures as a result,” he said. According to TCMA, cement production increased by 13.2 percent in the first four months of 2010, to 18 million tons, and domestic sales rose 14.2 percent to 12.7 million tons. Turkey’s buoyant domestic market had nothing to do with forthcoming elections in 2011, which in the past have triggered a building boom, he said. Ignebekcili said Turkey’s cement sector has become Europe’s largest and the world’s fifth-
largest cement producer with 58 million tons of output. “We expect 8-10 percent growth in total production. In that case we will outperform Japan to become the world’s 4th largest producer.” Ignebekcili said Turkey, the world’s largest cement exporter last year, would likely see total exports this year of at least 18-19 million tons. A slight increase in cement exports had been offset by a 30 percent contraction in clinker exports, however. Foreign investors could try to enter the attractive Turkish cement sector if strong sales and exports continued. The largest Turkish cement makers were close to reaching expansion limits in Turkey and might eye acquisition opportunities in Iraq, Syria, Azerbaijan and Central Asia or north and west Africa. Turkey’s index of cement stocks has risen 18.4 percent since the start of 2010, outperforming the Istanbul Stock Exchange’s top 100 which has risen around 10 percent. Major players include Sabanci Holding-owned Cimsa and Akcansa. — Reuters
EU appeals against WTO ruling on Airbus subsidies GENEVA: The European Union said it would file an appeal against the World Trade Organization’s ruling that partly backed a US complaint over state support for aerospace giant Airbus. “The EU will lodge on Wednesday its appeal with the WTO Appellate Body on the panel report concerning Airbus support,” Brussels said in a statement. “While the report sides with the EU in rejecting a significant number of US claims, there are other aspects of the report which need to be corrected or clarified,” it said. In a 1,200-page ruling made public in June on Washington’s complaint, the WTO had asked EU states to halt some aid for the development and export of Airbus airliners. It notably accepted three out of seven claims by Washington that key launch aid amounted to export subsidies, which are illegal under WTO rules. WTO arbitrators had also found that 21 instances of support granted to Airbus for the launch of the A300 aircraft series amounted to subsidies as the interest rates levied were charged at below market rate. Brussels said it would challenge the findings on export subsidies and on launch aid measures. It is also contesting the ruling that a causal link has been established between support to Airbus and adverse effects to Boeing. In addition, it is disputing the panel’s conclusion that infrastructure made available by EU member states to Airbus in
Hamburg, Bremen and Toulouse amounted to illegal subsidies. “This dispute is too important to allow the legal misinterpretations of the panel to go unchallenged,” said EU Trade Commissioner Karel De Gucht. “What is more, not appealing would allow for an unhelpful precedent for the WTO membership as a whole,” he added. Brussels pointed out that the case was not only unprecedented in factual but also legal complexity, and addressed issues that had not been previously settled in WTO caselaw. “A damaging precedent could arise if certain of the panel’s legal interpretations are allowed to stand, resulting not only in a disservice to the entire WTO membership, but also putting an unwarranted burden on Airbus and the member states concerned,” warned the EU. Under WTO rules, the appellate body should make a decision on the appeal within 90 days. However, given the complexity of the case, Brussels expects the decision to be delayed, further stretching out the complaint pitting the two aerospace rivals that began in 2004. Meanwhile, a counter claim filed at the WTO by the European Union against US state financing for Boeing has also been delayed. The WTO was meant to have delivered a ruling in July, but has postponed it to as late as mid-September, a move that has angered the European Union. — AFP