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Sunday, September 21, 2014
As G20 chases growth goal, members differ on how to get there n Reuters, Cairns As the Group of 20 leading economies meet to change no less than the “destiny” of the global economy, members remain divided on how to get there with Germany pushing back at US calls for more government stimulus. Opening the meeting of finance ministers and central bankers, Australian Treasurer Joe Hockey outlined an ambitious agenda of boosting world growth, fireproofing the global banking system and closing tax loopholes for giant multi-nationals. “We have the opportunity to change the destiny of the global economy,” said Hockey, who back in February launched a campaign to add 2 percentage points to world growth by 2018 as part of Australia’s presidency of the G20. That goal has seemed ever more distant as members from China to Japan, Germany and Russia have all stumbled in recent months. Just this week, the Organization for Economic Cooperation and Development (OECD) slashed its growth forecasts for most major economies. A call from U.S. Treasury Secretary Jack Lew for the euro zone and Japan to do more to boost demand and revive activity, signaling out Germany as having scope to do much more thanks to its burgeoning trade surplus, drew a cool response. “We will not agree on short-sighted stimuli,” a German G20 delegate said, arguing that in most countries debt was still too high to allow for increased spending. Berlin has been under intense pressure to allow the euro zone to ease back on fiscal austerity and to stimulate its economy through more government spending or tax cuts.
Geopolitics a thorn
The outlook for growth has not been helped by geopolitical tensions, from fighting in the Middle East to the strife between Russia and Ukraine. Hockey said Australia, as the G20 host this year, had sought feedback from other G20 members on whether Russia should attend the meeting of
leaders in Brisbane in November. There had been calls from some quarters to block President Vladimir Putin from attending the summit given Russia’s actions in Ukraine and the downing of airliner MH17. The overwhelming consensus was that the door be left open to continue engagement with Russia, said Hockey. Geopolitical tensions were also high on the agenda when financial policymakers of Japan, China and South Korea held their first trilateral meeting in more than two years in Cairns on Friday. “We shared the view that we should strengthen our regional capabilities to manage financial and economic risks and respond to possible crisis,” they said in a joint statement on Friday. The meeting was the first since Prime Minister Shinzo Abe returned to power in 2012, after ties between Japan and its neighbors soured due to maritime territorial disputes and rows over the legacy of Japan’s wartime aggression in Asia.
Tax cheaters
Also on the drawing board at the G20 are plans to stem the loss of revenue from multinationals shifting their profits to low-tax countries, potentially reclaiming billions of dollars. Taxation arrangements of global companies such as Google Inc, Apple Inc and Amazon.com Inc have become a hot political topic following media and parliamentary investigations into how many companies reduce their bills. The OECD has unveiled a series of measures that, if implemented by members, could stop companies from employing many commonly used practices to shift profits into low-tax centers. Since countries began targeting cross-border loopholes five years ago, an additional 37bn euros ($47.5bn) in tax had been recovered, OECD Secretary-General Angel Gurria said, adding that firms were estimated to be holding $2tn in low- or no-tax countries. “The whole world needs to go after tax cheats,” Hockey said about the measures, which he hopes will be adopted by at least 44 countries. l
Commerce Minister Tofail Ahmed and State Minister for ICT Zunaid Ahmed Palak seen with the recipients of Creative Young Entrepreneurs Award 2014 in Dhaka on Friday
Russia does not want ‘closed economy’ n AFP, Moscow
Prime Minister Dmitry Medvedev said Friday Russia did not want to close itself off from the global economy, and warned Western efforts to isolate or ignore such a powerful nation were “impossible”. “I consider that talk of making fundamental changes to the country’s development model is inappropriate - inappropriate and not needed. About creating a so-called mobilised, or closed, economy,” Medvedev said at an investment conference in the Black Sea resort of Sochi. “Our country does not need such economy. No country needs such an economy.” “Our priorities remain unchanged. We will not change our course,” said Medvedev, who served a four-year stint
Three quarters of Japanese firms prefer a stronger yen: Reuters poll n Reuters, Tokyo The yen’s rapid descent to six-year lows against the dollar is starting to push beyond comfort zones for three quarters of Japanese firms, a Reuters poll showed, highlighting the potential for profits to be squeezed as import costs climb. Japan struggled with a strong currency for much of the past decade, only gaining sustained relief from late 2012 as Prime Minister Shinzo Abe came to power and embarked on bold monetary stimulus. But this past month, the yen has tumbled about 6% to trade around 109 yen against the greenback, pressured by growing expectations that the Federal Reserve will lift interest rates sooner than forecast and speculation that the Bank of Japan may have to ease further. That decline now threatens to further boost the cost of raw materials and fuel at a time when the economy is straining from the impact of a sales tax hike. “Our business is slowing due to a marked increase in the cost of imports caused by the weak yen,” an executive at a textile manufacturer wrote in the survey. “Retail sales at department stores remain slack.” The Reuters Corporate Survey showed only 25% of companies prefer an exchange rate of 105 yen or weaker, with 47% seeing 100-104 yen as the most desirable range and 28% preferring a yen at 99 to the dollar or stronger. Conducted for Reuters by Nikkei Research from Aug 29 to Sept 12, the survey polled 486 firms capitalized at more than 1bn yen which responded on condition of anonymity. About 260 firms answered questions on foreign exchange.
Stimulus seen
The survey also showed 73% of firms believe authorities should craft fresh stimulus measures if they proceed with
A man and a woman watch outside at the lobby of an office building in Tokyo a plan to raise the sales tax further to 10% from 8% next year in a bid to curb runaway government debt. The other respondents saw no need for more stimulus. The results follow the Reuters Tankan survey which showed confidence at Japanese manufacturers fell the most in nearly two years in September - both polls underlining how fragile the recovery is and how Abe must delicately balance the need to sustain growth and manage the country’s debt levels. Government officials say they stand ready to deploy fresh fiscal stimulus to limit the impact of a tax hike. BOJ Governor Haruhiko Kuroda, a former Finance Ministry official who supports the tax hike as part of needed fiscal reform, has repeatedly said he sees no need to ease monetary policy now but would not hesitate to increase the central bank’s massive asset purchases if necessary. Asked to name their preferred form of stimulus, 28% of companies said additional monetary easing, 26% called for further tax breaks to promote investment and 17% urged measures to sustain share prices. Only 8 percent saw a need for steps
SADIA MARIUM
REUTERS
directly aimed at weakening the yen, another sign that further depreciation could be troublesome. To be sure, some of the biggest corporate names in Japan would still benefit from further yen weakness. Toyota Motor Corp, for example, has said every one yen move lower against the dollar compared to its budgeted rate of 101 yen boosts its annual operating profit by a 40bn yen ($370m). But the head of Japan’s auto lobby said on Thursday that while current rates were comfortable for his industry, this did not necessarily mean the yen should continue to weaken. “Rising energy costs are concerns for manufacturers in Japan, which is heavily reliant on importing energyrelated resources,” Fumihiko Ike, also chairman of Honda Motor Co, told a news conference. For big importers like paper manufacturers, yen weakness against the dollar already hurts. “We remain unable to post profits as we cannot raise output prices enough to offset higher raw materials and other costs caused by a weak yen,” wrote one manager at a paper company. l
term on the global economy,” he added. The Internet-savvy, i-Pad-wielding prime minister said that decades of the Soviet Union’s confrontation with the West proved that sanctions did not work, reeling off a number of punitive measures the West slapped against the USSR. “And what, has the development of our country stopped?” Russia has banned most food imports from the West in response to its sanctions over Ukraine, which cut off the access of major banks and companies from capital markets and imposed travel bans and asset freezes on key allies of Putin. Medvedev insisted that Russia was “capable of producing a lot on its own territory” and that the government would confirm plans aimed at boosting domestic industry and agriculture by the end of the month. l
as president before ceding the Kremlin back to his mentor Vladimir Putin in 2012. In defiant rhetoric, Medvedev said Brussels and Washington must take nuclear-power Russia’s interests into account, adding that some Western countries “have stopped recognising the fact that Russia has national interests”. “We have the largest territory, we are a nuclear power, nearly 150 million people live in Russia, we are a territory with huge natural resources, a large market for goods, services and investment,” said the 49-year-old prime minister. Russia is locked in a dramatic confrontation with the West over Ukraine, where Kremlin-backed separatists have been battling pro-Western Kiev forces since April. Brussels and Washington have imposed several rounds of tough sanc-
tions on Russia in a bid to cripple the country’s economy and make Moscow change its course. But Putin has defied the sanctions and says they could even help the country to become more self-sufficient. Many observers have expressed fears that instead of changing tack, Moscow will isolate itself further, and that its policies will become more unpredictable. “What do our opponents want?” Medvedev said at the Sochi forum. “To build a new world order which is based on uncompromising confrontation, or maybe simply close their eyes tight and pretend that Russia no longer exists? To isolate half the European continent from the rest of the world? This is impossible.” “No one can predict what effect the sanctions against Russia will have long-
Insider trading in the digital age: use post-it notes n AFP, Washington
US, Australia welcome ‘too-big-to-fail’ banks progress
With no surreptitious phone call or text message on an illicit hot stock tip safe from US regulators, Frank Tamayo thought he had a perfect no-tech foil: post-it notes. According to charges filed Friday by the Securities and Exchange Commission, for more than five years Tamayo used to turn over lucrative insider tips to his stock broker written on the small sticky notes. He would show the broker, Vladimir Eydelman, the tip information on postit notes, or sometimes a paper napkin, inside New York’s Grand Central Station. And then Tamayo would chew up and eat the note “to destroy evidence of the tip,” the SEC said. The scheme would over time garner Tamayo Eydelman, Tamayo’s own source, college friend and corporate lawyer Steven Metro, and others who benefited $5.6m before the SEC caught on. According to the charges, Metro would access information on deals under way by corporate clients of his law firm, Simpson Thacher & Bartlett LLP, and give it to Tamayo. In meetings inside the opulent New York rail station, Tamayo would show the broker sticky notes with cryptic details of the companies involved. After the meeting, Eydelman would return to his office and, feigning to make a normal trading recommendation to his client, would email to Tamayo official research on the company and his “supposed thoughts” on why Tamayo should buy the shares. The intent was “to create a paper trail of false and contrived emails that purportedly served as non-fraudulent bases for the illegal trading by Tamayo and Eydelman,” the SEC said. Besides the SEC charges, which could result in large fines, Tamayo also faces federal criminal charges. Eydelman and Metro are facing similar civil and criminal charges. l
n AFP, Cairns The United States and Australia said Friday they were encouraged by progress on rules to reduce the problem of “too-big-to-fail” banks as part of efforts to improve stability after the global financial crisis. US Treasury Secretary Jack Lew welcomed the “emerging consensus” on discussions at the international watchdog, the Financial Stability Board, over capital buffers for the world’s biggest banks. “I welcome the progress made by the Financial Stability Board over the past few days and the emerging consensus on the total loss absorbing capacity proposal, which now positions us to deliver on the Brisbane summit commitment,” Lew said. “This important standard will help facilitate the early resolution of systemically important banks and will protect taxpayers from bearing the burden of any global bank’s failure.” Australian Treasurer Joe Hockey said there was a “real chance” of breakthroughs in the Group of 20 developed and emerging nations’ discussions this weekend in the northern Australian city of Cairns. “The work of the FSB here over the last few days has been very encouraging,” Hockey said at a joint press conference with Lew.
DILBERT
“There’s a very real chance that we can have some very good breakthroughs by the end of the weekend.” The Financial Stability Board, which was established after the global economic crisis and comprises of central bankers and regulators from 24 countries, met on Wednesday and Thursday in Cairns ahead of the G20 meeting.
The work of the FSB here over the last few days has been very encouraging The watchdog said Thursday that it had made “substantial progress in defining the terms and conditions” for tackling the impact of “too-big-to-fail” banks. The total loss absorbing capacity plan aims to set global standards on the capital buffers needed by large banks, to help shield taxpayers and the financial system should they falter. The proposal is part of a suite of bank reform measures being discussed following the collapse of Lehman Brothers in 2008, which shook the financial sector and brought down the US economy. l