Latin America prepares for economic downturn
Washington, DC, United States (AHN) – Latin American finance ministers are trying to shield their countries from disaster amid predictions U.S. government budget cutbacks could hurt the region’s economies.
Economic ministers from the 11-nation Unasur organization met last week in Buenos Aires, Argentina, to discuss defensive strategies. They are working on an agreement that would create a roughly $12 billion emergency fund to bail out collapsing economies.
They also seek to reduce their dependence on the U.S. dollar for international trade and to develop policies to balance their trade deficits.
Unasur consists of Brazil, Colombia, Bolivia, Chile, Ecuador, Guyana, Paraguay, Peru, Surinam, Uruguay and Venezuela.
So far, Latin America’s economy has avoided the worst of the economic collapses in the United States and Europe that began in 2008 with a stock market collapse and recession. A brief drop in commodities prices along with government spending programs that shored up declining industries helped them avoid the worst of the crisis. However, economists predict the resilience of Latin American economies will not last much longer.
South American economies grew at an average of 6.6 percent last year, according to the International Monetary Fund.The Fund’s economists predict growth will slow to 4.7 percent this year and 4.1 percent in 2012.
By comparison, U.S. economic growth this year is running at 2 percent. Some European countries are showing no growth.
Stock markets in Latin American countries fell as much as 15 percent last week on news the credit rating service Standard & Poor’s downgraded the U.S. credit rating to double-A plus from triple-A.
Augusto de la Torre, the World Bank’s chief economist for Latin America and the Caribbean, said this week the outlook for Latin America is uncertain as concerns grow about another crisis for the United States and Europe.
China could be the next to falter as Western markets dry up for their manufactured products, he said.
“If China has a hard landing, that will hit us hard,” de la Torre told the Peruvian news media during an economic meeting.
Unasur leaders are exploring options to increase trade with China as its Western markets for manufactured products fizzle.
Protecting the economy is a major campaign issue in Argentina, where current president Cristina Fernandez won a landslide victory in primary elections this week.
She said at a press conference after the primaries that keeping Argentina’s economy strong would be a top priority for her if she is re-elected in October.
Low-income persons are most likely to be hurt by U.S. budget cuts that could reverberate around the world, including Argentina, she said.
Wall Street economists warn that her policies of price controls and using central bank reserves to pay debts could backfire for South America’s third largest economy.
The policies strengthen government control but depress market forces that help to balance the economy, according to some economists.
Argentina’s inflation rate is running close to 25 percent.
Other economic concerns are arising in Brazil, where inexpensive imported products are hurting the domestic manufacturing industry.
Chile and Peru still have stable economies as investors try to protect their assets by purchasing gold and copper, but economists predict declines in the precious metals market.
A decrease in demand for oil is depressing the economies of Venezuela and Mexico.
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Finding A Path Through The ‘Gobbledygook’ Of The Insurance Market
Washington, DC, United States (KaiserHealth) – My ZIP code is a black hole for individual health insurance.
That’s what I recently discovered when I tried to find the coverage I want at an affordable price. What hubris I had.
My story started in 2009, when my position as a journalism professor at a small college was eliminated, and I lost my health benefits along with the job. In the ensuing months, as the clock ticked on my COBRA extension, I began to focus on finding a new health plan. I thought it would be a matter of dealing with mild sticker shock and doing comparative shopping. I was wrong.
As an experienced writer and researcher, I am used to making calls, asking questions and digging through hard-to-understand details. But it never occurred to me that the answers I uncovered about Tompkins County, N.Y. — a paradise of farmland, lakes and waterfalls close to the cultural attractions of Ithaca, home for me and Cornell University — would be so frustrating. It turns out it’s one of the state’s worst places to find good individual health coverage.
When I tell people about my dilemma, they get curious — even participatory. “Did you try a professional group?” they ask. “Did you try an online broker?” (Yes and yes.) Maybe they get caught up in my story because, unlike many people with tales of insurance woes, I’m in my fifties and healthy. My story doesn’t involve a medical condition that’s unsolvable or hard to talk about. Or maybe it’s just that my experience lights a path, however convoluted, through the insurance gobbledygook.
I started my quest with Aetna, my COBRA insurer. Under New York state law, I thought I had “conversion rights” — meaning I could convert my former employer’s group coverage, the basis for my COBRA plan, to individual coverage. Though the full monthly cost was already $565, and I worried I wouldn’t be able to afford any increases that kicked in when it became an individual plan, it was great insurance — providing excellent benefits and the ability to choose my own doctors. But it turned out my cost concerns were not even relevant. There is a caveat in the law: self-insured employers are subject to federal, not state, regulation. And because my former employer is self insured — meaning Aetna administers the plan but the college assumes all the financial risk — the conversion option did not exist.
After this idea evaporated, I explored possibilities on the website of The Freelancers Union, a professional association that offers its own health insurance in New York. Five plan choices popped up. Great, I thought. Then I clicked further to read about the plans’ residency requirements and up came a map. The right side of the state — covering 34 counties that share borders with New Jersey, Pennsylvania, Connecticut, Massachusetts, Vermont and Canada — was colored in blue. These counties are the lucky ones. Those on the left — 28 counties that border more of Pennsylvania and Canada, extending all the way to Lake Erie and Lake Ontario — were white, meaning no Freelancers Union health insurance. That’s where Tompkins County is.
This development was crushing. Somewhere along the way, the notion had lodged in my head that if I ever turned to freelance writing as my full-time job, I could get benefits through this type of organization. But — at least as far as I could tell — there are no such groups with health plans in my area.
I felt stupid. I also was getting curious, which happens whenever I feel stupid. The reporter in me wanted to know what the heck was going on. But the consumer in me needed a health plan. So I kept looking.
I tried other websites, starting with AARP. The site directs consumers to an AARP-branded Aetna plan. I entered my ZIP code and got the same response: the plan was “not available in your area.” Next, at a top-rated insurance broker site, my ZIP code brought up one result. The $561-a-month GHI policy covered annual physical and gynecologic exams, prescription drugs with a co-pay, hospitalization and outpatient surgery. But it did not cover, among other things, any other office visits; inpatient physical therapy; ER professional charges; diagnostic admissions; and diagnostic lab tests. To me, that seems like too much money to spend for what amounts to catastrophic coverage.
Curiosity was getting the better of me, so I did some random comparisons on the same website. Zip codes in the District of Columbia; Seattle; Fairbanks, Alaska; and New York City offered 80, 45, 56 and 16 insurance choices, respectively. I also tried random rural areas. Residents of Aladdin, Wyo., had 27 plan choices, starting at $380 a month. Residents of Amelia, Neb., had 87, starting at $133.05.
In search of clarity, I visited the New York state insurance website and discovered a whole new possibility: Healthy NY, a subsidized program for low-income people. Several different insurers offer the same basic menu of coverage through different regional HMOs, which charge different rates.
At first I ruled it out because I wouldn’t be able to choose my own doctors, which has always been very important to me. But I was starting to feel desperate. And I qualified for the plan because it just so happens that in January, I made less than $2,269. I never imagined I would be glad to have a dry spell with my freelancing.
I was not surprised to discover that, although New Yorkers in many other parts of the state can choose a Healthy NY insurer from several options, I only had one: Excellus BlueCross BlueShield. I was just glad to learn that I could get insurance. A phone call led to an additional choice, through the same insurer, that would let me see my own doctors. But it would have cost around $1,400 a month, which is the same as my mortgage. There was also a plan for sole proprietors, but I didn’t qualify.
At this point I went into full reporter mode. I called Troy Oechsner, New York state deputy superintendent for health, and asked him about my scarcity of coverage options and the high costs associated with them. He told me that some other rural areas in the state are in a similar fix, and he said, “For an insurer to get into the area of Tompkins County, where Excellus has such a large hold on the commercial market, is really difficult.”
Ah. That rings a bell. I remembered reading a very similar conclusion in a 2009 United Hospital Fund report: “Entering Central New York is entering the Excellus zone” — a 15-county region where “the region’s nonprofit BCBS plans vigorously defend their turf.” Who do they defend it against? Mostly for-profit insurers, which have a much stronger foothold in downstate areas, including greater New York City. Nonprofits have historically claimed upstate markets (which include Central New York). In my region, Excellus in particular dominates, with a strong record of well-established health-provider relationships.
Not only am I in the Excellus zone, said Oechsner, but I’ve stumbled into “the plight of the individual market in New York.” It’s a decades-long saga in which the state “traded the problem of a group of people who can’t get insurance at any price for another problem, which is that our individual rates are out-of-control expensive,” he said. In other words, the state gave up some of its power to regulate rate increases in exchange for guarantees of access to quality coverage for everyone — although as recently enacted legislation is phased in, the state is regaining more control over the increases.
I still didn’t get why the Freelancers Union insurance isn’t available to me. So I called Chief Operating Officer Ann Boger, who explained that the group’s plan in New York is linked to the service area of Empire BlueCross BlueShield. I knew from my other research that Empire can’t operate in Excellus territory without giving up the BlueCross BlueShield brand. Boger also said that offering insurance in rural areas is a challenge. “The nature of insurance is that it works best organized is around large numbers,” she added.
What about those rural areas I randomly sampled on the broker website? My answer came from Peter Newell, director of the United Hospital Fund’s Health Insurance Project. It’s simple: I didn’t compare the coverage. He talked of plans that have limited benefits, ratings for gender and age that push costs much higher than advertised, and exclusions for people with preexisting conditions. Broker websites, for all their ease of use, don’t instantly compare apples to apples. “If you compare my neighborhood to someone else’s neighborhood, you’ve got to think about those things,” said Newell.
Newell told me the federal health care reform should help me eventually — particularly with the establishment of health insurance exchanges that should yield more choices.
But for now, time has run out. I have signed up for the high deductible option in Healthy NY, with a drug benefit, for $296.48 a month. The deductible is $1,200 a year. I’m approaching this choice as a stop-gap measure, although, as I told Oechsner, I now have a strong incentive for limiting my income.
His response: “There’s no way to sugar coat it: You’re right. If you make too much money, individual health insurance in New York gets very expensive.”
I also have one foot out the door as I weigh my professional prospects. If I move, especially if I’m making a living as a freelancer, my first criterion in choosing a location will be something I’ve never before considered: the availability of good health insurance.
– Provided by Kaiser Health News.
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Halliburton shareholders seek class action lawsuit for stock price losses
Washington, DC, United States (AHN) – The Supreme Court is set to hear arguments Monday in a case that could make it easier for corporations to get rid of lawsuits by shareholders angered when their stocks lose money.
The business community is intensely interested in the outcome, as evidenced by a large number of amicus, or friend-of-the-court, briefs filed in the case of Erica P. John Fund Inc. v. Halliburton Co.
It involves a lawsuit by shareholders of construction giant Halliburton. They accuse the company of securities fraud by misrepresenting its assets and liabilities in financial statements.
When the truth was disclosed later, Halliburton’s stock value dropped, making shareholders lose investment value.
Afterward, the shareholders got together to ask a federal court in the Northern District of Texas for class action status to sue Halliburton. Class action refers to a single lawsuit that represents the interests of many people.
They say Halliburton violated the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 10-b5.
The shareholders reasoned it would be easier for them to prove they suffered damages in a joint lawsuit than as individuals.
The proof of damages has become the key issue in the lawsuit before the Supreme Court.
The Court must decide whether shareholders must prove misguided actions of the corporate directors caused their losses before they can sue in a class action.
Under current law, a jury decides at trial whether corporate bungling made shareholders lose money.
If the Supreme Court rules damages must be proved before shareholders get authorization for a class action, the number of lawsuits proceeding to trial is likely to plummet, according to securities lawyers.
Legal experts say fewer shareholders would try to sue if they know their chances of reaching trial are small.
Halliburton comes to the Supreme Court with a history of recent controversy.
Oil giant BP accuses Halliburton of shoddy work in construction of the Deepwater Horizon oil rig that exploded in the Gulf of Mexico last year, leaking millions of barrels of oil into the water.
Former Vice President Dick Cheney was the company’s president until 2000.
Suspicions followed him into the White House about whether he used his political influence to improperly steer defense contracts to the company. Halliburton has played a big support role for troops in Iraq and Afghanistan.
Shareholders are alleging similar behind-the-scenes moves in the financial statements that led to their lawsuit.
They say the company’s directors downplayed their liability for asbestos claims. They also say the directors misrepresented Halliburton’s likelihood of collecting revenue from construction contracts and exaggerated the benefits from a merger with Dresser Industries.
Later audits revealed what the shareholders say were misrepresentations. Wall Street responded immediately with a sharp drop in the company’s stock value.
Halliburton argues in its Supreme Court briefs there is no benefit to leaving decisions on evidence for a class action lawsuit to a jury.
Instead, a judge should resolve any class action authorization issues before trial, thereby eliminating costly, drawn-out and often frivolous lawsuits, Halliburton says.
The company’s brief also argued shareholders should not be granted a class action lawsuit because the evidence was too weak they lost money from the company’s incorrect financial statements, thereby “sever[ing] the link between Halliburton’s alleged misrepresentations and that market price.”
So far, Halliburton has won at the lower court level.
The Fifth Circuit U.S. Court of Appeals ruled that before the shareholders can sue for securities fraud, they must prove a stock price decline “resulted directly because of the correction to a prior misleading statement.”
The Erica P. John Fund has not proved Halliburton’s “misleading” statements made shareholders lose money, the court said.
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World Bank: Rise in food prices may plunge millions deeper into poverty
Washington, DC, United States (AHN) – Volatile global food prices that have soared 36 percent higher than last year are pushing millions of people deeper into poverty, World Bank officials warned Thursday.
“More poor people are suffering and more people could become poor because of high and volatile food prices,” World Bank Group President Robert B. Zoellick said in a statement. “We have to put food first and protect the poor and vulnerable, who spend most of their money on food.”
Higher fuel prices, along with events in the Middle East and North Africa, including severe weather events, are responsible for pushing food commodity prices up, according to a report by the World Bank Group.
The global food price index rose 36 percent because of steep increases in the prices of staple food items. Although rice prices have remained stable, other prices have not. Maize rose by 74 percent, wheat by 69 percent, soybeans by 36 percent and sugar by 21 percent. In addition, some countries have seen the prices of fruits and vegetables, meats and cooking oil continue to increase, which holds the potential to have a negative consequence on poor people’s nutrition and health.
World Bank officials estimate about 1.2 billion people around the world live below the extreme poverty line of $1.25 per day in developing nations. In contrast to the developing world, higher wages and a higher cost of living in the U.S. mean the poverty line there is $29.84 per day.
In addition, World Bank officials say that 44 million people have already been driven into poverty since June because of the increases in food prices.
According to latest edition of the World Bank’s Food Price Watch:
- Another 10 percent increase in global food prices could drive an additional 10 million people below the $1.25 extreme poverty line.
- A 30 percent price hike could lead to 34 million more poor.
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Investors push crude oil prices to 2.5-year highs
Washington, DC, United States (AHN) – Traders pushed oil prices to highs not seen in more than two years, in part because the weaker dollar makes oil cheaper for investors using other currencies.
The possibility of a government shutdown has pushed the dollar down to its lowest value in trading against other currencies since 2009.
Oil is priced in and purchased with dollars in global markets.
On the New York Mercantile Exchange, light sweet crude for May delivery rose $1.10, or 1 percent, to $111.40 a barrel.
On the ICE futures exchange, Brent crude rose by $1.84, or 1.5 percent, to $124.50 a barrel.
Both sweet crude and Brent oil in trading earlier in the day reached levels not seen since September 2008. Light sweet crude reached $111.90 per barrel in intraday trading while Brent crude reached $124.84.
Even before crude oil prices reached two-and-a-half-year highs on Friday, International Monetary Fund officials earlier in the week said that high oil prices were here to stay. Oil prices have risen 12.5 percent over the past decade.
High gas prices are pushing down consumer demand in the U.S. and Europe while China is trying to dampen consumer demand there. However, other things are driving oil prices, including scarcity of supply to meet growth in demand from increased automobile ownership in India and China, unrest in the Middle East and investor speculation in global oil markets.
Gas prices for self-serve regular gas are up more than 20 cents from last month. According to the AAA’s Fuel Gauge Survey, the average price was $3.73.9 a gallon on Friday, up from $3.619 a week earlier.
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Commodity prices soar as investors seek hedge against global instability
Washington, DC, United States (AHN) – Global economic and political instability has made paper money less attractive to investors who are now driving up prices for commodities such as oil, precious metals and crops.
Sovereign debt risk in Europe and the U.S., coupled with Japan’s post-earthquake and ongoing nuclear crisis on top of political instability in the Middle East, is behind investor decisions to put their money into commodities.
That much liquidity in commodity markets is pushing commodity prices to high levels.
Wednesday morning trading in London saw gold reach a new record nominal high of $1,460.92 per ounce while silver hit a 31-year nominal high of $39.63 per ounce.
Oil settled at $108.34 per barrel, which pushed U.S. gasoline prices up to an average $3.685.
Cotton prices are around $2 per pound, which has many U.S. farmers scrambling to plant cotton this year instead of food crops such as corn, soybeans or peanuts.
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Fed Chair tells Senate committee deficit plan will add jobs
Washington, DC, United States (AHN) – Federal Reserve Chairman Ben Bernanke on Friday called on the Senate Budget Committee to come up with a deficit reduction plan, saying he expected moderately more economic recovery in 2011 than in 2010, but not at a rate sufficient to make much of a dent in the unemployment rate.
He told the committee he foresees an unemployment rate of around 8 percent in two years and said it will take an additional four or five years beyond that to get the labor market back to normal. Bernanke also said he was not concerned about consumer inflation, as it has declined each year since the recession; however, wages have also declined.
Bernanke told senators that some sort of deficit reduction plan was necessary to reassure investors in order to boost the financial markets.
In addition, Bernanke told the committee members that a stable job market was the central bank’s first priority. He explained that coming up with a credible plan to do something to stabilize the job market now was essential to moving forward. Bernanke explained that because the economic recovery was still so fragile that it was not enough to say they were not doing anything now because of the recession and that they would do something later.
Bernanke told the committee that right now they needed to take into account the low rate of economic activity.
About two-thirds of the nation’s economy is dependent on consumer spending. However, with so many consumers out of work, fewer people have paychecks to spend. The percentage of Americans who have jobs fell again in December. According to a report released Friday morning by the U.S. Bureau of Labor Statistics, only 64.3 percent of working-age Americans had either a part- or full-time job in December.
Bernanke told the committee that the persistently high rate of unemployment is damping household income and confidence and that it could threaten the recovery’s strength and sustainability.
The Fed chair also defended his controversial $600 billion bond buying plan, saying it would not cost taxpayers in the end. He said the quantitative easing programs would yield excess profits to the Fed of $125 billion that it will remit to the Treasury.
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American Vote Changes Power Equation, Reiterates Power Of Democracy
Washington, DC, United States (AHN) – With the casting of votes culminating in Republicans seizing the House of Representatives in mid-term elections on Tuesday, presidential hopefuls are set to roll out their campaign vehicles.
Riding on the tidal wave of economic woes, the Republicans snatched around 60 seats from the Democrats, dealing a severe blow to Obama’s ability to pass laws.
On the positive side for them, Democrats narrowly retained control of the Senate, despite losing six seats, including some to candidates backed by the Tea Party.
The win of respite for Democrats was in Nevada, where the Democrats’ leader in the Senate, Harry Reid, fought off Tea Party challenger Sharron Angle.
Pushing his “bipartisan” moves, President Barack Obama placed a late-night call to John Boehner, the projected new House speaker, to say he hoped to “find common ground” with him.
Boehner, on the other hand, gave a glimpse of the fight ahead as he noted that with the election results voters had sent Obama a message to “change course.”
Tea Party wins are set to bring more headache to Republicans than Democrats, argue political pundits, as the dual approach of this splinter group is to block Obama’s agenda and wrestle control of the Republican Party from old stalwarts.
With some counts yet to yield results, the tally proved it to be the biggest swing of seats since the Democrats roamed home with 75 in 1948 with the Republicans bettering their record of 54 in 1994 mid-term elections to the current year’s about 60.
The election decided the fate of all 435 seats in the House, 37 of the 100 seats in the Senate, governorships of 37 of the 50 states and all but four state legislatures.
Rand Paul, Tea Party movement nominee, held Kentucky for the Republicans. He was shown around the world shouting in his victory speech, “We’ve come to take our government back!”, adding there was a “Tea Party tidal wave.”
Christine O’Donnell, backed by former Alaska governor and 2008 Republican vice-presidential candidate Sarah Palin, lost her much-publicized Senate bid in Delaware.
Commenting on the shift in the balance of power on Capitol Hill, with Republicans regaining control of the U.S. House, one group responded with pragmatic overview highlighting realities.
“While political winds and players may shift, the fundamental needs of the people do not. No matter who is in office, people need jobs, protection from discrimination, a roof over their heads, a way to feed their families, a fair shake. No one should settle for less — we won’t,” said Rea Carey, executive director of the National Gay and Lesbian Task Force.
Carey hit the nail on the head, as most of the pre-election and Election Day exit polls pointed to the anger and frustration of ordinary people for the lack of jobs, manipulation on Wall Street and sad state of the economy.
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Middle East On Growth Path, IMF Says
Abu Dhabi, United Arab Emirates David Rosenberg – Economic growth is returning to the Middle East, but not quite at the pace of the go-go years of soaring oil prices and massive real estate development.
An International Monetary Fund report released Sunday estimated the combined economies of the region stretching from Morocco to Pakistan would expand by 4.2 percent this year, almost double the pace of 2009. They will grow even faster in 2011, with the region clocking an expansion of 4.8 percent.
“We expect most countries in the region to grow faster in 2010 and 2011 than in 2009,” Masood Ahmed, director of the IMF’s Middle East and Central Asia Department, said in a press release.
Although the global financial crisis took down the region’s highest flying economies, most of the Middle East weathered the worst economic contraction well. The world economies shrank 0.6 percent in 2009 as the impact of bad home loans in the U.S. reverberated through the world’s financial markets. In the Middle East, economies continued to expand, albeit at a pokier 2.3 percent pace.
The Middle East’s oil exporters will likely see economic growth pick up to 3.8 percent from 1.1 percent in 2009 as oil prices climb to an average of $76 a barrel, according to the Washington, DC-based IMF. In 2011, the rate of growth will probably accelerate to 5 percent as oil prices average $79 a barrel. Still, that leaves the oil economies growing at a slower pace than in the pre-recession years.
Oil exporters remain too vulnerable to fluctuations in the global price of petroleum, which traded at $82.10 on Friday. While not all Middle East’s big oil exporters are that heavily dependent on oil for economic output, they all rely on oil revenue for half or more of their government budgets.
For the Middle East’s oil importers, the pick-up in growth will be less dramatic. GDP growth will reach 5 percent this year, a 0.4 percentage point improvement over 2009, before slowing to 4.4 percent in 2010, the IMF report said. Egyptian GDP growth will show steady improvement this year and next, although well below the pre-recession rates when growth exceeded 6.5 percent annually. Pakistan, reeling from the impact of floods last summer, will see economic growth slow considerably from previous forecasts.
The IMF report warned that as strong as the recovery has been for the region, it is still not enough to provide jobs for the Middle East’s large and growing population of young people. It estimated that half the population is under age 25 while the average jobless rate in 2008 was 11 percent. For the region to create enough jobs, its combined economy would have to grow 6.5 percent annually over a sustained period, something it has never managed to do.
“There is now a recovery happening in the emerging markets in the region,” Ahmed said at a forum in Dubai. “But they are not growing fast enough to create the jobs they need.”
The Middle East needs 18.5 million jobs over the next decade, about 7 million more than it will create if it keeps to its previous rate of growth, the IMF said, admitting this was a “tall order.”
For all its oil wealth, the Middle East lags behind the world’s emerging economies. Since 1990, GDP has increased 55 percent for the Middle East, North Africa and Pakistan, but the emerging Asian economic powers have boosted their output by 200 percent in the same period, the IMF said. The region’s governments can accelerate economic growth by paring back on government regulation and privatizing state-owned enterprises and liberalizing labor markets. The Middle East also needs to redirect more of its trade from the slower-growth economies of Europe to burgeoning Asia, it said.
Inflation is also rearing up in some Middle East countries, the IMF warned. In Saudi Arabia it accelerated from 3.5 percent in October 2009 to 6.1 percent last August. In Iran, consumer prices were moderating until recently – showing from a 30 percent rise at the end of 2008 to 7 percent a year ago. But they have since begun rising to a 10 percent annual rate in the first quarter of 2010, the IMF report said.
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Postal Service Denied 2 Cent Rate Hike
Washington, DC, United States (AHN) – Burdened by a weak economy and the use of electronic communications, the Postal Service is studying options to keep itself viable after its request for a 2 cent increase in rates was denied.
The agency wanted to raise the price of first class mail to 46 cents, and that of postcards to 30 cents by next year. The Postal Regulatory Commission, however, unanimously ruled Thursday against a rate hike, saying there were no exigent circumstances to justify it.
The Postal Service has the power, under a 2006 law, to implement rate increases higher than the annual cap but only during exigent situations such as a natural disaster or terror attack.
“The Postal Service’s cash flow problem is not a result of the recession and would have occurred whether or not the recession took place. lt is the result of other, unrelated structural problems and the proposed exigent rate adjustments would neither solve nor delay those problems,” the commission said.
The author of the 2006 law, Sen. Susan Collins (R-ME), had opposed the request for a price increase.
“In addition to not meeting the criteria set forth in the law, the exigent rate case is simply a bad business decision,” she said in a statement. “Rather than help restore postal solvency, an exigent rate increase will worsen the Postal Service’s crisis by further driving down mail volumes and thus revenues.”
The Postal Service expects a budget gap of about $7 billion next year despite cost cutting measures worth $10 billion in the last three years.
The agency receives no federal funds for its operations and depends only on revenues from postage and other services. It wants Congress to restructure its $5.5 billion annual payment to the Retiree Health Benefit Fund, an obligation it said it was able to pay for this fiscal year.
“The financial risk remains,” said postmaster general John Potter. “We will carefully manage every dollar we spend in the upcoming fiscal year. Our current forecast shows that we will not have sufficient cash to make the $5.5 billion payment due on Sept. 30, 2011.”
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