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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Congress Warned That Public Transit Cuts Would Hurt U.S. Economy
Washington, D.C., United States (AHN) – Public transportation advocates said at a Senate Banking Committee Thursday that if transit agencies lose federal funding, the entire nation would suffer.
Sen. Tim Johnson (D-S.D.) chairman of the Banking Committee, said, “It is sometimes forgotten but reliable and accessible public transit is vital in rural areas like South Dakota, just as it is vital in large urban cities.”
Public transportation funding is among budget items members of Congress are considering reducing as they try to cut the $14 trillion federal deficit.
However, fewer bus, subway and passenger rail trips will mean more roadway congestion, transit advocates say.
“Our public transit systems connect workers with employers, keep cars off congested roads, reduce our dependence on foreign oil and get people where they’re going safely and affordably,” Johnson said.
Republicans, such as Sen. Richard Shelby of Alabama, say the federal government should subsidize local transit agencies only if they match the funds and agree to keep their systems in a state of good repair.
The Obama administration seeks to increase operating assistance to transit agencies. Operating assistance refers mostly to salaries for workers, but also recurring expenses like electricity.
“There’s no point in using federal dollars to buy brand spanking new buses for transit systems if they can’t afford to pay the drivers to put those buses into service,” Federal Transit Administration chief Peter M. Rogoff told the Banking Committee.
JayEtta Hecker, transportation advocacy director for the Bipartisan Policy Center, said public transportation will get the funding it needs only if Congress can be assured taxpayers are getting a good deal.
“We are not going to get consensus for the kinds of [revenue] increases that are required in transportation until we rebuild the credibility of the program,” she said. “A clearer set of performance objectives, clearer outcomes, clearer recognition that we’re getting value for our money.”
The Bipartisan Policy Center is a foundation that promotes policies supported by both Republicans and Democrats.
Other warnings about big cuts in public transportation came from a study released this week by the Urban Land Institute, a public policy group.
It concluded that the United States would fall behind other countries economically if transit spending is drastically reduced.
Outside of the United States, “in most of the developed world and in many emerging markets, countries have committed to fulfilling infrastructure agendas as essential for sustaining or enhancing living standards in an increasingly competitive global marketplace,” says the report.
One example mentioned in the report came from the United Kingdom, which is spending $326 billion over the next five years to stimulate its economy by investing in passenger rail, broadband access and energy production.
China is on schedule to complete 10,000 miles of high-speed rail lines by 2020, the report said.
Meanwhile, major U.S. cities like Boston, Chicago, Philadelphia and San Francisco are reducing transit service, raising fares and delaying new projects as they divert transportation funding to other priorities, the Urban Land Institute reported.
Additional budget cuts are likely for defense spending, federal employees’ pensions, student loan subsidies and farm payments, according to members of the Obama administration.
Defense Secretary Robert Gates this week described how the Pentagon is trying to figure out which weapons systems can be reduced without risking national defense.
President Obama announced a 12-year deficit reduction plan earlier this year that seeks to save $400 billion.
The Pentagon’s review of its own budget includes ways to find management efficiencies that might reduce the size of the armed forces, Gates said.
In addition, the Obama administration is doing a “serious examination” of policies that “drive dramatic” increases in health care, retirement and infrastructure, he said.
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Study links economy to suicide rate among employees
Washington, DC, United States (AHN) – The rise and fall of the suicide rate in the U.S. is linked with the economy, a Centers for Disease Control and Prevention study has found.
The report found the strongest link between taking one’s life and business cycles of boom and bust to workers in the age bracket 25 to 64. As a general rule, overall suicide rates go up during a recession and go down during an economic expansion.
James Mercy, CDC acting director of the Injury Center’s Division of Violence Prevention, said the findings highlight the need to have additional suicide prevention measures, particularly during times of economic weakness.
The study covered the years 1928 to 2008. It is the first research to establish a link between age-specific suicide rates and business cycles.
The basis of such connection are overall suicide rates that increased during the following landmark eras:
- Great Depression (1929 to 1933)
- End of the New Deal (1937 to 1938)
- Oil Crisis (1973 to 1975)
- Double-Dip Recession (1980 to 1982).
During the Great Depression, suicide rates jumped to a record-high 22.1 percent in 1932 from 18 percent in 1928.
Feijun Luo, CDC economist, explained in a statement, “Economic problems can impact how people feel about themselves and their futures as well as their relationships with family and friends. Economic downturns can also disrupt entire communities.”
Luo, who led the study, added, “We know suicide is not caused by any one factor – it is often a combination of many that lead to suicide. But there are many opportunities for prevention. Prevention strategies can focus on individuals, families, neighborhoods or entire communities to reduce risk factors.”
The study was published in the American Journal of Public Health. It was based on an examination of suicide rates for every 100,000 Americans during the 79-year coverage.
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UAE Sees Expat Population Reach 90% Even as Economy Slowed
Dubai, United Arab Emirates (TML) – Expatriates have increased their share of the United Arab Emirates (UAE) population to close to 90% in the past three years, even as the domestic population grew sharply and an economic downturn slowed the increase in foreigners to nearly nil, figures from the National Bureau of Statistics show.
The proportion of non-nationals stood at 88.5% of the UAE’s combined estimated population of 8.26 million as of the middle of 2010, the bureau reported over the weekend. That was down slightly from a peak of 88.8% in 2008 but up from 83% as recently as 2006, the figures showed.
Experts have warned that Gulf countries are risking severe social dislocations from an over-reliance on foreigners for labor. Policy makers aren’t doing enough to ensure that the skills and knowledge foreigners bring with them are transferred to locals to create employment and ensure domestic values and cultures aren’t swamped by a preponderance of outsiders.
“Are we more concerned about national identity and social stability than economic growth, or double-digit economic growth?” Khalid Al Yahya, director of governance and public administration at the Dubai School of Government, told The Media Line. “We need to make tough choices.”
The UAE and other Gulf countries have had one of the world’s highest population growth rates over the past three decades because of rapid birth rates among the locals and a massive influx of foreign workers to the region, where vast oil production needs has created enormous demand for skilled and unskilled labor.
Most Gulf countries, including the UAE, haven’t conducted an official census for many years and their first joint census scheduled for 2010 has been postponed. The UAE population figures released over the weekend are estimates based on the 2005 census and other data.
The population of UAE nationals rose 11.4% — in excess of 3% annually — to about 948,000 in the four-and-a-half years, the statistics bureau data showed. But the increase was outpaced by a jump of nearly 76% in the number of expats to just over 7.3 million, the bureau said. Overall, the combined national and expat population of the UAE jumped a whopping 65% in the period to 8.26 million.
The rate of expat-population growth contracted to as little as 0.7% in 2010 from as much as 34% in 2008, the last boom year for the UAE economy, bureau figures showed. The rate of growth, however, may be on the rise again as gross domestic product growth recovers.
The International Monetary Fund estimates that GDP for the UAE, whose seven members include Abu Dhabi and Dubai, declined 3.2% in 2009, but it resumed growth last year, with non-oil GDP growth projected to accelerate from 2.1% in 2010 to 3.3% this year.
Europeans and Asians, as well as other countries of the Arab world, have helped build universities and hospitals in Saudi Arabia, and turned Dubai from a sleepy village into an international trade and financial center and tourism destination. Flexing their oil muscles, tiny Qatar (population 848,000) and Abu Dhabi (population 404,500) are pursuing the same development path.
But even when economies are growing, unemployment among the Gulf’s indigenous population remains high. A study by the International Council on Security and Development published in February estimated that unemployment in the UAE at around 12%. It said the figure was likely higher among young people, calling high joblessness “a factor that will continue to challenge policymakers seeking to avoid future social problems.”
Among Gulf countries, only Bahrain has experienced severe unrest since mass protests have erupted across the Middle East in the past four months. But high levels of unemployment, together with a large young population, have been cited as key factors for regional unrest.
“Although overall unemployment in the UAE is low, unemployment among nationals remains high and concentrated in the northern emirates,” the IMF said in a March 7 report on the economy.
Foreigner workers began arriving in the Gulf nearly half a century ago when the discovery of oil kicked off a massive infrastructure construction drive. The global financial crisis in 2008 and 2009 and a drop in oil prices took a toll on growth, especially for the high-leveraged, oil-less emirate of Dubai.
But Gulf nations continue to be heavily reliant on expatriates as more experienced and cheaper to do everything from pouring concrete to running locally based multinational corporations. The major infrastructure projects announced by GCC countries over the last several months, including a program worth at least $133 billion announced by Saudi Arabia in March, will likely serve as a magnet for more expats.
“No one has an interest in fixing it, except the average person,” said Al Yahya. “The leadership in the pubic and private sectors alike seems to be happy with this, especially the private sector. You have access to the cheapest labor market in the world, with very light regulation.”
Al Yahya warned that the savings from cheaper foreign labor came at a cost to the wider economy because most of the wages earned by expatriates aren’t spent or reinvested locally. In Saudi Arabia, he estimated that as much as $60 billion a year, equivalent to the state budget for education and human resource development, was sent home by guest workers.
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Israeli central bank determined to gain control of Israel’s growth engine
Jerusalem, Israel (TML) – The Israeli growth engine has powered the economy through wars, a global financial crisis and turmoil in the Middle East, but Stanley Fischer, the country’s central banker, is now determined to get a grip on the controls.
Fischer took economists and the financial markets by surprise late on Monday by lifting the Bank of Israel’s base lending rate 0.5 percentage point to 3%. While the rate is low by historical standards, the bank has doubled the rate in just nine months. More hikes are likely to come, the economists said.
Israel’s economy grew by 4.6% last year, capped by a 7.7% annual rate in the final quarter of the year. Even as oil prices are climbing and regional unrest raises political uncertainty for the country, there has been little sign that the expansion is cooling very much. The Bank of Israel’s S index, a barometer for economic activity, rose a sharp 0.4% in February.
But the heady rate of growth has begun to show its dark side in higher consumer prices, a development of major concern for a country with a long and bitter memory of hyperinflation. The consumer price index (CPI) rose 4.2% in the 12 months to February, well over the bank’s target range of 1% to 3%. Economists see inflation slowing over the next year, but not enough to bring it back into the range.
“He made a mistake. He didn’t understand the significance of the inflationary danger,” Michael Sarel, head of research at Harel Group, told The Media Line. “It’s a step that was very much needed. It’s a pity he didn’t act earlier.”
Until Monday, Fischer had been steering interest rates higher, but only gradually, as he tried to balance his mandate to contain inflation with the need to prevent the shekel from appreciating by boosting interest rates much higher than in other developed economies. A stronger shekel hurts export, a key sector for the Israeli economy, by making
costs measured in dollars higher.
Except for a brief dip in 2008, Israeli gross domestic product has grown between 4% and 6% annually since 2003. The expansion has proceeded even as the world economy was reeling from the fallout of the U.S. housing market and during wars with Hizbullah in Lebanon and Hamas in the Gaza Strip.
With the interest rate less than inflation and likely to remain so for some time, Fischer acted too slowly in raising interest rates, most economists say. Monday’s unusually sharp rate increase marks an “admission of failure to some extent,” Citigroup Global Markets said in a report on Tuesday. It said investors are now looking for rates to be pushed up to as much as 4.5% by the end of the year, a forecast it labeled as “excessive.” Most economists and the central bank itself said it would likely be about 4%.
But Citigroup and others said Fischer may now have changed his strategy and wants to rely on a stronger shekel to mitigate the inflationary impact of higher global prices for oil and other commodities. If so, the Bank of Israel has some very early indications that it’s wish is being granted: The shekel appreciated on the back of the rate hike, with the official rate set at 3.525 to the dollar on Tuesday, close to its strongest level in 27 months.
The Israel Manufacturers Association, which represents the country’s biggest industrial companies, warned on Tuesday that if the shekel appreciates to 3.5 to the dollar, companies will lose some $2.9 billion in export sales, equal to about 6.6% of the country’s exports. They will even be hurt in the domestic market because the price of imports will fall.
The Bank of Israel itself assumes that every 10% appreciation in the exchange rate after inflation causes a 2% drop in exports, with a more adverse impact on profit margins.
Economists said the latest rate hike and the ones expected over the next months would certainly put a brake on economic growth but, with the economy in hyper drive, Fischer has room to maneuver without causing damage. Merchandise exports jumped at a near 30% annual rate in the December-February period, according to Israel’s Central Bureau of Statistics.
“The more significant impact is on both the mortgage rates for floating rates loans which will become more expensive,” Jonathan Katz, Jerusalem-based economist at HSBC Holdings, told The Media Line. “It will have a damping effect on housing demand as well as consumer demand because those who are making interest payments will see their disposable income decline.”
For the Bank of Israel anything that would help calm the local real estate market would be welcome. Home prices, which aren’t included in the official CPI but factor into household costs all the same, have shot up by 16.3% in the 12 month to February, even after the central bank took steps to discourage people from taking out mortgages.
In January alone, home price rose 0.9%, slowing only marginally from a 1.3% monthly pace in November and December. Jean-Michel Saliba, a Bank of America/Merrill Lynch economist who covers the Israeli economy, said Fischer would probably have to do more to address the problem of home prices.
“Average mortgage rates are increasing but are still close to historic lows. More macro-prudential tools may be needed along with measures on the supply side,” Saliba told The Media Line. “The export sector is likely to bear the pain of the shekel’s strength.”
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Indian Minister Projects 9 Percent Growth, Open Doors For Investors
Washington, D.C., United States (AHN) – Indian top financial official on Thursday called upon global investors to look at the growing potential provided by Indian economic and business environment as the Asian economy races to more than a 9% growth in the coming year.
Pranab Mukherjee, the Indian finance minister told his audience at Woodrow Wilson Center, Washington D.C., “With the Indian economy expected to grow between 8 to 10% over the coming decade, the opportunities for business engagement with India will multiply manifold.”
“Sustained high growth will catapult India into one of the three largest economies in the coming decades. The Indian economy will be one of the nodes of global economic momentum and stability,” said Mukherjee while addressing the subject, “Emerging Global Economic Architecture.”
The finance minister’s statement came as the International Monetary Fund increased India’s growth forecast to 9.7% in 2010, from its earlier projection of 9.4%.
On the global financial crisis Mukherjee noted that, “greater attention needs to be given to transmission channels of contagion, the herd behavior of investors, excessive risk-taking during boom years and risk aversion during crisis.”
“The effort to identify and strengthen institutions that are considered ‘too big to fail’ and ‘too interconnected to fail’ is part of the effort to limit systemic fallout of contagion, he added.
Mukherjee reiterated that international leaders must try to work together in handling the global economic system asking all “to be realistic” and make a joint effort “to manage global geo-politics to create the pre-conditions for economic prosperity.”
“Nations working together both regionally and globally can become critical forces for geo-political peace in the world and for creating the social and political pre-conditions without which no nation can grow and prosper,” he said.
Indian minister mentioned U.S. President Barack Obama’s upcoming visit next month to India saying, “I am sure that his visit will strengthen cooperation between India and the United States and lay out a vision for our strategic partnership based on our shared values and our shared interests.”
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