Archive for the ‘Economy’ Category

Procyclical fiscal policies and the build-up of contingent liabilities during the boom years exacerbated the severity of the crisis. The crisis in the global financial system was a complex event with far-reaching consequences, especially in countries that had had expansionary fiscal policies and a build-up of contingent liabilities prior to the crisis. While the world economy is now in the recovery stage, the debate on the preponderant causes of the financial meltdown is still far from over. Given the unprecedented severity and complexity of the crisis, it would be misleading to put the entire onus on financial excesses and regulatory weaknesses and ignore the role of fundamental imbalances. The United Arab Emirates (U.A.E.) — a major hydrocarbon-exporting country with diversified sub-national economic structures—experienced its own unraveling of macro-financial imbalances and thus presents an interesting case to analyze the underlying fragilities.

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Excerpts from the World Bank new publication on MENA:

There are historic opportunities for greater openness and citizen participation in economies across the Middle East and North Africa (MENA) that, if strongly managed over the transitions ahead, could see a significant boost to economic growth and living standards in the medium term.
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Highlights of new Research and Markets report “Crude Oil Production in Saudi Arabia”:

- The market volume figures within this report represent crude oil production. The market values are calculated using regional spot oil prices averaged over the whole year. As oil markets are experiencing a period of price volatility, future trends are difficult to predict; thus the forecasts given in this report are only given as an indication of the market’s possible future growth. All currency conversions used in the production of this report have been calculated using constant 2010 annual average exchange rates.

- The Saudi Arabian crude oil production industry had a total revenue of $228.8 billion in 2010, representing a compound annual growth rate (CAGR) of 4.3% for the period spanning 2006-2010.

- Industry consumption volumes decreased with a compound annual rate of change (CARC) of -2.7% between 2006 and 2010, to reach a total of 2,999.3 million barrels in 2010.
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Ed Attwood publishes in ArabianBusiness.com a newspiece on business confidence hitting an all-time high in the Kingdom despite, notably, some skilled labour shortages. This confidence level also comes at a time of heightened regional political turmoil.

Excerpts:

Business confidence in Saudi Arabia’s non-hydrocarbon sector has soared to an all-time high, buoyed by the high oil price, the stable economy, and King Abdullah’s social spending packages, according to new data. The Dun & Bradstreet business optimism index showed that the non-energy segment of the economy is expecting a rise in demand levels in the second quarter of this year. Respondents to the survey said that they were more optimistic about new orders, higher sales volumes, higher selling prices and higher net profits than in the previous quarter. Around 55 percent of respondents in the sector also said that they did not expect any negative factors to affect their operations in the second quarter.

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South Korea to open new overseas missions in Bahrain, Uganda, Rwanda
April 30, 2011

Excerpts:

SEOUL, April 30 (Yonhap) — South Korea is to open new diplomatic missions in Bahrain, Uganda and Rwanda as a way to strengthen its energy diplomacy with countries rich in oil and other mineral resources, the foreign ministry said Saturday.

The move comes as South Korea has been seeking to tap more business opportunities in resource-rich nations in Africa and the Middle East. Earlier this month, South Korean Foreign Minister Kim Sung-hwan went on a tour of Gabon, the Democratic Republic of the Congo and Ethiopia to discuss cooperation in energy, infrastructure and other key economic areas.

South Korea had an embassy in Manama, Bahrain, until the late 1990s but was forced to close it down in the wake of financial difficulties from the Asian financial crisis in 1998.

From the Economist Intelligence Unit:

Banking sector risk

Stable. Banks remain well-capitalised but have been increasing provisions for bad loans. Defaults by two large family firms have led to concerns over solvency, which could make private borrowing from abroad expensive, despite banks’ strong capital bases and government guarantees of bank deposits.

Political risk

Stability could be threatened by protests similar to those that have swept other countries in the region. The rule of the Al Saud faces other challenges in 2011-15, including a potentially fractious succession process and demands for political reform. Institutional effectiveness remains limited and corruption is pervasive.

Economic structure risk

Oil accounts for around 90% of export and government revenue. As a result, the economy is vulnerable to shifts in world oil prices and domestic oil output.

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An April web exclusive published by Vanity Fair (written by A.A. Gill), “Dubai on Empty,” depicts the emirate in a highly unfavorable light. To invoke the nasty vigor of Gill, it is highly distasteful and reeks as if there’s some unspoken vengeance. Bemoaning a “cautionary tale” of all encompassing greed in Dubai, Gill argues a doomed future for Dubai is a fait accompli. TradeFlow21 does not disagree that there are serious issues to be dealt with, but we urge readers to not be taken in by the bleeding headline and gushing story. As Gill says, “Dubai has been built very fast.” And that’s part of the problem. Too much has happened too fast. Similar to our experiences in China, TradeFlow21 recognizes what many in the Western world have long forgotten, that economic growth, especially the kind we’re witnessing in select economies, is a bumpy ride. Gill claims, “Dubai suffers from gigantism—a national inferiority complex that has to make everything bigger and biggest. This includes their financial crisis.” Are the Western bankers and executives not culpable for some of this hedonism and grandeur? Rather than slam an entire emirate (state), TradeFlow21 seeks to work in practical ways to bridge businesses, students, travelers, and all parties that can help make the world a better place now and for posterity.

Interesting comparison, data and judgements. The author is not sympathetic to China’s gov’t but does not hate the country and wish the Chinese no harm:

The United States vs. China—Which Economy Is Bigger, Which Is Better
Derek Scissors, Ph.D.
April 14, 2011
Backgrounder #2547
http://www.heritage.org/Research/Reports/2011/04/The-United-States-vs-China-Which-Economy-Is-Bigger-Which-Is-Better

Excerpts:

Economic results are not determined by history. If they were, Chinese reform would have failed and the pre-1978 suffering would have continued. If they were, the U.S. would remain the world’s largest economy simply because it has been so for more than a century. If 30 years of rapid growth guaranteed 30 more, Japan would now be the world’s largest economy. Instead, 40 years of Japan soaring up the global ladder have been followed by 20 years of stagnation.

Results are instead determined by a nation’s resources and policies. Resources include but are not confined to natural resources; there are also critical human and financial resources. Beijing in particular has relentlessly pushed investment forward for a decade. In 2001, fixed investment was the equivalent of 38 percent of GDP. In 2010, because its growth easily outpaced GDP every year since 2001, fixed investment was the equivalent of 70 percent of GDP. It is not possible to exceed 100 percent of GDP. The policy of boosting growth simply through the pure quantity of money spent cannot extend through the current decade as it did through the last decade—China must change course or face sharply smaller GDP gains.

In terms of natural resources, the PRC’s environmental difficulties are widely known, as is its stark dependence on commodities imports. China is the world’s second-largest oil importer, the biggest coal importer, the biggest soybean importer, and accounts for two-thirds of global iron ore trade by itself. The same kind of results hold for many metals, and corn could be next.

Food grain dependence stems from land depletion. More than one-fourth of China’s land can be classified as desert, and nearly half suffers from sand erosion. Related, and perhaps even worse, China is exceptionally poorly endowed with water, needed for farming and industrial activity. Greater agricultural productivity drove Chinese growth and helped balance income in the 1980s, but natural resources have long since become a major obstacle to growth rather than a spur.

The Communist Party has deftly used a generation’s worth of fast expansion in the workforce to help create rapid GDP growth. The period of demographic expansion will end over the coming decade, though, and be followed by an exceptionally sharp period of contraction, due in part to China’s one-child policy. Beginning in about the middle of the decade, the ensuing two generations will be as much as one-fifth smaller than the one before.

By 2035, close to 20 percent of the population will be age 65 or older. The analogous figure for Japan in 2008 was just over 20 percent age 65 or older. Starting in approximately 2015 and over the course of two decades, the pure quantity of labor will shift from contributing nearly 2 percentage points to GDP growth to subtracting around 1 percentage point.

Limits on investment, depleted physical resources, and a coming plunge in the amount of available labor leave more efficiency in use of labor and capital as the drivers of future growth. Government bureaucrats may guess correctly, but inevitably make serious mistakes. Only competitive markets promote enduring efficiency gains. In the early 1990s, Japan faced a similar situation—resource weakness, declining return to capital, and a shrinking labor force. Tokyo repeatedly chose fiscal stimulus over reform. The outcome has been unpleasant.

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IMF Executive Board Completes Second Review Under Stand-By Arrangement with Iraq, Grants Waivers and Approves US$471.1 Million Disbursement
Press Release No. 11/90
March 18, 2011

Excerpts:

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Iraq’s economic performance under a program supported by a Stand-By Arrangement (SBA). Completion of the second review makes an additional SDR 297.1 million (about US$471.1 million) available for disbursement, bringing the total resources currently purchased by Iraq under the SBA to SDR 1.069 billion (about US$1.7 billion).

Following the Executive Board’s discussion on Iraq, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, stated:

“Iraq has maintained macroeconomic stability under difficult external and internal circumstances, while making efforts to rebuild key economic institutions. Inflation has remained subdued, and the exchange rate has remained stable. The 2011 budget aims to accelerate investment in public services and infrastructure, and accommodates higher social safety net provisions to support those in need. Iraq’s rehabilitation needs remain large and the higher investment spending is essential to help create a vibrant private sector that provides employment opportunities for Iraq’s large labor force, thus helping to reduce poverty. At the same time, a strong emphasis on ensuring the quality of public spending will be important.

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CPSS-IOSCO principles for financial market infrastructures

New and more demanding international standards for payment, clearing and settlement systems have today been issued for public consultation by the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO).

The new standards (called “principles”) are designed to ensure that the essential infrastructure supporting global financial markets is even more robust and thus even better placed to withstand financial shocks than at present. They are set out in a consultative report Principles for financial market infrastructures which contains a single, comprehensive set of 24 principles designed to apply to all systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories (collectively “financial market infrastructures” or “FMIs”). These FMIs collectively record, clear and settle transactions in financial markets.

When finalised, the new principles will replace the three existing sets of CPSS and CPSS-IOSCO standards, Read the rest of this entry »