Standard & Poor's investment-grade composite spread tightened yesterday to 209 basis points (bps), while its speculative-grade counterpart compressed to 653 bps. By rating, the 'AA' and 'A' spreads tightened one basis point each to 144 bps and 180 bps, respectively, and 'BBB' tightened 3 bps to 264 bps. The 'BB' spread tightened 5 bps to 484 bps, 'B' compressed 6 bps to 654 bps, and 'CCC' tightened 15 bps to 1,040 bps.
By industry, financial institutions, banks, and industrials tightened 4 bps each to 366 bps, 288 bps, and 336 bps, respectively. Utilities and telecommunications followed, tightening 2 bps each to 212 and 318 bps, respectively.
Despite material tightening since their record highs in December 2008, the speculative-grade spread remains range-bound within a default cycle, and the investment-grade spread continues to face pressure from financial institutions and banks. In addition, speculative-grade defaults continue to accelerate, as does the preponderance of credit downgrades. Because of these factors, we expect spreads to remain at their elevated levels for some time as investors, the credit markets, and the economy cautiously tread through the current recessionary period.
Tuesday, December 15, 2009
JP Morgan continues escrow service expansion by launching capabilities in South Korea
JP Morgan today announced that it has continued its Escrow service expansion in Asia Pacific by launching its capabilities in South Korea. JP Morgan's Escrow services help clients mitigate risk associated with a range of critical business transactions such as mergers and acquisitions, initial public offerings, import and export payments, collateral trusts for reinsurance, and construction project funding. Acting as an independent third party, JP Morgan holds assets in escrow and disburses them when a performance or commitment is delivered upon. The service also includes document preparation, which can be customised to meet the specific needs of a transaction. JP Morgan already offers Escrow services in Australia, Brazil, China, Hong Kong, India and Singapore, the United Kingdom and the United States.
“JP Morgan’s Escrow services have been very well received in the Asia Pacific region. We remain focused on serving the evolving needs of our clients and helping them close their transactions quickly, accurately and securely through the use of Escrow accounts,” said Rocky Motwani, Escrow and Bankruptcy Services global executive for JP Morgan Treasury Services.
Linda McLaughlin-Moore, managing director, Asia Pacific product and delivery executive at JP Morgan.Treasury Services added: “Being able to offer Escrow services to our clients in South Korea helps us strengthen our in-country treasury management offering. Our clients value the depth and breadth of our services and our ongoing investments in the region. We will continue to build on our integrated service model by investing in our business and by growing with our clients.”
In South Korea, JP Morgan Treasury Services recently launched its liquidity management services with multi-bank sweep capabilities, and also enhanced its domestic cash management capabilities with a new Korean language internet banking platform for fund transfers. The platform enables JP Morgan's clients to maximise their working capital, increase their efficiency ratios, and mitigate counterparty risk.
“JP Morgan’s Escrow services have been very well received in the Asia Pacific region. We remain focused on serving the evolving needs of our clients and helping them close their transactions quickly, accurately and securely through the use of Escrow accounts,” said Rocky Motwani, Escrow and Bankruptcy Services global executive for JP Morgan Treasury Services.
Linda McLaughlin-Moore, managing director, Asia Pacific product and delivery executive at JP Morgan.Treasury Services added: “Being able to offer Escrow services to our clients in South Korea helps us strengthen our in-country treasury management offering. Our clients value the depth and breadth of our services and our ongoing investments in the region. We will continue to build on our integrated service model by investing in our business and by growing with our clients.”
In South Korea, JP Morgan Treasury Services recently launched its liquidity management services with multi-bank sweep capabilities, and also enhanced its domestic cash management capabilities with a new Korean language internet banking platform for fund transfers. The platform enables JP Morgan's clients to maximise their working capital, increase their efficiency ratios, and mitigate counterparty risk.
Investment-Grade Composite Spread Tightens To 212 Basis Points
Standard & Poor's investment-grade and speculative-grade composite spreads tightened on Friday to 212 basis points (bps) and 660 bps, respectively. By rating, the 'AA' spread tightened one basis point to 145 bps, 'A' compressed 3 bps to 181 bps, 'BBB' tightened 2 bps to 267 bps, 'BB' tightened 8 bps to 489 bps, 'B' compressed 7 bps to 660 bps, and 'CCC' expanded 3 bps to 1,055 bps.
By industry, banks and telecommunications tightened by the largest margin of 4 bps each to 292 bps and 320 bps, respectively. Industrials followed, compressing 3 bps to 340 bps, trailed by financial institutions and utilities, which tightened 2 bps each to 370 bps and 214 bps, respectively.
Despite material tightening since their record highs in December 2008, the speculative-grade spread remains range-bound within a default cycle, and the investment-grade spread continues to face pressure from financial institutions and banks. In addition, speculative-grade defaults continue to accelerate, as does the preponderance of credit downgrades. Because of these factors, we expect spreads to remain at their elevated levels for some time as investors, the credit markets, and the economy cautiously tread through the current recessionary period.
By industry, banks and telecommunications tightened by the largest margin of 4 bps each to 292 bps and 320 bps, respectively. Industrials followed, compressing 3 bps to 340 bps, trailed by financial institutions and utilities, which tightened 2 bps each to 370 bps and 214 bps, respectively.
Despite material tightening since their record highs in December 2008, the speculative-grade spread remains range-bound within a default cycle, and the investment-grade spread continues to face pressure from financial institutions and banks. In addition, speculative-grade defaults continue to accelerate, as does the preponderance of credit downgrades. Because of these factors, we expect spreads to remain at their elevated levels for some time as investors, the credit markets, and the economy cautiously tread through the current recessionary period.
TRIS Rating Affirms Company Rating of “DBSVT” at “A-” with “Negative” Outlook
TRIS Rating Co., Ltd. has affirmed the company rating of DBS Vickers Securities (Thailand) Co., Ltd. (DBSVT), a wholly-owned subsidiary of DBS Vickers Securities Holdings Pte., Ltd. (DBSVSH) in Singapore, at “A-”. The outlook has been changed to “negative’ from “stable”. The rating is enhanced from DBSVT’s stand-alone credit profile to reflect its status as a strategically important subsidiary of the DBS Group, which provides DBSVT with both financial and non-financial support. The stand-alone rating is based on DBSVT’s ability to utilize the network and resources of the DBS Group, and also takes into account DBSVT’s adequate capital base and sufficient liquidity, which provide DBSVT with a cushion to absorb normal business risk. However, these strengths are partially offset by concerns over the company’s deteriorating market position in the stock brokerage business and its financial performance during the last three years which was lower than TRIS Rating’s expectation. The rating is also constrained by uncertainty of the Thai stock market and operating climate following the brokerage business liberalization in 2010 and the global capital market volatility. These might partly affect the company’s business and financial position in the future.
The “negative” outlook reflects DBSVT’s market position and financial performance in securities brokerage business during the last three year which was lower than TRIS Rating’s expectation. TRIS Rating will closely monitor the company’s operating performance and market position when the sliding brokerage commission scales implemented in 2010. Any future downturn in operating performance will negatively impact the rating. However, the success implementation of DBSVT’s wealth management business, as the company’s strategic plan, and the recovery of the market position to a sustainable level will support DBSVT’s credit strengths. TRIS Rating expects DBSVT to remain a strategically important entity of the DBS Group, sustain to play a role in Thailand’s securities market as part of the DBS Group’s international network and continue getting the DBS Group’s implicit support.
TRIS Rating reported that DBSVT provides brokerage services as its core business, as well as other non-brokerage services, including financial advisory, equity underwriting, and wealth management. In the brokerage business, DBSVT faced a gradual decline in market share over the past four years: share fell from 2.9% in 2005 to 2.8% in 2006 and 2007, and then declined sharply to 2.1% in 2008. The substantial drop in market share was mainly from increased competition, especially from foreign brokerage firms who have a Direct Market Access (DMA) trading system. However, even after DBSVT implemented the DMA system in 2008, volume from overseas investors dropped due to the global financial crisis. The overseas investors have contributed 40%-50% of the company’s trading volume during the last five years. Market share, therefore, slid to 1.9% for the first nine months of 2009, and DBSVT ranked 22nd in terms of market share among 38 brokerage companies, down from 15th for all of 2007. However, excluding the proprietary trade, the company’s market share was 2.2% for the first nine months of 2009, down from 2.4% in 2008 and 3.0% in 2007.
Based on the support from the DBS Group and the flow of investable fund resulting from liquidity injections by the US and EU governments, TRIS Rating said DBSVT might be able to regain market share from overseas investors. Regarding the retail client base, the company plan to enlarge the market share through Internet trading, wealth management teams, and a company strategy to expand margin loans. However, recovery of both the overseas and retail volume with stable contribution has yet to be monitored, after the sliding scale of brokerage commission is implemented in 2010. In the investment banking business, the company targets medium-sized firms. DBSVT was the lead underwriter for the Asiasoft PLC deal worth Bt840 million in 2008. This is a sharp turnaround from only Bt74 million in deals in 2007. However, the company had no fee-based income for the first half of 2009. As investment banking is highly related to prospects for the stock market, DBSVT is expanding to offer other advisory services including mergers and acquisitions (M&A), and financial advisory work through the resources and international franchise network of its parent company. However, the revenue contribution from these activities was only 4% of total revenue for the last five years. The company does not expect any sizable amount of revenue from this business during the next 2-3 years.
Net profit gradually declined from Bt209 million in 2005 to Bt172 million in 2006 and Bt132 million in 2007, due to unfavorable market conditions and increasing competition among securities firms. In 2008, the company reported a net loss of Bt22 million due to substantial losses on margin loans, a direct result of the stock market turmoil during the last quarter of 2008. The unfavorable market conditions continued through the first quarter of 2009. DBSVT reported a net loss of Bt9 million for the first half of 2009. However, performance is likely to reverse for the second half of the year, because the market volume has improved since the second quarter of 2009. The average daily trading volume on the Stock Exchange of Thailand (SET) during April to September 2009 was around Bt21,000 million, up sharply from a daily average of trading volume of around Bt8,600 million for the first quarter of 2009.
DBSVT’s total assets ranged from Bt1.6-Bt1.9 billion during 2005-2008, before significantly increased to Bt2.31 billion as of June 2009. This remarkable increase arose from higher market trading volumes. However, outstanding margin loans remained flat at around Bt500 million from the beginning of 2008 through June 2009, due to the imposition of more stringent credit criteria. Margin loans outstanding were accounted for 31.3% of total assets in 2008 and 22.7% as of June 2009. However, the company plans to re-expand the margin loan portfolio when the opportunity arises, with the support from the DBS Group. The policy to maintain a high level of margin loans could raise the market share of retail customers. However, the loan expansion could expose the company to higher credit risk, particularly when the company has high concentration risk on large customers. Based on the current amount of outstanding margin loans, the company still has a sufficient capital to cover any losses from margin loan transactions. As of June 2009, the Net Capital Rule (NCR) was 49.56%, far above the requirement of the Securities and Exchange Commission (SEC) of Thailand.
TRIS Rating said, DBSVT has only a small exposure from its own investments. DBSVT invested Bt14 million in shares of TSFC Securities Ltd. (TSFC). This investment was a mandated poll-fund for all financial institutions to subsidize the establishment of TSFC. The investment was totally written off during the first half of 2009. Liquidity and financial flexibility remains sufficient, even after DBSVT started utilizing credit facilities from various financial institutions and the DBS Group to finance the margin loan portfolio expansion. As of August 2009, the company utilized 3.0% of the total available credit facilities worth Bt2.3 billion from several financial institutions and had a Bt200 million of subordinated loan from the DBS Group. However, TRIS Rating expects the DBS Group to provide timely financial support if needed. DBSVT has an adequate capital base despite a decrease from Bt1,273 million as of December 2007 to Bt964 million as of June 2009. The drop was due to a Bt277 million extra dividend payment and from net losses from operations.
The “negative” outlook reflects DBSVT’s market position and financial performance in securities brokerage business during the last three year which was lower than TRIS Rating’s expectation. TRIS Rating will closely monitor the company’s operating performance and market position when the sliding brokerage commission scales implemented in 2010. Any future downturn in operating performance will negatively impact the rating. However, the success implementation of DBSVT’s wealth management business, as the company’s strategic plan, and the recovery of the market position to a sustainable level will support DBSVT’s credit strengths. TRIS Rating expects DBSVT to remain a strategically important entity of the DBS Group, sustain to play a role in Thailand’s securities market as part of the DBS Group’s international network and continue getting the DBS Group’s implicit support.
TRIS Rating reported that DBSVT provides brokerage services as its core business, as well as other non-brokerage services, including financial advisory, equity underwriting, and wealth management. In the brokerage business, DBSVT faced a gradual decline in market share over the past four years: share fell from 2.9% in 2005 to 2.8% in 2006 and 2007, and then declined sharply to 2.1% in 2008. The substantial drop in market share was mainly from increased competition, especially from foreign brokerage firms who have a Direct Market Access (DMA) trading system. However, even after DBSVT implemented the DMA system in 2008, volume from overseas investors dropped due to the global financial crisis. The overseas investors have contributed 40%-50% of the company’s trading volume during the last five years. Market share, therefore, slid to 1.9% for the first nine months of 2009, and DBSVT ranked 22nd in terms of market share among 38 brokerage companies, down from 15th for all of 2007. However, excluding the proprietary trade, the company’s market share was 2.2% for the first nine months of 2009, down from 2.4% in 2008 and 3.0% in 2007.
Based on the support from the DBS Group and the flow of investable fund resulting from liquidity injections by the US and EU governments, TRIS Rating said DBSVT might be able to regain market share from overseas investors. Regarding the retail client base, the company plan to enlarge the market share through Internet trading, wealth management teams, and a company strategy to expand margin loans. However, recovery of both the overseas and retail volume with stable contribution has yet to be monitored, after the sliding scale of brokerage commission is implemented in 2010. In the investment banking business, the company targets medium-sized firms. DBSVT was the lead underwriter for the Asiasoft PLC deal worth Bt840 million in 2008. This is a sharp turnaround from only Bt74 million in deals in 2007. However, the company had no fee-based income for the first half of 2009. As investment banking is highly related to prospects for the stock market, DBSVT is expanding to offer other advisory services including mergers and acquisitions (M&A), and financial advisory work through the resources and international franchise network of its parent company. However, the revenue contribution from these activities was only 4% of total revenue for the last five years. The company does not expect any sizable amount of revenue from this business during the next 2-3 years.
Net profit gradually declined from Bt209 million in 2005 to Bt172 million in 2006 and Bt132 million in 2007, due to unfavorable market conditions and increasing competition among securities firms. In 2008, the company reported a net loss of Bt22 million due to substantial losses on margin loans, a direct result of the stock market turmoil during the last quarter of 2008. The unfavorable market conditions continued through the first quarter of 2009. DBSVT reported a net loss of Bt9 million for the first half of 2009. However, performance is likely to reverse for the second half of the year, because the market volume has improved since the second quarter of 2009. The average daily trading volume on the Stock Exchange of Thailand (SET) during April to September 2009 was around Bt21,000 million, up sharply from a daily average of trading volume of around Bt8,600 million for the first quarter of 2009.
DBSVT’s total assets ranged from Bt1.6-Bt1.9 billion during 2005-2008, before significantly increased to Bt2.31 billion as of June 2009. This remarkable increase arose from higher market trading volumes. However, outstanding margin loans remained flat at around Bt500 million from the beginning of 2008 through June 2009, due to the imposition of more stringent credit criteria. Margin loans outstanding were accounted for 31.3% of total assets in 2008 and 22.7% as of June 2009. However, the company plans to re-expand the margin loan portfolio when the opportunity arises, with the support from the DBS Group. The policy to maintain a high level of margin loans could raise the market share of retail customers. However, the loan expansion could expose the company to higher credit risk, particularly when the company has high concentration risk on large customers. Based on the current amount of outstanding margin loans, the company still has a sufficient capital to cover any losses from margin loan transactions. As of June 2009, the Net Capital Rule (NCR) was 49.56%, far above the requirement of the Securities and Exchange Commission (SEC) of Thailand.
TRIS Rating said, DBSVT has only a small exposure from its own investments. DBSVT invested Bt14 million in shares of TSFC Securities Ltd. (TSFC). This investment was a mandated poll-fund for all financial institutions to subsidize the establishment of TSFC. The investment was totally written off during the first half of 2009. Liquidity and financial flexibility remains sufficient, even after DBSVT started utilizing credit facilities from various financial institutions and the DBS Group to finance the margin loan portfolio expansion. As of August 2009, the company utilized 3.0% of the total available credit facilities worth Bt2.3 billion from several financial institutions and had a Bt200 million of subordinated loan from the DBS Group. However, TRIS Rating expects the DBS Group to provide timely financial support if needed. DBSVT has an adequate capital base despite a decrease from Bt1,273 million as of December 2007 to Bt964 million as of June 2009. The drop was due to a Bt277 million extra dividend payment and from net losses from operations.
Thursday, December 3, 2009
Macro Roundup - Taking the Temperature of Retail Trade
Coming months will show whether consumers in the Asia-Pacific region have faith in the economic recovery or have merely been spending their stimulus cheques. The key to solid retail sales is low unemployment and government stimulus measures. The region's labour markets are improving, but industrial production shows weakness.
Australian retail sales kept growing
The good news: Australian retail sales never contracted on an annual basis during the slowdown. The country managed to steer clear of recession, and the unemployment rate stopped climbing in June. Retail sales have been helped by government stimulus spending. Money was deposited into the bank account of every citizen who met income limits, and pensioners received extra cash transfers. Yet, even with these measures, nominal retail sales growth has slowed. Australians have in particular been spending less on clothes and soft goods.
New Zealanders have been spending less on retail goods than Australians have. The New Zealand economy grew only 0.1% q/q in the second quarter, and the labour market is under stress from a 6% unemployment rate. With well-developed welfare states and ample access to credit, consumers in Australia and New Zealand are able to smooth their consumption, resulting in a more modest slowdown in retail sales.
Consumers in export economies cut back
When their economies began weakening, consumers in Asia's most export-dependent countries were quick to scale back their spending. Retail sales hit bottom in February and have recovered remarkably, not unlike the recovery in exports. The recovery of retail sales in Hong Kong and Taiwan is noteworthy, since unemployment is still increasing in these two economies. In August, Hong Kong's unemployment rate was 5.8%, well above 2008's average of 3.4%. In Taiwan, August's rate was 6.1%, also above the 2008 average of 4.1%.
Consumer spending in Taiwan has been helped by shopping vouchers distributed in January. Most of the spending from these vouchers is estimated to have taken place early in the year, and more recent increases in retail sales have likely come from improved sentiment; consumer confidence has been improving since midyear. Higher retail sales in Hong Kong in August have been attributed to more tourism and higher asset prices, which support retail sales through the wealth effect.
South Korea's retail sales did not drop as low as those of the other major exporters in the region and have recovered swiftly. South Korea narrowly avoided recession, and its unemployment rate has eased since June. Japanese consumers spend conservatively even in good times, and Japan's retail sales have not dropped greatly, perhaps because consumers have access to high household savings and credit. Also, the Japanese government has made a huge effort to stimulate household spending through cheques and subsidies for energy-efficient cars and appliances.
Though Singapore's retail sales for August surprised on the upside, they were 5.2% lower than a year earlier. The city-state's consumers have been remarkably slow to respond to the upturn in the domestic economy. Second quarter GDP added 5.1% q/q, and the advance estimate for third quarter GDP growth is 3.5% q/q. The unemployment rate, though, is uncomfortably high. A shift toward durable goods—in particular motor vehicles—could mean Singaporeans are taking advantage of lower prices rather than feeling more confident.
Retail sales in Thailand weakened during August after recovering along with sales in other export-oriented economies. Political uncertainty and lower industrial production and exports kept shoppers away from the malls.
What happens when the stimulus runs out?
In coming months, the stimulatory effect of cash transfers, shopping vouchers and retail subsidies will run out. Taiwan's vouchers were valid until the end of September, and cash transfers in Japan and Australia were one-off measures. Japan's subsidies for environmentally friendly cars and appliances will continue into 2010.
Future retail sales figures will show whether consumers have faith in the economic recovery or whether they were merely spending their stimulus cheques. Improved labour markets are prerequisites for a sustainable recovery of the region's retail sales. Since employment appears to be improving in some economies, there is hope. But Asia's frugal shoppers are hard to persuade to spend.
Tine Olsen is an economist in the Sydney office of Moody's Economy.com. Tine covers Taiwan, Greece and Israel. She has worked for the International Monetary Fund, the Copenhagen Stock Exchange, and the Danish Ministry of Foreign Affairs. She holds a Ph.D. from Monash University and an MSc and a BSc from the University of Copenhagen.
Australian retail sales kept growing
The good news: Australian retail sales never contracted on an annual basis during the slowdown. The country managed to steer clear of recession, and the unemployment rate stopped climbing in June. Retail sales have been helped by government stimulus spending. Money was deposited into the bank account of every citizen who met income limits, and pensioners received extra cash transfers. Yet, even with these measures, nominal retail sales growth has slowed. Australians have in particular been spending less on clothes and soft goods.
New Zealanders have been spending less on retail goods than Australians have. The New Zealand economy grew only 0.1% q/q in the second quarter, and the labour market is under stress from a 6% unemployment rate. With well-developed welfare states and ample access to credit, consumers in Australia and New Zealand are able to smooth their consumption, resulting in a more modest slowdown in retail sales.
Consumers in export economies cut back
When their economies began weakening, consumers in Asia's most export-dependent countries were quick to scale back their spending. Retail sales hit bottom in February and have recovered remarkably, not unlike the recovery in exports. The recovery of retail sales in Hong Kong and Taiwan is noteworthy, since unemployment is still increasing in these two economies. In August, Hong Kong's unemployment rate was 5.8%, well above 2008's average of 3.4%. In Taiwan, August's rate was 6.1%, also above the 2008 average of 4.1%.
Consumer spending in Taiwan has been helped by shopping vouchers distributed in January. Most of the spending from these vouchers is estimated to have taken place early in the year, and more recent increases in retail sales have likely come from improved sentiment; consumer confidence has been improving since midyear. Higher retail sales in Hong Kong in August have been attributed to more tourism and higher asset prices, which support retail sales through the wealth effect.
South Korea's retail sales did not drop as low as those of the other major exporters in the region and have recovered swiftly. South Korea narrowly avoided recession, and its unemployment rate has eased since June. Japanese consumers spend conservatively even in good times, and Japan's retail sales have not dropped greatly, perhaps because consumers have access to high household savings and credit. Also, the Japanese government has made a huge effort to stimulate household spending through cheques and subsidies for energy-efficient cars and appliances.
Though Singapore's retail sales for August surprised on the upside, they were 5.2% lower than a year earlier. The city-state's consumers have been remarkably slow to respond to the upturn in the domestic economy. Second quarter GDP added 5.1% q/q, and the advance estimate for third quarter GDP growth is 3.5% q/q. The unemployment rate, though, is uncomfortably high. A shift toward durable goods—in particular motor vehicles—could mean Singaporeans are taking advantage of lower prices rather than feeling more confident.
Retail sales in Thailand weakened during August after recovering along with sales in other export-oriented economies. Political uncertainty and lower industrial production and exports kept shoppers away from the malls.
What happens when the stimulus runs out?
In coming months, the stimulatory effect of cash transfers, shopping vouchers and retail subsidies will run out. Taiwan's vouchers were valid until the end of September, and cash transfers in Japan and Australia were one-off measures. Japan's subsidies for environmentally friendly cars and appliances will continue into 2010.
Future retail sales figures will show whether consumers have faith in the economic recovery or whether they were merely spending their stimulus cheques. Improved labour markets are prerequisites for a sustainable recovery of the region's retail sales. Since employment appears to be improving in some economies, there is hope. But Asia's frugal shoppers are hard to persuade to spend.
Tine Olsen is an economist in the Sydney office of Moody's Economy.com. Tine covers Taiwan, Greece and Israel. She has worked for the International Monetary Fund, the Copenhagen Stock Exchange, and the Danish Ministry of Foreign Affairs. She holds a Ph.D. from Monash University and an MSc and a BSc from the University of Copenhagen.
Saturday, November 21, 2009
Rating And SPUR On Overlake Hospital Medical Center, WA's Revenue Bonds Raised To 'BBB+' On Strong Operating Performance
Standard & Poor's Ratings Services raised its long-term rating and underlying rating (SPUR) to 'BBB+' from 'BBB' on the Washington Health Care Facilities Authority's $82.4 million series 2005A and B hospital revenue bonds issued for Overlake Hospital Association (Overlake). The outlook is stable.
"The rating reflects Overlake's very strong operating performance since the onset of its relationship with Group Health Cooperative of Puget Sound (Group Health) and the overall strength of its balance sheet," said Standard & Poor's credit analyst Kenneth Gacka.
In November 2004, Overlake and Group Health entered into an agreement whereby Overlake would become the provider of inpatient and emergency services for Group Health's members located to the east of Lake Washington.
Fiscal 2009 marked the first full year in which Group Health patients were admitted under the new agreement at Overlake. Both inpatient admissions and total surgeries increased dramatically in 2009 largely as a result of the Group Health patients and, to a lesser extent, population growth. Fiscal 2009's admissions increased by an impressive 28% to 20,812 in fiscal 2009 from 16,294 in fiscal 2007 (the last full fiscal year without the impact of Group Health volumes). Similarly, total surgeries increased by 18% to 15,713 in fiscal 2009 from fiscal 2007's 13,282. Emergency visits also rose during that period, but at a more modest 4.6%. Group Health now accounts for approximately 24% of Overlake's total discharges. Volumes for the first quarter of fiscal 2010 are mixed: Year-to-date volumes on inpatient and surgical activity are slightly lower, while outpatient and emergency volumes are slightly higher as compared to the same quarter of fiscal 2009.
As a result of the substantial volume increase and Overlake's prudent management of expenses during this period of extensive growth, Overlake's operations have improved significantly. For fiscal 2009, operating income rose impressively to $36.2 million (9.1% operating margin) from fiscal 2008's $11.1 million (3.4% operating margin). A large $34.5 million other-than-temporary impairment of investments reduced fiscal 2009 excess income to $10.7 million (a 2.9% profit margin), still generating good coverage of maximum annual debt service (MADS) of 2.7x. Interim results through the three months ended Sept. 30, 2009, show continued strong operating performance, with a 7.0% operating margin, 9.0% excess margin, and MADS coverage of 4.0x.
Overlake's balance sheet strength continues to improve with respect to several key metrics due to its enhanced operations and the amortization of its significant 2005 debt issuance. At the end of fiscal 2009, Overlake had $159.5 million in unrestricted cash, equal to a strong 173 days' cash on hand. The interim fiscal 2010 financials at Sept. 30, 2009 (unaudited), show $177.6 million in unrestricted cash, equal to 189 days' cash on hand. Unrestricted cash as a percent of long-term debt has steadily improved over the last several years, with 86.3% and 75.4% cash to debt for the interim period of fiscal 2010 and fiscal 2009, respectively. Leverage remains relatively high, at 49.4%, at the end of the first quarter of 2010, but this number has steadily trended downward since the 2005 debt issue.
Overlake Hospital Medical Center is located in Bellevue, Wash., an affluent suburb of Seattle.
"The rating reflects Overlake's very strong operating performance since the onset of its relationship with Group Health Cooperative of Puget Sound (Group Health) and the overall strength of its balance sheet," said Standard & Poor's credit analyst Kenneth Gacka.
In November 2004, Overlake and Group Health entered into an agreement whereby Overlake would become the provider of inpatient and emergency services for Group Health's members located to the east of Lake Washington.
Fiscal 2009 marked the first full year in which Group Health patients were admitted under the new agreement at Overlake. Both inpatient admissions and total surgeries increased dramatically in 2009 largely as a result of the Group Health patients and, to a lesser extent, population growth. Fiscal 2009's admissions increased by an impressive 28% to 20,812 in fiscal 2009 from 16,294 in fiscal 2007 (the last full fiscal year without the impact of Group Health volumes). Similarly, total surgeries increased by 18% to 15,713 in fiscal 2009 from fiscal 2007's 13,282. Emergency visits also rose during that period, but at a more modest 4.6%. Group Health now accounts for approximately 24% of Overlake's total discharges. Volumes for the first quarter of fiscal 2010 are mixed: Year-to-date volumes on inpatient and surgical activity are slightly lower, while outpatient and emergency volumes are slightly higher as compared to the same quarter of fiscal 2009.
As a result of the substantial volume increase and Overlake's prudent management of expenses during this period of extensive growth, Overlake's operations have improved significantly. For fiscal 2009, operating income rose impressively to $36.2 million (9.1% operating margin) from fiscal 2008's $11.1 million (3.4% operating margin). A large $34.5 million other-than-temporary impairment of investments reduced fiscal 2009 excess income to $10.7 million (a 2.9% profit margin), still generating good coverage of maximum annual debt service (MADS) of 2.7x. Interim results through the three months ended Sept. 30, 2009, show continued strong operating performance, with a 7.0% operating margin, 9.0% excess margin, and MADS coverage of 4.0x.
Overlake's balance sheet strength continues to improve with respect to several key metrics due to its enhanced operations and the amortization of its significant 2005 debt issuance. At the end of fiscal 2009, Overlake had $159.5 million in unrestricted cash, equal to a strong 173 days' cash on hand. The interim fiscal 2010 financials at Sept. 30, 2009 (unaudited), show $177.6 million in unrestricted cash, equal to 189 days' cash on hand. Unrestricted cash as a percent of long-term debt has steadily improved over the last several years, with 86.3% and 75.4% cash to debt for the interim period of fiscal 2010 and fiscal 2009, respectively. Leverage remains relatively high, at 49.4%, at the end of the first quarter of 2010, but this number has steadily trended downward since the 2005 debt issue.
Overlake Hospital Medical Center is located in Bellevue, Wash., an affluent suburb of Seattle.
Friday, November 13, 2009
CHINA'S OUTPUT, RETAIL SALES GATHER PACE IN OCTOBER
China said yesterday that massive government spending was paying off as a new wave of data showed the world's third-largest economy continued to strengthen, following the worst global crisis in decades.
Industrial production and retail sales picked up pace in October, while demand for Chinese exports improved, official data showed, putting the government's growth target of 8 per cent well within reach for 2009.
"Based on the October data, we have more reason to believe that the foundation for and confidence in achieving the full-year growth target have further strengthened," Sheng Laiyun, spokesman for the National Bureau of Statistics, told a news conference.
Beijing sees 8-per-cent growth as essential for job creation and keeping a lid social unrest in the country of 1.3 billion people.
Analysts said the data confirmed China's recovery was on track.
"The recovery appears to be broadening, with the drivers of economic growth shifting from stimulus-driven infrastructure projects to private investment and the improvement in exports," said Jing Ulrich, a Hong Kong-based economist with JP Morgan.
China's industrial output, which shows activity in the millions of factories and workshops around the country, expanded by 16.1 per cent in October from a year ago.
Its trade surplus nearly doubled last month from September, official data showed yesterday, indicating overseas demand for Chinese goods was strengthening.
The nation's trade surplus rose to US$23.99 billion (Bt798.6 billion) in October, up from $12.93 billion in September, the General Administration of Customs said in a statement on its website.
In the first 10 months of 2009, the trade surplus stood at $159.23 billion compared with $135.5 billion in the January to September period, customs authorities said.
Exports fell 13.8 per cent to $110.76 billion on-year in October, the best result since exports dropped by 2.8 per cent in December 2008 as the worldwide economic crisis began to set in.
Retail sales, the main measure of consumer spending, which the government sees as a key factor in boosting the economy, rose 16.2 per cent in October from a year ago, up from 15.5 per cent in September
"I think the contribution of consumption to economic growth will continue to rise because we can expect a consumption boom before the New Year and the Chinese New year," Sheng told reporters.
The nation's consumer price index, the main gauge of inflation, fell 0.5 per cent in October compared with the same month a year earlier, after falling 1.1 per cent in the first nine months of the year.
New Chinese bank loans dropped to 253 billion yuan (Bt121.9 billion) in October, the lowest monthly level since the beginning of the year, the central bank said.
The pace slowed after regulators told banks to rein in loan activity and step up risk management, while seasonal factors following the lending spree in the first half of year also played a role, economists said.
While the data was positive, some analysts warned the recovery was still too closely linked to the government's 4-trillion-yuan stimulus package unveiled a year ago and the massive bank lending.
Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said the heavy industrial manufacturing sector, cars and metals, was leading the recovery thanks to government spending.
"This profile can be sustained through the first half of 2010," simpfendorfer said.
"However the recovery remains unbalanced...What we are looking for is the recovery to broaden," he said.
Industrial production and retail sales picked up pace in October, while demand for Chinese exports improved, official data showed, putting the government's growth target of 8 per cent well within reach for 2009.
"Based on the October data, we have more reason to believe that the foundation for and confidence in achieving the full-year growth target have further strengthened," Sheng Laiyun, spokesman for the National Bureau of Statistics, told a news conference.
Beijing sees 8-per-cent growth as essential for job creation and keeping a lid social unrest in the country of 1.3 billion people.
Analysts said the data confirmed China's recovery was on track.
"The recovery appears to be broadening, with the drivers of economic growth shifting from stimulus-driven infrastructure projects to private investment and the improvement in exports," said Jing Ulrich, a Hong Kong-based economist with JP Morgan.
China's industrial output, which shows activity in the millions of factories and workshops around the country, expanded by 16.1 per cent in October from a year ago.
Its trade surplus nearly doubled last month from September, official data showed yesterday, indicating overseas demand for Chinese goods was strengthening.
The nation's trade surplus rose to US$23.99 billion (Bt798.6 billion) in October, up from $12.93 billion in September, the General Administration of Customs said in a statement on its website.
In the first 10 months of 2009, the trade surplus stood at $159.23 billion compared with $135.5 billion in the January to September period, customs authorities said.
Exports fell 13.8 per cent to $110.76 billion on-year in October, the best result since exports dropped by 2.8 per cent in December 2008 as the worldwide economic crisis began to set in.
Retail sales, the main measure of consumer spending, which the government sees as a key factor in boosting the economy, rose 16.2 per cent in October from a year ago, up from 15.5 per cent in September
"I think the contribution of consumption to economic growth will continue to rise because we can expect a consumption boom before the New Year and the Chinese New year," Sheng told reporters.
The nation's consumer price index, the main gauge of inflation, fell 0.5 per cent in October compared with the same month a year earlier, after falling 1.1 per cent in the first nine months of the year.
New Chinese bank loans dropped to 253 billion yuan (Bt121.9 billion) in October, the lowest monthly level since the beginning of the year, the central bank said.
The pace slowed after regulators told banks to rein in loan activity and step up risk management, while seasonal factors following the lending spree in the first half of year also played a role, economists said.
While the data was positive, some analysts warned the recovery was still too closely linked to the government's 4-trillion-yuan stimulus package unveiled a year ago and the massive bank lending.
Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong, said the heavy industrial manufacturing sector, cars and metals, was leading the recovery thanks to government spending.
"This profile can be sustained through the first half of 2010," simpfendorfer said.
"However the recovery remains unbalanced...What we are looking for is the recovery to broaden," he said.
Chiefs debate next step for recovery
No one doubts the global economy has recovered from the dark days of late 2008. But questions remain about how long the recovery will last, particularly as fiscal stimulus programmes run out of steam and central banks begin to tighten monetary policy.
For the Japanese motor giant Toyota,the policy today is "wait and see", said Ninnart Chaithirapinyo, vice-chairman of Toyota Motor Thailand.
The world's largest auto manufacturer will wait to see how economic trends develop as global stimulus programmes ease before committing to any new major investments, Mr Ninnart said at an economics conference held by Sumitomo Mitsui Banking Corporation.
"We need to see what the results of these stimulus programmes will be. Every country in the world has opened up spending. The question is, once fiscal stimulus stops,what will happen?" he asked.
Toyota's operations in Thailand are running at 80%of annual production capacity of 550,000 units.
Without clear signs of further growth,Toyota sees no need for additional investment to expand production at this time, Mr Ninnart said.
For the year to October, auto sales in Thailand are 18% lower than the same period last year, and sales are projected to contract by 15% for the full year.
Mr Ninnart noted that many countries in the region had implemented tax incentives to support strategic, labourintensive industries such as vehicle production.
Chin, for instance, has offered its consumers in the provinces subsidies for purchases of cars and motorcycles,India has cut taxes on new vehicles and Malaysia offers financial support for replacement purchases.
He rued the fact that Thailand, the largest automobile producer in Asean,had no definitive support measures for the industry to survive the current crisis.
Kan Trakulhoon, president and chief executive of the industrial conglomerate Siam Cement, said moves to integrate the Asean economies offered strong growth potential for Thai businesses,thanks to the country's favourable location in the region.
An integrated Asean represents a consumer market of 580 million people, he said, and up to 700 million if including southern China.
Mr Kan said Thai industries needed to increase their use of technology, creativity and innovation to increase value,and give consideration to global trends such as global warming and environmental protection.
He said Thailand had the potential to
serve as a financial and marketing hub for the region to complement its strengths in manufacturing.
But authorities should also rethink the tax treatment and other barriers to foreign workers, Mr Kan added, estimating that each expatriate worker, in addition to contributing needed skills to the workforce, also spends a considerable sum in the economy itself.Narongchai Akrasanee, chairman of the Export-Import Bank, said Asia would lead global economic growth for the next several years.
Asia now accounts for 26% of global GDP compared with 23% last year, he said. And the post-crisis landscape will shift away from western models to a more diverse range of democratic governance, while economic policy will shift from free market liberalism towards greater state regulation.
Ekniti Nitithanprapat, an economist and Finance Ministry spokesman, said Thailand's economic growth next year,projected at 3.3%, would continue to lag the economy's potential growth of 5% to 5.5%.
But the 1.43-trillion-baht Thai Khem Kaeng infrastructure investment programme, running from 2010-12, will help lift growth and provide the infrastructure needed for medium-term gains.
For the Japanese motor giant Toyota,the policy today is "wait and see", said Ninnart Chaithirapinyo, vice-chairman of Toyota Motor Thailand.
The world's largest auto manufacturer will wait to see how economic trends develop as global stimulus programmes ease before committing to any new major investments, Mr Ninnart said at an economics conference held by Sumitomo Mitsui Banking Corporation.
"We need to see what the results of these stimulus programmes will be. Every country in the world has opened up spending. The question is, once fiscal stimulus stops,what will happen?" he asked.
Toyota's operations in Thailand are running at 80%of annual production capacity of 550,000 units.
Without clear signs of further growth,Toyota sees no need for additional investment to expand production at this time, Mr Ninnart said.
For the year to October, auto sales in Thailand are 18% lower than the same period last year, and sales are projected to contract by 15% for the full year.
Mr Ninnart noted that many countries in the region had implemented tax incentives to support strategic, labourintensive industries such as vehicle production.
Chin, for instance, has offered its consumers in the provinces subsidies for purchases of cars and motorcycles,India has cut taxes on new vehicles and Malaysia offers financial support for replacement purchases.
He rued the fact that Thailand, the largest automobile producer in Asean,had no definitive support measures for the industry to survive the current crisis.
Kan Trakulhoon, president and chief executive of the industrial conglomerate Siam Cement, said moves to integrate the Asean economies offered strong growth potential for Thai businesses,thanks to the country's favourable location in the region.
An integrated Asean represents a consumer market of 580 million people, he said, and up to 700 million if including southern China.
Mr Kan said Thai industries needed to increase their use of technology, creativity and innovation to increase value,and give consideration to global trends such as global warming and environmental protection.
He said Thailand had the potential to
serve as a financial and marketing hub for the region to complement its strengths in manufacturing.
But authorities should also rethink the tax treatment and other barriers to foreign workers, Mr Kan added, estimating that each expatriate worker, in addition to contributing needed skills to the workforce, also spends a considerable sum in the economy itself.Narongchai Akrasanee, chairman of the Export-Import Bank, said Asia would lead global economic growth for the next several years.
Asia now accounts for 26% of global GDP compared with 23% last year, he said. And the post-crisis landscape will shift away from western models to a more diverse range of democratic governance, while economic policy will shift from free market liberalism towards greater state regulation.
Ekniti Nitithanprapat, an economist and Finance Ministry spokesman, said Thailand's economic growth next year,projected at 3.3%, would continue to lag the economy's potential growth of 5% to 5.5%.
But the 1.43-trillion-baht Thai Khem Kaeng infrastructure investment programme, running from 2010-12, will help lift growth and provide the infrastructure needed for medium-term gains.
EARNINGS DATA TO GUIDE INVESTORS
Investors will get some guidance about the economy this week from data issued not by the government but by big retailers in the form of third-quarter earnings reports.
The financial markets are still trying to get a sense of whether consumers, while worried about unemployment, are nonetheless willing to spend, especially as the holiday seaspend, especially as the holiday season approaches. Retailers' earnings reports and outlooks for the future sould give them clues about the economic recovery. Investors will also get a first look at on consumer sentiment during November.
"For this economy to really come back, we have to depend on the consumer," said Yu-Dee Chang, principal of ACE Investment Strategists.
The greatest obstacle to increased consumer spending is unemployment. And it's not only the unemployed who aren't spending, it's also those who are afraid of losing their jobs.
Investors did find some positives in the Labour Department's largely bleak October employment report on Friday. While the government said unemployment has risen above 10 per cent for the first time since 1983, the market managed a modest advance as investors theorised that the weak labour market would mean the Federal Reserve will keep interest rates low for some time.
Still, while traders ultimately didn't panic about the jobs data, they do know that the report could bode poorly for consumer spending, the largest component of the nation's economic acctivity.
Retailers' monthly sales reports released on Thursday showed shoppers were still were not splurging as unemployment climbed and credit remained tight. And the Fed said consumers borrowed less for a record eight straight month in September.
"Consumers aren't going to spend as much if they are worried about their jobs," said Ray Harrison Financial Group in Citrus Heights, California.
A hesitant consumer is particularly troubling heading into the holiday shopping season, and economists say longer term, stronger consumer spending will be necessary to sustain a recovery.
Analysts say, however, that some retailers may be the beneficiaries of consumers' continuing caution, which has made many of them migrate to the lowest-priced stores.
"People will still spend," Harrison said. "They will just adjust where they spend."
Wal-Mart Stores, America's biggest retailer, has seen an influx of price-conscious shoppers and is expected to announce higher third-quarter earnings, on Thursday.
Last month, the discount retailer said it expects sales to grow this year and increase at a faster pace next year.
Other retailers, including teen retailer Abercrombic & Fitch, and department stores Macy's and JC Penney are also due to report earnings this week. Wall Street will want to know if the companies actually made money from higher sales, not because of cost cutting.
An uptick in spending will give the markets an added boost of confidence, said peter Worden, co-founder of FreeStockcharts.com.
"When the holidays are actually here, people do tend to rationalise," Worden said. "They say, 'well, Christmas only comes once a year,' and then they go spend."
Meanwhile, the market will get another reading on Friday on consumers' mind-set. The Reuters/University of Michigan consumer sentiment index is expected to rise to 72.0 in the early part of November from 70.6 in October, according to economists' estimates.
Mixed economic data in recent weeks have made it difficult for investors to get a sense of where the economy is headed.
While the market often jumps at good news, investors can't shake off fears that the economy won't be able to maintain the 3.5 per cent annual pace of growth seen in the third quarter as government stimulus programmes wind down.
"Investors are going to have to take emotion out of this market if we are going to have a recovery," Harrison said. "The underlining is still there. The economy is improving.
The financial markets are still trying to get a sense of whether consumers, while worried about unemployment, are nonetheless willing to spend, especially as the holiday seaspend, especially as the holiday season approaches. Retailers' earnings reports and outlooks for the future sould give them clues about the economic recovery. Investors will also get a first look at on consumer sentiment during November.
"For this economy to really come back, we have to depend on the consumer," said Yu-Dee Chang, principal of ACE Investment Strategists.
The greatest obstacle to increased consumer spending is unemployment. And it's not only the unemployed who aren't spending, it's also those who are afraid of losing their jobs.
Investors did find some positives in the Labour Department's largely bleak October employment report on Friday. While the government said unemployment has risen above 10 per cent for the first time since 1983, the market managed a modest advance as investors theorised that the weak labour market would mean the Federal Reserve will keep interest rates low for some time.
Still, while traders ultimately didn't panic about the jobs data, they do know that the report could bode poorly for consumer spending, the largest component of the nation's economic acctivity.
Retailers' monthly sales reports released on Thursday showed shoppers were still were not splurging as unemployment climbed and credit remained tight. And the Fed said consumers borrowed less for a record eight straight month in September.
"Consumers aren't going to spend as much if they are worried about their jobs," said Ray Harrison Financial Group in Citrus Heights, California.
A hesitant consumer is particularly troubling heading into the holiday shopping season, and economists say longer term, stronger consumer spending will be necessary to sustain a recovery.
Analysts say, however, that some retailers may be the beneficiaries of consumers' continuing caution, which has made many of them migrate to the lowest-priced stores.
"People will still spend," Harrison said. "They will just adjust where they spend."
Wal-Mart Stores, America's biggest retailer, has seen an influx of price-conscious shoppers and is expected to announce higher third-quarter earnings, on Thursday.
Last month, the discount retailer said it expects sales to grow this year and increase at a faster pace next year.
Other retailers, including teen retailer Abercrombic & Fitch, and department stores Macy's and JC Penney are also due to report earnings this week. Wall Street will want to know if the companies actually made money from higher sales, not because of cost cutting.
An uptick in spending will give the markets an added boost of confidence, said peter Worden, co-founder of FreeStockcharts.com.
"When the holidays are actually here, people do tend to rationalise," Worden said. "They say, 'well, Christmas only comes once a year,' and then they go spend."
Meanwhile, the market will get another reading on Friday on consumers' mind-set. The Reuters/University of Michigan consumer sentiment index is expected to rise to 72.0 in the early part of November from 70.6 in October, according to economists' estimates.
Mixed economic data in recent weeks have made it difficult for investors to get a sense of where the economy is headed.
While the market often jumps at good news, investors can't shake off fears that the economy won't be able to maintain the 3.5 per cent annual pace of growth seen in the third quarter as government stimulus programmes wind down.
"Investors are going to have to take emotion out of this market if we are going to have a recovery," Harrison said. "The underlining is still there. The economy is improving.
Sunday, November 8, 2009
ALL ROADS LEAD TO CHINA
China is one of the most interesting markets to look into and Thai entrepreneurs have shown a great deal of interest in learning more about it, a leading banker said at a recent seminar held in Bangkok recently.
"Everybody wants to connect to China these days as no country has been able to progress as fast and well-planned as China has," said Chartsiri Sophonpanich,the president of Bangkok Bank Plc.
China, now dubbed the world's growth engine, is growing at 8%, the rate expected for this year.
The country, which in the past decade has become the global manufacturing hub, grew by 8.9% year-on-year in the third quarter thanks to the massive spending undertaken by the government to avert a global meltdown. China has used a $585-billion stimulus plan and $1.27 trillion in bank lending this year to drive the nation's recovery, which has helped pull other regional economies out of the slump as well.
The spending spree by the Chinese has helped show a modest improvement in exports and retail sales, but public spending has contributed the most to the country's growth,at 88% of GDP in the first half.
This is one of the reasons why Chartsiri: World the global focus is growth engine shifting toward China, added Kosit Panpiemras, the executive chairman of BBL.
"China has a lot of potential and Asean members can benefit from this," Mr Kosit,a former industry minister,said during the seminar.
He said that despite the 11.9% decline in global trade,China is the best chance for entrepreneurs during the hard times.
"The data released show that domestic consumption continued to grow in China," Mr Kosit said.
China late last month announced September economic data, with exports rising 11.8% month-on-month to $115.9 billion but falling 15.2% year-on-year.
The data released by China's General Administration of Customs showed that imports increased 17% from August to $103 billion in September but were down 3.5% year-on-year.
Foreign trade in the first nine months this year reached $1.56 trillion, down 20.9% from the same period last year.The country's exports in the first three quarters reached $846.7 billion, down 21.3% from the same period last year,while imports fell 20.4% year-on-year to 711.2 billion, resulting a 26% decline in trade surplus to $135.5 billion.
Mr Kosit said that the growing importance of China globally and regionally would mean that various alliances would start to tilt in China's favour.
"The world is changing fast and China is one market that is growing despite all other markets taking a major hit," he said.
"This means that we would build our relations with China the same way we built our relations with Japan," he said,pointing to the fact that Japanese inves-tors are now the largest investor group in Thailand.
Citing the progress made by the Chinese government which was evident from the recent 60th anniversary celebration of modern China, Mr Kosit said that if China could do so much in 60 years, what it would do in the next 60 years would be interesting.
Guan Mu, the Chinese ambassador to Thailand, said that the economic growth made China one of the most attractive destinations for investment and the planned opening of the various free-trade agreements with trading blocs such as Asean would make investing in China more alluring.
The Asean-China FTA is set to be implemented on Jan 1 next year and Mr Mu says that the opportunities after that would be tremendous for trade and investment-related issues.
Future plans for Thailand and Asean as a whole is to have greater rail, air and land links with China thus providing greater access.
The value of trade between Asean
and China is set to rise to $50 billion by 2010 while investments could surge to $1.5 billion,with more than 4 million tourists visiting the two regions.Kosit: The next Mr Mu also Japan for Thailand echoed similar views of other panelists, saying that the economic prowess o f China today will sooner or later be a force to reckon with.
"Today China's economy is the world's third largest and analysts expect it to soon get to becoming the world's second largest," he said, adding that its foreign exchange reserve of $2.27 trillion is now the world's largest and continues to grow.
Mr Mu added that the past few decades has seen a sharp increase in the standard of living of the people in the country and this is partly from the increased investments from both the private and public sectors.
He said that megastructures that once took months or years to build are now popping up in every corner of the country.
For those who are looking to enter China, Mr Mu said that the basic requirement is to study the people and culture. This is a necessary step for all investors who plan to undertake investments or trade with China.
"It is not just the economic benefit that needs to be studied, you have to know the people and culture as well,"he said to an audience of more than 200 attending the seminar.
He said that the Chinese government was promoting various projects in various areas in order to uplift the standard of living of the masses which may help lower the gap between the urban and the rural people.
The other step that the government is undertaking is to shore up domestic consumption as a way to offset the reliance on the export sector.
"Everybody wants to connect to China these days as no country has been able to progress as fast and well-planned as China has," said Chartsiri Sophonpanich,the president of Bangkok Bank Plc.
China, now dubbed the world's growth engine, is growing at 8%, the rate expected for this year.
The country, which in the past decade has become the global manufacturing hub, grew by 8.9% year-on-year in the third quarter thanks to the massive spending undertaken by the government to avert a global meltdown. China has used a $585-billion stimulus plan and $1.27 trillion in bank lending this year to drive the nation's recovery, which has helped pull other regional economies out of the slump as well.
The spending spree by the Chinese has helped show a modest improvement in exports and retail sales, but public spending has contributed the most to the country's growth,at 88% of GDP in the first half.
This is one of the reasons why Chartsiri: World the global focus is growth engine shifting toward China, added Kosit Panpiemras, the executive chairman of BBL.
"China has a lot of potential and Asean members can benefit from this," Mr Kosit,a former industry minister,said during the seminar.
He said that despite the 11.9% decline in global trade,China is the best chance for entrepreneurs during the hard times.
"The data released show that domestic consumption continued to grow in China," Mr Kosit said.
China late last month announced September economic data, with exports rising 11.8% month-on-month to $115.9 billion but falling 15.2% year-on-year.
The data released by China's General Administration of Customs showed that imports increased 17% from August to $103 billion in September but were down 3.5% year-on-year.
Foreign trade in the first nine months this year reached $1.56 trillion, down 20.9% from the same period last year.The country's exports in the first three quarters reached $846.7 billion, down 21.3% from the same period last year,while imports fell 20.4% year-on-year to 711.2 billion, resulting a 26% decline in trade surplus to $135.5 billion.
Mr Kosit said that the growing importance of China globally and regionally would mean that various alliances would start to tilt in China's favour.
"The world is changing fast and China is one market that is growing despite all other markets taking a major hit," he said.
"This means that we would build our relations with China the same way we built our relations with Japan," he said,pointing to the fact that Japanese inves-tors are now the largest investor group in Thailand.
Citing the progress made by the Chinese government which was evident from the recent 60th anniversary celebration of modern China, Mr Kosit said that if China could do so much in 60 years, what it would do in the next 60 years would be interesting.
Guan Mu, the Chinese ambassador to Thailand, said that the economic growth made China one of the most attractive destinations for investment and the planned opening of the various free-trade agreements with trading blocs such as Asean would make investing in China more alluring.
The Asean-China FTA is set to be implemented on Jan 1 next year and Mr Mu says that the opportunities after that would be tremendous for trade and investment-related issues.
Future plans for Thailand and Asean as a whole is to have greater rail, air and land links with China thus providing greater access.
The value of trade between Asean
and China is set to rise to $50 billion by 2010 while investments could surge to $1.5 billion,with more than 4 million tourists visiting the two regions.Kosit: The next Mr Mu also Japan for Thailand echoed similar views of other panelists, saying that the economic prowess o f China today will sooner or later be a force to reckon with.
"Today China's economy is the world's third largest and analysts expect it to soon get to becoming the world's second largest," he said, adding that its foreign exchange reserve of $2.27 trillion is now the world's largest and continues to grow.
Mr Mu added that the past few decades has seen a sharp increase in the standard of living of the people in the country and this is partly from the increased investments from both the private and public sectors.
He said that megastructures that once took months or years to build are now popping up in every corner of the country.
For those who are looking to enter China, Mr Mu said that the basic requirement is to study the people and culture. This is a necessary step for all investors who plan to undertake investments or trade with China.
"It is not just the economic benefit that needs to be studied, you have to know the people and culture as well,"he said to an audience of more than 200 attending the seminar.
He said that the Chinese government was promoting various projects in various areas in order to uplift the standard of living of the masses which may help lower the gap between the urban and the rural people.
The other step that the government is undertaking is to shore up domestic consumption as a way to offset the reliance on the export sector.
Price rise raises concern
The International Monetary Fund said yesterday it shared the Hong Kong government's concern that the city could face sharp asset price inflation, as data showed home sale and purchase agreements nearly doubled in October.
"We share the authorities' concerns that a credit-asset price cycle could take hold, leading to a sharp run-up in prices for certain real and financial assets,"the International Monetary Fund said in an annual report on Hong Kong.
"While such asset price movements are part of the natural equilibrating mechanism of the Hong Kong economy, there is a risk that prices could become driven more by short-term liquidity conditions,divorced from fundamental forces of supply and demand."
Government data yesterday showed that sale and purchase agreements, with stamp duty paid, for residential property units in the city soared 97% from a year earlier to 9,300. But they fell 24% from September, indicating the announcement of tighter mortgage lending rules may have dampened sentiment.
The Washington-based IMF also said it had raised its GDP forecasts for Hong Kong following a recent improvement in the economy. It forecast a 2% decline in GDP this year, against a 3.5% decline previously, and 5%GDP growth in 2010,up from 3.5% previously.
Hong Kong Chief Executive Donald Tsang warned last month of the risk of a property bubble and said the government could release more land for residential property development.
"We welcome the consideration that is now being given to increasing the supply of land to the market as one of the possible means to help moderate potential property price surges," the IMF said.
Property prices have surged by 28%overall this year, and price increases for luxury property have topped 40%, as wealthy mainland Chinese have snapped up luxury apartments. Last month, a luxury flat sold for a world record HK$71,280(US$9,200) per square foot.
That prompted the central bank, the Hong Kong Monetary Authority, to raise the downpayment to buy luxury property and cap mortgage loans for mass-market property.
"We share the authorities' concerns that a credit-asset price cycle could take hold, leading to a sharp run-up in prices for certain real and financial assets,"the International Monetary Fund said in an annual report on Hong Kong.
"While such asset price movements are part of the natural equilibrating mechanism of the Hong Kong economy, there is a risk that prices could become driven more by short-term liquidity conditions,divorced from fundamental forces of supply and demand."
Government data yesterday showed that sale and purchase agreements, with stamp duty paid, for residential property units in the city soared 97% from a year earlier to 9,300. But they fell 24% from September, indicating the announcement of tighter mortgage lending rules may have dampened sentiment.
The Washington-based IMF also said it had raised its GDP forecasts for Hong Kong following a recent improvement in the economy. It forecast a 2% decline in GDP this year, against a 3.5% decline previously, and 5%GDP growth in 2010,up from 3.5% previously.
Hong Kong Chief Executive Donald Tsang warned last month of the risk of a property bubble and said the government could release more land for residential property development.
"We welcome the consideration that is now being given to increasing the supply of land to the market as one of the possible means to help moderate potential property price surges," the IMF said.
Property prices have surged by 28%overall this year, and price increases for luxury property have topped 40%, as wealthy mainland Chinese have snapped up luxury apartments. Last month, a luxury flat sold for a world record HK$71,280(US$9,200) per square foot.
That prompted the central bank, the Hong Kong Monetary Authority, to raise the downpayment to buy luxury property and cap mortgage loans for mass-market property.
US FIRMS SPENDING MORE ON EQUIPMENT, SOFTWARE
US businesses are finally willing to spend more money on equipment, a healthy sign for the economic recovery.
For the first time in nearly two years, companies put up more money for a category called "equipment and software" in the third quarter.
It is not a huge growth rate - just 1.1 per cent, according to the government's report last week on US economic growth. Still, equipment and software are a broad and important category of items made by such companies as Deere, EMC and General Electric. It includes computers, software, medical equipment, industrial engines, autos, planes, furniture and farm machinery.
Business spending is especially crucial now because consumers, who normally drive a recovery, are not doing so this time. Many shoppers are too squeezed by job losses, flat wages, tight credit and high debt.
The higher spending does not necessarily mean companies are swimming in cash. Some businesses managed to save enough during the recession to spend more now, analysts said. Others cannot get loans to expand their plants and instead must upgrade the equipment they have, analysts said.
When businesses spend more on equipment, jobs can eventually be created at companies that make the machines and the parts that go into them.
Some makers of technology-related equipment see better business conditions. At EMC, which sells data storage machines and software, CEO Joe Tucci said he was starting to see customers become more comfortable with ramping up spending on information technology.
EMC said it expected a "slow but steady recovery". For now, though, most businesses are reluctant to hire. To meet any pick-up in demand, they are relying instead on workers they already have.
The economy is not likely to create many jobs until a broad-based recovery has taken hold.
Edward Yardeni, president and chief investment strategist at Yardeni Research, predicts businesses will boost their spending on capital equipment at around a 10-per-cent annualised rate in the current quarter. And he thinks it will continue rising after that as businesses' revenue and profits improve.
For now, companies will probably focus spending on computers, software and other technology that can boost the productivity of their existing workers, he said.
The need to frequently upgrade their technology gives many businesses another reason to spend, Yardeni added.
The government's report last week on gross domestic product - the value of all goods and services produced in the United States - showed the economy grew again in the third quarter for the first time in more than a year. It was the most convincing sign yet that a recovery has begun and that the worst and longest recession since the 1930s is over.
Herb Goetschius, president of McNichols, a Florida maker of metal gratings and other products, said his revenue was starting to rise after customer demand "fell of a cliff" late last year and earlier this year.
Some companies he sells to are spending more to replace outdated equipment and also to maintain and repair existing plants and machines. All that is boosting his revenue.
"To maximise storage at existing plants, companies are building mezzanines instead of wasting the square footage," Goetschius said. "We see our products used for that."
Business spending is especially crucial now because consumers, who normally drive a recovery, are not doing so this time.
For the first time in nearly two years, companies put up more money for a category called "equipment and software" in the third quarter.
It is not a huge growth rate - just 1.1 per cent, according to the government's report last week on US economic growth. Still, equipment and software are a broad and important category of items made by such companies as Deere, EMC and General Electric. It includes computers, software, medical equipment, industrial engines, autos, planes, furniture and farm machinery.
Business spending is especially crucial now because consumers, who normally drive a recovery, are not doing so this time. Many shoppers are too squeezed by job losses, flat wages, tight credit and high debt.
The higher spending does not necessarily mean companies are swimming in cash. Some businesses managed to save enough during the recession to spend more now, analysts said. Others cannot get loans to expand their plants and instead must upgrade the equipment they have, analysts said.
When businesses spend more on equipment, jobs can eventually be created at companies that make the machines and the parts that go into them.
Some makers of technology-related equipment see better business conditions. At EMC, which sells data storage machines and software, CEO Joe Tucci said he was starting to see customers become more comfortable with ramping up spending on information technology.
EMC said it expected a "slow but steady recovery". For now, though, most businesses are reluctant to hire. To meet any pick-up in demand, they are relying instead on workers they already have.
The economy is not likely to create many jobs until a broad-based recovery has taken hold.
Edward Yardeni, president and chief investment strategist at Yardeni Research, predicts businesses will boost their spending on capital equipment at around a 10-per-cent annualised rate in the current quarter. And he thinks it will continue rising after that as businesses' revenue and profits improve.
For now, companies will probably focus spending on computers, software and other technology that can boost the productivity of their existing workers, he said.
The need to frequently upgrade their technology gives many businesses another reason to spend, Yardeni added.
The government's report last week on gross domestic product - the value of all goods and services produced in the United States - showed the economy grew again in the third quarter for the first time in more than a year. It was the most convincing sign yet that a recovery has begun and that the worst and longest recession since the 1930s is over.
Herb Goetschius, president of McNichols, a Florida maker of metal gratings and other products, said his revenue was starting to rise after customer demand "fell of a cliff" late last year and earlier this year.
Some companies he sells to are spending more to replace outdated equipment and also to maintain and repair existing plants and machines. All that is boosting his revenue.
"To maximise storage at existing plants, companies are building mezzanines instead of wasting the square footage," Goetschius said. "We see our products used for that."
Business spending is especially crucial now because consumers, who normally drive a recovery, are not doing so this time.
Saturday, October 31, 2009
B60bn credit allocated to shore up rice prices
Rice insurance prices in sync with global forces The Bank for Agriculture and Agricultural Co-operatives will set aside 60 billion baht in credit to help prop up rice prices during the upcoming harvest.
Finance Minister Korn Chatikavanij said the loan facilities next month would support the government's broader intention to shift state farm policies toward a price-insurance programme.
One-third of the 60 billion baht in credit will be allocated to local rice mills as working capital to purchase paddy from local farmers. Another 20 billion baht will be offered directly to farmers as loans, with the remaining 20 billion going to the Public Warehouse Organisation to finance the purchase of up to 2 million tonnes of rice during the upcoming harvest.
Authorities earlier this month inaugurated a crop insurance programme starting with corn, insisting that coverage will eventually be expanded to all locally grown major agricultural commodities.
The insurance scheme, which has a budget of 43 billion baht this year from the government's 1.45-trillion-baht Thai Khem Kaeng infrastructure programme, will compensate farmers if market prices fall below previously established benchmark prices.
In the initial stages, the insurance programme is expected to cost 18 billion baht to cover corn and tapioca farmers, and 25 billion for rice farmers.
The programme will replace the long-established subsidy policy where the state-owned BAAC offers farmers loans pledged against their upcoming harvest.
The BAAC has incurred liabilities of well over 100 billion baht in recent years as pledging prices are typically set well above actual market prices, giving farmers an incentive to sell their produce to the state.
The government says the insurance programme will incur significantly less cost for taxpayers, as the state will pay only the difference in benchmark prices and market prices to farmers, rather than buy produce outright. Authorities also expect to save significant amounts by eliminating storage and logistics expenses incurred by state agencies under the previous subsidy programme.
Benchmark prices would be set based on global market forces, he said.
"The benchmark price that will be set by the government under the insurance programme will be a price that the government can expect to receive when selling into the global market," he said.
Mr Korn said another advantage of the insurance programme was its capacity to directly reach greater numbers of farmers when compared with previous crop-pledging schemes.
A total of 390,000 corn farmers have registered for the insurance programme, compared with only 80,000 beneficiaries of the most recent pledging programme.
An estimated 3 million rice, corn and tapioca farmers are expected to participate in the insurance programme this year, representing nearly half of the country's farm households.
Mr Korn said benchmark prices for rice paddy would be based on rice with moisture content of no more than 15%.
The Thai Rice Exporters Association yesterday set prices for 100% grade-B white rice at $525 a metric tonne, unchanged from last week.
The price of 25% white rice was set at $416 a tonne, down from $414 last week.
Finance Minister Korn Chatikavanij said the loan facilities next month would support the government's broader intention to shift state farm policies toward a price-insurance programme.
One-third of the 60 billion baht in credit will be allocated to local rice mills as working capital to purchase paddy from local farmers. Another 20 billion baht will be offered directly to farmers as loans, with the remaining 20 billion going to the Public Warehouse Organisation to finance the purchase of up to 2 million tonnes of rice during the upcoming harvest.
Authorities earlier this month inaugurated a crop insurance programme starting with corn, insisting that coverage will eventually be expanded to all locally grown major agricultural commodities.
The insurance scheme, which has a budget of 43 billion baht this year from the government's 1.45-trillion-baht Thai Khem Kaeng infrastructure programme, will compensate farmers if market prices fall below previously established benchmark prices.
In the initial stages, the insurance programme is expected to cost 18 billion baht to cover corn and tapioca farmers, and 25 billion for rice farmers.
The programme will replace the long-established subsidy policy where the state-owned BAAC offers farmers loans pledged against their upcoming harvest.
The BAAC has incurred liabilities of well over 100 billion baht in recent years as pledging prices are typically set well above actual market prices, giving farmers an incentive to sell their produce to the state.
The government says the insurance programme will incur significantly less cost for taxpayers, as the state will pay only the difference in benchmark prices and market prices to farmers, rather than buy produce outright. Authorities also expect to save significant amounts by eliminating storage and logistics expenses incurred by state agencies under the previous subsidy programme.
Benchmark prices would be set based on global market forces, he said.
"The benchmark price that will be set by the government under the insurance programme will be a price that the government can expect to receive when selling into the global market," he said.
Mr Korn said another advantage of the insurance programme was its capacity to directly reach greater numbers of farmers when compared with previous crop-pledging schemes.
A total of 390,000 corn farmers have registered for the insurance programme, compared with only 80,000 beneficiaries of the most recent pledging programme.
An estimated 3 million rice, corn and tapioca farmers are expected to participate in the insurance programme this year, representing nearly half of the country's farm households.
Mr Korn said benchmark prices for rice paddy would be based on rice with moisture content of no more than 15%.
The Thai Rice Exporters Association yesterday set prices for 100% grade-B white rice at $525 a metric tonne, unchanged from last week.
The price of 25% white rice was set at $416 a tonne, down from $414 last week.
CBRE spots opportunity in Cambodia
CB Richard Ellis Group Inc (CBRE) is opening a new office in Phnom Penh to expand its footprint in Southeast Asia. The company aims to capitalise on growing demand for professional real estate services and is also planning ahead to serve the market on Cambodia's southern coast.
"The opening of an office in Cambodia will allow CBRE to provide research,consultancy, valuation and advisory services in the country and will strengthen our broader platform in Southeast Asia,"said Daniel Parkes, country manager of CBRE Cambodia.
He said land prices in Cambodia had eased back from the sharp rises experienced since 2005. The market could be compared to Thailand, in particular Bangkok in the late 1980s, and Vietnam in the early 1990s -with a lot of potential for growth, few modern developments but latent demand.
The good news, he said, is that the government is very pro-investment and is offering a tax cap of 20%. It already offers 99-year leases to foreigners and is considering full foreign freehold.
Cambodia's Council of Ministers in July approved a sub-decree covering new co-ownership regulations, allowing legal ownership of individual apartments or condominium units, which paves the way for a law allowing foreign ownership of some property.
The new co-ownership regulations will make it possible to own units within a larger building without having title to the land it occupies. The goal is to guarantee and protect rights of legal holders in apartments or condominiums for coownership. It will also facilitate management on behalf of co-owners who live in the apartments or condominiums.
As well, the new regulations facilitate co-ownership for sale, exchange, donation, inheritance, permanent rental and collateralising of private holdings as personal ownership.
Foreigners have not been able to own Cambodian land or housing in the past.They could only rent property for their business or residence. Also, foreigners cannot buy land near borders with neighbouring countries because it could affect national sovereignty and security.
"The market is not without challenges and is coming off a low base," said Mr Parkes."There is no doubt that per-capita income in Phnom Penh is continuing to improve, with a surprisingly high number of private cars, trucks and bikes.
"Inbound retailers, while they lack a modern centre, are enjoying good business - for example, pizza franchises. There is only one modern high-rise office, Canadia Tower, which is soon to be completed. Projected rents are comparable to those of Bangkok's Grade A space."
In 2008, the GDP of Cambodia reached $9.2 billion, with tourism contributing $1.72 billion. Culture has played a key role in Cambodia in the past three decades and has created many jobs. From 2000 to 2008, GDP per capita in Cambodia increased by 158% from $286.90 to $739.
Take-up of industrial property is slow but major global companies are already buying land for assembly and manufacturing facilities, said Mr Parkes. There is also a fledgling condominium market and Korean developers have been active. There has also been a boom in new villas, with prices of up to $1 million each.
Chris Brooke, president and chief executive officer of CBRE in Asia,said the company's presence in the market would facilitate the provision of professional property services,while also supporting regional clients who have an interest in a unique emerging market.
As the capital, Phnom Penh has become a major focal point for economic and business development in recent years, said Mr Brooke. This region offers enormous business potential for further growth of domestic and foreign businesses.
In particular, backed by investment resulting from positive sentiment,Cambodia's real estate market is expected to continue its growth momentum in the years to come, particularly the resort property market along the coastline.
In the future CBRE will consider a resort office on the south coast, with the opening of the Ream airport, said Mr Parkes.
The company already has two major contracts. It is the sole agent for marketing exclusive villas on a private island, which are priced from $200,000 and come with hotel management and guaranteed returns. The company also has a key advisory role for Koh Rong, an island being positioned as an eco-tourism destination and a potential rival to Phuket and Koh Samui in Thailand.
"The opening of an office in Cambodia will allow CBRE to provide research,consultancy, valuation and advisory services in the country and will strengthen our broader platform in Southeast Asia,"said Daniel Parkes, country manager of CBRE Cambodia.
He said land prices in Cambodia had eased back from the sharp rises experienced since 2005. The market could be compared to Thailand, in particular Bangkok in the late 1980s, and Vietnam in the early 1990s -with a lot of potential for growth, few modern developments but latent demand.
The good news, he said, is that the government is very pro-investment and is offering a tax cap of 20%. It already offers 99-year leases to foreigners and is considering full foreign freehold.
Cambodia's Council of Ministers in July approved a sub-decree covering new co-ownership regulations, allowing legal ownership of individual apartments or condominium units, which paves the way for a law allowing foreign ownership of some property.
The new co-ownership regulations will make it possible to own units within a larger building without having title to the land it occupies. The goal is to guarantee and protect rights of legal holders in apartments or condominiums for coownership. It will also facilitate management on behalf of co-owners who live in the apartments or condominiums.
As well, the new regulations facilitate co-ownership for sale, exchange, donation, inheritance, permanent rental and collateralising of private holdings as personal ownership.
Foreigners have not been able to own Cambodian land or housing in the past.They could only rent property for their business or residence. Also, foreigners cannot buy land near borders with neighbouring countries because it could affect national sovereignty and security.
"The market is not without challenges and is coming off a low base," said Mr Parkes."There is no doubt that per-capita income in Phnom Penh is continuing to improve, with a surprisingly high number of private cars, trucks and bikes.
"Inbound retailers, while they lack a modern centre, are enjoying good business - for example, pizza franchises. There is only one modern high-rise office, Canadia Tower, which is soon to be completed. Projected rents are comparable to those of Bangkok's Grade A space."
In 2008, the GDP of Cambodia reached $9.2 billion, with tourism contributing $1.72 billion. Culture has played a key role in Cambodia in the past three decades and has created many jobs. From 2000 to 2008, GDP per capita in Cambodia increased by 158% from $286.90 to $739.
Take-up of industrial property is slow but major global companies are already buying land for assembly and manufacturing facilities, said Mr Parkes. There is also a fledgling condominium market and Korean developers have been active. There has also been a boom in new villas, with prices of up to $1 million each.
Chris Brooke, president and chief executive officer of CBRE in Asia,said the company's presence in the market would facilitate the provision of professional property services,while also supporting regional clients who have an interest in a unique emerging market.
As the capital, Phnom Penh has become a major focal point for economic and business development in recent years, said Mr Brooke. This region offers enormous business potential for further growth of domestic and foreign businesses.
In particular, backed by investment resulting from positive sentiment,Cambodia's real estate market is expected to continue its growth momentum in the years to come, particularly the resort property market along the coastline.
In the future CBRE will consider a resort office on the south coast, with the opening of the Ream airport, said Mr Parkes.
The company already has two major contracts. It is the sole agent for marketing exclusive villas on a private island, which are priced from $200,000 and come with hotel management and guaranteed returns. The company also has a key advisory role for Koh Rong, an island being positioned as an eco-tourism destination and a potential rival to Phuket and Koh Samui in Thailand.
Tuesday, October 20, 2009
EXPERTS FRET OVER RISING GOVT SPENDING
The economy is gradually recovering but government spending is getting out of hand and is a cause for concern, experts said yesterday. Pongpanu Svetarundra, director-general of the Comptroller-General's Department yesterday expressed his concern over the rising government spending on some items.
He said current spending accounts for 88 per cent of the government's total budget, leaving very little for capital spending.
"For every Bt100, Bt88 goes towards current spending (such as official salaries) and only Bt12 is left for investment spending," he said at the seminar hosted by the Fiscal Policy Office. Taking into account the government plan to borrow Bt800 billion to finance public investment over the next three years, it would run a fiscal deficit of about 7 per cent of gross domestic product, he said.
Public debt will jump to about 60 per cent of GDP in the next few years, up from the current 40-per-cent level.
He warned about spending on healthcare schemes for state officials, subsidy for farm products, financial support to local governments and debt repayment, which could go out of hand. "Previously the government spent about Bt20 billion or Bt30 billion on healthcare bills of state officials, now it has ballooned to about Bt60 billion a year," said Pongpanu.
There were fat on such spending that need to be eliminate, he warned.
The government would have to shoulder debt repayment of about Bt150 billion a year. "The interest payment on Bt800 billion would amount to about Bt20 billion a year," he lamented. The government's farm produce price-shoring scheme and universal healthcare subsidy programme are also increasing rapidly, he lamented.
"Over the next two or three years, such spending would be unsustainable," he said.
Pongpanu yesterday met noted economist Ammar Siamwalla at the Thailand Development Research Institute to discuss fiscal issues.
The government needs to take action now, otherwise it would not be able to balance the budget, he warned.
The government ran a fiscal deficit of about Bt500 billion for the previous fiscal year ended September this year. Expenditure was estimated at Bt1.9 trillion and revenue at Bt1.4 trillion.
The government has projected that public debt would peak in the next five years and then drop, based on the assumption that the economy would grow at about 4-5 per cent.
Dusit Nontanakorn, chairman of the Thai Chamber of Commerce, said the private sector was most worried about political instability. He said local firms had started to build inventory as more orders from foreign importers were coming.
Thanawat Polvichai, an economist at the University of Thai Chamber of Commerce, said that economic recovery remained fragile and consumers were still unsure about the future.
He said current spending accounts for 88 per cent of the government's total budget, leaving very little for capital spending.
"For every Bt100, Bt88 goes towards current spending (such as official salaries) and only Bt12 is left for investment spending," he said at the seminar hosted by the Fiscal Policy Office. Taking into account the government plan to borrow Bt800 billion to finance public investment over the next three years, it would run a fiscal deficit of about 7 per cent of gross domestic product, he said.
Public debt will jump to about 60 per cent of GDP in the next few years, up from the current 40-per-cent level.
He warned about spending on healthcare schemes for state officials, subsidy for farm products, financial support to local governments and debt repayment, which could go out of hand. "Previously the government spent about Bt20 billion or Bt30 billion on healthcare bills of state officials, now it has ballooned to about Bt60 billion a year," said Pongpanu.
There were fat on such spending that need to be eliminate, he warned.
The government would have to shoulder debt repayment of about Bt150 billion a year. "The interest payment on Bt800 billion would amount to about Bt20 billion a year," he lamented. The government's farm produce price-shoring scheme and universal healthcare subsidy programme are also increasing rapidly, he lamented.
"Over the next two or three years, such spending would be unsustainable," he said.
Pongpanu yesterday met noted economist Ammar Siamwalla at the Thailand Development Research Institute to discuss fiscal issues.
The government needs to take action now, otherwise it would not be able to balance the budget, he warned.
The government ran a fiscal deficit of about Bt500 billion for the previous fiscal year ended September this year. Expenditure was estimated at Bt1.9 trillion and revenue at Bt1.4 trillion.
The government has projected that public debt would peak in the next five years and then drop, based on the assumption that the economy would grow at about 4-5 per cent.
Dusit Nontanakorn, chairman of the Thai Chamber of Commerce, said the private sector was most worried about political instability. He said local firms had started to build inventory as more orders from foreign importers were coming.
Thanawat Polvichai, an economist at the University of Thai Chamber of Commerce, said that economic recovery remained fragile and consumers were still unsure about the future.
Saturday, October 17, 2009
MORE IRREGULARITIES UNCOVERED
The Rural Doctor Society has found more irregularities in the procurement of medical equipฌment under the Thai Khemkhaeng package with instances of the same items being purฌchased under different names and at different prices.
Dr Arak Wongworachart, a former chairperson of the society, said his team is now investigating the procurement of medical equipment after also finding that some items, such as sterilisers, had been unnecessarily imported when these items could have been purchased from local manufacturers.
Dr Kriangsak Watcharanukulkiet, the society's chairperson, said the society also found inequity in budget allocations under the Thai Khemkhaeng stimulus package.
The provinces which enjoyed a higher allocation compared to nearby areas were Surat Thani, Nakhon Si Thammarat, Nakhon Ratchasima, Ratchaburi, and Prae. All of these provinces are overseen by some politicians.
"Surat Thani has been allocated more than Bt3 billion to construct hospital buildings while more than Bt2 billion has been allocated to Nakhon Ratchasima province," Dr Kriangsaksaid. "The society will continue to investigate the irregularities in this budget allocation."
Kriangsak added that the society's director will review all medical items required to be purchased under the Thai Khemkhaeng budget and submit the results to the Public Health Ministry.
Kriangsak said Prime Minister Abhisit Vejjajiva has appointed Dr Banlu Siripanich, a former deputy permanent secretary at the Public Health Ministry, and former police chief Pol General Pratin Santiprabhob to an independent panel with the authority to summon officials and politicians to provide information to the committee.
"We have to open the way for the independent committee to fully investigate this issue. We are ready to support and provide any information that would assist in the investigation," he said. "No one pressured us and asked us to suspend the investigation."
Abhisit has appointed Banlu as a chairperson of the committee while Pratin was appointed deputy chairman.
The independent committee comprises Dr Vichai Chokevivat, Government Pharmaceutical Organisation's board chairperson, Dr Vachira Botpiboon, Nakhon Ratchasima's Chumpoung Hospital director, Dr Nivatchai Sujarit, Nan province hospital's director, and Banjerd Singkaneti, a former member of the Assets Examination Committee. This committee will take 30 days for the investigation.
"I am confident that I can identify the person behind the scandal," said Pratin.
"We will follow the evidence that we already have. These can lead us to the source of the corruption," he added
Dr Arak Wongworachart, a former chairperson of the society, said his team is now investigating the procurement of medical equipment after also finding that some items, such as sterilisers, had been unnecessarily imported when these items could have been purchased from local manufacturers.
Dr Kriangsak Watcharanukulkiet, the society's chairperson, said the society also found inequity in budget allocations under the Thai Khemkhaeng stimulus package.
The provinces which enjoyed a higher allocation compared to nearby areas were Surat Thani, Nakhon Si Thammarat, Nakhon Ratchasima, Ratchaburi, and Prae. All of these provinces are overseen by some politicians.
"Surat Thani has been allocated more than Bt3 billion to construct hospital buildings while more than Bt2 billion has been allocated to Nakhon Ratchasima province," Dr Kriangsaksaid. "The society will continue to investigate the irregularities in this budget allocation."
Kriangsak added that the society's director will review all medical items required to be purchased under the Thai Khemkhaeng budget and submit the results to the Public Health Ministry.
Kriangsak said Prime Minister Abhisit Vejjajiva has appointed Dr Banlu Siripanich, a former deputy permanent secretary at the Public Health Ministry, and former police chief Pol General Pratin Santiprabhob to an independent panel with the authority to summon officials and politicians to provide information to the committee.
"We have to open the way for the independent committee to fully investigate this issue. We are ready to support and provide any information that would assist in the investigation," he said. "No one pressured us and asked us to suspend the investigation."
Abhisit has appointed Banlu as a chairperson of the committee while Pratin was appointed deputy chairman.
The independent committee comprises Dr Vichai Chokevivat, Government Pharmaceutical Organisation's board chairperson, Dr Vachira Botpiboon, Nakhon Ratchasima's Chumpoung Hospital director, Dr Nivatchai Sujarit, Nan province hospital's director, and Banjerd Singkaneti, a former member of the Assets Examination Committee. This committee will take 30 days for the investigation.
"I am confident that I can identify the person behind the scandal," said Pratin.
"We will follow the evidence that we already have. These can lead us to the source of the corruption," he added
Tuesday, October 13, 2009
BOJ MULLS WINDING DOWN CRISIS SOPS
Japan's central bank kicked off a two-day meeting yesterday to discuss whether to end emergency measures aimed at keeping credit flowing to cash-strapped companies during the economic slump.
The Bank of Japan has been fighting the fall-out from the global economic downturn with super-low interest rates and purchases of corporate debt.
Some of its emergency steps are due to expire at the end of the year and markets are waiting to see whether the Bank will extend them.
Japan's Financial Services Minister Shizuka Kamei has accused the BoJ of "talking in its sleep" with its remarks suggesting that the emergency measures may be withdrawn. But analysts expect the Bank of ignore the political pressure, noting that few companies are currently taking advantage of the scheme anyway.
The Bank looks likely to end out-right purchases of corporate debt at the end of December, though an announcement may not come until its October 30 meeting, said JP Morgan Securities economist Masamichi Adachi.
"Regardless of when the decision is made, the BoJ probably will communicate that this is not the first step of tightening, but just the withdrawal of an emergency measure," he wrote in a note.
One BoJ board member, Miyako Suda, said last month that the need for the steps to support corporate financing was decreasing as the global financial crisis abated.
Analysts agree that the worst of the credit crunch appears to be over.
"Arguably, the crisis point for corporate funding, which is the target of the BoJ's extraordinary measures, has passed," said Naomi Fink, an investment strategist at Bank of Tokyo-Mitsubishi UFJ.
The Bank's policy committee is widely expected to leave its key interest rate on hold at 0.1 per cent when it announced its decision on Wednesday.
Japan's economy returned to positive growth in April-June, limping out of a year-long recession, but high unemployment, weak consumer spending and stubborn deflation are seen as posing risks to the recovery.
The Bank of Japan has been fighting the fall-out from the global economic downturn with super-low interest rates and purchases of corporate debt.
Some of its emergency steps are due to expire at the end of the year and markets are waiting to see whether the Bank will extend them.
Japan's Financial Services Minister Shizuka Kamei has accused the BoJ of "talking in its sleep" with its remarks suggesting that the emergency measures may be withdrawn. But analysts expect the Bank of ignore the political pressure, noting that few companies are currently taking advantage of the scheme anyway.
The Bank looks likely to end out-right purchases of corporate debt at the end of December, though an announcement may not come until its October 30 meeting, said JP Morgan Securities economist Masamichi Adachi.
"Regardless of when the decision is made, the BoJ probably will communicate that this is not the first step of tightening, but just the withdrawal of an emergency measure," he wrote in a note.
One BoJ board member, Miyako Suda, said last month that the need for the steps to support corporate financing was decreasing as the global financial crisis abated.
Analysts agree that the worst of the credit crunch appears to be over.
"Arguably, the crisis point for corporate funding, which is the target of the BoJ's extraordinary measures, has passed," said Naomi Fink, an investment strategist at Bank of Tokyo-Mitsubishi UFJ.
The Bank's policy committee is widely expected to leave its key interest rate on hold at 0.1 per cent when it announced its decision on Wednesday.
Japan's economy returned to positive growth in April-June, limping out of a year-long recession, but high unemployment, weak consumer spending and stubborn deflation are seen as posing risks to the recovery.
Monday, October 12, 2009
Russian economy sink more than forecast
Russian President Dmitry Medvedev said yesterday that Russia's economy was hit harder than expected by the global financial crisis, but Kremlin measures helped the country avoid the worst-case scenario.
Russia's gross domestic product will drop by about 7.5% this year, compared with earlier forecasts of 3% to 3.5%, and industrial production fell by nearly 14%in the first half of 2009, Mr Medvedev said.
"I must admit that we sunk below our lowest expectations," Mr Medvedev told the state-owned Channel One network in an interview that aired yesterday."The real damage to our economy was far greater that anything predicted by ourselves, the World Bank and other expert organisations."
Russia is facing its first recession in a decade, with gross domestic product down by an annual 10.9% in the second quarter of the year. The recession followed a crash in commodity prices, flagging foreign investment and a squeeze on credit markets.
Mr Medvedev said that Russia faces a significant budget deficit next year that will surpass the September figure of almost 5% of GDP."But it's not a tragedy,not a disaster for the economy," he said.
Russia's gross domestic product will drop by about 7.5% this year, compared with earlier forecasts of 3% to 3.5%, and industrial production fell by nearly 14%in the first half of 2009, Mr Medvedev said.
"I must admit that we sunk below our lowest expectations," Mr Medvedev told the state-owned Channel One network in an interview that aired yesterday."The real damage to our economy was far greater that anything predicted by ourselves, the World Bank and other expert organisations."
Russia is facing its first recession in a decade, with gross domestic product down by an annual 10.9% in the second quarter of the year. The recession followed a crash in commodity prices, flagging foreign investment and a squeeze on credit markets.
Mr Medvedev said that Russia faces a significant budget deficit next year that will surpass the September figure of almost 5% of GDP."But it's not a tragedy,not a disaster for the economy," he said.
Sunday, October 11, 2009
STRUCTURAL REFORMS URGENTLY NEEDED
Despite upbeat global economic indicators, Thailand could be in for hard times without changes in the way business is done By Nina Suebsukcharoen
"Under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it
Although there are clear signals that the global financial system is improving, and Thailand's institutions also show potential to grow again, there is work to be done yet to ensure a bright future, said Anusorn Tamajai, dean of Rangsit University's Faculty of Economics.
He added that belief that the global financial giants will recover is clearly demonstrated by investor confidence lately in their stocks.On top of this, governments are steadily getting the money they pumped into these institutions back.
This improved outlook of course benefits Thai financial institutions, which have weathered the global economic storm better than some of their counterparts elsewhere because they were not so heavily invested overseas and also had low exposure to collateralised debt obligations (CDOs). These institutions now have the potential to grow due to two key factors - the government's intention to borrow up to 800 billion baht for investment,and the improved performance by some export industries such as cars and electronics.
But while this is very encouraging, Mr Anusorn warned that unless real structural economic reforms are implemented, Thailand may still be in for hard times ahead.
"There have to be financial, regulatory and legal reforms," he said."For example,under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it.
"So this leads to the nominee system, and this sort of system is not straightforward. We say we have opened up, but if that's so we should make it very clear and open up the legal framework.
"We say we have opened up but our laws say there is a limitation. What then happens is that those who want to invest or do business here use the nominee system, and nominees are an avenue to corruption."
Aside from this, tax reform is sorely needed,said Mr Anusorn, who is also director of the Research Center for Economic and Business Reform based at Rangsit. He then identified two objectives in implementing tax reform - to increase the country's competitive edge and to straighten out uneven income distribution.
Although rural people across the world tend to earn less than urbanites, Mr Anusorn noted that in some countries there are better welfare and tax systems in place to alleviate the problem.
He added that a lack of strategic vision was underlined by the Administrative Court injunction on Sept 29 suspending the operating permits of 76 industrial projects in the Map Ta Phut industrial zone in Rayong province.
The government has been faulted for not doing enough to ensure that these big industrial projects had passed proper environmental and health impact screening.
"There are 76 projects worth over 400 billion baht, but definitely for investment and economic growth to be sustainable, development has to be linked to quality of life of local residents and the environment," said Mr Anusorn.
"However, because we don't have strategic and integrated planning, we give the goahead for projects without looking to see whether they should proceed."
He said many of the projects should not have been been allowed in the first place,moved elsewhere or else the laws should be amended to make it clear that it is possible to expand existing industrial parks.
"The court ordered their suspension because there are points which indicate that this cannot be done and people are really affected."
While Mr Anusorn expects the government to find a way to get the projects started again,he noted that the issue has already affected the economy and undermined investor confidence.
"This doesn't mean we shouldn't be concerned about the environment and quality of life. The issue is both legal and regulatory - it has to be cleared up so that this sort of a risk doesn't occur."
He said another example of how good plans can be torpedoed is former prime minister Thaksin Shinawatra's idea to turn Prachuap Khiri Khan into the equivalent of the French Riviera. Today there are plans afoot to locate heavy industries in the province.
Mr Anusorn is mostly against trying to work out a compromise without changes in the legal structure because that would only stretch the problem out, leading to a breaking point.
"As long as you have a structural problem you need structural reform to solve the root of the problem. Constantly compromising won't solve it."
Despite these deep-rooted problems Thailand is expected to post 3-4% economic growth in the fourth quarter of this year, with expansion to continue next year. But Mr Anusorn noted the growth here is the lowest in the region, and said this was because of the chances missed to draw investment when cash was flowing to Asia recently.
"There is room for growth and growth is not a problem in the next six months if there is political stability and government stimulus measures such as Thai Khem Kaeng move ahead according to the plan," said Mr Anusorn.
The Thai stock market is also expected to climb to 800 to 850 points from this quarter onward to the first quarter of next year. This is because not only does the whole bourse lag other Asian markets certain key sectors such as energy, petrochemicals, property and banks also trail.
"But if private investment doesn't revive in the second half of next year when stimulus through government spending starts easing,then the economy will not move ahead,"said Mr Anusorn."The initial assumption is that government spending will occur and will also induce private investment to take place."
Where bonds and fixed-income markets are concerned, interest rates will rise if the economy starts expanding and there is a revival of private investment. Government spending on its own will not push these rates up, but it would prevent them from falling any further, said Mr Anusorn.
"Under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it
Although there are clear signals that the global financial system is improving, and Thailand's institutions also show potential to grow again, there is work to be done yet to ensure a bright future, said Anusorn Tamajai, dean of Rangsit University's Faculty of Economics.
He added that belief that the global financial giants will recover is clearly demonstrated by investor confidence lately in their stocks.On top of this, governments are steadily getting the money they pumped into these institutions back.
This improved outlook of course benefits Thai financial institutions, which have weathered the global economic storm better than some of their counterparts elsewhere because they were not so heavily invested overseas and also had low exposure to collateralised debt obligations (CDOs). These institutions now have the potential to grow due to two key factors - the government's intention to borrow up to 800 billion baht for investment,and the improved performance by some export industries such as cars and electronics.
But while this is very encouraging, Mr Anusorn warned that unless real structural economic reforms are implemented, Thailand may still be in for hard times ahead.
"There have to be financial, regulatory and legal reforms," he said."For example,under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it.
"So this leads to the nominee system, and this sort of system is not straightforward. We say we have opened up, but if that's so we should make it very clear and open up the legal framework.
"We say we have opened up but our laws say there is a limitation. What then happens is that those who want to invest or do business here use the nominee system, and nominees are an avenue to corruption."
Aside from this, tax reform is sorely needed,said Mr Anusorn, who is also director of the Research Center for Economic and Business Reform based at Rangsit. He then identified two objectives in implementing tax reform - to increase the country's competitive edge and to straighten out uneven income distribution.
Although rural people across the world tend to earn less than urbanites, Mr Anusorn noted that in some countries there are better welfare and tax systems in place to alleviate the problem.
He added that a lack of strategic vision was underlined by the Administrative Court injunction on Sept 29 suspending the operating permits of 76 industrial projects in the Map Ta Phut industrial zone in Rayong province.
The government has been faulted for not doing enough to ensure that these big industrial projects had passed proper environmental and health impact screening.
"There are 76 projects worth over 400 billion baht, but definitely for investment and economic growth to be sustainable, development has to be linked to quality of life of local residents and the environment," said Mr Anusorn.
"However, because we don't have strategic and integrated planning, we give the goahead for projects without looking to see whether they should proceed."
He said many of the projects should not have been been allowed in the first place,moved elsewhere or else the laws should be amended to make it clear that it is possible to expand existing industrial parks.
"The court ordered their suspension because there are points which indicate that this cannot be done and people are really affected."
While Mr Anusorn expects the government to find a way to get the projects started again,he noted that the issue has already affected the economy and undermined investor confidence.
"This doesn't mean we shouldn't be concerned about the environment and quality of life. The issue is both legal and regulatory - it has to be cleared up so that this sort of a risk doesn't occur."
He said another example of how good plans can be torpedoed is former prime minister Thaksin Shinawatra's idea to turn Prachuap Khiri Khan into the equivalent of the French Riviera. Today there are plans afoot to locate heavy industries in the province.
Mr Anusorn is mostly against trying to work out a compromise without changes in the legal structure because that would only stretch the problem out, leading to a breaking point.
"As long as you have a structural problem you need structural reform to solve the root of the problem. Constantly compromising won't solve it."
Despite these deep-rooted problems Thailand is expected to post 3-4% economic growth in the fourth quarter of this year, with expansion to continue next year. But Mr Anusorn noted the growth here is the lowest in the region, and said this was because of the chances missed to draw investment when cash was flowing to Asia recently.
"There is room for growth and growth is not a problem in the next six months if there is political stability and government stimulus measures such as Thai Khem Kaeng move ahead according to the plan," said Mr Anusorn.
The Thai stock market is also expected to climb to 800 to 850 points from this quarter onward to the first quarter of next year. This is because not only does the whole bourse lag other Asian markets certain key sectors such as energy, petrochemicals, property and banks also trail.
"But if private investment doesn't revive in the second half of next year when stimulus through government spending starts easing,then the economy will not move ahead,"said Mr Anusorn."The initial assumption is that government spending will occur and will also induce private investment to take place."
Where bonds and fixed-income markets are concerned, interest rates will rise if the economy starts expanding and there is a revival of private investment. Government spending on its own will not push these rates up, but it would prevent them from falling any further, said Mr Anusorn.
Thursday, October 8, 2009
Confidence inches up for fourth month
Consumer confidence climbed for the fourth consecutive month in September in anticipation of an economic recovery driven by government stimulus spending,according to a survey by the University of the Thai Chamber of Commerce.
September's index rose to 75.6 from 74.5 in August,73.4 in July and 72.5 in June, reflecting hopes that the country would soon emerge from recession.
The government plans to spend more than one trillion baht on 6,000 projects covering transport, logistics, health and education over three years to spur economic growth.
"It's the fourth month that the index has gained, but it is still lower than 100 points for the 63rd month," said Vachira Kunthawethep, a UTCC economist. A score of 100 is seen as normal.
"This reflects consumers' persistent lack of confidence in the general situation,especially with regard to the ongoing domestic political strife which may have adverse effects on the economic recovery and future employment."
In the survey of 2,242 respondents nationwide, the scores edged up from August for the economy to 68.4 from 67.4, job opportunities to 67.3 from 66.4,and future income to 91.0 from 89.4.
Mr Vachira said clearer signs that the economy will recover also encouraged people to start spending,
The index gauges decisions on large purchases such as cars and houses, and investment expansion.
"Consumer confidence has bottomed out," said Thanavath Phonvichai, a UTCC economist."However, it remains to be seen if the recovery will be sustained, as we have to wait for the outcomes of key situations in October, in particular, constitutional amendments and the Administrative Court injunction to halt 76 investment projects mostly in the Map Ta Phut industrial estate."
Mr Thanavath predicted the economic recovery would definitely be affected if controversy over the industrial investment projects was prolonged.
September's index rose to 75.6 from 74.5 in August,73.4 in July and 72.5 in June, reflecting hopes that the country would soon emerge from recession.
The government plans to spend more than one trillion baht on 6,000 projects covering transport, logistics, health and education over three years to spur economic growth.
"It's the fourth month that the index has gained, but it is still lower than 100 points for the 63rd month," said Vachira Kunthawethep, a UTCC economist. A score of 100 is seen as normal.
"This reflects consumers' persistent lack of confidence in the general situation,especially with regard to the ongoing domestic political strife which may have adverse effects on the economic recovery and future employment."
In the survey of 2,242 respondents nationwide, the scores edged up from August for the economy to 68.4 from 67.4, job opportunities to 67.3 from 66.4,and future income to 91.0 from 89.4.
Mr Vachira said clearer signs that the economy will recover also encouraged people to start spending,
The index gauges decisions on large purchases such as cars and houses, and investment expansion.
"Consumer confidence has bottomed out," said Thanavath Phonvichai, a UTCC economist."However, it remains to be seen if the recovery will be sustained, as we have to wait for the outcomes of key situations in October, in particular, constitutional amendments and the Administrative Court injunction to halt 76 investment projects mostly in the Map Ta Phut industrial estate."
Mr Thanavath predicted the economic recovery would definitely be affected if controversy over the industrial investment projects was prolonged.
Sunday, October 4, 2009
US decline forges new world order
The crisis is redrawing the world map of economic power as the influence of US consumer spending declines and major emerging markets like China and India take the lead, finance chiefs said.
"One of the legacies of this crisis may be a recognition of changed economic power relations," World Bank president Robert Zoellick said on Friday in Istanbul ahead of annual meetings of the World Bank and the International Monetary Fund.
"Recent forecasts show that China and India are helping to pull the global economy out of recession.... A multipolar economy less reliant on the US consumer will be a more stable world economy," he added.
Consumer spending accounts for around two-thirds of economic activity in the United States - by far the world's biggest economy - and experts say lower spending could have radical effects on the US's world standing.
The IMF on Thursday forecast emerging and developing economies would grow 5.1% in 2010- in contrast with just 1.3% in advanced economies.
China's economy was projected to grow by 9% next year and India's by 6.4%- far ahead of 1.5% expansion in the US economy.
"The American engine is not as strong as it was before," IMF managing director Dominique Strauss-Kahn said in a speech in which he called for emerging markets to be given more say in the IMF's decisions.
"Emerging economies are becoming more and more the real partners," he said.
In a BBC World debate on the crisis held in Istanbul, Niall Ferguson, a professor of business administration at Harvard Business School in the United States,said:"The crisis has accelerated a shift from west to east."
"That means rebalancing not only economically... but rebalancing geopolitically, which I think makes some people nervous," Mr Ferguson said.
"For the foreseeable future, the US will be growing at a much lower rate while China is in fact growing at a much faster rate," he added.
The shift is having far-reaching effects around the world.
In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the United States or, like Brazil, they have more links with China.
"If it was not for China, we wouldn't have seen positive growth in the second quarter in Brazil," Ilan Goldfajn, chief economist at Brazilian bank ItauดUnibanco, said at an IMF-organised conference in Istanbul.
Mr Goldfajn said the world would now start to "rebalance towards Asia."
Marek Belka, head of the IMF's European department, cautioned however that for European countries,"demand from Asia is not enough - the recovery rests on the shoulders of European consumers and investors."
This upheaval is changing institutions too, with the G20 group of developed and emerging economies turning into the main forum for international economic policy and strengthening the IMF as a guarantor of global stability.
The IMF has bailed out countries around the world in recent months and its members have tripled its lending resources to $750 billion (515 billion).
Mr Strauss-Kahn has more ambitious plans yet and is seeking more funding to strengthen the IMF's role as a global lender of last resort.
"Our ultimate goal is financial and economic stability," he said in a speech in Istanbul at which he outlined plans to even out global economic imbalances.
The G20 summit in the US city of Pittsburgh last month also agreed to give more voting shares to emerging and developing economies in the IMF and the World Bank - a reflection of the shift in economic power.
"One of the legacies of this crisis may be a recognition of changed economic power relations," World Bank president Robert Zoellick said on Friday in Istanbul ahead of annual meetings of the World Bank and the International Monetary Fund.
"Recent forecasts show that China and India are helping to pull the global economy out of recession.... A multipolar economy less reliant on the US consumer will be a more stable world economy," he added.
Consumer spending accounts for around two-thirds of economic activity in the United States - by far the world's biggest economy - and experts say lower spending could have radical effects on the US's world standing.
The IMF on Thursday forecast emerging and developing economies would grow 5.1% in 2010- in contrast with just 1.3% in advanced economies.
China's economy was projected to grow by 9% next year and India's by 6.4%- far ahead of 1.5% expansion in the US economy.
"The American engine is not as strong as it was before," IMF managing director Dominique Strauss-Kahn said in a speech in which he called for emerging markets to be given more say in the IMF's decisions.
"Emerging economies are becoming more and more the real partners," he said.
In a BBC World debate on the crisis held in Istanbul, Niall Ferguson, a professor of business administration at Harvard Business School in the United States,said:"The crisis has accelerated a shift from west to east."
"That means rebalancing not only economically... but rebalancing geopolitically, which I think makes some people nervous," Mr Ferguson said.
"For the foreseeable future, the US will be growing at a much lower rate while China is in fact growing at a much faster rate," he added.
The shift is having far-reaching effects around the world.
In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the United States or, like Brazil, they have more links with China.
"If it was not for China, we wouldn't have seen positive growth in the second quarter in Brazil," Ilan Goldfajn, chief economist at Brazilian bank ItauดUnibanco, said at an IMF-organised conference in Istanbul.
Mr Goldfajn said the world would now start to "rebalance towards Asia."
Marek Belka, head of the IMF's European department, cautioned however that for European countries,"demand from Asia is not enough - the recovery rests on the shoulders of European consumers and investors."
This upheaval is changing institutions too, with the G20 group of developed and emerging economies turning into the main forum for international economic policy and strengthening the IMF as a guarantor of global stability.
The IMF has bailed out countries around the world in recent months and its members have tripled its lending resources to $750 billion (515 billion).
Mr Strauss-Kahn has more ambitious plans yet and is seeking more funding to strengthen the IMF's role as a global lender of last resort.
"Our ultimate goal is financial and economic stability," he said in a speech in Istanbul at which he outlined plans to even out global economic imbalances.
The G20 summit in the US city of Pittsburgh last month also agreed to give more voting shares to emerging and developing economies in the IMF and the World Bank - a reflection of the shift in economic power.
Improved tax collections key to balance
The government should raise tax revenues by 10-11% per year to achieve a balanced budget, according to Supavud Saicheua, managing director of Phatra Securities.
In the 2009 fiscal year that ended on Sept 30, the government set a tax revenue target of 1.47 trillion baht and collected 1.36 trillion in the first 11 months. For fiscal 2010, it is forecasting tax revenue of 1.35 trillion baht,8.5%lower than in the previous fiscal year.
"The government's attempt to run a budget deficit this year and borrow up to 800 billion baht to invest in the Thai Khem Kaeng scheme will drive public debt to 60% of gross domestic product," he said.
The Finance Ministry earlier projected that public debt should not exceed 50% of GDP as tax revenues would be only 15% of GDP. In developed countries, governments can collect tax revenues as high as 25-30% of GDP, so public debt can soar to 70% of GDP.
"We forecast that if the Thai economy expands less than 3% per year,the country will face high public debt problems," said Dr Supavud at a seminar last week.
The government projects public debt will shrink based on the assumption that the Thai economy grows by 5.5%per year and inflation stands at 3.5%,meaning nominal GDP growth of 9%.
The government will try to generate additional revenue from other means besides tax increases, because the public could not accept a higher tax burden,he said. However, it could generate more tax revenue when the inflation rate surges as product prices rise and more value-added tax would be collected.
Dr Supavud believes the Thai economy will pick up next year but that a rapid or V-shaped recovery is unlikely because China, a major growth engine for the global economy, would have slower growth next year.
The Chinese government slowed its economic stimulus plan to prevent a bubble economy. This is a risk for the Thai economy and Thailand will probably have a W-shaped recovery, he said.
"The Thai Khem Kaeng programme allows the government to inject money into the economy, thereby increasing the competitiveness of the country,"he said.
Thailand should have a strategic plan to make itself an investment hub for international companies, he added.Alternatively, the country could use its strength in agriculture to develop agricultural products, or develop new tourism markets such as home stays for senior citizens or retirees, he said.
Surathien Chaktaranon, an independent academic, said private investment would not pick up even if exports improve following the global economic rebound.
"Some investors are still worried about political risks and some would relocate their plants to other countries if local politics remain uncertain," he said.
In the 2009 fiscal year that ended on Sept 30, the government set a tax revenue target of 1.47 trillion baht and collected 1.36 trillion in the first 11 months. For fiscal 2010, it is forecasting tax revenue of 1.35 trillion baht,8.5%lower than in the previous fiscal year.
"The government's attempt to run a budget deficit this year and borrow up to 800 billion baht to invest in the Thai Khem Kaeng scheme will drive public debt to 60% of gross domestic product," he said.
The Finance Ministry earlier projected that public debt should not exceed 50% of GDP as tax revenues would be only 15% of GDP. In developed countries, governments can collect tax revenues as high as 25-30% of GDP, so public debt can soar to 70% of GDP.
"We forecast that if the Thai economy expands less than 3% per year,the country will face high public debt problems," said Dr Supavud at a seminar last week.
The government projects public debt will shrink based on the assumption that the Thai economy grows by 5.5%per year and inflation stands at 3.5%,meaning nominal GDP growth of 9%.
The government will try to generate additional revenue from other means besides tax increases, because the public could not accept a higher tax burden,he said. However, it could generate more tax revenue when the inflation rate surges as product prices rise and more value-added tax would be collected.
Dr Supavud believes the Thai economy will pick up next year but that a rapid or V-shaped recovery is unlikely because China, a major growth engine for the global economy, would have slower growth next year.
The Chinese government slowed its economic stimulus plan to prevent a bubble economy. This is a risk for the Thai economy and Thailand will probably have a W-shaped recovery, he said.
"The Thai Khem Kaeng programme allows the government to inject money into the economy, thereby increasing the competitiveness of the country,"he said.
Thailand should have a strategic plan to make itself an investment hub for international companies, he added.Alternatively, the country could use its strength in agriculture to develop agricultural products, or develop new tourism markets such as home stays for senior citizens or retirees, he said.
Surathien Chaktaranon, an independent academic, said private investment would not pick up even if exports improve following the global economic rebound.
"Some investors are still worried about political risks and some would relocate their plants to other countries if local politics remain uncertain," he said.
Stimulus impact muted by lack of knowledge improvements
Thailand's competitiveness should definitely increase with a boost from the government's Thai Khem Kaeng stimulus programme covering more than 6,000 development projects.
But the degree of the increase is still debatable, as most of the 1.43 trillion baht in funds over the next three years will go to infrastructure development or construction projects.
According to Suwit Sappavitthayasiri,senior economist at the Fiscal Policy Research Institute, infrastructure development generally contributes no more than 10% of the factors that will raise competitiveness or/and productivity.
"Infrastructure investment does not play a critical role in raising competitiveness as we understand it. Human resource development, capital, education, public health, good government policies and political stability instead are what matter," he said.
"The second economic stimulus package will undeniably stimulate economic growth, but will not raise productivity much, as for productivity or competitiveness alike we need to focus on people's quality and their health."
Mr Suwit said that while rough amounts of spending and the number of projects are available from promoters of the stimulus programme, in-depth detail is lacking on how each investment project could increase productivity.
The programme does aim, however,to create 1.1 million jobs in three years and promote growth of about 5% a year.
The cabinet on Oct 13 is scheduled to reconsider investment projects under the programme, as the government expects to have an extra 150 billion baht available for investment given rising revenues with the economic recovery.
Arkhom Termpittayapaisith, the National Economic and Social Development Board's deputy secretary-general, said the investments would be separated into three groups.
They would go mainly to strengthen food and energy security and increase productivity in the agriculture and industrial sectors, upgrade mass transit,restore tourism and promote a creative economy. The programme also covers education quality improvement and a knowledge-based society.
In an earlier plan, projects for imme-diate implementation were estimated at 1.06 trillion baht in the 2010 fiscal budget, covering water development,logistics, alternative energy, tourism infrastructure and education. The priorities are water management, at 17% of the total value, and transport at 335.9 billion baht (40%), including maintenance of highways, rural roads and mass-transit projects.
But the degree of the increase is still debatable, as most of the 1.43 trillion baht in funds over the next three years will go to infrastructure development or construction projects.
According to Suwit Sappavitthayasiri,senior economist at the Fiscal Policy Research Institute, infrastructure development generally contributes no more than 10% of the factors that will raise competitiveness or/and productivity.
"Infrastructure investment does not play a critical role in raising competitiveness as we understand it. Human resource development, capital, education, public health, good government policies and political stability instead are what matter," he said.
"The second economic stimulus package will undeniably stimulate economic growth, but will not raise productivity much, as for productivity or competitiveness alike we need to focus on people's quality and their health."
Mr Suwit said that while rough amounts of spending and the number of projects are available from promoters of the stimulus programme, in-depth detail is lacking on how each investment project could increase productivity.
The programme does aim, however,to create 1.1 million jobs in three years and promote growth of about 5% a year.
The cabinet on Oct 13 is scheduled to reconsider investment projects under the programme, as the government expects to have an extra 150 billion baht available for investment given rising revenues with the economic recovery.
Arkhom Termpittayapaisith, the National Economic and Social Development Board's deputy secretary-general, said the investments would be separated into three groups.
They would go mainly to strengthen food and energy security and increase productivity in the agriculture and industrial sectors, upgrade mass transit,restore tourism and promote a creative economy. The programme also covers education quality improvement and a knowledge-based society.
In an earlier plan, projects for imme-diate implementation were estimated at 1.06 trillion baht in the 2010 fiscal budget, covering water development,logistics, alternative energy, tourism infrastructure and education. The priorities are water management, at 17% of the total value, and transport at 335.9 billion baht (40%), including maintenance of highways, rural roads and mass-transit projects.
Ministry seeks Creative Economy Office
In a bid to maximise the benefits of the Creative Economy, Creative Thailand project, the Commerce Ministry will next week propose that the government set up a Creative Economy Office to smooth its implementation.
The office will directly handle the allocation of the scheme's Bt20.13-billion budget from the government, to ensure that it is spent on the right activities and creates the maximum benefit for the Kingdom.
Deputy Commerce Minister Alongkorn Pollabutr said the ministry needed the new office to smooth operations of the scheme's projects and increase the efficiency of its budget management.
"The goal of the Creative Thailand project is sustainable development. Having the office will ensure that every government implements the policy. In particular, the improved budget allocation should create trade growth," said Alongkorn.
Approval of the creation of the new office will be submitted to a meeting of the Creative Economy committee, led by Prime Minister Abhisit Vejjajiva, on Wednesday.
Initially, the new agency will have an operating budget of Bt3 billion. All government units working on Creative Economy projects must transfer part of their human resources and delegate some of their tasks related to the Creative Economy scheme to the new agency.
Those organisations are the ministry's Intellectual Property Rights Centre and Office of Product Value Development; the Information Communications and Technology Ministry; the Culture Ministry; and the Science and Technology Ministry.
The new unit is expected to be set up by December. It will be administered by the Prime Minister's Office.
The government has set aside Bt20.13 billion to fund the project, which is designed to increase the added value of Thai industrial and cultural assets. It is part of the Bt1.43-trillion Thai Khemkhaeng project.
So far, about 300 project proposals from government agencies and private companies have been submitted to the government in the hopes of being awarded financial support under the Creative Economy scheme.
The office will directly handle the allocation of the scheme's Bt20.13-billion budget from the government, to ensure that it is spent on the right activities and creates the maximum benefit for the Kingdom.
Deputy Commerce Minister Alongkorn Pollabutr said the ministry needed the new office to smooth operations of the scheme's projects and increase the efficiency of its budget management.
"The goal of the Creative Thailand project is sustainable development. Having the office will ensure that every government implements the policy. In particular, the improved budget allocation should create trade growth," said Alongkorn.
Approval of the creation of the new office will be submitted to a meeting of the Creative Economy committee, led by Prime Minister Abhisit Vejjajiva, on Wednesday.
Initially, the new agency will have an operating budget of Bt3 billion. All government units working on Creative Economy projects must transfer part of their human resources and delegate some of their tasks related to the Creative Economy scheme to the new agency.
Those organisations are the ministry's Intellectual Property Rights Centre and Office of Product Value Development; the Information Communications and Technology Ministry; the Culture Ministry; and the Science and Technology Ministry.
The new unit is expected to be set up by December. It will be administered by the Prime Minister's Office.
The government has set aside Bt20.13 billion to fund the project, which is designed to increase the added value of Thai industrial and cultural assets. It is part of the Bt1.43-trillion Thai Khemkhaeng project.
So far, about 300 project proposals from government agencies and private companies have been submitted to the government in the hopes of being awarded financial support under the Creative Economy scheme.
TARIFFS ON HYBRID PARTS LIKELY TO STAY
The Finance Ministry is unlikely to cut tariffs on components of hybrid cars imported from Japan as the government wants to promote the local auto-parts industry, said an informed source at the ministry.
Toyota, the largest Japanese auto-maker, has asked the ministry to lower import tariffs on several components of the Camry Hybrid, saying the cuts would bring down the local price.
Tax officials at the ministry said the government wants to promote local the auto-parts industry, so it would be better if Toyota and other makers produced such parts of hybrid cars, such as batteries, in Thailand.
Batteries for hybrid cars are currently subjected to tariff rates of 20 per cent, said the source, while auto-makers want the rate cut to between 1 and 5 per cent, said the source. Car parts from Japan are not yet covered by a free-trade agreement between Thailand and Japan, so they are still subject to a high tax rate, especially those identified as finished products.
The source said the ministry had already lowered the excise rate to 10 per cent for hybrid cars, which is considered quite low. "The lower rate of excise tax should encourage auto-makers to manufacture hybrid cars here," said the source.
Another senior official said the Finance Ministry is facing a drop in tax revenue, so it is unlikely to cut taxes on imported auto parts, at least for the time being. The ministry projected that its tax collection is expected to miss its target by Bt200 billion for the previous fiscal year. Revenue for the new fiscal year is not expected to see much recovery from the sharp drop this year due to the slow economic recovery.
The sources said Toyota could face a similar problem to that faced by US auto-maker Ford years age, when, anticipating a tax cut, it lowered the price on its Ford Focus before the reduction had been approved. Its engine could run on E20 fuel, which contains 20-per-cent ethanol, but the Excise Department only lowered the tax on cars using E10 fuel. Then-finance minister Thanong Bidaya refused to lower the tax on cars using E20 at that time.
Toyota, the largest Japanese auto-maker, has asked the ministry to lower import tariffs on several components of the Camry Hybrid, saying the cuts would bring down the local price.
Tax officials at the ministry said the government wants to promote local the auto-parts industry, so it would be better if Toyota and other makers produced such parts of hybrid cars, such as batteries, in Thailand.
Batteries for hybrid cars are currently subjected to tariff rates of 20 per cent, said the source, while auto-makers want the rate cut to between 1 and 5 per cent, said the source. Car parts from Japan are not yet covered by a free-trade agreement between Thailand and Japan, so they are still subject to a high tax rate, especially those identified as finished products.
The source said the ministry had already lowered the excise rate to 10 per cent for hybrid cars, which is considered quite low. "The lower rate of excise tax should encourage auto-makers to manufacture hybrid cars here," said the source.
Another senior official said the Finance Ministry is facing a drop in tax revenue, so it is unlikely to cut taxes on imported auto parts, at least for the time being. The ministry projected that its tax collection is expected to miss its target by Bt200 billion for the previous fiscal year. Revenue for the new fiscal year is not expected to see much recovery from the sharp drop this year due to the slow economic recovery.
The sources said Toyota could face a similar problem to that faced by US auto-maker Ford years age, when, anticipating a tax cut, it lowered the price on its Ford Focus before the reduction had been approved. Its engine could run on E20 fuel, which contains 20-per-cent ethanol, but the Excise Department only lowered the tax on cars using E10 fuel. Then-finance minister Thanong Bidaya refused to lower the tax on cars using E20 at that time.
A "NEW NORMAL" FOR THE WORLD ECONOMY
In the political dictionary he first published in 1968, William Safire,who died on Sept 27, devoted an entry to the word "normalcy". The termwas made popular by Warren Harding, campaigning for America's presidency in the wake of the first world war. It was inescapable after the terrorist attacks of Sept 11, 2001. Normalcy is what people call normality when they no longer take it for granted. No surprise,then, that the word reappeared in the communique released by the leaders of the G20 group of big economies after their Pittsburgh summit on Sept 24-25. After the wrenching economic crisis of the past year, people crave stability and predictability - in short,normalcy. But how far off is it? And what will a "normal" world economy look like after the biggest financial bust since the Depression?
Glance at share prices or short-term growth forecasts and you might feel comforted. Output has stopped shrinking in all the world's big economies. In its latest forecasts the IMF reckons global GDP will expand by 3.1% next year,1.2 percentage points faster than it forecast in April. Global stock markets have rallied by 64% since their trough.Corporate finance, once frozen, is thawing fast. Bearish analysts are once again having to justify their pessimism.
Yet closer inspection suggests caution. Despite a welcome return to growth, the world economy is far from returning to "normal" activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today's growth are temporary and precarious. The rebuilding of inventories will not boost firms'outputs for long. Across the globe spending is being driven by government largesse, not animal spirits. Massive fiscal and monetary stimulus is cushioning the damage to households and banks' balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.
That realisation alone should temper some of the optimism buoying financial markets. But the prospect of a "new normal"(a phrase popularised by Mohamed El-Erian, the boss of Pimco,a fund manager) still spans at least two distinct possibilities. One is that the world economy returns roughly to its pre-crisis rate of growth, without regaining the ground lost. That, the IMF points out, is what happens after most financial crises. The second, more depressing possibility is that growth stays at a permanently lower rate, with investment, employment and productivity growth all feebler than before.
The difference between these outcomes is huge. Persistent damage to economies' growth potential would result in a darker future of sluggish income gains and diminished expectations.That, above all, is what policymakers must avoid. To do so, they must pull off several tricky manoeuvres: shoring up demand now without wrecking the public finances; containing unemployment without inhibiting the shift of workers from old industries to new ones; and, more than anything else,fostering innovation and trade, the ultimate engines of growth.
Shoring up demand is the most urgent task. It is no secret that global spending must be rebalanced: indebted American consumers must cut back,while thrifty countries should spend more and save less. In China this means a stronger currency, bigger social safety nets and an overhaul of subsidies to increase the share of national income going to workers. Germany and Japan need structural reforms to boost spending, especially in services. What has long been lacking is the political will - and here the G20 seemed to make progress. The Pittsburgh communique promised to subject members economic policies to "peer review". These reviews may prove toothless, but the commitment to them is a step forward.
Private spending in surplus economies will not soar overnight. The world economy will rely more on governments for longer than anyone would like.Premature fiscal repairs could jeopardise the recovery, as America learned in 1937 and Japan rediscovered 60 years later. Governments must eventually fix their balance sheets, but only when the private sector is strong enough and it must be done in a way that boosts economies growth potential. The bulk of the adjustment should come from spending cuts. Where revenues must rise, taxes on consumption or carbon are better than those on wages or profits.
Governments must also combat joblessness without ossifying their labour markets. High unemployment can do lasting damage, as people lose their skills or their ties to the world of work. This danger justifies efforts to slow lay-offs or encourage hiring. But not all such remedies are equal. Some of the most popular of today's schemes - such as paying employers to cut hours rather than jobs, as in Germany - try to preserve the labour force in aspic. Economies must be free to reinvent themselves and allow thriving industries to replace ailing ones.
The path of productivity growth will determine the nature of the new normal more than anything else. In the rich world, innovation sets the pace. Elsewhere, trade is often more important.Both are now under threat. Cashstrapped companies are skimping on research and development. Emerging economies are having to rethink their reliance on exports for growth. Both rich and poor governments will be tempted to intervene. They should avoid cosseting specific industries with subsidies or protection. Allowing market signals to work will do more to boost productivity than cack-handed industrial policy.
Add all this up and the difficulties are formidable."A sense of normalcy should not lead to complacency," the G20 communique says, with both rhyme and reason. The storm has passed. But policymakers have a lot to do - and a lot of mistakes to avoid if they are to make the best of the recovery.
Glance at share prices or short-term growth forecasts and you might feel comforted. Output has stopped shrinking in all the world's big economies. In its latest forecasts the IMF reckons global GDP will expand by 3.1% next year,1.2 percentage points faster than it forecast in April. Global stock markets have rallied by 64% since their trough.Corporate finance, once frozen, is thawing fast. Bearish analysts are once again having to justify their pessimism.
Yet closer inspection suggests caution. Despite a welcome return to growth, the world economy is far from returning to "normal" activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today's growth are temporary and precarious. The rebuilding of inventories will not boost firms'outputs for long. Across the globe spending is being driven by government largesse, not animal spirits. Massive fiscal and monetary stimulus is cushioning the damage to households and banks' balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.
That realisation alone should temper some of the optimism buoying financial markets. But the prospect of a "new normal"(a phrase popularised by Mohamed El-Erian, the boss of Pimco,a fund manager) still spans at least two distinct possibilities. One is that the world economy returns roughly to its pre-crisis rate of growth, without regaining the ground lost. That, the IMF points out, is what happens after most financial crises. The second, more depressing possibility is that growth stays at a permanently lower rate, with investment, employment and productivity growth all feebler than before.
The difference between these outcomes is huge. Persistent damage to economies' growth potential would result in a darker future of sluggish income gains and diminished expectations.That, above all, is what policymakers must avoid. To do so, they must pull off several tricky manoeuvres: shoring up demand now without wrecking the public finances; containing unemployment without inhibiting the shift of workers from old industries to new ones; and, more than anything else,fostering innovation and trade, the ultimate engines of growth.
Shoring up demand is the most urgent task. It is no secret that global spending must be rebalanced: indebted American consumers must cut back,while thrifty countries should spend more and save less. In China this means a stronger currency, bigger social safety nets and an overhaul of subsidies to increase the share of national income going to workers. Germany and Japan need structural reforms to boost spending, especially in services. What has long been lacking is the political will - and here the G20 seemed to make progress. The Pittsburgh communique promised to subject members economic policies to "peer review". These reviews may prove toothless, but the commitment to them is a step forward.
Private spending in surplus economies will not soar overnight. The world economy will rely more on governments for longer than anyone would like.Premature fiscal repairs could jeopardise the recovery, as America learned in 1937 and Japan rediscovered 60 years later. Governments must eventually fix their balance sheets, but only when the private sector is strong enough and it must be done in a way that boosts economies growth potential. The bulk of the adjustment should come from spending cuts. Where revenues must rise, taxes on consumption or carbon are better than those on wages or profits.
Governments must also combat joblessness without ossifying their labour markets. High unemployment can do lasting damage, as people lose their skills or their ties to the world of work. This danger justifies efforts to slow lay-offs or encourage hiring. But not all such remedies are equal. Some of the most popular of today's schemes - such as paying employers to cut hours rather than jobs, as in Germany - try to preserve the labour force in aspic. Economies must be free to reinvent themselves and allow thriving industries to replace ailing ones.
The path of productivity growth will determine the nature of the new normal more than anything else. In the rich world, innovation sets the pace. Elsewhere, trade is often more important.Both are now under threat. Cashstrapped companies are skimping on research and development. Emerging economies are having to rethink their reliance on exports for growth. Both rich and poor governments will be tempted to intervene. They should avoid cosseting specific industries with subsidies or protection. Allowing market signals to work will do more to boost productivity than cack-handed industrial policy.
Add all this up and the difficulties are formidable."A sense of normalcy should not lead to complacency," the G20 communique says, with both rhyme and reason. The storm has passed. But policymakers have a lot to do - and a lot of mistakes to avoid if they are to make the best of the recovery.
Poll faults Kem Kaeng scheme
Investing from Strength to Strength)national development projects. Suan Dusit Rajabhat University conducted the poll, which questioned 3,279 people in 37 provinces between Sept 30 and Oct 2.The poll found that 50% of respondents believe the Thai Kem Kaeng project may lack transparency and fall into the hands of corrupt officials, while 26%were concerned about an alleged misuse of funds made available under the project,and almost 10% felt many projects under the scheme did not meet the needs of communities and government agencies.
However,35% of respondents thought the programme would benefit the country as a whole, while 37% of respondents suggested the disbursement and spending of the money under the project should come under close scrutiny.
The poll showed 17% wanted members of the public to be given a chance to monitor the project's spending.
The Rural Doctors Foundation last week claimed there were irregularities involving the Public Health Ministry's spending of 86.6 billion baht under the Thai Kem Kaeng scheme.
Up to 60% of the budget is being allocated to building works, purchasing medical equipment and other facilities.
Pongthep Wongwatcharapaibul, the Rural Doctors Foundation secretarygeneral, said some projects called for the purchase of medical equipment at inflated prices and some facilities were unnecessary. For example, the cabinet approved a budget of more than 300 million baht for UV sanitisers for use at community hospitals nationwide. The foundation said the machines are overpriced and may not be suitable for use in the hospitals.
Opposition Puea Thai Party MP for Bangkok Wicharn Meenchainant, formerly a deputy public health minister,claimed that 40 items were unnecessary and did not suit the needs of provincial hospitals.
He called on Public Health Minister Witthaya Kaewparadai to give provincial hospitals more say in determining the choice of medical supplies they really need.
The government's second stimulus programme, of which Thai Kem Kaeng is a part, was set to allocate 1.45 trillion baht for procurement and construction projects under various ministries over a three-year period, but on Aug 18, the cabinet cut it to 1.06 trillion baht.
The programme is expected to create 1.5 million jobs, stimulate private consumption and a recovery in the industrial sector.
However,35% of respondents thought the programme would benefit the country as a whole, while 37% of respondents suggested the disbursement and spending of the money under the project should come under close scrutiny.
The poll showed 17% wanted members of the public to be given a chance to monitor the project's spending.
The Rural Doctors Foundation last week claimed there were irregularities involving the Public Health Ministry's spending of 86.6 billion baht under the Thai Kem Kaeng scheme.
Up to 60% of the budget is being allocated to building works, purchasing medical equipment and other facilities.
Pongthep Wongwatcharapaibul, the Rural Doctors Foundation secretarygeneral, said some projects called for the purchase of medical equipment at inflated prices and some facilities were unnecessary. For example, the cabinet approved a budget of more than 300 million baht for UV sanitisers for use at community hospitals nationwide. The foundation said the machines are overpriced and may not be suitable for use in the hospitals.
Opposition Puea Thai Party MP for Bangkok Wicharn Meenchainant, formerly a deputy public health minister,claimed that 40 items were unnecessary and did not suit the needs of provincial hospitals.
He called on Public Health Minister Witthaya Kaewparadai to give provincial hospitals more say in determining the choice of medical supplies they really need.
The government's second stimulus programme, of which Thai Kem Kaeng is a part, was set to allocate 1.45 trillion baht for procurement and construction projects under various ministries over a three-year period, but on Aug 18, the cabinet cut it to 1.06 trillion baht.
The programme is expected to create 1.5 million jobs, stimulate private consumption and a recovery in the industrial sector.
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