UPDATE-----------------------------FEBRUARY 25, 2010 THURSDAY
BANGLADESH: NEWS UPDATE
Local money lenders engaged in rice price manipulation
The government on Wednesday asked all deputy commissioners to identify and take action against the local money lenders who are increasing rice price artificially.
The commerce ministry in a letter informed DCs that some of the money lenders were engaged in ‘future trade’ by purchasing paddy from fields before the crops are cultivated at a lower price.
The lenders then sell the price at higher rate in local markets across the country causing increase in rice price, said the letter.
The ministry also alleged that the lenders were continuing their business by taking loan from commercial banks.
‘We have issued the letter to the DCs asking them to take measures to prevent activities of money lenders engaged in rice business,’ said an official on Wednesday.
‘The commerce ministry will also send a letter to the Bangladesh Bank to take necessary to check loans for money lenders engaged in rice price manipulation,’ he added.
He alleged that the Bangladesh Krishi Bank gave Tk 5 crore in loan to rice mill owners out of total agriculture loan of Tk 35 crore.
The price of coarse rice stands at Tk 28 a kilogram at present at the city kitchen markets
The decision to ask the DCs to take action against errant money lenders was taken at an inter-ministry meeting, presided over by the commerce ministry’s additional secretary Mustafa Mohiuddin, last week.
Representatives of the home, food and agriculture ministries and Bangladesh Bank attended the meeting at the commerce ministry
Mustafa Mohiuddin told New Age that officials of the concerned ministries had alleged that many local money lenders had already purchased rice of paddy fields with the credit taken from the commercial banks.
‘The lenders will sell the rice at a price which is 30 to 40 per cent more than that of usual price in market,’ he said.
Besides, the commerce ministry will bring amendment to The Essential Articles (Price Control and Anti-Hoarding), Act 1953 to contain the activities of the unscrupulous businessmen, said the commerce ministry letter.
Meanwhile, the Bangladesh Bank on Tuesday slashed time limit for repayment of rice purchasing loan, received by rice millers and traders, to ensure smooth supply of the essential in local markets.
Under the new rules, the millers will have to repay their rice purchasing loans within 60 days instead of 90 days while rice traders must repay their loans within 45 days.
The central bank issued a circular in this connection on Tuesday, asking all commercial banks to re-fix the repayment period for rice purchasing credit received by millers and traders.
The annual demand for rice is about three crore tonnes and the annual short-fall varies between 30 lakh and 70 lakh tonnes, which are imported.
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NEWS IN FOCUS
IMF again warns of double digit inflation
The International Monetary Fund has again warned that food price hike in Bangladesh would push up the rate of inflation to a double-digit in coming summer.
Containing rising inflation and removing bottlenecks to growth should be the two crucial priorities for the country’s economy, the IMF said on Tuesday while releasing its annual review of Bangladesh’s economy.
Earlier in January, an IMF delegation in Dhaka made similar observations, but the country’s top economic policy makers ruled them out.
Finance minister AMA Muhith has already said that inflation would be kept at a manageable level below double-digit while the growth would be over 6 per cent.
The IMF forecast that the pace of annual growth would edge up to around 6 per cent although it would remain subdued in the near term due to weak imports, sluggish private-sector credit and fewer job opportunities for Bangladeshis working abroad.
It said decline in international food and commodity prices contributed to a fall in inflation to 2.2 per cent in June 2009. But with the rise in prices of food and commodities in international market, inflation rose to seven per cent-plus in November.
Higher market interest rates would be a small price to pay to prevent a harmful acceleration of inflation, which hurts the poor most severely, it added. It suggested mobilization of higher revenue and more capital spending to overcome the threatening inflation and keep the pace of economic growth right on track.
‘Bangladesh seems stuck in a low revenue/low capital spending equilibrium and infrastructure bottlenecks are holding back growth,’ the IMF said, urging the authorities to push through reforms for value-added tax and remove ceilings on lending rates.
‘The authorities should move towards greater flexibility in the exchange rate to lessen the constraints on macro-economic policies,’ the IMF said.
‘The export sector should be able to sustain such a move, since they believed that the Taka is somewhat undervalued, though not far out of line with fundamentals,’ the lender added.
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PDB asked to study feasibility of 2 more units at Kaptai plant
The Power Division on Wednesday asked the Power Development Board to conduct a feasibility study on installing two more 50 megawatts units at the Kaptai hydroelectricity plant although the existing five units there were struggling to operate at optimum level due to water shortage.
A division meeting, attended by the prime minister’s adviser Tawfiq-e-Elahi Chowdhury and state minister for power and energy, Enamul Haque, discussed about the idea of installing the new units at the 250MW plant on the Kaptai Lake in Rangamati.
PDB officials told the meeting that two more units could be installed at the plant for increasing power generation at ‘peak hours’.
They, however, admitted that the net energy generation at the plant would not increase even after installation of the new units.
‘The existing five units can be operated for seven hours a day in peak season. If two more units are installed, seven units can be operated for four hours a day, especially at evening peak hours,’ said an official.
The meeting, also attended by power secretary Abul Kalam Azad, directed the PDB to carry out a detailed feasibility study on whether it would be viable and cost effective to install two more units at the plant.
The existing units of the power plant cannot even generate more than 130MW during dry season because of fall in the water level in the lake.
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WORLD ECONOMY: EXCLUSIVE
World trade hit by biggest drop in 2009 since WWII
World trade last year suffered its biggest collapse since World War II, an unprecedented 12 per cent drop according to new WTO figures, with worrying signs suggesting 2010 threatens only mediocre recovery.
‘World trade has also been a casualty of the crisis, contracting in volume by around 12 per cent in 2009,’ Pascal Lamy, director general of the World Trade Organization, told an audience in Brussels on Wednesday.
‘It is the sharpest decline since the end of the Second World War,’ the Frenchman said, and a steep downwards revision from the WTO’s most recent estimate, in December, of 10 per cent.
The massive contraction in global commerce makes it ‘economically imperative to conclude’ international trade negotiations, which are at a standstill, in 2010, Lamy told business figures and policymakers at the European Policy Centre, a Brussels think-tank.
The Doha Round of trade negotiations that began in 2001 with a focus on dismantling obstacles to trade for poor nations has been dogged by intractable disagreements including how much the United States and the European Union should reduce farm aid and the extent to which developing countries such as India and China should lower tariffs.
Deadlines to conclude the talks have been repeatedly missed, with the latest being the end of this year.
Lamy blamed the ‘freefall’ triggered by a crisis that first struck financial markets in late 2008 on a reduction in demand ‘across all major world economies’.
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BANGLADESH: EVENT UPDATE
Bangladesh, India joint trade fair begins today
A three-day Indian trade fair, with a focus on promoting business and investment between Bangladesh and India’s northeast, begins in the city today with a target of exporting goods worth $1 billion by 2011 to India.
‘The fair will also attract 100 joint-venture investments into Bangladesh in next three years to 2013,’ said Abdul Matlub Ahmed, president of the India-Bangladesh Chamber of Commerce and Industry in Bangladesh, at a press conference at a city hotel.
The ‘India Trade Fair 2010 and Bangladesh Northeast India Trade and Investment Conclave’, is being held against the backdrop of major developments in relations between the two neighboring countries who have just struck broad accords on wider areas of cooperation-in trade, transportation, transit and investment.
He noted that the Indian government has waived duty on a couple of Bangladeshi products at entry point, but, still, there is duty in action in different Indian states.
‘If the local tax is removed on garments, knitwear, woven wears and shirts, we will be able to achieve our target of exporting goods worth $ 1 billion soon,’ said Matlub, who mainly deals in Tata vehicles in Bangladesh.
The Fair and Conclave is being organised by IBCCI while Triune Exhibition and Event Management Services Ltd is event manager.
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ANALYSIS
‘Political muscle’ hampering power plans
Present and former Rural Electrification Board officials, regulators, lending agency officials and consultants have blamed ‘political interference’ as one of the impediments to efficient power distribution and better service.
They made the observations at a workshop on strengthening rural power supplier, jointly organised by the Power Cell of the government’s power division and SMEC International, an Australia-based consulting group, at Sonargaon Hotel.
Former chairman of the Rural Electrification Board, Touhidul Islam said, ‘Political interference has been an obstacle to smooth operations of the organization.’
Alluding to politicians as ‘external forces’ he said they often gave orders about where to build new transmission lines without any regard for the agency’s plans.
Zinnatul Huq, a member of the rural power board, said the organization should be free from political meddling. He said that the government, instead of pandering to certain partisan interests, should instead facilitate the agency for ensuring better service to the poor in rural areas.
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WORLD ECONOMY
Refinery crisis afflicts global oil sector
The world’s major oil companies are grappling with a crisis in the refining sector which is forcing them to cut back heavily to staunch losses, as shown by a dispute at Total in France.
The possibility that Total could shut down a refinery in France has sparked angry protests and the government now wants the privately-owned group to commit to not closing any French refineries for five years.
But the fact is that refining is not a good business for oil companies in advanced industrialized countries, analysts said. And financial results published by the big producers show that Total’s situation is hardly unique.
‘The global refining situation today is not good,’ said Colette Lewiner, an energy expert at the French global consultancy Cap Gemini. ‘At all the oil majors, refining activities are losing money.’
The refining sector has been under heavy pressure from a global slowdown in economic activity, particularly in major Western markets, and from energy-saving measures which have reduced consumption of refined products.
‘The problem is that there are too many refineries in countries where demand is drying up — at a time when demand is robust in countries like India and China,’ Lewiner said.
At British group BP, profit in the refining division fell by 21.6 per cent last year. Exxonmobil of the United States reported a 57-per cent decline in refining profits and Anglo-Dutch group Shell saw a 69-per cent drop.
‘The real test came in 2008, when we saw no movement in the price of refined products at a time when the price of oil had risen 30 per cent,’ said Karine Berger, director of economic studies at credit insurer Euler Hermes SFAC.
She pointed to a collapse in operating margins caused by ‘worldwide over capacity.’
Most big groups in the industry have embarked on elaborate cost cutting drives, along with asset sales and site closures, in developed countries where production capacities are too high.
Last year, Shell sold refining assets worth $1.2 billion. The company, which in 2009 cut 5,000 jobs, plans to sell up to 15 per cent of its refining capacity, along with some distribution activities.
Shell also announced recently the closure of a refinery in Montreal which had employed 500 people and is negotiating the sale of three European refineries to the Indian firm Essar. In the United States, Chevron has announced job cuts in its refining division while Valero plans to shut down a facility in the eastern state of Delaware.
In France, Total has made no secret since November of its desire to reduce its European refining operations while showing an interest in refining projects in countries where demand remains firm.
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SOUTH ASIA: INDIAN BUDGET
Indian budget to underline slow pace of reform
India’s government presents its first full post-election budget on Friday, with a lack of political appetite for big-bang reform set to disappoint those looking for bold moves to open up the economy.
The ruling Congress party had frequently blamed its Communist partners for thwarting attempts to reduce state control of the economy during its last term, when it led a fragile coalition from 2004 to 2009.
But although the left-leaning Congress is now firmly in control, it will shy away from contentious moves to liberalize India’s still inward-looking economy in the budget for the fiscal year ending in March 2011, analysts say.
Although growth has rebounded — it is seen hitting 7.5 per cent this year, then accelerating to eight per cent or more — the Congress is unwilling to chart a reformist course for as long as the global outlook remains uncertain.
More broadly, there also still appears to be a lack of consensus in the ruling party and its coalition partners in favour of deeper reforms in Asia’s third- largest economy.
‘There’s a substantial body of opinion that believes India was saved from the worst ravages of the global slump because its economy is not so integrated with the rest of the world,’ said economic analyst Paranjoy Guha Thakurta.
And 74-year-old finance minister Pranab Mukherjee, known as one of India’s canniest politicians and firmly in the left wing of the Congress party, is not generally viewed as an advocate of economic liberalisation.
India’s growth slowed to 6.7 per cent last year from boom levels of nine per cent as a result of the worldwide downturn, but that was seen in the country as a good performance compared to anemic expansion or recession in the West.
Most economists tout liberalisation to pull in foreign investment as the best way to boost growth and ease grinding poverty. More than 40 per cent of India’s 1.2 billion people still live on less than 1.25 dollars a day.
But moves such as opening the vast retail and financial sectors to foreign investors, privatization and introducing flexible hiring-and-firing laws appear a step too far for the government.
‘What happened in the US and Europe has made politicians in India and everywhere more guarded about introducing measures to liberalize the economy,’ said HSBC senior economist Robert Prior-Wandesforde.
The country could expand faster with more reforms but even without them, he said, ‘India can grow at seven to eight per cent or higher (annually) over the course of an economic cycle’.
Political commentator Parsa Venkateshwar Rao added: ‘With the international financial crisis, this is the wrong time for anyone to talk about reform.’
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WORLD ECONOMY
Malaysia says economy out of recession
Malaysia’s economy has recovered from the global crisis and could expand by 5.0 per cent this year, premier Najib Razak said Wednesday after announcing strong growth in the three months to December.
The fourth quarter expansion of 4.5 per cent was much healthier than expected, and represented a rebound after three consecutive quarters of contraction.
‘Overall, the Malaysian economy has turned around and recovered from the implications of the global crisis,’ Najib told a press conference.
The premier credited stronger external and domestic demand, stimulus spending, measures to ensure access to financing and ‘accommodative’ monetary policy for the resumption of growth.
‘For the year 2009, the economy contracted by 1.7 per cent, lower than negative three or four per cent that was projected earlier,’ he said.
‘The accelerated implementation of the government’s two stimulus packages has been a key factor in contributing to the economic recovery.’
Asked whether Malaysia can achieve 5.0 per cent growth for 2010, Najib replied ‘Yes’.
‘We are quite bullish about it. Earlier we forecast 4.0 per cent; I hope we can achieve 1.0 to 2.0 per cent above it. I’m going all-out to generate confidence and speedy implementation of projects,’ he said.
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BANGLADESH: DEVELOPING NEWS
Taiwanese co to invest$10.2m in KEPZ
Young Zhen Metal Industries Limited, a Taiwanese company, will set up a garment accessory manufacturing unit in the Karnaphuli Export Processing Zone.
The 100 per cent foreign-owned company would invest $10.20 million to establish the plant. It will create jobs for 300 Bangladeshi nationals.
An agreement to this effect was signed between Bangladesh Export Processing Zones Authority and Young Zhen Metal Industries in the BEPZA Complex in Dhaka on Tuesday.
BEPZA member (investment promotion) Md Moyjuddin Ahmed and Young Zhen Metal director Chen Hung I signed the agreement on behalf of their respective sides.
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ASIAN MARKET OVERVIEW
Global recovery doubts send Asian markets lower
Weaker-than-expected data from the United States and Europe triggered fresh doubts about the pace of global recovery Wednesday, with Asian markets trading broadly lower.
February US consumer confidence data released Tuesday eroded expectations for sustainable consumer spending and a quick economic recovery in the United States, prompting a risk-averse reaction across Asia.
‘The market is looking for signs of economic recovery and growth,’ said analysts at IG Markets. ‘The latest set of consumer confidence figures isn’t helping this view.’
A surprise decline in business confidence in Germany, Europe’s biggest economy, also indicated sluggish recovery and hit sentiment towards the euro in overnight trade, before the single currency rebounded in Asia.
The euro fetched 1.3543 dollars in Tokyo afternoon trade from 1.3509 in New York late Tuesday. It rose to 122.20 yen from 121.87. Tokyo fell 1.48 per cent, or 153.27 points, to 10,198.83 with the relatively strong yen denting exporters’ profitability, sending related shares lower.
Shares of Toyota were down 1.50 per cent, hours before its president Akio Toyoda was set to testify before US Congress on the carmaker’s safety problems that have prompted global recalls of more than eight million vehicles.
Worries about the US economy saw Hong Kong close down 0.75 per cent, or 155.26 points to 20,467.74, but developers were boosted by plans to cool the territory’s red-hot property market which were more benign than expected.
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Dollar mixed in Asia before Fed’s testimony
The dollar was mixed against major currencies in Asian trade Wednesday as investors stayed guarded following risk-averse Wall Street trade and ahead of the US Fed chief’s testimony.
The dollar edged up to 90.25 yen in Tokyo morning trade from 90.21 in New York late Tuesday. The euro firmed to 1.3531 dollars, from 1.3509, and to 122.12 yen from 121.87.
The safe-haven dollar climbed against the euro on Wall Street overnight following disappointing economic reports in the United States and Germany that deepened concerns about the global recovery.
In a surprise decline, the IFO business confidence index in Germany, Europe’s largest economy, fell for the first time in nearly a year, signaling a sluggish recovery.
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WORLD ECONOMY
IMF stresses deficit cut in crisis exit strategies
The International Monetary Fund urged governments Tuesday to cut their budget deficits as they pull back from stimulus efforts to help sustain a long-term economic recovery.
‘Exiting from crisis-related intervention policies should be viewed in the context of achieving strong, sustained and balanced growth,’ the IMF said in a report, ‘Exiting from Crisis Intervention Policies.’
The IMF advanced a scenario in which the developed countries would transform an average public deficit of 4.3 per cent of gross domestic product this year to a public surplus of 3.7 per cent of GDP in 2020.
The 186-nation institution said the goal was crucial for sustained global growth.
‘Financial restructuring and balance sheet repair — including bank recapitalization — remain priorities to underpin a resumption of strong economic growth,’ the report said.
‘At the same time, in light of the large increases in government debts, countries should draw up plans for a major improvement in fiscal balances.’
The Washington-based institution warned that if high debt levels persist in the largest economies at the same time, the interest bill to service the debt would grow, negatively impacting private investment and global economic growth.
‘This fiscal adjustment will be difficult to implement, but is not unprecedented,’ the fund noted.
Developed countries will have little margin to cut back social spending, given their aging populations, according to the fund.
To reach the scenario goal for 2020, the largest effort needed by the advanced countries would be a freeze on spending, excluding spending on health care and pension entitlements.
Another important factor, worth 3.0 points of GDP—’could come from increasing revenues,’ including from improvement in fighting tax evasion and fraud, as well as revenues coming from taxes on greenhouse gas emissions.
The unwinding of fiscal stimulus measures would contribute 1.5 points.
‘A large part of the adjustment would likely need to take place on the spending side, with a sizable but smaller role for the revenue side, consistent with the already high tax burden in several advanced economies,’ the report said.
The IMF highlighted that it remains too soon for most countries to undertake major steps to unwind their extraordinary support measures.
‘For the global economy, with the exception of some countries, current conditions do not justify a significant rolling back of macroeconomic stimulus or financial policies in 2010,’ it said.
‘The recovery remains sluggish compared with past standards, at least in the advanced economies... unemployment is likely to remain high in the advanced economies well into 2010 and inflation pressures are expected to remain subdued.’
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Hong Kong acts to avoid property bubble
Hong Kong said Wednesday it would introduce a series of measures to cool the overheating property market, such as increasing residential land supply and hiking stamp duty for luxury flats.
Financial secretary John Tsang warned that recent property frenzy, driven by a huge inflow of more than 640 billion Hong Kong dollars ($82b) since late-2008, could threaten economic stability.
‘If capital flows were to reverse or interest rates rebound, asset prices would become more volatile. This in turn may affect the stability of our financial system and the recovery of the real economy,’ he said in his annual budget speech.
To reduce the risk of speculation in the luxury market, the stamp duty for sales of properties valued at more than $20 million will be raised from 3.75 per cent to 4.25 per cent beginning in April, he said.
Buyers of these flats would no longer be allowed to defer payment of stamp duty. The measure could be extended if excessive speculation was detected in the trading of less expensive properties, he said.
Tsang said the government would also strive to increase residential land supply, with plans to auction several urban residential sites in the next two years if market conditions allow, he said.
The financial secretary also pledged to prevent excessive expansion in mortgage lending.
Prices of some luxury flats returned to the peaks of the 1997 property boom in January, he said.
Concerns that speculation has extended beyond the high-end market intensified this week after Sun Hung Kai Properties, Hong Kong’s largest developer by market capitalization, agreed to pay a staggering $3.37 billion for a 12,000 square metre (1,30,000-square-foot) site in the city’s suburbs.
The price, reached after fierce bidding at a government land auction on Monday, was well above the average forecast by analysts.
Sellers in the southern Chinese city hiked prices of their units after the auction, according to media reports.
However, a property analyst said a bubble would still be created with Hong Kong’s interest rates remaining low due to its currency peg to the US dollar.
‘The measures can slow down the property price hike but will definitely not be able to stop it,’ Wong Leung-sing, head of research at Centaline Property Agency, told the AFP.
‘The economic boom in China and low interest rates in the US are two major external factors that together will almost guarantee a property bubble in the next few years.’
Share prices in developers rose after the budget speech as stock investors were relieved that the measures were much weaker than expected.
Sun Hung Kai jumped 1.52 per cent to 107.20 dollars and Sino Land was up 1.02 per cent to $13.92 at the close of Wednesday’s trading.
‘The only way to avoid a property bubble is to drastically increase land supply, which the government has not done,’ said Francis Lun, general manager at Fulbright Securities.
Stimulus measures by governments around the world have boosted liquidity, which has led to large fund inflows into Asia, driving asset prices higher, Tsang said.
Mainland China has also seen soaring property prices, with values rising at their fastest pace in 17 months in December after Beijing encouraged tax breaks, loans and lower down payment requirements to boost the sector.
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Japan logs surprise trade surplus
Japan on Wednesday said exports grew at the fastest pace for 30 years in January, supporting recovery as the world’s second largest economy battles deflation and weak domestic demand.
Posting a surprise trade surplus, Japan said exports soared at their fastest pace since February 1980 at 40.9 per cent to 4.90 trillion yen, backed by a rebound in demand from the rest of Asia as well as from developed countries.
‘Exports continued to recover robustly, led by shipments for Asia,’ said Daiwa Institute of Research economist Hiroshi Watanabe, warning that due to its weak domestic demand ‘Japan’s economy can only count on exports.’
Japan plunged into its most severe post-war recession in 2008 as its exports collapsed due to the global downturn, returning to growth in the second quarter of 2009.
But the recovery remains fragile with falling consumer prices, high public debt and weak domestic demand all major concerns for policymakers.
Wednesday’s data showing a surplus of 85.2 billion yen (945 million dollars) beat market expectations of a deficit of 145 billion yen and reversed a record deficit of 956 billion yen recorded during the slump a year ago.
The figures showed that Japan’s trade surplus with the United States and the European Union has widened and its deficit with China has narrowed.
Higher US demand for final products led to a boost in exports of parts and raw materials to China, where many of the products are manufactured, he said.
Exports to Asian powerhouse China, which overtook the US as Japan’s top export market in 2009, surged 79.9 per cent to 920.0 billion yen on higher demand for semiconductors and other components, automobiles and plastics.
Prospects for China’s economy will remain as a key for Japan, said Takeshi Minami, chief economist at Norinchukin Research Institute.
‘China has shifted to credit tightening, which would slow its economy and reduce exports from Japan,’ he said. ‘We need to watch developments in China.’
Exports to the United States rose 24.2 per cent to 710.4 billion yen to chalk up the first rise in 29 months, with automobile exports more than doubling.
Japan’s overall imports rose 8.6 per cent to 4.82 trillion yen. Economists said the rise, the first in 15 months, reflected higher energy prices rather than improving domestic demand.
The export rises led Japan to score a 78.7 per cent jump to 237.1 billion yen in its trade surplus with the United States and to cut its deficit with China by 76.8 per cent to 130.6 billion yen.
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Toyota chief blames rapid rise, admit recalls insufficient
Angry US lawmakers will grill Toyota’s president Akio Toyoda on Wednesday, after his Japanese firm admitted a spate of global vehicle recalls had ‘not totally’ fixed dangerous safety flaws.
Toyoda, in prepared testimony he was to deliver Wednesday to Congress, apologized personally for the defects which have been implicated in dozens of deaths and that have prompted 5.3 million vehicles to be recalled in the United States alone.
The embattled president, who leads what had been one of the most revered brands in the auto sector, blamed the company’s ‘too quick’ rise to world number one for slipping standards.
‘I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced,’ said Toyoda, whose remarks were made public.
Toyoda was expected to face tough questions from members of the House Oversight and Government Reform Committee, the second of three panels looking into the response to sudden unintended acceleration blamed for some 30 US deaths.
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BANGLADESH: NEWS UPDATE
Local money lenders engaged in rice price manipulation
The government on Wednesday asked all deputy commissioners to identify and take action against the local money lenders who are increasing rice price artificially.
The commerce ministry in a letter informed DCs that some of the money lenders were engaged in ‘future trade’ by purchasing paddy from fields before the crops are cultivated at a lower price.
The lenders then sell the price at higher rate in local markets across the country causing increase in rice price, said the letter.
The ministry also alleged that the lenders were continuing their business by taking loan from commercial banks.
‘We have issued the letter to the DCs asking them to take measures to prevent activities of money lenders engaged in rice business,’ said an official on Wednesday.
‘The commerce ministry will also send a letter to the Bangladesh Bank to take necessary to check loans for money lenders engaged in rice price manipulation,’ he added.
He alleged that the Bangladesh Krishi Bank gave Tk 5 crore in loan to rice mill owners out of total agriculture loan of Tk 35 crore.
The price of coarse rice stands at Tk 28 a kilogram at present at the city kitchen markets
The decision to ask the DCs to take action against errant money lenders was taken at an inter-ministry meeting, presided over by the commerce ministry’s additional secretary Mustafa Mohiuddin, last week.
Representatives of the home, food and agriculture ministries and Bangladesh Bank attended the meeting at the commerce ministry
Mustafa Mohiuddin told New Age that officials of the concerned ministries had alleged that many local money lenders had already purchased rice of paddy fields with the credit taken from the commercial banks.
‘The lenders will sell the rice at a price which is 30 to 40 per cent more than that of usual price in market,’ he said.
Besides, the commerce ministry will bring amendment to The Essential Articles (Price Control and Anti-Hoarding), Act 1953 to contain the activities of the unscrupulous businessmen, said the commerce ministry letter.
Meanwhile, the Bangladesh Bank on Tuesday slashed time limit for repayment of rice purchasing loan, received by rice millers and traders, to ensure smooth supply of the essential in local markets.
Under the new rules, the millers will have to repay their rice purchasing loans within 60 days instead of 90 days while rice traders must repay their loans within 45 days.
The central bank issued a circular in this connection on Tuesday, asking all commercial banks to re-fix the repayment period for rice purchasing credit received by millers and traders.
The annual demand for rice is about three crore tonnes and the annual short-fall varies between 30 lakh and 70 lakh tonnes, which are imported.
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NEWS IN FOCUS
IMF again warns of double digit inflation
The International Monetary Fund has again warned that food price hike in Bangladesh would push up the rate of inflation to a double-digit in coming summer.
Containing rising inflation and removing bottlenecks to growth should be the two crucial priorities for the country’s economy, the IMF said on Tuesday while releasing its annual review of Bangladesh’s economy.
Earlier in January, an IMF delegation in Dhaka made similar observations, but the country’s top economic policy makers ruled them out.
Finance minister AMA Muhith has already said that inflation would be kept at a manageable level below double-digit while the growth would be over 6 per cent.
The IMF forecast that the pace of annual growth would edge up to around 6 per cent although it would remain subdued in the near term due to weak imports, sluggish private-sector credit and fewer job opportunities for Bangladeshis working abroad.
It said decline in international food and commodity prices contributed to a fall in inflation to 2.2 per cent in June 2009. But with the rise in prices of food and commodities in international market, inflation rose to seven per cent-plus in November.
Higher market interest rates would be a small price to pay to prevent a harmful acceleration of inflation, which hurts the poor most severely, it added. It suggested mobilization of higher revenue and more capital spending to overcome the threatening inflation and keep the pace of economic growth right on track.
‘Bangladesh seems stuck in a low revenue/low capital spending equilibrium and infrastructure bottlenecks are holding back growth,’ the IMF said, urging the authorities to push through reforms for value-added tax and remove ceilings on lending rates.
‘The authorities should move towards greater flexibility in the exchange rate to lessen the constraints on macro-economic policies,’ the IMF said.
‘The export sector should be able to sustain such a move, since they believed that the Taka is somewhat undervalued, though not far out of line with fundamentals,’ the lender added.
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PDB asked to study feasibility of 2 more units at Kaptai plant
The Power Division on Wednesday asked the Power Development Board to conduct a feasibility study on installing two more 50 megawatts units at the Kaptai hydroelectricity plant although the existing five units there were struggling to operate at optimum level due to water shortage.
A division meeting, attended by the prime minister’s adviser Tawfiq-e-Elahi Chowdhury and state minister for power and energy, Enamul Haque, discussed about the idea of installing the new units at the 250MW plant on the Kaptai Lake in Rangamati.
PDB officials told the meeting that two more units could be installed at the plant for increasing power generation at ‘peak hours’.
They, however, admitted that the net energy generation at the plant would not increase even after installation of the new units.
‘The existing five units can be operated for seven hours a day in peak season. If two more units are installed, seven units can be operated for four hours a day, especially at evening peak hours,’ said an official.
The meeting, also attended by power secretary Abul Kalam Azad, directed the PDB to carry out a detailed feasibility study on whether it would be viable and cost effective to install two more units at the plant.
The existing units of the power plant cannot even generate more than 130MW during dry season because of fall in the water level in the lake.
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WORLD ECONOMY: EXCLUSIVE
World trade hit by biggest drop in 2009 since WWII
World trade last year suffered its biggest collapse since World War II, an unprecedented 12 per cent drop according to new WTO figures, with worrying signs suggesting 2010 threatens only mediocre recovery.
‘World trade has also been a casualty of the crisis, contracting in volume by around 12 per cent in 2009,’ Pascal Lamy, director general of the World Trade Organization, told an audience in Brussels on Wednesday.
‘It is the sharpest decline since the end of the Second World War,’ the Frenchman said, and a steep downwards revision from the WTO’s most recent estimate, in December, of 10 per cent.
The massive contraction in global commerce makes it ‘economically imperative to conclude’ international trade negotiations, which are at a standstill, in 2010, Lamy told business figures and policymakers at the European Policy Centre, a Brussels think-tank.
The Doha Round of trade negotiations that began in 2001 with a focus on dismantling obstacles to trade for poor nations has been dogged by intractable disagreements including how much the United States and the European Union should reduce farm aid and the extent to which developing countries such as India and China should lower tariffs.
Deadlines to conclude the talks have been repeatedly missed, with the latest being the end of this year.
Lamy blamed the ‘freefall’ triggered by a crisis that first struck financial markets in late 2008 on a reduction in demand ‘across all major world economies’.
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BANGLADESH: EVENT UPDATE
Bangladesh, India joint trade fair begins today
A three-day Indian trade fair, with a focus on promoting business and investment between Bangladesh and India’s northeast, begins in the city today with a target of exporting goods worth $1 billion by 2011 to India.
‘The fair will also attract 100 joint-venture investments into Bangladesh in next three years to 2013,’ said Abdul Matlub Ahmed, president of the India-Bangladesh Chamber of Commerce and Industry in Bangladesh, at a press conference at a city hotel.
The ‘India Trade Fair 2010 and Bangladesh Northeast India Trade and Investment Conclave’, is being held against the backdrop of major developments in relations between the two neighboring countries who have just struck broad accords on wider areas of cooperation-in trade, transportation, transit and investment.
He noted that the Indian government has waived duty on a couple of Bangladeshi products at entry point, but, still, there is duty in action in different Indian states.
‘If the local tax is removed on garments, knitwear, woven wears and shirts, we will be able to achieve our target of exporting goods worth $ 1 billion soon,’ said Matlub, who mainly deals in Tata vehicles in Bangladesh.
The Fair and Conclave is being organised by IBCCI while Triune Exhibition and Event Management Services Ltd is event manager.
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ANALYSIS
‘Political muscle’ hampering power plans
Present and former Rural Electrification Board officials, regulators, lending agency officials and consultants have blamed ‘political interference’ as one of the impediments to efficient power distribution and better service.
They made the observations at a workshop on strengthening rural power supplier, jointly organised by the Power Cell of the government’s power division and SMEC International, an Australia-based consulting group, at Sonargaon Hotel.
Former chairman of the Rural Electrification Board, Touhidul Islam said, ‘Political interference has been an obstacle to smooth operations of the organization.’
Alluding to politicians as ‘external forces’ he said they often gave orders about where to build new transmission lines without any regard for the agency’s plans.
Zinnatul Huq, a member of the rural power board, said the organization should be free from political meddling. He said that the government, instead of pandering to certain partisan interests, should instead facilitate the agency for ensuring better service to the poor in rural areas.
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WORLD ECONOMY
Refinery crisis afflicts global oil sector
The world’s major oil companies are grappling with a crisis in the refining sector which is forcing them to cut back heavily to staunch losses, as shown by a dispute at Total in France.
The possibility that Total could shut down a refinery in France has sparked angry protests and the government now wants the privately-owned group to commit to not closing any French refineries for five years.
But the fact is that refining is not a good business for oil companies in advanced industrialized countries, analysts said. And financial results published by the big producers show that Total’s situation is hardly unique.
‘The global refining situation today is not good,’ said Colette Lewiner, an energy expert at the French global consultancy Cap Gemini. ‘At all the oil majors, refining activities are losing money.’
The refining sector has been under heavy pressure from a global slowdown in economic activity, particularly in major Western markets, and from energy-saving measures which have reduced consumption of refined products.
‘The problem is that there are too many refineries in countries where demand is drying up — at a time when demand is robust in countries like India and China,’ Lewiner said.
At British group BP, profit in the refining division fell by 21.6 per cent last year. Exxonmobil of the United States reported a 57-per cent decline in refining profits and Anglo-Dutch group Shell saw a 69-per cent drop.
‘The real test came in 2008, when we saw no movement in the price of refined products at a time when the price of oil had risen 30 per cent,’ said Karine Berger, director of economic studies at credit insurer Euler Hermes SFAC.
She pointed to a collapse in operating margins caused by ‘worldwide over capacity.’
Most big groups in the industry have embarked on elaborate cost cutting drives, along with asset sales and site closures, in developed countries where production capacities are too high.
Last year, Shell sold refining assets worth $1.2 billion. The company, which in 2009 cut 5,000 jobs, plans to sell up to 15 per cent of its refining capacity, along with some distribution activities.
Shell also announced recently the closure of a refinery in Montreal which had employed 500 people and is negotiating the sale of three European refineries to the Indian firm Essar. In the United States, Chevron has announced job cuts in its refining division while Valero plans to shut down a facility in the eastern state of Delaware.
In France, Total has made no secret since November of its desire to reduce its European refining operations while showing an interest in refining projects in countries where demand remains firm.
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SOUTH ASIA: INDIAN BUDGET
Indian budget to underline slow pace of reform
India’s government presents its first full post-election budget on Friday, with a lack of political appetite for big-bang reform set to disappoint those looking for bold moves to open up the economy.
The ruling Congress party had frequently blamed its Communist partners for thwarting attempts to reduce state control of the economy during its last term, when it led a fragile coalition from 2004 to 2009.
But although the left-leaning Congress is now firmly in control, it will shy away from contentious moves to liberalize India’s still inward-looking economy in the budget for the fiscal year ending in March 2011, analysts say.
Although growth has rebounded — it is seen hitting 7.5 per cent this year, then accelerating to eight per cent or more — the Congress is unwilling to chart a reformist course for as long as the global outlook remains uncertain.
More broadly, there also still appears to be a lack of consensus in the ruling party and its coalition partners in favour of deeper reforms in Asia’s third- largest economy.
‘There’s a substantial body of opinion that believes India was saved from the worst ravages of the global slump because its economy is not so integrated with the rest of the world,’ said economic analyst Paranjoy Guha Thakurta.
And 74-year-old finance minister Pranab Mukherjee, known as one of India’s canniest politicians and firmly in the left wing of the Congress party, is not generally viewed as an advocate of economic liberalisation.
India’s growth slowed to 6.7 per cent last year from boom levels of nine per cent as a result of the worldwide downturn, but that was seen in the country as a good performance compared to anemic expansion or recession in the West.
Most economists tout liberalisation to pull in foreign investment as the best way to boost growth and ease grinding poverty. More than 40 per cent of India’s 1.2 billion people still live on less than 1.25 dollars a day.
But moves such as opening the vast retail and financial sectors to foreign investors, privatization and introducing flexible hiring-and-firing laws appear a step too far for the government.
‘What happened in the US and Europe has made politicians in India and everywhere more guarded about introducing measures to liberalize the economy,’ said HSBC senior economist Robert Prior-Wandesforde.
The country could expand faster with more reforms but even without them, he said, ‘India can grow at seven to eight per cent or higher (annually) over the course of an economic cycle’.
Political commentator Parsa Venkateshwar Rao added: ‘With the international financial crisis, this is the wrong time for anyone to talk about reform.’
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WORLD ECONOMY
Malaysia says economy out of recession
Malaysia’s economy has recovered from the global crisis and could expand by 5.0 per cent this year, premier Najib Razak said Wednesday after announcing strong growth in the three months to December.
The fourth quarter expansion of 4.5 per cent was much healthier than expected, and represented a rebound after three consecutive quarters of contraction.
‘Overall, the Malaysian economy has turned around and recovered from the implications of the global crisis,’ Najib told a press conference.
The premier credited stronger external and domestic demand, stimulus spending, measures to ensure access to financing and ‘accommodative’ monetary policy for the resumption of growth.
‘For the year 2009, the economy contracted by 1.7 per cent, lower than negative three or four per cent that was projected earlier,’ he said.
‘The accelerated implementation of the government’s two stimulus packages has been a key factor in contributing to the economic recovery.’
Asked whether Malaysia can achieve 5.0 per cent growth for 2010, Najib replied ‘Yes’.
‘We are quite bullish about it. Earlier we forecast 4.0 per cent; I hope we can achieve 1.0 to 2.0 per cent above it. I’m going all-out to generate confidence and speedy implementation of projects,’ he said.
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BANGLADESH: DEVELOPING NEWS
Taiwanese co to invest$10.2m in KEPZ
Young Zhen Metal Industries Limited, a Taiwanese company, will set up a garment accessory manufacturing unit in the Karnaphuli Export Processing Zone.
The 100 per cent foreign-owned company would invest $10.20 million to establish the plant. It will create jobs for 300 Bangladeshi nationals.
An agreement to this effect was signed between Bangladesh Export Processing Zones Authority and Young Zhen Metal Industries in the BEPZA Complex in Dhaka on Tuesday.
BEPZA member (investment promotion) Md Moyjuddin Ahmed and Young Zhen Metal director Chen Hung I signed the agreement on behalf of their respective sides.
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ASIAN MARKET OVERVIEW
Global recovery doubts send Asian markets lower
Weaker-than-expected data from the United States and Europe triggered fresh doubts about the pace of global recovery Wednesday, with Asian markets trading broadly lower.
February US consumer confidence data released Tuesday eroded expectations for sustainable consumer spending and a quick economic recovery in the United States, prompting a risk-averse reaction across Asia.
‘The market is looking for signs of economic recovery and growth,’ said analysts at IG Markets. ‘The latest set of consumer confidence figures isn’t helping this view.’
A surprise decline in business confidence in Germany, Europe’s biggest economy, also indicated sluggish recovery and hit sentiment towards the euro in overnight trade, before the single currency rebounded in Asia.
The euro fetched 1.3543 dollars in Tokyo afternoon trade from 1.3509 in New York late Tuesday. It rose to 122.20 yen from 121.87. Tokyo fell 1.48 per cent, or 153.27 points, to 10,198.83 with the relatively strong yen denting exporters’ profitability, sending related shares lower.
Shares of Toyota were down 1.50 per cent, hours before its president Akio Toyoda was set to testify before US Congress on the carmaker’s safety problems that have prompted global recalls of more than eight million vehicles.
Worries about the US economy saw Hong Kong close down 0.75 per cent, or 155.26 points to 20,467.74, but developers were boosted by plans to cool the territory’s red-hot property market which were more benign than expected.
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Dollar mixed in Asia before Fed’s testimony
The dollar was mixed against major currencies in Asian trade Wednesday as investors stayed guarded following risk-averse Wall Street trade and ahead of the US Fed chief’s testimony.
The dollar edged up to 90.25 yen in Tokyo morning trade from 90.21 in New York late Tuesday. The euro firmed to 1.3531 dollars, from 1.3509, and to 122.12 yen from 121.87.
The safe-haven dollar climbed against the euro on Wall Street overnight following disappointing economic reports in the United States and Germany that deepened concerns about the global recovery.
In a surprise decline, the IFO business confidence index in Germany, Europe’s largest economy, fell for the first time in nearly a year, signaling a sluggish recovery.
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WORLD ECONOMY
IMF stresses deficit cut in crisis exit strategies
The International Monetary Fund urged governments Tuesday to cut their budget deficits as they pull back from stimulus efforts to help sustain a long-term economic recovery.
‘Exiting from crisis-related intervention policies should be viewed in the context of achieving strong, sustained and balanced growth,’ the IMF said in a report, ‘Exiting from Crisis Intervention Policies.’
The IMF advanced a scenario in which the developed countries would transform an average public deficit of 4.3 per cent of gross domestic product this year to a public surplus of 3.7 per cent of GDP in 2020.
The 186-nation institution said the goal was crucial for sustained global growth.
‘Financial restructuring and balance sheet repair — including bank recapitalization — remain priorities to underpin a resumption of strong economic growth,’ the report said.
‘At the same time, in light of the large increases in government debts, countries should draw up plans for a major improvement in fiscal balances.’
The Washington-based institution warned that if high debt levels persist in the largest economies at the same time, the interest bill to service the debt would grow, negatively impacting private investment and global economic growth.
‘This fiscal adjustment will be difficult to implement, but is not unprecedented,’ the fund noted.
Developed countries will have little margin to cut back social spending, given their aging populations, according to the fund.
To reach the scenario goal for 2020, the largest effort needed by the advanced countries would be a freeze on spending, excluding spending on health care and pension entitlements.
Another important factor, worth 3.0 points of GDP—’could come from increasing revenues,’ including from improvement in fighting tax evasion and fraud, as well as revenues coming from taxes on greenhouse gas emissions.
The unwinding of fiscal stimulus measures would contribute 1.5 points.
‘A large part of the adjustment would likely need to take place on the spending side, with a sizable but smaller role for the revenue side, consistent with the already high tax burden in several advanced economies,’ the report said.
The IMF highlighted that it remains too soon for most countries to undertake major steps to unwind their extraordinary support measures.
‘For the global economy, with the exception of some countries, current conditions do not justify a significant rolling back of macroeconomic stimulus or financial policies in 2010,’ it said.
‘The recovery remains sluggish compared with past standards, at least in the advanced economies... unemployment is likely to remain high in the advanced economies well into 2010 and inflation pressures are expected to remain subdued.’
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Hong Kong acts to avoid property bubble
Hong Kong said Wednesday it would introduce a series of measures to cool the overheating property market, such as increasing residential land supply and hiking stamp duty for luxury flats.
Financial secretary John Tsang warned that recent property frenzy, driven by a huge inflow of more than 640 billion Hong Kong dollars ($82b) since late-2008, could threaten economic stability.
‘If capital flows were to reverse or interest rates rebound, asset prices would become more volatile. This in turn may affect the stability of our financial system and the recovery of the real economy,’ he said in his annual budget speech.
To reduce the risk of speculation in the luxury market, the stamp duty for sales of properties valued at more than $20 million will be raised from 3.75 per cent to 4.25 per cent beginning in April, he said.
Buyers of these flats would no longer be allowed to defer payment of stamp duty. The measure could be extended if excessive speculation was detected in the trading of less expensive properties, he said.
Tsang said the government would also strive to increase residential land supply, with plans to auction several urban residential sites in the next two years if market conditions allow, he said.
The financial secretary also pledged to prevent excessive expansion in mortgage lending.
Prices of some luxury flats returned to the peaks of the 1997 property boom in January, he said.
Concerns that speculation has extended beyond the high-end market intensified this week after Sun Hung Kai Properties, Hong Kong’s largest developer by market capitalization, agreed to pay a staggering $3.37 billion for a 12,000 square metre (1,30,000-square-foot) site in the city’s suburbs.
The price, reached after fierce bidding at a government land auction on Monday, was well above the average forecast by analysts.
Sellers in the southern Chinese city hiked prices of their units after the auction, according to media reports.
However, a property analyst said a bubble would still be created with Hong Kong’s interest rates remaining low due to its currency peg to the US dollar.
‘The measures can slow down the property price hike but will definitely not be able to stop it,’ Wong Leung-sing, head of research at Centaline Property Agency, told the AFP.
‘The economic boom in China and low interest rates in the US are two major external factors that together will almost guarantee a property bubble in the next few years.’
Share prices in developers rose after the budget speech as stock investors were relieved that the measures were much weaker than expected.
Sun Hung Kai jumped 1.52 per cent to 107.20 dollars and Sino Land was up 1.02 per cent to $13.92 at the close of Wednesday’s trading.
‘The only way to avoid a property bubble is to drastically increase land supply, which the government has not done,’ said Francis Lun, general manager at Fulbright Securities.
Stimulus measures by governments around the world have boosted liquidity, which has led to large fund inflows into Asia, driving asset prices higher, Tsang said.
Mainland China has also seen soaring property prices, with values rising at their fastest pace in 17 months in December after Beijing encouraged tax breaks, loans and lower down payment requirements to boost the sector.
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Japan logs surprise trade surplus
Japan on Wednesday said exports grew at the fastest pace for 30 years in January, supporting recovery as the world’s second largest economy battles deflation and weak domestic demand.
Posting a surprise trade surplus, Japan said exports soared at their fastest pace since February 1980 at 40.9 per cent to 4.90 trillion yen, backed by a rebound in demand from the rest of Asia as well as from developed countries.
‘Exports continued to recover robustly, led by shipments for Asia,’ said Daiwa Institute of Research economist Hiroshi Watanabe, warning that due to its weak domestic demand ‘Japan’s economy can only count on exports.’
Japan plunged into its most severe post-war recession in 2008 as its exports collapsed due to the global downturn, returning to growth in the second quarter of 2009.
But the recovery remains fragile with falling consumer prices, high public debt and weak domestic demand all major concerns for policymakers.
Wednesday’s data showing a surplus of 85.2 billion yen (945 million dollars) beat market expectations of a deficit of 145 billion yen and reversed a record deficit of 956 billion yen recorded during the slump a year ago.
The figures showed that Japan’s trade surplus with the United States and the European Union has widened and its deficit with China has narrowed.
Higher US demand for final products led to a boost in exports of parts and raw materials to China, where many of the products are manufactured, he said.
Exports to Asian powerhouse China, which overtook the US as Japan’s top export market in 2009, surged 79.9 per cent to 920.0 billion yen on higher demand for semiconductors and other components, automobiles and plastics.
Prospects for China’s economy will remain as a key for Japan, said Takeshi Minami, chief economist at Norinchukin Research Institute.
‘China has shifted to credit tightening, which would slow its economy and reduce exports from Japan,’ he said. ‘We need to watch developments in China.’
Exports to the United States rose 24.2 per cent to 710.4 billion yen to chalk up the first rise in 29 months, with automobile exports more than doubling.
Japan’s overall imports rose 8.6 per cent to 4.82 trillion yen. Economists said the rise, the first in 15 months, reflected higher energy prices rather than improving domestic demand.
The export rises led Japan to score a 78.7 per cent jump to 237.1 billion yen in its trade surplus with the United States and to cut its deficit with China by 76.8 per cent to 130.6 billion yen.
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Toyota chief blames rapid rise, admit recalls insufficient
Angry US lawmakers will grill Toyota’s president Akio Toyoda on Wednesday, after his Japanese firm admitted a spate of global vehicle recalls had ‘not totally’ fixed dangerous safety flaws.
Toyoda, in prepared testimony he was to deliver Wednesday to Congress, apologized personally for the defects which have been implicated in dozens of deaths and that have prompted 5.3 million vehicles to be recalled in the United States alone.
The embattled president, who leads what had been one of the most revered brands in the auto sector, blamed the company’s ‘too quick’ rise to world number one for slipping standards.
‘I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced,’ said Toyoda, whose remarks were made public.
Toyoda was expected to face tough questions from members of the House Oversight and Government Reform Committee, the second of three panels looking into the response to sudden unintended acceleration blamed for some 30 US deaths.
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