UPDATE----------------------------FEBRUARY 14, 2009 SUNDAY
BANGLADESH NEWS
Turkey wants to increase trade with Bangladesh
The conditions for economic development of any country depend on political stability and security, the visiting Turkish president said in Dhaka on Saturday.
President Abdullah Gul said the responsibilities of political leaders are to guarantee fundamental rights of the citizen in a democratic environment and to foster economic growth so that the people can prosper.
‘Our only job is to ensure these goals,’ he said during a meeting with the Bangladeshi business community.
Bangladesh and Turkey need to bolster ties through increased trade and investment, Gul told the meeting.
He called upon Bangladeshi entrepreneurs to consider investing in Turkey, saying that his country already has invested significantly in Bangladesh’s textile sector.
‘Joint venture initiatives in a third country can be also considered,’ he said.
Organised by the Federation of Bangladesh Chambers of Commerce and Industry, the meeting was held at the Sonargaon Hotel in a bid to facilitate discussions among the business leaders of the two countries.
‘The time has now come to transform this friendship into a relation that will bring mutual benefit to the peoples of both countries,’ the Turkish president said.
Gul, who arrived on Friday, is accompanied by a delegation comprised mainly of Turkish businessmen.
On the potential of bilateral trade between the countries, Gul reiterated that it can be doubled.
‘Bilateral trade between the two countries has already grown to almost $600 million, but it can go up to more than a billion.’
Finance Minister AMA Muhith, FBCCI president Annisul Huq and Rifat Hisarciklioglu, president for the Union of Chambers and Commodity Exchanges of Turkey also spoke in the breakfast meeting.
An agreement aimed at enhancing cooperation was signed between the FBCCI and the TOBB.
A memorandum of understanding was also signed between Turkish investment company RHEA Investments and Bangladeshi entity, Dana Group.
The UNB adds: FBCCI and Union of Chambers and Commodity Exchanges of Turkey on Saturday signed a cooperation agreement to foster development and diversification of trade and economic cooperation on a mutually advantageous basis between their members.
FBCCI president Annisul Huq and TOBB president M Rifat Hisarciklioglu signed the agreement in presence of Turkish president Abdullah Gul at a breakfast meeting at Sonargaon Hotel.
Under the agreement, the two federations will exchange information on the state of their economies, economic legislation and commercial tradition in their respective countries to develop the economic relations.
They will undertake reciprocal visits and discuss issues of mutual interest beyond trade such as joint ventures, foreign investments and transfer of technologies.
They will also encourage trade promotion activities with exchange of trade missions and participation in trade fair and make preparation for establishment of Turkish-Bangladesh Business Council.
At the function, RHEAR, a Turkish company, signed a MoU with its Bangladeshi counterpart DANA to offer $1 billion in soft loan to the Bangladesh government to finance infrastructure projects like flyovers and bridges.
If the government accepts the credit line, RHEAR will donate $5 million to healthcare and education projects in Bangladesh.
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WORLD NEWS SPECIAL
Holiday crush leaves China e-shoppers in lurch
China’s huge number of Internet shoppers has flooded online retailers with Lunar New Year orders — so much so that some shops were forced to suspend holiday delivery.
The country’s biggest online retail site Taobao expects New Year sales to soar to a massive one billion yuan ($146m), from 280 million yuan a year ago, according to the China Daily.
Stores on Taobao stopped taking orders or delivering goods at the beginning of this month, while other outlets cut off sales this week ahead of the weekend festivities — sparking panic for devoted e-shoppers.
‘I felt really anxious... I think I’m suffering from a sort of Taobao syndrome,’ said Zhang Chi, 26, who spent more than 3,000 yuan in five days buying cosmetics and other items she needed to ring in the New Year.
‘New clothes are at the top of my must-have list because I will visit my boyfriend’s family and also attend many parties with friends during the Spring Festival,’ she said.
Some courier companies will try to help out panicked e-buyers during the week-long holiday — but will charge extra for the privilege and warn that delays should be expected.
China has the world’s largest online population with 384 million users. Online shoppers in the country spent around 250 billion yuan in 2009, more than double the value recorded a year ago, according to official data.
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BANGLADESH: SURVEY REPORT
Investment, employment on the rise
Investment and employment are expected to grow significantly in the first quarter of 2010, according to a just-published business confidence survey by Bangladesh Investment Climate Fund.
The survey carried out in the last quarter of 2009, published in Dhaka on Saturday, said 60 per cent of businesses approached were looking to make investments in the current January-March period against 52 per cent in the previous quarter.
The survey showed overall business confidence, on a scale of 1-100 in three areas — investment, employment and profitability — rising to 56 from 51 in the previous quarter.
The scenario was in line with forecasts, according to the survey report presented at a meeting jointly organised by BICF and International Chamber of Commerce-Bangladesh at the Dhaka Chamber of Commerce and Industry.
The BICF, managed by the International Finance Corporation, World Bank’s private sector arm, conducts the ‘Business Confidence Survey’ every quarter. The latest survey covered 1,440 businesses in the last quarter of 2009 compared to around 700 businesses surveyed in the previous quarter.
BICF head James Crittle laid emphasis on betterment of regulatory instruments and infrastructure facilities, which will help increase business confidence and boost investment.
‘Higher confidence will generate more investment and more investment will create more employment that will ultimately contribute to poverty alleviation,’ he added.
Bangladesh Foreign Trade Institute CEO MA Taslim said the economy was rising despite global downturn.
Small and Medium Enterprise Foundation chairman Aftab-ul-Islam said SMEs would be at the forefront of the future economic growth since their numbers are increasing.
The respondents singled out gas crisis as the number one factor impeding their businesses.
They also suggested that captive power plants, run on gas, should be given higher priority.
Subsidy to diesel may also be beneficial to address the problem, they added.
DCCI president Abul Kashem Khan said since almost 90 per cent of the country’s industries are situated in Dhaka and Chittagong, the survey should have covered the two cities more.
Bangladesh Knitwear Manufacturers and Exporters’ Association president Fazlul Huq said the survey results did not say anything about which sectors to be prioritized and left no guideline for the entrepreneurs.
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WORLD NEWS
Burani fashion house seeks bankruptcy protection
Debt-ridden Italian fashion house Mariella Burani said Saturday it would seek bankruptcy protection after failing to raise funds to cover losses.
With a debt of nearly 500 million euros ($680m), the company decided to begin bankruptcy proceedings with the intention of ‘continuing business activities,’ it said in a statement after an extraordinary board meeting.
Burani had ‘no evidence of a binding commitment from partners or third parties’ to raise the funds necessary for a restructuring, the statement said.
MBFG, a purveyor of ‘accessible luxury,’ whose labels include Mandarina Duck and Coccinelle, recorded a loss of 185 million euros in the first nine months of 2009.
The decision came after a Milan court on Thursday declared bankrupt the Burani Designer Holding, which indirectly controls Mariella Burani Fashion Group.
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DEVELOPING NEWS: MIDDLE EAST
Bharti makes bid for Kuwait’s Zain assets
India’s largest mobile phone operator Bharti Airtel has offered $10.7 billion to buy Kuwait’s Zain telecom operations in 15 African nations, a newspaper reported on Saturday.
Quoting unnamed ‘reliable sources,’ Kuwait’s Al-Rai daily said the ‘official bid’ was made at the Muslim weekend (Thursday) and will not include Zain’s totally-owned unit in Sudan.
Zain, Kuwait’s largest mobile operator denied on Monday that it had received new offers for its African assets, a part of which was bought in 2005 from Dutch Celtel for $3.5 billion.
Later, Zain made key acquisitions in several other African nations including Nigeria.
Zain also operates in Kuwait, Saudi Arabia, Bahrain and Iraq in addition to Jordan and Lebanon.
Zain’s share price rose more than 20 per cent and its capitalization gained $3 billion to $16.1 billion over the sale reports.
Last summer, Zain declined an offer from French telecom and media group Vivendi, reportedly at between 10 billion and 11 billion dollars, saying the price was below expectation.
Earlier this month, Zain accepted the resignation of Saad al-Barrak as its CEO. On Thursday, it appointed former communications minister Nabil bin Salama to replace him.
Since joining the company in 2002, Barrak transformed Zain from a local company with under one million subscribers to an international telecom firm operating in 23 nations with 72 million subscribers.
The process required massive investments that exceeded $12 billion.
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SOUTH ASIA
Sri Lanka plans to issue $500m bond
Sri Lanka plans to issue a new international bond this year with a 10-year maturity to help defray mammoth post-war rebuilding expenses, the central bank said Saturday.
‘We need about $2.7 billion for the next three years to build new roads, utility services, hospitals and schools to get the northern economy up to speed,’ central bank governor, Nivard Cabraal said.
The northern province, which was the stronghold of the separatist Tamil Tiger guerrillas, is picking up the pieces after troops last May crushed the revolt and ended decades of bloodshed.
The province accounts for just 2.9 per cent of the island’s $40-billion economy.
Cabraal said the bond will be issued after the next budget, expected in April.
‘We are looking at May or just after that,’ he said. ‘We think Sri Lanka has now matured and gained the confidence of investors for a longer tenure instrument.’
Sri Lanka’s 2010 budget has been delayed due to presidential polls in January which were won by incumbent president Mahinda Rajapakse.
The island has been gripped by tension since authorities arrested ex-army chief and defeated presidential candidate Sarath Fonseka earlier in the week.
Parliamentary elections are due on April 08.
Sri Lanka issued a $500-million bond in 2007 and in 2009.
The bonds are trading well above their issue price as investors hunt for high yields in emerging markets and seek to diversify from low-yielding western markets.
Cabraal forecast economic growth of at least six per cent this year for the island nation, up from 3.5 per cent in 2009.
‘We are looking at six per cent plus growth. Areas like tourism, transportation and ports, agriculture and fisheries are picking up,’ he said.
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FOCUS
Japanese banks likely to drop merger plan
Japan’s Shinsei Bank Ltd and Aozora Bank Ltd — two midsize lenders with major US shareholders — could call off their plan to merge later this year amid differences over management, strategy and system integration, news reports said Saturday.
The two companies announced the merger plan in July, saying the combined entity would be Japan’s sixth-largest bank with assets of about 18 trillion yen ($200.7b).
However, Japan’s leading Nikkei business daily said Saturday the banks have been unable to bridge differences over management policy or come up with a growth strategy. Kyodo News agency also reported they are at odds over how to integrate their banking systems, and what their core banking business should be.
The Nikkei quoted executives it did not identify from both banks for its report. Kyodo quoted sources it did not name.
Kyodo said if agreement cannot be reached, the banks may drop the merger and pursue independent paths. The Nikkei said the banks are considering whether to call off the merger or postpone it indefinitely.
Shinsei Bank said in a statement on its Web site it had no comment. Aozora Bank could not immediately be reached.
A group of investors, including affiliates of US private equity firm J.C. Flowers & Co, holds a 32.5 per cent stake in Shinsei, while an entity of Cerberus Capital Management, LP, also of the US, owns 45.5 per cent of Aozora shares, according to information posted on the Web sites of the two banks.
Shinsei and Aozora said in July the merger would take effect in October 2010.
Hit by restructuring costs and fruitless overseas investments, Shinsei reported a net loss of 143 billion yen last fiscal year through March 31, 2009. Aozora posted a net loss of 242.5 billion yen.
The banks have returned to profitability so far this year, however, with Shinsei reporting net profit of 22.2 billion yen for the first nine months of the fiscal year through December 31. Aozora reported net profit of 7.3 billion yen for the same period.
The Japanese government bailed out the predecessors of both banks during a domestic banking crisis in the 1990s.
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India needs to plan exit from stimulus measures
India’s government must plan an ‘appropriate’ exit from its economic stimulus programme, a top IMF official said Friday, as economic recovery for
Asia’s third-largest gathered pace.
The comments by John Lipsky, the International Monetary Fund’s first managing director, came as official data showed that India’s industrial output in December climbed at its strongest pace in nearly 20 years.
‘There is no simple, fit-all solution. India will have to think of an appropriate path of exit... it will be a challenge,’ Lipsky told reporters in Mumbai.
India’s industrial production, exports and services are rising, aided by stimulus measures introduced in late 2008 to help the country out of the global economic slowdown.
The measures currently account for some 12 per cent of GDP, while the central bank has injected $120 billion into the economy since October 2008 by slashing rates and taking other measures to boost business.
‘I am sure the (Indian) government is thinking of an exit path over the medium-term,’ Lipsky said, while attending an international banking conference.
Last month the Reserve Bank of India took a key first step away from its aggressively expansionist stance, to keep a lid on resurgent inflation.
It siphoned off excess liquidity from the financial system by raising the cash-reserve ratio — the percentage amount commercial banks must keep on deposit — by 75 basis points to 5.75 per cent.
Lipsky said India, like other emerging markets, will also have to deal with the problem of rising overseas capital flows.
‘The surge (in foreign funds) is in response to the stop in flows seen in 2008 during the financial crisis,’ Lipsky said.
Capital controls could be advisable but the IMF saw these as ‘temporary measures’ and only for limited situations, he said.
India’s stock market has surged over 80 per cent in 2009, led by record foreign fund inflows of $17.45 billion.
Lipsky said India would also need to formulate moves to check the fiscal deficit, which is at a 16-year high.
The deficit had ballooned to 6.2 per cent in the year to March 2009 — more than double the government’s target of 2.5 per cent —rising on loan waivers for poor farmers, subsidies and stimulus packages to boost the economy.
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MIDDLE EAST SPECIAL
Saudi Arabia launches solar energy programme
Aiming to stabilize future power and water supplies in the country, Saudi Arabia has begun work on the first solar-powered water desalination plant, the first step in a three-part programme to introduce solar energy into the Kingdom.
The programme, launched by the King Abdul Aziz City for Science and Technology, aims to help stabilize future power and water supplies inside Saudi Arabia through the creation of solar-powered desalination facilities, an official statement said.
Water desalination is critical to providing clean drinking water around the world.
Saturday, Saudi Arabia produces 18 per cent of the world’s desalinated water. By building water desalination plants that run on solar energy, the Kingdom can reduce operational costs and in turn, reduce consumer costs.
Prince Dr Turki bin Saud bin Mohammad, KACST vice-president for Research Institutes said, ‘The solar energy programme will reduce the cost of producing desalinated water and of generating power for use in the Kingdom, an oil-dependent nation, which has launched a national energy efficiency programme.’
Saudi Arabia is a prime location to harness solar energy because of its year-round sunshine. The sun in Saudi Arabia emits about 7,000 watts of energy per square metre over an average of 12 hours every day, the statement added.
KACST and IBM have developed a research centre to determine how best to harness and repurpose this solar energy and are preparing to implement this state-of-the-art technology.
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WORLD ECONOMY
EU wants to step up economic surveillance
The European Commission said on Friday it was preparing new measures to boost coordination among eurozone member countries and supervise their economic policies in light of the Greek debt crisis.
‘The critical lesson from this crisis is that we urgently need deeper and broader surveillance of economic policies, including earlier detection and tackling of imbalances, in order to better safeguard the macro-financial stability of the euro area,’ EU Monetary Affairs Commissioner Olli Rehn said.
‘The commission will soon come forward with proposals to further strengthen the coordination and the surveillance of national economic policies within the euro area,’ he said in a statement.
The measures could form part of a broader package of proposals being drawn up by the EU’s executive arm on the 27-nation bloc’s mid- and long- term economic strategy.
Eurogroup chairman Jean-Claude Juncker is also working along similar lines.
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Commodity prices rebound on improved demand forecast
Metals and oil prices recovered this week on expectations of higher demand but gains were capped by concerns over Greece’s debt problems.
‘Greece still dominated headlines after EU officials confirmed that they had an alleged deal reached over assistance to debt-burdened Greece,’ said commodities analyst Andrey Kryuchenkov at Russian investment bank VTB Capital.
‘However, there were no further details on the Greek bailout and market participants remained uneasy, while the dollar held firm.’
Crude futures rose this week as the International Energy Agency forecast that world oil demand would rise this year compared with 2009, driven by strong growth in emerging economies.
The Paris-based agency said demand was expected to reach 86.5 million barrels a day in 2010, while average prices would hit an average of $75 a barrel.
Demand growth is expected to come ‘entirely’ from outside the Organization for Economic Cooperation and Development, a grouping of 30 developed economies including Britain, France, Germany, Japan and the United States.
Oil prices fell on Friday, but remained higher over the week, as the European single currency fell close to a nine-month low against the safe-haven dollar.
The euro tumbled to $1.3532, the lowest level since May 19 — as markets took a dim view of eurozone growth data and unclear EU proposals to help Greece.
A stronger dollar tends to dampen demand for oil because it makes crude priced in the greenback more expensive for buyers using weaker currencies.
Elsewhere on Friday, China ordered financial institutions to increase the amount of money they keep in reserve, in an attempt by Beijing to rein in rampant lending amid fears of asset bubbles.
The development was a concern for the oil market because China is the world’s second biggest energy consuming nation after the United States.
Traders also digested the latest weekly update on energy stockpiles in the United States.
The US government’s Department of Energy announced Friday that American crude reserves rose by 2.4 million barrels in the week ending February 5. Analysts had expected a gain of only 1.3 million barrels.
The report, usually published on Wednesdays, was delayed due to bad weather in the north-eastern United States.
By late Friday, New York’s main futures contract, light sweet crude for delivery in March, rose to $73.38 a barrel from $72.80 a week earlier.
London’s Brent North Sea crude for March climbed to $72.24 from $71.44.
Base metals prices rebounded as investors shrugged off risk fears and expected Chinese demand to recover.
‘Risk reduction no longer seems to be a priority, and prices are performing strongly as a result,’ said Barclay’s analyst Gayle Berry.
MF Global analyst Ed Meir said that ‘the feeling emanating from Asia is that demand will likely be strong after the Chinese New Year, and this could explain the sharp run-up we are seeing heading into the holidays’ next week.
By Friday on the London Metal Exchange, copper for delivery in three months jumped to $6,799 a tonne from $6,335 the previous week.
Three-month aluminum rose to $2,039 a tonne from $1,992. Three-month lead gained to $2,103 a tonne from $1,968. Three-month tin climbed to $16,025 a tonne from $15,650. Three-month zinc increased to $2,147 a tonne from $2,003. Three-month nickel advanced to $18,500 a tonne from $17,410.
Precious metals prices recovered this week.
‘Prices gained momentum across the complex following the EU ‘bailout’ announcement,’ said Barclays Capital analyst Suki Cooper.
By Friday on the London Bullion Market, gold rose to $1,082 an ounce from $1,058 the previous week.
Silver climbed to $15.74 an ounce from $15.33.
On the London Platinum and Palladium Market, platinum advanced to $1,505 an ounce from $1,475.
Palladium grew to $416 an ounce from $395.
Sugar prices dropped after reaching a 30-year high of 30.40 US cents a pound the previous week.
‘Prices buckled slightly under pressure from outside markets and the stronger dollar,’ said Macquarie bank analyst Kona Haque.
Sugar futures have been hitting multi-year highs in recent weeks on tight supplies amid downgrades to production in India.
By Friday on the New York Board of Trade, the price of unrefined sugar for delivery in May fell to 26.49 US cents a pound compared with 27.31 cents for the expired March contract the previous week.
On LIFFE, London’s futures exchange, the price of a tonne of white sugar for May eased to 733.40 pounds compared with 736.40 pounds for the expired March contract.
Cocoa prices rose.
Cocoa futures had last month struck a 33-year peak in London trade on worries about lower output from top producer Ivory Coast.
By Friday on LIFFE, the price of cocoa for delivery in March advanced to 2,245 pounds a tonne from 2,240 pounds the previous week.
On the NYBOT, the May cocoa contract climbed to $3,076 a tonne compared with $3,064 for the expired March contract.
Coffee prices traded mixed.
By Friday on LIFFE, Robusta for delivery in May fell to $1,320 a tonne from $1,331 for the expired March contract the previous week.
On the NYBOT, Arabica for May rose to 132.05 US cents a pound compared with 131.55 cents for the expired March contract.
Grains and soya prices rose.
By Friday on the Chicago Board of Trade, maize for delivery in March climbed to $3.59 a bushel from $3.51 the previous week.
March-dated soyabean meal — used in animal feed — gained to $9.29 from $9.13.
Wheat for March advanced to $4.83 a bushel from $4.73.
Malaysian rubber prices rose after two straight weeks of declines. Traders said tight supply and strong demand pushed rubber prices higher.
On Friday, the Malaysian Rubber Board’s benchmark SMR20 rose to 296.80 US cents a kilo from 291.05 cents the previous week.
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Toyota faces new woes with Tacoma recall
Toyota is facing new woes with another recall — this time involving its Tacoma pickup trucks — after US president Barack Obama warned carmakers not to drag their feet on beefing up vehicle safety.
Toyota said it was voluntarily recalling 8,000 of the 2010 model Tacoma four-wheel drive pickups in the United States to inspect the front drive shaft.
‘The front shaft in these vehicles may include a component that contains cracks that developed during the manufacturing process,’ said a statement by Toyota Motor Sales, USA.
‘As those vehicles are used, the cracks may eventually lead to the separation of the drive shaft at the joint portion,’ it added.
The Tacoma trouble is the latest embarrassment for the world’s biggest automaker, which has recalled millions of vehicles in past months due to problems linked to accelerator and brake functions.
Those recalls cover models with ‘sticky accelerators’ that cause cars to race out of control, a defect cited in several deadly crashes, and has widened to brake system problems in the Prius and other hybrid models.
In his first public remarks on Toyota’s deepening defect crisis, Obama warned carmakers their brands were at risk if they dragged their feet on safety recalls.
Obama noted that Toyota was now under federal investigation over its recalls but predicted the company, which has supplanted the bailed-out US giant General Motors as global industry leader, would recover from its present troubles.
‘Every automaker has an obligation when public safety is a concern to come forward quickly and decisively when problems are identified,’ Obama said in an interview with Bloomberg BusinessWeek magazine, due to go on sale Friday.
‘We don’t yet know whether that happened with Toyota. That’s going to be investigated,’ he said.
‘My hope is that, moving forward, all automakers recognize that their brands are at stake when it comes to safety issues.’
Obama said the Japanese giant was likely to recover from its woes, which have left the company staring at recall-related costs of at least two billion dollars and triggered a plunge in its share price.
The Tacoma pickup shafts were built by supplier Dana Corp from December until early this month, a US government official said, speaking on condition of anonymity.
Dana told the National Highway Transportation Safety Administration, a government agency, that it was going to handle the shaft recall on vehicles built for automakers Ford, Toyota and Nissan, the official said.
This was ‘because they had discovered a defect in their manufacturing process,’ the official said.
‘So it looks like, out of caution, Toyota decided to submit its own recall notification to us because technically, the vehicle manufacturer is responsible for recalls.’
Separately, Toyota said in a letter to US lawmakers that it would investigate complaints on the Tacoma relating to ‘engine idle speed changes when the vehicle is stopped and high idle speed when the engine is cold.’
Also to be probed were complaints on ‘cruise control downshifting behavior, engine speed changes when shifting (manual transmission) and lurching when a vehicle is coming to a stop.’
Amid the series of recalls, Toyota said Friday it was studying the possibility of a new override system to deactivate engines as an extra safety layer in emergency situations.
‘Toyota is considering adding a multiple tap function to the start/stop button for vehicles produced in the future,’ said Toyota spokesman Brian Lyons.
The fix could make it easier to turn off engines in cases of accelerator malfunctions in cars with keyless ignition systems.
On Friday a US woman filed a federal lawsuit in Los Angeles against Toyota, blaming the company for the death of her husband when the Prius she was driving suddenly accelerated.
Jacquelyn Donoghue, a 67-year-old nurse, alleges in the suit that her car suddenly sped up and ploughed into another car when she was driving home with her husband in December, and that a brake-to-idle override could have prevented the crash.
Toyota president Akio Toyoda meanwhile is prepared to testify at US congressional hearings if he is formally asked to do so, a report by Kyodo news agency said in Tokyo Friday.
The report cited company officials, who said Toyota was hoping that if Toyoda appeared in person at the hearings it would help revive trust in its vehicles amid growing criticism of the company in the United States.
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NEWS ANALYSIS
Inflation targets need rethinking
Central banks need to rethink inflation targets to tackle future financial crises more effectively, the IMF chief economist, Olivier Blanchard, suggested on Friday.
A research report by Blanchard and associates at the IMF said policymakers became too complacent during the period of expansion known as ‘the Great Moderation’ about issues such as inflation and debt.
He said that while the financial sector was the source of the recent crisis, ‘large adverse shocks’ could come from elsewhere in the future such as a pandemic or major terrorist attack.
Against this backdrop, he said aiming for a higher inflation rate could provide more room for policymakers to grapple with crises.
‘Maybe policymakers should therefore aim for a higher target inflation rate in normal times, in order to increase the room for monetary policy to react to such shocks,’ Blanchard said in a report ‘Rethinking Macroeconomic Policy.’
‘To be concrete, are the net costs of inflation much higher at, say, four per cent than at two per cent, the current target range? Is it more difficult to anchor expectations at 4.0 per cent than at 2.0 per cent?’ asked Blanchard, an economist on leave from the Massachusetts Institute of Technology.
At the same time, he said, it was clear that achieving credible low inflation through central bank independence had been a historic accomplishment, especially in several emerging markets.
‘Thus, answering these questions implies carefully revisiting the list of costs and possible benefits of inflation,’ he said.
‘Nevertheless, it is worth considering whether these costs are outweighed by the improved policy maneuverability that would be available in times of crisis from having slightly higher inflation.’
He said that interest rates were a ‘poor tool to deal with excess leverage, excessive risk taking, or apparent deviations of asset prices from fundamentals.
‘We need a combination of monetary and regulatory tools.’
Blanchard pointed out that the basic elements of the pre-crisis policy consensus still held — ’Keeping output close to potential and inflation low and stable should be the two targets of policy.’
‘And controlling inflation remains the primary responsibility of the central bank. But the crisis forces us to think about how these targets can be achieved.’
The recent financial crisis, which erupted after a home mortgage meltdown in the United States, plunged many economies, mostly developed ones, into the worst recession in decades.
In the United States, the Federal Reserve pumped trillions of dollars into the economy to jolt the world’s largest economy from recession.
But fears arose on how the US central bank will mop up this money as the economy recovered to avoid runaway inflation.
‘As the crisis slowly recedes, it’s time for a reassessment of what we know about how to conduct macroeconomic policy,’ Blanchard said.
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Retail sales rise brightens US recovery picture
Sales at retailers were unexpectedly strong last month, suggesting consumers were feeling a little more comfortable to spend and improving prospects for first-quarter economic growth.
Retail sales rose 0.5 per cent as consumers stepped up spending not only on essential goods but luxury items as well, the Commerce Department said on Friday.
Optimism over the increase was tempered by a separate report showing that consumer sentiment ebbed slightly early this month. But analysts dismissed the slip as insignificant and focused on the gain in sales as a hopeful economic sign.
‘After considerable hand-wringing about the underlying strength of retail sales in the past few months, this is a solid report. It indicates the recovery is on track,’ said Brian Bethune, chief US financial economist at IHS Global Insight in Lexington, Massachusetts.
Retail sales are being closely watched to determine whether consumers can sustain the economy’s recovery once government stimulus and the boost from restocking by businesses wanes.
Not only did the January sales increase come in above the 0.3 per cent economists had forecast, sales data for December and November were revised upward as well. Compared to January last year, sales increased 4.7 per cent.
While the report on consumer confidence showed worries over unemployment were weighing on sentiment, the slight slip left intact a longer-term trend toward improvement.
The Reuters/University of Michigan Surveys of Consumers’ preliminary index of sentiment came in at 73.7 for February, down from 74.4 in late January but up from 56.3 a year ago. Analysts had expected a rise to 75.0.
‘February’s retracement does not seem to signal a fundamental shift in sentiment and is not likely to mean much for spending patterns in the months ahead,’ said Stephen Stanley, chief economist at RBS in Stamford, Connecticut.
Worries that a surprise move by China to raise bank reserve requirements could hurt the global recovery, overshadowed the retail sales report, hurting US stocks. The dollar neared a nine-month high against the euro, helped by skepticism over a proposed rescue deal for debt-stricken Greece.
The US economy has grown for two straight quarters following the worst downturn since the Great Depression of the 1930s. Growth in the fourth quarter came in at a 5.7 per cent annual rate, the fastest in six years.
Analysts, who are also tracking the impact of recent severe winter weather on the economy, said the year’s strong start to sales bodes well for first-quarter spending and growth.
‘Even folding in potentially weak February consumption as a result of severe weather and automaker difficulties, it appears that real consumer spending is on a 2.5-3 per cent quarterly trajectory,’ said Steven Wieting, an economist at Citigroup in New York.
Core retail sales, which correspond most closely with the consumer spending component of the government’s gross domestic product, rose 0.8 per cent after falling 0.3 per cent in December. Consumer spending rose at a 2 per cent annual rate in the fourth quarter.
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Finance ministers accused of failing to heed Greek crisis
Eurozone finance ministers failed to pay enough attention to Greece’s economic crisis, Eurogroup chairman Jean-Claude Juncker said Saturday, calling it ‘quite a serious error.’
He also told the German daily Sueddeutsche Zeitung that ‘uncontrollable’ consequences would result if Greece were to quit the eurozone, and pledged to keep Athens up to the mark in its efforts to reduce its yawning deficit.
Juncker, the prime minister of Luxembourg, said the Eurogroup, the panel of finance ministers whose countries use the single European currency, would monitor ‘much more intensively and severely’ the performance of its members.
‘We are not going to let the Greeks alone,’ he said. ‘We are going to ask them constantly where they are at in their reform programmes.’
Juncker also warned that ‘a monetary zone cannot last for long if the differences in performance of the various national economies get too great.’
If Greece were forced to abandon the euro, ‘the effects would be like an earthquake, uncontrollable’, he said, triggering an ‘extremely negative’ reaction from the markets.’
The European Commission said Friday it was preparing new measures to boost coordination among eurozone member countries and supervise their economic policies in light of the Greek debt crisis.
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BANGLADESH NEWS
Turkey wants to increase trade with Bangladesh
The conditions for economic development of any country depend on political stability and security, the visiting Turkish president said in Dhaka on Saturday.
President Abdullah Gul said the responsibilities of political leaders are to guarantee fundamental rights of the citizen in a democratic environment and to foster economic growth so that the people can prosper.
‘Our only job is to ensure these goals,’ he said during a meeting with the Bangladeshi business community.
Bangladesh and Turkey need to bolster ties through increased trade and investment, Gul told the meeting.
He called upon Bangladeshi entrepreneurs to consider investing in Turkey, saying that his country already has invested significantly in Bangladesh’s textile sector.
‘Joint venture initiatives in a third country can be also considered,’ he said.
Organised by the Federation of Bangladesh Chambers of Commerce and Industry, the meeting was held at the Sonargaon Hotel in a bid to facilitate discussions among the business leaders of the two countries.
‘The time has now come to transform this friendship into a relation that will bring mutual benefit to the peoples of both countries,’ the Turkish president said.
Gul, who arrived on Friday, is accompanied by a delegation comprised mainly of Turkish businessmen.
On the potential of bilateral trade between the countries, Gul reiterated that it can be doubled.
‘Bilateral trade between the two countries has already grown to almost $600 million, but it can go up to more than a billion.’
Finance Minister AMA Muhith, FBCCI president Annisul Huq and Rifat Hisarciklioglu, president for the Union of Chambers and Commodity Exchanges of Turkey also spoke in the breakfast meeting.
An agreement aimed at enhancing cooperation was signed between the FBCCI and the TOBB.
A memorandum of understanding was also signed between Turkish investment company RHEA Investments and Bangladeshi entity, Dana Group.
The UNB adds: FBCCI and Union of Chambers and Commodity Exchanges of Turkey on Saturday signed a cooperation agreement to foster development and diversification of trade and economic cooperation on a mutually advantageous basis between their members.
FBCCI president Annisul Huq and TOBB president M Rifat Hisarciklioglu signed the agreement in presence of Turkish president Abdullah Gul at a breakfast meeting at Sonargaon Hotel.
Under the agreement, the two federations will exchange information on the state of their economies, economic legislation and commercial tradition in their respective countries to develop the economic relations.
They will undertake reciprocal visits and discuss issues of mutual interest beyond trade such as joint ventures, foreign investments and transfer of technologies.
They will also encourage trade promotion activities with exchange of trade missions and participation in trade fair and make preparation for establishment of Turkish-Bangladesh Business Council.
At the function, RHEAR, a Turkish company, signed a MoU with its Bangladeshi counterpart DANA to offer $1 billion in soft loan to the Bangladesh government to finance infrastructure projects like flyovers and bridges.
If the government accepts the credit line, RHEAR will donate $5 million to healthcare and education projects in Bangladesh.
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WORLD NEWS SPECIAL
Holiday crush leaves China e-shoppers in lurch
China’s huge number of Internet shoppers has flooded online retailers with Lunar New Year orders — so much so that some shops were forced to suspend holiday delivery.
The country’s biggest online retail site Taobao expects New Year sales to soar to a massive one billion yuan ($146m), from 280 million yuan a year ago, according to the China Daily.
Stores on Taobao stopped taking orders or delivering goods at the beginning of this month, while other outlets cut off sales this week ahead of the weekend festivities — sparking panic for devoted e-shoppers.
‘I felt really anxious... I think I’m suffering from a sort of Taobao syndrome,’ said Zhang Chi, 26, who spent more than 3,000 yuan in five days buying cosmetics and other items she needed to ring in the New Year.
‘New clothes are at the top of my must-have list because I will visit my boyfriend’s family and also attend many parties with friends during the Spring Festival,’ she said.
Some courier companies will try to help out panicked e-buyers during the week-long holiday — but will charge extra for the privilege and warn that delays should be expected.
China has the world’s largest online population with 384 million users. Online shoppers in the country spent around 250 billion yuan in 2009, more than double the value recorded a year ago, according to official data.
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BANGLADESH: SURVEY REPORT
Investment, employment on the rise
Investment and employment are expected to grow significantly in the first quarter of 2010, according to a just-published business confidence survey by Bangladesh Investment Climate Fund.
The survey carried out in the last quarter of 2009, published in Dhaka on Saturday, said 60 per cent of businesses approached were looking to make investments in the current January-March period against 52 per cent in the previous quarter.
The survey showed overall business confidence, on a scale of 1-100 in three areas — investment, employment and profitability — rising to 56 from 51 in the previous quarter.
The scenario was in line with forecasts, according to the survey report presented at a meeting jointly organised by BICF and International Chamber of Commerce-Bangladesh at the Dhaka Chamber of Commerce and Industry.
The BICF, managed by the International Finance Corporation, World Bank’s private sector arm, conducts the ‘Business Confidence Survey’ every quarter. The latest survey covered 1,440 businesses in the last quarter of 2009 compared to around 700 businesses surveyed in the previous quarter.
BICF head James Crittle laid emphasis on betterment of regulatory instruments and infrastructure facilities, which will help increase business confidence and boost investment.
‘Higher confidence will generate more investment and more investment will create more employment that will ultimately contribute to poverty alleviation,’ he added.
Bangladesh Foreign Trade Institute CEO MA Taslim said the economy was rising despite global downturn.
Small and Medium Enterprise Foundation chairman Aftab-ul-Islam said SMEs would be at the forefront of the future economic growth since their numbers are increasing.
The respondents singled out gas crisis as the number one factor impeding their businesses.
They also suggested that captive power plants, run on gas, should be given higher priority.
Subsidy to diesel may also be beneficial to address the problem, they added.
DCCI president Abul Kashem Khan said since almost 90 per cent of the country’s industries are situated in Dhaka and Chittagong, the survey should have covered the two cities more.
Bangladesh Knitwear Manufacturers and Exporters’ Association president Fazlul Huq said the survey results did not say anything about which sectors to be prioritized and left no guideline for the entrepreneurs.
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WORLD NEWS
Burani fashion house seeks bankruptcy protection
Debt-ridden Italian fashion house Mariella Burani said Saturday it would seek bankruptcy protection after failing to raise funds to cover losses.
With a debt of nearly 500 million euros ($680m), the company decided to begin bankruptcy proceedings with the intention of ‘continuing business activities,’ it said in a statement after an extraordinary board meeting.
Burani had ‘no evidence of a binding commitment from partners or third parties’ to raise the funds necessary for a restructuring, the statement said.
MBFG, a purveyor of ‘accessible luxury,’ whose labels include Mandarina Duck and Coccinelle, recorded a loss of 185 million euros in the first nine months of 2009.
The decision came after a Milan court on Thursday declared bankrupt the Burani Designer Holding, which indirectly controls Mariella Burani Fashion Group.
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DEVELOPING NEWS: MIDDLE EAST
Bharti makes bid for Kuwait’s Zain assets
India’s largest mobile phone operator Bharti Airtel has offered $10.7 billion to buy Kuwait’s Zain telecom operations in 15 African nations, a newspaper reported on Saturday.
Quoting unnamed ‘reliable sources,’ Kuwait’s Al-Rai daily said the ‘official bid’ was made at the Muslim weekend (Thursday) and will not include Zain’s totally-owned unit in Sudan.
Zain, Kuwait’s largest mobile operator denied on Monday that it had received new offers for its African assets, a part of which was bought in 2005 from Dutch Celtel for $3.5 billion.
Later, Zain made key acquisitions in several other African nations including Nigeria.
Zain also operates in Kuwait, Saudi Arabia, Bahrain and Iraq in addition to Jordan and Lebanon.
Zain’s share price rose more than 20 per cent and its capitalization gained $3 billion to $16.1 billion over the sale reports.
Last summer, Zain declined an offer from French telecom and media group Vivendi, reportedly at between 10 billion and 11 billion dollars, saying the price was below expectation.
Earlier this month, Zain accepted the resignation of Saad al-Barrak as its CEO. On Thursday, it appointed former communications minister Nabil bin Salama to replace him.
Since joining the company in 2002, Barrak transformed Zain from a local company with under one million subscribers to an international telecom firm operating in 23 nations with 72 million subscribers.
The process required massive investments that exceeded $12 billion.
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SOUTH ASIA
Sri Lanka plans to issue $500m bond
Sri Lanka plans to issue a new international bond this year with a 10-year maturity to help defray mammoth post-war rebuilding expenses, the central bank said Saturday.
‘We need about $2.7 billion for the next three years to build new roads, utility services, hospitals and schools to get the northern economy up to speed,’ central bank governor, Nivard Cabraal said.
The northern province, which was the stronghold of the separatist Tamil Tiger guerrillas, is picking up the pieces after troops last May crushed the revolt and ended decades of bloodshed.
The province accounts for just 2.9 per cent of the island’s $40-billion economy.
Cabraal said the bond will be issued after the next budget, expected in April.
‘We are looking at May or just after that,’ he said. ‘We think Sri Lanka has now matured and gained the confidence of investors for a longer tenure instrument.’
Sri Lanka’s 2010 budget has been delayed due to presidential polls in January which were won by incumbent president Mahinda Rajapakse.
The island has been gripped by tension since authorities arrested ex-army chief and defeated presidential candidate Sarath Fonseka earlier in the week.
Parliamentary elections are due on April 08.
Sri Lanka issued a $500-million bond in 2007 and in 2009.
The bonds are trading well above their issue price as investors hunt for high yields in emerging markets and seek to diversify from low-yielding western markets.
Cabraal forecast economic growth of at least six per cent this year for the island nation, up from 3.5 per cent in 2009.
‘We are looking at six per cent plus growth. Areas like tourism, transportation and ports, agriculture and fisheries are picking up,’ he said.
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FOCUS
Japanese banks likely to drop merger plan
Japan’s Shinsei Bank Ltd and Aozora Bank Ltd — two midsize lenders with major US shareholders — could call off their plan to merge later this year amid differences over management, strategy and system integration, news reports said Saturday.
The two companies announced the merger plan in July, saying the combined entity would be Japan’s sixth-largest bank with assets of about 18 trillion yen ($200.7b).
However, Japan’s leading Nikkei business daily said Saturday the banks have been unable to bridge differences over management policy or come up with a growth strategy. Kyodo News agency also reported they are at odds over how to integrate their banking systems, and what their core banking business should be.
The Nikkei quoted executives it did not identify from both banks for its report. Kyodo quoted sources it did not name.
Kyodo said if agreement cannot be reached, the banks may drop the merger and pursue independent paths. The Nikkei said the banks are considering whether to call off the merger or postpone it indefinitely.
Shinsei Bank said in a statement on its Web site it had no comment. Aozora Bank could not immediately be reached.
A group of investors, including affiliates of US private equity firm J.C. Flowers & Co, holds a 32.5 per cent stake in Shinsei, while an entity of Cerberus Capital Management, LP, also of the US, owns 45.5 per cent of Aozora shares, according to information posted on the Web sites of the two banks.
Shinsei and Aozora said in July the merger would take effect in October 2010.
Hit by restructuring costs and fruitless overseas investments, Shinsei reported a net loss of 143 billion yen last fiscal year through March 31, 2009. Aozora posted a net loss of 242.5 billion yen.
The banks have returned to profitability so far this year, however, with Shinsei reporting net profit of 22.2 billion yen for the first nine months of the fiscal year through December 31. Aozora reported net profit of 7.3 billion yen for the same period.
The Japanese government bailed out the predecessors of both banks during a domestic banking crisis in the 1990s.
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India needs to plan exit from stimulus measures
India’s government must plan an ‘appropriate’ exit from its economic stimulus programme, a top IMF official said Friday, as economic recovery for
Asia’s third-largest gathered pace.
The comments by John Lipsky, the International Monetary Fund’s first managing director, came as official data showed that India’s industrial output in December climbed at its strongest pace in nearly 20 years.
‘There is no simple, fit-all solution. India will have to think of an appropriate path of exit... it will be a challenge,’ Lipsky told reporters in Mumbai.
India’s industrial production, exports and services are rising, aided by stimulus measures introduced in late 2008 to help the country out of the global economic slowdown.
The measures currently account for some 12 per cent of GDP, while the central bank has injected $120 billion into the economy since October 2008 by slashing rates and taking other measures to boost business.
‘I am sure the (Indian) government is thinking of an exit path over the medium-term,’ Lipsky said, while attending an international banking conference.
Last month the Reserve Bank of India took a key first step away from its aggressively expansionist stance, to keep a lid on resurgent inflation.
It siphoned off excess liquidity from the financial system by raising the cash-reserve ratio — the percentage amount commercial banks must keep on deposit — by 75 basis points to 5.75 per cent.
Lipsky said India, like other emerging markets, will also have to deal with the problem of rising overseas capital flows.
‘The surge (in foreign funds) is in response to the stop in flows seen in 2008 during the financial crisis,’ Lipsky said.
Capital controls could be advisable but the IMF saw these as ‘temporary measures’ and only for limited situations, he said.
India’s stock market has surged over 80 per cent in 2009, led by record foreign fund inflows of $17.45 billion.
Lipsky said India would also need to formulate moves to check the fiscal deficit, which is at a 16-year high.
The deficit had ballooned to 6.2 per cent in the year to March 2009 — more than double the government’s target of 2.5 per cent —rising on loan waivers for poor farmers, subsidies and stimulus packages to boost the economy.
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MIDDLE EAST SPECIAL
Saudi Arabia launches solar energy programme
Aiming to stabilize future power and water supplies in the country, Saudi Arabia has begun work on the first solar-powered water desalination plant, the first step in a three-part programme to introduce solar energy into the Kingdom.
The programme, launched by the King Abdul Aziz City for Science and Technology, aims to help stabilize future power and water supplies inside Saudi Arabia through the creation of solar-powered desalination facilities, an official statement said.
Water desalination is critical to providing clean drinking water around the world.
Saturday, Saudi Arabia produces 18 per cent of the world’s desalinated water. By building water desalination plants that run on solar energy, the Kingdom can reduce operational costs and in turn, reduce consumer costs.
Prince Dr Turki bin Saud bin Mohammad, KACST vice-president for Research Institutes said, ‘The solar energy programme will reduce the cost of producing desalinated water and of generating power for use in the Kingdom, an oil-dependent nation, which has launched a national energy efficiency programme.’
Saudi Arabia is a prime location to harness solar energy because of its year-round sunshine. The sun in Saudi Arabia emits about 7,000 watts of energy per square metre over an average of 12 hours every day, the statement added.
KACST and IBM have developed a research centre to determine how best to harness and repurpose this solar energy and are preparing to implement this state-of-the-art technology.
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WORLD ECONOMY
EU wants to step up economic surveillance
The European Commission said on Friday it was preparing new measures to boost coordination among eurozone member countries and supervise their economic policies in light of the Greek debt crisis.
‘The critical lesson from this crisis is that we urgently need deeper and broader surveillance of economic policies, including earlier detection and tackling of imbalances, in order to better safeguard the macro-financial stability of the euro area,’ EU Monetary Affairs Commissioner Olli Rehn said.
‘The commission will soon come forward with proposals to further strengthen the coordination and the surveillance of national economic policies within the euro area,’ he said in a statement.
The measures could form part of a broader package of proposals being drawn up by the EU’s executive arm on the 27-nation bloc’s mid- and long- term economic strategy.
Eurogroup chairman Jean-Claude Juncker is also working along similar lines.
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Commodity prices rebound on improved demand forecast
Metals and oil prices recovered this week on expectations of higher demand but gains were capped by concerns over Greece’s debt problems.
‘Greece still dominated headlines after EU officials confirmed that they had an alleged deal reached over assistance to debt-burdened Greece,’ said commodities analyst Andrey Kryuchenkov at Russian investment bank VTB Capital.
‘However, there were no further details on the Greek bailout and market participants remained uneasy, while the dollar held firm.’
Crude futures rose this week as the International Energy Agency forecast that world oil demand would rise this year compared with 2009, driven by strong growth in emerging economies.
The Paris-based agency said demand was expected to reach 86.5 million barrels a day in 2010, while average prices would hit an average of $75 a barrel.
Demand growth is expected to come ‘entirely’ from outside the Organization for Economic Cooperation and Development, a grouping of 30 developed economies including Britain, France, Germany, Japan and the United States.
Oil prices fell on Friday, but remained higher over the week, as the European single currency fell close to a nine-month low against the safe-haven dollar.
The euro tumbled to $1.3532, the lowest level since May 19 — as markets took a dim view of eurozone growth data and unclear EU proposals to help Greece.
A stronger dollar tends to dampen demand for oil because it makes crude priced in the greenback more expensive for buyers using weaker currencies.
Elsewhere on Friday, China ordered financial institutions to increase the amount of money they keep in reserve, in an attempt by Beijing to rein in rampant lending amid fears of asset bubbles.
The development was a concern for the oil market because China is the world’s second biggest energy consuming nation after the United States.
Traders also digested the latest weekly update on energy stockpiles in the United States.
The US government’s Department of Energy announced Friday that American crude reserves rose by 2.4 million barrels in the week ending February 5. Analysts had expected a gain of only 1.3 million barrels.
The report, usually published on Wednesdays, was delayed due to bad weather in the north-eastern United States.
By late Friday, New York’s main futures contract, light sweet crude for delivery in March, rose to $73.38 a barrel from $72.80 a week earlier.
London’s Brent North Sea crude for March climbed to $72.24 from $71.44.
Base metals prices rebounded as investors shrugged off risk fears and expected Chinese demand to recover.
‘Risk reduction no longer seems to be a priority, and prices are performing strongly as a result,’ said Barclay’s analyst Gayle Berry.
MF Global analyst Ed Meir said that ‘the feeling emanating from Asia is that demand will likely be strong after the Chinese New Year, and this could explain the sharp run-up we are seeing heading into the holidays’ next week.
By Friday on the London Metal Exchange, copper for delivery in three months jumped to $6,799 a tonne from $6,335 the previous week.
Three-month aluminum rose to $2,039 a tonne from $1,992. Three-month lead gained to $2,103 a tonne from $1,968. Three-month tin climbed to $16,025 a tonne from $15,650. Three-month zinc increased to $2,147 a tonne from $2,003. Three-month nickel advanced to $18,500 a tonne from $17,410.
Precious metals prices recovered this week.
‘Prices gained momentum across the complex following the EU ‘bailout’ announcement,’ said Barclays Capital analyst Suki Cooper.
By Friday on the London Bullion Market, gold rose to $1,082 an ounce from $1,058 the previous week.
Silver climbed to $15.74 an ounce from $15.33.
On the London Platinum and Palladium Market, platinum advanced to $1,505 an ounce from $1,475.
Palladium grew to $416 an ounce from $395.
Sugar prices dropped after reaching a 30-year high of 30.40 US cents a pound the previous week.
‘Prices buckled slightly under pressure from outside markets and the stronger dollar,’ said Macquarie bank analyst Kona Haque.
Sugar futures have been hitting multi-year highs in recent weeks on tight supplies amid downgrades to production in India.
By Friday on the New York Board of Trade, the price of unrefined sugar for delivery in May fell to 26.49 US cents a pound compared with 27.31 cents for the expired March contract the previous week.
On LIFFE, London’s futures exchange, the price of a tonne of white sugar for May eased to 733.40 pounds compared with 736.40 pounds for the expired March contract.
Cocoa prices rose.
Cocoa futures had last month struck a 33-year peak in London trade on worries about lower output from top producer Ivory Coast.
By Friday on LIFFE, the price of cocoa for delivery in March advanced to 2,245 pounds a tonne from 2,240 pounds the previous week.
On the NYBOT, the May cocoa contract climbed to $3,076 a tonne compared with $3,064 for the expired March contract.
Coffee prices traded mixed.
By Friday on LIFFE, Robusta for delivery in May fell to $1,320 a tonne from $1,331 for the expired March contract the previous week.
On the NYBOT, Arabica for May rose to 132.05 US cents a pound compared with 131.55 cents for the expired March contract.
Grains and soya prices rose.
By Friday on the Chicago Board of Trade, maize for delivery in March climbed to $3.59 a bushel from $3.51 the previous week.
March-dated soyabean meal — used in animal feed — gained to $9.29 from $9.13.
Wheat for March advanced to $4.83 a bushel from $4.73.
Malaysian rubber prices rose after two straight weeks of declines. Traders said tight supply and strong demand pushed rubber prices higher.
On Friday, the Malaysian Rubber Board’s benchmark SMR20 rose to 296.80 US cents a kilo from 291.05 cents the previous week.
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Toyota faces new woes with Tacoma recall
Toyota is facing new woes with another recall — this time involving its Tacoma pickup trucks — after US president Barack Obama warned carmakers not to drag their feet on beefing up vehicle safety.
Toyota said it was voluntarily recalling 8,000 of the 2010 model Tacoma four-wheel drive pickups in the United States to inspect the front drive shaft.
‘The front shaft in these vehicles may include a component that contains cracks that developed during the manufacturing process,’ said a statement by Toyota Motor Sales, USA.
‘As those vehicles are used, the cracks may eventually lead to the separation of the drive shaft at the joint portion,’ it added.
The Tacoma trouble is the latest embarrassment for the world’s biggest automaker, which has recalled millions of vehicles in past months due to problems linked to accelerator and brake functions.
Those recalls cover models with ‘sticky accelerators’ that cause cars to race out of control, a defect cited in several deadly crashes, and has widened to brake system problems in the Prius and other hybrid models.
In his first public remarks on Toyota’s deepening defect crisis, Obama warned carmakers their brands were at risk if they dragged their feet on safety recalls.
Obama noted that Toyota was now under federal investigation over its recalls but predicted the company, which has supplanted the bailed-out US giant General Motors as global industry leader, would recover from its present troubles.
‘Every automaker has an obligation when public safety is a concern to come forward quickly and decisively when problems are identified,’ Obama said in an interview with Bloomberg BusinessWeek magazine, due to go on sale Friday.
‘We don’t yet know whether that happened with Toyota. That’s going to be investigated,’ he said.
‘My hope is that, moving forward, all automakers recognize that their brands are at stake when it comes to safety issues.’
Obama said the Japanese giant was likely to recover from its woes, which have left the company staring at recall-related costs of at least two billion dollars and triggered a plunge in its share price.
The Tacoma pickup shafts were built by supplier Dana Corp from December until early this month, a US government official said, speaking on condition of anonymity.
Dana told the National Highway Transportation Safety Administration, a government agency, that it was going to handle the shaft recall on vehicles built for automakers Ford, Toyota and Nissan, the official said.
This was ‘because they had discovered a defect in their manufacturing process,’ the official said.
‘So it looks like, out of caution, Toyota decided to submit its own recall notification to us because technically, the vehicle manufacturer is responsible for recalls.’
Separately, Toyota said in a letter to US lawmakers that it would investigate complaints on the Tacoma relating to ‘engine idle speed changes when the vehicle is stopped and high idle speed when the engine is cold.’
Also to be probed were complaints on ‘cruise control downshifting behavior, engine speed changes when shifting (manual transmission) and lurching when a vehicle is coming to a stop.’
Amid the series of recalls, Toyota said Friday it was studying the possibility of a new override system to deactivate engines as an extra safety layer in emergency situations.
‘Toyota is considering adding a multiple tap function to the start/stop button for vehicles produced in the future,’ said Toyota spokesman Brian Lyons.
The fix could make it easier to turn off engines in cases of accelerator malfunctions in cars with keyless ignition systems.
On Friday a US woman filed a federal lawsuit in Los Angeles against Toyota, blaming the company for the death of her husband when the Prius she was driving suddenly accelerated.
Jacquelyn Donoghue, a 67-year-old nurse, alleges in the suit that her car suddenly sped up and ploughed into another car when she was driving home with her husband in December, and that a brake-to-idle override could have prevented the crash.
Toyota president Akio Toyoda meanwhile is prepared to testify at US congressional hearings if he is formally asked to do so, a report by Kyodo news agency said in Tokyo Friday.
The report cited company officials, who said Toyota was hoping that if Toyoda appeared in person at the hearings it would help revive trust in its vehicles amid growing criticism of the company in the United States.
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NEWS ANALYSIS
Inflation targets need rethinking
Central banks need to rethink inflation targets to tackle future financial crises more effectively, the IMF chief economist, Olivier Blanchard, suggested on Friday.
A research report by Blanchard and associates at the IMF said policymakers became too complacent during the period of expansion known as ‘the Great Moderation’ about issues such as inflation and debt.
He said that while the financial sector was the source of the recent crisis, ‘large adverse shocks’ could come from elsewhere in the future such as a pandemic or major terrorist attack.
Against this backdrop, he said aiming for a higher inflation rate could provide more room for policymakers to grapple with crises.
‘Maybe policymakers should therefore aim for a higher target inflation rate in normal times, in order to increase the room for monetary policy to react to such shocks,’ Blanchard said in a report ‘Rethinking Macroeconomic Policy.’
‘To be concrete, are the net costs of inflation much higher at, say, four per cent than at two per cent, the current target range? Is it more difficult to anchor expectations at 4.0 per cent than at 2.0 per cent?’ asked Blanchard, an economist on leave from the Massachusetts Institute of Technology.
At the same time, he said, it was clear that achieving credible low inflation through central bank independence had been a historic accomplishment, especially in several emerging markets.
‘Thus, answering these questions implies carefully revisiting the list of costs and possible benefits of inflation,’ he said.
‘Nevertheless, it is worth considering whether these costs are outweighed by the improved policy maneuverability that would be available in times of crisis from having slightly higher inflation.’
He said that interest rates were a ‘poor tool to deal with excess leverage, excessive risk taking, or apparent deviations of asset prices from fundamentals.
‘We need a combination of monetary and regulatory tools.’
Blanchard pointed out that the basic elements of the pre-crisis policy consensus still held — ’Keeping output close to potential and inflation low and stable should be the two targets of policy.’
‘And controlling inflation remains the primary responsibility of the central bank. But the crisis forces us to think about how these targets can be achieved.’
The recent financial crisis, which erupted after a home mortgage meltdown in the United States, plunged many economies, mostly developed ones, into the worst recession in decades.
In the United States, the Federal Reserve pumped trillions of dollars into the economy to jolt the world’s largest economy from recession.
But fears arose on how the US central bank will mop up this money as the economy recovered to avoid runaway inflation.
‘As the crisis slowly recedes, it’s time for a reassessment of what we know about how to conduct macroeconomic policy,’ Blanchard said.
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Retail sales rise brightens US recovery picture
Sales at retailers were unexpectedly strong last month, suggesting consumers were feeling a little more comfortable to spend and improving prospects for first-quarter economic growth.
Retail sales rose 0.5 per cent as consumers stepped up spending not only on essential goods but luxury items as well, the Commerce Department said on Friday.
Optimism over the increase was tempered by a separate report showing that consumer sentiment ebbed slightly early this month. But analysts dismissed the slip as insignificant and focused on the gain in sales as a hopeful economic sign.
‘After considerable hand-wringing about the underlying strength of retail sales in the past few months, this is a solid report. It indicates the recovery is on track,’ said Brian Bethune, chief US financial economist at IHS Global Insight in Lexington, Massachusetts.
Retail sales are being closely watched to determine whether consumers can sustain the economy’s recovery once government stimulus and the boost from restocking by businesses wanes.
Not only did the January sales increase come in above the 0.3 per cent economists had forecast, sales data for December and November were revised upward as well. Compared to January last year, sales increased 4.7 per cent.
While the report on consumer confidence showed worries over unemployment were weighing on sentiment, the slight slip left intact a longer-term trend toward improvement.
The Reuters/University of Michigan Surveys of Consumers’ preliminary index of sentiment came in at 73.7 for February, down from 74.4 in late January but up from 56.3 a year ago. Analysts had expected a rise to 75.0.
‘February’s retracement does not seem to signal a fundamental shift in sentiment and is not likely to mean much for spending patterns in the months ahead,’ said Stephen Stanley, chief economist at RBS in Stamford, Connecticut.
Worries that a surprise move by China to raise bank reserve requirements could hurt the global recovery, overshadowed the retail sales report, hurting US stocks. The dollar neared a nine-month high against the euro, helped by skepticism over a proposed rescue deal for debt-stricken Greece.
The US economy has grown for two straight quarters following the worst downturn since the Great Depression of the 1930s. Growth in the fourth quarter came in at a 5.7 per cent annual rate, the fastest in six years.
Analysts, who are also tracking the impact of recent severe winter weather on the economy, said the year’s strong start to sales bodes well for first-quarter spending and growth.
‘Even folding in potentially weak February consumption as a result of severe weather and automaker difficulties, it appears that real consumer spending is on a 2.5-3 per cent quarterly trajectory,’ said Steven Wieting, an economist at Citigroup in New York.
Core retail sales, which correspond most closely with the consumer spending component of the government’s gross domestic product, rose 0.8 per cent after falling 0.3 per cent in December. Consumer spending rose at a 2 per cent annual rate in the fourth quarter.
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Finance ministers accused of failing to heed Greek crisis
Eurozone finance ministers failed to pay enough attention to Greece’s economic crisis, Eurogroup chairman Jean-Claude Juncker said Saturday, calling it ‘quite a serious error.’
He also told the German daily Sueddeutsche Zeitung that ‘uncontrollable’ consequences would result if Greece were to quit the eurozone, and pledged to keep Athens up to the mark in its efforts to reduce its yawning deficit.
Juncker, the prime minister of Luxembourg, said the Eurogroup, the panel of finance ministers whose countries use the single European currency, would monitor ‘much more intensively and severely’ the performance of its members.
‘We are not going to let the Greeks alone,’ he said. ‘We are going to ask them constantly where they are at in their reform programmes.’
Juncker also warned that ‘a monetary zone cannot last for long if the differences in performance of the various national economies get too great.’
If Greece were forced to abandon the euro, ‘the effects would be like an earthquake, uncontrollable’, he said, triggering an ‘extremely negative’ reaction from the markets.’
The European Commission said Friday it was preparing new measures to boost coordination among eurozone member countries and supervise their economic policies in light of the Greek debt crisis.
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