India Urged to Fulfill Deficit Cut Pledges

Source: Financial Times
August 29, 2006

International rating agencies have advised India's Government to remain firm to its commitment of reducing the fiscal deficit. In the 2005-06 fiscal year, India’s combined state and government deficit stood at 7.5% of GDP. While this is an improvement of almost 3 percentage points since 2001-02, critics assert the reduction is because of increased government revenue instead of reduced governmental spending. Last month the World Bank described India's fiscal position as "serious."

India's Prime Minister, Manmohan Singh, is likely to face considerable opposition from India's numerous leftist parties in his endeavors to reduce the deficit. While, rating agencies such as Standard and Poor's and Moody's recently increased India's investment rating, many fear that the government's inability to reduce its lavish spending could result in a downgrade. At a time when India is trying its best to woo foreign investment, a downgrade could prove to be costly.

World Bank attacks poverty in the Dominican Republic

(Source Article: Breaking the cycle of poverty in the Dominican Republic - WB news)

According to the World Bank, there’s little chance for poor youth in the Dominican Republic to finish secondary school and acquire a steady job – an unfortunate circumstance that fuels the poverty cycle in the Caribbean country. Approximately one third of persons aged 15-24 are unemployed, an amount double that of adults in the country, says Andrea Vermehren, World Bank Senior Social Protection Specialist.

Employers in the country simultaneously complain about a lack of qualified candidates in the pool of employees with the technical, managerial and language skills required of the jobs – skills that Dominican youth could acquire in secondary school. In order to combat this problem, the country is investing heavily in training some 28,000 young people and bolstering its adult education efforts; the World Bank is contributing approximately US$25 million to a youth employment program. Additionally, the Inter-American Development Bank is currently working with the country on not only addressing this problem, but in overall recovery from its economic crisis in 2003-2004. (see Dominican Republic and IDB held policy dialogue meeting - IDB news)

The job training will be provided in cooperation with private sector firms and businesses; after several months training, the youth will serve as interns with the participating firms. The country hopes that the relationship between employer and employee will also improve with this integrated approach to the problem.

The economic crisis of 2003-2004 is largely responsible for the current state of youth education and poverty; with the collapse of the country’s central bank and a total depreciation of its currency, many youth suffered malnutrition that forced them to drop out of school in order to work temporary jobs to help feed their families. The country hopes that, by focusing on education and training efforts, it can eventually eliminate this concern. (see WB approves $25 million for youth development program - WB news)

Chad ousts US energy firm

(Source Article: Chad president orders Chevron out - CNN)

Chevron and Malaysia’s Petronas, both having oil interests in Chad, violated their tax obligations to the impoverished country and as a result the president ordered them to shut down their operations.

The country began producing around 170,000 barrels of oil per day in 2003, but most of its people live in impoverished conditions. The country’s government hopes to extract larger sums from the profits of companies like Chevron in order to increase its wealth. Currently, the country’s existing oil-producing consortium, led by U.S. based Exxon Mobil, has made US$5 billion on a $3 billion investment, but the country itself has seen only $588 million under an existing agreement with the consortium.

The abrupt decision to oust Chevron and Petronas follows the creation of Chad’s new national oil company; the president also urged the consortium to include the national company in its membership and operations. Before being ousted, Chevron and Petronas held 35 and 25 percent of the consortium, respectively, with Exxon holding 40 percent. Now, Chad and Exxon alone will manage the country’s oil – presumably until a solution is found for the problem existing between the country and the other two companies. (see Chad president orders Chevron, Petronas to leave - Reuters

While the government’s stated motive for desiring increased revenues from oil is to improve the condition of its people, its history casts understandable skepticism on that notion: last year a survey by Transparency International ranked corruption in Chad as the worst in the world.

India Broadens Child Labor Protection

Source: FT.com

In India, an estimated 44 million children aged 5-14 are economically active. India, seeking to address this problem, has increased the number of jobs that prohibit child labor under the 1986 Child Labor Act. Current banned jobs are in sectors like mining, cigarette manufacturing, and meat processing. When this measure takes effect on October 10, those under 14 will not be allowed to be work in households, hotels, and restaurants.

Non-governmental organizations have claimed that this is not enough. They feel that by prohibiting child labor in certain industries, the government is actually endorsing child labor in other areas. The counter point is that in certain poor areas, children receive a terrible education that does not increase their earning potential. Flowing from this is the belief that dropping out of school and entering the work force is the better long-term economic move.

Those that employ child workers in their homes believe that they are helping the poor. There is little belief that this sort of child labor is wrong. However, the labor ministry stated that many household child workers are subjects of physical violence, psychological harm, and sexual abuse. The ministry said this “measure is expected to go a long way in ameliorating the condition of hapless working children.”

The threat of “Protectionism”

Protectionism threatens prosperity - FT.com

Hank Paulson, US treasury secretary, recently released a statement that the global economy currently faces a “disturbing wave of protectionism” that threatens open markets and continued economic development. He expressed his concern about anti-trade rhetoric that he has been exposed to in the US and abroad. This is the former CEO of Goldman Sachs' first major statement as secretary.

He further called on Beijing to revalue its currency and open up to foreign investment – he said that doing so would be of great benefit to both the US and China, as he feels China’s economy is now overheating. He further said that China needs to become less of an export-driven country and rely on domestic consumption – but to do so would require major reform of the country’s capital markets.

Economists have hope that Paulson, who is highly experienced in trading and investment, and did much to improve Goldman Sach’s position, will work his magic with the US economy. The current US account deficit, which exceeds some US$800 billion, requires foreigners to finance by buying more than $2 billion in US-dollar-denominated assets every day – tackling such a problem is a monumental task even for a former Goldman Sachs star. (see Paulson and the dollar - Asia Times)

Paulson, with 30 months remaining in President Bush’s term, pledged to revitalize collapsed Doha trade talks and to continue to further trade negotiations globally. He also hinted that some type of reform for section 404 of the controversial Sarbanes-Oxley law would take place; currently the law is criticized as hampering business in the stock exchange.