Thursday, March 30, 2006

Pollution Tax in China

One of the major items discussed at the current National People's Congress sessions is pollution. Effective this past weekend, China has started imposing a tax on luxury cars in an effort to reduce air pollution. Cars like SUVs (Sports Utility Vehicles) or Mercedes Benz will be taxed at 3 percent to 20 percent, depending on engine size.

Yet analysts are not confident that these new measures will help reduce pollution level or even affect car sales in China. The luxury car market, although developing, still consists a small share in China's total car sales. Also, consumer demand for luxury cars may not be affected too much, because those who can afford to buy luxury cars in the first place probably will not be overly concerned with the tax increase. Other commentators suggested that a better way to tax luxury car is to take account of a vehicle's fuel efficiency, not just the size of the engine.

Another alternative is to impose an across-the-board fuel tax. State administrative officials said that the fuel tax is not in place because of concerns of general high oil prices in the world.

Other unlikely items to be taxed include disposable wooden chopsticks, planks for wood floors, luxury watches, golf clubs, yachts, golf balls and certain oil products. These new taxes are intended to reduce pollution and conserve energy. China has been criticized for consuming large amount of wood from Southeast Asia to produce its disposal chopsticks. The luxury goods tax targets the political and business elites who have reaped huge profits from the booming economy.

It is no news that pollution problems have global consequences. Developed countries have long realized that their efforts to reduce pollution may well be futile in face of the ever intensifying rate of industrial production in countries like China and India. Yet how can the West make the case to developing countries that, a century after the industrial revolution and the subsequent material wealth and environmental degradation it caused, it is now not right for the developing countries to do the same?

Sources:, Combating Pollution Has Priority, Feb. 14, 2006
ABC News Online, Latest Import from China: Filthy Air, Mar. 27, 2006
Associated Press, Analysts: China Pollution Tax Ineffective, Mar. 25, 2006
New York Times, China Aims Taxes at Cars and the Rich, Mar. 22, 2006

Wednesday, March 29, 2006

The World's Biggest Forex Reserves

New data reports show that China currently holds the world's biggest foreign exchange reserves, surpassing that of Japan's. Beijing said, however, that this will not change its gradualist approach to currency reform.

At the end of Feruary, China's reserves reached U.S. $853.7 billion, and Japan's was U.S. $850 billion. On the other hand, the United States has a much smaller foreign currency reserve of approximately $38.9 billion.

There had been reports a few months ago stating that China had planned on shifting some of its foreign reserve holdings from the American dollar to some other foreign currencies. Some economists in the U.S. has warned that such actions by the Chinese government could induce fluctuations in the value of the greenback. Not all economists, however, anticipate negative repercussions for the U.S. economy. Were China and Japan to engineer a significant fall in the dollar, those nations also would suffer the consequences -- sharply diminished exports as Americans lose spending power, plus a drop in the value of their dollar assets. This could be an incentive for China to hold on to its American dollars.

Currency exchange rate can have considerable bearing on trade balance sheets. While it has been speculated that, with the unpegging of the yuan, the U.S. trade deficit with China would be reduced, data has shown that it has not happened as expected. Some economists have noted that the reduction of trade imabalance between the U.S. and China is a collaborative effort. While China was to float the exchange rate, the United States should also look into structural issues such as savings rate and active reduction of its deficits.

Chinese policymakers have justified the increased foreign exchange reserves with a few observations. The high reserves held by China, Japan and other Asian economies was a result of the Asian financial crisis in 1998. It is also noteworthy that Asian economies have saving regimes that favor savings much more so than consumption. While some of the increased reserves came from trade imabalance with the United States, some of them also came from increased foreign direct investment from American companies. Finally, on balance, the reserves on a per capita level are not all that high.

With the U.S. Congress aiming to pass policies to reduce the trade deficits, this news comes as yet another incentive for politicians to consider drastic measures against a free market solution to China's continuous rise.

Financial Times, China Forex Reserves World's Biggest, Report Says, March 28, 2006.
Washington Post, China Set To Reduce Exposure To Dollar, Move Would Probably Push Currency Down, January 10, 2006.
International Monetary Fund, Data Template on International Reserves and Foreign Currency Liquidity (U.S. data)

Bernanke shows his hand

UPDATE 4-Fed raises U.S. rates, says more may come
By Tim Ahmann (Reuters)

"The message from Bernanke is simple -- that nothing has changed, that the Fed takes inflation just as seriously as under the 'maestro.'"
Chris Low, chief economist at FTN Financial in New York, referring to Bernanke's storied predecessor.

In their first meeting under new chief Ben Bernanke, Federal Reserve officials lifted a key U.S. interest rate a 15th straight time to 4.75 percent and said credit costs may have to go higher still, given inflation risks.

Some analysts had thought policy-makers would suggest that the string of rate hikes dating to June 30, 2004, might be near an end. Instead Bernanke, who took over from Alan Greenspan on Feb. 1, was seen as taking a clear stand against inflation.

"Economic growth has rebounded strongly in the current quarter, but appears likely to moderate to a more sustainable pace," the Fed said. The language offered a bit more information on the outlook than statements had under Greenspan, and some analysts said it suggested a shift under Bernanke toward greater transparency.

Tuesday, March 28, 2006

America's Favorite Whipping Boy

--Referring to China here. China seems to have become the target of many potential congressional actions lately. The SNOOC controversy didn't take place too long ago.

Word has it that Senator Charles Schumer (D-N.Y.) and Senator Lindsey Graham (R-S.C.) are hoping to introduce a new bill calling for a retaliatory 27.5% tariff on all Chinese imports if the Yuan is not revalued 180 days after the trade talks. Working in the background are concerns that trade deficits haven't alleviated since the Yuan was unpegged last year. According to the report, imports from China account for nearly a quarter of the record $723 billion U.S. trade deficit. The failure to prevent widespread intellectual property violation is also a major concern to politicians, especially when reelection pressure sinks in for many.

The bill has been brewing for more than a year, as it won support in a Senate test vote a year ago. Now it has become a rather urgent issue for the introducers of this bill, as they would like to press for a vote in the Senate soon, even as soon as March 31. Yet things are probably not happening until the two senators come back from their China trip, hopefully with new perspectives that are conducive to dialogue and collaboration, rather than retaliatory measures.

An issue that comes to mind immediately is the implication for the two countries' respective WTO obligations. Disputes may arise in the WTO if the U.S. passes this tariff, and it can be years to come before the trade relation can normalize.

Bush: Migrant workers do the jobs Americans don't want to do

Bush defends role of migrant workers
By Caroline Daniel and Edward Alden in Washington (FT)

Immigration dominates southern US politics
By Matthew Wells in Carlsbad, Southern California (BBC)

The debate on illegal immigration has intensified after protests in a number of cities against a bill passed in the House of Representatives making it a felony for immigrants to remain in the country illegally. Bush has proposed tightening border security alongside a guest worker program to address the problem of the 12 million illegal immigrants in the US. The House last year approved a bill that would crack down on illegal immigration without offering new channels for legal workers.

The Senate judiciary committee on Monday night approved legislation, by a 12-8 vote, that will be debated by the full Senate this week. But the committee also pledged to beef up enforcement by hiring as many as 14,000 additional border patrol agents over the next five years and increasing detention facilities for those caught in the country illegally.

Immigration reform was initially put on the agenda by Mr Bush’s advisers as a way of attracting Hispanic voters, helping to forge a permanent Republican majority. It is estimated that approximately 12 million people are living in the US illegally.

Wall Street firms ride leveraged loan wave

Leveraged loans are similar to hedge funds, in that they provide financing to companies with credit ratings below investment grade. But there are some several distinctions.

Companies which don't want a long term commitment can pay off leveraged loans ahead of maturity without penalty, and there tend to be fewer rules attached to the money. Investors like them because they have a higher priority over bonds for companies in bankruptcy and they offer attractive yields that float with market rates.

Demand for leveraged loans has also been driven by investors hungry for yield, allowing issuers to "flex up" the size of offerings and pay smaller coupons. That has made the loans very popular among leveraged buyout firms.

According to Reuters Loan Pricing Corp., U.S. LBO financing volumes rose by half to $78 billion last year. Business is likely to remain strong this year, bankers said, with interest rates expected to remain low and buyout funds amassing cash and prowling for increasingly big deals. Leveraged loans have also emerged as an alternative to junk bonds.

Bankers say these are the best times ever for leveraged lending, with U.S. and European demand more than doubling over the past five years. Rampant M&A activity, cheap money and the growing ease of trading loans has turned leveraged lending into a global securities business rivaling junk bonds, bankers said. Many of the bankers, though, cautioned that the current bull market could turn sour quickly if funding costs and unusually low default rates were to rise. Junk bonds, bankers added, will regain popularity as issuers lock in low rates for the long term.

For now, though, Wall Street expects the leveraged lending business to remain a major contributor this year and going forward.

CORRECTED: Wall Street firms ride leveraged loan wave
By Joseph A. Giannone
NEW YORK (Reuters)

Monday, March 27, 2006

New UICIFD Briefing Paper

The University of Iowa's Center for International Finance & Development announces the publication of its second briefing paper. This feature addresses LICUS, the new World Bank aid program targeted at fragile states.

Full text of the briefing paper is available at:

An Asian Currency Unit?

Bickering delays Asian currency unit launch
Victor Mallet
Financial Times

The Asian Development Bank's (ADB) proposal to create an Asian Currency Unit (ACU) to develop bond markets throughout Asia and increase monetary cooperation between Asian countries has run into difficulty. Of the many difficulties this proposal is facing, the most significant is disagreements over which currencies to include. Presently, the currencies to be included are the South East Asian countries and Japan, South Korea and China. However, financial markets are unlikely to be impressed by an ACU that does not contain the important Hong kong Dollar or the Indian Rupee while including currencies of nations such as Cambodia and Brunei. ADB officials have also been quick to distinguish the ACU from the European Currency Unit (ECU) stating that the ACU is “not an official kind of currency unit like the Ecu."

While the concept of an ACU seems to be good in theory, a number of hurdles will have to be crossed before such an Unit can come into being.

Wednesday, March 22, 2006

China's New Five Year Economic Plan

The new Five Year Plan for Economic and Social Development, delivered by Premier Wen Jiabao at the Fourth Session of the Tenth National People's Congress, is being considered by the Chinese legislators.

Premier Wen Jiabao proposed a GDP growth rate of 7.5% in the years 2006-2010. While China is no longer a planned economy, this prediction reflects the policymakers' wish to maintain a good but controlled, steady growth. In the past five years, China has enjoyed an annual growth of 8% to 9%. In 2005, the growth rate was 9.9%.

It is predicted that by 2010, per capita GDP growth will rise to $2,400 U.S., versus $1,700 U.S. in 2005. This targeted increase does not call for a 7.5% growth in GDP, but policymakers would like to fully utilize current opportunities of continuous economic development. A goal of 7.5% growth in GDP thus strikes a middle ground between overheated growth and the minimum needed for recognizable improvements.

Unemployment rate should be controlled to the level of 5%, with creation of 45 million new jobs in the urban areas, in effect transferring agricultural labor to non farm-related jobs in the cities. Besides encouragement of further urbanization, the government also plans on channeling more money for rural developments, especially in the areas of infrastructure building and education.

China's energy plans have become a rather controversial international issue. As a domestic matter, though, it is expected that energy consumption per unit GDP will be reduced by 20% in the upcoming five-year period due to efficiency improvements. It was estimated that wastfulness and pollution has caused more than 2% of the GDP.

While all these sound good, the increasing income gap between coastal and rural areas will require much more active policymaking addressing structural issues and the fiscal assistance needed to make the policies work.

People's Daily English, China Sets New Target in New Five-Year Plan.

China Center for Economic Research, Policies Target Resources Misuse, Wealth Gap.

Tuesday, March 21, 2006

Retail Giant Expands in China

Walmart and Carrefour, two giant retail chainstores, have both announced plans to expand their operations in the China market.

According to a report by BBC, combined sales of China's 30 leading retailers jumped by 31% in 2005 to 491 billion yuan. This reflects an optimistic increase in private consumption in the economy, as policymakers in China have proposed a more consumer-driven growth.

Carrefour, the world's second-biggest retailer, increased the number of its stores in China to 78 last year. Sales rose by 25% to 17.4 billion yuan ($2.2 billion) in 2005, making it China's ninth-biggest retailer by sales. The French retailer is certainly gaining a foothold in the China market, although the Commerce Ministry reported that the domestic Shanghai Brilliance was the biggest retailer, with sales of 72.1 billion yuan in 2005.

Meanwhile, Walmart, the world's largest retailer, did not make it to the Commerce Ministry's top thirty retailers list. Wal-Mart Stores has just announced its plans to hire 150,000 people over the next five years, five times the number it currently employs. Walmart has 58 stores in China now, slightly fewer than Carrefour.

The growth of foreign-owned retailers in the Chinese market is a result of important economic events in the past few years, such as China's accession to the WTO, which mandated the opening of the retail market to foreign competition; the lift of the currency peg last year; and the continuous growth in the Chinese economy, resulting in higher purchasing power for Chinese consumers.

BBC News Online, Carrefour Boosts China Presence

CNN Money.Com, Wal-Mart poised for major China expansion

Sunday, March 19, 2006

Macau Gambling: Shady Past, Rosy Future
Frederik Balfour
Business Week

Long dubbed the Las Vegas of Asia, Macau is expected to become the world's biggest gambling city in terms of gaming revenues this year. Its proximity to rapidly expanding Chinese cities and regional powerhouse Hong Kong means that Macau’s future growth prospects are tremendous. The large gaming companies are hoping to cash in and are fast entering the Macau market.

Gambling in Macau is very different from gambling in Las Vegas. For starters, the average daily take per gaming table in Macau is almost triple of that in Las Vegas. Also, unlike Las Vegas which relies on small gamers for its revenues, the gambling scene in Macau is typically dominated by "high rollers." Single hand bets of $35,000 are not that uncommon.

Sheldon Adelson's Las Vegas Sands has already invested $265 million in Macau, and plans to invest as much as $2.75 billion more. MGM-Mirage is planning on spending over $1 billion on constructing an atrium that would be three times as large as its Bellagio resort in Las Vegas. Las Vegas based Wynn Resorts’ $1.2 billion new property begins operations in early September. Meanwhile renowned hotel chains such as the Shangri-La Resorts, the Four Seasons and Starwood Hotels are planning constructions of enormous hotels.

Little wonder then that the author suggests that Las Vegas may soon be called the "Macau of North America."

Saturday, March 18, 2006

Jobs tomorrow
The Economist

Inequity has come to characterize South Korea today. The inequities run between the successful chaebols, and struggling small businesses, between prosperous Seoul and the neglected regions, between workers in the large enterprises who earn sizeable salaries, and those in the smaller firms that earn a fraction of what their counterparts in the large firms earn. While the rapid growth of China has been a boon for large Korean firms such as Samsung, it has spelled disaster for smaller South Korean firms. It is estimated that almost a half of the country’s small and medium size businesses make no operating profits, and many of them exist today solely because of government credit guarantees.

In such a grim scenario, the new proposed Free Trade Agreement (FTA) with the US holds considerable hope for South Korea. It is estimated that the FTA could increase GDP by as much as 2% and create some 100,000 jobs. The author believes that such an agreement would also strengthen South Korea's political relations with the US, and provide a "counterweight to China's growing economic influence." Additionally, the FTA is likely to speed up "reforms to recalcitrant parts of the economy. " Of course, such a proposed deal is not without significant opposition, primarily from farmers, industrial groupings, and trade unions.

As the author puts it "[i]t looks a tricky course, with distant fairways and lightning-quick greens. "

Friday, March 17, 2006

India needs skills to solve the 'Bangalore bug'
Raghuram Rajan and Arvind Subramanian
Financial Times

According to the authors, India may be facing a shortage of skilled labor. The authors point out that increasing wages in the Information Technology (IT) sectors have resulted in an exodus of managers from India's traditional manufacturing sectors, such as textiles and manufacturing. Because demand for skilled labor has increased at a compound annual growth rate of 23%, wages have dramatically risen, and other sectors have been unable to match these high salaries, which has caused migration of labor.

The growth of IT has also led to diverging fortunes for many states - while a select handful of states have benefited from increasing foreign investment, many of India's populous states have not seen much improvement in recent years. According to the authors, to ensure that India's states grow uniformly, the Indian Government must reform India's primary and secondary education systems and investment heavily in infrastructure development. The authors also recommend removing "the barriers that prevent foreigners and locals from starting new institutions, while improving accreditation procedures and disclosure standards." Following such policies will enable India's various sectors and states to grow at a more even pace, which is socially desirable.

Sunday, March 12, 2006

Blame Game

"West Urged to 'Tell Truth on Globalization'"
Financial Times
March 12, 2006

This weekend, at the World Deauville Conference in France, Chinese diplomat Long Yongtu cautioned the U.S. and E.U. not to blame unemployment and competition woes on the growing Chinese economy. He argued these accusations are based on a misunderstanding of the Chinese economy's relationship to Western markets, saying, "There are a lot of misconceptions about China’s economy. People believe that it depends on exports and external investment. But China’s economic development is basically driven by domestic demand, both investment and consumption."

Interestingly, outsiders note that both regions need economic reforms: China should heighten good governance to improve environmental compliance, worker protection, and anti-corruption initiatives while the E.U. should adopt the Lisbon Strategy reforms to strengthen job creation and sustainable development.

The conference is intended to strengthen Asian-European relations and to serve as a forum to discuss globalization. For more information about the event, see

Refer to the E.U. Commission's Lisbon Strategy update (
) for more information about the reforms mentioned in the article.

Additionally, refer to the OECD's China policy briefing ( for more information about the reforms mentioned in the article.

Saturday, March 11, 2006

BoJ switches policy and calls end to deflation
David Pilling
Financial Times

The Bank of Japan (BoJ) made an announcement declaring that its loose monetary policies which were initially employed to ward off deflation, were officially over. This announcement is seen as a response to the Japanese economy finally "returning to normality" after spending approximately 15 years in the "doldrums." In recent times, the demand for Japanese goods has increased rapidly, with China and the United States being the primary drivers for this demand. This increase in demand has in turn led to the robustness of the Japanese economy.

However, the tightening of monetary policy will not begin immediately; interest rates will be maintained at 0% for "several months." While politicians still fear that it might be too early to eschew loose monetary policies, the BoJ is firm in its resolve. In response to the BoJ's announcement, Japan's primary stock market, the Nikkei average rose 2.6%.

Friday, March 10, 2006

Agricultural Subsidies Still Stalling Talks

"Trade Chiefs Hope to Revive Talks"
BBC News
March 10, 2006

Also refer to a speech by E.U. Trade Commissioner Mandelson:

An October 27, 2005 posting ("An Update on Agricultural Subsidies") summarized the ongoing trade dispute arising out of American and European hesitance to discontinue use of certain agricultural subsidies. This disagreement is stalling a global trade treaty; the roadmap for this treaty is scheduled to be completed by April 2006. At the WTO Ministerial Meeting in Hong Kong, WTO members agreed to discontinue use of all farm export subsidies by 2013. But, the U.S. and E.U. argue that they will not eliminate their domestic subsidies and agricultural import tariffs.

Negotiators met again this week in London to address these conflicts. Reports suggest that the tone of these talks is not hopeful. The E.U. External Trade Commissioner, Peter Mandelson, appears unwavering. He is quoted as saying, "Our job is to build consensus in order to help the wider membership of the WTO to reach agreement later on."

Would complete elimination of these subsidies be too much to ask of the U.S. and E.U.? Mandelson has argued, "I want to make world poverty history but trade justice cannot be equated with big bang agricultural liberalisation, and with it, a race to the bottom for E.U. agriculture and a free market mayhem that would gravely damage the interests of some of the poorest countries in the world." Does he make a good point?

Thursday, March 09, 2006


Nations Rebuild Barriers to Deals
Heather Timmons, New York Times

This article discusses the growing tendency of governments to block or place conditions on corporate takeovers. At one point the article quotes an economist who sees the restrictions on takeovers as a form of protectionism. He is quoted as saying that “protectionism remains the major threat to global growth.”

It is worth noting that many forms of protectionism have persisted in the world economy, even as trade deals have removed some barriers, and in some cases have even been extended. For example, the United States has greater protection for doctors at present than it did a decade ago. While protection for doctors and other professionals is almost never discussed in the context of trade, in economic theory, protection that raises the cost of doctors and other professionals to people in the United States (and prevents foreign professionals from being able to sell their services in the United States) is every bit as harmful as protection that restricts imports of clothes or agricultural products.

Emerging Markets--Miracle or Mirage?

Regular investors could not have gone through the past few years without noticing the buzz on emerging markets. According to the Financial Times, "five years ago, it was 'why bother?' Now the question global investors are asking is: can we afford to ignore emerging markets?"

A term coined in the early 1980s by the World Bank's International Finance Corporation, "emerging markets" (EMEs) refer to "an economy with low-to-middle per capita income." About 80% of the world's population live in emerging market economies. That, however, is not to say that emerging markets are necessarily small and poor. For example, China and India are considered emerging markets, so are Brazil, Argentina, Mexico, Russia, Iran, Iraq, Egypt and South Africa.

The 1990s saw confidence plummet in emerging market investments, due to the three major regional economic crises--Mexico and Argentina in 1994, Asia in 1997, and Russia in 1998. Because of the transitioning nature of these economies, investments are high-risked and volatile.

Now, the good news is, the early years of this decade have seen significant and solid economic performance from many of the EMEs. The Financial Times reported that Brazil and Venezuela announced they were buying back billions of dollars worth of their Brady bonds. These securities, named after Nicholas Brady, a former US Treasury secretary, still carry a stigma because of their association with past financial crises. Gone are the days when loans to the EMEs have to be forgiven, restructured or reformed after years of default.

Yet should we, as private investors and prudent watchers of the global economy, see this as a mere mirage, like the short-lived boom in the early 1990s, or a miracle that will continue to develop? The Financial Times expressed confidence that good performance in the past few years will probably continue. "In 2003-05 emerging market shares more than doubled, with total returns of 165 per cent. East European markets returned 226 per cent, Latin American markets 265 per cent and Asian markets (outside Japan) 122 per cent."

What generates this optimism is the fact that, ever since the regional crises in the 1990s, there had been some real structural changes in these economies, including reduction of current account deficits, real GDP growth, reduction of foreign debt, and a controlled inflation rate. The important perspective, though, is that the risk involved in investing in EMEs may still, afterall, be higher than in developed economies. While no economy is immune to cyclical performance, EMEs are still more vulnerable to large scale crises than developed economies. In many of the EMEs, social and political stability are still not guaranteed--and that is just one possible external risk to name. Cautious optimism is probably the best attitude toward EME investments now.

Christopher Brown-Humes, A grown-up Brady bunch? Why returns in emerging markets are vigorous, Financial Times, Mar. 2, 2006.

Emerging Market Directory, What is an Emerging Market?

Reem Hekal, What is Emerging Market Economy? Investopia

Robert Lenzner, Book Review: Robert Rubin on Surviving the 1990s

Let’s “democratize Federal Reserve transparency.”

Bringing Democracy to the Federal Reserve

I came across this article by Ralph Nader -- hopefully this will spark some discussion!

"So far Chairman Bernanke has limited specifics about his push for “greater transparency” to the idea of the Fed stating explicitly the numerical inflation rate it considers to be consistent with the goal of long-term price stability...Let’s hope that Ben Bernanke really is talking about ‘transparency” and “open government”—the kind of transparency that gets the message to all citizens, not just bond traders and the Wall Street insiders. What the Fed does or doesn’t do affects the jobs and economic well being of all Americans—the very future of the nation."

Nader outlines seven ways Bernanke might "bring the Federal Reserve up to speed for 21st century democracy":

1. Regular open press conferences by the Chairman. Alan Greenspan and his predecessors never held press conferences.

2. Adhere to the Budget Act which requires the submission of a formal annual budget subject to review by OMB and the Congress. (Currently the Federal Reserve prepares a limited in house budget and gives it self approval).

3. Require congressional appropriations for all Federal Reserve activities. Currently the Federal Reserve finances whatever it pleases with public funds derived from the buying and selling of government bonds in the market as part of its control of the money supply. Surplus funds are returned to the U. S. Treasury annually.

4. Allow the early release of Minutes of Federal Open Market Committee meetings with exceptions for national security issues.

5. Hold open meetings on all issues not involving monetary policy.

6. Require full audits by the Government Accountability Office (GAO). Currently the Fed refuses to allow GAO to audit anything involving monetary policy as defined by the Fed itself.

7. Support legislation to prohibit commercial bank officials from serving on the boards of the 12 Federal Reserve District Banks.

Sunday, March 05, 2006

Mexican Miners Strike Could Affect International Metal Producers

Mexican Miners' Strike Set to Persist
By Adam Thomson
March 2, 2006

The National Mining and Metal Worker’s Union of Mexico, which represents about 270,000 of the country’s miners, vowed on March 2nd to continue its strike which has halted the operations of the largest mining companies and caused an increase in the international price of copper. The miners are protesting the replacement of former union leader Napoleón Gómez Urrutia, following allegations of the mismanagement of funds, with Elias Morales, a replacement that the miners believe was arranged by the government.

The strike is adversely affecting mining companies across the country, including Grupo Mexico, the world’s third largest copper producer; Netherlands-based Mittal Steel, Mexico’s biggest steel producer; and Industrias Peñoles, the world’s largest silver producer. Industrias Peñoles reported that if the strike lasted more than a week the company would no longer be able to continue supplying its customers.

“It makes no sense,” said Luis Rey, Industrias Peñoles spokesperson. “It is hitting our operations very hard and yet it has nothing to do with us.” Mr Rey estimated that the strike was costing the company roughly $10m (€8.3m, £5.7m) a day.

Friday, March 03, 2006

"Fast track"
The Economist Feb 16th, 2006

This article evaluates the current state of the Indian economy at the eve of the new budget being presented by India's finance minister. While India has certainly taken rapid strides in the past recent years-economic growth continues to remain robust, and inflation is in check-problems abound. The overall government deficit currently stands at 7.7% of GDP well above what economists are traditionally comfortable with. India's "infrastructure deficit" also remains a cause for concern and is unlikely to be addressed by the new budget. According to the author, with elections around the corner, the government is unlikely to rein in subsidies, which means that much-needed infrastructure development in the form of improving roads and ports and increasing the provision of electricity, is unlikely to occur.

What the article does not discuss, but is of importance in this context is the misallocation of government monies in the name of "subsidies" that rounitely occurs in the India, and is a serious bottleneck to sustainable growth.