Sunday, July 30, 2006

Privatization in Colombia

(Source Article: Colombia to privatize state oil -

In an effort to draw domestic and foreign investment to the country, Colombia plans on privatizing 20% of state-owned oil company Ecopetrol. This is the first time Ecopetrol will be offered to private investors, and is in contrast to the rapid nationalization of oil companies in neighboring countries—specifically Venezuela. However, the government said it would prefer to sell to Colombian pension and employee funds.

Helping drive Colombia’s desire to modernize and update its oil refining capacity is the fact that it wants to begin exploring for new oil fields before its 1.5 billion barrels of reserves becomes depleted—a problem that makes Colombia much different than its neighbors, since its oil production is in decline while theirs increase; the government hopes that private investment can stabilize if not increase oil production.

In 1999, Colombia’s oil production peaked at about 820,000 barrels a day—in May it was at merely 538,709 barrels a day; the decline is due in part to violence spilling over from the decades-old guerilla warfare that plagues the country. Recently, rebel attacks caused an oil pipeline to shut down—cutting some 60,000 more barrels per day from the country’s production. (see Colombian rebel attacks shut oil pipeline - Reuters)

Additionally, the country recently sold its state gas transportation company, Ecogas, to private pension and employee funds. Officials do not believe that Colombia’s move to privatization will spark conflict with its neighbors, since everyone is aware that its oil sector needs improvement.

Wednesday, July 26, 2006

War of words between US and Europe over Doha trade talks

(Source Article:US hits back at EU over Doha collapse -

Susan Schwab, US trade representative, accused her European colleagues on Tuesday of spreading lies in order to pass the blame for the Doha trade talks collapse onto the US. This is the latest insult in a series of accusations that have been traded between the two regions.

While the US and Europe bicker, Africa suffers serious consequences as the result of the collapse; the continent is virtually condemned to a future of high tariffs and stymied competitiveness. Yesterday, WTO chief Pascal Lamy made an official announcement declaring the end of the talks. Officials in the African markets are entirely discouraged with Western countries, and are intending to now focus on the Asian markets for trade—particularly China. (see Africa is the loser as Doha trade talks fail -

Oxfam, an international charity organization, blamed both the US and Europe for their stubborn resistance to changing their offers, and does not see the trade situation in Africa improving for years to come as a result. Additionally, US Senator Max Baucus, D-Montana, suggested that the US also change its focus to dealing with Korea and other Asian markets. (see Doha trade talks collapse - Market Watch)

However, negotiators remain hopeful that some type of talks could resume in place of Doha after November’s mid-term elections for the US Congress; European officials believe the upcoming elections are the main reason the US has been inflexible in their negotiations.

Monday, July 24, 2006

French Surgeons Strike in the Midst of Heat Wave


Six months ago, the Union of Surgeons of France set a timetable for a strike deemed necessary for the survival of the profession in France. In a situation similar to what American doctors face, French surgeons are seeking an increase in the amount they can charge as well as a limit to the rise in insurance premiums charged to them. The union claims that the government is not acting in accord with agreements reached in 2004 on these issues.

While the percentage of members of the union that took part in the strike is unclear, the strike has grown to encompass other specialties, such as obstetrics and gynecology. Complicating matters is a heat wave that is sweeping the country, which is bringing back memories of 2003, when a heat wave let to crowded emergency rooms and left 15,000 residents dead. Thus far, 22 residents have died from heat-related situations.

Xavier Bertand, the French Health Minister, has urged to doctors to return to their practices, especially due to the present heat wave. Patrick Pelloux, president of an association of emergency room doctors, questioned the doctors’ strategy. “There comes a point when, faced with the risks of a heat wave, there is an honorable side to carrying out
one’s mission.”

Bush administration budget on target

(Source Article: White House will hit budget early -

The Bush administration might be celebrating a year early, as surging US tax revenues are expected to push the administration toward its budget deficit target a year ahead of schedule in 2008. When the target is reached, the administration will halve the deficit from a projected peak from 2004, regardless of what Congress does with the alternative minimum tax.

Early forecasts by the US Treasury stated that the alternative minimum tax indexation would increase the budget deficit by $21 billion in 2007, $59 billion in 2008, $76 billion in 2009 and $92 billion in 2010. However, now the White House forecasts that the deficit will fall to $247 billion in 2008 at 1.7% of GDP—below the original $260 billion, or 2.2% of GDP, earlier estimate.

These larger than expected tax revenues are good news for the GOP as they head into midterm elections in the fall, with a budget deficit being lower than previously projected. However, their opponents on the other side of the fence will still find much to fault them for come election time. (see Despite tax bump, deficit an election target - NPR)

Analysts cannot confidently attribute the surge in tax revenues to any one factor yet, as it will take years to look at the code to see exactly what is responsible. However, likely factors are increased business profits, which most likely are also driving a 15% forecasted rise in individual income taxes.

Friday, July 21, 2006

IDB supports technological innovation in Brazil

(Source Article: Enhancing technological innovation in Brazil - Inter-American Development Bank)

Prioritization of technological advances in Brazil has been the focus of the work by Financiadora de Estudos e Projeto's (FINEP); advances in technology are crucial to a country’s economy staying ahead in the global community: new technology often creates new jobs in the economy and stimulates consumer spending. Experts in the United States have stressed importance of students majoring in fields such as math and science in order for such innovation to continue. In Brazil, the same message is being pushed by FINEP, and as a result Brazil has placed a greater importance on science and technology innovation in its public policy agenda.

However, despite progress being made, Brazil’s innovation rate is still low compared to other countries, producing about 1.7% of international knowledge, compared to the 8-9% produced by the UK, for example. In light of this, the legal framework and funding dynamics surrounding science, technology and innovation in the country have undergone a serious overhaul in order to provide innovators a friendlier climate.

In 2006, government grants and loans totaling US$ 560 million were given to FINEP for the purpose of encouraging and mobilizing scientific and technological research in universities and other private institutions. Additionally, in cooperation with the Inter-American Development Bank, FINEP created the Inovar Project in 2000, a financial mechanism geared toward supporting the creation of high-tech start-up companies throughout the country. Together, the IDB and FINEP hope to improve Brazil’s position in the global economy. (see Developing an institutional structure for technology in Brazil)

Thursday, July 20, 2006

Middle East grows as oil rises

(Source Article: Middle East enjoying oil boom - WB news)

With recent geopolitical tensions and continued high demand for oil, the oil-rich countries of the Middle East are experiencing an influx of cash—and most of them are being frugal with their spending. During the last major hike in oil prices in the 1970s and 80s, the Middle Eastern countries engaged in massive spending which put a lot of them into deep debt. This time around, says the World Bank’s report on the Middle East and North Africa region (MENA), they are restraining themselves.

The economies of the so-called MENA countries grew at an average of 6% in 2005, and the growth experienced over the last three years has been the highest since the 1970s. However, not all are benefiting like the major oil-producing countries: increased energy use and decreased cash flows from the regions oil economies are having adverse effects on the region’s resource-poor economies, such as Lebanon and Morocco (see Financial markets in a new age of oil - WB news)

Saudi Arabia, the world’s most oil-rich country, is spending their oil profits wisely: the country has cut its debt almost by half, fueling economic growth. Nevertheless, World Bank officials urge the Middle East to not become too reliant on oil revenues, and to diversify their economies to the point that more jobs are produced in preparation for the depletion of their oil reserves in the future. (see Mid-East learns oil-boom lesson - BBC)

Specifically, Saudi Arabia reduced its debt from 97% of its GDP in 2002 to just 41% by the end of 2005. Meanwhile, both Morocco and Lebanon (the latter now experiencing a crisis with Israel) experienced a collapse of their growth rates from 6.3% in 2004 to 1.5% in 2005, and 6% to 1%, respectively.

Wednesday, July 19, 2006

IDB helps fund the CAMIF

(Source Article: IDB approves $60 million for CAMIF - IDB news)

Today the IDB approved a $60 million loan for the CAMIF (Central American Mezzanine Infrastructure fund) for infrastructure projects in countries such as Belize, Costa Rica, Guatemala and Panama, among others. The CAMIF will be provided with additional funding from Central American Bank for Economic Integration (CABEI) and other public and private investors.

As a financial instrument combining debt and equity features in the form of an interest-bearing subordinated loan, mezzanine lending in Central America is expected to help develop the region’s capital markets; with this type of instrument, investors can take a portfolio approach to financing infrastructure projects and benefit from risk diversification.

EMP Global, a management firm based in Washington D.C., is overseeing the implementation of the CAMIF. EMP recently appointed James D. Seymour and funds manager – a man with a long history of work in emerging markets. EMP’s investment activities are comprised of various funds with a cumulative capital of $7 billion. (see EMP Global appoints James D. Seymour as Managing Director - Yahoo!)

Tuesday, July 18, 2006

World Bank pres to focus on Africa

(Source Article: A message from Africa for the G8 - WB news)

Paul Wolfowitz said today that he plans to make the impoverished continent his priority in the coming years, while hailing Africa as being full of opportunities. He traveled to the G8 summit this weekend to address the leaders of the world’s richest nations about Africa’s need for aid, particularly towards education and economic infrastructure.

Africa continues to impress Wolfowitz, with 15 countries on the continent reporting at least 4 percent growth for the past 10 years. He cited Rwanda as an example of an African country that can do much with the right help: after suffering terribly from a genocide, the country rose from that disaster and has seen continued improvement in its economy. (see Wolfowitz: Africa is my priority – CNN)

Wolfowitz says that infrastructure is the primary obstacle in the way of Africa’s continued improvement, particularly regional infrastructure that can improve access on the continent to the ports of other countries. However, the World Bank president doesn’t believe this can be achieved unless more funding is sent to the continent.

Another Tsunami Hits Indonesia, Lack of Widespread Warning System Exposed

Source: Voice of America

A 7.7 magnitude, offshore earthquake triggered a tsunami that has claimed the lives of at least 300 residents of Java, Indonesia. Even after the devastating tsunami of December 2004, the residents received no warning on Monday.

The earthquake was detected at the Pacific Warning Center in Hawaii and a warning was issued that included southern Java. The Indonesian Bureau of Meteorology and Geophysics said a warning was issued, but cited difficultly in relaying the information to citizens on a large island such as Java. Many did not feel the earthquake and the rising water was their first sign.

Michael Rottmann, a UN special coordinator for the Indian Ocean tsunami warning system, said that international donors are helping set up a system that will eventually allow Indonesian authorities to issue reliable warnings, but warned that they system is “very sophisticated and needs still some more time to be implemented.”

Officials are aiming at 2009 as the time when the system will be fully operational. To date, only 2 out of 20 sensors have been installed in the ocean. Both of those currently installed are near Sumatra, which is hundreds of kilometers from the site of this week’s tsunami. Until this system is implemented for the Indian Ocean, countries will rely on their own systems, such as those operated by Thailand or Malaysia, or they will depend on information from the Pacific center, which has limited information for the Indian Ocean.

A meeting of experts is planned for next week in Indonesia to discuss progress and plans or the warning system.

Australia Positions Itself as an Energy Superpower

Source: FT

In a speech to business leaders, Australia’s prime minister, John Howard, spoke of the importance to the world that his country increases its role as a large supplier of energy. Australia has large natural resources of coal, uranium, and natural gas. Demand has increased due both to increased demand from users in China and India as well as to the latest rounds of turmoil in the Middle East, which has led to record prices for oil.

Howard was quoted as saying, “As an efficient, reliable supplier, Australia has a massive opportunity to increase its share of global energy trade. With the right policies, we have the makings of an energy superpower.”

Australia is currently one of a few net exporters of commodoties, accounting for 30% of the world’s coal trade, 40% of the world’s uranium reserves, and the potential to trail only Russia in exportation of natural gas by 2015. Also of note, many experts consider Australia particularly unexplored, especailly the gas fields off the northern and western coasts. Exploration here has become economically feasible due to technological advances and the increase in oil prices.

Recently a private energy company entered into a record, multi-billion dollar contract to supply China with natural gas. Other deals of this nature are in the works.

Monday, July 17, 2006

Mexico's recount crisis

(Source Article:Protests in Mexico against poll result -

Weeks ago, the official count had Felipe Calderon, from Mexico’s conservative party, slightly ahead and therefore winner of Mexico’s recent presidential election. However, spurred by Obrador, his leftist supporters and many of the country’s poor are demanding a recount of the votes, feeling that they were somehow cheated in the election. Mexico City this week witnessed one of the largest demonstrations in its history as people from around the country hit the streets to protest in favor of a recount.

Andres Obrador, the leftist candidate who barely lost the election on July 2nd according to the official count, claims that fraud was involved, and that “civil-resistance actions will begin this week.” Hundreds of thousands of his supporters rallied to a demonstration held by Obrador on Sunday. Meanwhile, Mexico's electoral court is looking into Obrador’s complaints that huge irregularities exist in the original count; the court must announce a winner by September 6th. (see Mexico crisis deepens with civil resistance plan - Reuters)

The wealthiest families in Mexico may have a lot to lose if Obrador assumes power; in the early 1990s, many groups profited by receiving valuable government holdings, such as steel mills and copper mines, at a fraction of the cost when the conservative government privatized Mexican industry. However, Mexican workers gained little from the privatization, and so they are among Obrador’s supporters during this nationwide recount movement. (see Mexican workers want a recount)

The official count had Calderon winning by just 243,000 votes out of over 40 million. Obrador insists on keeping the pressure on Mexican authorities, and that a major demonstration is being planned for July 30th. The markets, however, are not flinching at a threat of Obrador assuming power: the peso strengthened and bond rallied, reflecting the confidence of investors who feel even a recount will confirm Calderon’s win.

Sunday, July 16, 2006

World Bank, China urge progress in Doha trade talks

(Source Article: WB urges G8 to reach trade deal - WB news)

The World Bank’s President recently sent a letter to the G8 richest nations encouraging them to finalize an agreement in the Doha trade talks when they meet on Monday, the 17th. The President informed them that the G8 Summit in St. Petersburg is an opportune time to make great progress in the Doha talks, and work to remove millions from poverty and improve growth in emerging economies. The Doha talks, beginning in 2001, aim to remove trade barriers around the world and improve access to global markets.

Experts believe the G8 Summit is the last chance that world leaders have at keeping the Doha talks alive, given recent deadlocked talks in Geneva. Still, some fear that there is not enough political interest for the talks to make any real progress. One of the primary problems frustrating progress is the debate over agricultural subsidies and tariffs – the rich nations have failed to agree with the developing nations over these issues. (see G8 summit may be last gasp for Doha trade talks - Market Watch)

Additionally, the spokesman for the Chinese Ministry of Commerce called upon the EU and the US to provide the political clout necessary for the Doha talks to move forward. China hopes that the US and the EU can organize the negotiation pattern soon so that the talks can be completed by year’s end. China also expressed its dissatisfaction with the WTO’s failure to reach a deal at an informal ministerial meeting recently in Geneva. (see China urges US, EU to push forward Doha talks - China Daily)

Despite a lack of progress so far, the World Bank remains hopeful, pointing out that there have been plenty of trade talks in the past that faltered but then revived and concluded successfully. The EU Trade Commissioner said the US should be the first to break the talks from their current deadlock: “The [developing nations] want steeper cuts in US farm subsidies before accepting required cuts in industrial goods. Washington can unlock this by stepping forward with a better offer. If this happens, the EU will at the same time meet them both with a strengthened offer.”

Friday, July 14, 2006

Wall Street blues

(Source Article: Dow gives up gains for the year - CNN)

Record oil prices, Mideast tension and poor retail sales have proven to be a devastating three-hit combination on US markets this past week. The world’s most notable stock market has lost approximately 400 points since close of trade on Tuesday, and is on the brink of falling into the red for the year. Additionally, the Nasdaq and S&P 500 are already in the negative.

Having remained stable since February, retail sales took their first dive since that month, and fell 0.1 percent in June. This drop in sales comes after a prediction by economists that sales would grow by 0.4 percent. Consumer spending accounts for two-thirds of all economic activity in the US, and with high gas prices weighing down on household budgets, analysts worry. (see Retail sales fall into negative territory - CNN)

Experts do not expect a cease-fire to occur between the warring factions in the Middle East, and thus further expect the markets to remain under pressure. On Friday, the Dow was down at 10,740.63; S&P 500 at 1,234.53 and the Nasdaq was at 2,038.36. (see US stocks fall on Mideast fighting - Reuters)

After hitting a comparative high on May 10th, the Dow has been reeling from the effects of worries about interest rates, slowing economic activity and now geo-political tension in the Middle East. All of these have combined to induce increased selling of stocks on Wall Street.

Thursday, July 13, 2006

Record-breaking oil prices amidst Middle East Tensions

(Source Article: Oil hits record as Israel attacks -

As Israel launched a major air offensive against Lebanon on Thursday, oil prices surged past $76 a barrel. The warring between Israel and Lebanon only exacerbates the preexisting geo-political tensions in the region over Iran’s nuclear program, and the further problem in East Asia regarding N. Korea.

Adding to the increase in oil prices Thursday was a suspected explosion at an OPEC pipeline in Nigeria, resulting from militant attacks in that area. US crude to be delivered in August jumped $1.40 to $76.25 a barrel on the New York Mercantile Exchange, topping the previous $75.78 record set merely a week ago. Despite all the problems in the world’s largest oil exporting region, US consumption of gasoline remains strong. (see Oil sets new record - CNN)

US airline stocks felt the effects of the oil crisis on Thursday as shares in virtually every company tumbled: US Airways Group lost 8%; American Airlines lost 4.5% and United Airline lost 6%. However, analysts said that the outlook for airlines is improving, as they have managed to cut costs and increase revenues in recent months. (see Airline shares fall after oil hits record high - Reuters)

Analysts do not see any end to the rise in oil prices, expecting oil to rise above $100 a barrel in the coming months if Middle East warring continues, coupled with sustained demand for gasoline and other crude derivatives. The International Energy Agency also said that the world would require an additional 1.57 million barrels a day to supply economic growth in 2007—up from a previous estimate of 1.21 million.

Wednesday, July 12, 2006

US expects the end of Cuba’s communist regime

(Source Article: US sees regime change in Cuba -

US President Bush recently issued a report containing recommendations on how to eradicate Cuba’s communist government in the short term, and how to bolster the effects of the unilateral US embargo on Cuba. Bush and his national security team met last week—the first such meeting regarding the US position on Cuba in 16 years. Bush said the report confirms the US commitment to a “democratic transition in Cuba”.

Meanwhile, Cuban President Fidel Castro celebrates his 80th birthday this week, and the US had pledged to send aid to Cuba to help it build a free market economy—but only if Cuba transitions to a government free from Castro’s control. Further, the US says they will assist Cuba with such a transition by providing emergency humanitarian aid, maintaining electrical power and rebuilding the economy. (see US offers help to Cuba but only without Castro -

In response to the US pledge, a top Cuban official has issued a warning to would-be dissidents that they will face consequences if they oppose President Castro’s regime by accepting the conditional help from the US. Ricardo Alarcon, Cuba’s National Assembly president, said that accepting funds from the US for the purpose of overthrowing Castro’s regime would be a crime under Cuban law, and compared it to terrorists training and providing funds to US citizens for the same purpose. (see Cuba warns dissidents over US aid - BBC)

The eventual death of Cuba’s longtime leader has his government preparing for an eventual transition of power to his brother Raul. Commentators have said that this new report from the US is more of a symbolic recommitment to democracy than an actual policy on effectuating real regime change in Cuba. The US has failed in recent years with its objectives in Cuba, and Castro’s regime is actually stronger now than it has been in several years, partially due to assistance from US antagonist Hugo Chavez.

Tuesday, July 11, 2006

Terrorist attack in India’s financial capital

(Source Article: Mumbai train blasts -

Mumbai, formerly known as Bombay, the population and financial capital of the world’s second most populated country experienced seven continuous attacks on its rail network today. The attacks took place between 6:20 and 7:00 p.m., during rush-hour traffic as Indian workers returned home. Indian authorities had some information in advance about a possible attack, but did not know when or where it would happen.

137 people were killed in the blasts, and some 450 are reported injured thus far. Authorities are citing this as the worst such attack in the country in over a decade. The blasts were powerful enough to destroy the rail network in some parts, putting it out of operation for some time. This attack comes after an attack on the India capital of New Delhi last October. (see Mumbai blasts kill at least 137 -

Mumbai is home to the Mumbai Stock Exchange, as well as India’s equity and cash markets. The railway system that was attacked is used by approximately 4.5 million people each day, making it an integral part of the city’s economy. Additionally, a grenade attack in India’s Kashmir region killed four people earlier today. India's Airports and other transportation hubs are on high alert for further terrorist activity.

Monday, July 10, 2006

US-China trade gap widens

(Source Article: China's trade gap stretches -

China’s monthly surplus amounted to a record US$14.5 billion in June, illustrating the need for a quick revaluation of China’s currency and a broader opening of its market to foreign investment; however, that might be difficult as experts expect a backlash in the country over recent purchasing of local companies by foreigners. The country’s surplus totalled $61.5 billion for the first half of 2006—an increase of some 55 percent over the same period in 2005.

The country experienced a 23% rise in exports from the previous year, with a 19% rise in imports, according to China’s Commerce Ministry. In 2005, China’s surplus reached a record high of $102 billion for the year—triple the $32 billion amount in 2004. Additionally, its surplus with the US alone hit $202 billion. Without the US trade deficit, China would not have had a surplus at all last year. (see China trade surplus hits 14.5 billion - Washington Post)

Visual evidence of the US-China trade gap can be seen in California neighborhoods. Communities lining the Long Beach freeway in Southern California are becoming stacked with cargo containers that once held Chinese imports. With little US exports going out, the containers have no place to go—the mountain of containers grows along with the trade gap. (see Unsightly evidence of US trade gap -

Last year, China eliminated its peg to the dollar, but that has since had no positive effect on the trade gap. The US government continues to negotiate with China for greater reform and a more flexible currency.

Ahead of Annual Meetings, Relevance of G8 is Questioned

Source: The People's Daily Online

When formed the in the 1970s, the predecessor to the G8 clearly contained the world’s five largest economic powers. Over time, the changes in the economic distribution have led to a membership that does not contain the top eight economic forces in the world.

Those on the outside have questioned the capability of the G8 to deal adequately with some of the main problems facing the world. Others point to the reluctance of the member countries to take on expansion to include countries such as China, which has grown to be the world’s fourth largest economy. Other non-member countries include emerging markets such as India, Spain, or Mexico.

Some of the non-member countries are invited as observers, but with no role in decisions. Russia, whose economy is smaller than any member country and a few non-member countries, has been the focal point of many of these arguments, especially as this year’s host of the meeting. Igor Shuvalov, a Russian advisor, stated “we believe the importance of Russia in our global world will change...We will develop quickly as one of the major G8 countries.”

A further criticism of the G8 is that the meeting ends up addressing current global political issues, such as Iran and North Korea, instead of dealing with economic issues.

Saturday, July 08, 2006

IDB helps attract investment to Panama

(Source Article: IDB approves loan to Panama -

Recently, the Inter-American Development Bank approved a $5 million loan to Panama to improve the climate for investors and prepare the country for free trade. This is in addition to a previously approved $100 million loan given to help boost growth in the Central American country.

Panama, with a modest population of 3.02 million, currently has approximately $2.2 billion worth of loans, having added three loans totaling $150 million this year. The IDB itself is involved in a number of programs to support Panama’s emerging economy: infrastructure work to improve bridges and roads, poverty mitigation programs and programs aimed to boost private sector participation in tourism are just a sampling of IDB’s involvement with the country. (see IDB and Panama –

The new loan is aimed at improving technical assistance, assuring that resources are properly allocated to productive activities and supporting the participation of the private sector in job training throughout the country. Assistance will also be provided to institutions, such as the Consumer Protection and Competition Authority and the National Office for the Administration of Trade Agreements and Remedies. (see also IDB approves loan to Panama for fiscal, pension and trade reforms –

Friday, July 07, 2006

US Job growth lackluster in June

(Source Article: June jobs report creates Fed-headache - Reuters)

Economists reported today that a combination of weak job growth and rising wages in Friday’s June payrolls report will keep the Fed Reserve policy hanging in the balance. The report also showed the biggest year-on-year jump in average hourly earnings in five years, reviving fears of wage inflation.

Accompanying the increase in average wage, however, was a less-than-predicted increase in the number of jobs: only 121,000 non-farm jobs were created in June, below Wall Street predictions of 185,000, and other predictions, including that of ADP Employer Services (ADP) of 368,000. Economists say that this non-farm payroll report is one of the most important gauges of US economic health. (see ADP loses luster after June miss)

Despite slow job growth overall in June, US small businesses hired in a relative fervor, adding an average of 0.3 employees per small business. However, even small businesses can expect to see less job growth in the coming months as economists expect consumer spending to result in less of a need for new employees at such businesses. (see June job growth strong at small US firms - Reuters)

Additionally, private job growth was below 100,000 new jobs for the third straight month—numbers that the private job sector has not seen since 2003. Also, unemployment was below 5% for the seventh straight month; most economists view 5% unemployment as the US rate of full employment, below which wage pressures mount more rapidly. All of these factors are putting the Fed in a position in which it doesn’t want to be.

Thursday, July 06, 2006

Education reform in Africa

(Source Article: African nations reform education systems - World Bank)

Lately, countries in Sub-Saharan Africa have shown real improvement in the numbers of children being sent to school and the quality of education provided them. However, despite such progress, the countries still require help from developed nations to satisfy the MDG (Millenium Development Goal) of universal education by 2015, reports the World Bank.

Sub-Saharan Africa has experienced a 95% enrollment rate, up from a previous 83%, resulting in 17 million total students in school, reports Desmond Bermingham, head of the global compact on education, also known as FTI (Fast Track Initiative). However, a discouraging 56% of those students complete their primary education. The US currently supports efforts to improve education in the region via President Bush’s Africa Education Initiative (AEI), a US$ 600 million initiative that focuses on providing scholarships, textbooks, and teacher training. (see Africa Education Initiative -

Of the 100 million children world-wide who are not in school, nearly half (44 million) reside in Sub-Saharan Africa. Clearly, efforts to increase education should find a focal point in the region. Experts suggest that wealthy nations need to donate an estimated $490 million more to fill the gap in funding for 2006, with an annual increase of $5 billion contributed by the G8 wealthy nations before 2015 in order for the MDG to be satisfied. (see Education in Africa-Delivering the G8 promise –

Education plays an important role in reducing poverty, AIDs and other diseases, and promoting economic growth. As such, the G8 have made it a priority: the UK announced earlier this year that it would provide an extra $15 billion over 10 years to education; the EU, $76 million to the FTI, and Russia an additional $7 million, also to the FTI. However, the FTI needs some $10 billion annually to reach the MDG of getting 100 million children into school by 2015. More, and continuing, donations are needed.

ECB Warns Against Foreign Currency Borrowing

Source: FT

An ECB taskforce fears that a sudden downswing in currencies of some nations could lead to a series of bankruptcies. Although no deprecation is anticipated, the warning was issued because of the widespread borrowing by individuals and businesses in foreign currencies. Low interest rates have made it attractive for these borrowers to take on large loans.

The report points to a similar situation that led to the Asian financial crisis of 1997-1998.

It comes at a time when borrowing is high and emerging markets have suffered a series of financial difficulties. In addition to Bulgaria and Romania, the report addressed Croatia and Turkey.

The report noted that, “Experience shows that a substantial proportion of credit booms end in a banking crisis.” It also looked down on foreign-owned banks, stating that their “presence may have also contributed to the very fast rates of credit growth, as foreign-owned banks compete for market share.”

Wednesday, July 05, 2006

Markets react to N. Korean fireworks

(Source: North Korea nuclear tension - CNN)

This week, the Communist country test-fired seven missiles over the Sea of Japan, including one long-range Taepodong 2 missile—a missile that supposedly has the capability to reach mainland US. However, the Taepodong 2 that was fired this week fizzled out after about 40 seconds, and landed in the Sea of Japan. Japanese officials hurriedly arranged a UN Security Council meeting this morning in order to discuss possible sanctions on Pyongyang for this disconcerting behavior.

South Korean officials have, after analysis of the equipment and personnel located in and around the sites used to test the seven missiles this week, stated that it is highly likely that N. Korea intends to test fire even more missiles this week. (See N korea may fire more missiles - Reuters)

Today, the UN Security Council considered a draft resolution to impose sanctions on the misbehaving country; no action has yet been taken, but the members plan to meet again on Thursday. China and Russia, though strongly opposed to the test firing, expressed their desire for a response short of sanctioning. China is a permanent member of the council with veto power, and is also N. Korea’s main source of food and other aid. (see Key UN members weigh NK sanction - CNN)

Additionally, oil prices and the stock markets have reacted to the tests—many stock markets around the globe closed lower today, and oil has risen to above $75 dollars a barrel, a record high. Analysts commented that the nuclear tensions with N. Korea will frustrate the situation with Iran, and such geopolitical problems will always have an adverse effect on markets. (see Missile tension sends oil surging - CNN)

Tuesday, July 04, 2006

China Increases Control over Internet Content

Source: The Herald Tribune

The Chinese government recently announced plans to increase control over content on the internet that is accessible to its citizens. While permitting citizens to use the internet for business and education, President Hu Jintao’s government is trying to reduce exposure to what web pages that are considered immoral or anti-government.

The government has announced “admittance standards” for the countries’ 37 million blogs, a number that is estimated to grow to about 60 million by year’s end. No further explanation of what the standards required was announced.

Earlier this year, the government announced an initiative to “purify the environment” of the internet. It strictly enforces control on websites run by human rights groups, political activists, or websites that contain sexually explicit materials.

In a related policy, companies such as Yahoo and Google have been forced to cooperate with the censorship by the government as a prerequisite of doing business in the country.

Monday, July 03, 2006

The changing face of hedge funds

(Source Article: Hedge funds foray into banking - Reuters)

Hedge funds are no longer limiting themselves to stock and bond markets: several multi-strategy funds are taking on the characteristics of banks as they enter the area of financing and insurance. Prompted by years of low returns on investments, many funds are beginning to finance infrastructure and private equity, as well as private loans to small companies that might not have access to the big bank lenders.

Hedge funds can provide more flexible access to financing than banks for such companies, and there’s a lot less bureaucracy involved than at a bank: “The decision maker can be accessed directly,” says Nicolas Campiche, leader of a group that selects hedge funds for clients. Hedge funds experienced a flat to slightly negative month in June, though the year as a whole so far has been a positive. (see Hedge funds down slightly in June - CNN)

Additionally, 10 of the 20 best performing funds so far this year are hedge funds; the hedge fund industry controls nearly $1.5 trillion in assets, with 200 of the approximately 8,000 total hedge funds controlling roughly $850 billion of that industry amount. Such enormous assets provide the hedge funds the necessary muscle they need to move into new areas traditionally reserved to banks. (see Hedge funds and precious metals lead the pack - Globe&Mail)

A particular area of financing that has attracted hedge funds is the so-called PIPE (private investment in public equity)—this type of investment occurs when a public company gets financing quickly (e.g., through a hedge fund) by issuing unregistered stock at a discounted price. Hedge funds are also loaning money through promissory notes, with a high annual percentage rate. This type of activity is transforming hedge funds into veritable “mini-banks”.

Sunday, July 02, 2006

World Bank’s Multilateral Debt Relief Initiative

(Source Article: World Bank implements MDRI - WB news)

Recently, the World Bank announced that, on July 1st, its MDRI will cancel debt owed the International Development Association by some of the world’s poorest countries. An estimated US $37 billion in debt relief over 40 years is expected to be granted these countries, in addition to US $17 billion already granted under the HIPC (Heavily Indebted Poor Countries) debt relief initiative.

The Bank hopes that such relief will allow these struggling countries to channel their scarce financial resources into those areas that will help their citizens the most: healthcare, education and access to clean water, etc. Uganda was among 19 recipients of this generous debt relief program, having some US $3.76 billion of its debt forgiven yesterday. Countries, like Uganda, that have satisfactorily reached completion of the HIPC initiative are then eligible for the additional relief granted under the MDRI. Uganda itself has shown great improvements in combating poverty, but still needs to increase investment in infrastructure, such as roads and bridges. (see World Bank cancels Uganda’s $3.7 bn debt -

Zambia also received a sizeable amount of debt forgiveness, some $2.7 billion, through the MDRI recently, reducing the country’s debt to $500 million—a drastic difference from the country’s $7 billion debt just last year. Countries like Zambia and Uganda under the MDRI, much like other debt relief programs, promise in return to keep a track record of good governance, human rights and fiscal management. (see Bank grants Zambia relief - ABCnews)

Both the MDRI and HIPC were put into action after the G8 rich nations pledged last year at their Summit in Gleneagles to cancel the debt of the world’s poorest countries—which are mostly in Africa. The cancellation is provided through the IDA of the World Bank, the IMF and the African Development Fund.

Mexican Presidential election

(Source Article: Mexicans vote for new president - Reuters)

Update: Calderon likely winner of election

On Sunday, Mexicans had a choice between joining an ever-expanding left-wing Latin American camp or sticking with a pro-capitalism and economic policy regime in close alliance with the US—an election that’s perhaps as important to the US government as that of Mexico; the US has crucial interests in the integrity of border relations, security and trade with Mexico.

The polls showed an extremely close race between the two candidates: one a crusader against poverty, Obrador, and the conservative Calderon from current president Fox’s party. Obrador rejects comparisons of him to US foe and Venezuelan President Chavez, and vows to raise millions of Mexicans from poverty through social welfare programs. His message has found many attentive ears in the poorer regions of the country, where raw sewage spoils the air and operational plumbing fixtures are a luxury. Thus, many of the country’s poor living in these types of towns are heavily in favor of Obrador. (see Leftist raises hopes in Mexico’s forgotten towns - Reuters)

Andres Obrador, a former mayor of the Mexican metropolis of Mexico City, became known for giving cash-handouts to elderly, disabled and single-parent families while in office as mayor. He promises to spread such programs throughout the country if elected. Obrador grew up as one of Mexico’s poor, so that group has connected to him in a way they cannot connect to Calderon. Additionally, the 10 million Mexicans living in the US were allowed to vote from abroad for the first time, but the 41,000 ballots requested by those emigrants isn’t expected to make much of a difference. (see Mexican voters choose between left, right - CNN)

Meanwhile, the Mexican middle and upper classes generally seem to fear what might happen if Obrador becomes president: “I’m afraid of the unknown with...Obrador” said one middle-class citizen. Many fear that his spending would drive the country further into debt. Nevertheless, many Obrador supporters counter that current President Fox and his party—the party of Calderon—have failed to create jobs and alleviate poverty as they’d originally promised.