economics

November 29, 2009

At Pepsi, the Glass Is Half Full

Filed under: Uncategorized — ktetaichinh @ 8:15 pm
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INVESTORS HAVE TURNED THEIR BACKS this year on consumer-staples stocks, while chasing after companies that promise faster growth. In PepsiCo’s case, they’ve had added reason to look elsewhere, given declining revenue and profits in the company’s North American beverage division — home of Pepsi products, Gatorade sports drinks, Tropicana juices, Aquafina water and other familiar brands.

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Jin Lee/Bloomberg News

Under CEO Indra Nooyi, PepsiCo has made small acquisitions around the globe. Buying key bottlers is Nooyi’s first swing at dramatically changing the business.
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Pepsi has suffered as cash-strapped consumers have traded down to private-label products — or quenched their thirst at the kitchen sink.

Writing off Pepsi (ticker: PEP) would be a mistake, however, given its powerful snack-food franchise and the cost savings the company could realize from the planned $7.8 billion acquisition of two of its key bottlers. Besides, its shares, now around 63, look cheap. As the economy starts to recover, Purchase, N.Y.-based Pepsi could regain its fizz.

Pepsi earned $5.9 million, or $3.68 a share, last year, on revenue of $43.3 billion. This year, the company is expected to earn $3.76 a share, and next year, with the bottlers included, it could net $4.22.
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That’s consistent with CEO Indra Nooyi’s recent statement that Pepsi is targeting 11% to 13% growth next year in earnings per share, excluding the impact of currency translation, and assuming the bottling deals close on schedule, early in 2010. Some fans of the stock expect Pepsi to enjoy robust growth for at least several years.

“We see a path for double-digit earnings growth over the next three years,” says Bill Pecoriello, CEO of ConsumerEdge Research, who has an Outperform rating and a 12-month price target of 72 on Pepsi’s shares.

Mario Gabelli, chairman and CEO of Gamco Investors, which manages mutual funds, is even more optimistic, noting that in the next few years, “the stock [could] trade 50% to 60% higher, which, with the dividend, gives you a pretty good return.”

Gabelli, whose funds own Pepsi shares, bases his analysis on what he thinks the company’s parts could be worth in private-market transactions. Pepsi pays a dividend of $1.80 a share, and yields 2.8%.

Pepsi trades for 15 times next year’s consensus estimate, near the bottom of its 10-year range of 13.1 to 31.6 times expected earnings. It also trades at a discount to arch-rival Coca-Cola (KO), which sports a price/earnings multiple of 17, and consumer-products giants such as Colgate-Palmolive (CL) and Procter & Gamble (PG), which trade, respectively, for 17.3 and 15.6 times 2010 forecasts.

If Pepsi’s profit grows by double digits this year and next, the company could earn as much as $5 a share in 2012, says Ian Jamieson, a portfolio manager at BlackRock, which owns the stock. As the market anticipates that profit growth, the shares could climb to 85, he says, assuming Pepsi’s P/E expands to reflect the strength of its business.

PEPSI DIVIDES ITS BUSINESS along geographic lines, into PepsiCo Americas Beverages, Frito-Lay North America, U.K./Europe, Latin America Foods, Middle East/Africa/Asia and Quaker Foods North America. On a product basis, beverages contribute roughly 37% of revenue and 40% of operating earnings, while snack foods account for 63% of sales and 60% of profits.

Table: Calling All Consumers

The company’s snack portfolio is a chip-lover’s dream, and includes brands such as Doritos, Ruffles, Lay’s, Fritos and Cheetos, as well as Rold Gold pretzels. Even in a challenging economy, snacks have done well, both in the U.S. and abroad. Pepsi officials have noted that more people are eating at home these days than in the past, which has hurt beverage sales but helped the snack-food business.

Revenue in the PepsiCo Americas Beverages division fell 10% in the first nine months of this year, to $7.4 billion, while operating profit declined 11%, to $1.7 billion. The company doesn’t break out the performance of individual brands, but industry data indicate that results for Pepsi, Gatorade and water disappointed.

In contrast, at both Frito-Lay North America and Pepsi’s international snack and beverage unit, operating profit has increased by 7% so far this year. And that’s despite headwinds from unfavorable currency translation, which could abate in the current quarter, as the dollar shows signs of firming.

“In every snack country we’re in, we are either No. 1 or No. 2,” says Chief Financial Officer Richard Goodman. “There is no real global competitor.”

That gives Pepsi the ability to price its products slightly above local brands, thereby boosting profit margins. The North American snack-foods business, for instance, boasts operating margins of 25%.

In its beverage business, Pepsi long has played No. 2 to Atlanta-based Coke. The gap between the two cola titans globally has narrowed slightly in recent years, but Coke has a far larger footprint overseas. It generates about 75% of sales and 80% of profits from outside North America, compared with Pepsi’s roughly 40% of sales and 34% of profits.

Pepsi manufactures and distributes its snack products globally. “We think of it as a huge competitive advantage because we control everything that happens,” says CFO Goodman.

The same desire for greater control lies behind CEO Nooyi’s plan, announced earlier this year, to buy and consolidate Pepsi’s two largest bottlers, Pepsi Bottling Group (PBG), based in nearby Somers, N.Y., and PepsiAmericas (PAS), headquartered in Minneapolis. After snapping up the 68% of Pepsi Bottling and the 57% of PepsiAmericas it doesn’t already own, PepsiCo will control marketing, manufacturing and distribution of its beverages in 80% of North America. Many industry watchers expect it to buy the remaining independent U.S. bottlers over time.

WALL STREET GENERALLY considers food-and-beverage sales relatively recession-resistant, but that hasn’t been the case in the past two years. Volume sales of liquid-refreshment beverages fell 2.2% in the U.S. in 2008, and are down roughly 2% so far this year, according to John Sicher, editor and publisher of Beverage Digest. That follows increases of 1.9% to 4.7% in the three prior years.

Sales of carbonated soft drinks fell by 3.2% industrywide last year, following three years of slightly smaller declines. Sales of sports drinks and bottled water fell last year for the first time ever, after logging double-digit gains earlier in the decade.

The problems at PepsiCo Americas Beverages can’t be ignored, since the division accounts for 26% of Pepsi’s operating profit, a contribution that could jump to 35% after the bottling-company purchases close, estimates ConsumerEdge’s Pecoriello.
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Volume sales in the domestic beverage business could grow by 1% to 2% a year as the economy recovers, and the company could enjoy price increases on top of that, says Pepsi’s Goodman. That should produce modest revenue growth.

To turn that growth into profit gains, “you have to take out all overlapping functions,” Goodman says. “You want to be absolutely as lean as you can.”

In PepsiCo’s case, that likely will mean cutting $300 million of costs as the company realizes synergies from the bottler mergers, which could translate into an additional 15 cents a share of earnings. The consolidated company could see a one-percentage-point pickup in its earnings growth rate.

Some analysts expect the savings will be even greater. Pepsi Bottling Group initially rejected PepsiCo’s offer to buy its outstanding shares at $29.50 apiece, stating in its rejection letter that it believed the merger savings would be “multiples” of the $200 million that PepsiCo originally said it could achieve. PepsiCo was able to complete the deal at a sweetened $36.50 a share.

The savings will come primarily from eliminating redundancies associated with running three publicly traded companies. The deal also could enable Pepsi to make faster decisions, enhance the development of new products and increase its leverage in negotiating with big retailers.

“Calling on a national account with one face and one voice is very important,” says a person familiar with the deal.

Nooyi, 54, became Pepsi’s CEO three years ago, after a lengthy career at the company, including stints as president and CFO. While Pepsi has made “tuck-in” acquisitions of small brands around the world during her tenure as CEO, the bottling deal is her first swing at dramatically changing the business. Her recent decision to hire Eric Foss, CEO of Pepsi Bottling Group, to head PepsiCo’s new North American Bottling Group, was widely praised, as he is likely to facilitate a smooth integration of the bottlers.

THE PEPSI BOTTLING GROUP was originally owned by PepsiCo, and was spun off as an independent entity in 1999. At the time, carbonated soft drinks accounted for 60% of Pepsi’s beverage sales, and the bottlers were viewed as lower-growth businesses that required significant capital investments. Liberating them freed Pepsi to invest in other businesses and diversify its product portfolio. Today, carbonated soft drinks represent only 45% of the Pepsi’s beverage sales.

When Pepsi bought Quaker Oats in 2001, it acquired the Gatorade sports-drink brand. For several years, volume sales grew by double digits, but in recent years Gatorade has suffered declining volume. This year, Pepsi has undertaken a major makeover of the brand, which accounts for roughly 8% of total revenue.

Gatorade is expected to introduce several new products next year, says Sicher, of Beverage Digest. The company is planning to launch a pre-exercise drink called Prime, and a post-workout beverage, Recover, to complement its current Perform line-up of sports beverages.

“We’re planning to introduce a significant innovation that will evolve Gatorade, and in some ways the [sports-drink] category,” said a Pepsi spokesman, who declined to elaborate.
The Bottom Line

PepsiCo has rallied about 34% since early March, to 63. Some fans think it could rise into the 70s next year, while one investor pegs its private-market value closer to 100 a share.

To be sure, the bull case for Pepsi could go flat if the beverage business continues to deteriorate, or if a push to tax soda and other sugary drinks gains traction. Some proponents of such a tax view it as a way to curb obesity in the U.S., while others see it as a way to help pay for health-care reform.

“It’s a risk, but not enough of a probability to make it into our base case” for the stock, says Pecoriello.

As Pecoriello and other Pepsi fans see it, the company has many levers it can use to boost revenue and meet its earnings goals. Even if just a few of them work, PepsiCo’s shares soon could be bubbling higher.

“Catastrophe Theory and the Business Cycle”

Filed under: Uncategorized — ktetaichinh @ 7:21 pm
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As a follow up to the recent post on non-linear dynamics that continued the discussion on what’s wrong with modern macroeconomics, here is a paper written many years ago by Hal Varian that extends the Goodwin-Kaldor model of business cycles. It is old-fashioned macro, but the interesting part is the wealth effect causing the difference between recessions and depressions. In particular, the results of the paper imply that shocks to wealth that change savings propensities — as we are seeing now — can cause recoveries that “may take a very long time, and differ quite substantially from the recovery pattern of a [typical] recession.”

Here are a few selections from the paper:

Catastrophe Theory and the Business Cycle, by Hal Varian: In this paper we examine a variation on Kaldor’s (1940) model of the business cycle using some of the methods of catastrophe theory. (Thom (1975), Zeeman (1977)). The development proceeds in several stages. Section I provides a brief outline of catastrophe theory, while Section II applies some of these techniques to a simple macroeconomic model. This model yields, as a special case, Kaldor’s business cycles. … In Section III, we describe a generalization of Kaldor’s model that allows not only for cyclical recessions, but also allows for long term depressions. Section IV presents a brief review and summary.

This paper is frankly speculative. It presents, in my opinion, some interesting models concerning important macroeconomic phenomena. However, the hypotheses of the models are neither derived from microeconomic models of maximizing behavior, nor are they subjected to serious empirical testing. The hypotheses are not without economic plausibility, but they are far from being established truths. Hence, this paper can only be said to present some interesting stories of macroeconomic instability. Whether these stories have any empirical basis is an important, and much more difficult, question. …

Applied catastrophe theory is not without its detractors (Sussman and Zahler (1978)). Some of the applied work in catastrophe theory has been criticized for being ad hoc, unscientific, and oversimplified. As with any new approach to established subjects, catastrophe theory has been to some extent oversold. In some cases, applications of the techniques may have been overly hasty. Nevertheless, the basic approach of the subject seems, to this author at least, potentially fruitful. Catastrophe theory may provide some descriptive models and some hypotheses which, when coupled with serious empirical work, may help to explain real phenomena. …

[I]t makes sense to model the system as if the state variables adjust immediately to some “short run” equilibrium, and then the parameters adjust in some “long run” manner. In the parlance of catastrophe theory, the state variables are referred to as “fast” variables, and the “parameters” are referred to as “slow” variables. This distinction is, of course, common in economic modeling. For example, when we model short run macroeconomic processes we take certain variables, such as the capital stock, as fixed at some predetermined level. Then when we wish to examine long run macroeconomic growth processes, we imagine that economy instantaneously adjusts to a short run equilibrium, and focus exclusively on the
long run adjustment process.

Catastrophe theory is concerned with the interactions between the short run equilibria and the long term dynamic process. To be more explicit, catastrophe theory studies the movements of short run equilibria as the long run variables evolve. A particularly interesting kind of movement is when a short run equilibrium jumps from one region of the state space to another. Such jumps are known as catastrophes. Under certain assumptions catastrophes can be classified into a small number of distinct qualitative types. … In the economic model that follows we will only utilize the two simplest catastrophes, the fold and the cusp. In these low dimensional cases, there are no restrictions on the nature of dynamical systems involved. …

[One result from the macroeconomic model] is the case considered by Kaldor (1940) and, more rigorously, by Chang and Smyth (1972). It has been shown by Chang and Smyth that when the speed of adjustment parameter is large enough, and certain technical conditions are met, there must exist a limit cycle in the phase space. In the appendix I prove a slightly simplified and modified version of this result.

This “business cycle” proposition is clearly the result intuited by Kaldor thirty years ago. However, the existence of a regular, periodic business cycle causes certain theoretical and empirical difficulties. Recent theoretical work involving rational expectations (Lucas (1975)) and empirical work on business cycles (McCullough (1975), (1977), Savin (1977)) have argued that (1) regular cycles seem to be incompatible with rational economic behavior, and (2) there is little statistically significant evidence for a business cycle anyway.

However, there does seem to be some evidence for a kind of “cyclic behavior” in the economy. It is commonplace to hear descriptions of how exogenous shocks may send the economy spiraling into a recession, from which it sooner or later recovers. Leijonhufvud (1973) has suggested that economies operate as if there is a kind of “corridor of stability”: that is, there is a local stability of equilibrium, but a global instability. Small shocks are dampened out, but large shocks may be amplified. …

Such a story seems to me to be a reasonable description of the functioning of the commonly described “inventory recession.” [L]et us, for the sake of argument, accept such a story as providing a possible explanation of the “cyclic” behavior of an economy. Then there is yet another puzzle. Each recession in this model will behave rather similarly: First some kind of shock, then a rapid fall, followed by a slow change in some stock variables with, eventually, a rapid recovery. Although this story seems to be descriptive of some recessions, it does not describe all types of fluctuations of income. Sometimes the economy experiences depressions. That is, sometimes the return from a crash is very gradual and drawn out. …

Here is the interesting feature of the model. Suppose as before, that there is some kind of perturbation in one of the stock variables. For definiteness let us suppose [there is] some kind of shock (a stock market crash?)…. If the shock is relatively small, we have much the same story as with the inventory recession… If on the other hand the shock is relatively large, wealth may decrease so much as to significantly affect the propensity to save. In this case,… national income will remain at a relatively low level rather than experience a jump return. Eventually the gradual increase in wealth due to the increased savings will move the system slowly back towards the long run equilibrium. …

According to this story the major difference between a recession and a depression is in the effect on consumption. If a shock affects wealth so much as to change savings propensities, recovery may take a very long time, and differ quite substantially from the recovery pattern of a recession. This explanation does not seem to be in contradiction with observed behavior, but as I have mentioned earlier, it rests on unproven (but not implausible) assumptions about savings and investment behavior.

1.4 Review and summary

We have shown how nonlinearities in investment behavior can give rise to cyclic or cycle like behavior in a simple dynamic macroeconomic model.

This behavior shares some features with empirically observed behavior. If savings behavior also exhibits nonlinearities of a plausible sort, the model can allow for both rapid recoveries which characterize recessions, as well as extended recoveries typical of a depression.

“Independent Does Not Mean Unaccountable”

Filed under: Uncategorized — ktetaichinh @ 7:20 pm
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As you might guess given my recent posts defending Fed independence, I agree with this:

The right reform for the Fed, by Ben Bernanke, Commentary, Washington Post: For many Americans, the financial crisis, and the recession it spawned, have been devastating… Understandably, many people are calling for change. … As a nation, our challenge is to design a system of financial oversight that will … provide a robust framework for preventing future crises…

I am concerned … that … some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures … would seriously impair the prospects for economic and financial stability in the United States. The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation. …

The proposed measures are at least in part the product of public anger over … the rescues of some individual financial firms. The government’s actions… — as distasteful and unfair as some undoubtedly were — were unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression in length and severity…

Moreover, looking to the future, we strongly support measures — including the development of a special bankruptcy regime for financial firms whose disorderly failure would threaten the integrity of the financial system — to ensure that ad hoc interventions of the type we were forced to use last fall never happen again. Adopting such a resolution regime, together with tougher oversight of large, complex financial firms, would make clear that no institution is “too big to fail” — while ensuring that the costs of failure are borne by owners, managers, creditors and the financial services industry, not by taxpayers.

The Federal Reserve … did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis. We have extensively reviewed our performance and moved aggressively to fix the problems. … There is a strong case for a continued role for the Federal Reserve in bank supervision. Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks…

This expertise is essential for supervising highly complex financial firms and for analyzing the interactions among key firms and markets. Our supervision is also informed by the grass-roots perspective derived from the Fed’s unique regional structure and our experience in supervising community banks. At the same time, our ability to make effective monetary policy and to promote financial stability depends vitally on the information, expertise and authorities we gain as bank supervisors, as demonstrated in episodes such as the 1987 stock market crash and the financial disruptions of Sept. 11, 2001, as well as by the crisis of the past two years.

Of course, the … ability to take such actions without engendering sharp increases in inflation depends heavily on our credibility and independence from short-term political pressures. Many studies have shown that countries whose central banks make monetary policy independently of such political influence have better economic performance…

Independent does not mean unaccountable. In its making of monetary policy, the Fed is highly transparent, providing detailed minutes of policy meetings and regular testimony before Congress, among other information. Our financial statements are public and audited by an outside accounting firm; we publish our balance sheet weekly; and we provide monthly reports with extensive information on all the temporary lending facilities… Congress, through the Government Accountability Office, can and does audit all parts of our operations except for the monetary policy deliberations and actions covered by the 1978 exemption. The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation. …

Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation.

While I agree on the independence and regulation statements, one thing I do wonder about is why there is such widespread acceptance of the idea that we have to live with institutions that are so big that their failure is a threat to the financial system and the economy. The notion seems to be that large, dangerous firms are inevitable, so we need special procedures in place that we hope will allow them to fail without the problems spreading and creating a devastating domino effect. The concern seems to be mainly about having the procedures and authority to allow orderly dissolution of large, dangerous firms rather than preventing these firms from getting too large and too interconnected to begin with.

We need procedures for orderly dissolution in any case — we didn’t think firms were systemically important before the crash, so we need to be ready (e.g., recall the many, many statements that the crisis would be “contained”). But what is the minimum efficient scale (MES) for financial firms? That is, what is the smallest size at which economies of scale and economies of scope are fully realized?

There has been some discussion of this (e.g. Economics of Contempt versus The Baseline Scenario), but it doesn’t seem to me that this question is very close to being settled. I want to know how the MES relates to the minimum size where a bank becomes systemically important. If the MES is smaller than the size where banks become systemically dangerous, break them up – their size adds nothing but risk. But if the MES is greater than the minimum dangerous size, then we have a tradeoff to make — safety for efficiency — and we may or may not want to force firms to reduce their size and connectedness. It depends upon the tradeoff.

But until we know what these tradeoffs are — and I don’t think we have a good sense of this — it’s very difficult to determine if the costs of breaking up banks and reducing their connectedness are greater than the benefits. I suspect that if the MES is greater than the minimum safe size, then the extra safety from reducing bank size and connectedness would be worth the loss of efficiency, and I’d like to push that position much more than I have to date. But without knowing the MES, the minimum threatening size, the minimum threatening degree of connectedness, and the costs and benefits of reducing size and connectedness, it’s hard to do so with confidence.

Foreclosure Protections for All

Filed under: Uncategorized — ktetaichinh @ 7:14 pm
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LAST year, a new law was put into place in New York to help protect subprime mortgage borrowers from foreclosure. Now the state is on the verge of extending similar protections to prime borrowers, too.

A bill passed by the State Legislature this month would require, among other things, that lenders give all borrowers 90 days’ warning before starting foreclosure proceedings and that they take part in settlement conferences with borrowers before proceeding with a foreclosure action. The bill also covers co-op owners.

Gov. David A. Paterson is expected to sign the legislation; most of the measures would then take effect within two months.

Richard J. Biondi, the immediate past president of the New York Association of Mortgage Brokers, said the new legislation was welcome, if a bit overdue. “It’s terrific that they finally opened the door to prime borrowers and made these protections available,” he said.

Richard H. Neiman, the superintendent of the New York State Banking Department, said that given the recent deadlock in the Legislature, he was pleased by the speed with which the bill was passed.

Of the nearly 20 measures in the legislation, mandatory mediation could provide the most relief for struggling borrowers, some of whom have been unable to get their lenders to consider loan modifications. Because of the high volume of mortgage defaults, many lenders have been unable to keep pace with such inquiries from borrowers.

The foreclosure mediation, free for homeowners, would require lenders to provide a representative at a certain date and place. Lenders may be subject to sanctions if they fail to come with financial documents and other information required by mediators.

New York’s mediation program for subprime borrowers has had only limited success, its administrators say, in large part because borrowers often do not attend the sessions.

Under the new legislation, when lenders notify the state of an impending foreclosure action, the state must send the borrower’s name to housing counseling agencies, which can then inform the borrower about foreclosure avoidance strategies like the mediation program.

The new measures relating to co-ops, meanwhile, highlight the difficulties faced by those who fail to make their monthly maintenance payments, which go toward building expenses and the building’s underlying mortgage.

Co-op units do not fit the legal definition of real property, and therefore do not qualify for the protections of traditional foreclosure processes. As a result, Mr. Neiman said, co-op owners can often be forced to evacuate a unit within two months of the time their building’s board takes formal action against a nonpaying resident. Now that the new law gives occupants 90 days before they lose their ownership shares, he said, owners will have more time to seek help.

The legislation also includes protections for tenants of multifamily housing units that go into foreclosure.

Jane Azia, the director of nondepository institutions and consumer protection for the State Banking Department, says that because New York’s housing market includes a heavy mix of multifamily units, the protections for tenants are especially meaningful. By law, she said, a lender can evict tenants only after a foreclosure judgment, which typically takes about 15 months in the state.

“There are tenants out there who are harassed into leaving after the foreclosure process begins,” Ms. Azia said, “and they aren’t aware of their rights.”

The new law would give tenants more time to get out, but Mr. Biondi of the New York Mortgage Brokers Association said this measure could further damage the financial health of lenders.

“Tenants will probably just stop making payments,” he said. “And for lenders, getting any sort of legal enforcement against that will probably be difficult in the current environment.”

As the yen soars, the need for intervention grows

Filed under: Uncategorized — ktetaichinh @ 6:37 pm
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By TYLER COWEN
Published: November 28, 2009

PRESIDENT OBAMA’S recent trip to China reflects a symbiotic relationship at the heart of the global economy: China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector. Yet this arrangement may unravel in a dangerous way, and if it does, the most likely culprit will be Chinese economic overcapacity.

Several hundred million Chinese peasants have moved from the countryside to the cities over the last 30 years, in one of the largest, most rapid migrations in history.

To help make this work, the Chinese government has subsidized its exporters by pegging the renminbi at an unnaturally low rate to the dollar. This has supported relatively high-paying export jobs; additional subsidies have included direct credit allocation and preferential treatment for coastal enterprises.

These aren’t the recommended policies you would find in a basic economics text, but it’s hard to argue with success. Most important, it has given many more Chinese a stake in the future of their society.

Those same subsidies, however, have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.

China has been building factories and production capacity in virtually every sector of its economy, but it’s not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.

Chinese planners now talk of the need to restrict investment in sectors that are overflowing with unsold products. The global market is no longer strong, and domestic demand was never enough in the first place.

Regional officials have an incentive to prop up local enterprises and production statistics, even if that means supporting projects or accounting practices that are not sustainable. For an individual business, the standard way to get more capital resources is to put forward a plan for growth. Because few sectors are mature, and growth has been so widespread, everyone can promise to be profitable in the future.

Over all, there is a lack of transparency. China’s statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.

Put all of this together and there is a very real possibility of trouble.

China has had a 30-year run of stellar economic growth. But it’s only human nature for such expansion to breed too much optimism, overextending an entire economy. Americans have found this out the hard way in their own financial crisis.

History has shown that no major economy has grown into maturity without bubbles, crises and possibly even civil strife or civil wars along the way. Is China exempt from this broader pattern?

The notions of excess capacity and malinvestment were common in business-cycle theory of the 19th and early 20th centuries, when growing Western economies had frequent crashes of this kind. Numerous writers, from the Rev. Thomas Malthus to the Austrian economist Friedrich A. von Hayek, warned about the overextension of unprofitable capital deployments and the pain from the inevitable crashes. These writers may well end up being a guide for understanding China today.

What will the consequences be for the United States if and when the Chinese economic miracle encounters a major stumble? A lot of Chinese business ventures will stop being profitable, and layoffs and unrest will most likely rise. The Chinese government may crack down further on dissent. The Chinese public may wonder whether its future lies with capitalism after all, and foreign investors in China will become more nervous.

In economic terms, the prices of Chinese exports will probably fall, as overextended businesses compete to justify their capital investments and recoup their losses. American businesses will find it harder to compete with Chinese companies, and there will be deflationary pressures in both countries. And even if the Chinese are selling more at lower prices, they may be taking in less money over all, so they may have less to lend to the United States government.

In any case, China may end up using more of its reserve funds to address domestic problems or placate domestic interest groups. The United States will face higher borrowing costs, and its fiscal position may very quickly become unsustainable.

That’s not so much a prediction as a very possible contingency, and we should be prepared for it. For now, we should avoid two big mistakes. The first would be to assume that just because borrowing costs are now low, we can postpone fiscal responsibility and keep running up the tab — with the aid of Chinese lending, of course. The history of financial crises shows that turning points can come swiftly and without much warning.

The second mistake would be to demand too many concessions from the Chinese. What we see in the numbers today are a growing China and a somewhat ailing America. Yet there’s a real chance that, soon enough, Chinese economic weakness will be a bigger problem than was Chinese economic strength.

Tyler Cowen is a professor of economics at George Mason University.

As the yen soars, the need for intervention grows

Filed under: Uncategorized — ktetaichinh @ 6:32 pm
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AFTER taking office in September, Hirohisa Fujii, Japan’s finance minister, widely let it be known that he was happy with a strong yen. But he had not anticipated that the currency would so soon become a bolt hole for panicky investors fleeing turmoil in world financial markets.

Fears of a renewed bout of financial turbulence caused by Dubai World’s debt standstill this week drove the yen to a 14-year high against the dollar on Friday November 27th, its strength exacerbated by thinly traded markets because of America’s Thanksgiving holiday. The rally, which coincided with a slump in Japanese and other Asian stockmarkets, as well as a decline in most of the other widely traded currencies, forced Japan’s new government to convene to discuss its impact on the economy and, possibly, to reconsider its non-intervention line.

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Mr Fujii, who once said that intervention was only necessary as a result of “outrageously reckless” currency movements, hinted that he was now prepared to discuss it with his G7 counterparts. In that he was goaded on by some of his cabinet colleagues. He complained, with plenty of justification, that the yen’s appreciation was “one-sided”.

Just the hint of action was enough to drive the yen off its highs. But there was only a half-hearted belief that Mr Fujii or his G7 counterparts were ready to strike. Currency experts in Japan see the rise in the yen from 101 half a year ago to around 85 now as symptomatic more of dollar weakness than yen strength–it stems from the sluggishness of the American economy. Although there are howls of protest from Japanese exporters, currency strategists say the yen is not significantly overvalued. Because of huge differences between Japanese and American inflation over the past 15 years, Tohru Sasaki, chief currency strategist at JPMorgan, calculates that the yen would need to hit 57 per dollar to match its strongest post-war level of 79 yen per dollar reached in 1995.

Yet such calculations, however valid, may miss the point. The trouble that Mr Fujii faces is that the steeper the yen’s rise, the greater the risk that Japan degenerates from a situation of mild deflation into a spiral of falling prices and wages, which would cause untold damage to itself and to the world economy. Already, deflation is looking increasingly entrenched; on Friday the government announced that core consumer prices fell by 2.2% in October, the eighth straight month of decline.

Until very recently, the authorities have appeared to be relaxed about living with moderate deflation and a strong yen, hoping that over time the economy, which has rebounded faster than expected in recent quarters, would heal itself. That belief was partly reinforced by Japan’s past experience of deflation, which ended temporarily in 2006 when the economy exported its way back to growth.

However, back then, the world economy was also expanding fast and globalisation made it easy to conquer new markets. Now the American and European economies are far weaker, and though Japan’s exports to Asia have grown this year, they do not counteract the sloth elsewhere. On top of that, Japan’s domestic market is crippled by a shrinking population, low wages and weak demand, which adds to the huge deflationary output gap in Japan, according to some estimates as high as 8% of GDP.

Intervention to weaken the yen would carry a cost in terms of irritating Japan’s main trading partners. As Mr Fujii has noted, currency interventions can quickly lead to a round of competitive devaluations. But if he does raise the issue with his G7 counterparts, which he should, he should also stress the price impact of an excessively strong yen. If Japan were to fall into a deflationary trap, it would not suffer alone. Markets might quickly worry that over-indebted, slow-growing economies such as those of America and Britain were headed in the same direction.

 

Discontent Seeps Into Japan’s Anime Studio

Filed under: Uncategorized — ktetaichinh @ 6:25 pm
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By YUKA HAYASHI

TOKYO—Anime, Japan’s stylized animation that has become hugely popular around the world, helped reshape the country’s image as a cultural trend-setter. But behind the scenes, things aren’t so rosy.

Japan’s animation industry is struggling. Anime workers are unhappy, toiling long hours at low pay. Sales have been declining. On top of that, there is fast-growing competition from across Asia. Studios in China and South Korea now churn out high-quality anime-style programs, helped by cheaper labor and, in some cases, government subsidies.

The Decline of Anime

Getty ImagesAn 18-meter robot hero from the popular animation series “Gundam” was installed in Tokyo in July.

In a nation once known for its manufactured goods, anime has grown into Japan’s most popular cultural export, influencing animation artistry world-wide, with a following among adults as well as children. The anime movie “Spirited Away” won the 2002 Academy Award for best animated feature, and before that the Pokemon franchise was a television staple and box-office success in the U.S., not to mention a trading-card and merchandising frenzy.

A shrinking population of children in Japan has discouraged toy makers, television networks and other traditional sponsors from funding new programs. That has driven many anime studios—most of which are small shops—toward making animated soft porn and violent movies targeted at adult audiences. At the same time, YouTube and other free Internet services have hurt sales of DVDs. Sales of Japanese-made anime DVDs slid 18% from a year earlier to 72.8 billion yen (about $800 million) in 2008, after peaking at 93.7 billion yen in 2006, according to the Japan Video Software Association, a trade group.

Morale is low. Industry executives estimate nine out of 10 new workers quit within three years, with the many talented employees leaving for better-paying jobs in areas like videogames. A survey conducted this year for industry executives showed that animators in their 20s made just 1.1 million yen ($11,000) a year on average, while those in their 30s earned 2.1 million yen.

Yasuna Tadanaga, 23 years old, left her position as an animator at a small Tokyo studio last year, only six months after landing what she thought was her dream job. To meet deadlines, Ms. Tadanaga worked 13 to 14 hours each day. During one month, she was given just one day off.

Tough Times for Anime’s Animators

3:30A new generation of anime workers in Japan are struggling to stay afloat in a declining industry.

“The unspoken understanding was we worked on weekends because we loved the work,” Ms. Tadanaga said. “We had to have a very good reason to take a day off.”

Most young animators work as freelancers and often lack benefits. Many are paid by the number of sketches they produce, and that price has changed little in three decades.

Rie Otani, 22, grew up watching anime after school and dreamed of becoming an animator. After two years of training at a trade school, she joined Telecom Animation FilmCo., a Tokyo studio that participated in the production of “Spirited Away.”

But like creative professionals starting out in competitive industries elsewhere, she discovered that the job involved more drudgery than glamour. Her contract position as an entry-level animator requires her to stare at a computer screen for nearly 12 hours a day.

Ms. Otani’s goal is 300 sketches a month, and her monthly take-home pay sometimes falls below 100,000 yen ($1,050).

A History of Japanese Anime

“I enjoy working with all these people who all love anime,” says the tall, pony-tailed Ms. Otani, who draws pictures that connect key sketches to create moving images. “But I make so little money, and I worry if I can ever leave my parents and start on my own.”

Even the president of Telecom Animation expresses some dismay about the state of the anime world. “The industry has become decadent and fatigued,” says Koji Takeuchi, president of Telecom Animation, which is housed in an aging suburban building above a grocery store. “So many pieces are dark and oppressive, and the message of hope and fun is no longer there.”

Mr. Takeuchi says his studio has taken steps to help its young employees, such as providing a more affordable health-insurance plan. He says he also promotes skilled animators to permanent positions.

The Japanese government says it is trying to support the industry, with plans to increase spending on education and training young animators and allocating more funds toward film marketing. But nurturing home-grown talent has become more difficult as Japanese companies increasingly outsource anime drawing to studios in China, South Korea and Vietnam, where labor costs are lower.

Osamu Yamazaki, a 47-year-old director of anime films, worries that moving the production process overseas will diminish Japan’s ability to cultivate creative talent.

“People have tremendous power by just being young,” he says. “Without young blood, we’ll lose our ability to think flexibly and creatively.”

Write to Yuka Hayashi at yuka.hayashi@wsj.com

Dubai Debt Woes Raise Fear of Wider Problem

Filed under: Uncategorized — ktetaichinh @ 5:43 pm
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By LANDON THOMAS Jr.
Published: November 27, 2009

Of the many economies that gorged on debt in the boom years, Dubai stood out. In the space of a few years the emirate’s investment arm, Dubai World, racked up $59 billion in debt, borrowing to build lavish developments like a giant island shaped like a palm tree to entice celebrities like Brad Pitt, and to invest in glittery properties like the MGM Grand Casino in Las Vegas.

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Chris Jackson/Getty Images

The Emirates Towers in Dubai, which has accumulated $59 billion in debt.

Kamran Jebreili/Associated Press

Golfers in the shadow of Jumairah Island Towers on Friday in Dubai. Fear that the emirate cannot pay its debt sent the Dow down more than 150 points.

Now that the boom has gone bust, both in Dubai and in the United States, Dubai is stuck with a glut of real estate that no one wants to buy or rent. Creditors and markets had always assumed that when push came to shove, its oil-rich neighbor Abu Dhabi would bail out Dubai. But that assumption was called into question this week, and the resulting fear that Dubai might not be able to pay its bills sent a wave of uncertainty rippling through markets just as investors thought the worst of the global financial instability was over.

The anxiety reached Wall Street on Friday, sending the Dow Jones industrial average down more than 150 points, as investors worried about hidden debt bombs in other countries and institutions — heavily indebted nations like Greece and even Britain, high-flying emerging markets and even European and American banks that had lent Dubai money.

In a worst-case contagion, Bank of America analysts wrote Friday, “One cannot rule out — as a tail-risk — a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s.”

And not just emerging markets. “Dubai shows us that what we are now facing is a solvency issue, not a liquidity issue,” said Jonathan Tepper, a partner at Variant Perception, a research house in London that has been outspoken on the debt problems facing European economies.

On Wednesday, Dubai requested that Dubai World be allowed to skip six months of interest payments on its debt. Before then, Dubai World, the corporate face of the emirate, had commissioned the city state’s flashiest buildings, managed ports around the world and reached far overseas to invest in properties like Barneys in New York.

Now, just as Bear Stearns was a harbinger of a string of failures of overly leveraged investment banks, the concern is that Dubai could be the canary in the coal mine for heavily indebted countries. The debts of everyone, including Japan and the United States, not to mention emerging markets, have risen greatly as the countries have fought the ravages of the global recession.

“You can print as much money as you want, but at the end of the day you have to pay the interest on your debt,” Mr. Tepper said.

Dubai is one of the few member states of the United Arab Emirates that has little oil wealth of its own. It acts as the trading, tourist and financial hub of the emirates. But it was assumed that the U.A.E.’s richest oil state, Abu Dhabi, would always bail out its free-spending neighbor.

Dubai’s announcement on Wednesday reversed that presumption — even as investors fretted that Dubai risked a sovereign default that would ripple to developing nations.

And while Abu Dhabi may well want to make its more exuberant neighbor and its bankers suffer a bit for their profligate ways before it rides to the rescue, that gives little comfort to investors already wary of the region’s growing debt.

“This came as a big shock,” said Fahd Iqbal, an analyst at EFG-Hermes, an investment bank focused on the Middle East. Although Mr. Iqbal said he held to the view that Dubai in the end would avoid default, he acknowledged that the measure had severely rattled confidence in Dubai. “One of the main issues now is of credibility and the potential impact on future fund-raising, which could have knock-on effects on building and infrastructure plans for Dubai and the United Arab Emirates,” he said.

By the numbers, a tremor in Dubai should not necessarily shake the world banking community. According to data from the Bank for International Settlements, foreign banks have $130 billion of exposure to the United Arab Emirates, with Britain having the largest exposure, $51 billion. Banks in the United States have debts of $13 billion.

That is a negligible 0.4 percent of foreign banks’ total cross-border exposure, said Stephen Jen, an analyst at the hedge fund Blue Gold capital management.

In fact, Dubai World’s largest creditors are domestic banks in Dubai and Abu Dhabi.

Still, one concern is that some British banks with large credit exposure to the United Arab Emirates are already troubled. Royal Bank of Scotland, majority-controlled by the British government, was one of the largest lenders to Dubai World, having secured $2.3 billion worth of loans to it since early 2007, according to a report by J.P. Morgan. Standard Chartered and Barclays were also large lenders to the region, with more than $10 billion between them, analysts said. HSBC has $17 billion exposure to the United Arab Emirates.

But while a Dubai default may not provoke a banking crisis, it could well spur a broader crisis of investor confidence in overly leveraged economies.

World markets did not take long to reflect this insecurity.

The Dow Jones industrial average fell 154.48 points, to 10,309.92 Friday, as markets in Europe and Asia closed slightly higher after opening sharply down for the third consecutive day. Crude oil prices fell to a six-week low; gold fell as investors sought havens.

The cost of insuring the debt of economies like Greece and Lithuania spiked 16 percent and 6 percent, respectively, this week. The cost of insuring Dubai’s debt shot up by 67 percent and the British pound weakened against the dollar for the week.

Greece and Britain have historically high budget deficits that exceed 12 percent of gross domestic product, with Spain not far behind and Ireland struggling with the consequences of a devastating real estate collapse.

While no one is expecting an outright default as long as global interest rates remain low — largely due to aggressive government bond purchases by central banks — concerns have been building for months that once these easing measures end, interest rates will spike and investors will become less willing to trust the word of heavily indebted governments.

For now, most of the pain from Dubai is being felt by the holders of the Islamic bonds of Nakheel, the developer owned by Dubai World that is known for the palm-themed islands it built.

On Dec. 14, $3.52 billion in Nakheel bonds come due. One of the largest Islamic group of bonds issued, the deal was snapped up by Western and regional investors. In a reflection of how sure investors were that Dubai would meet these payments, the bonds were trading at a 10 percent premium to face value earlier this week. They are now trading at around half of face value.

The Geopolitics Of The Dubai Debt Crisis: It’s Iran vs. The United States

Filed under: Uncategorized — ktetaichinh @ 5:37 pm
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from Clusterstock by John Carney

 

Dubai PalmThe role of Iran may be the most overlooked in the Dubai debt crisis.

Of all the states of the United Arab Emirates federation, Dubai has maintained the closest ties to Iran. Indeed, as international pressure has built on Iran over the past decade, Dubai has prospered from those ties. It provides critical banking and trade links for Iran, often serving as the go-between for European or Asian companies and financial firms that want to do business with Iran without violating international sanctions.

Abu Dhabi, the wealthiest member of the UAE and a close ally of the US, may be pressuring Dubai to limit its links to Iran. Indeed, this pressure may be behind statements coming from Abu Dhabi about offering “selective” support for Dubai. Companies or creditors thought to be too linked to Iran could find themselves shut out of any bailout.

The United States government, which has remained somewhat taciturn throughout this crisis, is no doubt encouraging Abu Dhabi to apply this pressure. In part because of Dubai’s connections to Iran, US financial institutions are not among the biggest creditors to Dubai World.

It’s not all Iran, of course. The problems in Dubai, the member of the United Arab Emirates that has found itself in a dire financial crisis, closely mirror those behind the global financial crisis.

Over the past decade, the country attempted to diversify its economy away from dependence on its declining oil reserves—and largely succeeded. But, like a Wall Street investment bank attempting to overcome the decline of its traditional businesses by becoming heavily invested in leveraged real estate products, Dubai accumulated huge debt obligations—estimated to amount to some $80 billion. Much of Dubai’s assets were dependent on tourism, shipping, construction and real estate—which have been in trouble during the global economic downturn.

Like its fellow members of the UAE, Dubai is ruled by an expansive royal family. In this case, they are called Al Maktoum family. Exactly what counts as the personal property of ruling family and what is government owned in Dubai is more than a bit fuzzy. The Dubai government owns three companies: the Investment Corporation of Dubai; Dubai Holding, which is run by Mohammed Al Gergawi; and Dubai World, which is run by Sultan bin Sulayem.

Abu Dhabi has been trying to put pressure on Dubai to cut ties to Iran. The split between Abu Dhabi and Iran is in part rooted in an older territorial dispute, fear of Iran’s nuclear ambitions, religious differences between Shiites and Sunnis, and—importantly—Abu Dhabi’s close ties to Washington, DC.

The UAE is close to reaching a nuclear power cooperation deal with Washington, a move that many regional experts say would challenge the traditional Saudi hegemony in the Gulf.  One sticking point in the negotiations with Washington has been concerns that Dubai could share US nuclear technology with Iran.

This power struggle between Abu Dhabi and Saudi Arabia is also playing a role. In May, the UAE May pulled out of a proposed Gulf monetary union over Saudi insistence that it would host the regional central bank.

Dubai, which is a very open and tolerant place compared to Iran, is viewed by many Iranians as a place to let their hair down. It has a thriving Iranian ex-pat community. Iran is Dubai airport’s top destination, with more than 300 flights per week.

More importantly, Dubai is a major exporter to Iran and a major re-exporter of Iranian goods. The trade between Iran and Dubai is one of the principal sources of Tehran’s confidence that it can survive US-led sanctions. Iranian investment in Dubai amounts to about US $14 billion each year. US intelligence officials have long suspected that the Iranian government uses Dubai based front companies to get around sanctions.

Some of the banks said to have the largest exposure to Dubai debt have in the past been linked to Iran. Notably, HSBC, BNP Paribas and Standard Chartered came under investigation and pressure from US authorities in recent years to cut ties to Iran. Some US officials have quietly protested that these banks just shifted to doing business with Iran through Dubai. The US may want to see these creditors take losses from their Dubai exposure.

Make no mistake: the US government does not want to see the financial ruin of Dubai. Apart from its ties to Iran, Dubai is widely viewed as a model Islamic country. It has a relatively clean government, and there is a remarkable level of  religious tolerance and progressive attitudes toward women for the region. American diplomats have held up Dubai as their model for a new Baghdad—progressive, tolerant, and capitalist.

What is most likely happening is more nuanced. The US and Abu Dhabi are hoping to use Dubai’s financial troubles as a way of finally severing the close ties to Iran. For years, Dubai has enjoyed the benefits of walking the line between its military and economic alliance with the US and economic benefits from banking and trade ties to Iran. The price of a bailout from Abu Dhabi may be having to finally choose to give up the Iran connection.

November 28, 2009

The Balance Of Payments?

Filed under: Uncategorized — ktetaichinh @ 7:22 pm
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The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming.

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The Balance of Payments Divided
The BOP is divided into three main categories: the current account, the capital account and the financial account. Within these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction.

The Current Account
The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account.

Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Services refer to receipts from tourism, transportation (like the levy that must be paid in Egypt when a ship passes through the Suez Canal), engineering, business service fees (from lawyers or management consulting, for example), and royalties from patents and copyrights. When combined, goods and services together make up a country’s balance of trade (BOT). The BOT is typically the biggest bulk of a country’s balance of payments as it makes up total imports and exports. If a country has a balance of trade deficit, it imports more than it exports, and if it has a balance of trade surplus, it exports more than it imports.

Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded in the current account. The last component of the current account is unilateral transfers. These are credits that are mostly worker’s remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that is directly received.

The Capital Account
The capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non-financial assets (for example, a physical asset such as land) and non-produced assets, which are needed for production but have not been produced, like a mine used for the extraction of diamonds.

The capital account is broken down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets (assets such as equipment used in the production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and, finally, uninsured damage to fixed assets.

The Financial Account
In the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are documented.

Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held with the International Monetary Fund, private assets held abroad, and direct foreign investment. Assets owned by foreigners, private and official, are also recorded in the financial account.

The Balancing Act
The current account should be balanced against the combined-capital and financial accounts. However, as mentioned above, this rarely happens. We should also note that, with fluctuating exchange rates, the change in the value of money can add to BOP discrepancies. When there is a deficit in the current account, which is a balance of trade deficit, the difference can be borrowed or funded by the capital account. If a country has a fixed asset abroad, this borrowed amount is marked as a capital account outflow. However, the sale of that fixed asset would be considered a current account inflow (earnings from investments). The current account deficit would thus be funded.

When a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets for more goods and services. If a country is borrowing money to fund its current account deficit, this would appear as an inflow of foreign capital in the BOP.

Liberalizing the Accounts
The rise of global financial transactions and trade in the late-20th century spurred BOP and macroeconomic liberalization in many developing nations. With the advent of the emerging market economic boom – in which capital flows into these markets tripled from USD 50 million to USD 150 million from the late 1980s until the Asian crisis – developing countries were urged to lift restrictions on capital and financial-account transactions in order to take advantage of these capital inflows. Many of these countries had restrictive macroeconomic policies, by which regulations prevented foreign ownership of financial and non-financial assets. The regulations also limited the transfer of funds abroad. But with capital and financial account liberalization, capital markets began to grow, not only allowing a more transparent and sophisticated market for investors, but also giving rise to foreign direct investment. For example, investments in the form of a new power station would bring a country greater exposure to new technologies and efficiency, eventually increasing the nation’s overall gross domestic product by allowing for greater volumes of production. Liberalization can also facilitate less risk by allowing greater diversification in various markets.

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