By M H Ahssan & Ruhena Fatima
Concern is growing in Pakistan that levels of poverty may worsen if the country gets additional support from the International Monetary Fund (IMF) in addition to a US$7.6 billion deal agreed late last year. A better source of cash, they say, would be the United States in return for Pakistan's contribution to the "war on terror".
The poverty rate has jumped to 37.5% from 23.9% during the past three years. More than 64 million people, out of a 160-million population, were living below the poverty line in 2008, as against 35.5 million people in 2005, according to the Planning Commission of Pakistan.
Pakistan is seeking an additional $4.5 billion loan after agreeing to the $7.6 billion standby loan last November as it grappled with a 30-year high inflation rate and fast-depleting foreign exchange reserves.
Strict IMF conditions have forced the government to ignore social-sector spending and more people are being pushed below the poverty line. A reduction in the fiscal deficit, higher interest rates and a cut in the country's development program have been dictated by the IMF, leading to further increases in unemployment and poverty levels. Local experts fear that tough IMF conditions will drag the country further into a vicious circle of poverty while increasing debt-servicing liabilities.
The government forecasts that the economy, South Asia's second-biggest, will grow at its slowest in seven years after raising interest rates as part of the IMF conditions. The fund late last year released $3.1 billion as the first installment to save Pakistan from defaulting on external payments. Pakistani and IMF officials are now holding talks, due to last until February 26, in Dubai in the United Arab Emirates as part of a review for disbursing the second installment of $775 million under the 23-month program.
"Pakistan is [also] to ask for an additional loan of $4.5 billion from the IMF to patch up an economy wilting under a widening trade deficit," the private Geo TV channel reported, citing a Finance Ministry official. Pakistan may seek that amount from the IMF as the country's fight against terrorists is hurting the economy, Shaukat Tarin, the finance adviser to the prime minister, said on February 15, according to Bloomberg.
While there is little question that Pakistan needs help in meeting its financial obligations, critics question whether the IMF terms and payback conditions do not make the US a more desirable source of support, given the partnership the two countries profess in the "war on terror" on Pakistan's eastern border with Afghanistan.
"Before asking for more loans, the government needs to say how it will pay it back?" Business Recorder quoted Muzzammil Aslam, an economist at KASB Securities in Karachi, as saying. "The government should seek aid from the US, and not a loan from the IMF, as compensation for fighting terrorists. It is time to consolidate the economy and adjust policies for pro-investment activities. The IMF loan can only be used for balance of payments and building foreign reserves. The government needs to cut interest rates to boost businesses."
Islamabad is facing a 45 billion rupee (US$564 million) shortfall in revenue in the first seven months of the current fiscal year, which runs to the end of June, after cutting the budget deficit 27.24% during the first half of the fiscal year to 259 billion rupees compared with a year earlier.
The fiscal deficit is targeted to decline to 4.2% of GDP this fiscal year from 7.4% in 2007-08. In the first six months, the deficit was held back to 1.9% of GDP against a 2% target.
"To meet the IMF's 4.2% fiscal deficit condition, a major cut was made to the development budget," according to a report published in Business Recorder. The report, citing a Planning Commission document, said achieving IMF conditions ultimately would lead to ignoring social sector spending.
The government spent only 19% of the federal Public Social Development Program (PSDP) total allocation of 371 billion rupees, during the six months through December, the lowest since 2005. This PSDP has already been cut by 100 billion rupees.
Pakistani authorities finalizing the next budget outlay will keep in view the IMF's terms and conditions, according to a report in The News.
These terms include a commitment to increase the ratio of tax to gross domestic product. The Federal Board of Revenue submitted to the IMF an action plan for the tax reforms late last year. If the plan is approved, the government will have to choose between increasing the tax base by incorporating the agriculture sector, real estate and stock markets under the tax net or pile up new taxes on existing taxpayers.
Taking the latter route would risk public unrest and political agitation.
Local industrialists, meanwhile, are unhappy over the central bank's decision to keep interest rates at 15%, a level well above rates in the developed world. Critics say the government agreed with the IMF to raise the discount rate by 350 basis points in two phases, with an increase of 200 basis points (or two percentage points) made effective before last year's $7.6 billion deal was approved by the IMF board. An increase of 150 basis points would be dependent on the behavior of relevant indicators this fiscal year.
Industrialists are already struggling from the global slowdown, with textile exports falling 1.79% during the first six months of the current fiscal year. It now looks unlikely that the export target of over $22 billion for the full 12 months will be met.
"The financial crisis in the US and Europe [Pakistan's most important textile markets] has a spiral impact and Pakistani textile products are no exception to this global issue," the Daily Times reported Federal Textile Commissioner Mohammad Idris as saying.
Exports are being hit despite a more than 30% deprecation of the rupee, what has increased import costs and removed the potential benefits of a 70% decline in the price of oil in the international market. The country’s oil import bill increased by 45% to $5.48 billion during the first five months of the current fiscal year, from $3.8 billion over the same months the previous year, according to the Federal Board of Revenue.
The oil import bill did decline in November, but only on the back of a steep dip in demand from the slowing economy.
The government has given a commitment to the IMF to reduce domestically financed development spending by about 1% of GDP through better prioritization of projects. The government wants a total adjustment of 100 billion rupees by slashing the Public Sector Development Programme, according to Business Recorder.
The Planning Commission of Pakistan has sent a summary of its rationalization proposals to Prime Minister Yousaf Raza Gillani. In the next phase, projects that require foreign lending will be cut in the face of government difficulties in obtaining loans from international donors, the report said, citing commission sources.
The cuts will come amid forecasts of an average 2% growth in Pakistan's economy by June, with expansion now dependent on the performance of agriculture after the manufacturing sector shrunk 6.5% in the six months through December.
The IMF has forecast real GDP growth of 3.5% in the year through June, down from an average of 6.8% in the past five years and the slowest pace in seven years.
Thursday, February 19, 2009
Pakistan fears poverty surge
By M H Ahssan & Ruhena Fatima
Concern is growing in Pakistan that levels of poverty may worsen if the country gets additional support from the International Monetary Fund (IMF) in addition to a US$7.6 billion deal agreed late last year. A better source of cash, they say, would be the United States in return for Pakistan's contribution to the "war on terror".
The poverty rate has jumped to 37.5% from 23.9% during the past three years. More than 64 million people, out of a 160-million population, were living below the poverty line in 2008, as against 35.5 million people in 2005, according to the Planning Commission of Pakistan.
Pakistan is seeking an additional $4.5 billion loan after agreeing to the $7.6 billion standby loan last November as it grappled with a 30-year high inflation rate and fast-depleting foreign exchange reserves.
Strict IMF conditions have forced the government to ignore social-sector spending and more people are being pushed below the poverty line. A reduction in the fiscal deficit, higher interest rates and a cut in the country's development program have been dictated by the IMF, leading to further increases in unemployment and poverty levels. Local experts fear that tough IMF conditions will drag the country further into a vicious circle of poverty while increasing debt-servicing liabilities.
The government forecasts that the economy, South Asia's second-biggest, will grow at its slowest in seven years after raising interest rates as part of the IMF conditions. The fund late last year released $3.1 billion as the first installment to save Pakistan from defaulting on external payments. Pakistani and IMF officials are now holding talks, due to last until February 26, in Dubai in the United Arab Emirates as part of a review for disbursing the second installment of $775 million under the 23-month program.
"Pakistan is [also] to ask for an additional loan of $4.5 billion from the IMF to patch up an economy wilting under a widening trade deficit," the private Geo TV channel reported, citing a Finance Ministry official. Pakistan may seek that amount from the IMF as the country's fight against terrorists is hurting the economy, Shaukat Tarin, the finance adviser to the prime minister, said on February 15, according to Bloomberg.
While there is little question that Pakistan needs help in meeting its financial obligations, critics question whether the IMF terms and payback conditions do not make the US a more desirable source of support, given the partnership the two countries profess in the "war on terror" on Pakistan's eastern border with Afghanistan.
"Before asking for more loans, the government needs to say how it will pay it back?" Business Recorder quoted Muzzammil Aslam, an economist at KASB Securities in Karachi, as saying. "The government should seek aid from the US, and not a loan from the IMF, as compensation for fighting terrorists. It is time to consolidate the economy and adjust policies for pro-investment activities. The IMF loan can only be used for balance of payments and building foreign reserves. The government needs to cut interest rates to boost businesses."
Islamabad is facing a 45 billion rupee (US$564 million) shortfall in revenue in the first seven months of the current fiscal year, which runs to the end of June, after cutting the budget deficit 27.24% during the first half of the fiscal year to 259 billion rupees compared with a year earlier.
The fiscal deficit is targeted to decline to 4.2% of GDP this fiscal year from 7.4% in 2007-08. In the first six months, the deficit was held back to 1.9% of GDP against a 2% target.
"To meet the IMF's 4.2% fiscal deficit condition, a major cut was made to the development budget," according to a report published in Business Recorder. The report, citing a Planning Commission document, said achieving IMF conditions ultimately would lead to ignoring social sector spending.
The government spent only 19% of the federal Public Social Development Program (PSDP) total allocation of 371 billion rupees, during the six months through December, the lowest since 2005. This PSDP has already been cut by 100 billion rupees.
Pakistani authorities finalizing the next budget outlay will keep in view the IMF's terms and conditions, according to a report in The News.
These terms include a commitment to increase the ratio of tax to gross domestic product. The Federal Board of Revenue submitted to the IMF an action plan for the tax reforms late last year. If the plan is approved, the government will have to choose between increasing the tax base by incorporating the agriculture sector, real estate and stock markets under the tax net or pile up new taxes on existing taxpayers.
Taking the latter route would risk public unrest and political agitation.
Local industrialists, meanwhile, are unhappy over the central bank's decision to keep interest rates at 15%, a level well above rates in the developed world. Critics say the government agreed with the IMF to raise the discount rate by 350 basis points in two phases, with an increase of 200 basis points (or two percentage points) made effective before last year's $7.6 billion deal was approved by the IMF board. An increase of 150 basis points would be dependent on the behavior of relevant indicators this fiscal year.
Industrialists are already struggling from the global slowdown, with textile exports falling 1.79% during the first six months of the current fiscal year. It now looks unlikely that the export target of over $22 billion for the full 12 months will be met.
"The financial crisis in the US and Europe [Pakistan's most important textile markets] has a spiral impact and Pakistani textile products are no exception to this global issue," the Daily Times reported Federal Textile Commissioner Mohammad Idris as saying.
Exports are being hit despite a more than 30% deprecation of the rupee, what has increased import costs and removed the potential benefits of a 70% decline in the price of oil in the international market. The country’s oil import bill increased by 45% to $5.48 billion during the first five months of the current fiscal year, from $3.8 billion over the same months the previous year, according to the Federal Board of Revenue.
The oil import bill did decline in November, but only on the back of a steep dip in demand from the slowing economy.
The government has given a commitment to the IMF to reduce domestically financed development spending by about 1% of GDP through better prioritization of projects. The government wants a total adjustment of 100 billion rupees by slashing the Public Sector Development Programme, according to Business Recorder.
The Planning Commission of Pakistan has sent a summary of its rationalization proposals to Prime Minister Yousaf Raza Gillani. In the next phase, projects that require foreign lending will be cut in the face of government difficulties in obtaining loans from international donors, the report said, citing commission sources.
The cuts will come amid forecasts of an average 2% growth in Pakistan's economy by June, with expansion now dependent on the performance of agriculture after the manufacturing sector shrunk 6.5% in the six months through December.
The IMF has forecast real GDP growth of 3.5% in the year through June, down from an average of 6.8% in the past five years and the slowest pace in seven years.
Concern is growing in Pakistan that levels of poverty may worsen if the country gets additional support from the International Monetary Fund (IMF) in addition to a US$7.6 billion deal agreed late last year. A better source of cash, they say, would be the United States in return for Pakistan's contribution to the "war on terror".
The poverty rate has jumped to 37.5% from 23.9% during the past three years. More than 64 million people, out of a 160-million population, were living below the poverty line in 2008, as against 35.5 million people in 2005, according to the Planning Commission of Pakistan.
Pakistan is seeking an additional $4.5 billion loan after agreeing to the $7.6 billion standby loan last November as it grappled with a 30-year high inflation rate and fast-depleting foreign exchange reserves.
Strict IMF conditions have forced the government to ignore social-sector spending and more people are being pushed below the poverty line. A reduction in the fiscal deficit, higher interest rates and a cut in the country's development program have been dictated by the IMF, leading to further increases in unemployment and poverty levels. Local experts fear that tough IMF conditions will drag the country further into a vicious circle of poverty while increasing debt-servicing liabilities.
The government forecasts that the economy, South Asia's second-biggest, will grow at its slowest in seven years after raising interest rates as part of the IMF conditions. The fund late last year released $3.1 billion as the first installment to save Pakistan from defaulting on external payments. Pakistani and IMF officials are now holding talks, due to last until February 26, in Dubai in the United Arab Emirates as part of a review for disbursing the second installment of $775 million under the 23-month program.
"Pakistan is [also] to ask for an additional loan of $4.5 billion from the IMF to patch up an economy wilting under a widening trade deficit," the private Geo TV channel reported, citing a Finance Ministry official. Pakistan may seek that amount from the IMF as the country's fight against terrorists is hurting the economy, Shaukat Tarin, the finance adviser to the prime minister, said on February 15, according to Bloomberg.
While there is little question that Pakistan needs help in meeting its financial obligations, critics question whether the IMF terms and payback conditions do not make the US a more desirable source of support, given the partnership the two countries profess in the "war on terror" on Pakistan's eastern border with Afghanistan.
"Before asking for more loans, the government needs to say how it will pay it back?" Business Recorder quoted Muzzammil Aslam, an economist at KASB Securities in Karachi, as saying. "The government should seek aid from the US, and not a loan from the IMF, as compensation for fighting terrorists. It is time to consolidate the economy and adjust policies for pro-investment activities. The IMF loan can only be used for balance of payments and building foreign reserves. The government needs to cut interest rates to boost businesses."
Islamabad is facing a 45 billion rupee (US$564 million) shortfall in revenue in the first seven months of the current fiscal year, which runs to the end of June, after cutting the budget deficit 27.24% during the first half of the fiscal year to 259 billion rupees compared with a year earlier.
The fiscal deficit is targeted to decline to 4.2% of GDP this fiscal year from 7.4% in 2007-08. In the first six months, the deficit was held back to 1.9% of GDP against a 2% target.
"To meet the IMF's 4.2% fiscal deficit condition, a major cut was made to the development budget," according to a report published in Business Recorder. The report, citing a Planning Commission document, said achieving IMF conditions ultimately would lead to ignoring social sector spending.
The government spent only 19% of the federal Public Social Development Program (PSDP) total allocation of 371 billion rupees, during the six months through December, the lowest since 2005. This PSDP has already been cut by 100 billion rupees.
Pakistani authorities finalizing the next budget outlay will keep in view the IMF's terms and conditions, according to a report in The News.
These terms include a commitment to increase the ratio of tax to gross domestic product. The Federal Board of Revenue submitted to the IMF an action plan for the tax reforms late last year. If the plan is approved, the government will have to choose between increasing the tax base by incorporating the agriculture sector, real estate and stock markets under the tax net or pile up new taxes on existing taxpayers.
Taking the latter route would risk public unrest and political agitation.
Local industrialists, meanwhile, are unhappy over the central bank's decision to keep interest rates at 15%, a level well above rates in the developed world. Critics say the government agreed with the IMF to raise the discount rate by 350 basis points in two phases, with an increase of 200 basis points (or two percentage points) made effective before last year's $7.6 billion deal was approved by the IMF board. An increase of 150 basis points would be dependent on the behavior of relevant indicators this fiscal year.
Industrialists are already struggling from the global slowdown, with textile exports falling 1.79% during the first six months of the current fiscal year. It now looks unlikely that the export target of over $22 billion for the full 12 months will be met.
"The financial crisis in the US and Europe [Pakistan's most important textile markets] has a spiral impact and Pakistani textile products are no exception to this global issue," the Daily Times reported Federal Textile Commissioner Mohammad Idris as saying.
Exports are being hit despite a more than 30% deprecation of the rupee, what has increased import costs and removed the potential benefits of a 70% decline in the price of oil in the international market. The country’s oil import bill increased by 45% to $5.48 billion during the first five months of the current fiscal year, from $3.8 billion over the same months the previous year, according to the Federal Board of Revenue.
The oil import bill did decline in November, but only on the back of a steep dip in demand from the slowing economy.
The government has given a commitment to the IMF to reduce domestically financed development spending by about 1% of GDP through better prioritization of projects. The government wants a total adjustment of 100 billion rupees by slashing the Public Sector Development Programme, according to Business Recorder.
The Planning Commission of Pakistan has sent a summary of its rationalization proposals to Prime Minister Yousaf Raza Gillani. In the next phase, projects that require foreign lending will be cut in the face of government difficulties in obtaining loans from international donors, the report said, citing commission sources.
The cuts will come amid forecasts of an average 2% growth in Pakistan's economy by June, with expansion now dependent on the performance of agriculture after the manufacturing sector shrunk 6.5% in the six months through December.
The IMF has forecast real GDP growth of 3.5% in the year through June, down from an average of 6.8% in the past five years and the slowest pace in seven years.
Crisis challenge for Sino-Indian trade
By Pallavi Aiyar
The trade momentum built up between India and China over the past few years has survived the onset of the global financial crisis, with bilateral trade surging by more than a third last year and China ousting the United States as India's top trading partner.
Bilateral trade rose 34% in 2008 to US$51.8 billion, according to Chinese data, a more than 10-fold increase since 2002, when the figure stood at a mere $5 billion.
More than 100 Indian companies have opened up shop in China since 2000, including banks and even a law firm, while Chinese investment in India is also growing. Chinese government figures put the value of cumulative contractual Chinese investments in projects in India since 2000 at $22 billion, almost half coming in the last year alone. Between January and October 2008, the value of contractual Chinese investments in India was $10.5 billion.
However, while the Sino-Indian economic relationship is marching upwards, fundamental concerns remain that have shown little sign of resolution.
On the Indian side, there is a widening trade deficit, worry over the composition of exports and concern at the inability of Indian companies with Chinese operations to break into the domestic Chinese market.
The Chinese complain that India is holding back on a proposed regional trade agreement and that Chinese companies have on occasion been prevented from investing in India on the grounds that they pose a security threat.
Both sides also complain of insufficient knowledge of the business practices and the regulatory framework of the other country. Cultural discomfort involving language and food habits form an additional barrier - despite being neighbors, the two countries appear culturally more comfortable doing business with the West than with each other.
For the Indians, the most ominous sign in the trade relationship is the emerging trade deficit with China. In 2004, the balance of trade was $1.7 billion in India's favor. By 2006, this surplus had turned to a $4.12 billion deficit, widening further last year to $11.2 billion, with Indian exports of $20.3 billion overshadowed by imports from China worth $31.5 billion.
Large trade deficits have already marred China's relationship with other countries, notably the United States. India and China, however, lack any serious governmental mechanism through which they can manage trade friction. In India, lingering insecurities about the competitiveness of the country's industry compared with the might of China's manufacturing are coupled with suspicions of the lack of transparency in Chinese pricing and accounting systems.
India is thus reluctant to grant China market economy status, a first step towards negotiation of the proposed regional trade agreement. Currently, India is a leading initiator of anti-dumping cases against China. Were New Delhi to grant market economy status to China, India would have to accept pricing figures supplied by Beijing, a situation some fear may lead to large-scale dumping of Chinese products.
The two countries have a ministerial-level joint economic group that is supposed to meet every two years to discuss bilateral issues of an economic nature. It last met in 2006 after a gap of six years, failing to meet again in 2008.
When Prime Minister Manmohan Singh visited Beijing in January last year, Indian industry leaders brought up its concerns during a business summit that was held at the same time. The Chinese side promised to give the matter serious attention and alluded to the possibility of sending large-scale buying missions, a strategy it has deployed with the US and European Union. The Chinese vice minister of trade did subsequently undertake a trip to India, but the deals that were signed at the time were worth less than $100 million in value, far from being adequate to redress the deficit in any serious manner.
Nor has there been significant movement towards removing non-tariff barriers erected against Indian products. For example, the Indians believe their is great potential for their agricultural products. Yet eight years after a bilateral agreement was signed on China's accession to the World Trade Organization under which Beijing agreed to the import of 17 types of Indian fruits and vegetables, only three items - mangoes, grapes and bitter gourd - have been approved for import from India.
Even there, India businesses appear to lack aggression in making the most of what is available to them. Thus, although mangoes were cleared for export to China in 2003, this correspondent has been unable, year after year, to find any Indian mangoes in Chinese stores. Given problems with cold storage facilities, logistics and poor infrastructure at the Indian end, exports of the fruit to China remain problematic. Those producers who are able to overcome these lacunae choose to focus on Western markets with which they are already familiar.
As a result, Sino-Indian trade has failed to develop in terms of content. Indian exports to China continue to be overwhelmingly dominated by primary products with little value added. In the first 11 months of last year, 71% of Indian exports to China comprised iron ore, up from 59% in 2007. The Chinese conversely export to India mainly high-value, finished products such as electrical machinery, a situation that has remained unchanged over the last several years despite much hand-wringing on the Indian side.
The global economic crisis has now muddied the picture further. On the one hand, China's demand for steel slumped towards the end of last year - the China Steel Industry Association reported a 17% decline in steel production in October 2008. Shipments in the 10 months ended January fell 1.5%, Bloomberg reported, citing the Federation of Indian Mineral Industries said.
That decline has since reversed, with India's iron-ore exports rising in January for the second straight month as China increased purchases following Beijing's announcement of a US$586 billion economic stimulus plan focused heavily on infrastructure projects.
The economic downturn also prompted Jet Airways, India's largest domestic carrier, to halt its Shanghai-Mumbai service in January, barely six months after it started to much fanfare. The Indian Embassy in Beijing, meanwhile, said visas issued to Chinese nationals in 2008 did not increase over the the previous year, despite an aggressive campaign to attract more Chinese tourists, including the opening of the first India Tourism office in China early last year.
That Sino-Indian trade should falter when the rest of the world is staring at recession should not be surprising. Nevertheless, the two countries are almost alone in continuing to grow, albeit at a slower pace than previously. That is likely to create new opportunities for trade and investment across the Himalayas. What is required is the will and foresight to convert these opportunities into realities.
The trade momentum built up between India and China over the past few years has survived the onset of the global financial crisis, with bilateral trade surging by more than a third last year and China ousting the United States as India's top trading partner.
Bilateral trade rose 34% in 2008 to US$51.8 billion, according to Chinese data, a more than 10-fold increase since 2002, when the figure stood at a mere $5 billion.
More than 100 Indian companies have opened up shop in China since 2000, including banks and even a law firm, while Chinese investment in India is also growing. Chinese government figures put the value of cumulative contractual Chinese investments in projects in India since 2000 at $22 billion, almost half coming in the last year alone. Between January and October 2008, the value of contractual Chinese investments in India was $10.5 billion.
However, while the Sino-Indian economic relationship is marching upwards, fundamental concerns remain that have shown little sign of resolution.
On the Indian side, there is a widening trade deficit, worry over the composition of exports and concern at the inability of Indian companies with Chinese operations to break into the domestic Chinese market.
The Chinese complain that India is holding back on a proposed regional trade agreement and that Chinese companies have on occasion been prevented from investing in India on the grounds that they pose a security threat.
Both sides also complain of insufficient knowledge of the business practices and the regulatory framework of the other country. Cultural discomfort involving language and food habits form an additional barrier - despite being neighbors, the two countries appear culturally more comfortable doing business with the West than with each other.
For the Indians, the most ominous sign in the trade relationship is the emerging trade deficit with China. In 2004, the balance of trade was $1.7 billion in India's favor. By 2006, this surplus had turned to a $4.12 billion deficit, widening further last year to $11.2 billion, with Indian exports of $20.3 billion overshadowed by imports from China worth $31.5 billion.
Large trade deficits have already marred China's relationship with other countries, notably the United States. India and China, however, lack any serious governmental mechanism through which they can manage trade friction. In India, lingering insecurities about the competitiveness of the country's industry compared with the might of China's manufacturing are coupled with suspicions of the lack of transparency in Chinese pricing and accounting systems.
India is thus reluctant to grant China market economy status, a first step towards negotiation of the proposed regional trade agreement. Currently, India is a leading initiator of anti-dumping cases against China. Were New Delhi to grant market economy status to China, India would have to accept pricing figures supplied by Beijing, a situation some fear may lead to large-scale dumping of Chinese products.
The two countries have a ministerial-level joint economic group that is supposed to meet every two years to discuss bilateral issues of an economic nature. It last met in 2006 after a gap of six years, failing to meet again in 2008.
When Prime Minister Manmohan Singh visited Beijing in January last year, Indian industry leaders brought up its concerns during a business summit that was held at the same time. The Chinese side promised to give the matter serious attention and alluded to the possibility of sending large-scale buying missions, a strategy it has deployed with the US and European Union. The Chinese vice minister of trade did subsequently undertake a trip to India, but the deals that were signed at the time were worth less than $100 million in value, far from being adequate to redress the deficit in any serious manner.
Nor has there been significant movement towards removing non-tariff barriers erected against Indian products. For example, the Indians believe their is great potential for their agricultural products. Yet eight years after a bilateral agreement was signed on China's accession to the World Trade Organization under which Beijing agreed to the import of 17 types of Indian fruits and vegetables, only three items - mangoes, grapes and bitter gourd - have been approved for import from India.
Even there, India businesses appear to lack aggression in making the most of what is available to them. Thus, although mangoes were cleared for export to China in 2003, this correspondent has been unable, year after year, to find any Indian mangoes in Chinese stores. Given problems with cold storage facilities, logistics and poor infrastructure at the Indian end, exports of the fruit to China remain problematic. Those producers who are able to overcome these lacunae choose to focus on Western markets with which they are already familiar.
As a result, Sino-Indian trade has failed to develop in terms of content. Indian exports to China continue to be overwhelmingly dominated by primary products with little value added. In the first 11 months of last year, 71% of Indian exports to China comprised iron ore, up from 59% in 2007. The Chinese conversely export to India mainly high-value, finished products such as electrical machinery, a situation that has remained unchanged over the last several years despite much hand-wringing on the Indian side.
The global economic crisis has now muddied the picture further. On the one hand, China's demand for steel slumped towards the end of last year - the China Steel Industry Association reported a 17% decline in steel production in October 2008. Shipments in the 10 months ended January fell 1.5%, Bloomberg reported, citing the Federation of Indian Mineral Industries said.
That decline has since reversed, with India's iron-ore exports rising in January for the second straight month as China increased purchases following Beijing's announcement of a US$586 billion economic stimulus plan focused heavily on infrastructure projects.
The economic downturn also prompted Jet Airways, India's largest domestic carrier, to halt its Shanghai-Mumbai service in January, barely six months after it started to much fanfare. The Indian Embassy in Beijing, meanwhile, said visas issued to Chinese nationals in 2008 did not increase over the the previous year, despite an aggressive campaign to attract more Chinese tourists, including the opening of the first India Tourism office in China early last year.
That Sino-Indian trade should falter when the rest of the world is staring at recession should not be surprising. Nevertheless, the two countries are almost alone in continuing to grow, albeit at a slower pace than previously. That is likely to create new opportunities for trade and investment across the Himalayas. What is required is the will and foresight to convert these opportunities into realities.
Crisis challenge for Sino-Indian trade
By Pallavi Aiyar
The trade momentum built up between India and China over the past few years has survived the onset of the global financial crisis, with bilateral trade surging by more than a third last year and China ousting the United States as India's top trading partner.
Bilateral trade rose 34% in 2008 to US$51.8 billion, according to Chinese data, a more than 10-fold increase since 2002, when the figure stood at a mere $5 billion.
More than 100 Indian companies have opened up shop in China since 2000, including banks and even a law firm, while Chinese investment in India is also growing. Chinese government figures put the value of cumulative contractual Chinese investments in projects in India since 2000 at $22 billion, almost half coming in the last year alone. Between January and October 2008, the value of contractual Chinese investments in India was $10.5 billion.
However, while the Sino-Indian economic relationship is marching upwards, fundamental concerns remain that have shown little sign of resolution.
On the Indian side, there is a widening trade deficit, worry over the composition of exports and concern at the inability of Indian companies with Chinese operations to break into the domestic Chinese market.
The Chinese complain that India is holding back on a proposed regional trade agreement and that Chinese companies have on occasion been prevented from investing in India on the grounds that they pose a security threat.
Both sides also complain of insufficient knowledge of the business practices and the regulatory framework of the other country. Cultural discomfort involving language and food habits form an additional barrier - despite being neighbors, the two countries appear culturally more comfortable doing business with the West than with each other.
For the Indians, the most ominous sign in the trade relationship is the emerging trade deficit with China. In 2004, the balance of trade was $1.7 billion in India's favor. By 2006, this surplus had turned to a $4.12 billion deficit, widening further last year to $11.2 billion, with Indian exports of $20.3 billion overshadowed by imports from China worth $31.5 billion.
Large trade deficits have already marred China's relationship with other countries, notably the United States. India and China, however, lack any serious governmental mechanism through which they can manage trade friction. In India, lingering insecurities about the competitiveness of the country's industry compared with the might of China's manufacturing are coupled with suspicions of the lack of transparency in Chinese pricing and accounting systems.
India is thus reluctant to grant China market economy status, a first step towards negotiation of the proposed regional trade agreement. Currently, India is a leading initiator of anti-dumping cases against China. Were New Delhi to grant market economy status to China, India would have to accept pricing figures supplied by Beijing, a situation some fear may lead to large-scale dumping of Chinese products.
The two countries have a ministerial-level joint economic group that is supposed to meet every two years to discuss bilateral issues of an economic nature. It last met in 2006 after a gap of six years, failing to meet again in 2008.
When Prime Minister Manmohan Singh visited Beijing in January last year, Indian industry leaders brought up its concerns during a business summit that was held at the same time. The Chinese side promised to give the matter serious attention and alluded to the possibility of sending large-scale buying missions, a strategy it has deployed with the US and European Union. The Chinese vice minister of trade did subsequently undertake a trip to India, but the deals that were signed at the time were worth less than $100 million in value, far from being adequate to redress the deficit in any serious manner.
Nor has there been significant movement towards removing non-tariff barriers erected against Indian products. For example, the Indians believe their is great potential for their agricultural products. Yet eight years after a bilateral agreement was signed on China's accession to the World Trade Organization under which Beijing agreed to the import of 17 types of Indian fruits and vegetables, only three items - mangoes, grapes and bitter gourd - have been approved for import from India.
Even there, India businesses appear to lack aggression in making the most of what is available to them. Thus, although mangoes were cleared for export to China in 2003, this correspondent has been unable, year after year, to find any Indian mangoes in Chinese stores. Given problems with cold storage facilities, logistics and poor infrastructure at the Indian end, exports of the fruit to China remain problematic. Those producers who are able to overcome these lacunae choose to focus on Western markets with which they are already familiar.
As a result, Sino-Indian trade has failed to develop in terms of content. Indian exports to China continue to be overwhelmingly dominated by primary products with little value added. In the first 11 months of last year, 71% of Indian exports to China comprised iron ore, up from 59% in 2007. The Chinese conversely export to India mainly high-value, finished products such as electrical machinery, a situation that has remained unchanged over the last several years despite much hand-wringing on the Indian side.
The global economic crisis has now muddied the picture further. On the one hand, China's demand for steel slumped towards the end of last year - the China Steel Industry Association reported a 17% decline in steel production in October 2008. Shipments in the 10 months ended January fell 1.5%, Bloomberg reported, citing the Federation of Indian Mineral Industries said.
That decline has since reversed, with India's iron-ore exports rising in January for the second straight month as China increased purchases following Beijing's announcement of a US$586 billion economic stimulus plan focused heavily on infrastructure projects.
The economic downturn also prompted Jet Airways, India's largest domestic carrier, to halt its Shanghai-Mumbai service in January, barely six months after it started to much fanfare. The Indian Embassy in Beijing, meanwhile, said visas issued to Chinese nationals in 2008 did not increase over the the previous year, despite an aggressive campaign to attract more Chinese tourists, including the opening of the first India Tourism office in China early last year.
That Sino-Indian trade should falter when the rest of the world is staring at recession should not be surprising. Nevertheless, the two countries are almost alone in continuing to grow, albeit at a slower pace than previously. That is likely to create new opportunities for trade and investment across the Himalayas. What is required is the will and foresight to convert these opportunities into realities.
The trade momentum built up between India and China over the past few years has survived the onset of the global financial crisis, with bilateral trade surging by more than a third last year and China ousting the United States as India's top trading partner.
Bilateral trade rose 34% in 2008 to US$51.8 billion, according to Chinese data, a more than 10-fold increase since 2002, when the figure stood at a mere $5 billion.
More than 100 Indian companies have opened up shop in China since 2000, including banks and even a law firm, while Chinese investment in India is also growing. Chinese government figures put the value of cumulative contractual Chinese investments in projects in India since 2000 at $22 billion, almost half coming in the last year alone. Between January and October 2008, the value of contractual Chinese investments in India was $10.5 billion.
However, while the Sino-Indian economic relationship is marching upwards, fundamental concerns remain that have shown little sign of resolution.
On the Indian side, there is a widening trade deficit, worry over the composition of exports and concern at the inability of Indian companies with Chinese operations to break into the domestic Chinese market.
The Chinese complain that India is holding back on a proposed regional trade agreement and that Chinese companies have on occasion been prevented from investing in India on the grounds that they pose a security threat.
Both sides also complain of insufficient knowledge of the business practices and the regulatory framework of the other country. Cultural discomfort involving language and food habits form an additional barrier - despite being neighbors, the two countries appear culturally more comfortable doing business with the West than with each other.
For the Indians, the most ominous sign in the trade relationship is the emerging trade deficit with China. In 2004, the balance of trade was $1.7 billion in India's favor. By 2006, this surplus had turned to a $4.12 billion deficit, widening further last year to $11.2 billion, with Indian exports of $20.3 billion overshadowed by imports from China worth $31.5 billion.
Large trade deficits have already marred China's relationship with other countries, notably the United States. India and China, however, lack any serious governmental mechanism through which they can manage trade friction. In India, lingering insecurities about the competitiveness of the country's industry compared with the might of China's manufacturing are coupled with suspicions of the lack of transparency in Chinese pricing and accounting systems.
India is thus reluctant to grant China market economy status, a first step towards negotiation of the proposed regional trade agreement. Currently, India is a leading initiator of anti-dumping cases against China. Were New Delhi to grant market economy status to China, India would have to accept pricing figures supplied by Beijing, a situation some fear may lead to large-scale dumping of Chinese products.
The two countries have a ministerial-level joint economic group that is supposed to meet every two years to discuss bilateral issues of an economic nature. It last met in 2006 after a gap of six years, failing to meet again in 2008.
When Prime Minister Manmohan Singh visited Beijing in January last year, Indian industry leaders brought up its concerns during a business summit that was held at the same time. The Chinese side promised to give the matter serious attention and alluded to the possibility of sending large-scale buying missions, a strategy it has deployed with the US and European Union. The Chinese vice minister of trade did subsequently undertake a trip to India, but the deals that were signed at the time were worth less than $100 million in value, far from being adequate to redress the deficit in any serious manner.
Nor has there been significant movement towards removing non-tariff barriers erected against Indian products. For example, the Indians believe their is great potential for their agricultural products. Yet eight years after a bilateral agreement was signed on China's accession to the World Trade Organization under which Beijing agreed to the import of 17 types of Indian fruits and vegetables, only three items - mangoes, grapes and bitter gourd - have been approved for import from India.
Even there, India businesses appear to lack aggression in making the most of what is available to them. Thus, although mangoes were cleared for export to China in 2003, this correspondent has been unable, year after year, to find any Indian mangoes in Chinese stores. Given problems with cold storage facilities, logistics and poor infrastructure at the Indian end, exports of the fruit to China remain problematic. Those producers who are able to overcome these lacunae choose to focus on Western markets with which they are already familiar.
As a result, Sino-Indian trade has failed to develop in terms of content. Indian exports to China continue to be overwhelmingly dominated by primary products with little value added. In the first 11 months of last year, 71% of Indian exports to China comprised iron ore, up from 59% in 2007. The Chinese conversely export to India mainly high-value, finished products such as electrical machinery, a situation that has remained unchanged over the last several years despite much hand-wringing on the Indian side.
The global economic crisis has now muddied the picture further. On the one hand, China's demand for steel slumped towards the end of last year - the China Steel Industry Association reported a 17% decline in steel production in October 2008. Shipments in the 10 months ended January fell 1.5%, Bloomberg reported, citing the Federation of Indian Mineral Industries said.
That decline has since reversed, with India's iron-ore exports rising in January for the second straight month as China increased purchases following Beijing's announcement of a US$586 billion economic stimulus plan focused heavily on infrastructure projects.
The economic downturn also prompted Jet Airways, India's largest domestic carrier, to halt its Shanghai-Mumbai service in January, barely six months after it started to much fanfare. The Indian Embassy in Beijing, meanwhile, said visas issued to Chinese nationals in 2008 did not increase over the the previous year, despite an aggressive campaign to attract more Chinese tourists, including the opening of the first India Tourism office in China early last year.
That Sino-Indian trade should falter when the rest of the world is staring at recession should not be surprising. Nevertheless, the two countries are almost alone in continuing to grow, albeit at a slower pace than previously. That is likely to create new opportunities for trade and investment across the Himalayas. What is required is the will and foresight to convert these opportunities into realities.
Crisis challenge for Sino-Indian trade
By Pallavi Aiyar
The trade momentum built up between India and China over the past few years has survived the onset of the global financial crisis, with bilateral trade surging by more than a third last year and China ousting the United States as India's top trading partner.
Bilateral trade rose 34% in 2008 to US$51.8 billion, according to Chinese data, a more than 10-fold increase since 2002, when the figure stood at a mere $5 billion.
More than 100 Indian companies have opened up shop in China since 2000, including banks and even a law firm, while Chinese investment in India is also growing. Chinese government figures put the value of cumulative contractual Chinese investments in projects in India since 2000 at $22 billion, almost half coming in the last year alone. Between January and October 2008, the value of contractual Chinese investments in India was $10.5 billion.
However, while the Sino-Indian economic relationship is marching upwards, fundamental concerns remain that have shown little sign of resolution.
On the Indian side, there is a widening trade deficit, worry over the composition of exports and concern at the inability of Indian companies with Chinese operations to break into the domestic Chinese market.
The Chinese complain that India is holding back on a proposed regional trade agreement and that Chinese companies have on occasion been prevented from investing in India on the grounds that they pose a security threat.
Both sides also complain of insufficient knowledge of the business practices and the regulatory framework of the other country. Cultural discomfort involving language and food habits form an additional barrier - despite being neighbors, the two countries appear culturally more comfortable doing business with the West than with each other.
For the Indians, the most ominous sign in the trade relationship is the emerging trade deficit with China. In 2004, the balance of trade was $1.7 billion in India's favor. By 2006, this surplus had turned to a $4.12 billion deficit, widening further last year to $11.2 billion, with Indian exports of $20.3 billion overshadowed by imports from China worth $31.5 billion.
Large trade deficits have already marred China's relationship with other countries, notably the United States. India and China, however, lack any serious governmental mechanism through which they can manage trade friction. In India, lingering insecurities about the competitiveness of the country's industry compared with the might of China's manufacturing are coupled with suspicions of the lack of transparency in Chinese pricing and accounting systems.
India is thus reluctant to grant China market economy status, a first step towards negotiation of the proposed regional trade agreement. Currently, India is a leading initiator of anti-dumping cases against China. Were New Delhi to grant market economy status to China, India would have to accept pricing figures supplied by Beijing, a situation some fear may lead to large-scale dumping of Chinese products.
The two countries have a ministerial-level joint economic group that is supposed to meet every two years to discuss bilateral issues of an economic nature. It last met in 2006 after a gap of six years, failing to meet again in 2008.
When Prime Minister Manmohan Singh visited Beijing in January last year, Indian industry leaders brought up its concerns during a business summit that was held at the same time. The Chinese side promised to give the matter serious attention and alluded to the possibility of sending large-scale buying missions, a strategy it has deployed with the US and European Union. The Chinese vice minister of trade did subsequently undertake a trip to India, but the deals that were signed at the time were worth less than $100 million in value, far from being adequate to redress the deficit in any serious manner.
Nor has there been significant movement towards removing non-tariff barriers erected against Indian products. For example, the Indians believe their is great potential for their agricultural products. Yet eight years after a bilateral agreement was signed on China's accession to the World Trade Organization under which Beijing agreed to the import of 17 types of Indian fruits and vegetables, only three items - mangoes, grapes and bitter gourd - have been approved for import from India.
Even there, India businesses appear to lack aggression in making the most of what is available to them. Thus, although mangoes were cleared for export to China in 2003, this correspondent has been unable, year after year, to find any Indian mangoes in Chinese stores. Given problems with cold storage facilities, logistics and poor infrastructure at the Indian end, exports of the fruit to China remain problematic. Those producers who are able to overcome these lacunae choose to focus on Western markets with which they are already familiar.
As a result, Sino-Indian trade has failed to develop in terms of content. Indian exports to China continue to be overwhelmingly dominated by primary products with little value added. In the first 11 months of last year, 71% of Indian exports to China comprised iron ore, up from 59% in 2007. The Chinese conversely export to India mainly high-value, finished products such as electrical machinery, a situation that has remained unchanged over the last several years despite much hand-wringing on the Indian side.
The global economic crisis has now muddied the picture further. On the one hand, China's demand for steel slumped towards the end of last year - the China Steel Industry Association reported a 17% decline in steel production in October 2008. Shipments in the 10 months ended January fell 1.5%, Bloomberg reported, citing the Federation of Indian Mineral Industries said.
That decline has since reversed, with India's iron-ore exports rising in January for the second straight month as China increased purchases following Beijing's announcement of a US$586 billion economic stimulus plan focused heavily on infrastructure projects.
The economic downturn also prompted Jet Airways, India's largest domestic carrier, to halt its Shanghai-Mumbai service in January, barely six months after it started to much fanfare. The Indian Embassy in Beijing, meanwhile, said visas issued to Chinese nationals in 2008 did not increase over the the previous year, despite an aggressive campaign to attract more Chinese tourists, including the opening of the first India Tourism office in China early last year.
That Sino-Indian trade should falter when the rest of the world is staring at recession should not be surprising. Nevertheless, the two countries are almost alone in continuing to grow, albeit at a slower pace than previously. That is likely to create new opportunities for trade and investment across the Himalayas. What is required is the will and foresight to convert these opportunities into realities.
The trade momentum built up between India and China over the past few years has survived the onset of the global financial crisis, with bilateral trade surging by more than a third last year and China ousting the United States as India's top trading partner.
Bilateral trade rose 34% in 2008 to US$51.8 billion, according to Chinese data, a more than 10-fold increase since 2002, when the figure stood at a mere $5 billion.
More than 100 Indian companies have opened up shop in China since 2000, including banks and even a law firm, while Chinese investment in India is also growing. Chinese government figures put the value of cumulative contractual Chinese investments in projects in India since 2000 at $22 billion, almost half coming in the last year alone. Between January and October 2008, the value of contractual Chinese investments in India was $10.5 billion.
However, while the Sino-Indian economic relationship is marching upwards, fundamental concerns remain that have shown little sign of resolution.
On the Indian side, there is a widening trade deficit, worry over the composition of exports and concern at the inability of Indian companies with Chinese operations to break into the domestic Chinese market.
The Chinese complain that India is holding back on a proposed regional trade agreement and that Chinese companies have on occasion been prevented from investing in India on the grounds that they pose a security threat.
Both sides also complain of insufficient knowledge of the business practices and the regulatory framework of the other country. Cultural discomfort involving language and food habits form an additional barrier - despite being neighbors, the two countries appear culturally more comfortable doing business with the West than with each other.
For the Indians, the most ominous sign in the trade relationship is the emerging trade deficit with China. In 2004, the balance of trade was $1.7 billion in India's favor. By 2006, this surplus had turned to a $4.12 billion deficit, widening further last year to $11.2 billion, with Indian exports of $20.3 billion overshadowed by imports from China worth $31.5 billion.
Large trade deficits have already marred China's relationship with other countries, notably the United States. India and China, however, lack any serious governmental mechanism through which they can manage trade friction. In India, lingering insecurities about the competitiveness of the country's industry compared with the might of China's manufacturing are coupled with suspicions of the lack of transparency in Chinese pricing and accounting systems.
India is thus reluctant to grant China market economy status, a first step towards negotiation of the proposed regional trade agreement. Currently, India is a leading initiator of anti-dumping cases against China. Were New Delhi to grant market economy status to China, India would have to accept pricing figures supplied by Beijing, a situation some fear may lead to large-scale dumping of Chinese products.
The two countries have a ministerial-level joint economic group that is supposed to meet every two years to discuss bilateral issues of an economic nature. It last met in 2006 after a gap of six years, failing to meet again in 2008.
When Prime Minister Manmohan Singh visited Beijing in January last year, Indian industry leaders brought up its concerns during a business summit that was held at the same time. The Chinese side promised to give the matter serious attention and alluded to the possibility of sending large-scale buying missions, a strategy it has deployed with the US and European Union. The Chinese vice minister of trade did subsequently undertake a trip to India, but the deals that were signed at the time were worth less than $100 million in value, far from being adequate to redress the deficit in any serious manner.
Nor has there been significant movement towards removing non-tariff barriers erected against Indian products. For example, the Indians believe their is great potential for their agricultural products. Yet eight years after a bilateral agreement was signed on China's accession to the World Trade Organization under which Beijing agreed to the import of 17 types of Indian fruits and vegetables, only three items - mangoes, grapes and bitter gourd - have been approved for import from India.
Even there, India businesses appear to lack aggression in making the most of what is available to them. Thus, although mangoes were cleared for export to China in 2003, this correspondent has been unable, year after year, to find any Indian mangoes in Chinese stores. Given problems with cold storage facilities, logistics and poor infrastructure at the Indian end, exports of the fruit to China remain problematic. Those producers who are able to overcome these lacunae choose to focus on Western markets with which they are already familiar.
As a result, Sino-Indian trade has failed to develop in terms of content. Indian exports to China continue to be overwhelmingly dominated by primary products with little value added. In the first 11 months of last year, 71% of Indian exports to China comprised iron ore, up from 59% in 2007. The Chinese conversely export to India mainly high-value, finished products such as electrical machinery, a situation that has remained unchanged over the last several years despite much hand-wringing on the Indian side.
The global economic crisis has now muddied the picture further. On the one hand, China's demand for steel slumped towards the end of last year - the China Steel Industry Association reported a 17% decline in steel production in October 2008. Shipments in the 10 months ended January fell 1.5%, Bloomberg reported, citing the Federation of Indian Mineral Industries said.
That decline has since reversed, with India's iron-ore exports rising in January for the second straight month as China increased purchases following Beijing's announcement of a US$586 billion economic stimulus plan focused heavily on infrastructure projects.
The economic downturn also prompted Jet Airways, India's largest domestic carrier, to halt its Shanghai-Mumbai service in January, barely six months after it started to much fanfare. The Indian Embassy in Beijing, meanwhile, said visas issued to Chinese nationals in 2008 did not increase over the the previous year, despite an aggressive campaign to attract more Chinese tourists, including the opening of the first India Tourism office in China early last year.
That Sino-Indian trade should falter when the rest of the world is staring at recession should not be surprising. Nevertheless, the two countries are almost alone in continuing to grow, albeit at a slower pace than previously. That is likely to create new opportunities for trade and investment across the Himalayas. What is required is the will and foresight to convert these opportunities into realities.
Economic catastrophe looms
By M H Ahssan
When the US Congress passed its US$787 billion stimulus package last week, the size of the plan caused many observers to forget the water that has already passed under the bridge. Fewer still are wondering what havoc will erupt when all this liquidity eventually washes ashore.
The latest spending, signed into law this week by President Barack Obama, came on top of $300 billion committed to Citigroup, $700 billion for Troubled Assets Relief Program 1, $300 billion for the Federal Housing Administration, $200 billion for the Term Auction Facility and some $300 billion for mortgage guarantors Fannie Mae and Freddie Mac. Just over the past six months, which excludes the initial George W Bush administration stimulus and several massive, unfunded Federal guarantees, nearly $5 trillion has been committed by the government to the financial industry. Rational observers cannot be faulted for concluding, despite administration claims to the contrary, that the government is merely throwing money at the problem.
Although the rhetoric has managed to convince many observers of the possibility of success, the gold market appears to clearly understand the implications of this unprecedented spending.
The feeling that the government has no idea how to proceed has created palpable panic. In response, pragmatic investors are seeking the ultimate store of wealth. In 2009, as has occurred countless times throughout history, that store will be stocked with gold. Thus, whether the Federal government's interventions will succeed or fail will be anticipated by the price of gold. Right now, the market is screaming failure.
Prior to the latest round of Federal spending, the Federal government had committed $4 trillion to postpone bank collapses and to lay the groundwork for subsequent restructuring. But has any of this activity actually rescued the banking system? In light of the evidence of deepening recession, is it likely that the additional $787 billion in the latest stimulus will instill enough confidence to restore economic growth? If not, what damage will it do to the eventual recovery?
Congressional rescue packages rarely work. Nevertheless, Congress is turning up the heat with previously unimaginable increases of government debt to fund stimulus and rescue packages. Senator John McCain rightly describes the scheme as "generational theft". Each package of debt will encumber many future generations, halt restructuring and also threaten latent hyperinflation.
While Congress claims that the seriously over-leveraged economy is in desperate need of restructuring, it appears blind to the fact that deleveraging will encourage such restructuring. Instead, Congressional leaders actively seek to increase leverage and add debt. They warn of fire, while pouring petrol on the flames.
The seriousness of the situation is magnified by the rapidly increasing scale of the problem. Just this week, the release of the latest minutes of the Federal Reserve confirmed that even that bastion of eternal optimism is sobering. The American economy, which shrank by 3.8% in the last quarter of 2008, is forecast to decline by some 5.5% in the first quarter of this year. In some pockets, the unemployment rate is already in double figures. Despite massive government spending on rescue and stimulus, the American consumer clearly is becoming increasingly nervous, and the credit markets show few signs of recovery.
With bad news only getting worse, investment markets are turning into quagmires. The Dow Jones Average is testing new lows, and the commodities markets show few signs of life. In such times, the price of gold should fall along with the prices of other assets and commodities. But, the reverse has occurred. In the past two months, gold has staged a remarkable rally. This is despite the activity of price-depressants such as official gold sales by the International Monetary Fun and official "approval" for massive naked short positions to be opened by new "bullion" banks.
Not only have gold spot prices risen in the face of such selling pressure, but the price of physical gold is now some $20 to $40 per ounce above spot. This would indicate that investors are now so nervous that they are insisting on taking physical delivery.
Make no mistake, the economy will not turn around soon. When the recovery fails to materialize, look for governments around the world, and especially in the US, to send another massive wave of liquidity downriver. When it does, the value of nearly everything, except for gold, will diminish. Don't be intimidated by the recent spike in gold. Buy now while you still can.
When the US Congress passed its US$787 billion stimulus package last week, the size of the plan caused many observers to forget the water that has already passed under the bridge. Fewer still are wondering what havoc will erupt when all this liquidity eventually washes ashore.
The latest spending, signed into law this week by President Barack Obama, came on top of $300 billion committed to Citigroup, $700 billion for Troubled Assets Relief Program 1, $300 billion for the Federal Housing Administration, $200 billion for the Term Auction Facility and some $300 billion for mortgage guarantors Fannie Mae and Freddie Mac. Just over the past six months, which excludes the initial George W Bush administration stimulus and several massive, unfunded Federal guarantees, nearly $5 trillion has been committed by the government to the financial industry. Rational observers cannot be faulted for concluding, despite administration claims to the contrary, that the government is merely throwing money at the problem.
Although the rhetoric has managed to convince many observers of the possibility of success, the gold market appears to clearly understand the implications of this unprecedented spending.
The feeling that the government has no idea how to proceed has created palpable panic. In response, pragmatic investors are seeking the ultimate store of wealth. In 2009, as has occurred countless times throughout history, that store will be stocked with gold. Thus, whether the Federal government's interventions will succeed or fail will be anticipated by the price of gold. Right now, the market is screaming failure.
Prior to the latest round of Federal spending, the Federal government had committed $4 trillion to postpone bank collapses and to lay the groundwork for subsequent restructuring. But has any of this activity actually rescued the banking system? In light of the evidence of deepening recession, is it likely that the additional $787 billion in the latest stimulus will instill enough confidence to restore economic growth? If not, what damage will it do to the eventual recovery?
Congressional rescue packages rarely work. Nevertheless, Congress is turning up the heat with previously unimaginable increases of government debt to fund stimulus and rescue packages. Senator John McCain rightly describes the scheme as "generational theft". Each package of debt will encumber many future generations, halt restructuring and also threaten latent hyperinflation.
While Congress claims that the seriously over-leveraged economy is in desperate need of restructuring, it appears blind to the fact that deleveraging will encourage such restructuring. Instead, Congressional leaders actively seek to increase leverage and add debt. They warn of fire, while pouring petrol on the flames.
The seriousness of the situation is magnified by the rapidly increasing scale of the problem. Just this week, the release of the latest minutes of the Federal Reserve confirmed that even that bastion of eternal optimism is sobering. The American economy, which shrank by 3.8% in the last quarter of 2008, is forecast to decline by some 5.5% in the first quarter of this year. In some pockets, the unemployment rate is already in double figures. Despite massive government spending on rescue and stimulus, the American consumer clearly is becoming increasingly nervous, and the credit markets show few signs of recovery.
With bad news only getting worse, investment markets are turning into quagmires. The Dow Jones Average is testing new lows, and the commodities markets show few signs of life. In such times, the price of gold should fall along with the prices of other assets and commodities. But, the reverse has occurred. In the past two months, gold has staged a remarkable rally. This is despite the activity of price-depressants such as official gold sales by the International Monetary Fun and official "approval" for massive naked short positions to be opened by new "bullion" banks.
Not only have gold spot prices risen in the face of such selling pressure, but the price of physical gold is now some $20 to $40 per ounce above spot. This would indicate that investors are now so nervous that they are insisting on taking physical delivery.
Make no mistake, the economy will not turn around soon. When the recovery fails to materialize, look for governments around the world, and especially in the US, to send another massive wave of liquidity downriver. When it does, the value of nearly everything, except for gold, will diminish. Don't be intimidated by the recent spike in gold. Buy now while you still can.
Economic catastrophe looms
By M H Ahssan
When the US Congress passed its US$787 billion stimulus package last week, the size of the plan caused many observers to forget the water that has already passed under the bridge. Fewer still are wondering what havoc will erupt when all this liquidity eventually washes ashore.
The latest spending, signed into law this week by President Barack Obama, came on top of $300 billion committed to Citigroup, $700 billion for Troubled Assets Relief Program 1, $300 billion for the Federal Housing Administration, $200 billion for the Term Auction Facility and some $300 billion for mortgage guarantors Fannie Mae and Freddie Mac. Just over the past six months, which excludes the initial George W Bush administration stimulus and several massive, unfunded Federal guarantees, nearly $5 trillion has been committed by the government to the financial industry. Rational observers cannot be faulted for concluding, despite administration claims to the contrary, that the government is merely throwing money at the problem.
Although the rhetoric has managed to convince many observers of the possibility of success, the gold market appears to clearly understand the implications of this unprecedented spending.
The feeling that the government has no idea how to proceed has created palpable panic. In response, pragmatic investors are seeking the ultimate store of wealth. In 2009, as has occurred countless times throughout history, that store will be stocked with gold. Thus, whether the Federal government's interventions will succeed or fail will be anticipated by the price of gold. Right now, the market is screaming failure.
Prior to the latest round of Federal spending, the Federal government had committed $4 trillion to postpone bank collapses and to lay the groundwork for subsequent restructuring. But has any of this activity actually rescued the banking system? In light of the evidence of deepening recession, is it likely that the additional $787 billion in the latest stimulus will instill enough confidence to restore economic growth? If not, what damage will it do to the eventual recovery?
Congressional rescue packages rarely work. Nevertheless, Congress is turning up the heat with previously unimaginable increases of government debt to fund stimulus and rescue packages. Senator John McCain rightly describes the scheme as "generational theft". Each package of debt will encumber many future generations, halt restructuring and also threaten latent hyperinflation.
While Congress claims that the seriously over-leveraged economy is in desperate need of restructuring, it appears blind to the fact that deleveraging will encourage such restructuring. Instead, Congressional leaders actively seek to increase leverage and add debt. They warn of fire, while pouring petrol on the flames.
The seriousness of the situation is magnified by the rapidly increasing scale of the problem. Just this week, the release of the latest minutes of the Federal Reserve confirmed that even that bastion of eternal optimism is sobering. The American economy, which shrank by 3.8% in the last quarter of 2008, is forecast to decline by some 5.5% in the first quarter of this year. In some pockets, the unemployment rate is already in double figures. Despite massive government spending on rescue and stimulus, the American consumer clearly is becoming increasingly nervous, and the credit markets show few signs of recovery.
With bad news only getting worse, investment markets are turning into quagmires. The Dow Jones Average is testing new lows, and the commodities markets show few signs of life. In such times, the price of gold should fall along with the prices of other assets and commodities. But, the reverse has occurred. In the past two months, gold has staged a remarkable rally. This is despite the activity of price-depressants such as official gold sales by the International Monetary Fun and official "approval" for massive naked short positions to be opened by new "bullion" banks.
Not only have gold spot prices risen in the face of such selling pressure, but the price of physical gold is now some $20 to $40 per ounce above spot. This would indicate that investors are now so nervous that they are insisting on taking physical delivery.
Make no mistake, the economy will not turn around soon. When the recovery fails to materialize, look for governments around the world, and especially in the US, to send another massive wave of liquidity downriver. When it does, the value of nearly everything, except for gold, will diminish. Don't be intimidated by the recent spike in gold. Buy now while you still can.
When the US Congress passed its US$787 billion stimulus package last week, the size of the plan caused many observers to forget the water that has already passed under the bridge. Fewer still are wondering what havoc will erupt when all this liquidity eventually washes ashore.
The latest spending, signed into law this week by President Barack Obama, came on top of $300 billion committed to Citigroup, $700 billion for Troubled Assets Relief Program 1, $300 billion for the Federal Housing Administration, $200 billion for the Term Auction Facility and some $300 billion for mortgage guarantors Fannie Mae and Freddie Mac. Just over the past six months, which excludes the initial George W Bush administration stimulus and several massive, unfunded Federal guarantees, nearly $5 trillion has been committed by the government to the financial industry. Rational observers cannot be faulted for concluding, despite administration claims to the contrary, that the government is merely throwing money at the problem.
Although the rhetoric has managed to convince many observers of the possibility of success, the gold market appears to clearly understand the implications of this unprecedented spending.
The feeling that the government has no idea how to proceed has created palpable panic. In response, pragmatic investors are seeking the ultimate store of wealth. In 2009, as has occurred countless times throughout history, that store will be stocked with gold. Thus, whether the Federal government's interventions will succeed or fail will be anticipated by the price of gold. Right now, the market is screaming failure.
Prior to the latest round of Federal spending, the Federal government had committed $4 trillion to postpone bank collapses and to lay the groundwork for subsequent restructuring. But has any of this activity actually rescued the banking system? In light of the evidence of deepening recession, is it likely that the additional $787 billion in the latest stimulus will instill enough confidence to restore economic growth? If not, what damage will it do to the eventual recovery?
Congressional rescue packages rarely work. Nevertheless, Congress is turning up the heat with previously unimaginable increases of government debt to fund stimulus and rescue packages. Senator John McCain rightly describes the scheme as "generational theft". Each package of debt will encumber many future generations, halt restructuring and also threaten latent hyperinflation.
While Congress claims that the seriously over-leveraged economy is in desperate need of restructuring, it appears blind to the fact that deleveraging will encourage such restructuring. Instead, Congressional leaders actively seek to increase leverage and add debt. They warn of fire, while pouring petrol on the flames.
The seriousness of the situation is magnified by the rapidly increasing scale of the problem. Just this week, the release of the latest minutes of the Federal Reserve confirmed that even that bastion of eternal optimism is sobering. The American economy, which shrank by 3.8% in the last quarter of 2008, is forecast to decline by some 5.5% in the first quarter of this year. In some pockets, the unemployment rate is already in double figures. Despite massive government spending on rescue and stimulus, the American consumer clearly is becoming increasingly nervous, and the credit markets show few signs of recovery.
With bad news only getting worse, investment markets are turning into quagmires. The Dow Jones Average is testing new lows, and the commodities markets show few signs of life. In such times, the price of gold should fall along with the prices of other assets and commodities. But, the reverse has occurred. In the past two months, gold has staged a remarkable rally. This is despite the activity of price-depressants such as official gold sales by the International Monetary Fun and official "approval" for massive naked short positions to be opened by new "bullion" banks.
Not only have gold spot prices risen in the face of such selling pressure, but the price of physical gold is now some $20 to $40 per ounce above spot. This would indicate that investors are now so nervous that they are insisting on taking physical delivery.
Make no mistake, the economy will not turn around soon. When the recovery fails to materialize, look for governments around the world, and especially in the US, to send another massive wave of liquidity downriver. When it does, the value of nearly everything, except for gold, will diminish. Don't be intimidated by the recent spike in gold. Buy now while you still can.
Economic catastrophe looms
By M H Ahssan
When the US Congress passed its US$787 billion stimulus package last week, the size of the plan caused many observers to forget the water that has already passed under the bridge. Fewer still are wondering what havoc will erupt when all this liquidity eventually washes ashore.
The latest spending, signed into law this week by President Barack Obama, came on top of $300 billion committed to Citigroup, $700 billion for Troubled Assets Relief Program 1, $300 billion for the Federal Housing Administration, $200 billion for the Term Auction Facility and some $300 billion for mortgage guarantors Fannie Mae and Freddie Mac. Just over the past six months, which excludes the initial George W Bush administration stimulus and several massive, unfunded Federal guarantees, nearly $5 trillion has been committed by the government to the financial industry. Rational observers cannot be faulted for concluding, despite administration claims to the contrary, that the government is merely throwing money at the problem.
Although the rhetoric has managed to convince many observers of the possibility of success, the gold market appears to clearly understand the implications of this unprecedented spending.
The feeling that the government has no idea how to proceed has created palpable panic. In response, pragmatic investors are seeking the ultimate store of wealth. In 2009, as has occurred countless times throughout history, that store will be stocked with gold. Thus, whether the Federal government's interventions will succeed or fail will be anticipated by the price of gold. Right now, the market is screaming failure.
Prior to the latest round of Federal spending, the Federal government had committed $4 trillion to postpone bank collapses and to lay the groundwork for subsequent restructuring. But has any of this activity actually rescued the banking system? In light of the evidence of deepening recession, is it likely that the additional $787 billion in the latest stimulus will instill enough confidence to restore economic growth? If not, what damage will it do to the eventual recovery?
Congressional rescue packages rarely work. Nevertheless, Congress is turning up the heat with previously unimaginable increases of government debt to fund stimulus and rescue packages. Senator John McCain rightly describes the scheme as "generational theft". Each package of debt will encumber many future generations, halt restructuring and also threaten latent hyperinflation.
While Congress claims that the seriously over-leveraged economy is in desperate need of restructuring, it appears blind to the fact that deleveraging will encourage such restructuring. Instead, Congressional leaders actively seek to increase leverage and add debt. They warn of fire, while pouring petrol on the flames.
The seriousness of the situation is magnified by the rapidly increasing scale of the problem. Just this week, the release of the latest minutes of the Federal Reserve confirmed that even that bastion of eternal optimism is sobering. The American economy, which shrank by 3.8% in the last quarter of 2008, is forecast to decline by some 5.5% in the first quarter of this year. In some pockets, the unemployment rate is already in double figures. Despite massive government spending on rescue and stimulus, the American consumer clearly is becoming increasingly nervous, and the credit markets show few signs of recovery.
With bad news only getting worse, investment markets are turning into quagmires. The Dow Jones Average is testing new lows, and the commodities markets show few signs of life. In such times, the price of gold should fall along with the prices of other assets and commodities. But, the reverse has occurred. In the past two months, gold has staged a remarkable rally. This is despite the activity of price-depressants such as official gold sales by the International Monetary Fun and official "approval" for massive naked short positions to be opened by new "bullion" banks.
Not only have gold spot prices risen in the face of such selling pressure, but the price of physical gold is now some $20 to $40 per ounce above spot. This would indicate that investors are now so nervous that they are insisting on taking physical delivery.
Make no mistake, the economy will not turn around soon. When the recovery fails to materialize, look for governments around the world, and especially in the US, to send another massive wave of liquidity downriver. When it does, the value of nearly everything, except for gold, will diminish. Don't be intimidated by the recent spike in gold. Buy now while you still can.
When the US Congress passed its US$787 billion stimulus package last week, the size of the plan caused many observers to forget the water that has already passed under the bridge. Fewer still are wondering what havoc will erupt when all this liquidity eventually washes ashore.
The latest spending, signed into law this week by President Barack Obama, came on top of $300 billion committed to Citigroup, $700 billion for Troubled Assets Relief Program 1, $300 billion for the Federal Housing Administration, $200 billion for the Term Auction Facility and some $300 billion for mortgage guarantors Fannie Mae and Freddie Mac. Just over the past six months, which excludes the initial George W Bush administration stimulus and several massive, unfunded Federal guarantees, nearly $5 trillion has been committed by the government to the financial industry. Rational observers cannot be faulted for concluding, despite administration claims to the contrary, that the government is merely throwing money at the problem.
Although the rhetoric has managed to convince many observers of the possibility of success, the gold market appears to clearly understand the implications of this unprecedented spending.
The feeling that the government has no idea how to proceed has created palpable panic. In response, pragmatic investors are seeking the ultimate store of wealth. In 2009, as has occurred countless times throughout history, that store will be stocked with gold. Thus, whether the Federal government's interventions will succeed or fail will be anticipated by the price of gold. Right now, the market is screaming failure.
Prior to the latest round of Federal spending, the Federal government had committed $4 trillion to postpone bank collapses and to lay the groundwork for subsequent restructuring. But has any of this activity actually rescued the banking system? In light of the evidence of deepening recession, is it likely that the additional $787 billion in the latest stimulus will instill enough confidence to restore economic growth? If not, what damage will it do to the eventual recovery?
Congressional rescue packages rarely work. Nevertheless, Congress is turning up the heat with previously unimaginable increases of government debt to fund stimulus and rescue packages. Senator John McCain rightly describes the scheme as "generational theft". Each package of debt will encumber many future generations, halt restructuring and also threaten latent hyperinflation.
While Congress claims that the seriously over-leveraged economy is in desperate need of restructuring, it appears blind to the fact that deleveraging will encourage such restructuring. Instead, Congressional leaders actively seek to increase leverage and add debt. They warn of fire, while pouring petrol on the flames.
The seriousness of the situation is magnified by the rapidly increasing scale of the problem. Just this week, the release of the latest minutes of the Federal Reserve confirmed that even that bastion of eternal optimism is sobering. The American economy, which shrank by 3.8% in the last quarter of 2008, is forecast to decline by some 5.5% in the first quarter of this year. In some pockets, the unemployment rate is already in double figures. Despite massive government spending on rescue and stimulus, the American consumer clearly is becoming increasingly nervous, and the credit markets show few signs of recovery.
With bad news only getting worse, investment markets are turning into quagmires. The Dow Jones Average is testing new lows, and the commodities markets show few signs of life. In such times, the price of gold should fall along with the prices of other assets and commodities. But, the reverse has occurred. In the past two months, gold has staged a remarkable rally. This is despite the activity of price-depressants such as official gold sales by the International Monetary Fun and official "approval" for massive naked short positions to be opened by new "bullion" banks.
Not only have gold spot prices risen in the face of such selling pressure, but the price of physical gold is now some $20 to $40 per ounce above spot. This would indicate that investors are now so nervous that they are insisting on taking physical delivery.
Make no mistake, the economy will not turn around soon. When the recovery fails to materialize, look for governments around the world, and especially in the US, to send another massive wave of liquidity downriver. When it does, the value of nearly everything, except for gold, will diminish. Don't be intimidated by the recent spike in gold. Buy now while you still can.
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