By M H Ahssan
Living in exile for nearly half a century, the 14th Dalai Lama, Tenzin Gyatso, is now 73. Tibetans in exile are becoming increasingly concerned with the issue of his succession and their future after the passage of the spiritual leader.
Hospitalized recently, living in semi-retirement from the Tibetan movement to let the elected Tibetan government control daily affairs, the health and future of the Dalai Lama is fodder for speculation. Many, especially those from older generations, are afraid that once the Dalai Lama passes away the Tibetan movement will lose steam and gradually fade from the international spotlight.
The Dalai Lama, who has lived in exile here since fleeing Tibet after a failed armed rebellion against Chinese rule in March 1959, says he feels attached to the northern India state where he lives. "I have spent most of my life in this hill station. Now I feel like a citizen of Himachal Pradesh," the Dalai Lama said.
The spiritual leader of Tibetans in exile and at home who also leads the Tibetan government in exile is highly respected internationally. A Nobel Peace Laureate, the Dalai Lama was also listed as one of the 50 most powerful people in the world by Newsweek. During his recent tour of Europe, the Dalai Lama was presented with honorary citizenship in Rome and granted the German Media Prize.
The Dalai Lama's fame, charm and high-profile international activities have helped make the Tibetan movement known to the world and win wide international support. Many Tibetans in exile also believe that it is the Dalai Lama who spiritually sustains their dream of returning to their homeland one day.
Therefore, many Tibetans in exile are worried that without him, the Tibet movement may gradually become forgotten by the world as his successor, if there is one, might not be able to make the same strides.
Older generations believe that following tradition, the Dalai Lama's successor must be a boy, the reincarnation of the Dalai Lama. So it will take time for the next Dalai Lama to take up leadership and engage in international activities. But this is a topic too sacred for older Tibetans to talk about, and they are afraid of making any comment when asked.
Tibetan elders in exile simply believe that “His Holiness will make the right decision on choosing his successor which will benefit the future of Tibetans in exile and in Tibet".
But some young Tibetans in exile, who seek "full Tibet independence" and increasingly see the Dalai Lama's "middle way" as a constraint on their radical thinking and action, may feel freer to pursue their goal through more drastic means once the Dalai Lama passes away. These young radical Tibetans in exile, represented by the Tibetan Youth Congress (TYC), have become increasingly discontent with the Dalai Lama's approach to seeking autonomy instead of independence for the Himalayan region, though spiritually they still hold the Dalai Lama in esteem.
Although the Chinese government has labeled the Dalai Lama a traitor intent on fomenting violent unrest in Tibet with the ambition of achieving independence, the Dalai Lama has not given up his middle-way approach and has made every attempt to hold a dialogue. Although he has admitted that his faith in the Chinese government is becoming thinner and thinner.
Compared with other active Tibetan organizations in exile, TYC has a clearcut goal - rangzen (full independence) - on its agenda. Thus it states that while its members will feel sad about the passage of the Dalai Lama, they will continue to fight for their freedom.
"No doubt, no one will be able to replace the Dalai Lama and we Tibetans won't be able to repay him. But we are struggling for an independent nation and our struggle will continue," said TYC president Twesang Rigzin.
Therefore some analysts are increasingly concerned that once their spiritual leader is gone, the Tibetan movement, now united under the Dalai Lama, is very likely to split, given the differing views on how to achieve its goals.
Many have questions on how the Tibetan movement will proceed. Some have deep worries that the current Tibetan religious and government structure will change after his holiness passes. Others say the Tibetan movement will lose its direction and steam, as there will be growing frustration among exiles with the loss of a leader to guide them and to help them gain international support.
This is despite some of the Dalai Lama's staunch followers who believe that international support for the Tibetan movement is growing even though the Dalai Lama has already taken up semi-retirement to secure the future for the Tibetan movement by allowing the democratically-elected government in exile to play a more active role in deciding the course of the Tibetan movement.
Tibetans in exile are also concerned with who will become the next Dalai Lama and how the successor will be chosen. The Dalai Lama himself has not avoided talking about the issue of his succession in recent years. He seems to leave the question open. He once said whether Tibetans need the next Dalai Lama is an issue to be "democratically" decided by them.
On another occasion he did not rule out the possibility of his successor being female if Tibetans agreed on the issue, though according to Tibetan tradition a Dalai Lama must be male. And recently, the Dalai Lama described himself as "a simple Buddhist monk - no more, no less" and spoke of his "retirement", though according to Tibetan tradition the Dalai Lama is a lifetime god-king.
"If people feel that the institution of the Dalai Lama is still necessary, then this will continue," he said. "There are various ways of [choosing a successor]. The point is whether to continue with the institution of the Dalai Lama or not. After my death, Tibetan religious leaders can debate whether to have a Dalai Lama or not."
But Tibetans in exile widely believe that when their spiritual leader is gone the Chinese government will step in to choose its own reincarnation, as it did in case of the Panchen Lama, Tibet's second highest-ranking religious figure.
In 1995, the Chinese government forced Tibetan monks to appoint Gyancain Norbu rather than the Dalai Lama's chosen candidate - Gedhun Choekyi Nyima - in an attempt to further exert its authority over Tibet. And Tibetans in exile claim the Dalai Lama's designated candidate for the Panchen Lama is the youngest political prisoner in the world, held by the Chinese government.
Most Tibetans believe Beijing is not sincere in its desire to talk with the aging Dalai Lama on the Tibet issue, saying China is just buying time, which is not on the Dalai Lama's side as he is 73. Analysts believe that even if Beijing does not intervene in the Dalai Lama's reincarnation (which is very unlikely), once the Tibetan god-king is gone his successor will be a small boy and decades may pass before the new Dalai Lama is ready to assume religious and political leadership, making a much longer wait for Tibetans in exile. And during that long wait, anything can happen.
Yet it may be too early to depict any true image of a post-Dalai Lama era. As long as the Dalai Lama lives, he will continue to do his very best to try and lead his people back to their homeland. As the spiritual leader said, "It is my moral responsibility until my death to work for the Tibetan cause. My body and flesh is all Tibetan. I remain committed to the Tibetan cause."
Thursday, February 19, 2009
Succession worries unsettle Tibetans
By M H Ahssan
Living in exile for nearly half a century, the 14th Dalai Lama, Tenzin Gyatso, is now 73. Tibetans in exile are becoming increasingly concerned with the issue of his succession and their future after the passage of the spiritual leader.
Hospitalized recently, living in semi-retirement from the Tibetan movement to let the elected Tibetan government control daily affairs, the health and future of the Dalai Lama is fodder for speculation. Many, especially those from older generations, are afraid that once the Dalai Lama passes away the Tibetan movement will lose steam and gradually fade from the international spotlight.
The Dalai Lama, who has lived in exile here since fleeing Tibet after a failed armed rebellion against Chinese rule in March 1959, says he feels attached to the northern India state where he lives. "I have spent most of my life in this hill station. Now I feel like a citizen of Himachal Pradesh," the Dalai Lama said.
The spiritual leader of Tibetans in exile and at home who also leads the Tibetan government in exile is highly respected internationally. A Nobel Peace Laureate, the Dalai Lama was also listed as one of the 50 most powerful people in the world by Newsweek. During his recent tour of Europe, the Dalai Lama was presented with honorary citizenship in Rome and granted the German Media Prize.
The Dalai Lama's fame, charm and high-profile international activities have helped make the Tibetan movement known to the world and win wide international support. Many Tibetans in exile also believe that it is the Dalai Lama who spiritually sustains their dream of returning to their homeland one day.
Therefore, many Tibetans in exile are worried that without him, the Tibet movement may gradually become forgotten by the world as his successor, if there is one, might not be able to make the same strides.
Older generations believe that following tradition, the Dalai Lama's successor must be a boy, the reincarnation of the Dalai Lama. So it will take time for the next Dalai Lama to take up leadership and engage in international activities. But this is a topic too sacred for older Tibetans to talk about, and they are afraid of making any comment when asked.
Tibetan elders in exile simply believe that “His Holiness will make the right decision on choosing his successor which will benefit the future of Tibetans in exile and in Tibet".
But some young Tibetans in exile, who seek "full Tibet independence" and increasingly see the Dalai Lama's "middle way" as a constraint on their radical thinking and action, may feel freer to pursue their goal through more drastic means once the Dalai Lama passes away. These young radical Tibetans in exile, represented by the Tibetan Youth Congress (TYC), have become increasingly discontent with the Dalai Lama's approach to seeking autonomy instead of independence for the Himalayan region, though spiritually they still hold the Dalai Lama in esteem.
Although the Chinese government has labeled the Dalai Lama a traitor intent on fomenting violent unrest in Tibet with the ambition of achieving independence, the Dalai Lama has not given up his middle-way approach and has made every attempt to hold a dialogue. Although he has admitted that his faith in the Chinese government is becoming thinner and thinner.
Compared with other active Tibetan organizations in exile, TYC has a clearcut goal - rangzen (full independence) - on its agenda. Thus it states that while its members will feel sad about the passage of the Dalai Lama, they will continue to fight for their freedom.
"No doubt, no one will be able to replace the Dalai Lama and we Tibetans won't be able to repay him. But we are struggling for an independent nation and our struggle will continue," said TYC president Twesang Rigzin.
Therefore some analysts are increasingly concerned that once their spiritual leader is gone, the Tibetan movement, now united under the Dalai Lama, is very likely to split, given the differing views on how to achieve its goals.
Many have questions on how the Tibetan movement will proceed. Some have deep worries that the current Tibetan religious and government structure will change after his holiness passes. Others say the Tibetan movement will lose its direction and steam, as there will be growing frustration among exiles with the loss of a leader to guide them and to help them gain international support.
This is despite some of the Dalai Lama's staunch followers who believe that international support for the Tibetan movement is growing even though the Dalai Lama has already taken up semi-retirement to secure the future for the Tibetan movement by allowing the democratically-elected government in exile to play a more active role in deciding the course of the Tibetan movement.
Tibetans in exile are also concerned with who will become the next Dalai Lama and how the successor will be chosen. The Dalai Lama himself has not avoided talking about the issue of his succession in recent years. He seems to leave the question open. He once said whether Tibetans need the next Dalai Lama is an issue to be "democratically" decided by them.
On another occasion he did not rule out the possibility of his successor being female if Tibetans agreed on the issue, though according to Tibetan tradition a Dalai Lama must be male. And recently, the Dalai Lama described himself as "a simple Buddhist monk - no more, no less" and spoke of his "retirement", though according to Tibetan tradition the Dalai Lama is a lifetime god-king.
"If people feel that the institution of the Dalai Lama is still necessary, then this will continue," he said. "There are various ways of [choosing a successor]. The point is whether to continue with the institution of the Dalai Lama or not. After my death, Tibetan religious leaders can debate whether to have a Dalai Lama or not."
But Tibetans in exile widely believe that when their spiritual leader is gone the Chinese government will step in to choose its own reincarnation, as it did in case of the Panchen Lama, Tibet's second highest-ranking religious figure.
In 1995, the Chinese government forced Tibetan monks to appoint Gyancain Norbu rather than the Dalai Lama's chosen candidate - Gedhun Choekyi Nyima - in an attempt to further exert its authority over Tibet. And Tibetans in exile claim the Dalai Lama's designated candidate for the Panchen Lama is the youngest political prisoner in the world, held by the Chinese government.
Most Tibetans believe Beijing is not sincere in its desire to talk with the aging Dalai Lama on the Tibet issue, saying China is just buying time, which is not on the Dalai Lama's side as he is 73. Analysts believe that even if Beijing does not intervene in the Dalai Lama's reincarnation (which is very unlikely), once the Tibetan god-king is gone his successor will be a small boy and decades may pass before the new Dalai Lama is ready to assume religious and political leadership, making a much longer wait for Tibetans in exile. And during that long wait, anything can happen.
Yet it may be too early to depict any true image of a post-Dalai Lama era. As long as the Dalai Lama lives, he will continue to do his very best to try and lead his people back to their homeland. As the spiritual leader said, "It is my moral responsibility until my death to work for the Tibetan cause. My body and flesh is all Tibetan. I remain committed to the Tibetan cause."
Living in exile for nearly half a century, the 14th Dalai Lama, Tenzin Gyatso, is now 73. Tibetans in exile are becoming increasingly concerned with the issue of his succession and their future after the passage of the spiritual leader.
Hospitalized recently, living in semi-retirement from the Tibetan movement to let the elected Tibetan government control daily affairs, the health and future of the Dalai Lama is fodder for speculation. Many, especially those from older generations, are afraid that once the Dalai Lama passes away the Tibetan movement will lose steam and gradually fade from the international spotlight.
The Dalai Lama, who has lived in exile here since fleeing Tibet after a failed armed rebellion against Chinese rule in March 1959, says he feels attached to the northern India state where he lives. "I have spent most of my life in this hill station. Now I feel like a citizen of Himachal Pradesh," the Dalai Lama said.
The spiritual leader of Tibetans in exile and at home who also leads the Tibetan government in exile is highly respected internationally. A Nobel Peace Laureate, the Dalai Lama was also listed as one of the 50 most powerful people in the world by Newsweek. During his recent tour of Europe, the Dalai Lama was presented with honorary citizenship in Rome and granted the German Media Prize.
The Dalai Lama's fame, charm and high-profile international activities have helped make the Tibetan movement known to the world and win wide international support. Many Tibetans in exile also believe that it is the Dalai Lama who spiritually sustains their dream of returning to their homeland one day.
Therefore, many Tibetans in exile are worried that without him, the Tibet movement may gradually become forgotten by the world as his successor, if there is one, might not be able to make the same strides.
Older generations believe that following tradition, the Dalai Lama's successor must be a boy, the reincarnation of the Dalai Lama. So it will take time for the next Dalai Lama to take up leadership and engage in international activities. But this is a topic too sacred for older Tibetans to talk about, and they are afraid of making any comment when asked.
Tibetan elders in exile simply believe that “His Holiness will make the right decision on choosing his successor which will benefit the future of Tibetans in exile and in Tibet".
But some young Tibetans in exile, who seek "full Tibet independence" and increasingly see the Dalai Lama's "middle way" as a constraint on their radical thinking and action, may feel freer to pursue their goal through more drastic means once the Dalai Lama passes away. These young radical Tibetans in exile, represented by the Tibetan Youth Congress (TYC), have become increasingly discontent with the Dalai Lama's approach to seeking autonomy instead of independence for the Himalayan region, though spiritually they still hold the Dalai Lama in esteem.
Although the Chinese government has labeled the Dalai Lama a traitor intent on fomenting violent unrest in Tibet with the ambition of achieving independence, the Dalai Lama has not given up his middle-way approach and has made every attempt to hold a dialogue. Although he has admitted that his faith in the Chinese government is becoming thinner and thinner.
Compared with other active Tibetan organizations in exile, TYC has a clearcut goal - rangzen (full independence) - on its agenda. Thus it states that while its members will feel sad about the passage of the Dalai Lama, they will continue to fight for their freedom.
"No doubt, no one will be able to replace the Dalai Lama and we Tibetans won't be able to repay him. But we are struggling for an independent nation and our struggle will continue," said TYC president Twesang Rigzin.
Therefore some analysts are increasingly concerned that once their spiritual leader is gone, the Tibetan movement, now united under the Dalai Lama, is very likely to split, given the differing views on how to achieve its goals.
Many have questions on how the Tibetan movement will proceed. Some have deep worries that the current Tibetan religious and government structure will change after his holiness passes. Others say the Tibetan movement will lose its direction and steam, as there will be growing frustration among exiles with the loss of a leader to guide them and to help them gain international support.
This is despite some of the Dalai Lama's staunch followers who believe that international support for the Tibetan movement is growing even though the Dalai Lama has already taken up semi-retirement to secure the future for the Tibetan movement by allowing the democratically-elected government in exile to play a more active role in deciding the course of the Tibetan movement.
Tibetans in exile are also concerned with who will become the next Dalai Lama and how the successor will be chosen. The Dalai Lama himself has not avoided talking about the issue of his succession in recent years. He seems to leave the question open. He once said whether Tibetans need the next Dalai Lama is an issue to be "democratically" decided by them.
On another occasion he did not rule out the possibility of his successor being female if Tibetans agreed on the issue, though according to Tibetan tradition a Dalai Lama must be male. And recently, the Dalai Lama described himself as "a simple Buddhist monk - no more, no less" and spoke of his "retirement", though according to Tibetan tradition the Dalai Lama is a lifetime god-king.
"If people feel that the institution of the Dalai Lama is still necessary, then this will continue," he said. "There are various ways of [choosing a successor]. The point is whether to continue with the institution of the Dalai Lama or not. After my death, Tibetan religious leaders can debate whether to have a Dalai Lama or not."
But Tibetans in exile widely believe that when their spiritual leader is gone the Chinese government will step in to choose its own reincarnation, as it did in case of the Panchen Lama, Tibet's second highest-ranking religious figure.
In 1995, the Chinese government forced Tibetan monks to appoint Gyancain Norbu rather than the Dalai Lama's chosen candidate - Gedhun Choekyi Nyima - in an attempt to further exert its authority over Tibet. And Tibetans in exile claim the Dalai Lama's designated candidate for the Panchen Lama is the youngest political prisoner in the world, held by the Chinese government.
Most Tibetans believe Beijing is not sincere in its desire to talk with the aging Dalai Lama on the Tibet issue, saying China is just buying time, which is not on the Dalai Lama's side as he is 73. Analysts believe that even if Beijing does not intervene in the Dalai Lama's reincarnation (which is very unlikely), once the Tibetan god-king is gone his successor will be a small boy and decades may pass before the new Dalai Lama is ready to assume religious and political leadership, making a much longer wait for Tibetans in exile. And during that long wait, anything can happen.
Yet it may be too early to depict any true image of a post-Dalai Lama era. As long as the Dalai Lama lives, he will continue to do his very best to try and lead his people back to their homeland. As the spiritual leader said, "It is my moral responsibility until my death to work for the Tibetan cause. My body and flesh is all Tibetan. I remain committed to the Tibetan cause."
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.
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.
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