The world’s food import bill will drop this year by about a fifth as agricultural commodities trade well below last year’s all time highs, the United Nations’ Food and Agriculture Organisation said in a report on Thursday.

In its first forecast about this year’s food import bill, the FAO said the cost of importing agricultural commodities will fall to $790bn, down 22 per cent from last year’s record of $1,015bn. But it warned that the “deteriorating economic environment in which the falls are taking place could offset much of the benefit.”

“Eroding purchasing power through a combination of falling incomes and real exchange rates… afflicts the affordability of food, however cheap it has become on the international market place,” the FAO said on its biannual Food Outlook report.

In a statement, the FAO added that food prices remained high in many developing countries, and access to food by the poor also continued to be threatened by loss of employment, income and other effects of the global economic crisis.

This year’s food importing bill will be still the third highest ever, roughly at the same level of 2007, and well above the pre-food crisis levels of $350bn-$450bn a year.

The forecast of a drop in the world’s import food bill comes even as the price of food commodities such as soyabean, corn and wheat has surged this week to the highest level in eight months, rising 50 per cent from their December’s low.

But the FAO said that “in spite of strong gains in recent weeks, international prices of most agricultural commodities have fallen in 2009 from their 2008 heights.” It added: “Barring major crop setbacks… the food economy looks less vulnerable” this year.

The 2007-08 food crisis saw record prices for agricultural commodities such as wheat, rice, soyabean and corn, triggering food riots in at least 25 countries, from Mexico and Bangladesh to Senegal and Egypt. The crisis was the main factor behind the collapse of the government of Haiti, as people rallied against record rice prices.

Private sector analysts are less optimistic, pointing to falling supplies of soyabean – a key commodity to feed livestock – and a drop in the expected harvest of corn. With inventories still low by historical standards, any weather disruption could boost prices.

The combination of worries is propelling already prices. Soyabean and corn are now trading at the same level they did in January 2008 – about $12.00 and $4.50 a bushel, respectively, but well below last year’s records of $16.50 and $7.50. Wheat is lagging behind, trading at the level of October 2007 – at about $6.50 a bushel, but still far below the 2008 peak of $13.0 a bushel.

Bill Lapp, president of Advanced Economic Solutions, a US-based consultancy which advises leading food companies, says that labelling the current rise in prices as a new food crisis would be “too strong” an expression. But Mr Lapp, a former chief economist at ConAgra Food, the US company, added: “There are risks lying out there that make me concerned about where the agricultural market is heading.”

Among those, he mentions that the world is likely to emerge from the current economic recession with historically low stocks of agricultural commodities. At the same time, the recovery would see the same biofuel mandates and strong consumption from emerging countries such as China or India that were partly behind the 2007-08 crisis.


Courtesy: Financial Times

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Wednesday, 10 June 2009

China is “actively considering” buying up to $50bn of International Monetary Fund bonds, the country’s State Administration of Foreign Exchange has said.

John Lipsky, IMF first deputy managing director, confirmed the Chinese proposal, which follows one by Russia to buy $10bn (€7.1bn, £6.2bn) in IMF bonds.

Friday’s statement by China said any investment would be made according to its usual criteria of “safety and reasonable returns”, but made no mention of Beijing’s wish for more power in IMF decision-making, in return for financial support.

Safe, which controls almost $2,000bn of China’s foreign exchange reserves, added it was ready to help the IMF explore more ways to raise finance.

Mr Lipsky said the Chinese and Russian proposals were part of a commitment made during the London G20 summit in April to augment IMF resources by $500bn, and that the IMF “absolutely welcomes” the commitments.

The IMF expects to submit a proposal in the next few weeks that would allow it to raise money through issuing notes or bonds.

The pledges by both countries seem to have some political motivations – both China and Russia make no secret of their desire to have a greater say in how the IMF commits money.

Vladimir Putin, Russia’s prime minister, proposed the money from Russia, for example, should be earmarked to help Ukraine pay for Russian gas, avoiding a stand-off with Kiev over the issue of gas payments which crippled supplies to Europe in January.

Mr Lipsky said it would be against IMF guidelines to get involved. “The ongoing disputes between Ukraine and Russia are commercial issues,” he said.

“We wouldn’t enter directly into a commercial arrangement but of course our programme contemplates the external funding needs of Ukraine. Our programme is always predicated on helping our member countries meet balance of payments needs. But we would not be involved directly in a commercial transaction.”

Asked if the programme to Ukraine could be increased at all he said: “Never say never, but it would depend on the evolution of events.”

Meanwhile, earlier this year, China’s central bank governor caused a stir in global currency markets when he proposed replacing the US dollar as the world’s reserve currency with Special Drawing Rights, the IMF’s unit of account.

Zhou Xiaochuan also said SDRs should be based on a basket of currencies, including China’s renminbi.

Chinese officials have indicated that at least some of the IMF bonds it will buy will be in SDRs, which would help to diversify its US dollar-dominated foreign exchange reserves.

Courtesy: Financial Times

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Wednesday, 10 June 2009

Standard & Poor’s has sounded the alarm over the creditworthiness of some Asian countries, saying they are at risk of debt downgrades even if the global economy stabilises.

The credit rating agency said on Tuesday that sovereign debt ratings were coming under pressure because of huge economic and financial rescue packages announced by governments that have led to spiralling budget deficits. Recent fiscal measures to fight recession and stabilise banking systems would weigh on the public finances of several Asian economies, S&P said. Rising national debts would put credit ratings under strain.

“The worst of the economic dislocation in Asia-Pacific appears to be over, if recent indicators are to be believed, but fiscal deterioration resulting from stimulus and banking sector support measures will continue to put pressure on a number of sovereign ratings in the medium term,” said S&P.

The agency’s comments follow its recent decision to lower outlooks on India and Taiwan from “stable” to “negative”, a move that reflected the “fiscal deterioration associated with providing support for their respective economies”. Political unrest in Fiji, Sri Lanka and Thailand were also “important reasons for negative actions on sovereign ratings”, S&P said.

Its warning came as Fitch cut Malaysia’s long-term local currency rating from A-plus to A on worries over its growing budget deficit. Analysts estimated that the country’s budget deficit this year could be nearly 5 per cent of gross domestic product after it introduced M$67bn (US$19bn) in stimulus spending since November.

Philippine bond yields are also rising on fears of a bigger budget deficit as officials suggest they may have to return to the overseas debt market and tap concessional loans from multilateral lending agencies.

Margarito Teves, the finance secretary, has said lower tax revenues from a weak economy could force the government to raise its deficit target for a third time this year from $4.2bn.

But S&P said some countries, such as Australia, China and Hong Kong, could assume higher debt without a materially adverse impact on creditworthiness because of the relative strength of their balance sheets.

S&P also warned that the number of corporate defaults in the region this year could exceed those encountered in the 1997-98 Asian financial crisis. “In the next year or so, corporate defaults will likely rise” as “pressures will mount on banking systems in the region,” said Kim Eng Tan, an S&P analyst.

Courtesy: Financial Times

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Wednesday, 10 June 2009


The eurozone needs to do more to shore up its banking system in the wake of the financial crisis, the International Monetary Fund has warned in its annual health check of the European economy .

Whereas the US and UK governments have run stress tests and pushed banks to clear up their balance sheets, in the euro area authorities are criticised for failing to tackle blockages in the financial system.

“To secure recovery and a return to self-sustaining growth, policymakers need to take further decisive action, especially in the financial sector,” the IMF said in its Article IV assessment.

“A key missing element is a proactive strategy to deal with a weakened financial system, involving a review of capital needs to manage the recession, a cleansing of the financial system of its impaired assets, and a restructuring of weakened institutions.”

The Washington-based agency said economic data suggested a moderate decline in the eurozone economy that would give way to a “modest recovery” in the first half of next year.

However, it warned that the rebound “is likely to be slow and its shape and timing highly uncertain”. Unresolved financial problems, the solvency of some countries and the threat of negative feedback effects between economies could all present a drag to the recovery.

Analysts have been concerned that because bank lending is more important to the economies in the euro area than in the US and UK, which have been more dependant on the capital markets, a paralysed banking system could lead to a deeper credit crunch on the Continent.

Although eurozone countries had made strides towards dealing with their financial systems, the IMF said that “sizeable losses lie ahead as the recession unfolds.”

It criticised the “piecemeal approach” to the clean up and said that banks need to undergo stress tests that would assess their capital needs and viability, force them to reveal their impaired assets and restructure if necessary.

The IMF’s warning comes after members of the French Council of Economic Analysis and the German Council of Economic Experts warned in an article in the FT that the reluctance of European governments to conduct harmonised stress tests of their banks and publish the results is delaying economic recovery

On monetary policy, the IMF congratulated the European Central Bank for its “impressive response to the financial crisis” but said that “the supportive monetary stance now needs to be sustained”. In particular, it provided a counterweight to the harsh criticisms by Angela Merkel, the German chancellor, of loose and unconventional monetary policy at the ECB. “To deal with contingencies, all unconventional options ... will need to remain under consideration,” the IMF said.

But it warned of the need to make sure that fiscal policy returned to a sustainable path over the medium term. Proposed levels of discretionary spending were “broadly appropriate” in addition to the fiscal stimulus delivered by automatic rises in welfare spending and falls in tax revenies. However, “to address solvency concerns, short-term actions need to be embedded in credible medium-term consolidation programs,” the IMF said.


Courtesy: Financial Times

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Wednesday, 10 June 2009

Moscow threw its 16-year campaign for World Trade Organisation membership into doubt on Tuesday when Vladimir Putin said Russia would only join as part of a trade bloc with Kazakhstan and Belarus.

Mr Putin, Russia’s prime minister, said in a joint statement that negotiations for all three countries would begin anew on the basis of the customs zone.

“Our priority remains WTO entry, we confirm this, but already as a customs union and not as separate countries.”

The turnround could add another significant delay to Russia’s entry into the 153-member global trade body just as the European Union had said accession was near after more than a decade of stop-start negotiations. Russia is the largest country outside the trading body.

The WTO said it had not received any notification from Russia or its partners of their wish to change the basis of membership talks.

There are no precedents for negotiating the simultaneous WTO accession of all members of a customs union. It would be within the rules, trade officials say, but the three countries would have to agree a common negotiating position in advance and decide who would speak for the customs union.

“The three countries referred to are at very different stages in accession negotiations. It is difficult to see how the negotiation process can be harmonised,” said one EU source. One person close to another large western WTO member said: “We are in deep shock. It looks like they are trying to brake the process.”

Mr Putin’s announcement that Russia was scrapping talks as an individual nation came days after senior EU and US trade officials held top-level talks at the St Petersburg investment forum in which Russian officials said they were committed to ironing out differences to ensure Russia’s soonest possible entry.

Catherine Ashton, EU trade commissioner, had said Russia and the EU had agreed its WTO accession should be completed by the end of the year. Russia’s accession had long been dogged by issues over EU objections to import duties on timber and cars, while talks with the US had stalled after Russia’s war with Georgia last year.

Mr Putin was speaking after the three former Soviet states agreed to create a long-planned customs zone by January 1 2010.

Dmitry Medvedev, the Russian president, said the creation of the customs union did not mean Russia was rejecting membership of the WTO “even though the process dragged out and in recent years was more like a feast of promises”.

Igor Shuvalov, the first deputy prime minister, said joining the WTO as a customs zone would speed the process up rather than slow it down.

The EU trade commission said the EU wanted to probe the comments before drawing conclusions, but a spokesman added that during the talks in St Petersburg “the Russian side said it was committed to WTO accession by the end of the year”.

“But should the basic parameters of these negotiations be changed this would create a new situation,” he said.

Sergei Markov, a member of the ruling United Russia party, said that Russia had grown tired of the repeated delays on accession talks which he said were being caused by politicking by Russia’s western partners.

Courtesy: Financial Times

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Wednesday, 10 June 2009

ISLAMABAD: Prime Minister Syed Yousuf Raza Gilani on Tuesday said the Ministry of Industries and Production has a key role to play in creating an environment for industrial growth in the country.

Pakistan, with a consumer market of 170 million people, abundance of raw material, cheap labour and entrepreneurship is endowed with all the requisites to climb the ladder of industrialisation, he said.

Gilani expressed these views at the Ministry of Industries and Production. He also stressed for an early formulation of an industrial policy. He called upon the need for and up-gradation of industry while ensuring transparency to make it competitive.

Gilani while expressing concern over the output of Pakistan Steel directed the ministry to come up with a business plan to make it a productive unit that is financially sound and economically sustainable. He said industrialisation in the country is not only necessary to generate jobs and economic activities for the poor and meet industrial needs of 170 million people but also to claim Pakistan’s rightful share in the global market.

The Prime Minister directed the ministry to achieve the target of setting up utility stores in each union council. Regarding complaints about supply and sale of sub-standard consumer items at utility stores, he directed the corporation to professionalise its working and ensure both quality and quantity of consumer supplies available.

During the meeting, it was observed that in order to reinvigorate the functioning of PIDC, private sector involvement is a must besides linking of various small technological institutions with some major institutions while focusing on Research and Development.

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Wednesday, 10 June 2009

MUMBAI: India’s tea exports fell 4.46 per cent in April as a domestic crop shortfall, firm internal demand and the global economic downturn weighed, a Tea Board official said on Tuesday.

India exports CTC (crush-tear-curl) tea mainly to Egypt, Pakistan and the UK and the premium orthodox tea to Iraq, Iran and Russia.

Total exports during April were 11.36 million kg, compared with 11.89 million kg a year ago, the official, who did not wish to be identified, told Reuters.

“There is a crop shortage in India because of unfavourable weather. Along with this domestic demand continues to be good,” the official said.

Production during the period fell 22 per cent to 62.59 million kg, he said.

Less off take due to the financial crisis also hurt exports, he added.

Exports from south India fell 35 per cent to 4.44 million kg while that from north India were up 38 per cent to 6.92 million kg.

A revival in overseas orders from Iran, Iraq and Egypt is expected to support exports in the coming months, the official said.

A production shortfall in key producing countries such as Kenya, Sri Lanka is also seen pushing up exports in the coming months, he added.

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Wednesday, 10 June 2009

TALLINN: The latest economic data from ex-communist European Union nations made gloomy reading Tuesday, confirming the extent of the region’s widening and deepening recession.

Figures from the Baltic state of Estonia, which until last year enjoyed a reputation as a flourishing economic “tiger,” showed that its economy shrank by an estimated 15.1 per cent in the first quarter of this year compared with the same period of 2008.

Compared with the fourth quarter of last year, the seasonally-adjusted contraction was 6.1 per cent, as domestic demand and exports withered, the national statistics office said. The picture was worse in neighbouring Latvia, another former growth powerhouse. Latvia is now in the grip of the sharpest slump in the 27-nation EU after rampant inflation and a bursting credit bubble were compounded as the global economic crisis hit its major trading partners in Western Europe and Russia. There, official data upheld a previous estimate of an 18 per cent year-on-year contraction, and an unadjusted 28.7 per cent fall from the fourth quarter. Latvian authorities were due issue seasonally-adjusted figures on Wednesday. Latvia has been struggling to slash its budget in order to meet the terms of a 7.5-billion-euro ($10.5-billion) bailout steered by the International Monetary Fund and the EU, without which officials have warned it could go bankrupt.

The Latvian government is fending off mounting speculation that it may be forced to devalue the national currency, the lat, which is pegged to the euro. There are concerns that the country’s crisis could spill over its borders, notably hitting Western banks that dominate its financial sector.

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Wednesday, 10 June 2009 11:38

ISLAMABAD: The government has decided to impose 5 per cent central excise duty on equipment for call centres and CNG kits and other related equipment in the coming budget.

Moreover, 5 per cent duty will also be placed on equipment relating to civil aviation. “Earlier the said two items were expected from the central excise duty and now the government has decided to take back the exemptions by levying CED by 5 per cent,” said a document obtained from the FBR containing the agreed tax budget’s proposals.

It said the FBR also recommended the imposition of 15 per cent customs duty on tufted carpets and needles pinches in addition, the 5 per cent duty have been recommended, as per the document, on machinery and equipment for balancing modernization and replacement (BMR) purposes and one per cent on machinery and equipment for hotel industry and 5 per cent on industrial related equipment.

However, the government is to erase the 15 per cent customs duty on fully dedicated CNG buses to encourage the CNG run vehicles in the country to make environment of the country clean. In addition, the government is to levy 5 per cent CED on cryogenic tank and 20 per cent on iron, steel, and compressed LPG gases. The CED is also being increased by 25 per cent on led panels, which are used in the advertising industry.

However, the customs duty on dyes have been reduced by 5 per cent from 10 to 5 per cent and chemicals from 25 to 20 per cent and other related items from 16 per cent to 10 per cent, but duty on spin finish oil will be increased to 5 per cent.


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Wednesday, 10 June 2009

LAHORE: Exports of leather sector have dropped 20.42 per cent in 10 months (July-April) of fiscal year 2008-09 and the lost market has been captured by Indian and Bangladeshi leather producers.

According to official data, export of leather fell 26.76 per cent in terms of value and 8.41 per cent in terms of quantity. Pakistan exported $24.79 million worth of leather across the world in July-April 2008-09 compared to exports worth $33.86m in the corresponding period last year.

Export of leather apparel and clothing declined 27.22pc to $32.61m against exports of $44.81m last year. Export of leather gloves, which have a good share in the world market standing at second position due to their high quality, also fell 2.84pc to $12.29m compared to last year’s $12.65m.

However, export of footwear, an allied industry of leather, substantially rose by 12.41pc to $9.04m compared to $8.04m last year.

On the other hand, Indian leather and leather garment exports increased by 27pc during the period under review. Bangladesh also made record exports of leather products, especially footwear which rose by 30 per cent.


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Wednesday, 10 June 2009

ISLAMABAD: The state-run Pakistan State Oil may default on the letters of credit backed by sovereign guarantees and opened for the import of motor gasoline, furnace oil and diesel as the entity is in financial crisis because of circular debt in the energy sector. “Outstanding dues of Pakistan State Oil have swelled to Rs94 billion, which the power sector and the Pakistan International Airlines (PIA) owe

to the company,” a senior official at the Ministry of Petroleum and Natural Resources told The News.

If the indifference on the part of government continues, the fuel supply chain will experience an unprecedented stress, which will aggravate power crisis as 70 per cent electricity is generated from diesel-run powerhouses and in case the fuel supply chain gets disturbed the current power deficit will surge to about 3500 MW.

When contacted Dr Asim Hussain, Advisor to prime Minister on Petroleum confirmed that the PSO is running into massive financial miseries owing to which it is nearing collapse for which he is right now writing an SOS letter to Prime Minister and Finance Ministry seeking the immediate payment of outstanding amounting to Rs50 billion against the total dues of Rs94 billion piled up so far.

Dr Asim Hussain said that Finance Ministry’s chief is also well aware of the situation and is to release the required amount against the outstanding after the budget announcement. “We have 15 days left in being declared as default, but I am hopeful that after the budget some reasonable amount will be disbursed to cash stricken PSO.” To a question if the situation is not rectified then, PSO will be declared default, which will have very negative impact on country’s economy.


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Prices in China fell less sharply last month than in April, official data showed on Wednesday, fuelling hopes that the government’s Rmb4,000bn ($586bn) stimulus measures are beginning to help ease deflationary pressures.

The consumer price index fell 1.4 per cent last month from a year earlier, compared with a 1.5 per cent decline in April, marking the fourth straight month of falling prices. On a month-on-month basis, the National Bureau of Statistics said the CPI dropped 0.3 per cent from April’s level.

The decline in food prices eased significantly, from 1.3 per cent in April to 0.6 per cent in May. Prices of non-food items, however, fell 1.7 per cent last month, more than April’s 1.5 per cent.

China’s property market showed signs of stabilising in May. According to the National Development and Reform Commission, property prices in 70 cities fell 0.6 per cent in May from a year earlier, compared with a 1.1 per cent decline in April. On a month-on-month basis, prices rose 0.6 per cent from April.

However, the producer price index, which measures prices paid at the factory gate, fell 7.2 per cent in May. This was sharper than the 6.6 per cent fall in April.

Economists expected prices to continue falling until later this year but generally thought that the worst of the deflationary pressure had passed.

“The economy has begun to recover since last December. We think inflation will be back in the fourth quarter,” said Zhu Jianfang, chief economist at Citic Securities in Beijing.

“Concerns about deflation are receding as global commodity prices rise and economic indicators generally point to improving fundamentals,” said Jing Ulrich, managing director and chairman of China Equities at JPMorgan.

“The positive wealth effect from the recovery in stock and property prices should lend support to urban household consumption going forward.”

China has targeted headline inflation of 4 per cent this year.

• In Japan, producer prices fell 5.4 per cent in May, the sharpest decline since March 1987. The latest data from the Bank of Japan raised concerns that companies there were still withholding orders due to weak demand.

Courtesy: Financial Times

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Ten financial groups including JPMorgan Chase and Goldman Sachs were on Tuesday allowed to repay a combined $68bn to the US Treasury in a move that marks a turning point in the economic crisis but formalises the divide between healthy and fragile banks.

The companies, which also include Morgan Stanley and American Express, can now shed the restrictions on pay and hiring that came with the troubled asset relief programme launched last year at the height of the turmoil in global markets.


However, the move raises questions over the competitiveness of other big banks such as Citigroup and Bank of America, which have not yet been allowed to repay the combined $90bn in Tarp money they have received.

The first batch of Tarp repayers includes eight banks that last month were found not to need additional capital after government stress tests. Others allowed to return the funds included Morgan Stanley, which was instructed to raise capital, and Northern Trust, a bank catering to wealthy individuals that was not among the 19 institutions subjected to stress tests.

The repayment by the 10 institutions, which stepped up their campaign to be free of Tarp after Congress introduced constraints on bankers’ pay, is a sign of stability in the financial system. The S&P Financials index has more than doubled since March.


Courtesy: Financial Times

President Barack Obama said: “The financial crisis this administration inherited is still creating painful challenges for businesses and families alike. But it is a positive sign.”

The amount due to be repaid far outstrips a previous “conservative” estimate from the Treasury that $25bn would be repaid this year. The authorities have said they could use the repaid funds to help other institutions such as smaller lenders.

The government still owns warrants giving it the right to buy shares in the banks that received Tarp funds in October last year. The Treasury said banks would be allowed to buy back the warrants at “fair market value”, but the issue is controversial because the securities are difficult to value and banks are anxious not to overpay.

Although the banks set to leave Tarp will escape the most strict rules on compensation, Tim Geithner, US Treasury secretary, told Congress that planned reforms – set to be announced in the next few days – would affect all institutions.

“We need to help encourage substantial reforms in compensation reforms,” Mr Geithner said. “I think boards of directors did not do a good job [before the crisis]. I think shareholders did not do a good job.”

The congressional oversight panel, set up to monitor Tarp spending, on Tuesday recommended a new round of stress tests on the banks because of worsening economic data, such as rising unemployment.

The Treasury declined to identify the banks, but people familiar with the list said they were Goldman, Morgan Stanley, JPMorgan, Amex, Northern Trust, BB&T, State Street, US Bancorp, Capital One Financial and Bank of New York Mellon.

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Wednesday, June 10, 2009

Most of the world’s big economies are close to emerging from recession, according to data published on Monday by the Organisation for Economic Co-operation and Development that pointed to a possible recovery by the end of the year.

The Paris-based organisation reported in its latest monthly analysis of forward-looking indicators that a “possible trough” had been reached in April in more developed countries that make up almost three quarters of the world’s gross domestic product.

The composite index for 30 economies rose 0.5 points in April, the second monthly rise in a row, after falling for the previous 21 months. The index seeks to identify turning points in the cycle about six months in advance.

The OECD said its overall measure of advanced member countries – ranging from the eurozone and the UK to the US, Mexico and Japan – now pointed to “recovery” instead of the “strong slowdown” they had been suffering since last August.

“It is still too early to assess whether it is a temporary or a more durable turning point,” the organisation said. But the data “point to a reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, France, Italy and the United Kingdom”.

The improved global outlook came amid evidence that the US jobs market strengthened in May for the first time in 16 months. The Conference Board said its employment trends index moved up to 89.9 last month from 89.7 in April. This follows data last week that showed the US shed far fewer jobs than expected in May.

”The moderation of the last two months is certainly a sign that the decline in job losses is real and signals that the worst is over,” said Gad Levanon, economist at the Conference Board.

Twenty-two out of the 30 OECD countries saw a rise in forward-looking measures of activity. The US saw its first improvement in the outlook since July 2007, while Germany & Japan both among the worst hit economies in the developed world, saw an improvement in their outlook for the first time since early last year.

China had seen a “possible trough”, though India, Brazil and Russia were still facing a sharp slowdown, the OECD said.

The OECD measure is based on data such as share price moves, inventory levels and consumer and business confidence in its member nations.

Courtesy: Financial Times

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