IMF economists see dire future for US taxpayers

AFP, WASHINGTON, April 4: Americans will need to pay much heavier taxes and accept less from public healthcare to put state finances on a sustainable track, according to an IMF study published Monday.

'The United States is facing an untenable fiscal situation due to the combination of high fiscal deficits, an aging population and rapid growth in government-provided healthcare benefits,' three International Monetary Fund economists said in a report.

The economists analyzed the large US public deficit and debt levels and their relation to the demands aging Baby Boomers will place on the government's Medicare and Medicaid healthcare programs, while the birth rate lags at a record low.

In 'An Analysis of US Fiscal and Generational Imbalances: Who Will Pay and How?,' they said the problem lies in government entitlement programs and especially healthcare—among the most expensive in the world—that face rapidly rising costs in coming years.

Under their 'baseline scenario,' Americans need to pay more taxes and the government must cut spending on Baby Boomers—those Americans between about 45 and 65 -- and their immediate heirs.

Such steps 'would go a long way in returning the United States to a fiscally sustainable path.'

Fully eliminating current deficits and the long-term shortfalls on social plan commitments for the current generation 'would require all taxes to go up and all transfers to be cut immediately and permanently by 35 per cent,' they said.

'A delay in the adjustment makes it more costly,' they wrote.

'Unless currently living Americans pay more in net taxes or unless government spending on current generations is curtailed, future Americans will face net tax rates that are about 21.5 per centage points... higher than those facing current newborn Americans.'

The study came amid budget tensions between President Barack Obama's administration and opposition Republicans over taxes and spending, and as the spiraling US public debt nears its statutory ceiling of about $14.3 trillion.

The Treasury Department said debt totaled $14.19 trillion as of February 28.

Republicans have said any increase in the debt ceiling must be coupled to deep spending cuts, while denying that they will let Washington default on its obligations and precipitate a likely financial crisis.

The authors of the IMF study were economists Nicoletta Batini, Giovanni Callegari and Julia Guerreiro.

Australia holds interest rates at 4.75pc

AFP, SYDNEY, April 5: Australia's central bank kept interest rates unchanged at 4.75 per cent Tuesday, in line with expectations, saying inflation was likely to stay within target.

The Reserve Bank of Australia last hiked the cash rate in November 2010 in a pre-emptive move against inflation amid the threat of rising commodity prices and a tightening labour market.

'At today's meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook,' said Reserve Bank of Australia governor Glenn Stevens.

'Inflation is consistent with the medium-term objective of monetary policy, having declined significantly from its peak in 2008.

'These moderate outcomes are being assisted by the high level of the exchange rate, the earlier decline in wages growth and strong competition in some key markets, which have worked to offset large rises in utilities prices.'

He added that production losses due to floods in Queensland in January were temporarily raising prices for some agricultural produce, which will boost the March quarter consumer price index.

'But these prices should fall back later in the year. Overall, looking through these temporary effects, the Bank expects that inflation over the year ahead will continue to be consistent with the 2-3 per cent target.'

Moody’s downgrades Portugal rating by a notch

AFP, PARIS, April 5: Moody's Investors Service on Tuesday downgraded Portugal's ratings by a notch from A3 to Baa1 and warned that it expected the country to have to seek outside help to resolve its debt problems.

Moody's said its decision was 'driven primarily by increased political, budgetary and economic uncertainty, which increase the risk that the government will be unable to achieve (its) ambitious deficit reduction targets' in the period 2011-2014.

The downgrade follows others by Moody's itself and the other top ratings agencies after parliament rejected the government's latest austerity package last month, forcing its resignation.

The markets increasingly believe that Lisbon will be forced to seek outside help, like fellow eurozone strugglers Greece and Ireland last year, and are demanding ever higher rates of return to provide fresh funds to cover its debt.

On Monday, the rate of return on Portugal's benchmark 10-year bonds rose for a 10^th straight session to record highs near 8.5 per cent, an unsustainable level to have to pay for long-term funding.

Moody's said the political outlook—with elections to be held June 5 -- was uncertain following the resignation of the government and noted figures last week showing that Portugal missed its key deficit reduction targets.

The government had aimed for a public deficit of 7.3 per cent of Gross Domestic Product in 2010 but this was revised up to 8.6 per cent, even further away from the EU limit of 3.0 per cent. The target for this year is 4.6 per cent.

Moody's warned that the terms of the recently agreed European Stability Mechanism (ESM) 'contemplates debt restructuring as a distinct possibility,' meaning that investors could lose money by investing in Portuguese bonds.

The ESM is to replace in 2013 the European Financial Stability Facility (EFSF) set up last year after the EU and International Monetary Fund bailed out Greece in May to prevent a debt default.

Moody's said it believes that the 'new government will likely approach the facility as a matter of urgency' to secure help as Portugal will not easily be able to raise fresh funds from the money markets for some time.

It was unclear how Lisbon was going to cover its debt refinancing needs over the next few months but Moody's said its eurozone partners would likely provide help on a short-term basis before it tapped the EFSF.

A ratings downgrade, which increases the risk profile of the affected country, usually results in it having to pay higher interest rates to raise fresh funds, adding to the pressure.

Malaysia exports up 10.7pc in February

AFP, KUALA LUMPUR, April 5: Malaysia on Tuesday said its exports, the mainstay of the country's economy, rose 10.7 per cent year-on-year in February although at a slower rate than the previous month.

The trade ministry said overseas shipments had hit 51.85 billion ringgit ($17.1 billion) while imports grew by 11.5 per cent to 39.21 billion ringgit.

It said total trade for February saw an annual increase of 11.0 per cent to 91.06 billion ringgit but exports decreased 5.5 per cent from January.

The increase in shipments was boosted by electrical and electronic products, liquefied natural gas, palm oil, chemicals and chemical products.

Electrical and electronic items account for about 40 per cent of Malaysia's total exports to key markets such as Singapore, China, United States, Japan and Hong Kong.

Export-dependent Malaysia, Southeast Asia's third-largest economy, was hit hard by the global slowdown but it rebounded with an impressive 7.2 per cent growth in 2010 and it is expected to grow five to six per cent this year.

Since taking power in 2009 Prime Minister Najib Razak has unveiled a series of economic reforms aimed at creating 3.3 million jobs and pushing the country towards developed nation status by 2020.

Among his promises are major infrastructure projects and financial market liberalisation, which came with a vow to stimulate the private sector to attract much-needed foreign investment.

European Commission wants more ambitious rescue fund

AFP, STRASBOURG, April 5: Eurozone governments should have taken more ambitious steps to strengthen the bloc's debt rescue mechanism, the European Commission president said Tuesday.

Jose Manuel Barroso, the head of the European Union's executive arm, said the 700-billion-euro European Stability Mechanism that was agreed by EU leaders last month was an 'important' move to protect the euro.

But the commission wanted the ESM, a permanent mechanism that will replace a temporary fund from 2013, to be given 'more flexibility' to help heavily-indebted nations, Barroso told the European Parliament.

'I will not hide the fact that the commission would have wanted to go further in several aspects of economic governance,' he said, referring to the principle of greater economic policy coordination within the EU.

The ESM will be allowed to buy bonds in the primary market—where states directly raise funds from investors—in return for strict budget cuts and other economic reforms agreed with the EU and the IMF where bailout loans are involved.

But the commission also wanted the ESM to be able to buy sovereign bonds of states in trouble in secondary markets where investors trade public debt. This would relieve the European Central Bank from a role it has had to take up on its own and which it wants to drop.

The EU executive also wanted the mechanism to provide more flexible lines of short-term credit for countries in financial difficulties to avoid the need for huge rescue plans.

After providing a bailout to Greece last year, the EU created a 440-billion-euro rescue fund to help any other state in the eurozone.

Ireland was the first state to tap that fund—the European Financial Stability Facility—late last year and fears have grown that Portugal too may need its own rescue package soon.

Bankers to succeed officials at Russia company boards

AFP, MOSCOW, April 5: Russia plans to pick investment bankers and professional directors to replace government officials at state company boards in line with President Dmitry Medvedev's orders, a report said on Tuesday.

Kommersant business daily published a list of candidates who could replace deputy prime ministers and ministers on the boards of the top 19 companies which accounted for 15 per cent of the country's gross domestic product in 2009.

Last week, Medvedev reeled off a list of measures to improve the investment climate that among other things calls for some of Prime Minister Vladimir Putin's most trusted allies to stand down from company boards.

This prompted some observers to speculate that the Kremlin chief is seeking to assert himself ahead of presidential polls next year.

According to Kommersant, Igor Sechin, Putin's influential deputy and energy czar, could be replaced by Rair Simonyan, non-executive chairman at Morgan Stanley Russia, or Vyacheslav Martynov, general director for SAP CIS.

Finance Minister Alexei Kudrin, who has to quit the board of VTB bank, could be replaced by Vladimir Gusakov, vice-president of MICEX exchange, former deputy economics minister Kirill Androsov or Nikolai Pryanishnikov, president of Microsoft Russia, the report said.

On Saturday, the Kremlin published a list of 17 companies whose boards state officials should leave by July 1. The Kremlin added that government officials should quit boards of all state companies by October 1.

Kommersant indicated that even though the lists of successors appeared to have been put together in haste, it must have taken at least several weeks to compile them.

'The presidential initiative was clearly not a completely impromptu move,' it said.

While many economists have said that if implemented, the move would improve corporate governance, others say Medvedev's order is another false dawn in an uphill struggle to dismantle a system of state control over the economy put in place under his predecessor.

Quake cuts Japan growth sharply, pickup Q3: OECD

AFP, Paris, April 5: Japanese growth will be hit sharply by last month's devastating earthquake but the economy should begin to pick up again in the third quarter as reconstruction kicks in, the OECD said Tuesday.

The Paris-based Organisation for Economic Development and Cooperation said in a report that at this stage establishing the impact of the earthquake, tsunami and resulting nuclear disaster was very difficult.

However, as a first estimate, 'growth in Japan might be reduced between 0.2 and 0.6 per centage points ... in the first quarter and by somewhere between 0.5 and 1.4 per centage points in the second quarter,' the report said.

'This includes the impact of the disaster on production in the areas hit directly, the rationing of power, the hit to confidence and supply chain disruptions.

'Reconstruction efforts are likely to begin relatively quickly and these could begin to outweigh the negative effects ... as early as the third quarter.'

At the same time, the OECD said growth in the Group of Seven top industrialised countries, excluding Japan, appears to have been faster than expected in early 2011.

As a result, the OECD said it expected 'growth in the G7 economies outside Japan could rise to an annualised rate of about 3.0 per cent in the first half of the year.'

The OECD, which groups the world's top developed economies, said that while labour market conditions have been improving, OECD-wide unemployment remains more than two per centage points above pre-crisis levels.

Inflation, too, due to rising commodity prices is on the increase, it added.

In terms of downside risks, the OECD said instability in the Middle East and North Africa driving oil prices higher 'could act as a drag on economic activity in the near term.'

The continuing eurozone debt crisis, especially in weaker member states, was another source of concern, it added.

On the positive side, the OECD said 'non-financial corporate balance sheets look very healthy and this could add momentum to economic growth via private investment.

'Moreover, in spite of still high unemployment in many countries, developments in labour markets look better than expected a few months ago, which could have a favourable impact on private consumption.

'More generally, the underlying momentum in economic growth in most countries appears stronger than in earlier projections,' it said, adding that overall 'it seems likely that the recovery is becoming self-sustained.'

Russian leader decries low level of US investment

AFP, New York, April 4: Russian Deputy Prime Minister Sergei Ivanov said Monday he was dissatisfied with the level of US investment in his country, and argued that Moscow is making strides in combating corruption and enforcing the rule of law.

Speaking at the Council on Foreign Relations in New York, Ivanov said his government wants to improve economic ties with the United States.

'American investments in Russia represent 2.8 per cent of the total, with $7.3 billion. Sweden invests more in Russia,' he said.

'We are not satisfied—we want to develop the cooperation in space, in information technologies, in nuclear technologies.'

Ivanov said Russia is not among the top 20 US trading partners and accounts for less than one per cent of US trade, adding: 'Isn't it a shame?'

Russia joined the World Trade Organization last year, but US Vice President Joe Biden said last month after a visit to Moscow that this was not enough to attract capital if investors are concerned about the rule of law.

'There is corruption (in Russia), there is occasionally misuse of law,' Ivanov acknowledged.

'But we are fighting corruption... I wouldn't lie and promise you that we will become like Norway or New Zealand, but I think the US is not in the top five' in countries free from corruption, he said.

Biden warned last month that Russia needed to cleanse corruption in business and the legal system and forge democracy to fully benefit from joining the World Trade Organization.

Biden, in an opinion article for the International Herald Tribune, said that 'only bold and genuine change' could entice Russia's desired share of international investors.

Banker to the poor falls foul of Bangladesh politics

Reuters, Dhaka, April 5: For millions of Bangladeshis, Nobel laureate Muhammad Yunus is a hero whose bank helped them escape poverty through small loans. But for a government apparently furious at his pretensions to power, he is nothing short of a villain.

Prime Minister Sheikh Hasina's government seems to be waging a campaign to discredit the 70-year-old financier, whose crime appears to have been considering setting up a political party to rival Hasina's Awami League in 2007.

No one has yet determined what may have gone wrong, but analysts say the government's reputation, and Grameen Bank's assistance to the poor, will be the biggest losers from what increasingly looks like a personal vendetta.

Yunus's troubles started after the government pounced on a Norwegian television documentary that alleged financial irregularities at his Grameen Bank. Yunus denied any wrongdoing and an investigation by the Norwegian government later showed the allegations were false.

But Hasina derided Yunus as a 'bloodsucker of the poor' and the Bangladesh media vilified one of the country's most internationally recognised sons.

The finance minister demanded Yunus quit the bank that he founded 30 years ago and on Tuesday, Yunus lost his appeal to the supreme court against a high court decision backing his removal by the central bank from his post as managing director of Grameen.

Yunus is no stranger to controversy.

He founded Grameen Bank, which has made more than $10.2 billion in loans to poor Bangladeshis, providing a lifeline for millions and a banking model that has been copied in more than 100 nations from the United States to Uganda.

But critics in Bangladesh and other countries, including neighbouring India, say microlenders charge excessive rates and make money out of the poor.

Yunus's philosophy from the outset was to help the poor to help themselves, and he has admitted to not giving money to beggars, even when they are blind or crippled.

'I feel bad—sometimes I feel terrible—that I'm denying the person. But I restrain myself. I never give them (anything),' Yunus told Reuters several years ago. 'I would rather try to solve the problem than just give them a hand and take care of them for the day.'

The economics professor, who along with his bank won the 2006 Nobel Peace Prize, has been trying to solve the problem of poverty since 1976, when he loaned the equivalent of $27 to 42 women in a village near his home in the southern port of Chittagong.

Yunus's initial aim was to persuade a local bank manager to offer them credit, but bankers said guarantees were required.

Yunus set out to prove them wrong and has never looked back. Grameen, which means village in Bengali, now disburses tens of millions of dollars a month to 6.6 million borrowers, of which 97 percent are women.

Grameen Bank recovers nearly 99 percent of its loans though borrowers need put up no collateral and pay a 20 percent interest rate on income-generating loans, always for one year.

With the Nobel prize came fame, international invitations and awards. Among these was a 2009 meeting with U.S. President Barack Obama, who conferred on him the Presidential Medal of Freedom, America's highest civilian award.

But the frequent trips drew criticism from the government.

Finance Minister Abul Maal Abdul Muhith said Yunus should have sought prior permission from the government before going abroad as the government held 25 percent of shares in the bank.

Yunus' removal, officials said, was linked to his staying on illegally as the bank's managing director in violation of laws setting down a retirement age of 60.

Pressure began to build after the broadcast last year of a Norwegian television documentary alleging Grameen had shifted funds from the Norwegian aid agency to dodge taxes.

But it was his shortlived attempt to found a party in 2007 -- when Bangladesh was under interim military rule—that appears to have put Yunus on the wrong side of the authorities.

He stepped back from the idea, saying it would not sit well with Bangladesh's traditional politics and cycles of unrest.

Born in 1940 in Chittagong, the commercial centre of what was then eastern Bengal, Yunus was the son of a goldsmith, one of 14 children, five of whom died in childbirth.

A famine that swept through Bangladesh in 1974, leaving hundreds of thousands dead, changed his life—a university field trip made him question how modern economic theories could deliver social justice to the poor.

Bangladesh's Muhammad Yunus loses appeal against sacking

AFP, Dhaka, April 5: Bangladesh's Supreme Court on Tuesday dismissed Nobel-winning Muhammad Yunus's final appeal against a central bank order sacking him from the microfinance bank he founded, Yunus's lawyer told AFP.

"The appeal has been dismissed by the Supreme Court," Tamin Husain Shawan said.

Yunus, 70, was removed from his position as managing director of Grameen Bank on March 2 but defied the order, returning to work and lodging a legal case challenging his dismissal.