The Senate passes a plan that will force banks to spin off derivatives businesses. German lawmakers agree to provide the country's portion of the $1 trillion eurozone aid plan.
Financial and Banking Sector Reforms!
Indian Holocaust My Father`s Life and Time- Three Hundred Seventy TWO
Palash Biswas
My father Pulin Biswas lived and died for his People, Indian Black Untouchables as an Ambedkarite who was also associated with Indian Communist Movement and Peasants Uprising beside his social activism inflicted with Survival Strategies for the Partition Victim SC OBC Bengali Refugees resettled countrywide!He faced Indian Holocaust bravely and Never had been an Economist. Professionally he was a small Peasant in Nainital Terai who had no Academic Background!Though late Pulin Babu as a committed Father did try his best to educate me, but I Never learnt Economics to understand the Policy Making. But the Global Phenomenon has made me trying Economics as I am also fighting for the very Survival of Our Black Untouchable People in the Killing Fields of Indian Economy, the FOREIGN Territories planted so quickly in Aboriginal Indigenous Human scape and Landscape!
Nit-picking has been high on the agenda when the US got its first non-white President and First Lady. Michelle Obama's evening gown at the State dinner in White House has sparked off a controversy over the description of the dress's colour.The dress in question, which Mrs Obama wore to meet Indian Prime Minister Manmohan Singh at the White House, was described by the designer as a "sterling-silver sequin, abstract floral, nude strapless gown".
Hopefully, back Home in India as the UPA India Incs Government completes its First year in the Second back to back Tenure Monsoon watchers appear to have heaved a sigh of relief on the weakening of cyclone 'Laila' as they believe it would now have little impact on the annual rainfall season.Indian Media celebrates the event as CARNIVAL of NUDE and VULGAR 3G Spectrum Economic Ethnic Cleansing. It is high time to study Amit Bhaduri and Ashok Mitra who thinks quite differently from the Rest of Economists and Intelligentsia!
During the last IPL Budget session, no less than Fifteen Bills Financial have been Guillotined with Excellent Left Right Red Saffron Floor Adjustment which continues to support the Corporate War and Economic ethnic Cleansing by Doubles Players Team of Indian Brahamincal Manusmriti Zionist Hegemony, Pranb Mukherjee the Bengali Kayastha Braham and Chettiar Chidambaram, Perfect LOGO for Brahmin Bania raj Corporate! Marxists get special favour from UPA Remote control as Trade UNION Movement Hijacked by the Marxist have to KILL the Resistance in the Organised sector. Fiscal Reforms, N-Damage Bill, Bank Regulation Bill and a number of Financial Bills have to go through the Monsoon session Indian Parliament represented by Multi Millionaire and Co Opted Enslaved faces. Hence Financial Bill passed in the US Senate gets relevance to understand the US War Economic Periphery!
U.S. stocks fell at the open on Friday, extending Thursday's steep declines, as concerns over the euro-zone debt crisis and U.S. financial reform fractured investor confidence in risky assets.
The Dow Jones industrial average dropped 122.89 points, or 1.22 percent, to 9,945.12. The Standard & Poor's 500 Index fell 13.19 points, or 1.23 percent, to 1,058.40. The Nasdaq Composite Index lost 32.02 points, or 1.45 percent, to 2,171.99.
The S&P 500 dropped below the intraday level hit during the still unexplained market plunge on May 6.
India and the IMF
Updated May 12, 2010
India's growth showing strength in the face of crisis
21 May 2010, 0727 hrs IST,C Rangarajan,(The author is Chairman, Economic Advisory Council to the PM)
The year 2009-10 has seen the Indian economy recovering fast from the impact of the international financial crisis. After having grown at more than 9% per annum for three years, in the second half of 2008-09, the economy slowed to 5.7%. This was the direct consequence of the international financial crisis.
However, it is estimated that the Indian economy would have grown by 7.2% in 2009-10. This is despite a fall in farm production due to drought. The manufacturing sector is doing well. It has grown by 10.9% during the year. The service sector also has done well. The Indian economy will see even better performance in the current year.
Price rise has been a big concern. Inflation as measured by WPI had crossed 10% in February 2010. It was triggered by a shortfall in foodgrains production. But by now the food inflation has spread to other sectors as well. The year-on-year inflation in the manufacturing sector as of April 2010 was 6.7%. Inflation in the non-food manufacturing sector stood at 5.45%.
Controlling inflation should be the policymakers' most important task in the coming months. We have sufficient stocks of foodgrains. As of April 1, 2010, the stock of wheat was 16.13 million tonnes and that of rice 26.7 million tonnes. They are higher than what they were on the corresponding date in the previous year.
We should be able to use the stocks in a manner that leads to the softening of food inflation. Apart from releasing more foodgrains through subsidised public distribution system, the state governments should also identify alternate channels through which stocks can be sold at prices lower than market price, but equal to MSP plus freight.
The recovery is a testimony to the resilience of the Indian economy as well as the response to the policy initiatives taken by the government. An accommodative fiscal policy was adopted. This was done by way of reduction in the excise duty and expansion in public expenditure. Total expenditure under the budget 2009-10 was 36% higher than the budgeted estimates for 2008-09.
This extraordinary increase in government expenditures had resulted in fiscal deficit rising sharply. The revised estimates for 2009-10 show that the fiscal deficit stands at 6.7% of GDP. Obviously, this level of fiscal deficit is not sustainable over a long period.
Wisely, the budget for 2010-11 has brought it down to 5.5% of GDP. A process of fiscal consolidation has thus been put in motion. The budget has struck a proper balance between the need for fiscal consolidation and the need to provide adequate stimulus for growth. After the Greek episode, no one can mock at the critics of high fiscal deficits.
In 2009-10, against the background of the international financial crisis, the Reserve Bank of India adopted a policy of expanding liquidity. Reduction in CRR, repo and reverse repo rates were steps in the right direction. However, it became necessary for the RBI to watch the liquidity situation as the price scenario changed.
The inflationary spurt that was seen the last year was peculiar to the Indian economy. Under these circumstances, the monetary policy must contain the price increase within reasonable limits even as support is provided to facilitate growth. In response to the inflationary situation, the RBI raised the CRR by 75 basis points. More recently, it has raised the repo rate and reverse repo rate as well as CRR by 25 bps. If inflation persists at this level, further tightening may be called for.
Capital inflows have been moderate in 2009-10. Perhaps the addition to reserves has been less than $15 billion.
This is a level of accretion that can be easily absorbed. One should expect the capital inflows to rise in the current year. But it is unlikely to be of the order that should cause serious concern to the level of reserves or the exchange rate. The correction of the appreciation of the real effective exchange rate must come through control of inflation.
As we look ahead, agriculture and power sectors will require attention . We need to ensure that agriculture grows at 4% per annum in the coming decade. In order to meet the 11th Plan target, we may have to add 50,000 mw of capacity in the last two years. We need to gear ourselves up to meet such demanding targets.
The Indian economy is poised to grow between 8% and 8.5% in the current year. If the world economy turns out to be better, growth rate can be even higher.
http://economictimes.indiatimes.com/news/economy/indicators/Indias-growth-showing-strength-in-the-face-of-crisis/articleshow/5956421.cms
3 Indian-origin scientists help create artificial life in US lab
WASHINGTON: Three Indian-origin scientists are part of a team that has for the first time created a synthetic cell, controlled by man-made genetic instructions, which can also reproduce itself. The 24-member team included Sanjay Vashee, Radha Krishnakumar and Prashanth P. Parmar. "We call it the first synthetic cell," said genomics pioneer Craig Venter, who oversaw the project. "These are very much real cells." Developed at a cost of $30 million by the researchers at J. Craig Venter Institute, the experimental one-cell organism opens the way to manipulation of life on a previously unattainable scale, the Wall Street Journal reported. According to experts, scientists have been altering DNA piecemeal for many years, producing genetically engineered plants and animals, but the ability to craft an entire organism offers a new power over life. However, the achievement documented in the journal Science, may stir nagging questions of ethics, law and public safety about artificial life. "This is literally a turning point in the relationship between man and nature," said molecular biologist Richard Ebright at Rutgers University who wasn't involved in the project. "It has the potential to transform genetic engineering. The research is going to explode once you can create designer genomes," David Magnus, director of the Stanford University Center for Biomedical Ethics, was quoted as saying. The new cell, a form of bacteria, was conceived solely as a demonstration project, though several biologists were certain that the laboratory technique used to birth it would soon be applied to other strains of bacteria with commercial potential, the paper said. |
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India eyeing more infrastructure debt funds
21 May 2010, 1453 hrs IST,REUTERS NEW DELHI: India is considering to launch debt funds of $5 to $11 billion each to help build highways and other large infrastructure projects in addition to a similar fund announced last week, a top government official said on Friday. The country aims to spend about $500 billion in the five years to end-March 2012, to overhaul rickety infrastructure that has been a drag on growth for Asia's third largest economy. Brahm Dutt, secretary at the road transport ministry, said the consensus among policymakers was to have a series of funds to finance the ventures rather than go for one $150 billion to $200 billion fund. "The feeling is we should have many more funds of small, small size," Dutt, who was a participant at the meeting last week that decided on the fund plan, told Reuters in an interview. The Planning Commission, which charts out five-year plans for the economy, last week said India would set up an $11 billion infrastructure debt fund by year-end that will help refinance high-cost debt. "One of the views that emerged at the meeting taken by the deputy chairman (of the planning commission) was that we should not have a very large size omnibus fund," Dutt said. FOREIGN, PRIVATE INTEREST India is considering doubling the investment figure in the five years from 2012, and has effected policy changes meant to facilitate greater foreign and private equity participation in the infrastructure projects. The government allows 100 percent foreign direct investment in the road sector, but problems in land acquisition, stringent exit clause and a slow adoption of the toll-road model in India have made foreign investors largely stay away from the sector. Dutt said road projects are "difficult" projects for various reasons, which is forcing foreign investors participate in them in consortium with Indian partners. In December 2009, India amended the exit clause to allow road developers to move out of a project after two years of its completion against the previous norm of 20 years. Dutt hoped the change in the clause would encourage greater foreign participation in the sector, which he said has attracted interests from Deutsche Bank, Spain's Isolux Corsan and Malaysia's IJM. Capacity bottlenecks in the Indian economy, including poor infrastructure, are partly responsible for driving up headline inflation in India to near double digit levels. India last year set a target of building 20 kms of roads a day and has increased the capital spending for the sector in the February's budget by 22 percent to about 222 billion rupees ($4.7 billion). But the country's road-building is currently running only at 12 kilometres a day, which Dutt said is due to "limited" road projects that were awarded previously. "It may happen by 2011/12...average will be much more than 20 km in 2012/13 and it will further go up in 2013/14," he said. |
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Finance Bill, Finance Act, 2008, Budget 2008-2009: Banknet India
Parliament of India
New Bill to empower CAG for auditing accounts of Panchayati Raj ...
6 Apr 2010 ... Financial express latest business and finance news: New Bill to ... the coming (Monsoon) session of Parliament," CAG of India Vinod Rai said ...
www.financialexpress.com/...bill-to.../600400/ - United States - CachedParliament | India Environment Portal
19 May 2010 ... Govt ready to make changes in nuclear liability Bill: Pranab ... "improvements" in the Nuclear Liabilities Bill based on the suggestions of a standing committee of Parliament. ... Source: Financial Express (New Delhi) ...
www.indiaenvironmentportal.org.in/taxonomy/term/3813 - Cached - SimilarCITEE Advocacy
Agenda for India on International Trade Policy ... The competition bill will be introduced in parliament at the start of the monsoon session, which begins ...
www.cuts-international.org/citee-advocacy-complaw.htm - Cached - SimilarGovt mulls rescheduling of budget session: Rediff.com India News
1 Apr 2010 ... It is learnt that the Women's Reservation Bill is not the only item on the agenda when Pranab Mukherjee meets the leaders of political parties in the Parliament on Monday. ... The proposal at the moment is to shut down the House after the finance bill is passed and then have a longer monsoon session ...
news.rediff.com/.../govt-mulls-rescheduling-of-budget-session.htm - CachedCabinet to discuss five education reform bills today - India - The ...
11 Mar 2010 ... Likely to be referred to Parliament's Standing Committee, ... Act. Though the educational malpractices Bill was not on the Cabinet agenda, ...
timesofindia.indiatimes.com/india/Cabinet-to...bills.../5668886.cms - Cacheddemocracyconnect - Monsoon Session-Expected Agenda
9 Aug 2007 ... The Report of the Standing Committee on Finance was presented to ... The State Bank of India (Amendment) Bill, 2006 Introduced on 18 December, 2006. .... the power to the Parliament through a Central Legislation to fix ...
democracyconnect.wikispaces.com/Monsoon+Session-Expected+Agenda - CachedVideo: Gerald Celente on Dori Monson about Fascism « Dprogram.net
23 Mar 2010 ... 2008 Financial Collapse: The Greatest Calamity The World Has ... Esoteric Agenda · Fall Of The Republic · Freedom or Fascism ... #3 – Video: Bill to "Ban" Organic Farming · #4 – Ex-IBM Employee .... -The Death Of Rice In India .... 2 Responses to "Video: Gerald Celente on Dori Monson about Fascism" ...
dprogram.net/.../video-gerald-celente-on-dori-monson-about-fascism/ - CachedGovernor's Press Statement - Reserve Bank of India
20 Apr 2010 ... Simultaneously, the Reserve Bank will vigorously pursue the financial inclusion agenda. I will highlight a few actions we have taken or plan ...
www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=22363 - Cached
Financial and Banking Sector Reforms in India
http://finance.indiamart.com/investment_in_india/financial_banking_sector.htmlThe last decade witnessed the maturity of India's financial markets. Since 1991, every governments of India took major steps in reforming the financial sector of the country. The important achievements in the following fields is discussed under serparate heads:
- Financial markets
- Regulators
- The banking system
- Non-banking finance companies
- The capital market
- Mutual funds
- Overall approach to reforms
- Deregulation of banking system
- Capital market developments
- Consolidation imperative
Financial Markets
In the last decade, Private Sector Institutions played an important role. They grew rapidly in commercial banking and asset management business. With the openings in the insurance sector for these institutions, they started making debt in the market.
Competition among financial intermediaries gradually helped the interest rates to decline. Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high price while depositors had incentives to save. It was something between the nominal rate of interest and the expected rate of inflation.
Regulators
The Finance Ministry continuously formulated major policies in the field of financial sector of the country. The Government accepted the important role of regulators. The Reserve Bank of India (RBI) has become more independant. Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) became important institutions. Opinions are also there that there should be a super-regulator for the financial services sector instead of multiplicity of regulators.
The banking system
Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges.
The RBI has given licences to new private sector banks as part of the liberalisation process. The RBI has also been granting licences to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance.
The PSBs will play an important role in the industry due to its number of branches and foreign banks facing the constrait of limited number of branches. Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines.
Development finance institutions
FIs's access to SLR funds reduced. Now they have to approach the capital market for debt and equity funds.
Convertibility clause no longer obligatory for assistance to corporates sanctioned by term-lending institutions.
Capital adequacy norms extended to financial institutions.
DFIs such as IDBI and ICICI have entered other segments of financial services such as commercial banking, asset management and insurance through separate ventures. The move to universal banking has started.
Non-banking finance companies
In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net owned funds, has been raised to Rs.2 crores.
Until recently, the money market in India was narrow and circumscribed by tight regulations over interest rates and participants. The secondary market was underdeveloped and lacked liquidity. Several measures have been initiated and include new money market instruments, strengthening of existing instruments and setting up of the Discount and Finance House of India (DFHI).
The RBI conducts its sales of dated securities and treasury bills through its open market operations (OMO) window. Primary dealers bid for these securities and also trade in them. The DFHI is the principal agency for developing a secondary market for money market instruments and Government of India treasury bills. The RBI has introduced a liquidity adjustment facility (LAF) in which liquidity is injected through reverse repo auctions and liquidity is sucked out through repo auctions.
On account of the substantial issue of government debt, the gilt- edged market occupies an important position in the financial set- up. The Securities Trading Corporation of India (STCI), which started operations in June 1994 has a mandate to develop the secondary market in government securities.
Long-term debt market: The development of a long-term debt market is crucial to the financing of infrastructure. After bringing some order to the equity market, the SEBI has now decided to concentrate on the development of the debt market. Stamp duty is being withdrawn at the time of dematerialisation of debt instruments in order to encourage paperless trading.
The capital market
The number of shareholders in India is estimated at 25 million. However, only an estimated two lakh persons actively trade in stocks. There has been a dramatic improvement in the country's stock market trading infrastructure during the last few years. Expectations are that India will be an attractive emerging market with tremendous potential. Unfortunately, during recent times the stock markets have been constrained by some unsavoury developments, which has led to retail investors deserting the stock markets.
Mutual funds
The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations, 1996 and amendments thereto. With the issuance of SEBI guidelines, the industry had a framework for the establishment of many more players, both Indian and foreign players.
The Unit Trust of India remains easily the biggest mutual fund controlling a corpus of nearly Rs.70,000 crores, but its share is going down. The biggest shock to the mutual fund industry during recent times was the insecurity generated in the minds of investors regarding the US 64 scheme. With the growth in the securities markets and tax advantages granted for investment in mutual fund units, mutual funds started becoming popular.
The foreign owned AMCs are the ones which are now setting the pace for the industry. They are introducing new products, setting new standards of customer service, improving disclosure standards and experimenting with new types of distribution.
The insurance industry is the latest to be thrown open to competition from the private sector including foreign players. Foreign companies can only enter joint ventures with Indian companies, with participation restricted to 26 per cent of equity. It is too early to conclude whether the erstwhile public sector monopolies will successfully be able to face up to the competition posed by the new players, but it can be expected that the customer will gain from improved service.
The new players will need to bring in innovative products as well as fresh ideas on marketing and distribution, in order to improve the low per capita insurance coverage. Good regulation will, of course, be essential.
Overall approach to reforms
The last ten years have seen major improvements in the working of various financial market participants. The government and the regulatory authorities have followed a step-by-step approach, not a big bang one. The entry of foreign players has assisted in the introduction of international practices and systems. Technology developments have improved customer service. Some gaps however remain (for example: lack of an inter-bank interest rate benchmark, an active corporate debt market and a developed derivatives market). On the whole, the cumulative effect of the developments since 1991 has been quite encouraging. An indication of the strength of the reformed Indian financial system can be seen from the way India was not affected by the Southeast Asian crisis.
However, financial liberalisation alone will not ensure stable economic growth. Some tough decisions still need to be taken. Without fiscal control, financial stability cannot be ensured. The fate of the Fiscal Responsibility Bill remains unknown and high fiscal deficits continue. In the case of financial institutions, the political and legal structures hve to ensure that borrowers repay on time the loans they have taken. The phenomenon of rich industrialists and bankrupt companies continues. Further, frauds cannot be totally prevented, even with the best of regulation. However, punishment has to follow crime, which is often not the case in India.
Deregulation of banking system
Prudential norms were introduced for income recognition, asset classification, provisioning for delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy norms, substantial capital were provided by the Government to PSBs.
Government pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost entirely were deregulated.
New private sector banks allowed to promote and encourage competition. PSBs were encouraged to approach the public for raising resources. Recovery of debts due to banks and the Financial Institutions Act, 1993 was passed, and special recovery tribunals set up to facilitate quicker recovery of loan arrears.
Bank lending norms liberalised and a loan system to ensure better control over credit introduced. Banks asked to set up asset liability management (ALM) systems. RBI guidelines issued for risk management systems in banks encompassing credit, market and operational risks.
A credit information bureau being established to identify bad risks. Derivative products such as forward rate agreements (FRAs) and interest rate swaps (IRSs) introduced.
Capital market developments
The Capital Issues (Control) Act, 1947, repealed, office of the Controller of Capital Issues were abolished and the initial share pricing were decontrolled. SEBI, the capital market regulator was established in 1992.
Foreign institutional investors (FIIs) were allowed to invest in Indian capital markets after registration with the SEBI. Indian companies were permitted to access international capital markets through euro issues.
The National Stock Exchange (NSE), with nationwide stock trading and electronic display, clearing and settlement facilities was established. Several local stock exchanges changed over from floor based trading to screen based trading.
Private mutual funds permitted
The Depositories Act had given a legal framework for the establishment of depositories to record ownership deals in book entry form. Dematerialisation of stocks encouraged paperless trading. Companies were required to disclose all material facts and specific risk factors associated with their projects while making public issues.
To reduce the cost of issue, underwriting by the issuer were made optional, subject to conditions. The practice of making preferential allotment of shares at prices unrelated to the prevailing market prices stopped and fresh guidelines were issued by SEBI.
SEBI reconstituted governing boards of the stock exchanges, introduced capital adequacy norms for brokers, and made rules for making client or broker relationship more transparent which included separation of client and broker accounts.
Buy back of shares allowed
The SEBI started insisting on greater corporate disclosures. Steps were taken to improve corporate governance based on the report of a committee.
SEBI issued detailed employee stock option scheme and employee stock purchase scheme for listed companies.
Standard denomination for equity shares of Rs. 10 and Rs. 100 were abolished. Companies given the freedom to issue dematerialised shares in any denomination.
Derivatives trading starts with index options and futures. A system of rolling settlements introduced. SEBI empowered to register and regulate venture capital funds.
The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating new credit rating agencies as well as introducing a code of conduct for all credit rating agencies operating in India.
Consolidation imperative
Another aspect of the financial sector reforms in India is the consolidation of existing institutions which is especially applicable to the commercial banks. In India the banks are in huge quantity. First, there is no need for 27 PSBs with branches all over India. A number of them can be merged. The merger of Punjab National Bank and New Bank of India was a difficult one, but the situation is different now. No one expected so many employees to take voluntary retirement from PSBs, which at one time were much sought after jobs. Private sector banks will be self consolidated while co-operative and rural banks will be encouraged for consolidation, and anyway play only a niche role.
In the case of insurance, the Life Insurance Corporation of India is a behemoth, while the four public sector general insurance companies will probably move towards consolidation with a bit of nudging. The UTI is yet again a big institution, even though facing difficult times, and most other public sector players are already exiting the mutual fund business. There are a number of small mutual fund players in the private sector, but the business being comparatively new for the private players, it will take some time.
We finally come to convergence in the financial sector, the new buzzword internationally. Hi-tech and the need to meet increasing consumer needs is encouraging convergence, even though it has not always been a success till date. In India organisations such as IDBI, ICICI, HDFC and SBI are already trying to offer various services to the customer under one umbrella. This phenomenon is expected to grow rapidly in the coming years. Where mergers may not be possible, alliances between organisations may be effective. Various forms of bancassurance are being introduced, with the RBI having already come out with detailed guidelines for entry of banks into insurance. The LIC has bought into Corporation Bank in order to spread its insurance distribution network. Both banks and insurance companies have started entering the asset management business, as there is a great deal of synergy among these businesses. The pensions market is expected to open up fresh opportunities for insurance companies and mutual funds.
It is not possible to play the role of the Oracle of Delphi when a vast nation like India is involved. However, a few trends are evident, and the coming decade should be as interesting as the last one.
The Senate passes a plan that will force banks to spin off derivatives businesses. German lawmakers agree to provide the country's portion of the $1 trillion eurozone aid plan.
From the moment she stepped into the limelight, Mrs Obama was hailed as the ''First Lady of Fashion'', the lady who could carry off High Street buys and glittering designer gowns with equal panache.
However, her choice of gown for a State dinner has sparked a debate about race and the delicate matter of whether one can call a dress colour ''nude'' when it really depends on the wearer.
The dress was described by the designer as a "sterling-silver sequin, abstract floral, nude strapless gown".
"We talk of nude now and there is no one colour. It's politically incorrect," The Telegraph quoted Gale Epstein, a lingerie storeowner as saying.
Fashion designers like Vijay Arora and Anjana Bhargav have rubbished such views and said that there's nothing politically incorrect nor racial about the description of the dress and that people should stop reading too much into such things.
Mrs Obama has been keen to showcase an international array of designers, wearing an outfit by Cuban-American Isabel Toledo for her husband's inauguration ceremony and a dress by the Taiwanese-born Jason Wu on the cover of Vogue.
Until now, the biggest controversy over Mrs Obama's appearance was her decision to appear sleeveless in her first official portrait as First Lady, which some critics claiming the bare arms look was too informal for the occasion.
Market Update
Global economic fears add to volatility. The German parliament approves a $1 trillion bailout package, while the US Senate passes a sweeping financial reform bill. Dell misses on gross margins.
Updated at 9:55 a.m. ET
Worries about the global economy continued to rattle investors, but stocks erased big declines after hitting key technical levels in early trading.
At 9:55 a.m. ET, the Dow Jones Industrial Average ($INDU) was down 25 points to 10,051, after sinking nearly 150 points to 9,919 at the open. The Nasdaq Composite Index ($COMPX) had lost 2 points to 2,202, and the Standard & Poor's 500 Index ($INX) was down 1 point to 1,070.
At the market open, the Dow fell below 10,000, a key psychological barrier for the blue-chip index, and S&P fell below the key support level of 1,060.
Michelle Obama evening dress sparks race row over 'nude' description
Michelle Obama and husband Barack at the state dinner for Indian Prime Minister Manmohan Singh. Picture: Getty Images
Thursday May 20 2010
From the moment she stepped into the limelight, Michelle Obama was feted as the 'First Lady of Fashion'.
She was hailed as the successor to Jackie Kennedy, with the style press rhapsodising over her ability to carry off High Street buys and glittering designer gowns with equal panache.
One dress, however, has sent ripples through the fashion world for rather different reasons. Mrs Obama's choice of gown for a State dinner has sparked a debate about race and the delicate matter of whether one can call a dress colour 'nude' when it really depends on the wearer.
The dress in question, which Mrs Obama wore to meet Indian Prime Minister Manmohan Singh at the White House, was described by the designer as a "sterling-silver sequin, abstract floral, nude strapless gown".
That simple description has now caused a stir. "We talk of nude now and there is no one colour. It's politically incorrect," said Gale Epstein, founder of the US lingerie brand Hanky Panky. "There is a wide range for skin tone colours. Human skins tones are a whole colour palette unto themselves." Miss Epstein prefers to use a range of names, from "light chai" to "espresso", to describe her wares.
The Associated Press news agency was compelled to revise its reference to the dress colour from "flesh" to "champagne" after one fashion editor objected, asking: "Whose flesh? Not hers."
Pamella Roland, the eveningwear designer, also weighed into the debate, saying: "Nudes are a group of elegant shades, but there are a lot of specific shades. I can't describe a single specific colour for nude."
The row must be baffling for the designer in question - Naeem Khan, who was born and raised in Mumbai and now works in the US. He declined to comment yesterday but previously spoke of his delight at being chosen to make the dress for Mrs Obama.
"The idea was India - chic, simple, but still very glamorous," he said at the time. "I chose the colour, I chose the embroidery, the cut of the dress, everything. All I had to do was fit it to her.
"I was so joyous - for me to be part of this historic occasion, being Indian, was beyond amazing. It was an incredible moment for me." It took a team of 40 workers three weeks to hand-make the dress in India.
While the debate is conducted in the US over whether the term "nude" should be consigned to fashion history, Indian designers are wondering what all the fuss is about.
Vijay Arora said: "'Nude' covers an array of shades like whites, pinks, yellows, beiges, ivories and browns, so why get bogged down by terminology?"
Another prominent designer, Anjana Bhargav, said there was "nothing politically incorrect" about the term. "Every word can be used differently and, in fashion, it's the colour of your skin."
Mrs Obama has been keen to showcase an international array of designers, wearing an outfit by Cuban-American Isabel Toledo for her husband's inauguration ceremony and a dress by the Taiwanese-born Jason Wu on the cover of Vogue.
Until now, the biggest controversy over Mrs Obama's appearance was her decision to appear sleeveless in her first official portrait as First Lady, which some critics claiming the bare arms look was too informal for the occasion.
- Anita Singh
Consumers may have to pay more for electricity as the generation cost of gas-based units will increase by up to Rs 1.20 per unit following a government move to double the price of natural gas pumped out by state-owned firms.
"The increase in administered gas price will certainly increase the electricity rates because of the obvious cascading effect," power minister Sushil Kumar Shinde said on the sidelines of a Ficci event in New Delhi Thurs day
However, the extent of the hike will depend on the state regulatory authorities.
TODAY - 21 May, 2010
Obama's 'nude' dress row
Michelle Obama has been hailed as a fashion icon but her recent choice of gown for a State dinner has sparked a racial debate. More
Paperback Pickings
The other side of India
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The face you were afraid to see: Essays on the Indian economy (Penguin, Rs 250) by Amit Bhaduri is an important book of essays that examines India's present economic and political reality. This reality, Bhaduri argues, is characterized by a frightening chasm that separates the urban, prosperous classes from the teeming impoverished sections in the hinterland. What is of considerable import is the role that the State plays in widening this chasm. Bhaduri maintains that in a globalized India, the welfare State has transformed itself into the protector of the rights of large corporations. On their behalf, it has taken on the responsibility of gobbling up large tracts of land, and unleashing an unequal development that has brought in its wake the displacement of the poor, destruction of livelihoods and the steady corporatization of agriculture. The media and the middle class also do their bit to sustain this cunning game for the sake of 'progress'.
The essays, with their lucid prose and incisive observations, raise uncomfortable questions. "A Failed World View" shows how economic theory has been appropriated by the ruling classes to sell a one-dimensional model of prosperity. "Development or Developmental Terrorism?" delves into the practice of State terrorism in the name of development while "Predatory Growth", as suggested by the title, exposes India's iniquitous growth curve. It will not be easy to dismiss Bhaduri's arguments as mere leftist rhetoric. To understand why large parts of India are bleeding because of 'people's uprisings', one may have to turn the pages of this book.
Short Takes: Stories from Bangladesh (Frog, Rs 150) by Tanvir Malik casts a critical look at the components that make up life in Bangladesh. Most of the stories are set on Dhaka's streets that come alive with their throng of traffic, beggars and smoke. Dramas are enacted on these stretches, and through these exchanges, one is supposed to decipher the composite image of a nation and its people. In "The Ancient Freedom Fighter", Raihan comes across an old beggar who, having fought for the country's independence, has now been reduced to a pauper. Auto-drivers, beggars and an upwardly mobile individual make their customary appearance in "A Lesson Learnt" as well, while "Gifts" chronicles the evil influence of dowry. The unimaginative plots are disappointing. One also wonders whether the complex web of life in Bangladesh can be captured through a few vignettes of the capital city.
Innovate! 90 days to transform your business (Penguin, Rs 299) by Rekha Shetty is one of those "do-it-yourself" toolkits that help business organizations flourish by ushering in a culture of innovation. This 90-day wonder plan promises to empower employees, start initiatives to rake in profits, build young, proactive teams and also explore options to establish long-term culture change. Entrepreneurs will be greatly impressed by this book, but lay readers may get tired of the corporate jargons.
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The Great Depression of the 40S: A Novel (Penguin, Rs 250) by Rupa Gulab is not about struggling economies. Instead, it is supposed to be a witty take on mid-life crisis and the strange ways in which people deal with it. Forty-three-year-old Mantra decides to chuck her job and soak in the pleasures of retirement. But her plan hits several hurdles in the form of a husband with high cholesterol, her diminished libido, a sister-in-law obsessed with a spectral love, a neighbour who aspires to be on Page 3 and a surly cook. Mantra's battles against all of them, we have been assured, will raise a laugh riot, deepening the lines on the faces of those in her age-group.
http://www.telegraphindia.com/1100521/jsp/opinion/story_12472527.jsp
UPA's mid-life ennui
Fri, May 21 04:46 AM
If economic progress is the touchstone to assess the performance of the United Progressive Alliance in its year one of governance, it scores well. So, Prime Minister Manmohan Singh can gloat over the UPA's deft handling of the global crisis in his Report to the People to be released in the next few days. The people will take it with a pinch of salt, but not create a fuss. A rise in per capita income in India during a period when incomes shrank in the developed world deserves kudos.
But it would be short-sighted to let GDP growth rates or per capita incomes dominate a discussion on overall government performance. Because, for all practical purposes, UPA-II is surprisingly behaving like a mature, but staid, six-year-old government, rather than a nimble, aggressive and keen-to-prove coalition. It has spent much of the last 12 months in consolidating the work or gains of the previous five years.
To make matters worse, the Opposition seems to have lost its plot, frittering away opportunities to bring the ruling party to the dock. It is more divided than ever, and in the process, has left the UPA — Congress and its allies — complacent and a bit arrogant. Mamata Banerjee's Trinamool Congress is unpredictable and M. Karunanidhi's Dravida Munnetra Kazhagam is more concerned about plum ministries. The Congress itself has been more than willing to make compromises in a bid to stay in power. The way it handled the Budget in Parliament — bargaining for BSP support by letting Mayawati off the CBI hook during a BJP-sponsored cut motion — is ample evidence.
Like markets where the current value of a company's stock is dependent on future earnings potential, and inflationary expectations matter more than the current inflation rate in the conduct of monetary policy, so it is with governments. The government's stock today is more about what can be realistically expected from it in the next four years than what it achieved in the past one year. Unfortunately, not many are convinced about big-ticket reforms seeing the light of the day, despite India having a pragmatic economist as its prime minister, a seasoned politician as the finance minister and a forward-looking reformist as the deputy chairman of the Planning Commission. Forget economic reforms, there are no milestone-linked programmes to ensure long-term socio-economic prosperity either. When did we last hear of an objective and targeted plan to address critical issues of poverty, unemployment (linked to it, skill development) and housing (given large-scale rural-to-urban migration)?
There is a feeling, now rife, that the government is increasingly ignoring serious issues, or relegating them to the backburner. Many big-ticket items have been conveniently moved from the "to do" list to the "can wait" list. Drawing the wrong lessons from the global crisis, the government has put financial sector reforms on the backburner. In infrastructure, power and ports are two vital areas that have only seen deterioration. Little to no reforms have already raised electricity costs in India to one of the highest in the world. This will only cripple industry and render it uncompetitive. It beats logic that ports — important from a strategic and geo-political point of view — are being ignored despite India not figuring anywhere even in the Asian pecking order. Global crude oil prices may be low enough — at $70 a barrel — to let oil PSUs adjust fuel product prices on its own, but there is no semblance of any urgency to dismantle the administered pricing mechanism. Neither is there any will to move — be it slow and calibrated — ahead on lending industry some more flexibility in hiring labour without diluting any aspect of workmen's social security net.
In UPA-I, there was significant business being done despite the Left parties, who had very strong ideological views on issues ranging from labour to the financial sector. To handle tricky issues, the government set up many groups of ministers (GoMs). The GoMs, originally conceived by the BJP-led National Democratic Alliance, became an institutional mechanism under the UPA coalition. Pranab Mukherjee, who chaired about 55-56 GoMs in UPA-I admits that the mechanism works well and plays a significant role in carrying the government agenda forward. In UPA-II, he chairs only about 25 GoMs, a sign perhaps of the government's overall lack of interest and urgency in pushing the envelope on issues where there are divergent views.
But, let's give the UPA its due too. The least the Indian people expected from Manmohan Singh (now guru to US President Barack Obama) in his first stint as prime minister was that he would ensure a quick take-off of the country's trillion dollar economy after the global crisis. His government delivered, without any knee-jerk reaction to events that spread panic across the globe and made even the most advanced economies resort to protectionism. The US financial crisis in 2008, that spilled over to the real economy, tested the innate reform credentials of all global leaders. Singh and his lieutenants Montek Singh Ahluwalia and P. Chidambaram were steadfast in their liberal beliefs and steered the Indian economy out of the crisis with least damage. In 2008-09 and 2009-10, when most global economies contracted, India grew 7.5 to 8 per cent.
But, as I said, equity is more about future capability than past laurels. UPA-II has to make the right moves to restore the reformist credentials of its top leaders.
There is a difference between government and governance and one should perhaps review UPA-2's first year in governance, rather than in government. The best contemporary book on the Indian economy, by a long shot, is Arvind Panagariya's India, The Emerging Giant, published in 2008. In that book, Panagariya wrote, "But the resolve within the UPA to move the reforms forward has also been at best weak... Once the UPA publicly embraced the view that the reforms had not helped the poor, its ability to push the reforms was greatly undercut." Let us have another quote, this time from Sherlock Holmes in The Adventure of the Blue Carbuncle. "You fail, however, to reason from what you see. You are too timid in drawing your inferences." Contrary to evidence, a hypothesis floats around that the UPA is a party of reform, reform interpreted as reliance on market mechanisms. This belief, predicated on faith rather than facts, is based on the inclusion of many 1991 vintage reformers in the UPA government. From that belief stems the proposition that UPA-1 couldn't reform because of the Left and constraints of NCMP (National Common Minimum Programme). With these out of the way, we will have a flurry of reforms, barring opposition to privatisation by allies like DMK and Trinamool.
Hence, there was talk of 100-day agendas, reminiscent of 1991, although few ministries or departments bothered to articulate their agendas. Instead of NCMP, there was the President's address to Parliament on June 4, 2009. Since this was drafted by the government, and based on UPA-1's experience, it should be construed as the UPA's interpretation of what could be done, rather than what should be done. There was stuff on security, including the Naxal issue. There was also stuff on the global crisis and inclusiveness of growth. While some of this was vague, we were specifically promised the Unique Identity Card, Right to Education, Food Security Act and GST. There was also a paragraph 32 in the speech, setting out a 100-day agenda—women's reservation (in panchayats and urban local bodies, too), a National Mission on Empowerment of Women, a voluntary national youth corps, restructuring of Backward Regions Grant Fund, a public data policy, strengthening of Right to Information, an Independent Evaluation Office for public expenditure, assorted annual reports, a Voluntary Technical Corps of professionals through JNNURM, scholarships and social security through accounts in post offices and banks, a model Public Services Law, a National Council for Human Resources in Health, a 'brain gain' policy to attract talent into 14 universities, a roadmap for judicial reform, decentralised BPL identification through gram sabhas and urban local bodies, a delivery monitoring body in PMO and quarterly Bharat Nirman reports.
Some of these are impossible to accomplish in 100 days. But then, the country didn't draft paragraph 32, the government did. Therefore, it is entirely legitimate to hold the government to task for failing to live up to its promises. Notice everything doesn't require legislative changes and looking for a scapegoat in parliamentary legislative hurdles isn't warranted. Much can be accomplished through executive action and we are now well past 100 days, indeed beyond 365 days. Where are we? There has been fiscal consolidation and subject to what happens in 2011, the tax (direct and indirect) reform agenda is on schedule. We have a roadmap on judicial reform, although implementation is a different matter. Instead of decentralised identification, there is centralised identification of BPL and the Food Security Act (and Planning Commission) is going around in circles because of it. Education is partly a state subject and given the Seventh Schedule, HRD minister is struggling to push some things through. While constitutionally, health is similar, it isn't obvious what the health minister is up to. The Naxal problem is hardly under control. While development has been recognised as an issue, beyond law and order, check out status of the MIS on the Planning Commission's Web site on developmental programmes in 33 worst Naxal-affected districts. There is a delivery monitoring unit of sorts, but it excludes several ministries/departments and isn't independent. Big bangs have been about lobbying, twittering and fluttering (public squabbles between ministers).
This conveys an impression of a government that is bungling along, made easier by the lack of a credible Opposition. This is no different from UPA-1 and this isn't the first year of Tweedledee, it is the sixth year of Tweedledum. Two other statements follow, the first mentioned by Arvind. UPA occupies Left of Centre and quite a bit to the Left. Those original architects of reform can't believe there is an economic dividend there. But they perceive the political dividend. Second, the engine during UPA-1 was NAC, witness RTI and NREG. With NAC-2, UPA-2 may now have some drive and a locomotive. That locomotive won't necessarily take us in the direction we want, "loco" also being a slang for crazy. But the government should seem less directionless.
The author is a noted economist
Euro crisis not to affect Indian market, say Premji, Mittal
Bangalore, May 21 (ANI): Several Indian industrialists shared WIPRO Chairman Azim Premji's view that the recent financial crisis experienced by the European Union will have least impact on Indian stock markets and the country's economy.
Such were the notions expressed by them at the meeting of the Executive Committee of Federation of Indian Chambers of Commerce and Industry (FICCI), which was held at Bangalore on Friday.
Azim Premji chaired one of the sessions of this meeting that was held on the theme 'Sustainability and Innovations concerning the Indian Industry'.
He said that the monetary crisis in European Union had not affected the projected growth of his company and he hoped it would blow over shortly.
"Greece is the two and a half percent of the entire domestic product of the European Union. Two and a half percent...and its probably what 0.2 percent...0.3 percent of the world GDP," said Azim Premji, Chairman of WIPRO.
He also spoke about the present currency situation in EU that is benefiting the company and resulted in the softening of the rupee as a better currency.
FICCI president Rajan Bharti Mittal said that there are no serious problems of concern for the Indian corporate bodies.
"I think its very minimal...because, we have also heard the finance minister's statement...their will be minimal impact...we are hoping that this a only kind of constraint and restricted here and it doesn't go around in the European Union.
"That will be a huge impact. Today, it will be a marginal persistable impact. I won't say that there is any major concerns," said Rajan Bharti Mittal, President of FCCI.
Recently, European leaders had warned that the debt crisis could spread like a bushfire beyond Greece, which prompted a sell-off in stocks and the Euro.
The Euro hovered near four-year lows against the dollar after Germany banned speculators from short-selling government bonds, fanning concerns that the global economic recovery may be derailed.
India's economy is forecast to expand more than 8 percent this year and corporate earnings have mostly been robust, but the outlook for the stock market has been dented by heavy foreign ithdrawals as the Euro zone crisis sparked a flight away from equities. (ANI)
MARKETS
74.07MARKET UPDATE
Today, the domestic market opened sharply lower, tracking negative global cues. After a gap down opening, the domestic markets gained some momentum in the initial trade, as BSE Sensex managed to recover from the day's low at 16,187.03 and NSE Nifty at 4,842.30. However, the domestic markets failed to gain momentum to extend further to cross above the dotted lines and moved range bound. Moreover, the investors chose to sell off the holdings ahead of the expiry of the near-month May 2010 derivatives contracts on 27th May... » Send to friends
During the afternoon trading session at BSE, Bharti Airtel reported the top gainer from the Sensex pack, as the stock is now trading higher by (1.69 per cent) while NTPC dipped by (3.79 per cent).
At 2:30 PM BSE SENSEX was at 16,389.63 down by 130.05 points or by (0.79 per cent) and the NSE Nifty was trading at 4,919.40, down by 28.20 points or by (0.60 per cent).
The BSE MIDCAP was at 6,672.62 down by 103.68 points or by (1.53 per cent) and the BSE SMLCAP was at 8,391.16 down by 150.01 points or by (1.76 per cent).
The BSE Realty index was at 2,985.68 down by 64.05 points or by (2.10 per cent). The main losers were Anant Raj Inds (5.13 per cent), Phoenix Mills (5.02 per cent), Parsvnath Dev (4.59 per cent), Orbit Corp (3.44 per cent), per cent), D B Realty (3.34 per cent), HDIL (2.84 per cent), Sunteck Realty (2.65 per cent), Unitech (1.99 per cent) and Peninsula Land (1.95 per cent).
The BSE Power index was at 2,922.66 down by 50.40 points or by (1.70 per cent). Lanco Infra (4.13 per cent), NTPC (3.79 per cent), Crompton Greav (3.51 per cent), NHPC (2.78 per cent), Tata Power (2.55 per cent) and Torrent Power (2.18 per cent) were the main losers.
Fur... » Send to friends
On the sectoral front, out of 13 Indices, all the sectoral indices are trading in red.
The market breadth showing overall strength was weak at the moment. On BSE, out of 2,763 stocks traded so far, 2,127 stocks declined whereas 559 stocks advanced and 77 stocks were unchanged.
At 1:22 PM, the BSE Sensex is trading lower by 208.38 points or 1.26 per cent at 16,311.30 while the NSE Nifty was at 4,888.60 down by 59 points or by 1.19 per cent.
The BSE MIDCAP was at 6,647.09 lower by 129.21 points or by 1.91 per cent while the BSE SMLCAP trading at 8,371.45 down by 169.72 points or 1.99 per cent.
On the economic front, the power tariff, which is regulated by the Central Electricity Regulatory Commission (CERC), is expected to rise by around Re. 1 per unit (Kwh), amid the government''s decision to hike the prices of gas.
Gainers from... » Send to friends
At 12.30 PM BSE SENSEX was trading at 16,365.23 down by 154.45 points or (0.93 per cent) and the NSE Nifty was trading at 4,905.25 down by 42.35 points or (0.86 per cent).
The BSE MIDCAP was at 6,666.55 down by 109.75 points or by (1.62 per cent) and the BSE SMLCAP was at 8,398.87 down by 142.30 points or by (1.67 per cent).
On the economic front, the power tariff, which is regulated by the Central Electricity Regulatory ... » Send to friends
At 10.30 IST, the BSE Sensex is trading lower by 224.37 points or by (1.35 per cent) at 16,295.31 and the NSE Nifty is trading lower by 67.35 points or by (1.36 per cent) at 4,880.25.
The BSE Mid Cap is now trading down by 127.02 or by (1.87 per cent) at 6,649.28 and the BSE Small Cap is trading lower by 177.61 points or by (2.07 per cent) to 8,363.56.
Jaypee Infratech which is currently trading at Rs 92.45 at BSE, today listed with discount of nearly 9 per cent over its issue price. Shares of Jaypee Infratech, fell by nearly 12 per cent to touch a low of Rs 90 from its issue price of Rs 102 today smashed badly due to weak sentiments across the markets.
Cairn India dipped by over 2.5 per cent at Rs 271.20 despite good news that it planned to boost production at its oil fields in India after laying a pipeline, which will enable it to sell more oil to refiners.
Lo... » Send to friends
At 09.40 IST, the BSE Sensex is trading lower by 228.54 points or (1.38 per cent) at 16,291.14 and the NSE Nifty is trading down by 70.85 points or (1.43 per cent) at 4,876.75.
The BSE Mid Cap is trading down by 136.29 points or (2.01 per cent) at 6,640.01 and the BSE Small Cap is trading lower by 196.14 points or (2.30 per cent) to 8,345.03.
Losers from the BSE Sensex pack are Hindalco Industries down by (4.92 per cent) at Rs. 148.95 followed by Jai Prakash Associates down by (4.41 per cent) at Rs. 111.50, Tata Motors down by (4.40 per cent) at Rs. 680.75, Sterlite Industries down by (4.06 per cent) at Rs. 625.95.
The Overall market breadth is negative as 240 stocks are advancing while 1767 stocks are declining and the 39 stocks remained unchanged on BSE.
US markets ended in negative territory on Thursday in spite of euro overshadowing dollar in two consecutive sessions. Economic data reported surge in initial jobless claims by 25,000 to 471,000, thus surpassing the expectation, whereas contin... » Send to friends
In the major indices, the Dow Jones Industrial Average (DJIA) closed with a loss of 376.36 points or 3.6 per cent lower at 10,068.01, while NASDAQ index was down by 94.36 points or 4.11 per cent to 2,204.01. The S&P 500 (SPX) fell by 43.46 points or 3.9 per cent lower to 1,071.59.
Crude oil prices declined as a result of rising concern over Europe's crisis' impact on global recovery. Crude oil for June delivery was low by $1.86 or 2.6 per cent to sett » Send to friends
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May food inflation rises 16.49%
- ReutersCountry's food inflation rose marginally for second weeks in a row, which are mainly attributed to dearer fruits and vegetables....
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Uncertainty in the equity markets in recent times has pulled down NAV of most equity schemes. However, in the last one month, dividend yield equity funds have managed to give positive returns as compared to plain vanilla equity diversified schemes.
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AFRICA REACHES EUROPE - The IMF's austerity measures merely hurt the poor | |
| CUTTING CORNERS - ASHOK MITRA | |
Africa had a taste of it in the Sixties and Seventies of the last century. Fledgling governments of countries only recently liberated from the shackles of colonialism were ruled by politicians who sometimes believed in pomp and splendour which drained the exchequers. But, more often, these governments spent more than what they gathered from taxes and other sources partly because of administrative inexperience and partly because of generous expenditure on social welfare measures. These were poor countries, victims of colonial exploitation through the centuries, woefully lacking in food, education and health facilities. In the immediate post-freedom phase, the expectations of the people were high: it was now their own government, so it was taken for granted that satisfying their basic needs would receive priority. The leaders who entered administration did not fail the people's expectations; large sums were set aside for food subsidies, health and education. The excess of expenditure over income in the government budget led to heavy public borrowing and runaway inflation. As it was not unusual for these underdeveloped economies to import capital goods and sometimes foodstuff as well, outlay on imports would also spill beyond earnings from exports, resulting in large gaps in the balance of payments. Played into a difficult corner, these African regimes would look around for succour and would be told by their advisers — mostly expatriate old colonial hands — to approach the International Monetary Fund. The IMF's management had a standard prescription for all countries suffering from balance of payments difficulties. It would be agreeable to extend credit to the woebegone countries, but subject to rigid conditions. The countries must devalue their domestic currencies so as to restrain imports and stimulate exports; they must abandon all restrictive policies which, according to the IMF's doctrine, cast a shadow on entrepreneurial incentive, such as price and exchange controls; cut back drastically expenditure on social welfare activities. They must also add to public revenue by raising indirect taxes — despite the resulting price increase — but never interfere with direct taxes since that might, again, adversely affect incentives. The IMF's particular ire was against 'expansive' wage packets, liberal food subsidies and social security benefits. The hapless country governments would be either bullied or bamboozled into complying with the IMF's directives. Outlay intended for public distribution of essential goods, including, food, loan waiver for farmers, allocation for opening schools and hospitals, pensionary benefits, et al would get drastically reduced along with wage cuts for government and public sector employees. The outcome would be an explosion of public anger, leading to widespread disturbances often culminating in violent demonstrations and riots in Nairobi, Accra, Abidjan or elsewhere. The unsettled conditions would persist for a number of days; some rioters would get killed by police and army firing even as extensive damage would be caused to public property. 'Conditionalities' imposed by the IMF and violence in their wake became the pattern in Africa; the expression 'IMF riots' entered the lexicon. Globalization aims at the integration of the continents, thereby ensuring the greatest good of the greatest number. At least that is how votaries of Western capitalism look at the phenomenon. Forget the plight of the Third World, global integration is, however, creating difficulties for the capitalist order in its own backyard. Problems that were once considered endemic only to the poor economies in Asia, Africa and Latin America are leaving their calling cards at hitherto inconceivable addresses. The IMF riots, for instance, have arrived in Europe. The first of such riots has taken place in Greece, the cradle of European civilization and the land of Socrates, Plato, Aristotle, Aeschylus and Sappho. It all started with the mini-globalization in Europe under the aegis of the European economic union which has abolished inter-country tariffs and introduced a common currency, the euro, for its 27-member nation. These European countries no longer have a currency they can call their own and therefore can have no independent monetary policy. The European Union is supposed to have a unified monetary policy under the overall control of the European Central Bank, which rules over the euro. Not surprisingly, the ECB is dominated by bigwigs from prosperous Germany and France; it has usually little time for economically weaker member-countries like Greece, Spain or Portugal. A new saga was in the making. With the ushering in of the EU and liquidation of trade and fiscal barriers, goods from Germany, France and other relatively advanced West European economies flooded Greece. Local industry went into the doldrums, necessitating State support, apart from social security payments to the unemployed. Public spending rose. Pressure mounted by the North Atlantic Treaty Organisation contributed to an almost uniform increase in defence spending in the West European countries, including the poorest, causing their budgets to be strained further. The richer constituents of the EU reaped the bulk of the benefits of the common market while countries like Greece and Portugal were burdened with bulging fiscal deficits and disequilibrated external accounts. The global meltdown caused by the United States of America's sub-prime crisis two years ago made an already difficult situation much worse. Along with the rest of Europe, the Greek economy, too, sank: the gross domestic product fell, factories closed, the number of the jobless mounted, government revenue too declined while public spending had to go up since the government had to come to the aid of hapless citizens at the receiving end of the ill wind that the global recession was. The fiscal balance went haywire; and the government's debt obligations — mostly to leading commercial banks in Europe — spiralled. The crisis spilled over to the balance of payments as well. Speculators on the prowl in the stock exchanges turned bearish and started selling government bonds. The situation could have been tackled somewhat had the country the prerogative of an independent monetary policy. But the drachma was only a memory, the national currency had been replaced by the euro which was the domain of the ECB. The latter did pretty much nothing even as manipulations by speculators resulted in heavy capital outflows from Greece. The rush to redeem government securities peaked; the nightmare of the government's inability to meet its sovereign debt obligations turned into a stark reality. It is only after the point of no return was reached that the EU chose to bestir itself and accorded some emergency relief. This was, however, piffle, forcing the government in Athens to approach the IMF. The IMF set a prior condition before it would even agree to consider the matter of bailing out the country in distress. Greece must take a number of immediate steps to remedy the fiscal imbalance; its government must cut down on its wage bill and expenditure on social services. The government had no alternative but to fall in: salary reduction has been ordered across the board along with severe curtailment of welfare benefits. Vast sections of the poverty-stricken masses in Greece suddenly found themselves further immiserized. People exploded in anger; the streets of Athens were taken over by violent demonstrators, heralding the arrival of IMF riots to the shores of Europe. The riots were considered by many as precursors of further chaos, and actually accelerated the process of capital flight. Speculators now targeted not only Greek government bonds; securities issued by regimes in Portugal and Spain, too, came under attack. The phenomenon has fast transformed itself into a general flight from the euro to other international currencies. A run against the euro is bound to damage severely the entire European economy. Such a development will not leave unaffected the US still trying to cope with near-stagnant GDP growth and an unemployment rate of 10 per cent. The threat of a calamity clears the cobwebs of the mind. The IMF and the EU have now rushed with a line of credit equivalent to one trillion dollars to be distributed among the weaker Eurozone economies to enable them to tide over the crisis. The reluctance to shed orthodoxy, however, persists. The country governments availing themselves of the credit are enjoined to introduce 'austerity measures', code for squeeze on the poorer sections of the community. There is not a hint, though, of enforcing restrictions on international capital movements to check depredations by speculators on the rampage. The unfairness of it all could not be more glaring. Because some ragamuffins play dirty tricks in the international currency market, the poor in country after country will have to be deprived of their wages, food rations and health cards in the name of 'austerity measures'. No wonder angry demonstrators continue to throng the streets of Athens. |
India and Europe's tribulations
21 May 2010, 0604 hrs IST,Saumitra Chaudhuri,The past month has been eurocentric , and it continues to be so. It is an unfortunate case of delayed effect. After all, the Greece fiscal imbroglio was uncovered by the newly-elected government shortly after it came into power in October 2009. That is, by the standards of the day, a long time ago. So, why is it causing tremors now?
One may recall that there was a major fracas about Dubai in late November 2009, but once cousin Abu Dhabi stepped in and bailed Dubai out, it was over. The problem with Europe is that unlike the emirates, blood runs thinner than water.
It is well understood that when the question of confidence is raised, the best and the only way to respond is immediately . If you let the problem fester, it gets worse and contagion begins to spread.
Why, one wonders, were the authorities in the eurozone so slow in sorting out the problem in Greek? It was a fairly straightforward issue.
The country had borrowed well beyond its means, concealed it, and is now facing a payment crisis. Either other members collectively pay out the cash needed to make Greece solvent for the moment, or suspend it from the eurozone and leave it to the care of the IMF, whose mandate it is to deal with external payments crises.
But the eurozone did not have a provision of extending collective assistance, nor was it willing to face the consequences: question mark on the credibility of the euro likely to flow from suspension of Greece from the monetary union.
Further, as the markets caught on quickly, Greece was not the only one that had lived beyond its means and the idea of bailing out wholesale nearly half of the membership was simply beyond the capacity of the solvent few. Finally, the public in the member countries perceived to be solvent by the rest — most prominently Germany — seemed to be understandably, vehemently opposed to the idea of such bailouts: which were not just massive, but also potentially openended , that is a continuing feature.
Greece joined the eurozone in June 2000. In 1998, its current account deficit (CAD) had been 2.8% of GDP, which jumped to 7.8% in 2000 and remained close to this level till 2005. In 2006, it soared to 11.3% and to 14.6% in 2008. In the nineties, the average CAD had been 2.5%, but it was 9.3% in the next decade. But Greece was not alone.
Portugal had an average CAD of 1.6% till 1997, the year before it joined as a founding member of the eurozone.
Thereafter, this number averaged over 9%. Spain, a comparatively large economy, had an average CAD of 1.7% between 1990 and 1997; thereafter, it was 5.4%.
In the boom years of 2005 to 2008, the CAD that these countries ran up was staggering: Greece 14% in 2007 and 2008, Portugal 10-12 %, Spain 10% in 2007 and 2008. Spare a thought for those lined up to join the eurozone: Estonia with CAD of 18%, Latvia 22% and Montenegro 52%.
http://economictimes.indiatimes.com/opinion/comments--analysis/India-and-Europes-tribulations/articleshow/5956299.cms
Systemic Challenges for Global Finance and Priorities for Reform
Remarks by John Lipsky, First Deputy Managing Director, International Monetary Fund1At the seminar, Reshaping the Global Financial Landscape: Implications for Asia
1. Good afternoon. It is my great pleasure to participate in this seminar co-hosted by the Japanese Ministry of Finance and the IMF Regional Office for Asia and the Pacific. I would like to express my thanks to Vice Minister Tamaki and Deputy Chief Executive Arthur Yuen who have made time from busy schedules to share their valuable insights with us.
2. As we gather here today, events in Europe loom large, so I will begin with some very brief remarks about the IMF's perspective on the evolving situation. The IMF strongly welcomes the far-reaching package of measures adopted by the European Union in creating the European Stabilization Mechanism (ESM) and the supporting actions announced and implemented by the European Central Bank. These measures will strengthen economic and financial stability in the eurozone, improve market functioning and, in turn, boost market confidence. Together with strong implementation by Euro area countries—notably through actions to put public finances on a sustainable path—they will help sustain the global recovery. On the Fund's part, if called upon, we stand ready to support our European members' individual adjustment programs through the design and monitoring of economic measures, and through providing financial support alongside the new ESM, if requested.
3. Looking beyond the recent turbulence in Southern European financial markets, the IMF's assessment is that a deep global downturn has been averted, and the world economy is staging a recovery. Notably, Asia is at the vanguard of the upturn. This turn of events in large part reflects concerted and coordinated policy actions. In general, however, the global recovery remains sluggish, uneven and still in need of policy support. Moreover, as recent events in Greece have shown, risks remain considerable. Unemployment is high across the globe, the financial sector still needs repair, public debt has risen sharply in some countries – including most of the large advanced one—and the welcome resumption of large-scale capital inflows underscores the need for emerging market countries to prepare to meet new challenges.
4. With recoveries taking shape, policymakers have turned with added focus in recent months to the pending issue of financial sector reform. This is entirely appropriate—as we all know, failures of financial regulation and supervision were a major factor behind the current crisis. At the same time, the crisis has refocused attention on guarding against disruptive capital account crises by providing countries access to a credible global financial safety net.
5. Today's seminar is an opportunity to share Asian perspectives on these issues. With efforts to reshape the global financial architecture still very much in a discussion phase, Asia can and should be heard in the international debate. As these discussions gain momentum, the IMF will encourage its members both to consult closely with each other and to coordinate reforms. As we all know, a coherent global approachto these issues offer the best chance of limiting the risk of uncoordinated policies, distorted capital flows, and regulatory arbitrage.
6. Against this backdrop, I would like to focus my remarks on two topics: 1) key priorities for overhauling financial regulation and supervision: and 2) the future role of the IMF in strengthening the global financial safety net.
Building a More Resilient Global Financial Framework: Reform Priorities
7. Turning first to the challenges faced by the global financial system in the wake of the crisis, a consensus has formed that important reforms are needed to ensure that the financial sector can support growth through the efficient allocation of resources —but without leaving economies vulnerable to disruptive crises. There is broad agreement on the key principles of reform—widening the regulatory perimeter to include all systemically important institutions, bolstering supervision, improving the measurement and regulation of systemic risk, and strengthening crisis resolution mechanisms. In addition, there is recognition of the need to create more effective and appropriate limits on leverage and risk-taking. These objectives could be achieved through a combination of regulations and taxes designed to make financial institutions hold more and better quality capital, build buffers during good times, improve liquidity and risk management, and curb excessive leverage.
8. In this context, some important enhancements to the Basel II framework were proposed last December and will be finalized by the end of this year. At the same time, the international community has asked the IMF to collaborate with the Financial Stability Board—the FSB—and its associated international standard-setting bodies to develop stronger international regulation and supervision. In designing these new standards, the desire for greater stability will need to be balanced carefully against the risk of excessive intervention that stifles enterprise and innovation.
9. However, it should be recognized that even with strengthened regulation and supervision, it should be expected that will be failures of individual institutions. After all, regulations are intended to reduce risks to an acceptable level, not to eliminate them altogether, as financial institutions exist to take on some risks. However, the creation of effective resolution mechanisms presumably would reduce the costs of failure. Nonetheless, there will be some expected cost of failure, and it is reasonable to take a considered decision regarding who should bear such costs. Toward this end, the G-20 Leaders at their Pittsburgh Summit asked the IMF to review how the financial sector could make "a fair and substantial" contribution to paying for government interventions to repair the banking system. This is a complex and contentious issue, but some form of levy, charge or tax on financial institutions potentially could serve as a complement to enhanced regulation and supervision—and in support of a resolution mechanism.
10. We presented our initial analysis to the G20 Finance Ministers and Central Bank Governors at their recent Washington, DC meetings. In our interim report, we considered two potential taxes that could be relatively easy to set up and coordinate across borders. First, a Financial Stability Contribution could be levied on risk-adjusted balance sheet variables and used to pay for the fiscal cost of resolving failing institutions, including those currently deemed "too-big-to-fail". In addition, governments might decide to go further—for example, to seek to compensate for an undertaxation of financial institutions resulting from their expemtion from a VAT. In this case, a Financial Activities Tax levied on profits and remuneration effectively would provide a means of taxing the resulting excess profits or rents.
11. I should stress that these proposals are preliminary and simply designed to frame the debate. As we undertake more analysis to refine them for the G-20 summit in June, we will rely critically on feedback from our membership, including Asian members. We already benefited from some input during last month's Spring Meetings of our International Monetary and Financial Committee (IMFC). Ultimately, we shouldn't lose sight of the overarching motivation driving global reform efforts—reducing the risk, and costliness, of future financial failures. In particular, we are stressing two themes. First, that initiatives regarding regulation, supervision, resolution mechanisms and possible charges or taxes must be set in a comprehensive and coherent fashion. And second, that we should be very careful not to repress the legitimate and beneficial functions of the financial sector by imposing too heavy burdens, thus stifling the innovation that is vital for economic growth.
Implications for Asia
12. What could these reform efforts imply for Japan and the rest of Asia?
13. First, it is gratifying to note the remarkable resilience of the region's financial systems during the current crisis. This strong performance owes much to significant structural improvements that were introduced following the Asian crisis. The latest results demonstrate once again that traditional virtues—maintaining adequate capital, avoiding excessive reliance on short-term funding, ensuring proper underwriting standards, and following sound risk management—remain as critical as always. Looking forward, these principles are sure to figure prominently in the reforms that will be enacted globally.
14. Just as they were less effected by the crisis, Asia's banking systems generally will be less affected by reforms than those in the United States and Europe, for example. For the most part, Asian banks already operate under tight liquidity and capital rules, with regulators having adopted a conservative approach in the implementation of Basel II capital requirements. In fact, Japan was one of the first countries to adopt Basel-II, in 2007. In addition, the need to curb risky behavior is less pressing, given that Asian banks typically have a different business model—one that relies on more stable sources of funding and revenue, namely deposits and interest income, respectively. This clearly is the case in Japan.
15. That said, the reform effort will have some regional impact. For instance, reforms regarding the quality of capital will carry implications for some Japanese and Malaysian banks that hold deferred tax assets or hybrid instruments. In addition, new liquidity standards could affect banks in Australia, Korea, and New Zealand that have a relatively high reliance on short-term wholesale funding. Also, if leverage limits include government securities on the asset side, banks in Japan and India could be affected.
16. Of course, reform priorities differ between countries, reflecting their widely differing experiences in the recent crisis. However, no country is immune from the risk of a future—and inevitably global—financial crisis. Indeed, banks and regulators in Asia already have grasped the benefits of introducing some reforms that likely will be adopted internationally —Japanese banks have bolstered their capital positions through share issuances over the last year, New Zealand has introduced a core funding ratio, and Korean regulators are encouraging banks to move to longer-term funding maturities.
17. Some worry that moving too quickly on reforms could stifle still-fragile economic recoveries or that a rigid approach would unfairly burden banks with less risky business models. These are legitimate concerns, and they are being heard by officials. For instance, the Basel reform proposals are not likely to come into effect before end-2012 and are set to be phased in, based on country circumstances. However, early agreement on reforms would alleviate uncertainty about the future shape of the financial system, even as phased implementation ensures that financial systems are not unduly burdened at a time when many need to build up capital. In addition, the relevant officials are cognizant that new regulations and charges should be incentive-compatible and better differentiated, including by linking financial taxes and capital buffers to the riskiness of bank balance sheets. Such refinements demonstrate the benefits that come from all countries carefully considering and contributing to the discourse on reform. Effective cooperation does not require full uniformity, but broad agreement on principles. In the absence of such a dialogue, unilateral actions could be undermined by regulatory arbitrage and would do little to safeguard the stability of the global system as a whole. My IMF colleagues consider it one of our responsibilities to help promote a broad dialogue on these issues.
18. Despite our best efforts, realism counsels that new risks will continue to emerge both within and across borders. As a result, a strong supervisory regime is essential for future success. There are important themes for future improvements in this area. These include building up risk assessment capabilities and incorporating a macro-prudential factors.
19. It is encouraging that so far emerging markets appear to have drawn the right lesson from the crisis—namely, that financial development can bring great benefits if managed adequately, and crises that are not inevitable. With capital flows likely to grow in coming years, achieving new progress in the development of Asia's financial markets will become even more important. Not only will stronger domestic financial systems help to effectively direct the likely strengthening of capital flows, but they also will help make the best use of the region's significant savings.
A Multilayered Global Financial Safety Net: An IMF for the 21st Century
20. Another key lesson from the crisis on which there is broad consensus is the need to further strengthen the global financial safety net. The reforms that I have outlined so far should help lower the risk of a future financial crisis. But risks will not be extinguished altogether. Moreover, history tells us that the next crisis, if and when it comes, is unlikely to exactly mirror recent events, but rather it will be rooted in new vulnerabilities and transmitted through new channels. We should be thinking now how to limit the potential dangers when new risks arise.
21. Looking ahead, the world needs a multilayered global financial safety net that can provide adequate measures of crisis prevention, in addition to stronger means of crisis resolution. Inevitably, IMF lending facilities will be at the core, working in concert with other financing vehicles such as regional financing arrangements and central bank swap lines. I see each of these vehicles as a strand, which if woven together, would build a stronger and more complete net. Each has its unique role.
22. Increasingly the role of the IMF should emcompass providing crisis resolution insurance-like facilities that offer contingent funding, where appropriate, that could be available on very short notice. In addition, the Fund should continue to develop its more traditional countercyclical lending, that is based on the Fund's large liquid resources, and its ability to catalyze private lending through agreed policy frameworks. Central banks have a natural advantage in alleviating specific short-term liquidity pressures, especially among the major markets. The Fed's recent reactivation of its dollar swap line demonstrated how this can be useful in creating confidence in the availability of adequate dollar liquidity in key markets. At the same time, by pooling risks, regional financing arrangements help address idiosyncratic shocks that hit an individual economy.
23. By providing critical financing to a broad array of countries over the last two years, the Fund has played its part as a central pillar in the global financial safety net. But the crisis has shown that to serve as a truly dependable global lender of last resort, the Fund will need adequate resources. Over the past year, our resources have been tripled to over $850 billion. However, our envelope is still smaller as a share of global GDP than it was when the Fund was created. And it is clear that providing insurance-like, crisis prevention facilities in a world of extensive cross-border finance implies the need for adequate contingent liabilities in order to back up the potential creation of significant contingent assets. Recognizing this, during the Annual Meetings last year, members asked us to assess the appropriate size and composition of the Fund's financial base. This topic will be addressed by our membership in the coming months.
24. Of course it is not just the amount of resources that matters, but also how they are deployed. Over the last year, we have overhauled our general lending framework to make it better suited to country needs. We have introduced the Flexible Credit Line—or FCL—through which the IMF now offers a pre-emptive insurance facility, without ex-post conditionality, for members with strong policies. Mexico, Columbia and Poland have used the FCL successfully to help stabilize their financial markets during the crisis. And in our traditional crisis resolution financing, we have streamlined conditionality so that it focuses on the measures that are essential for a particular country to regain macroeconomic stability.
25. Looking ahead, we will examine further reforms of our lending facilities in order to boost the availability of precautionary and crisis financing for our membership. For instance, we could make FCL qualification more predictable, while extending its duration and scope. For those members that do not qualify, alternative contingent instruments that have an element of predictability and automaticity could be designed. At the same time, the Fund is considering how it might be able to offer a short-term contingent facility that would provide adequate liquidity in a timely way in response to future market strains.
26. We are also exploring how we could increase our collaboration with regional reserve pools. Here in Asia, the Chiang Mai Initiative—with $120 billion in pledged reserves—plays an important role in providing financial insurance at the regional level. Potentially the Fund could work cooperatively with the CMI to make our combined resources more effective. As can be seen in the latest developments in Europe, we do not view such regional funds as "competitors." Indeed, they can be a positive and stabilizing force.
27. At its most ambitious, Fund resources could serve as a backstop to regional pools. This has been demonstrated already during the current crisis by the European Union lending in parallel with Fund programs, including in Hungary, Latvia, Romania and most recently, Greece. Such collaboration has clarified that the IMF has a crucial role in dealing with the policy challenges—and potential financial needs—of the eurozone. It also shows that the IMF has an integral role to play in sustaining economic and financial stability in advanced as well as emerging economies.
28. For the IMF to play an effective role in providing global insurance, we will need to ensure that we have the confidence—and the trust—of our member countries. Without these, it will be impossible to succeed in our efforts to strengthen the international monetary system. One way I see of accomplishing this in Asia is for the Fund to collaborate very closely with regional groupings like APEC and ASEAN + 3.
29. Another critical priority is to make new progress in improving our governance. Already we have taken several important steps, including through the quota reforms agreed in 2008. Under these reforms, underrepresented Asian countries stand to gain nearly 3 percentage points in quota share, raising the region's overall IMF quota to about 19 percent. Looking ahead, Asia is expected to gain even more under the Pittsburgh G-20 Summit agreement to shift at least a further 5 percentage points of quota from over-represented to under-represented countries by early 2011. This shift will benefit dynamic emerging markets and developing countries in the region.
Closing Thoughts: Japan and Asia Lead the Way Forward
30. In concluding, I think you will all agree that the crisis presents us with an historic opportunity – in fact, the obligation—to redefine the global financial order to make it stronger, more resilient, and better able to promote growth and prosperity for all. Asia, of course, was not at the epicenter of this crisis and its financial systems have remained sound, offering important lessons for the rest of the world. However, the reforms being discussed on the international stage will have consequences for the region: the changes put in place today will shape the future financial system and its role in the global economy over the next several decades.
31. Just as Asia is leading the world recovery, its voice in these debates will be vital. Asia's important and growing role in international institutions like the IMF provides the region with a key platform. It is also strongly represented in the new, major institutions – the G-20 Leaders process and the FSB. More than at any time in modern history, the region as a whole has the ability to influence global policy making. Moreover, it is in its own interest to do so. Unprecedented global coordination has been the hallmark of this crisis. Now, we together can deliver the financial reforms needed to sustain growth in the post-crisis years. Japan has already shown the way: it was the first country to provide extra resources to the IMF through its generous $100 billion loan, catalyzing the agreement to boost our anti-crisis funding at last year's London G-20 Summit.
32. As it powers the global economy in coming decades, the region will need a resilient financial system that can support growth through sound intermediation, efficient capital allocation, and facilitating innovation. At the same time, putting in place a comprehensive global financial safety net would help the region's vast savings to be invested more effectively, including a shift within Asia from mature economies to less developed ones with rapid growth opportunities. In turn, this could promote regional integration, consistent with Prime Minister Hatoyama's vision for an East Asia Community. The IMF is also playing its part in the region, through active partnerships with our Asian members and regional organizations. This July, we are co-hosting a high-level international conference in Korea, which will bring together leading figures from around the world to showcase Asia's economic dynamism and its evolving role in international policy-making.
33. We are confident that our engagement with the region will strengthen in the years ahead. Thank you very much for your attention, and I look forward to our discussion this afternoon.
1 At the IMF Regional Office for Asia and the Pacific (OAP) and the Japanese Ministry of Finance Seminar on Reshaping the Global Financial Landscape: Implications for Asia Tokyo, Japan: May 18, 2010
IMF EXTERNAL RELATIONS DEPARTMENT
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The Senate passes a plan that will force banks to spin off derivatives businesses. German lawmakers agree to provide the country's portion of the $1 trillion eurozone aid plan.
By Melinda Peer, TheStreet
Stock futures were pointing to a weaker open Friday as investors weighed the Senate's passage of a sweeping overhaul of financial market regulation.
Futures for the S&P 500 ($INX) were down 6.1 points at 1,063.9 and were 6.29 points below fair value. Futures for the Nasdaq ($COMPX) were falling 10.5 points and were 9.27 points below fair value. Stocks plunged Thursday, with major US indices down by 4%.
The Senate passed the financial reform bill by a vote of 59-39. The bill aims to prevent another financial crisis by forcing bank holding companies to spin off profitable derivatives trading operations, limiting the companies' risks. The proposal will go to a conference committee so that it can be reconciled with the House of Representatives' measure.
As more cities mull a soda tax to raise money, the beverage industry marshals its forces.
The city of Philadelphia has a $130 million gap in its budget, and it needs money fast. That's why the mayor originally suggested a 2-cents-per-ounce tax on soda.
The tax proposal has been pared down to half a cent per ounce, according to Philly.com, but it still isn't sitting well with the soda industry. So the industry has offered a bribe: Can the tax, and the city will get $10 million over two years.
The industry says it will put that money into the Pew Charitable Trusts, and it will fund city programs to promote health and fight obesity, Philly.com reports. So should Philadelphia take the money?
Financial, energy and metals stocks lead the market lower. Apple has fallen 11% since April 26. But Procter & Gamble is off just 2%.
Updated: 6:45 p.m. ET.
If you accept the definition of a market correction as a 10% decline from a recent top, the U.S. stock market, as of today, is officially in a correction -- its first since the March 9, 2009, market bottom.
Officially because the Dow Jones Industrial Average ($INDU), the Standard & Poor's 500 Index ($INX) and the Nasdaq Composite Index ($COMPX) have all fallen more than 10% since peaking in April.
The Dow finished the day down 10.2% from its April 26 closing high -- losing 1,136 points in the process. The S&P 500 is off 12% from its April 23 close, and the Nasdaq is off 12.9%.
The correction is quite broad. Seven of the 10 sectors of the S&P 500 are in a correction: energy, materials, industrial, consumer discretionary, health, financial and technology.
The bill is designed to help prevent crises like the 2008 financial panic. Stocks sold off ahead of passage. The bill must be reconciled with a House-passed bill.
Updated at 9:45 p.m. ET.
Senate Democrats finally got what they wanted today: They won a vote to end debate on financial reform legislation. In the evening, they were finally able to get the reform bill itself passed.
The legislation, the biggest overhaul of financial regulation since the Great Depression, is intended to prevent a repeat of the 2008 crisis.
Democratic congressional leaders and the Obama
administration must now work to combine the Senate bill with a version approved by the House in December, a process expected to take several weeks.
The bill's passage could produce a dramatic day on Wall Street. Traders will be watching to see if Germany's parliament approves a $1 trillion rescue package for Greece.
And then there will be the market reaction to the Senate votes today. The prospect of passage turned a nasty day for stocks into a full rout, with financial stocks taking a pounding. The Dow Jones industrials ($INDU) fell 376 points to 10,058. Asian stocks opened sharply lower in Friday trading.
But some analysts argued that the financial stocks may stabilize because clarity about financial reform is starting to emerge.
Passage was assured after the Senate voted to close debate over the legislation. A vote Wednesday failed after several Democratic senators voted no to give their own amendments more time in the sun.
Jobless claims rise, leading economic indicators fall for 1st time in more than a year.
This morning's data failed to revive optimism about the economic recovery in the U.S., as reports on jobless claims and leading economic indicators fell short of expectations.
First-time jobless claims rose by 25,000 to 471,000 last week, the Labor Department reported this morning, up from a revised 446,000 the previous week. Economists had expected 440,000 claims, down from an originally reported 444,000 the previous week.
"Given the reduced confidence people are having in the economic outlook, it just adds to those fears," David Sloan, an economist at 4CAST in New York, told CNBC.com.
Who made Michelle Obama's dresses?
See photos of Michelle Obama's dresses >>
 Britain's Prime Minister Gordon Brown, right, stands with, from left, his wife Sarah Brown, U.S. President Barack Obama and U.S. first lady Michelle Obama on the doorstep of 10 Downing Street, in London, Wednesday, April 1, 2009. (Alastair Grant / AP photo / April 1, 2009) |
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Grade Michelle Obama's outfits
Michelle Obama's inaugural ballgown by Jason Wu? 
Obama's ceremony outfit by Isabel Toledo?
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Worn to Buckingham Palace on the Obamas' first overseas visit since occupying the White House, her Toledo dress with full skirt and tulle underlay earned plaudits precisely for its understatement. For her first meeting with Queen Elizabeth, she topped the sleeveless dress with a black cardigan and a Jason Wu duchess-satin opera coat on the way in.
For dinner later, the cardigan came off—no international incident. (Kennedy and the queen wore sleeveless gowns with gloves for their dinner in 1961.) Nor would it have been scandalous for the Obamas' informal meeting with the queen, for that matter.
"There really aren't the same conservative old rules now," British-born Avril Graham, executive fashion and beauty editor at Harper's Bazaar, said.
Earlier in the day, at 10 Downing St., Obama exuded youthful cheer in a J.Crew sparkling beaded cardigan and skirt in icy-mint dotted jacquard that subliminally reinforced the administration's message of "America's forward-thinking dynamism."
The quoted words, it must be said, are borrowed from an account of one of the other first ladies' visits to London—in 1961, as written in "Jacqueline Kennedy: The White House Years."
But the consensus among Obama fashion pundits is that the kitten-heeled shoe fits.
Drawing parallels, however, is not the same as equating. Obama already has established her individuality through her fashion choices, but with a self-assurance and far-reaching influence similar to her predecessors'.
Kennedy occasionally wore acid yellow, notably in Pakistan where sun-drenched colors reign. But what dignitary besides Obama has successfully adopted the treacherous shade as a signature, including in the Wu chartreuse silk crepe short-sleeve sheath she wore upon arrival Tuesday in England for the G-20 summit?
Pearls are part of the job description of just about every first wife. But on Tuesday, Obama paired hers with another of her signature accessories, a brooch, on the Thakoon ivory tweed grosgrain-trimmed coat she wore before her costume change aboard Air Force One. Some have said Coco Chanel—who advised "before you leave the house, remove one thing"—would frown on this as excess. On the contrary, Graham says that Chanel pioneered the wearing of costume jewelry in just this sort of fun, creative way.
In a stroke of designer diplomacy last year at Buckingham Palace, Bruni-Sarkozy wore dignified Dior—an established French label headed by a Brit, John Galliano. Advancing her own domestic causes at Buckingham Palace, Obama chose the Taiwan-born Wu and Cuban-born Toledo, designers who embody both the entrepreneurial and multicultural spirit of America. The J.Crew ensemble showed her support of more affordable American fashion and the masses who wear it.
Like Princess Diana, Obama has become a fashion superstar in a realm not known for trend setting, though it's worth noting this:
"The queen is also regarded as a bit of a fashion icon herself, someone who's kept her style conservative but elegant," Graham said, which may be one reason Obama chose black for their introduction, to let the queen's pink stand out, in deference.
The younger Princess Diana, like Obama now, broke the mold and had a sense of humor about her choices. "She defined the glamor of that era," Graham said.
Obama's on the same track, epitomizing the high-low stylishness that many women aspire to right now.
For the real showcase showdown in fashion this week, check in Saturday, when the French and American first ladies visit Strasbourg Cathedral in France. Bruni-Sarkozy didn't go to London, so Saturday offers the first glimpse of the two fashion darlings together.
Will one outshine the other, in the way that both tend to upstage their husbands at public appearances (as did Kennedy and Diana)?
Former supermodel Bruni-Sarkozy can be expected to look stunning in just about anything. But if only one contemporary first lady can win a fashion-revolutionary war, we're siding with Michelle Obama.
wdonahue@tribune.com
Indian designers in Obama's 'nude' dress row
London: Nit-picking has been high on the agenda when the US got its first non-white President and First Lady. Michelle Obama's evening gown at the State dinner in White House has sparked off a controversy over the description of the dress's colour.
From the moment she stepped into the limelight, Mrs Obama was hailed as the ''First Lady of Fashion'', the lady who could carry off High Street buys and glittering designer gowns with equal panache.
However, her choice of gown for a State dinner has sparked a debate about race and the delicate matter of whether one can call a dress colour ''nude'' when it really depends on the wearer.
The dress was described by the designer as a "sterling-silver sequin, abstract floral, nude strapless gown". "We talk of nude now and there is no one colour. It''s politically incorrect," The Telegraph quoted Gale Epstein, a lingerie storeowner as saying.
"There is a wide range for skin tone colours. Human skins tones are a whole colour palette unto themselves," Epstein added. Epstein prefers to use a range of names, from "light chai" to "espresso", to describe her wares.
The row must have weighed down on the designer Naeem Khan, who was overjoyed to get this chance of being part of this historic occasion. He, however, refused to comment on the controversy that seems to be swirling around the dress he designed.
Fashion designers like Vijay Arora and Anjana Bhargav have rubbished such views and said that there's nothing politically incorrect nor racial about the description of the dress and that people should stop reading too much into such things.
Mrs Obama has been keen to showcase an international array of designers, wearing an outfit by Cuban-American Isabel Toledo for her husband''s inauguration ceremony and a dress by the Taiwanese-born Jason Wu on the cover of Vogue.
Until now, the biggest controversy over Mrs Obama''s appearance was her decision to appear sleeveless in her first official portrait as First Lady, which some critics claiming the bare arms look was too informal for the occasion.
Source: Agencies
Expert's take on financial reforms expected in the budget 2010-11
India has reaped the benefit of real sector reforms after the opening up of the economy in 1991, reflected in the fact that it is now one of the fastest-growing economies in the world. However, there is quite a distance to be travelled when it comes to reforms in the financial sector.
Over the past two decades, there have been significant reforms, especially in terms of allowing more private banks to operate, the introduction of more products in the equities markets, the creation of a world class securities market infrastructure, and the move towards greater financial inclusion. There is a broad view among economists, policy makers and financial sector players that the government's track record on financial sector reforms has been far from impressive.
The UPA government may have been hamstrung because of the resistance to reforms in the financial sector from the Left parties. That is no longer an alibi. As the finance minister and his team starts working on Budget 2010-11, we present a list of the key reforms, which the government ought to focus upon, according to some of the best and brightest minds in the world of finance, economics and markets.
Uday Kotak
FISCAL CONSOLIDATION
Fiscal deficits may or may not lead to high inflation, depending on whether there is 'fiscal dominance' or 'monetary dominance' in this game of chicken and egg. Difficulties could arise for financial markets if neither the fiscal, nor the monetary authorities blink. Larger government borrowing runs the risk of crowding out private investment.
FOREIGN CAPITAL
Over the last 2 years, fiscal & monetary stimulus had played an important part in shoring growth. India has recovered faster and quicker than most others. We must preserve this advantage by setting the right tone in the Budget, to continue attracting capital inflows. This will help sustain a current account gap.
BANKING
One of the important aspects in the global financial crisis was the role and stability of Indian banks. Therefore, our fiscal policies should continue to strengthen the framework for Indian banks. In that connection, the Budget should address the need for increasing tax deductibility for NPAs of Indian banks from the current limit of 7.5% of the taxable income to 15%.
CO-ORDINATED EXIT
With an already high inflation and fragile growth, we need to tread with care and adopt a gradual approach to withdrawing stimulus. In doing so, there would be need for a high co-ordination between fiscal and monetary policies. Well co-ordinated policies can put India at a sustained growth trajectory of 7.5-8% p.a.
The author is Vice-Chairman, Kotak Mahindra Bank.
Jahangir Aziz
REDUCE DEBT TO GDP RATIO
The budget deficit needs to be brought down because the debt to GDP ratio has gone up sharply and hence, the urgency to bring it down. The economy is recovering and does not need the stimulus. The government borrowing has to be as limited as possible in order to give more space to the private sector.
Mid-term consolidation path
People are looking at what is going to happen in the next 2-3 years down the line. So the need to have medium-term plan in place and the strategy to achieve it. The targets should be in line with the recommendations of the Thirteenth Finance Commission.
Revenue & expenditure reform
In order to put the medium-term path in place, the government needs to address both the revenue side as well as the expenditure side. On the expenditure side, the big question is capping oil and fertiliser subsidies. On the revenue side, the direct tax code and goods & services tax needs to be implemented as soon as possible.
Financial sector reforms
Pending financial sector reforms need to be tabled in the Parliament and passed. If it does not take any steps in this direction, the government's intention towards financial sector reforms will be questioned.
Social safety net
The government needs to expand the social safety net on an ad hoc basis. It should work towards implementing safety net for both rural and urban population.
The author is Chief India economist, JP Morgan.
Kamesh Goyal
FISCAL DEFICIT
The biggest reform measure that the government could possibly undertake is to clearly lay down the roadmap as to how this will be tackled.
HIGHER FDI IN INSURANCE
The bill to increase maximum foreign shareholding in insurance companies to 49% has been pending for a long time. Increase in FDI will have multiple benefits, which includes a boost to the insurance sector and will channnelise household savings into long-term investments.
LEVEL-PLAY FOR INSURANCE COMPANIES
At present, any payment made by a policyholder which does not form part of his savings gets taxed in a ULIP insurance scheme. For mutual funds, it is only on fund management charges that service tax is applied. A level-playing will improve the long-term savings for policyholders.
ENCOURAGE LONG-TERM SAVINGS
There is a host of recommendations which pertain to the distribution of long-term savings products. Similarly, some modifications have been suggested for life insurance in DTC. Status quo should be maintained to ensure that long-term savings do not see a decline.
INTEREST RATES
The high level of growth in recent years have been facilitated by low interest rates. The govt should ensure that a benign interest rate environment is maintained by tackling inflation from the supply side and ensuring that govt borrowing does not push up interest rates.
The author is CEO, Bajaj Alliance India.
Ajay Shah
FISCAL CONSOLIDATION
The debt/GDP ratio must come down sharply through a period of strong primary surplus. In recent decades, India has only had small primary surpluses from '03-04 till '07-08. The FM should get to large primary surpluses so that the debt burden can fall. It's about spending less & raising resources through privatisation.
FISCAL INSTITUTIONAL REFORM
The 3 long-standing issues pending by way of fiscal institutional reform are the project management of the GST and the DMO, and the enactment of a new FRBM Act. The Budget needs to show concrete plans and name specific dates for milestones on each of these fronts.
FINANCIAL SECTOR REFORMS
The technical roadmap for financial sector reforms has been defined by the RH Patil, Percy Mistry & Raghuram Rajan reports. Most of the action points in these reports are languishing. The Budget should take on the agenda of modifying the role of various govt agencies involved in finance, and in rewriting critical legislation, 50-75 years out of touch with today's India.
SCEPTICISM ABOUT UPA'S SCHEMES
The UPA has exuberantly expended resources into its 'flagship schemes' and other expenditure programmes. The important thing today is to shift focus from spending to obtaining a better bang for the buck. Even though private schools spend one-fourth of what is spent in public schools, they deliver roughly the same learning outcomes. This suggests that public expenditure on education is 75% waste. A fresh perspective, of redesigning institutional arrangements to get more bang for the buck, is required.
REFOCUS ON CORE PUBLIC GOODS
A much greater focus of expenditure and the priority of senior ministers needs to go into safety of life & property, as opposed to the traditional emphasis on welfare programmes.
The author is Senior Fellow, NIPFP.
Major Loophole In Senate Financial Reform Bill, Derivatives Reform May Be Illusory
By Contrarian
Published: May 16, 2010
The pending financial reform bill in the Senate may not accomplish President Barack Obama's goal of reforming the unregulated derivatives market, potentially wasting the nation's best opportunity to fix a broken financial system and tarnishing the legacy of those claiming to clean up the markets.
A section of the bill dealing with derivatives, financial instruments that transfer risk, contains a major loophole, according to an email from a consumer-advocacy organization to the Senate Banking Committee obtained by the Huffington Post. The loophole is wide enough to undermine the whole effort to reform a part of the financial market — those derivatives traded between financial firms, like AIG, outside of any government oversight — that's largely blamed for worsening the financial crisis.
"The derivatives market is where a lot of the big, risky financial bets by companies like AIG took place," Obama said on April 16. "There are literally trillions of dollars sloshing around this market that basically changes hands under the cover of darkness. When things go wrong, as they did in AIG, they can bring down the entire economy, and that's why we've got to bring more transparency and oversight when it comes to derivatives and bring them into a framework in which everybody knows exactly what's going on, because we can't afford another AIG." The president added that he would veto legislation that "does not bring the derivatives market under control."
The financial regulatory reform legislation, which is being shepherded through the Senate by Banking Committee Chairman Christopher Dodd (D-Conn.), attempts to rein in the OTC derivatives market by mandating that most trades go through a clearinghouse, a facility that executes trades for parties that are required to post collateral and mark their positions daily to prevailing market prices. So, rather than two financial firms trading with each other — with no oversight — they'd now have to go through this central point. It would shed more light on the market and allow for government regulators to more effectively police it, reformers and Obama administration officials argue.
Standard contracts and those not involving so-called "commercial end users" — firms like Coca-Cola and General Electric that use derivatives as insurance against currency and interest-rate fluctuations, for example — will be required to go through these clearinghouses.
The problem, however, is that there's apparently little consequence if firms evade the requirements, according to the email sent to a Banking Committee staffer by Americans for Financial Reform, an umbrella organization of consumer advocacy, public affairs and union groups arguing for reform. Some of these potential loopholes were first identified by Zach Carter of AlterNet.
"[T]here is no consequence for counterparties who enter into uncleared swaps even after a finding by the [Commodity Futures Trading Commission] or [Securities and Exchange Commission] that the swaps must be cleared," the email reads. The bill "does not prohibit the use of uncleared swaps and, even more egregious, expressly states that no swap can be voided for failure to clear."
In other words, if parties to a swaps contract — a type of derivative that involves regular payments over a specified time period — do not trade via a clearinghouse when they're supposed to, there's no penalty, the group argues. Also, those swaps can't be deemed invalid because of this evasion.
Furthermore, the email points out, even though federal regulators may require that a swap be cleared, they can't mandate a clearinghouse to accept it.
Parties wanting to enter into a typical derivatives contract usually go through a middleman called a Futures Commission Merchant (FCM). The entities will then take the contract and submit it to a clearinghouse. These merchants have the authority to reject contracts.
The biggest futures commission merchants are owned by the largest banks, according to data collected by the CFTC. The largest banks also act as the dealers of derivatives. The big banks dominate the market. They also stand to lose the most revenue because of the increased transparency.
"While [the bill] requires counterparties to submit all swaps for clearing, it does not address the issue of a swap that is submitted but rejected… The explicit authorization to evade clearing establishes a perverse incentive," the email argues.
In short, if a swap is rejected it can continue to be traded "under the cover of darkness." The big banks can decide when to reject a swap.
"Moreover, [the bill] prohibits the CFTC from forcing a [clearinghouse] to accept a swap for clearing. Since clearinghouses have no incentive to list a swap that regulators deem must be cleared, and there is no consequence for trading an uncleared swap, counterparties are likely to exploit this loophole and continue to use uncleared swaps in an unregulated marketplace," the email states.
"Further, [the bill] states that a swap that does not clear may not be deemed void or unenforceable. The lack of an express ban on uncleared swaps… converts the clearing requirement into a mere suggestion," according to the email.
The email suggests a fix to strengthen this "mere suggestion" into a requirement.
Kirstin Brost, a spokeswoman for the Senate Banking Committee, said in an email that the current bill calls for "serious penalties" if parties don't comply with the requirements of the legislation. She pointed to a Friday memo prepared by the Congressional Research Service, the in-house research unit for members of Congress and their staffs, that outlines the possible criminal and civil sanctions.
For example, the CFTC can levy fines up to "triple the monetary gain" of each person that violates a regulation. It also can suspend or revoke a bank's registration, or bring criminal charges.
This depends, though, on who's leading the CFTC. The current chairman, Gary Gensler, appears to be committed to cleaning up the market, imposing order, and fighting vigorously to ensure the legislation is as tough as possible. He's among the few policymakers actively fighting against loopholes for special interests, like companies that want to evade the clearing requirement — which would require higher costs — by claiming an exemption. The legislation already features this exemption.
Gensler, though, is a political appointee. There's no guarantee future chairmen will be as committed to policing the market, which makes the legislation that much more important.
http://www.investingcontrarian.com/financial-news-network/major-loophole-in-senate-financial-reform-bill-derivatives-reform-may-be-illusory/Top Stories
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