Headlines For Thursday, February 22, 2007
South Africa Unveils First Ever Budget Surplus
“South Africa unveiled its first budget surplus ever Wednesday, with Finance Minister Trevor Manuel pointing to a surplus of 0.3 percent of gross domestic product for the 2006/07 financial year thanks to stronger than expected revenue.
Manuel said the surplus is expected to grow to 0.6 percent of GDP in 2007/08, before returning to a deficit of just 0.1 percent the following year and 0.4 percent in 2009/10. South Africa's financial year runs to the end of February. Although running a surplus, the government continues to raise spending, targeting among other things healthcare and crime. ‘The focus of this year's tax proposals is to accelerate sustainable growth, investment and job creation, reinforcing South Africa's attractiveness as an investment destination, lowering the cost of doing business, and initiating social security and retirement reforms that reduce household vulnerability,’ the budget document said. …” [Dow Jones/Factiva]
AP writes that “… Flush with funds from unexpectedly high tax revenues, the government plans to spend 534 billion rands ($75 billion) this year - and will prioritize the poor, Manuel told parliament. … His speech was greeted with a standing ovation, but the opposition Democratic Alliance said he had failed to ‘give any significant measures to stimulate the supply-side of the economy, boost confidence, bring down the cost of doing business in South Africa and stimulate private sector investment.’ A coalition of trade union, church and non-governmental groups, which had advocated a ‘People's Budget’ described it as a ‘missed opportunity.’ … However, most business groups gave the budget a cautious welcome. …” [The Associated Press/Factiva]
AFP reports that “… Just over eight billion rand would be made available for more and better paid teachers and 5.3 billion rand for staff in the health sector. An extra 1.7 billion rand was set aside to double the number of people on government-sponsored AIDS treatment to 500,000 in the next three years. One billion rand would be spent on hospitals, 2.7 billion rand on housing and 2.4 billion rand on boosting the number of police and upgrading technology to address the country's rampant crime problem. Manuel announced a mandatory social pension system, financed by a special tax, to provide the poor with retirement, unemployment, disability and death benefits by 2010, as well as a low-income wage subsidy. Individuals are to benefit from moderate personal income tax relief amounting to 8.4 billion rand, and the elimination of tax on retirement funds. But excise duty on cigarettes will rise by 60 cents per packet, by five cents for a can of beer, and 10 cents for a bottle of wine. For the business sector, he announced further exchange control relaxation and a replacement of the existing secondary tax on companies by a dividend tax reduced by 2.5 percent. …” [Agence France Presse/Factiva]
The Financial Times notes that “… In a surprise to business he also announced the phasing out of a secondary tax on companies that had long irritated investors. Unthinkable in the early to mid-1990s as South Africa emerged from apartheid with a deficit of 7 percent, due partly to a large defense budget and the impact of international sanctions, the surplus stems largely from the government's staunchly conservative fiscal policies and a huge increase in tax revenues. However, Manuel conceded that shortcomings in local government had meant it had not been possible to distribute some money, which had contributed to the surplus. …” [The Financial Times (UK)]
In an interview with Reuters after the budget presentation, “… Manuel said South Africa would not try to set the level of its currency, despite suggestions from government economic advisers that the rand may be overvalued. The currency lost about 10 percent of its value against the dollar and about 20 percent against the Euro in 2006, but it is still well off the all-time low of 13.85 it hit versus the greenback in late 2001. ‘Out of all the many regimes, the floating regime is the least bad and we haven't signaled an intention to change that,’ Manuel said in the interview.” [Reuters/Factiva]
Chavez, Kirchner Announce Regional Development Bank
“Venezuelan President Hugo Chavez and visiting Argentine counterpart Nestor Kirchner announced [in Puerto Ordaz, Venezuela] Wednesday the forthcoming creation of the Banco del Sur, a regionally controlled multilateral lender intended to end South America's dependency on institutions based in rich countries.
‘The memorandum of understanding we're signing to get the Banco del Sur under way says that all countries (of South America) can join whenever they want. That is, it's being born bilaterally, but without abandoning the multilateral philosophy, which is clearly the one we're intending, the one we want and what is (our) ultimate aim,’ Kirchner said at a joint press conference with his host. Chavez confirmed that other regional ‘governments can join it ... in any phase,’ adding that the bank will commence operations officially ‘120 days from today (Wednesday).’
Bolivia, Brazil and Ecuador will be the first to join the initiative, Chavez predicted, emphasizing that the agreement on the bank's creation is ‘the most important thing’ to come from Kirchner's 24-hour official visit to Venezuela, during which the two leaders also signed several other bilateral accords. The main headquarters of the bank will be in Caracas, Chavez said. Venezuela's socialist president, who for several years has been proposing the bank, up to now without success, added that now it is up to the central bank of each country to place with the Banco del Sur part of its international monetary reserves. …” [EFE News Service/Factiva]
Reuters reports that “… The two presidents toured oil installations in Venezuela's vast Orinoco oil reserve and signed cooperation accords ranging from banking to agriculture to health. ….” [Reuters/Factiva]
The Associated Press writes that “… Kirchner said Argentina and Venezuela also have agreed to jointly issue a new ‘Bond of the South’ for $1.5 billion, on top of $1 billion in bonds issued together by the two countries last year. …” [The Associated Press/Factiva]
Dow Jones notes that “… For Venezuela, the bond is aimed at stemming an inflationary slide in its currency. For Argentina, it's a source of finance at rates considerably cheaper than those the market would normally charge to the biggest defaulter in history. Chavez said Tuesday that the Bond of the South will be available for a minimum investment of 2.15 million bolivars, or $1,000, and that he expects many small-scale investors and cooperatives to invest in the paper. With this sale, the government is letting people use their rapidly devaluing bolivars to buy the rights to a stream of dollars at an affordable official rate of VEB2,150. That will be a boon to import-dependent Venezuelans afflicted by a scarcity of dollars, one that has pushed up the price of the US currency in the black market to almost twice the official rate. If the operation succeeds in absorbing some of their dollar demand from the black market, it may also take some pressure off local prices. … For Argentina, the bond deal means it can delay facing a difficult offshore bond market. …” [Dow Jones/Factiva]
Philippines To Boost Infrastructure Spending
“Gloria Macapagal-Arroyo, the Philippines president [the week] unveiled plans to spend close to 1,000 billion pesos ($20.8 billion) on roads, bridges, ports and other infrastructure over the next four years in a bid to increase economic growth to as much as 9 percent annually by the end of her term in 2010.
The Philippines economy grew by just 5.4 percent last year. But Macapagal-Arroyo told an annual meeting of business journalists [Tues]day that new and higher taxes had improved the government's financial position, giving it the means not just to cut the budget deficit but also to boost spending on public works and social services that were neglected when revenue was tight. ‘We now have the money to invest in job creation, new roads, bridges and ports, and more for education and healthcare,’ she said. …” [The Financial Times (UK)/Factiva]
PNA adds that “… To boost development in the super regions, [Macapagal-Arroyo] said, governments infrastructure program will cover farm-to-market roads and irrigation facilities for North Luzon’s agri-business thrust. It also includes expressways and ports for Metro Luzon’s services; roads and airports to boost eco-tourism in central Philippines; farm-to-market roads and roll on-roll off facilities for Mindanao’s agriculture activities; as well as connectivity and technology for the Cyber-corridor stretching from Baguio City to Davao City, she said. President Macapagal-Arroyo said the government will also address power to further enhance the country’s competitiveness. With our expressways and airports visibly under construction, the biggest infrastructure challenge now is electric power this is the next area of major economic reform, she said. …” [PNA (Philippines News Agency)/Factiva]
The Manila Standard writes that “… Presidential Chief of Staff Joey Salceda, speaking before a forum arranged by members of the Economic Journalists Association of the Philippines and the Manila Overseas Press Club, said the [government’s new three-year strategy announced Tuesday] hopes to accelerate economic growth over a three-year period. Salceda said the strategy, dubbed ‘Plan 789,’ hopes to achieve a 7 percent growth in the gross domestic product this year, 8 percent in 2008 and 9 percent GDP growth in 2009. … The 7 percent GDP growth this year will be the highest since the 6.7 percent economic expansion achieved by the government of President Corazon Aquino in 1988. …” [The Manila Standard (Phillipines)/Factiva]
Asia Pulse reports that “Development Bank of the Philippines (DBP) chairman Patricia Sto. Tomas on Wednesday said the bank will continue to finance more social development projects in line with the government's thrust to alleviate plight of the poor. In a press briefing at the DBP main office in Makati City, Sto. Tomas said the country is definitely moving forward and they want to be one of the catalysts of the progress. She said they plan to accelerate development lending so that in the end 90 percent of the money that goes out supports poverty reduction, expansion of employment and access of underserved communities. Sto. Tomas said they will expand lending through the government's infrastructure projects, particularly through the nautical highway project. …” [Asia Pulse (Australia)/Factiva]
Indonesia Decentralization Improves Services – World Bank
“Indonesia's decentralization drive, one of the world's most ambitious, has improved the quality of many basic services in its regions, according to a World Bank Survey of 32,000 people.
Andrew Steer, the Bank's outgoing Country Director for Indonesia, said in a speech on Thursday that while local governments in the world's fourth-most-populous country are ‘still millions of miles from being efficient,’ the findings offer ground for optimism. How the people in the far-flung country of 220 million people perceive the decentralization scheme is critical after the central government transferred the management of substantial state budget funds and a considerable degree of decision-making power to regional governments. ‘We asked the people who really matter ... they are parents with children who go to school ... an amazing thing is 70 percent of parents, patients in healthcare (say things) have improved in the last two years,’ Steer said. …
Indonesia, used to centralized rule since its independence in 1945, began transferring more policy and spending power to regional governments after the fall of autocrat Suharto in 1998, in a bid to help ease separatist sentiment. In 2007 alone, Jakarta aims to transfer the management of some 260 trillion rupiah ($28.62 billion) in budget funds to the regions, or a third of its total budget spending. But the moves have been controversial, with some bureaucrats in the capital of the archipelagic country saying the regions were not yet ready to handle the responsibility due to a lack of management capability and that services could worsen as a result. …” [Reuters/Factiva]
AFP writes Steer also said on Thursday that “Indonesia is well on the road to economic recovery from the turmoil of the 1997 Asian financial crisis. … He said figures showed that industrial production was rapidly recovering and surging imports of capital goods also heralded a recovery in investment. With its finances in a much healthier state, Steer said the government was now in a position to invest in infrastructure, which he said was the biggest constraint to investment. …” [Agence France Presse/Factiva]
AFX Asia reports Steer further noted that “The government's plan to import more rice to shore up supplies and stabilize domestic prices is an appropriate policy. ‘Obviously given the (recent Jakarta) floods and so on, there was a spike in the rice price. So we believe the government's policy right now which is to import more rice is the right policy,’ said Steer. The government recently decided to import an additional 500,000 tons of rice in March or April to strengthen rice stocks at the National Logistic Board (Bulog). The purchases will boost total rice imports this year to 1 million tons. Rice is a staple food in Indonesia and in the past few months an increase in the price has been the key contributing factor to high inflation. The government had banned imports since 2004 to protect local farmers, given ample domestic production. …” [AFX Asia (Hong Kong)/Factiva]
World Bank Helps Water Treatment Projects In Iran
“The World Bank has invested $1.3 billion in nine water and wastewater treatment projects in Iran, The Tehran Times reported on Thursday.
In addition to the investment, the World Bank is currently conducting some similar projects in a number of Iranian provinces, the report quoted a representative of the Bank in Iran's Water and Soil Comprehensive Plan as saying. Referring to the Bank's cooperation with Iran in the construction of Alborz reservoir dam in the northern province of Mazandaran, the representative said that the first phase of the project had already been completed. He also announced that despite some difficulties ahead, development of the project was expected to be finished within seven years as earlier estimated. …” [Xinhua (China)/Factiva]
Also in this Edition: Briefly Noted...
Briefly Noted… International Finance Corp., the private investment arm of the World Bank, will assist the sale of Nigeria's Eleme Petrochemical Co. to a private investor in what the IFC said Wednesday is its largest sub-Saharan African privatization investment to date. IFC will invest $155 million, backing Indorama International Finance PLC's purchase of a 75 percent equity stake in state-owned Eleme. IFC is also funding a turnaround program designed to return Eleme to profitability and its operations to full capacity. [Dow Jones/Factiva]
Argentine President, Néstor Kirchner, may now follow the International Monetary Fund’s advice to repay holders of the nation's defaulted bonds. [The International Herald Tribune and Bloomberg News]
Drought-susceptible countries in the Caucasus and Central Asia must establish National Drought Plans that are well integrated into other disaster-management plans, stresses the World Bank report entitled Drought Management and Mitigation Assessment for Central Asia and the Caucasus: Regional and Country Profiles and Strategies. The report is the result of research and consultations conducted in eight countries over the past two years. [UzReport.com (Uzbekistan)/Factiva]
“There is great discrepancy between the kind of qualifications that the direct foreign investments look for and the qualifications the education system of this country has to offer,” said World Bank Turkey chief economist Rodrigo Chaves. Chaves delivered a speech at the "Turkey: A Country of Opportunities Towards Achievement" themed conference organized by the International Investors' Association of Turkey in cooperation with the Finance World in Istanbul. Chaves stressed attracting direct foreign investment was not a goal in itself but was just a method and explained how that method could serve in achieving the goal of sustainable growth in Turkey. [Anadolu Agency(Turkey)/Factiva]
Ukrainian Prime Minister Viktor Yanukovych and the European Commissioner for Trade, Peter Mendelson, have discussed by phone Ukrainian-EU cooperation, including the country's accession to the WTO and the prospects for the creation of a free trade zone between Ukraine and the EU. [BBC Monitoring Ukraine & Baltics and Interfax-Ukraine News Agency/Factiva]
Salam Fayyad met Palestinian Prime Minister Ismail Haniyeh of Hamas in the Gaza Strip on Wednesday and told reporters afterwards had been invited to assume the post of minister of finance and that he has accepted. Fayyad, who has previously served in the post, will be taking on a ministry cut off financially since the Islamist Hamas movement came to power in March. A former World Bank and International Monetary Fund official, Fayyad served as finance minister from 2002 to 2005 under a Fatah-led administration before creating the Third Way party and running for parliament. [Reuters/Factiva]
Around 46 percent of Gaza and West Bank households are “food insecure” or in danger of becoming so, according to a UN report on the impact of conflict and the global boycott of the Hamas-led Palestinian Authority. The unpublished draft report, the first of its kind since the boycott was imposed when the Hamas government took office last March, says bluntly that the problem “is primarily a function of restricted economic access to food resulting from ongoing political conditions.” [The Independent (UK)/Factiva]
The World Bank has offered soft loans to the Jakarta administration to finance a flood alleviation project in the capital city, an official said. The project covers one of the three sectors discussed at a meeting between the local officials and World Bank Director for Sustainable Development Programs Christian Delvoie at the city hall on Wednesday, secretary of the Jakarta administration Ritola Tasmaya said following the meeting. [Asia Pulse (Australia)/Factiva]
The World Bank has recommended that the Reserve Bank of India set up a global fund by deploying a portion of India’s burgeoning foreign exchange reserves. The fund could then invest the resources in newer global instruments in collaboration with other global investors. Currently, the RBI invests the forex reserves in the US and European treasury securities. “Investment of forex reserves into newer global instruments is expected to reap higher returns for the economy,” Praful Patel, South Asia Vice President of the World Bank, told FE. This would also be a prudent investment strategy, he added. According to him, alternate ways of investing the reserves - other than the traditional method of investing them in risk-free securities - will translate into higher returns. [Financial Express (India)/Factiva]
The Japanese central bank's decision to raise interest rates a notch Wednesday, its first move since July, is just the latest indication that the global economy - at least so far - is perking along despite the damage done by energy prices and deteriorating housing markets. [The Wall Street Journal Europe/Factiva]
Lower oil prices and a relaxing in control of Asian currencies, though high on the wish lists of rich country policymakers, could undermine the credit bonanza that has sent borrowing costs to their lowest levels in a generation, Moody's Investors Service has warned. Moody's said the "imperfect nature of globalization" meant developing countries generated funds that were then invested in "reliable financial assets" in countries with deeper capital markets such as Britain and the US "Emerging market economies have become the financiers of the wealthiest economies." [Reuters/Factiva]
Recent negotiations have revived hopes for countries to reach a deal in the Doha round of world trade talks after a major breakdown last year, US Trade Representative Susan Schwab said in an interview on Bloomberg Television Wednesday. [Reuters/Factiva]
The US, EU and India are close to a compromise that would allow the Doha global trade negotiations to resume, World Trade Organization chief Pascal Lamy said yesterday. Significant obstacles still lie ahead, and any development "is more a question of months than quarters," Lamy said in an interview with the WSJ. [The Wall Street Journal Europe/Factiva]
The Fairtrade movement could transform the lives of millions of the world's poorest with less than $100 million over the next five years, according to Harriet Lamb, who heads the British-based Fairtrade Foundation, she told Reuters in an interview that with relatively modest funding her organization could build on what she described as "phenomenal success" of the Fairtrade concept. [Reuters/Factiva]
The US and Brazil, the world's top producers of ethanol, will start seeking ways to create a global market for the biofuel by promoting common standards, a US State Department specialist on energy said. The subject will be on the table when President George W. Bush meets his Brazilian counterpart, Luiz Inacio Lula da Silva, during a trip to Latin America set for March. [Reuters/Factiva]
The world has less than 15 years to take urgent action against global warming through the use of new technology if it is to prevent a climate catastrophe, the United Nations warns in the as yet unpublished third part of its World Climate Report. The report, a draft of which was seen by FT Deutschland, The Financial Time’s sister paper, is to be presented by the Intergovernmental Panel on Climate Change on May 3 in Bangkok. [The Financial Times (UK)]