News & Commentary:

May 2004 Archives


Do China's Abusive Labor Practices Encourage Outsourcing and Drive Down American Wages?
Nicholas R. Lardy (IIE) Mar/May 2004
The key contention of a recent AFL-CIO section 301 petition--that China's growing exports to the US market are based on "China's persistent denial of workers' rights [which] gives China-based producers an unfair cost advantage"--was seriously flawed. The petition's "best estimate" that China's labor repression has displaced up to 727,130 US manufacturing jobs also was not credible. Furthermore, China is far and away the fastest growing among the large export markets of US firms, yet the petition made no reference to the creation of jobs in US manufacturing as a result of growing US exports to China.

Globalization Recommended! Adobe Acrobat Required
IMF Research Bulletin Mar/May 004
Plus research summaries on synchronization of business cycles and moral hazard versus real hazard; country study: Chile; summary of new study on Hong Kong SAR; visiting scholars at the IMF; summary of Fourth Annual IMF Research Conference and call for papers for Fifth Annual IMF Research Conference; contents of latest issue of IMF Staff Papers; titles of recent IMF working papers and policy discussion papers; list of external publications by IMF staff.

A Personal Agenda for the Next Decade Recommended!   Blackwell Synergy Required
Kenneth J. Arrow (RIE) May 2004
The paper sets a broad agenda touching several areas of policy. It starts from the least likely policy at this point of time, the use of the tax system for redistribution. It discusses prudent macroeconomic coordination without the strings of the Maastricht Treaty in business troughs. Regulation of financial markets, agricultural policies, and health issues are coming up on a desirable agenda of the United States, but are probably important for all countries, as are social security policy and climate change.

The Open Source Paradigm Shift Recommended!
Tim O'Reilly May 2004
This article is based on a talk that I first gave at Warburg-Pincus' annual technology conference in May of 2003. Since then, I have delivered versions of the talk more than twenty times, at locations ranging from the O'Reilly Open Source Convention, the UK Unix User's Group, Microsoft Research in the UK, IBM Hursley, British Telecom, Red Hat's internal "all-hands" meeting, and BEA's eWorld conference. I finally wrote it down as an article for an upcoming book on open source," Perspectives on Free and Open Source Software," edited by J. Feller, B. Fitzgerald, S. Hissam, and K. R. Lakhani and to be published by MIT Press in 2005.

China's Turn to Take Away Party's Punch Bowl
David DeRosa (Bloomberg) May 2, 2004
China is having a tough time keeping its economy from growing too fast. The key question is whether the authorities can control what some have described as a bubble economy without bringing down the whole house -- and maybe a good part of Asia with it.

Eastern Europe Boom May Have Come and Gone for EU
Matthew Lynn (Bloomberg) May 3, 2004
When 10 mostly Eastern European states expanded the number of European Union members to 25 this past weekend, it was an occasion to empty the inkwells for essays on bringing together the two halves of Europe.

Global: When China Sneezes...
Stephen Roach (MSDW) May 3, 2004
As the Chinese leadership now moves to bring its overheated economy under control, it is important to understand the global implications of this development. Just as the American consumer provided the spark to the recent global upturn on the demand side of the equation, I believe that the Chinese producer played an equally important role on the supply side. As such, the coming slowdown in the Chinese economy should be viewed as a global event. Two such impacts are likely to be particularly important, in my view — the spillover effects on a China-centric Asian economy and reverberations in global commodity markets.

Currencies: EUR/USD No Longer Trendy
Stephen L. Jen (MSDW) May 3, 2004
I believe the uptrend in EUR/USD is most likely over, and that we will remain in a trendless range for several months. The range, however, will be large enough (1.15-1.25) for EUR/USD to remain interesting. I maintain my view that we are likely to trade solidly in the 1.15-1.20 range in Q2, but trade higher in the 1.20-1.25 range in Q3, as USD bears reestablish USD shorts on the back of more encouraging Euroland data. However, these levels above 1.20 will not last, as Euroland will continue to struggle under the weight of the EUR. On the downside, the fuzzy range of 1.10-1.15 will be difficult to penetrate, mainly because of the Asian central banks’ desire to diversify their reserves.

Spring meetings overview Adobe Acrobat Required
IMF Survey May 3, 2004
Plus: Interview with Köhler; IMFC communique and press conference; Development Committee communique and press conference; Group of Seven communique; Group of 24 communique; African finance ministers press conference; WEO chapter 1.

Newcomers rush to join the euro
IHT May 4, 2004
The race among new EU members to adopt the euro began Monday, with officials saying Lithuania and Estonia will take the first steps as early as July.

Return of an economic demon: oil shock
IHT May 4, 2004
While economists have been busy focusing their attention elsewhere, oil prices have reached a fast boil.

IMF Executive Board Selects Rodrigo Rato as IMF Managing Director
IMF May 4, 2004
The Executive Board of the International Monetary Fund (IMF) today selected Rodrigo Rato to serve as Managing Director and Chairman of the Executive Board for a five-year term. Mr. Rato will succeed Horst Köhler, who resigned on March 4, 2004. The 24-member Executive Board selected Mr. Rato in a two-stage process. In the first stage, an informal confidential straw poll produced a majority in favor of Mr. Rato's appointment. Directors then proceeded to formally select Mr. Rato by consensus.

Adopting the Euro in the New Member states: the next step in European integration
IMF May 4, 2004
Transcript of an IMF economic forum where the following issue was discussed: After the enlargement, how do the new member states approach the major question of how and when to adopt the euro as their national currency?

Is China a Market Economy? Wall Street Journal Subscription Required
Stephen Green (WSJE) May 5, 2004
China lobbies for "market economy status" from the WTO.

The Buttonwood column: China and the Fed: twin piques
Economist May 5, 2004
China and America are both about to start tightening monetary policy to ward off inflation. Financial-market traders have reasons to worry.

General Council Chair Outlines Road To July Agreement
BRIDGES Weekly Trade News Digest - Vol. 8, Number 16 May 5, 2004
On 29 April, WTO Members met for an informal Heads of Delegation meeting. The half-day meeting took stock of overall development in trade negotiations following the Cancun Ministerial in September 2003 and to date, and served to enhance transparency. In the words of India's ambassador to the WTO, KM Chandrasekhar, "it was an exploratory meeting... We need to start thinking about the July package in its entirety at this point, but it will take more time before we focus and start zeroing in on issues". Deputy Director General Rufus Yerxa also briefed Members on progress in informal consultations on the so-called Singapore issues of investment, competition, transparency in government procurement and trade facilitation.

Members Appear To Converge Around Trade Facilitation Talks
BRIDGES Weekly Trade News Digest - Vol. 8, Number 16 May 5, 2004
At an informal Heads of Delegation meeting on 29 April, Members reportedly began to converge around the idea of including trade facilitation as part of the Doha round of trade negotiations. According to trade sources, Members considered making a formal commitment to begin negotiations on modalities for trade facilitation as part of a negotiating framework 'package' they are hoping to achieve by July.

Chinese Prime Minister Wen Jiabao pays an official visit to the European institutions
EU DGT May 5, 2004
Prime Minister Wen Jiabao of the People's Republic of China visits the European institutions on 5-6 May 2004. Mr Wen is meeting President Prodi and High Representative Solana to discuss ways to enhance the rapidly growing partnership between the EU and China. An important agreement on customs cooperation will be initialled during the visit, while policy dialogues on competition, trade and textiles will be formally launched.

De Soto: A Hero of Third World Capitalism Wall Street Journal Subscription Required
John Blundell (WSJE) May 6, 2004
Give the Third World property, markets and laws.

Turkey Feeling Effects of Shaky EU Prospects
David DeRosa (Bloomberg) May 6, 2004
Turkey is experiencing rising financing costs associated with its domestic borrowing program. Some market participants think this is due to fears that the U.S. Federal Reserve will soon raise interest rates. Another explanation may be that the government's story about the country's prospects for accession to the European Union is beginning to wear thin.

Oil Prices: How much higher? Economist Subscription Required
Economist May 6, 2004
Oil prices soared to nearly $40 a barrel—a 13½-year high. The killing of five foreign workers in an attack on a Saudi Arabian chemical plant heightened fears of terrorist attacks on oil facilities in the Middle East. Low American fuel stocks also played a part.

False Alarms: Asia will survive Beijing's belt-tightening Recommended!
Philip Bowring (IHT) May 7, 2004
China has always been a great generator of myths - and destroyer of foreign perspectives. The latest myth: When China sneezes, Asia catches pneumonia.

The Oil Crunch
Paul Krugman (NYT) May 7, 2004
Oil exports have yet to recover to their prewar level, let alone supply the millions of extra barrels each day the optimists imagined.

Global: Measured Bubbles
Stephen Roach (MSDW) May 7, 2004
The Federal Reserve has finally stepped out of its shell. By my count, about 30% of the words in the May policy statement of the US central bank were actually different from those of the prior edict. That's a bold move for an institution that usually tweaks only one or two phrases. Sadly, it's not nearly bold enough.

Global: Oil Price Update: Still Higher and More Uncertain
Eric Chaney and Richard Berner (MSDW) May 7, 2004
For some time, we’ve held the view that crude oil prices in particular and energy product prices in general would remain significantly higher for longer than the consensus expectation. If anything, however, we’ve been too pessimistic. Once again, therefore, we are marking our prognosis to market, and raising our crude oil price baseline forecast. We now see Brent quotes rising to USD $38/barrel and WTI to $40/bbl. in June, instead of easing to $29/bbl. in our previous forecast. Looking ahead, we continue to think that a combination of softer demand growth and lower risk premiums will bring Brent crude prices back to the vicinity of $30, which seems to be the midpoint of OPEC’s implicit new, higher target range.

Rate fears batter global markets
BBC May 10, 2004
Shares slide across Europe and Asia as the improving US economy fans fears of an interest rate hike that may brake growth.

Global: Global Wild Cards
Stephen Roach (MSDW) May 10, 2004
Suddenly, there’s another perfect storm on the horizon. Upwardly revised global growth expectations are now at risk. After a stunning resurgence in the second half of 2003 that has spilled over into the early months of 2004, a nascent recovery in the world economy is now threatened by an ominous confluence of wild cards. Three such forces loom most prominently — surging oil prices, the China slowdown, and the onset of a Fed tightening cycle. A general sense of geopolitical angst is an obvious and important overlay to the economic factors — underscored by the quagmire in Iraq, a related anti-American backlash, and the ongoing threats of global terrorism. The risk is that we focus on each of these developments in isolation. It’s the interplay, however, that matters most of all.

Currencies: G-3 -- A Convex Response Function for the 'China Shock'
Stephen L. Jen & Melanie Baker (MSDW) May 10, 2004
The prospective slowdown in China (the ‘China Shock’) is one of the key sources of uncertainty in the currency world. We propose a simple analytical framework that allows the deceleration in Chinese demand growth to have 1) a (negative) direct demand effect and 2) a (positive) indirect effect through commodity and energy prices on the global economy. We argue that a soft landing in China could be good for global growth, while a hard landing would be bad. In terms of individual economies our tentative conclusion is that the China Shock is USD/JPY and EUR/JPY positive, ceteris paribus.

Global: There's No Place Like Home
Rebecca McCaughrin (MSDW) May 10, 2004
US residents tend to be fairly modest investors in overseas securities. Last year, US residents were net buyers of just $64 billion of foreign bonds and equities, while foreign investors plowed $468 billion into US securities. (For the record, it was not all central bank intervention; $314 billion came from private investors). However, in the last few months, US investors have begun to step up their investment in overseas equities, buoyed by an improvement in the external environment and a system flush with liquidity. This has raised some concern that greater overseas investment by US residents will act as a drag on financing needs (as has been the case with net foreign direct investment in the last two years). In our view, this argument overlooks the importance of US capital markets relative to the rest of the world.

Oil and the world economy: A U-turn in the desert
Economist May 10, 2004
Just three months after calling for OPEC's oil-production quotas to be cut, Saudi Arabia is now calling for them to be raised.

EU gains support for farm-aid cuts Recommended!
IHT May 11, 2004
But France, the largest beneficiary of farm aid from the EU, suggested it might try to block "dangerous" cuts.

Consensus achieved on Basel II proposals
BIS May 11, 2004
The Basel Committee on Banking Supervision is pleased to announce that it has achieved consensus on the remaining issues regarding the proposals for a new international capital standard. The group of central bankers and banking regulators who make up the Committee met today at the Bank for International Settlements in Basel, Switzerland, and will publish the text of the new framework, widely known as Basel II, at the end of June 2004. This text will serve as the basis for national rule-making and approval processes to continue and for banking organisations to complete their preparations for Basel II’s implementation.

Is East Asian Currency a Pipe Dream?
Andy Mukherjee (Bloomberg) May 11, 2004
If Asian policy makers have a grand vision it is that someday people from Japan and China to Malaysia and Myanmar will pay for groceries using the same currency.

De Soto's Embrace of the State
Gabriel Calzada Álvarez (Mises Daily) May 11, 2004
"Why capitalism triumphs in the West and fails everywhere else" is the question that Hernando de Soto, the acclaimed author of The Other Path, tries to answer in The Mystery of Capital. To be sure, the question is not new; the world's libraries are filled with books which claim to answer it. Indeed, there is a glut of books claiming that the continued existence of poverty ("underdevelopment" is the technical, fashionable word in the economics jargon) is the result of such factors as culture, religion, geography, meteorology, human greed, and lack of entrepreneurship.

U.S., Britain and Asia drive global recovery
IHT May 12, 2004
Global growth is set to run at its fastest pace in nearly four years, but Europe is lagging behind.

Death Knell for Ag Subsidies? Wall Street Journal Subscription Required
WSJ May 12, 2004
Brussels gives the Doha round a hand.

Asia's Fortunes Rise Along With U.S. Dollar
William Pesek Jr. (Bloomberg) May 12, 2004
The Australian dollar, once the Asia region's brawniest currency, is suddenly looking pretty frail. It's down about 12 percent versus the U.S. dollar since reaching a seven-year high in February.

Wealth of Nations: A New Europe is Born. Will it Survive?
Clive Crook (Atlantic Monthly) May 12, 2004
The addition of 10 new members to the European Union, which should have been the E.U.'s moment of greatest triumph, could carry the seeds of its eventual destruction.

Dollars Without Borders
NYT May 13, 2004
Remittances need to become a widespread source of loans for people who have no other access to credit.

Fantasies in Euroland Wall Street Journal Subscription Required
WSJ May 13, 2004
The Continental growth rate lags again.

Field of Gloom Never Too Crowded for New Blood
Caroline Baum (Bloomberg) May 13, 2004
Ever since the days of Thomas Malthus, economists have been worrying about man's ability to provide food and other necessities for a growing population.

Doha Round: Political Momentum Growing As Ministers Prepare For Paris Meet
BRIDGES Weekly Trade News Digest - Vol. 8, Number 17 May 13, 2004
During last week, major groups within the WTO positioned themselves in anticipation of ministerial level talks on the Doha round of trade negotiations, held at the sidelines of an Organisation for Economic Cooperation and Development (OECD) summit in Paris from 13-14 May. EC Trade Commissioner Pascal Lamy and Agriculture Commissioner Franz Fischler circulated a letter to their trading partners on 10 May, offering to end all export subsidies and proposing more lenient treatment of the weakest and most vulnerable developing countries in the current round of talks. Meanwhile, the G-20 group of developing countries came out strongly against a formula for cutting agriculture tariffs preferred by the EC and US.

Development Committee Discusses Declining Commodity Prices
BRIDGES Weekly Trade News Digest - Vol. 8, Number 17 May 13, 2004
The WTO Committee on Trade and Development (CTD) met on 11 May, with Members focusing on declining commodity prices and Paragraph 51 of the Doha mandate (which requests Members to consider how sustainable development is reflected in the overall negotiations).

A Crude Shock
Paul Krugman (NYT) May 14, 2004
An oil-driven recession does not look at all far-fetched.

The world economy: Cheap money, pricey oil
Economist May 14, 2004
The latest economic numbers in America, Europe and China tell very different stories.

The United States pledges US$ 994,100 to WTO technical assistance
WTO May 14, 2004
The United States Government, on 14 May 2004, pledged a contribution of US$ 994,100 (CHF 1.3 million) to the Doha Development Agenda Global Trust Fund for 2004.

WTO chief optimistic over talks
BBC May 16, 2004
World Trade Organisation head Supachai Panitchpakdi says ministers meeting in Paris are near to agreement on key trade liberalisation issues.

Hope for Trade Fairness
NYT May 16, 2004
Are the world's economic superpowers committed to taming powerful farm lobbies?

Global: Shocks and Landings
Stephen Roach (MSDW) May 17, 2004
In these days of mounting geopolitical angst, sharply rising oil prices, and Chinese overheating, we tend to dwell understandably on the threat of shocks. Yet in doing so, we risk ignoring even more basic problems — namely, the profound state of disequilibrium that still exists in this $36 trillion world economy. That could be a critical oversight. A stable world is better able to withstand the impact of shocks than is an unstable world. Until the global economy makes more progress on the road to rebalancing, recoveries such as the one under way are likely to remain tenuous. That remains the biggest risk of all as I peer into 2005.

Global: Pump Pains and Petrodollars
Rebecca McCaughrin (MSDW) May 17, 2004
Each time oil prices head north, the question of how OPEC countries manage their windfall of oil revenues, or ‘petrodollars,’ rears its ugly head. Given poor balance of payments accounting among Middle East economies, it’s nearly impossible to determine conclusively how their oil earnings are recycled. But, in our view, once bank deposits and purchases of foreign goods are taken into account, the remaining funds to be channeled into financial assets are not all that large relative to other sources of investment, probably no more than 5% of global cross-border capital flows. This suggests that the recycling of petrodollars into financial assets has more of a cursory impact in financial markets than is often assumed.

Will South Carolina Trade Up?
Kimberley A. Strassel (WSJ) May 18, 2004
Rep. Jim DeMint targets a protectionist tradition.

Willful Ignorance: The Struggle to Convince the Free Trade Skeptics
Anne O. Krueger (IMF) May 18, 2004
What I want to do is examine why opposition to trade liberalization remains so strong in some quarters, despite the theoretical and empirical evidence indicating that growth, rising living standards and poverty reduction all proceed more rapidly in countries with more liberalized trade regimes. And I want to explore briefly what more we in the policy arena might do to win over the skeptics.

A New Maginot Line Wall Street Journal Subscription Required
WSJE May 19, 2004
Economic fortifications are all the rage in an enlarged EU.

WTO General Council Frames Negotiations Ahead Of End-July Deadline
BRIDGES Weekly Trade News Digest Vol. 8, Number 18 May 19, 2004
The WTO General Council (GC) convened from 17-18 May in Geneva to consider, inter alia, progress in negotiations under the Doha Round. Taking place in the aftermath of ministerial-level talks at the sidelines of the Organisation for Economic Cooperation and Development (OECD) summit in Paris from 13-14 May (see related story, this issue), the meeting -- which was attended by a number of high level officials from capitals -- underscored the need for the political commitments to be operationalised and translated into concrete textual proposals in Geneva. Members are aiming at concluding a general framework package for the negotiations by the end of July this year, fearing that momentum will be lost due to, inter alia, US presidential elections and a change in the helm of the European Commission, if they fail to do so.

Ministers Signal Willingness To Move On Doha Round
BRIDGES Weekly Trade News Digest Vol. 8, Number 18 May 19, 2004
Trade ministers from 28 countries, coming out of a meeting at the sidelines of the Organisation for Economic Cooperation and Development (OECD) summit in Paris from 13-14 May, said they were optimistic an end-July deadline for a framework deal to move the Doha Round of trade negotiations forward could be reached. WTO Director-General Supachai Panitchpakdi said, "We are beginning to see a shape for the final outcome of our July package", and according to EC Trade Commissioner Pascal Lamy, "After a period of relative calm -- with only some underground activity -- the (trade) volcano is smoking again". Lamy added that "I think everybody around the table is committed to work hard and move to make the compromises which we need so that by July we can reach 50 pct of the Doha agenda". Brazilian foreign minister Celso Amorim noted that "I sense a positive movement of all major actors and it makes me optimistic".

From India to Korea, Politics Spooks MarketsFrom India to Korea, Politics Spooks Markets
William Pesek Jr. (Bloomberg) May 19, 2004
Monday should've been a stellar day for Henry Tang, Hong Kong's financial secretary. The city's economy received a vote of confidence from Fitch Ratings, which raised its outlook to stable from negative.

The world economy: Other reasons to worry
Economist May 19, 2004
The world recovery continues apace, with Japan and even Europe defying the doubters. So why are the markets still fretting?

Trade Agreements and Labor Standards Recommended!
Brookings May 19, 2004
Brookings convened an expert panel of policy analysts to discuss the issue of labor standards in trade agreements, debate the findings of the National Academy of Sciences report, and take questions from the audience. At the briefing, Brookings released a new Policy Brief by Theodore Moran, who chaired the NAS committee, on the implications of the report.

We're Doomed Again
Ronald Bailey (WSJ) May 20, 2004
Doomsayer Paul Ehrlich has never been right. Why does anyone still listen to him?

A-Waltzing Free Trade Wall Street Journal Subscription Required
WSJ May 20, 2004
John Kerry dances with Jimmy Hoffa.

Brazil's Central Bank Begins Taking the Heat
David DeRosa (Bloomberg) May 20, 2004
The Brazilian real plunged 5.5 percent in the first 10 days of this month, from 2.97 to nearly 3.13.

Peter Beinart (New Republic) May 20, 2004
The other torture scandal.

Globalization: Threat or Opportunity for the U.S. Economy?
Robert T. Parry (FRBSF) May 21, 2004
Why are most economists in favor of free trade? What are "outsourcing" and "offshoring"? Is globalization a threat or an opportunity for the U.S. economy? What can policies do to help U.S. workers?

China Is Global Economy's 800-Pound Gorilla
William Pesek Jr. (Bloomberg) May 21, 2004
Traveling around Asia, it's hard not to view the region as a vast web of interconnected strings, all attached to China at the middle.

Global: India and China -- Bumps in the Road
Stephen Roach (MSDW) May 21, 2004
Ever-fickle global investors have suddenly turned on India and China. And not without reason. India has just experienced a stunning political shock, and there are fears that an overheated Chinese economy is headed for a hard landing. In the eyes of most, Asia's two brightest stars appear to have lost their sparkle. In my view, this despair is unfounded. China and India are hitting bumps in the road — nothing worse. To the extent financial markets hunker down for the worst, attractive buying opportunities may be in the offing.

Global, Japan: Competing Scenarios on China, Japan, and Markets
Robert Alan Feldman (MSDW) May 21, 2004
As the debate on the China slowdown continues, four possible scenarios have emerged, each with different implications for Japanese financial markets. The worst scenario implies a weak yen and a drop of Japanese equities; the best scenario a stable yen and higher equities. In all scenarios, JGB yields are stable to slightly lower. The structure of the scenarios depends on two factors. The first is whether the landing in China is hard or soft. The second is whether the effect of a China slowdown on Japan and the US is big or little. The combinations create the four scenarios.

EU-Russia deal brings Russia a step closer to WTO membership
EU DGT May 21, 2004
EU Trade Commissioner Pascal Lamy and the Russian Economy Development and Trade Minister German Gref have signed today the agreement concluding the bilateral market access negotiations for the accession of the Russian Federation to the World Trade Organisation (WTO).

G-7 Ministers Urge Boost in Oil Production
ST May 24, 2004
Concerned that soaring oil prices will undermine global economic growth, finance ministers from the Group of Eight leading industrial nations on Sunday urged oil-exporting countries to boost production.

Global: What Could We Be Missing?
Stephen Roach (MSDW) May 24, 2004
Our internal macro conference calls are starting to lose their zip. Maybe it’s battle fatigue after a tumultuous few months. But it’s also a sign of progress. By now, of course, financial markets have come a long way in discounting some very disruptive possibilities. Assets are priced for a multi-stage Fed tightening, higher oil prices and associated geopolitical tensions, a modest pick-up in inflation, a slowdown in earnings growth, and a landing for an overheated Chinese economy (hard or soft is still the question). Some serious reworking of expectations has occurred. Yet my experience tells me this is not the time to get lulled into a false sense of complacency. The odds are that the broad consensus of investors has not figured out all of the above with perfect precision. This is precisely the moment to ask the toughest question of all: What could we be missing?

Global: De-Leveraging
Rebecca McCaughrin (MSDW) May 24, 2004
Growing risk aversion has spooked capital markets in the last few weeks, raising the spectre of a credit event à la Long-Term Capital Management. This raises the question, which we attempt to answer in this note, of how important the hedge fund industry is for international capital markets. Our conclusion is that although hedge funds can have a significant impact on small, illiquid markets where their exposure can be heavily concentrated, they are smaller players relative to other institutional investors than is often believed.

United States, Currencies: Financial Breakage and the Dollar
Stephen L Jen, Melanie Baker & Rebecca McCaughrin (MSDW) May 24, 2004
Four broad sources of risk have impinged on the global financial markets in recent weeks: (1) the ‘China Shock,’ (2) the ‘Oil Shock,’ (3) the ‘Liquidity Shock,’ and (4) an ‘Inflation Scare’ in the US. Each one of these four shocks has the potential to elevate uncertainty and volatility in segments of the global financial markets. In this note, we focus our discussions on how the USD could be affected by a significant financial ‘breakage’, i.e., a financial crisis caused by these shocks. We draw several conclusions. First, there is no systematic relationship between the USD and financial crises. Second, bad news in Asia tends to be USD-positive, while bad news elsewhere may or may not be USD-positive. Third, not surprisingly, financial crises occurring in the US could be negative for the USD. Fourth, crises are likely to support gold.

Quid Pro Kyoto Wall Street Journal Subscription Required
WSJ May 25, 2004
Putin caves on Kyoto to get into the WTO.

OPEC and the G7: Amsterdamned
Economist May 25, 2004
Worried by rising oil prices, the rich world's finance ministers have called on oil producers to pump more oil. OPEC, the producers’ cartel, is split over whether to oblige.

Asia Pacific: The Calm Before the Storm Recommended!
Andy Xie (MSDW) May 26, 2004
The period of the Fed raising interest rates usually precedes emerging-market crises. In the current cycle, the Fed has kept interest rates lower and longer than in any previous cycle. The capital flow into emerging markets is comparable to the highs in the previous cycles. It would take a miracle for the global economy to land without any crises, in my view.

Outsourcing 101 Wall Street Journal Subscription Required
WSJ May 27, 2004
Has the law of comparative advantage become irrelevant?

Emerging Markets: Pricing in the Fed
Riccardo Barbieri (MSDW) May 27, 2004
The recent correction in Emerging Markets was sharp and, initially, indiscriminate. The good news I see, however, is that the risk that EM investors have been obsessing about, higher US interest rates, is now factored into the US bond market to a significant extent.

Africa stands to gain from successful trade negotiations - Dr Supachai
WTO May 28, 2004
Dr. Supachai Panitchpakdi, in a speech during the opening of the Conference of the African Union Ministers of Trade on 27 May 2004 in Kigali, Rwanda, said that the meeting will be “privotal” in determining whether the trade negotiations “will take a substantal step forward by the end of July”. He stressed that “no one questions” that development concerns must be reflected in the July package.

Big Hopes Survive the Decline in Emerging Markets
Chet Currier (Bloomberg) May 28, 2004
In a bad May for most mutual funds, emerging-markets funds have been the worst.

Global: The Great Oil Debate
Stephen Roach (MSDW) May 28, 2004
It was a little over 30 years ago when the world was hit by the first oil shock — an OPEC embargo on the West that led to a quadrupling of the price of crude petroleum in late 1973 and early 1974. A second shock hit during the Iranian Revolution of 1979 that resulted in a near tripling of oil prices. Both of these shocks led to rapid inflation and severe recessions in the global economy. A less dramatic shock in 1990 prior to the Gulf War led to a similar outcome. Over this 30-year period, there has been a very tight relationship between the ups and downs of the oil and business cycles.

Dollar falters on fears about economic growth
IHT May 28, 2004
The dollar lurched lower against major currencies Thursday as concerns about physical and economic security in the United States, which had weakened the U.S. currency for most of the past two years before a recent rally, returned to the spotlight.

OPEC and the G7: From Amsterdam to Beirut
Economist May 28, 2004
Worried by rising oil prices, the rich world's finance ministers have called on oil producers to pump more oil. OPEC, the producers’ cartel, is split over whether to oblige.

G7 calls for adequate oil supplies Adobe Acrobat Required
IMF Survey May 31, 2004
Plus: Conference honors Calvo; China's growth; State-owned financial institutions; Pacific islands and growth; ECOSOC and MDGs; AFRITAC East seminar boosts statistical expertise; Beirut named METAC site; Adopting the euro.

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