News & Commentary:

June 2004 Archives


Ties that bind: possible shifts on conditionality? Recommended!
Bretton Woods Update No. 40 May/Jun 2004
Plus: New debt sustainability framework: too little, too subjective; Lula and Kirchner want IMF to relax its grip; Symbolic vote does nothing to change Fund leadership stitch-up; US lawmakers scrutinise World Bank record on corruption; The UK role in the WB and IMF; G8 governments review IFI mandates; and more.

The Outsourcing Bogeyman Recommended!
Daniel W. Drezner (Foreign Affairs) May/Jun 2004
According to the election-year bluster of politicians and pundits, the outsourcing of American jobs to other countries has become a problem of epic proportion. But this alarmism is misguided, argues Daniel W. Drezner of the University of Chicago in an article that will appear in the May/June issue of Foreign Affairs. Outsourcing actually brings far more benefits than costs, both now and in the long run. If its critics succeed in provoking a new wave of American protectionism, the consequences will be disastrous -- for the U.S. economy and for the American workers they claim to defend.

The Decline of America's Soft Power
Joseph S. Nye, Jr. (Foreign Affairs) May/Jun 2004
The Bush administration may dismiss the relevance of soft power, but it does so at great peril. Success in the war on terrorism depends on Washington's capacity to persuade others without force, and that capacity is in dangerous decline.

The Global Baby Bust
Phillip Longman (Foreign Affairs) May/Jun 2004
Most people think overpopulation is one of the worst dangers facing the globe. In fact, the opposite is true. As countries get richer, their populations age and their birthrates plummet. And this is not just a problem of rich countries: the developing world is also getting older fast. Falling birthrates might seem beneficial, but the economic and social price is too steep to pay. The right policies could help turn the tide, but only if enacted before it's too late.

Special Report: Ranking the Rich
Foreign Policy May/Jun 2004
The second annual CGD/FP Commitment to Development Index ranks 21 rich nations on how their policies—from aid and trade to environment and security—help or hinder progress among the world’s poor countries. Find out why Denmark and the Netherlands earn the top spots, how Australia and the United States each climbed 13 positions, and why Japan (once again) finishes last.

The IMF's China Card Recommended!
Kenneth Rogoff (Foreign Policy) May/Jun 2004
If China experiences a disastrous financial crisis, the International Monetary Fund (IMF) might not have enough money to bail it out. Instead, why not invite China to join the Group of Seven club of the world’s major economic powers? That way, China could stand ready to bail out the IMF the next time bad loans start piling up.

Selling to the Poor Foreign Policy Subscription Required
Allen L. Hammond and C.K. Prahalad (Foreign Policy) May/Jun 2004
The world’s 4 billion poor people make up the largest untapped consumer market on Earth. To reach them, CEOs must shed old, tired concepts of marketing, distribution, and research. Getting it right can both generate profits and help end economic isolation throughout the developing world.

The Resurgent Japanese Economy and a Japan-United States Free Trade Agreement
C. Fred Bergsten (IIE) May/Jun 2004
Japan could be one of the major upside surprises of the world economy over the next few years, and a free trade agreement (FTA) with the United States could both capitalize on Japan's improving economic fortunes and strongly reinforce its comeback. Japan is entering a prolonged period of catchup growth and is likely to expand at 3 to 4 percent annually in at least 2004 and 2005. An FTA with the United States could add substantially to Japanese GDP, head off the risk of renewed trade friction between the United States and Japan as both pursue free trade agreements with other countries through which they would discriminate against each other, and represent decisive rejection of a "bypass Japan" strategy, which so many Japanese now fear from the United States because of the rise of China. For the United States, an FTA with Japan would strengthen the most important US alliance in the region and help sustain domestic political support for American engagement in Asia as well as bring important economic benefits.

The IMF and Exchange Rates
C. Fred Bergsten (IIE) May/Jun 2004
The US Treasury and the International Monetary Fund are violating their respective mandates concerning exchange rate policy. By failing to act against massive intervention in the currency markets by China, Japan, Korea, Taiwan, and other countries to keep their exchange rates from rising against the dollar, the Treasury is clearly violating both the letter and spirit of US law. The IMF likewise is not taking any discernible action against these countries despite their protracted, large-scale intervention in one direction. The most urgent unresolved issue in international finance is how to get all major trading countries to participate fairly and effectively in the international adjustment of unsustainable imbalances such as the huge US current account deficit.

Innovation, Entrepreneurship and the Global Marketplace Recommended!
Robert W. Galvin & Peter Thiel (Independent Institute) Jun 2004
Transcript of an explanation of why people would be better off embracing world trade and decentralized political institutions at the recent Independent Institute dinner event, "Innovation, Entrepreneurship, and the Global Marketplace."

Doha Development Agenda
WTO Focus No. 62 Jun 2004
Dr. Supachai: Ministerial support must be translated into Geneva progress; Members praise Viet Nam’s new offers, but seek improvements and more clarification; Members encourage Benin, Burkina Faso and Mali to move ahead with reforms; Singapore commended as “exemplary” member; DSB considers panel requests by the United States and Canada; and more.

Asia's Tigers Are Back Wall Street Journal Subscription Required
George Melloan (WSJ) Jun 1, 2004
China and India are looking good and Japan finally may be pulling its own weight again.

Global: Global Blow-off?
Stephen Roach (MSDW) Jun 1, 2004
The global economy sprang to life in the second half of 2003 and hasn't looked back since. There were two initial sparks to that acceleration - the Chinese producer on the supply side of the world economy and the American consumer on the demand side. This impetus has now spread to Japan and other Asian economies, and there are even signs of modest improvement in Europe. All along, the key question has pertained to sustainability - whether this resurgence of the world economy is the beginning of a synchronous and long-lasting global upturn or just a temporary blow-off to be followed by an abrupt downshift. I continue to favor the latter possibility. Here's why.

The Case for Asian Monetary Union Wall Street Journal Subscription Required
AWSJ Jun 1, 2004
Asians are lucky in having a laboratory experiment: the euro.

OPEC tries to assuage fears as oil hits record
IHT Jun 2, 2004
Weekend attacks in Saudi Arabia caused oil prices to reach a record $42 a barrel on Tuesday.

WTO moves to salvage collapsed trade talks
IHT Jun 2, 2004
With little fanfare, trade ministers and diplomats have revived the global trade talks that fell apart in Cancún last year.

A new boss for the IMF: The Fund's golden Rato Recommended!
Economist Jun 2, 2004
Rodrigo Rato takes over as head of the IMF at a time when emerging-market economies look in fairly good shape. But he should not bet on enjoying a quiet life in his new job.

Currencies: Euro Cross Potential
Melanie Baker (MSDW) Jun 2, 2004
With the structural USD correction story running out of steam, the euro-crosses may see more variability. Of the main EUR-crosses, EUR/GBP is already the most variable. However, EUR/GBP has been well-behaved in the past 17 months, moving no more than 5% from its average fair value. Of the other EUR-crosses, recent stability in EUR/CHF and EUR/SEK is particularly notable. Although EUR/CHF is overall the most stable EUR-cross, EUR/SEK may be overdue for a shake-up.

Agriculture: G-20 Tables New Proposal; Negotiations Ongoing In Geneva
BRIDGES Weekly Trade News Digest - Vol. 8, Number 19 Jun 2, 2004
The WTO Special Session of the Committee on Agriculture (CoA) is convening from 2-4 June for an 'agriculture week'. Members are continuing negotiations and consultations in an effort to establish a negotiating framework agreement for the Doha agriculture talks before delegates adjourn at the end of July for the WTO summer break. Discussions in this third post-Cancun 'agriculture week' are expected to largely centre on a new market access proposal submitted by the G-20 group of developing countries on 28 May. According to trade sources, the G-10 group -- which consists mainly of developed country net food-importers, including Switzerland, Japan and Norway -- is to table a revised comprehensive negotiating proposal during the three-day agriculture talks.

DSU Update: DSU Review Deadline Extended; Appellate Body Developments
BRIDGES Weekly Trade News Digest - Vol. 8, Number 19 Jun 2, 2004
At the special (negotiating) session of the WTO Dispute Settlement Body (DSB) held on 28 May, Members supported a statement by Chair to extend the deadline for negotiations around the Dispute Settlement Understanding without setting a definite deadline. Members at the DSB session also considered a proposal from a diverse group of countries, and discussed proposed amendments to the 'Working Procedures for Appellate Review'.

Draft Text Ready In Advance Of UNCTAD Conference
BRIDGES Weekly Trade News Digest - Vol. 8, Number 19 Jun 2, 2004
On 14 May, member countries of the UN Conference on Trade and Development (UNCTAD) finalised the draft text that is to be transmitted to the 13-18 June UNCTAD XI Conference in Sao Paulo, Brazil. While the negotiations were not without controversy, all members appear to be sufficiently pleased with the language as it currently stands. The text still includes approximately a dozen bracketed paragraphs upon which final negotiations must still take place at the Conference. Regarding concerns that the Conference's outcome would constrain UNCTAD's mandate as expressed by some developing country members and civil society organisations, reports indicate that these groups are generally satisfied that the current draft offers adequate scope for UNCTAD to continue its work.

OPEC aims to put limit on 'boiling' price of oil
IHT Jun 3, 2004
But analysts are concerned that OPEC’s present moves to step up production capacity could mute the cartel’s future power to react to oil price shocks.

Nerves of steel
AT Jun 3, 2004
The vegetable farms and greenhouses are fast disappearing from the Flatlands, eaten away by sprawling suburbia. All over northern Ohio we see spectacular industrial fossils - Rust Belt remnants of the massive industrialization from the 1880s to the 1950s, the time when the Great Lakes were "the anvil of America" - producing most of the world's iron, steel and petroleum products.

Argentina's Offer Insults Its Bondholders
David DeRosa (Bloomberg) Jun 3, 2004
Argentina didn't do itself any favors with its recent offer to restructure $99.4 billion of its defaulted debt. Bondholders flatly refused to accept what Economy Minister Roberto Lavagna offered, and with good reason.

Global: The Mother of All Carry Trades
Stephen Roach (MSDW) Jun 4, 2004
Everyone does it — borrow short and invest long. With the overnight lending rate well below the inflation rate, the cost of money is essentially “free” in real terms. All it takes is reinvestment anywhere else along the yield curve to make a positive return from the spread, or carry, trade. By holding the nominal federal funds rate at a 40-year low of 1%, the Federal Reserve has aided and abetted a multiplicity of carry trades — from those in the Treasury market, to high-yield and emerging-market debt, to credit instruments and mortgage securities. It’s the rage. You can’t afford to miss the carry trade — until, of course, the Fed takes away the proverbial punch bowl.

Currencies: The UDS Index Is No Longer Overvalued
Stephen L. Jen (MSDW) Jun 4, 2004
Valuation matters. In this environment full of incongruous shocks, it is critical to keep an eye on long-term currency valuation. We have recently updated our calculations of the fair value of the US Dollar (USD) index, and found that it is now slightly undervalued, for the first time since the first quarter of 2000. We are not (yet) arguing that the USD index will start to appreciate, but we can no longer justify a structurally bearish USD view from an economic perspective. The USD can still undershoot its fair value, but the USD no longer ‘deserves’ to weaken further on an index basis, in our view. We continue to challenge a bearish view on the USD based only on the ‘twin deficits.’

OPEC’s meeting in Beirut: Kerfuffle over falafel
Economist Jun 4, 2004
OPEC, the oil producers’ cartel, meeting in Beirut, has agreed to increase production quotas. Does it make any difference?

Buttonwood: Another oil shock?
Economist Jun 4, 2004
The world depends for low oil prices on an unstable country that seems to be falling apart. No wonder they are rising.

Don't Know, Should Care
Jeffrey D. Sachs (NYT) Jun 5, 2004
U.S. intelligence must recognize that the problems of the world's poor aren't trifles to leave to do-gooders.

Think Global, Act Local
Thomas L. Friedman (NYT) Jun 6, 2004
To understand why the antiglobalization movement has lost its edge, you should study the recent Indian elections.

A China Trade Deal for the Yuan to Float?
David DeRosa (Bloomberg) Jun 6, 2004
China is petitioning the U.S. to grant it ``market economy'' status, something that would lead to lowering U.S. duties on a wide variety of its manufactured goods. Common sense would say this has absolutely no chance of happening, especially in the midst of an election year.

A return to the '70s on oil?
Floyd Norris (IHT) Jun 7, 2004
The war had gone badly for the Arabs, who blamed the United States and lashed out at it in anger. To the shock of the Arab and industrial worlds, it turned out that the Arabs had economic power that was far greater than anyone had suspected. The use of that power led to recessions and political instability in the West.

The Human Impact of Factor Mobility
Clifford F. Thies (Mises Daily) Jun 7, 2004
That some factors of production are mobile, says the new protectionist, "proves" that free trade is not as attractive as (supposedly) David Ricardo argued. But factor mobility is not new. It has long been accepted by economists that either goods or people (and other factors of production) move. Indeed, part of the argument for free trade between Mexico and the US is that there would be a reduced problem of illegal immigration.

G-7 Should Invite China Into Club Recommended!
William Pesek Jr. (Bloomberg) Jun 7, 2004
Asia's say in global affairs rarely matches its economic importance.

Global: The Baton Pass
Stephen Roach (MSDW) Jun 7, 2004
In my jaundiced view of the world, imbalances still matter. I am stuck on this one because every macro fiber in my body tells me to resist the siren song of new explanations as to why old rules don't work. For America, twin deficits, excess debt, and low saving all speak of unsustainability. For the world, the lopsided character of a US-global economy does the same. Either we come to our senses and rebalance the macro fundamentals, or one day the music simply stops. I'm oversimplifying, but I think you get the drift.

An Asian 'Euro' Wall Street Journal Subscription Required
WSJ Jun 8, 2004
A common currency could keep the tigers roaring.

Asia Pacific: Forex Reserves May Decline Sharply
Andy Xie (MSDW) Jun 8, 2004
Speculative capital inflows could account for US$700 billion of Asia’s US$2.2 trillion in forex reserves. Financial markets became super bullish towards Asia, mainly on China’s elevated growth paradigm, and bought Asian assets on a massive scale in the past two years. The exceptionally low Fed Funds rate was a major push factor behind the enthusiasm toward Asia. When the Fed raises interest rates, a significant portion of the speculative capital inflow could be withdrawn from the region. Only then will we find out where the sustainable level of demand for Asian assets lies.

Revaluation would protect Asia against oil shocks
Philip Bowring (IHT) Jun 9, 2004
Like the proverbial rabbit transfixed by the lights of an oncoming car, East Asian governments are motionless in the face of the high price of oil. Asian stock market indexes dance by 2 percent or more a day in response to the price of crude, and economists have been revising down their estimates of growth. Compounding the negative outlook are worries that China's cooling measures will bring a chill to the region.

GC Chair Outlines Structure Of July Outcome
BRIDGES Weekly Trade News Digest - Vol. 8, Number 20 Jun 9, 2004
On 8 June, the Chair of the WTO General Council (GC), Shotaro Oshima (Japan), convened a brief meeting of Heads of Delegations in order to outline the basic structure and elements of a package deal on a negotiating framework Members seek to finalise by the end of July. The one-page outline contained nine main points that the July outcome should include, leaving negotiators to fill in the substance, including annexes giving guidance to the negotiations in the period following August. The points included framework agreements for negotiations on agriculture, industrial market access, the trade aspects of cotton, and development issues. Also included were frameworks for issues flowing from the remaining negotiating bodies of the Doha Round, such as WTO rules, the so-called Singapore issues, and other remaining Doha elements. In addition, Chair Oshima proposed the July package include language reaffirming the Doha Declaration as an introduction, as well as a recommitment to the Doha Round.

Agriculture Negotiations: Members Still Divided Over Market Access
BRIDGES Weekly Trade News Digest - Vol. 8, Number 20 Jun 9, 2004
The WTO special session of the Committee on Agriculture (CoA) convened from 2-4 June for another 'agriculture week'. Members are continuing negotiations and consultations in an effort to establish a negotiating framework agreement for the Doha agriculture talks before delegates adjourn at the end of July for the annual WTO break. The discussions mainly focused on new proposals tabled by the G-20, G-33 and G-10 negotiating groups. In his summary at the concluding plenary session, CoA special session Chair Tim Groser said that market access remained "by far the most difficult" negotiating pillar. In contrast, he said he would now be in a position to draft a section reflecting "emerging consensus" on domestic support, getting it "80 percent" right. Members are now casting their eyes on the UN Conference for Trade and Development (UNCTAD) XI ministerial conference, where trade ministers are expected to meet informally to bridge remaining gaps in Members' positions. The G-90 of least-developed and other weak and vulnerable countries has not yet presented a revised position, but indicated it could adopt a joint agriculture proposal at a forthcoming G-90 ministerial meeting in Mauritius.

Japan Proposes Disciplining Fisheries Subsidies
BRIDGES Weekly Trade News Digest - Vol. 8, Number 20 Jun 9, 2004
The WTO Negotiating Group on Rules, which focuses on the review and improvement of WTO rules that govern issues such as dumping, antidumping measures, subsidies and countervailing measures, met from 7-8 June to consider, among other things, new developments in the area of fisheries subsidies. Topping the agenda at the meeting was a surprise proposal by Japan focusing on how to discipline fisheries subsidies.

Middle East Tops Japan's Agenda for G-8 Wall Street Journal Subscription Required
Yoriko Kawaguchi (AWSJ) Jun 10, 2004
International cooperation is needed to obtain peace in the Middle East.

Leaders take Africa's case to G8
BBC Jun 10, 2004
Six African leaders join the G8 summit in the US, which is focusing on poverty and the continent's other problems.

Global: First to Go?
Stephen Roach (MSDW) Jun 10, 2004
I continue to see the world economy as a two-engine story — the Chinese producer on the supply side and the American consumer on the demand side. While there are signs that growth is now picking up elsewhere in the global economy, I maintain my view that most of these spillover effects are traceable either to the US or China. With both of the world’s growth engines having gone to excess, a downshift in global momentum is a distinct possibility — especially in light of recent (China) and prospective (America) policy actions. Who will be the first to go?

China: Global Landing Scenarios
Andy Xie (MSDW) Jun 10, 2004
Facing rising inflation, the Fed has to raise interest rates, in my view. However, the inflationary pressure is an echo from a vast bubble that the Fed has created by keeping real interest rates negative; fighting inflation could pop the bubble.

End IMF and World Bank
Christopher Lingle (Korea Times) Jun 10, 2004
The world that the International Monetary Fund (IMF) and World Bank operate in has undergone substantial change since their birth in 1944. Born out of the Bretton Woods Conference 60 years ago, the financial system they were designed to oversee began disappearing in 1971. At that time, fixed exchange rates and capital controls dominated the financial system and private capital flows were dwarfed by transfers between governments.

China's Erroneous Numbers: First Report from the Fair Currency Alliance
Yahoo Jun 10, 2004
Inaccurate Trade Data Distort Degree of Manipulation.

China's Soft Landing
NYT Jun 11, 2004
When it comes to the global economy, Zhou Xiaochuan and Liu Mingkang may be as influential as Alan Greenspan.

How to Lose Friends in Latin America Wall Street Journal Subscription Required
Mary Anastasia O'Grady (WSJ) Jun 11, 2004
George Soros gets millions, but what does the American taxpayer get?

Offshoring which Jobs?
Alan Reynolds (Cato) Jun 13, 2004
The noisy agitation over offshore "outsourcing" died down a bit. But assertions repeated with such stridency often remain believed long after they are proven false.

Which Arab currencies are overvalued using the Big Mac index?
Henry T. Azzam (Jordan Times) Jun 13, 2004
The Big Mac index was devised by The Economist magazine in 1986 as a light-hearted indicator of whether currencies are at their "correct" valuation level. This innovative notion, referred to by The Economist as "Burgernomics," is based on one of the oldest concepts in international economics; the Purchasing Power Parity (PPP), which holds that in the long-run currencies should move towards the exchange rate that equalised the prices of an identical basket of goods and services in each country.

After voters revolt, doubt on EU charter
IHT Jun 15, 2004
Disaffection displayed in the vote on Sunday risks casting a shadow over the further EU expansion in 2007.

At the G8, the arrogance of the few
Philip Bowring (IHT) Jun 15, 2004
For the great majority of the world's people, whose leaders were not represented at the Group of Eight meeting of "world leaders" last week, the event was at best a meaningless photo opportunity, at worst an insult.

Improving the Policy Response to Financial Crisis
Agustín Carstens (IMF) Jun 14, 2004

Rato on growth prospects Adobe Acrobat Required
IMF Survey Jun 14, 2004
Plus: Effects of bilateral, regional trade deals; Rafidah on Malaysia as gateway to ASEAN; How NAFTA has affected Mexican economy; Statistics and borrowing costs; Credit booms; Can central banks be outsourced?; The truth about markets.

US Trade Deficit Set Another Record in April
WP Jun 14, 2004
Not a month has gone by this year in which the U.S. trade deficit has failed to hit a new record -- and a government report issued yesterday provided no exception, showing a $48.3 billion trade gap for April.

Global: Global Trade--Mind the Slowdown
Eric Chaney and Rebecca McCaughrin (MSDW) Jun 14, 2004
It is fair to say that, six months ago, we had expected the global slowdown and its by-product, a more balanced trade pattern, to arrive earlier. As always, getting the timing correct is the most difficult thing for forecasters. Even though early signs of a slowdown in China are now loud and clear, there is still a lot of uncertainty surrounding the nature and the breadth of the landing process. But one thing is sure, in our view: this time, the Chinese cycle will not be a pure domestic or even an Asian macro event. Because of the crucial role of Chinese imports in the post-bubble recovery, the Chinese business cycle has global implications. We have used our global trade matrix to quantify the impact of the Chinese (and thus Asian) boom-bust cycle on other large economies.

Trade, Jobs and Growth: Why You Can't Have One Without the Others
Anne O. Krueger (IMF) Jun 15, 2004
I want this morning to examine how the relationship between trade, jobs and growth works; and say something about the importance that, taken together, these three variables have for future global prosperity. I take as given the objective that we want to extend the benefits of growth as widely as possible. Our aim in the twenty first century should be to build on the economic progress achieved in the twentieth century—to raise living standards for everyone and to reduce poverty.

When Politics Corrupts Money
Shirin Ebadi & Amir Attaran (NYT) Jun 16, 2004
The World Bank should withhold money from governments that violate their people's human rights.

Jesse and Mugabe Wall Street Journal Subscription Required
wsj Jun 16, 2004
Look who's opposing free trade with Africa.

Micromanaging China Wall Street Journal Subscription Required
AWSJ Jun 16, 2004
China can start lifting some of the capital controls in place.

The Trouble With the EU
Jude Blanchette (Mises Daily) Jun 16, 2004
With the enlargement of the EU from 15 to 25 countries earlier last month, "…the artificial division of Europe is finally and conclusively at an end" declared the Irish Prime Minister Bertie Ahern. He added, "The enlarged EU is also ready to play its part in bringing about a more secure, just and equitable world."

UNCTAD XI: Key Members Report Growing Consensus On Main Farm Trade Issues
BRIDGES Weekly Trade News Digest - Vol. 8, Number 21 Jun 16, 2004
Senior trade envoys from the US, EC, Brazil, India and Australia reported very positive and useful outcomes of informal trade talks held on 13 June by the so-called group of 'five interested parties' (FIPs). Meeting at the eve of the 13-18 June UN Conference for Trade and Development (UNCTAD) XI ministerial conference, the ministers attending the four-hour meeting in Sao Paolo, Brazil "found enough convergence to instruct...officials to urgently continue the work," according to Brazil's trade minister Celso Amorim. Participants also reconfirmed their hope that negotiating frameworks -- on agriculture and other key issues -- would be agreed by the end of July this year. WTO Members are currently struggling to find consensus on the basic parameters of a new agriculture trade accord, with market access still being the most controversial issue. In related news, the Organisation for Economic Cooperation and Development (OECD) released a new report on 10 June, finding that while overall OECD agriculture subsidy levels have decreased over the last 15 years, producer support still represents a share of more than 60 percent of farm incomes in certain OECD countries.

NAMA Talks Progress In Anticipation Of Agriculture Breakthrough
BRIDGES Weekly Trade News Digest - Vol. 8, Number 21 Jun 16, 2004
The WTO Negotiating Group on Non-Agricultural Market Access (NAMA) convened in formal sessions on 9 and 11 June, with Members meeting informally between these. Members continued discussing the formula for tariff reductions for industrial goods, with a view to a package to be agreed by the end of July. Discussions also focused on how to accommodate the weaker and more vulnerable countries, and on non-tariff barriers (NTBs). A limited number of Members led by the US, Canada and Hong Kong, met to discuss options for how to proceed on zero-tariff initiatives in sectors where there was "critical mass" to support such an approach.

Wanna Buy a T-Bill, Sucker?
Daniel Gross (Slate) Jun 16, 2004
The foreign fools who are buying American bonds.

Global: Global Trade Is Still Booming
R McCaughrin, E. Chaney & R. Berner (MSDW) Jun 16, 2004
Powered by surging demand, recent trade data around the world have shown unwavering strength. This has been especially true in Asia ex-Japan, where both exports and imports increased by an average rate of around 20%YoY (in value terms) during the first four months of the year. Only a few Asian economies have released trade data for May, but those figures indicate that trade continued to accelerate. Month-on-month figures suggest that the expansion is not just a function of easier comparisons related to SARS and the Iraq war. Japan has also benefited from the expansion in trade, with exports growing at a heady pace of 10.6%YoY since the beginning of the year, with no signs of a deceleration in shipments as of mid-May. In Europe and the US, trade also remained resilient through the first three months of the year, with more forward-looking indicators, like the ISM export and import indices and the export components in the German Ifo and PMI survey pointing to ongoing strength.

Global: Escape Act
Stephen Roach (MSDW) Jun 16, 2004
We hold two major conferences each year for global investors — one in America (technically offshore) and another in Europe. I have been to most of them — nearly 20 years of the American strain and now 10 installments of the Euro effort. For me, these gatherings have become important milestones in gauging the subtleties of the investment climate — not just in identifying the common ground of a diverse group of some 45 institutional investors but also in uncovering the areas of greatest opportunity and concern.

Iraqi dinar: Let the speculators beware
AT Jun 16, 2004
Iraq's currency is plummeting, along with the dreams of the many speculators who raced to pick up the dinar when it was launched last October. But hope springs eternal, and another batch of speculators believes there's a killing to be made.

Lobbying could kill reforms
Floyd Norris (IHT) Jun 17, 2004
Just when the prospects for accounting reform were at their peak, the bull market came back. And with it came the power of those who warn that all kinds of bad things will follow if accountants are allowed to report unpleasant truths.

Lifting trade barriers would reduce poverty - study
Reuters Jun 17, 2004
Eliminating global trade tariffs and other protective barriers would lift at least 500 million people out of poverty over 15 years, according to a new study released on Thursday.

Global: Heading for the Exits
Stephen Roach (MSDW) Jun 18, 2004
First, it was the Reserve Bank of Australia. Then, the Bank of England. And now, it’s the Swiss National Bank. One by one, central banks around the world are joining the rush to the exit doors. So far, the Big Three — the Federal Reserve, the ECB, and the Bank of Japan — have yet to embark on the road to policy normalization. But that day is coming — and the sooner the better, in my view. Now, more than ever, the global economy and world financial markets need to be weaned from the steroids of extraordinary monetary stimulus.

Currencies: AUD/USD to Trade Down to the Low-60 Cent Range
Stephen L. Jen (MSDW) Jun 18, 2004
We are bearish on AUD/USD, and believe that it can trade down to the low-60 cent range in the coming months. In our view, virtually all of the key factors that have helped propel AUD/USD higher for most of 2003 are reversing. Going forward, we believe that the AUD has a good chance of underperforming USD, GBP, and EUR, in order of decreasing magnitude.

Currencies: GBP/AUD--On Housing Bubbles and Currencies
Stephen L Jen & Melanie Baker (MSDW) Jun 18, 2004
In this note, we take our first step at looking at how property markets affect currencies. We see some downside risks to AUD/USD and GBP/USD, as the property markets there peak.

WTO May Rule U.S. Cotton Aid Illegal, Backing Brazil
Bloomberg Jun 18, 2004
A World Trade Organization ruling today on U.S. cotton aid may strengthen developing countries' efforts to change the way wealthy governments pay their farmers $300 billion in annual subsidies, said economists including Gary Hufbauer in Washington.

Euro Trashing
Niall Ferguson (New Republic) Jun 21, 2004
The dollar may be dying. And it could take the U.S. economy down with it.

The End of Power Recommended!
Niall Ferguson (WSJ) Jun 21, 2004
Without American hegemony the world would likely return to the dark ages.

A Strong Euro Is Europe's Best Friend Wall Street Journal Subscription Required
Melvyn Krauss (WSJE) Jun 21, 2004
There are sound economic reasons for believing the euro will strengthen over the next several months.

China's Real Balance of Payments Wall Street Journal Subscription Required
Sam Baker (AWSJ) Jun 21, 2004
Fully disclosing the details will help Chinese officials avoid a harder crash down the line.

US feels heat of dragon's breath
Ian Williams (AT) Jun 21, 2004
Those Chinese are sneaky and unfair in taking America at its word on free markets - and then beating it at its own game. This is the implication of a report before Congress that fingers Beijing for American economic and national security problems, and that stops just short of calling for a trade war. - Ian Williams

Global: The Asset Economy
Stephen Roach (MSDW) Jun 21, 2004
The equity bubble of the late 1990s was a transforming event in many ways for the US economy. But there is one lasting implication that stands out above all - an important transition in the character of the American growth dynamic. The income-driven impetus of yesteryear has increasingly given way to asset-driven wealth effects. For consumers, businesses, policymakers, and investors, the asset economy turns many of the old macro rules inside out. In the end, it could well pose the most profound challenge of all to sustainable recovery in the United States.

Global: Repatriation Act Returns to Radar Screens
Rebecca McCaughrin (MSDW) Jun 21, 2004
After more than a year in the works, the so-called Homeland Investment Act (HIA) is nearing the homestretch. This provision, which is part of a broader international corporate tax bill, proposes to temporarily reduce the tax burden US multinationals face when they repatriate overseas profits. In our view, while the legislation may be important from a micro standpoint – to the extent that it helps companies to pay down debt, shore up balance sheets, or buy back shares – the impact is more modest from a macro perspective.

Crisis Resolution: What the Fund is Doing
Anne O. Krueger (IMF) Jun 22, 2004
I want today to outline some of the changes we have made in order both to strengthen our work on crisis prevention and to make the resolution of crises more effective and less disruptive. In doing so I want also to emphasize that our work in this area encompasses much broader issues than many of us previously realized.

Missing the True Significance of Outsourcing Wall Street Journal Subscription Required
Amar Bhide (AWSJ) Jun , 2004
The outsourcing trend will not make India an economic powerhouse.

America's huge trade gap: How to slay America's monster trade gap?
Economist Jun 22, 2004
America’s trade gap is growing again. Worse, it may be extremely hard to close it without causing much economic pain—and not just for Americans.

Waterloo, Waterloo
Economist Jun 22, 2004
Why is volatility so low in financial markets?

Beggars Can Be Choosers
Robert P. Murphy (Mises Daily) Jun 23, 2004
When it comes to "armchair economics," a popular and effective technique is the reductio ad absurdum. Rather than attacking a view head-on, it is often simpler to take the argument to its logical conclusion, at which point its inherent fallacy is obvious (or at least, should be obvious).

White House Praises World Bank on Poverty
LAT Jun 23, 2004
The World Bank has met poverty reduction goals in the areas of education, business development and health, the Bush administration said Tuesday.

WTO: Delegates Kick Off Agriculture Talks In Geneva
BRIDGES Weekly Trade News Digest - Vol. 8, Number 22 Jun 23, 2004
WTO Members are meeting from 23-25 June in the penultimate special (negotiating) session of the Committee on Agriculture (CoA) in the lead-up to a self-imposed deadline for agreeing on a negotiating framework by the end of July. The Chair of the CoA special session, Tim Groser, stressed at a 23 June opening plenary that he was still "nowhere near ready" to produce a framework draft. While he recognised that considerable progress had been made at the political level, he said progress at the negotiators' level was "still maturing". Members of the group of 'five interested parties' (FIPs) -- including the US, EC, Brazil, India and Australia -- had met earlier on 22 June to advance discussions on market access, which is yet the most controversial issue in the area of agriculture. According to source, the US presented a proposal on a tariff reduction formula that would merge elements of the so-called 'banded' and 'Swiss' approaches for tariff cuts at the FIPs meeting. The proposal was received coolly by G-20 leader Brazil, which called the US proposal "unbalanced" and unacceptable for the developing country grouping.

WTO Environment Committee Makes Slow Progress
BRIDGES Weekly Trade News Digest - Vol. 8, Number 22 Jun 23, 2004
In what was described as a meeting "lacking in energy", the WTO Committee on Trade and Environment (CTE) convened for its regular session on 21 June, with discussions focusing on paragraph 51 of the Doha Mandate. The generally more constructive debates in the special session on 22 June revolved around approaches to clarifying the relationship between WTO rules and multilateral environmental agreements (MEAs), as well as the liberalisation of trade in environmental goods.

Quiet TRIPS Council Focuses On Health, Biodiversity-related Issues
BRIDGES Weekly Trade News Digest - Vol. 8, Number 22 Jun 23, 2004
On 16 June trade delegates convened to continue their attempt to resolve certain issues on the agenda of the Council for Trade-related Aspects of Intellectual Property Rights (TRIPS). The meeting focused on issues related to the amendment of the TRIPS Agreement to allow countries without pharmaceutical manufacturing capacity to import generic versions of drugs still under patent and the review of Article 27.3 b) (patentability of life forms), genetic resources, traditional knowledge and folklore. Although the meeting was scheduled for two days, it ended early as no real advances were made.

Pro-Trade, Pro-Immigration Wall Street Journal Subscription Required
WSJ Jun 24, 2004
GOP voters punish nativist pols.

Brussels Needs a New Vocabulary of Reform Wall Street Journal Subscription Required
Ann Mettler (WSJE) Jun 23, 2004
Competitiveness is usually EU-speak for more protectionism.

Fairness with Your Coffee?
N. Joseph Potts (Mises Daily) Jun 25, 2004
At my neighborhood supermarket the other day, I was at first puzzled, then a bit amused at the sight on the shelf of "Fair Trade Coffee." No, this isn't a catchy brand name like "Morning Call." This is, I found on inspecting the unusually wordy label in detail, coffee whose supplier claims to have overpaid the producers for it. By this is not meant, of course, having paid the producer whatever he asked, but rather, some (undisclosed) minimum price notionally above whatever the market price for beans at the time and place of sale is supposed to have been.

Global: Europe Needs a Stronger Euro
Stephen Roach (MSDW) Jun 25, 2004
The world is in the process of giving up on Europe. In my meetings over the past several months with a broad cross-section of investors, business executives, and policy makers from around the world, the subject of the European economy almost never comes up. This attitude is strikingly reminiscent of the treatment Japan received over the past decade. Just as the world learned to live without Japan, it now appears increasingly resigned to yet another outbreak of "Eurosclerosis." Hopes for a cure have all but been dashed.

Euroland: A Stronger Euro Would Backfire
Eric Chaney (MSDW) Jun 25, 2004
In his forum “Europe Needs a Stronger Euro,” Stephen Roach argues that “the world is in the process of giving up on Europe,” being “resigned to yet another outbreak of Eurosclerosis.” Steve was told by a top European executive that the EU is just a “loose confederation of nationalistic countries,” and he believes that this might say it all. He could have added that the passions surrounding the 2004 Euro Cup provide yet further evidence of European nationalism. My Italian friends are convinced that the Swedes and the Danes struck a secret deal in order to pass the quarterfinals at the expense of the Squadra Azzura. My Danish friends tell me that this is typical Italian conspiracy theory. Sorry, I am not a football expert and will not elaborate further. Being French, I could even be accused of nationalism. Back to Steve’s thesis, the euro was supposed to accelerate reforms, but instead the “Stability Pact was abrogated,” clear evidence that the political resistance vis-à-vis structural changes is stronger than competition forces, according to Steve. Because rigidities are so deeply entrenched in Europe, Steve believes that only a large external shock, such as a large overshooting of the euro, could yield the heavy lifting Europe needs. With all due respect, I disagree.

Currency: The US Dollar as the Currency for the World
Stephen Jen (MSDW) Jun 25, 2004
The dollar deserves our respect. In my view, the US is special in many ways. One unique aspect of the US is that the dollar commands a hegemonic status as the currency for the world. This unique feature of the dollar makes the US external financing constraint much softer than that of any other country running a C/A deficit that is 5% GDP. I believe we should have a double-standard in thinking about currencies, with the USD in a league by itself. I maintain my view that the structural USD index correction is complete, and believe that investors should show more respect for the USD.

The Great (Trade) Wall of China Wall Street Journal Subscription Required
Don Evans (WSJ) Jun 28, 2004
We've opened our markets. It's time for Beijing to return the favor.

Viva La Capital Market Revolution! Wall Street Journal Subscription Required
Patrick L. Young (WSJE) Jun 28, 2004
Bald cost factors will ultimately kill floor trading.

The Fallacies of Shrimp Protectionism
Don Mathews (Mises Daily) Jun 28, 2004
The U.S. shrimping industry must be thriving. Or so one would think. Only a generation ago, shrimp were all but considered a delicacy and came at a steep price, but today, fresh and frozen shrimp are readily available at grocery stores, never mind restaurants, and Americans are taking full advantage of the abundance. In 2003, Americans consumed 1.1 billion pounds of shrimp, up from 685 million pounds in 1994 and 287 million pounds in 1970.

De Rato visits Asia Adobe Acrobat Required
IMF Survey Jun 28, 2004
Plus: Bretton Woods institutions; De Rato on IMF at 60; Ahluwalia accepts new post; Fiscal adjustment under IMF programs; Gulf states tackle labor market strains; Caribbean and globalization; G8 agree on more support for HIPC initiative.

Global: Disequilibrium Economics
Stephen Roach (MSDW) Jun 28, 2004
Equilibrium is the anchor of macro analysis. It is tantamount to a condition of balance, or stability, that helps foster sustained economic growth. Yet equilibrium is largely a theoretical construct — very different from the disequilibria that depict actual conditions in the real world. The transition from disequilibrium to equilibrium has long been central to the policy and financial market debates. Ever-present shocks can be far more destabilizing for economies in disequilibrium than for those in equilibrium. Therein lies the key risk in today’s world.

Currency: Portfolio Inflows and the US Dollar
Stephen L Jen and Rebecca McCaughrin (MSDW) Jun 28, 2004
In our view, there is an excessive fixation on portfolio flows in thinking about the fate of the USD. We are not saying that flows don’t matter; but capital flows really don’t have as tight a relationship with asset prices as is often assumed. One key reason is that exchange rates are asset prices, not goods prices. In our view, expectations of the underlying variables driving exchange rates matter much more than ‘supply and demand’. In theory, there need not be any change in supply/demand for an exchange rate to gap higher or lower, as long as there is a change in the economic fundamentals that matter for the exchange rate. In other words, as soon as expectations change, asset prices can jump, regardless of flows.

EU ruling damages Beijing's trade status
IHT Jun 29, 2004
It may be one of the most dynamic places in the world to do business, but technically at least, China is not yet a "market economy," the European Commission concluded in a report Monday.

China's Currency is Undervalued: Second Report from the Fair Currency Alliance
Yahoo Jun 29, 2004
Experts Agree: China's Currency is Undervalued.

Trichet Should Hold Out Against Global Rate Moves
Matthew Lynn (Bloomberg) Jun 30, 2004
The British have done it. The Swiss have done it. This week, the U.S. will probably do it. How long can Jean-Claude Trichet, the president of the European Central Bank, hold out before he does it, too?

Global: China's Greatest Challenge - Economic Development or AIDS?
Stephen Roach (MSDW) Jun 30, 2004
I continue to believe that China is the world’s greatest development story. Its extraordinary progress on the economic front speaks for itself: Over the past 20 years, economic growth has averaged close to 9%, making the Chinese economy the sixth largest in the world (at market exchange rates). Over the same period, China’s share in world trade has risen from less than 1% to almost 6%, making it the fourth largest trading power in the world. In 2003, China’s per capita GDP exceeded US$1,100 — a virtual quadrupling of levels prevailing 25 years ago and piercing the threshold normally reserved for advanced developing economies. For a population of 1.3 billion, the attainment of such a dramatic improvement in its national living standard over such a relatively short period of time is nothing short of astonishing.

America: the world's biggest hedge fund
Economist Jun 30, 2004
Are markets about to start panicking about the dollar again—with good reason?

WTO Agriculture Talks: Chair Says Framework Deal "Absolutely Doable"
BRIDGES Weekly Trade News Digest - Vol. 8, Number 23 Jun 30, 2004
Negotiations during the most recent WTO 'agriculture week' ended without a final breakthrough. However, sources reported some progress in talks on market access and export competition. Briefing the full Membership on the outcomes of the 23-25 June special (negotiating) session of the Committee on Agriculture (CoA), Chair Tim Groser (New Zealand) at the concluding 25 June plenary meeting said that, while he still was frustrated at the slow pace of progress, he considered an agreement on a framework accord before the end of July "absolutely doable" due to the accelerating intensity of the negotiations. Informal consultations during the three-day consultations largely focused on a new US on market access proposal. The 'Five Interested Parties' (FIPs) group consisting of the US, EC, Australia, Brazil and India also held intense meetings on the sidelines. The secrecy of the FIPs meetings was heavily criticised by many negotiators, primarily from the G-10 group of countries including Switzerland and Japan who called for greater transparency in the negotiation process. Groser defended the process as a necessity, but indicated he would reveal further details on content when he reported to the Trade Negotiations Committee on 30 June.

SPS Committee: S&D Debate To Continue
BRIDGES Weekly Trade News Digest - Vol. 8, Number 23 Jun 30, 2004
The WTO Committee on Sanitary and Phytosanitary Measures (SPS) failed again to finalise discussions on special and differential treatment (S&D) following objections by Malaysia at its 22-23 June meeting. Also at the session, Members adopted a schedule for reviewing the operation and implementation of the SPS Agreement as mandated by the Doha decision on implementation.

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