News & Commentary:

November 2004 Archives


IMF at 60 Recommended!
Finance and Development Sep/Nov 2004
Marking the IMF's 60th anniversary, this issue explores the forces that are likely to shape the global economy over the next 25-50 years and how the IMF will prepare itself to meet the consequent challenges. It also looks at reforms the IMF will need to implement if it is to retain its political legitimacy. L. Van Houtven discusses IMF governance and the need to overhaul the Executive Board. C. Rustomjee also argues for reforming the Board to increase the representation of developing countries. Three former IMF Managing Directors share their views on improving IMF governance, strengthening IMF surveillance, and preventing crises. The issue also features a profile of Nobel Prize-winner Amartya Sen; Country Focus on Nigeria's economy; and three articles on development issues. One discusses the implications of recent initiatives calling for more foreign aid in the form of grants rather than loans. The IMF's Raghuram Rajan explores the pitfalls of relying on orthodox economic models for policymaking.

Research summaries on fiscal rules and financial development in low-income countries: Old questions or new problems? Adobe Acrobat Required
IMF Research Bulletin Sep/Nov 2004
Plus: Country study: China; visiting scholars at the IMF; contents of latest issue of IMF Staff Papers; titles of recent IMF policy discussion papers, working papers, and external publications by IMF staff; summary of IMF conference honoring Michael Mussa.

Globalization: Europe's Wary Embrace Recommended!
Philip H. Gordon (YaleGlobal/Brookings) Nov 1, 2004
In a recent television interview, leading French Socialist politician and aspiring Presidential candidate Laurent Fabius announced his opposition to the European Union's new draft constitution. It was, in effect, a vote against globalization. While supporting European integration, he explained that the constitution did not sufficiently protect France and its workers against job losses due to globalization. Well aware that some 40 percent of voters in the first round of the last French presidential election supported anti-globalization candidates, Fabius appeared to be positioning himself for a presidential run.

Is Laissez-Faire a Threat to Freedom? An Answer to George Soros
George Reisman (Mises Daily) Nov 1, 2004
Back in 1997, George Soros, a multibillionaire stock and commodities speculator, wrote an essay titled "The Capitalist Threat" (The Atlantic Monthly, February 1997. The essential substance of this essay is the claim that the main contemporary threat to a free society is a fully free society--i.e., a society of laissez-faire capitalism. It is a claim that has grown more prominent in the years since his article first appeared.

US deficit: It is not only sustainable, it is logical Recommended! Financial Times Subscription Required
Richard Cooper (FT) Nov 1, 2004
The US provides higher investment returns than Europe or Japan and more security than emerging markets

US deficit: The problem is a global concern Recommended! Financial Times Subscription Required
Maurice Obstfeld and Kenneth Rogoff (FT) Nov 1, 2004
A sober president-elect ought to worry a lot about his country’s continuing foreign borrowing addiction.

Argentina’s debt offer: Short haircuts all round
Economist Nov 3, 2004
Argentina has unveiled a new offer to the creditors it stopped paying almost three years ago. Will this end the largest sovereign default in history?

Asia/Pacific: Back to Carry Trades
Andy Xie (MSDW) Nov 3, 2004
Carry trades are dominating investment themes among the financial investors I visited in the UK last week. Long commodities and emerging markets and short on the US dollar seem to remain the core investment ideas. The expected revaluation of the renminbi, continued strong demand from China for commodities, and the large US current account deficit are the three building blocks for the carry trades.

WTO S&D Talks Focus On Process In "Positive" Session
BRIDGES Weekly Trade News Digest - Vol. 8, Number 37 Nov 3, 2004
The Committee on Trade and Development special (negotiating) session (CTD-SS) -- mandated to review all special and differential treatment (S&D) provisions for developing countries -- met on 28 October in an atmosphere described by a trade delegate as "positive and constructive". The group has missed three deadlines in recent years and has been characterised by polarised discussions and divergent perspectives not only in relation to concrete proposals, but also with respect to process. Chair Faizel Ismail suggested that something should be achieved by Christmas, if only to record progress, including on 28 specific proposals that were agreed before Cancun and on cross-cutting issues that could be addressed. He described areas of convergence that would lay the foundation for informal consultations until the next meeting. Some Members observed that the polarisation between developing and developed countries seemed to have subsided at the meeting.

LDCs Discuss Upcoming Textile and Clothing Transitions
BRIDGES Weekly Trade News Digest - Vol. 8, Number 37 Nov 3, 2004
The WTO Sub-Committee on Least-Developed Countries met on 29 October and discussed what one delegate described as "urgent problems" relating to the phase-out of textile and clothing quotas at the end of this year. The meeting focused on a document submitted by Tanzania on behalf of the least developed countries (LDCs) entitled "Market Access for LDCs in the Textiles and Clothing Sector After the Expiry of ATC". The document was tabled to facilitate discussions amongst LDCs regarding adjustment issues. Although delegates at the meeting failed to agree on the proposals in the document, Members planned to continue informal consultations on the issue and possibly to convene another Sub-Committee meeting this year.

The Dollar's Long-Term Direction: Down
NYT Nov 4, 2004
The election drove the dollar all over - down when it looked like President Bush would lose, up briefly when Senator Kerry conceded defeat. But ultimately, the dollar's fate never hinged on the outcome of the presidential election. Now that the dust has settled, the currency is back on its long-term path: downward. According to most economists, it is likely to stay there over the next four years.

Global: A Different America
Stephen Roach (MSDW) Nov 4, 2004
America has spoken. And while the election outcome was close, the verdict was decisive. The recent past could well be prologue for what now lies ahead. Moreover, given Republican gains in the House and the Senate, a second Bush Administration will have a much better chance of converting its activist policy agenda into action. From my perch as an economist, there is a deeper meaning to all this. A very different America has emerged that will put new pressures on itself and on the broader global economy. This will likely have profound and lasting implications for world financial markets.

Dollar back on course: downward
IHT Nov 5, 2004
According to most economists, it is likely to stay on a downward trajectory over the next four years.

In India, outsourcing firms rejoice
IHT Nov 5, 2004
Outsourcing companies in India are jubilant that the elections in the United States have returned President Bush to office.

EU's New Members Mustn't Be Rushed Into the Euro
Matthew Lynn (Bloomberg) Nov 5, 2004
European Central Bank President Jean- Claude Trichet probably thought he had enough problems. Growth in the euro area is weak, the euro keeps rising against the dollar, and the Stability and Growth Pact has collapsed. And now? He has to worry about Hungary.

America's Unsustainable Boom
Stefan M.I. Karlsson (Mises Daily) Nov 8, 2004
Many people were relieved when they saw how mild the 2001 recession was—in fact it didn't even technically count as a recession since there were not two consecutive quarters of falling real GDP—although 3 out of 5 quarters after the second quarter of 2000 saw a falling GDP. Of course, given how lousy the labor market has been since then most people still feel that the economic downturn was a lot sharper than those numbers would indicate, and that the following expansion was a lot slower than the official numbers would indicate.

Global: Rethinking the China Slowdown
Stephen Roach (MSDW) Nov 8, 2004
After extensive discussions in Beijing, I am changing my view on the China slowdown. Specifically, over the next year, I do not believe that the Chinese economy is going to soften as much as I had thought. This is a personal observation rather than a shift in our official view held by Andy Xie and his team, who are still looking for a marked slowing in Chinese GDP growth from 9.3% in 2004 to 7.0% in 2005. But it is clear to me that China’s policy makers are now aiming for only a modest further slowing in the economy. The key question is whether they will get their way in managing this gentle descent. My bet is they do.

Currencies: An Overshoot in EUR Policy
Stephen L. Jen (MSDW) Nov 8, 2004
A growth-inflation trade-off. Europe’s strong EUR policy to deal with high oil prices reflects, in my view, an ‘inflation-centric’ policy orientation. Essentially, a strong EUR policy in response to high oil prices is a policy to subsidize consumers by taxing exporters. In my view, this policy is temporary in nature — growth and inflation objectives will clash at some point. My own guess is that, based on macroeconomic trends in Euroland and elsewhere, the absolute ‘no-go’ zone may be 1.40, with a high risk of actual intervention occurring when/if 1.35 is breached, and risk of verbal intervention when/if 1.30 is breached.

Global: How Depleted Is the Global Savings Base?
Rebecca McCaughrin (MSDW) Nov 8, 2004
According to various sources, the US is sucking up an increasing share of the world’s savings. The US savings shortfall means that it must draw on the world’s excess savings to sustain its current level of spending. As the argument goes, this detracts from otherwise productive investments that the rest of the world could make in their domestic economies. Putting aside the reasons why -- be it for the lack of alternative investments, export competitiveness, or confidence in US assets -- different measures tell different stories of the true magnitude of the drain on global savings.

Asia/Pacific: Bush II ? Good for Trade, Bad for Energy, Uncertain for Dollar
Andy Xie (MSDW) Nov 8, 2004
Outsourcing became a bogeyman for the weak US employment picture during the presidential election campaign. It did feature prominently during the campaigns. The election result suggests that it was not a big issue. It did not affect the results among the states with the heaviest losses of manufacturing jobs. This should embolden the second Bush Administration to pay less attention to protectionist pressure from some interest groups.

The falling dollar: America’s privilege, the world’s worry Recommended!
Economist Nov 8, 2004
The dollar plumbed new depths against the euro this week. The greenback’s fall has unnerved European policymakers. But it is their Asian counterparts who have most reason to worry.

The markets after Bush's victory: Close, but no cigar
Economist Nov 8, 2004
Same president, same soaring deficits, same market worries?

India pulls China into outsourcing game
Siddharth Srivastava (AT) Nov 9, 2004
An impending shortage of skilled IT workers, combined with skyrocketing salaries and a surge in outsourced work from the US, means that Indian software companies need an alternative low-cost pool of engineers to spur growth. China is proving just the place.

Malaysia could drop ringgit peg to US$ soon
ST Nov 9, 2004
THE sharply weakening US dollar has increased market speculation that Malaysia may soon abandon its currency peg to the greenback.

US$ dalls further against euro, yen
ST Nov 9, 2004
THE US dollar slipped to a fresh record low against the euro and a multi-month trough against the yen on concerns about US budget and trade deficits, weighing on Asian stocks and sending gold to 16-year highs.

Offshoring makes a nice little earner
FT Nov 9, 2004
You cannot believe everything you read in the newspapers - some of them, at least. Across the developed world, press reports warn of the inevitable loss of millions of jobs to low-cost countries such as India as services follow manufacturing offshore. Yet countries such as the US and the UK have been among the biggest beneficiaries of offshoring - and can continue to be if they recognise the policies needed to foster service industries.

The Short View: Buck and forth in Europe Financial Times Subscription Required
Philip Coggan (FT) Nov 9, 2004
If the greenback is heading steadily downwards, that has significant consequences for the European equity markets. Traditionally, periods of dollar weakness have coincided with phases when European stock markets have underperformed Wall Street in local currency terms.

Emerging Markets: Some (Late) Thoughts on Mr. Bush?s Re-election, Dollar Weakness, and the Emerging Markets
Riccardo Barbieri (MSDW) Nov 9, 2004
Chief Economist Steve Roach and other colleagues from the Morgan Stanley economics team have already very ably commented on the implications of the US elections outcome last week, and there is probably very little to add to the debate. But, just in case, here are some thoughts on the election outcome from an Emerging Markets perspective that I started drafting, but was unable to complete, during a short but intense visit to Moscow last week.

Can Asia Dump Bretton Woods II as Dollar Falls?
Andy Mukherjee (Bloomberg) Nov 9, 2004
President George W. Bush's second term may be a challenging time for Asian central bankers.

Banking Needs of A Global Economy
Anne O. Krueger (IMF) Nov 10, 2004
A strong, well-functioning financial sector is crucial for any economy—be it industrial, emerging market, or even low-income. It is essential for healthy sustained growth. As an economy grows and matures, its financial sector must grow with it. It must be able to meet the increasingly sophisticated demands that are placed on it.

Asia ripe for a currency shake-up Financial Times Subscription Required
FT Nov 10, 2004
Japanese banks’ capital base has been destroyed following the bursting of the bubbles and the surge in non-performing loans, writes Akio Mikuni, president of Mikuni & Co.

Small Economies Seek Attention, Special Treatment
BRIDGES Weekly Trade News Digest - Vol. 8, Number 38 Nov 10, 2004
The Committee on Trade and Development (CTD) held the eighth Dedicated Session on Small Economies on 3 November as part of the 1-5 November WTO Geneva Week for Non-Resident Members. At the meeting, Members agreed that the work on small economies -- characterised by the dual constraints of small economic size and vulnerability -- would be included in the General Council's report to the Sixth Ministerial Conference, scheduled for December 2005 in Hong Kong. Delegates reviewed work to date and exchanged views on the July Framework agreement on the way forward in the Doha Round. They also discussed the Work Programme for Small Economies, considering the constraints of the mandate from Paragraph 35 of the Doha Declaration, which states, "The objective of this work is to frame responses to the trade-related issues identified for the fuller integration of small, vulnerable economies into the multilateral trading system, and not to create a sub-category of WTO Members".

Dollar Anxiety Wall Street Journal Subscription Required
WSJ Nov 11, 2004
If devaluation were the path to prosperity, Argentina would rule the world.

The Policy Response to Financial Crisis: The Importance of Facing Ugly Trade-offs
Agustín Carstens (IMF) Nov 11, 2004
The rapid integration of global capital markets has offered emerging market countries considerable opportunities for growth and development. At the same time, however, it carries with it risks of financial crisis that can inflict substantial damage and are difficult to manage. Throughout its history, the IMF and its member countries have worked to improve our collective ability to prevent financial crises. We must recognize, however, that despite best efforts at prevention, crises will continue to occur. Therefore along with enhancing efforts aimed at crisis prevention, the Fund and its members have struggled with the challenge of improving the policy response to financial crises. When a crisis does occur, resolution is almost always an arduous task. It involves difficult judgments and unpleasant trade-offs amid significant uncertainty, while some measures may have transitory, adverse side effects. And, over the longer run, a country can remain exposed to significant post-crisis vulnerabilities, especially if reforms are not fully carried through.

China Unikely to Float Currency Soon, Official Says
Jill Dutt (WP) Nov 13, 2004
The deputy governor of China's central bank said it could take "a couple of years" to loosen controls on the value of the nation's currency, despite exhortations by the Bush administration to move quickly so that Chinese exports lose some of their low-price advantage.

As the Dollar Declines
NYT Nov 13, 2004
The only lasting remedy to the plunging dollar, reducing the budget deficit, has never been a priority to this "tax cuts above all" administration.

Trade Issues Sour U.S.-Canadian Friendships
Clifford Krauss (NYT) Nov 14, 2004
Canadian ranchers are frustrated by the American ban on live Canadian cow exports, a ban that began when a single cow was found to have mad cow disease.

Dollar's Decline Is Reverberating
LAT Nov 14, 2004
If foreign investors look elsewhere, interest rates could climb and living standards could fall.

Asia won't go back to being an also-ran Recommended!
Brad Glosserman (Japan Times) Nov 14, 2004
I am often asked why our think tank is located in Hawaii. Apart from the sun, sand, sea and surf, there is a very good reason: The world looks very different from Honolulu. We're parked in the middle of the Pacific Ocean. Tokyo is a lot closer than Washington, D.C. When we look out over the horizon, it's Asia that shapes and dominates our thinking.

The declining dollar
NYT/IHT Nov 15, 2004
For all its professed desire for a strong dollar, the Bush administration has apparently decided that letting the dollar slide is a good way to shrink America's trade deficit. This is dubious economic policy. It provides a modicum of relief to U.S. exporters, but it increases the nation's vulnerability to higher prices and higher interest rates, while ignoring fiscal measures that would more assuredly anchor the United States in the global economy.

The World's Other Economic Superpower Wall Street Journal Subscription Required
Jeremy Rifkin (WSJ) Nov 15, 2004
The EU is a close rival to the U.S. economy, but you'd never know it from the media reports.

For a Few Dollars More Wall Street Journal Subscription Required
John H. Makin (WSJ) Nov 15, 2004
China pegged its currency to a sinking dollar. That can't last.

Global: The Armageddon Foil Recommended!
Stephen Roach (MSDW) Nov 15, 2004
Spinning a tale of global imbalances does not exactly make me the most popular person in the investment community. In large part, that's because many take great umbrage at the implications global rebalancing have for the US economy. Current-account adjustments, dollar weakness, deficit reduction, and a rebuilding of national saving are widely perceived to be an unusually painful price for America to pay to put itself and the world back on a sounder footing. I have been on the receiving end of that push-back for some time, and that same response was very much in evidence at our just-completed annual investment conference at Lyford Cay.

Dollar's fall bodes ill for Korea
Jamie Miyazaki (AT) Nov 18, 2004
Low consumer spending has dragged down the Korean economy: its only remaining silver lining is exports. But storm clouds could be gathering here as well, as the falling dollar is turning the won highly uncompetitive, particularly in comparison with neighboring China.

Currencies: A Reversal of the Asian Currency Crisis Recommended!
Stephen Jen (MSDW) Nov 15, 2004
I find striking parallels between current market conditions and sentiment regarding USD/Asia and the experience during the Asian Currency Crisis in 1997-98. Specifically, the market and some US policymakers seem to be calling for a kind of ‘Asian Currency Crisis in Reverse’. I am in no way looking for a ‘crisis’, either in terms of the magnitude of movements in USD/Asia or in terms of the general level of angst. Rather, I simply point out that the down-trade in USD/Asia that many are calling for, in a way, almost fully reverses the Asian Currency Crisis. If China moves to a ‘crawling band’ in the near future, it is likely that there be a wholesale decline in USD/Asia.

Currencies: RMB: Inching Toward a Crawling Band
Stephen Jen (MSDW) Nov 15, 2004
I present my latest thinking on Chinese RMB policy, focussing on four aspects of this discussion: (1) the likely timing of the dismantlement of the de facto USD peg; (2) the form of regime that is most likely to replace the current RMB framework; (3) the likely movement in USD/RMB after this prospective change; and (4) the likely implications for the rest of the world.

Contractionary Currency Crashes in Developing Countries -- The Mundell-Fleming Lecture
Jeffrey A. Frankel (IMF) Nov 15, 2004
I'm going to talk about a number of different aspects of devaluations in developing countries. It's rather striking when you think back over the last 20, 30 years of research how much our interests have shifted away from industrialized countries towards developing countries. If you look at the working papers in international finance and macro in the NBER, a heavy majority now focus on emerging markets and other developing countries. Certainly if you look at the caseload of the IMF, there has been a huge shift in emphasis over the last two decades in that direction.

Internet stocks: Searching for an explanation
Economist Nov 16, 2004
Once again, investors are rushing to buy internet stocks. Will they never learn?

The Looming Revolution Economist Subscription Required
Economist Nov 16, 2004
China, the world's workshop, is poised to become its tailor. What will happen to textile industries elsewhere, especially in South Asia?

As dollar falls, does it matter?
IHT/NYT Nov 17, 2004
It sounds eerily like the worst economic nightmare for President George W. Bush's second term.

The Dangerous Dollar Recommended!
WP Nov 17, 2004
George Bush hasn't much discussed what could be his biggest economic problem. It's not budget deficits or jobs. It's the possible crash of the dollar on foreign exchange markets. Even if Bush understood it, he would be hard-pressed to explain it to the public. Worse, there are no obvious ways to prevent it. Nor is it certain how big the threat is. Little wonder Bush hasn't said much. If John Kerry had won, the situation would have been the same. But a dollar crash, if it occurred, could trigger a terrifying global slump.

Differences Persist On How To Structure WTO NAMA Talks
BRIDGES Weekly Trade News Digest - Vol. 8, Number 39 Nov 17, 2004
The WTO Negotiating Group on Market Access for Non-Agricultural goods (NAMA) met from 8-11 November to continue discussions on a number of technical issues and on how to organise future work. According to several trade sources, initial disagreements began to emerge on how the work plan for the negotiations should be structured and the order in which three key elements from the July Package should be discussed: the general tariff-reduction formula; the sectoral tariff component (involving the full elimination of tariffs in selected sectors); and flexibilities for developing countries.

Agriculture: Costa Rica Proposes Action On Tropical Products
BRIDGES Weekly Trade News Digest - Vol. 8, Number 39 Nov 17, 2004
WTO Members are in the midst of agriculture negotiations during the second "agriculture week" following agreement on a July Package for moving the Doha Round forward. Delegates have convened in informal meetings from Monday, 15 November through Wednesday, 17 November. They are set to meet in a regular session of the Committee on Agriculture (CoA) on 18 October, wrapping up their "agriculture week" with a formal meeting of the CoA special (negotiating) session on Friday, 19 November.

Japan loses yen to aid China
AT Nov 18, 2004
Already strained, Japan's ties with China may sour more as it seeks to cut economic assistance to Beijing even further. Driving this policy shift is public opinion that sees little sense in aiding a potential rival, more so since China doesn't even seem grateful for Tokyo's economic help over the years. - Phar Kim Beng

U.S. won't help on euro, Treasury chief declares
IHT Nov 18, 2004
U.S. Treasury Secretary John Snow on Wednesday warned Europeans not to expect help from Washington in slowing the ascent of the euro, whose rise to a record against the dollar added pressure on a wobbly Continental economic recovery.

Apparel Apocalypse?
WP Nov 18, 2004
Fears that Chinese apparel and textile exports will swamp the U.S. retail market when international quotas on those products are eliminated at the start of next year have caused a growing chorus of industry leaders, members of Congress and now officials of the Bush administration to call for limits on Chinese imports. Although the end of quotas will alter global competition, this isn't the way to respond. The fate of these industries is not sealed; it depends very much on trade legislation pending in Congress, which could create a new foundation for American manufacturers to compete.

Talking Down the Euro Wall Street Journal Subscription Required
WSJE Nov 18, 2004
Intervention is not the solution to Euroland's woes.

The strong dollar heads south again Recommended!
FT Nov 18, 2004
Remember when a strong dollar policy meant a strong dollar? Yesterday the greenback fell to a record low against the euro while John Snow repeated the now-empty refrain. Lest anyone should mistake the Bush administration's true sentiments, the Treasury secretary poured cold water on the idea of co-ordinated intervention to stop the euro appreciating still further.

China, Asia Currency Policies Unnerve Europe
william Pesek Jr. (Bloomberg) Nov 18, 2004
``Too fast.'' Spanish Economy Minister Pedro Solbes seemed to speak for Europe when he used those words to characterize the euro's gains. It's hard to disagree with the description, and Asia gets much of the blame.

The U.S. Never Had a `Strong Dollar' Policy
John M. Berry (Bloomberg) Nov 18, 2004
When Treasury Secretary John Snow yesterday once again indicated the U.S. wouldn't attempt to stem the dollar's slide against the euro, the U.S. currency fell another notch. Analysts and European politicians complained about U.S. indifference to its responsibilities.

Dollar Cure May Be Worse Than Disease
Caroline Baum (Bloomberg) Nov 18, 2004
I must be the last journalist on seven continents to weigh in on the U.S. dollar. And I don't have a whole lot to say. (The same could be said of everyone who beat me to it.)

Jumbo Shrimp Follies Wall Street Journal Subscription Required
Sebastian Mallaby (WSJE) Nov 19, 2004
American shrimpers claim they are being driven out of business by cheating foreigners.

Exchange rates: Currency conundrums
Economist Nov 19, 2004
Finance ministers and central bankers from the G20 meet on Friday, against the backdrop of a weakening dollar and a move into Asian currencies. Can they do anything to assuage the world’s exchange-rate angst?

Upside of a Down Dollar
Paul Blustein (WP) Nov 19, 2004
As Economists Fret, U.S. Manufacturers Enjoy Rising Exports.

The case for China to pull the peg
AT Nov 20, 2004
Despite the serious pitfalls, there are also excellent reasons why China should move toward a more flexible currency regime by easing the yuan's tight peg to the greenback. Beijing, though, is acutely averse to fast moves in large steps - in particular, in response to foreign pressure - so the first steps will probably be small. - Ying Trong

Greenspan says euro is likely to keep rising
IHT Nov 20, 2004
The chairman of the Federal Reserve likened predicting the dollar's path to "forecasting the outcome of a coin toss."

No Fair Trade Without Free Trade Wall Street Journal Subscription Required
Herbert Oberhaensli (WSJ) Nov 22, 2004
Protectionism fails even those it is supposed to protect.

Europe must reform to keep America interested Financial Times Subscription Required
Bowman Cutter, Paula Stern and Peter Rashish (FT) Nov 22, 2004
The key to maintaining its position of joint global stewardship with the US will be for Europe to make good on the Lisbon Strategy

Global: What Happens if the Dollar Does Not Fall?
Stephen Roach (MSDW) Nov 22, 2004
The dollar is finally back in play again -- and possibly for some time to come. Provided the depreciation of the greenback occurs in an orderly and measured fashion, I continue to believe that this is good news for an unbalanced world economy. It is central to the adjustment process I have dubbed global rebalancing.

Back to 1997? Yes, and Don't Panic
William Pesek Jr. (Bloomberg) Nov 22, 2004
It's 1997 all over again for South Korea -- only this time it's a good thing.

New Meaning to the Phrase "Snow Job"
Irwin Stelzer (Hudson) Nov 22, 2004
There is indeed something new in financial markets: overseas followers of the Bush administration's so-called "strong dollar policy" are learning the meaning of the American colloquialism "Snow Job." As America's traders know, that means deception, accomplished by burying the listener under a meaningless flow of what Eliza Doolittle contemptuously called, "words, words, words."

Unchecked Power: Borrowers Find System Open to Conflicts, Manipulation Recommended!
WP Nov 22, 2004
The world's three big credit-rating companies have come to dominate an important sector of global finance without formal oversight. The rating system has proved vulnerable to subjective judgment, manipulation and conflicts of interest, people inside and outside the industry say.

Shaping the Wealth of Nations: Credit Raters Exert International Influence Recommended!
WP Nov 23, 2004
As more countries rely on the bond markets to raise capital, they have been forced to accommodate the three top rating firms. The credit raters often have more sway over foreign fiscal policy than the U.S. government.

Asia/Pacific: Asia Should Sell Treasuries Now
Andy Xie (MSDW) Nov 23, 2004
I believe Asian central banks should sell their holdings of the US treasuries now. A weakening currency should lead to higher bond yields. However, because Asian central banks hold significant amounts of US treasuries, US yields have not reflected US dollar policy. This lack of pain is encouraging the US to pursue its devaluation policy. If Asian central banks dumped their treasury holdings for short-term paper, the US government would have to balance between a weaker dollar and higher bond yields.

A Dollar Warning Wall Street Journal Subscription Required
WSJ Nov 23, 2004
A country can't devalue its way to prosperity.

Talking Down the Dollar Is a Risky Game Wall Street Journal Subscription Required
George Melloan (WSJ) Nov 23, 2004
When you talk down the dollar, investors run for some other currency.

Flexing Business Muscle: Credit Raters' Power Leads to Abuses, Some Borrowers Say Recommended!
WP Nov 24, 2004
Lack of oversight has left the rating companies free to set their own rules and practices, which some corporations say has led to abuses. The credit raters have rated companies against their wishes and ratcheted up their fees without negotiation.

The dollar’s demise Recommended!
Economist Nov 23, 2004
Is the dollar’s role as the world’s reserve currency drawing to a close?

The Asian Century is only delayed
AT Nov 24, 2004
There are rough spots and uncertainties in the Asian economic picture, but much of the news is good - as are the prospects. Prior to the 1997-98 Asian financial crisis there was considerable discussion about the Asian Century; that talk was premature, but the years ahead could be just that.

With Russia eyeing euro, ‘more fuel’ on dollar fire
IHT Nov 24, 2004
The Russian central bank, seeking to insulate itself against a further drop in the dollar, said that it might bolster its holdings of the euro.

Nafta, Redux
NYT Nov 24, 2004
We hope the Republicans can offer the right compromises to win over House Democrats on the Central American free-trade agreement.

The View From the IMF: Assume Anarchy? Recommended!
Raghuram G. Rajan (Globalist) Nov 24, 2004
Why it matters if orthodox economic models fall short of reality.

WTO Agriculture Negotiations Progress On Technical Issues
BRIDGES Weekly Trade News Digest - Vol. 8, Number 40 Nov 24, 2004
From 15-19 November, WTO delegates engaged in intense negotiations on agriculture. The talks, comprising the second "agriculture week" following agreement on a July Package for moving the Doha Round forward, included detailed discussions of technical issues.

Agriculture: Members Establish New WTO Committee On Cotton
BRIDGES Weekly Trade News Digest - Vol. 8, Number 40 Nov 24, 2004
As part of the overall negotiations during the "agriculture week" spanning 15-19 November (see related story, this issue), WTO Members agreed on 19 November to establish a sub-committee under the Committee on Agriculture (CoA) special session dealing specifically with the issue of cotton. The establishment of the subcommittee was mandated in the July Package on the Doha Round, which states that Members "shall ensure appropriate prioritisation of the cotton issue independently from other sectoral initiatives. A subcommittee on cotton will meet periodically and report to the Special Session of the Committee on Agriculture to review progress. Work shall encompass all trade-distorting policies affecting the sector in all three pillars of market access, domestic support, and export competition". A number of African countries as well as the US welcomed the establishment of the sub-committee, and proposed that Tim Groser (New Zealand), chair of the CoA special session, also chair the sub-committee on cotton. Pakistan called for an "early harvest" on cotton and stressed the need for all trade distorting policies to be dealt with, while Paraguay called for results by the WTO ministerial meeting in Hong Kong in December 2005.

Progress Underway On Trade Facilitation
BRIDGES Weekly Trade News Digest - Vol. 8, Number 40 Nov 24, 2004
The second meeting of the Negotiating Group on Trade Facilitation took place on 22-23 November. The meeting consisted of a "stock-taking" process to establish the base for negotiations, with the WTO Secretariat, the World Customs Organisation (WCO), the UN Conference for Trade and Development (UNCTAD), the World Bank and the Organisation for Economic Co-operation and Development (OECD) making presentations on their work and their findings on trade facilitation.

Dollar drops: Good news and bad
AT Nov 25, 2004
The best way to tackle a falling dollar is, ironically, to allow it to fall further. There's no easy way out of this mess as the world financial order itself is based on an unequal arrangement under which the US spends what Asia saves. But engineering a coordinated fall in the dollar is no easy task either, fraught as it is with its own set of risks. - Jack Crooks

Crisis towers over the greenback
AT Nov 25, 2004
Just as the Twin Towers of New York's World Trade Center came down because its basic steel framework began to weaken, the US economy may cave in as its very foundation - the international acceptance of dollar dominance - is beginning to teeter. - W Joseph Stroupe

Another free-trade battle
IHT Nov 25, 2004
Dogfights in the U.S. Congress over free-trade pacts usually pop up not long after presidential elections. Back in 1993, President Bill Clinton doled out promises to everybody and his mother to get the North American Free Trade Agreement passed, while President George W. Bush in 2001 had his congressional allies actually hold a vote open for an extra 23 minutes so they could force a weeping North Carolina congressman to abandon his textile constituency and give the president the single-vote margin he needed for trade negotiating authority.

When Weakness Is a Strength
Stephen S. Roach (NYT) Nov 26, 2004
If the world can manage the dollar's decline wisely, there is more reason for hope than despair.

Memo to Mandy Wall Street Journal Subscription Required
WSJE Nov 26, 2004
You've got a big job ahead, Mr. Trade Commissioner.

WTO close to action against U.S.
IHT Nov 26, 2004
The World Trade Organization is expected to approve on Friday the imposition of trade sanctions worth $150 million on the United States by the European Union, Japan, Canada and others after a legal issue was resolved Thursday.

Accord nears on Asian trade zone
IHT Nov 27, 2004
Southeast Asian and Chinese officials put the final touches Friday on agreements for next week's regional summit meeting to create a free-trade area covering nearly two billion people by 2010.

U.S. dollar whipsaws on worries over China
IHT Nov 27, 2004
The dollar went for a see-saw ride Friday, plunging after a comment from a Chinese policy maker appeared to undermine already fragile market sentiment toward the U.S. currency, but rebounding after the official retracted the remark.

Currency on a Collision Course Wall Street Journal Subscription Required
Christopher Wood (WSJ) Nov 29, 2004
How much longer can America run an independent monetary policy?

Global: The World's Biggest Excess
Stephen Roach (MSDW) Nov 29, 2004
Global rebalancing has quickly turned into the global blame game. “It’s the other guy,” exclaim Asians, Europeans, and Americans, when the issue of responsibility comes up. America’s Bush Administration views the rest of the world as suffering from a growth deficiency, largely brought about by under-consumption and excess saving. Conversely, Asians and Europeans view the United States as suffering from a saving deficiency brought about by over-consumption and government budget deficits. Who’s got it right?

United States: The Dollar, the Economy and the Yield Curve
Richard Berner (MSDW) Nov 29, 2004
Newspaper headlines are again proclaiming worrying new lows for the dollar in foreign exchange markets, but in my view a further orderly decline in the dollar likely will be positive for US economic performance. It will boost corporate profits, improve pricing power, promote trade adjustment, and could prompt positive macroeconomic policies both at home and abroad. Despite those positives for economic performance, which ironically should make US assets more attractive, many nonetheless worry that the dollar’s slide threatens a loss of confidence in US markets and significantly higher interest rates.

Correction of economic policies Financial Times Subscription Required
Wolfgang Munchau (FT) Nov 29, 2004
In many models, it is not the dollar that causes a shift in the US current account, but the reverse. The policy implications are significant.

De Rato on global imbalances Adobe Acrobat Required
IMF Survey Nov 29, 2004
Plus: Russia's fiscal policy; De Rato visit to Russia; World Council of Churches meets with IMF, World Bank; Do foreign banks fare better in crises?; Getting producer prices right; Escaping banking traps; Jeffrey Frankel on currency crashes.

US gives euro a long rope
AT Nov 30, 2004
The US knows that the euro's ultimate aim is to attract investors and central banks to it, away from the dollar. The US also knows that an upward rocketing euro will wreck Europe's major economies in a heartbeat. So the game is to allow the dollar to drop low, and quick. - Alex Wallenwein

Chinese Premier Signs Trade Pact at Southeast Asian Summit
Jane Perlez (NYT) Nov 30, 2004
China moved a step closer to cementing its economic and diplomatic relationships with Southeast Asia.

Time for America to Trade Up Wall Street Journal Subscription Required
Bernard K. Gordon (WSJ) Nov 30, 2004
A second term is a second chance to make progress on trade.

The China Factor and the US Dollar
Frank Shostak (Mises Daily) Nov 30, 2004
Rumors that China's central bank has reduced its holdings of US Treasuries in favor of European assets is putting more pressure on the already battered US dollar. After closing at US $1.274 in October, the price of the Euro in US dollar terms shot up to around US $1.33 on Friday November 26. According to the Shanghai-based China Business News, China has cut the size of its US Treasury Bonds holdings to $180 billion.

China Tells Currency Speculators to Get Lost
William Pesek Jr. (Bloomberg) Nov 30, 2004
The world of currency markets is one of winks, nods and secret handshakes. In it, key policy makers rarely, if ever, say exactly what's on their mind. Chinese Premier Wen Jiabao has done just that and traders should pay close attention.

Unilateral action can stop the dollar's slide Financial Times Subscription Required
Paul de Grauwe (FT) Nov 30, 2004
The ECB has the ammunition to fight the speculators.

America’s switch to a weak dollar policy Financial Times Subscription Required
Martin Wolf (FT) Nov 30, 2004
The present path is unsustainable, since both the current account deficit and external liabilities are on an explosive upward trajectory.

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