California Governor Arnold Schwarzenegger and top lawmakers came up with a compromise to close a $19.1 billion deficit and give the state a budget, ending a record three-month impasse with a vote expected next week on the spending plan.
The accord doesn’t raise taxes, as sought by Democrats, nor does it dismantle the state’s welfare system, proposed by Republicans, the leaders said yesterday. Schwarzenegger and the Democratic and Republican heads of the Senate and the Assembly, known as the Big Five, came to the agreement after a final five- hour negotiating session in the governor’s Sacramento office.
“We have a comprehensive agreement,” said Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento. Lawmakers said more information about the substance of the agreement would be released at an Oct. 6 public hearing.
Passage of the plan would clear the way for Treasurer Bill Lockyer to borrow about $10 billion on Wall Street by issuing short-term notes needed to pay bills until tax revenue comes in later in the year. The impasse led Controller John Chiang to warn about paying bills with IOUs as soon as this month. California is the only U.S. state without an enacted budget.
“No one is pleased with the decisions that we had to make, but the reforms that will come out of this will make it worthwhile,” said Aaron McLear, a spokesman for Schwarzenegger. The Republican has said he won’t sign any final budget unless lawmakers agree to roll back state pension benefits to 1999 levels and to seek voter approval of a permanent spending cap and the creation of a contingency reserve, or rainy-day fund.
No Celebration
“It’s give and take, that’s what it is -- nobody is celebrating here,” Steinberg said of yesterday’s agreement. “We have to look at this in the context of a $19 billion deficit on top of the deficits of the last several years.”
Lawmakers and the governor announced Sept. 24 that they had breached a stalemate that had persisted since the state’s fiscal year began July 1, the longest California has ever gone without a spending plan.
Legislative aides briefed on the details said last week’s framework cuts spending by around $8 billion, less than the $12 billion the governor had proposed, and holds education spending about the same as last year’s level, around $49 billion. The framework also would suspend for two years a tax break that let companies deduct part of net operating losses in a previous year from current-year taxes, said the two people briefed on it.
Conflicting Strategies
Schwarzenegger and Republicans wanted to dismantle the state’s main welfare program and slash $12.4 billion of spending. Democrats proposed $5.9 billion in higher taxes and fees combined with $8 billion of spending cuts.
Calling the accord “a no-tax budget that protects California jobs,” Assembly Minority Leader Martin Garrick, a Republican from Carlsbad, said a vote on the plan is expected on Oct. 7.
“Obviously if we are in agreement, then we think it is a budget that will pass,” said Senate Minority Leader Dennis Hollingsworth, a Republican from Murrieta, north of San Diego.
Schwarzenegger, who is approaching the end of his term, and Democrats, who hold a majority in both legislative chambers, disagreed on how much spending to cut and whether to raise taxes to fill the gap. California requires a two-thirds vote in both the Assembly and Senate to pass budgets, and neither party holds enough seats to meet that threshold. That forced lawmakers to agree on a compromise plan before bringing it to a vote.
Short-Term Borrowing
Lockyer, the state treasurer, said Sept. 27 that he was lining up a short-term loan of more than $5 billion from a group of Wall Street banks to tide the state over with enough cash once a budget is enacted. He said the borrowing would be repaid with the short-term notes.
The state’s constitution says lawmakers must send a budget to the governor by June 15, about two weeks before the start of the new fiscal year. The Legislature has met that deadline five times in the last 30 years. The fiscal 2008 budget was sent to Schwarzenegger on Sept. 16 and signed into law on Sept. 23, the latest the state went without a spending plan until this year.
California, with the world’s eighth-largest economy, issued $2.6 billion of IOUs last year after a similar budget stalemate. That was only the second time since the Great Depression that the state had to use warrants to cover costs and conserve cash.
In January, Standard & Poor’s cut California’s credit grade to A-, its lowest among U.S. states, citing fiscal imbalances and recurring cash-flow problems. S&P has said it may reduce the state’s rating again if the budget crisis worsens.
Saturday, October 2, 2010
Side Effects May Include Lawsuits
FOR decades, antipsychotic drugs were a niche product. Today, they’re the top-selling class of pharmaceuticals in America, generating annual revenue of about $14.6 billion and surpassing sales of even blockbusters like heart-protective statins.
While the effectiveness of antipsychotic drugs in some patients remains a matter of great debate, how these drugs became so ubiquitous and profitable is not. Big Pharma got behind them in the 1990s, when they were still seen as treatments for the most serious mental illnesses, like hallucinatory schizophrenia, and recast them for much broader uses, according to previously confidential industry documents that have been produced in a variety of court cases.
Anointed with names like Abilify and Geodon, the drugs were given to a broad swath of patients, from preschoolers to octogenarians. Today, more than a half-million youths take antipsychotic drugs, and fully one-quarter of nursing-home residents have used them. Yet recent government warnings say the drugs may be fatal to some older patients and have unknown effects on children.
The new generation of antipsychotics has also become the single biggest target of the False Claims Act, a federal law once largely aimed at fraud among military contractors. Every major company selling the drugs — Bristol-Myers Squibb, Eli Lilly, Pfizer, AstraZeneca and Johnson & Johnson — has either settled recent government cases for hundreds of millions of dollars or is currently under investigation for possible health care fraud.
Two of the settlements, involving charges of illegal marketing, set records last year for the largest criminal fines ever imposed on corporations. One involved Eli Lilly’s antipsychotic, Zyprexa; the other involved a guilty plea for Pfizer’s marketing of a pain pill, Bextra. In the Bextra case, the government also charged Pfizer with illegally marketing another antipsychotic, Geodon; Pfizer settled that part of the claim for $301 million, without admitting any wrongdoing.
The companies all say their antipsychotics are safe and effective in treating the conditions for which the Food and Drug Administration has approved them — mostly, schizophrenia and bipolar mania — and say they adhere to tight ethical guidelines in sales practices. The drug makers also say that there is a large population of patients who still haven’t taken the drugs but could benefit from them.
AstraZeneca, which markets Seroquel, the top-selling antipsychotic since 2005, says it developed such drugs because they have fewer side effects than older versions.
“It’s a drug that’s been studied in multiple clinical trials in various indications,” says Dr. Howard Hutchinson, AstraZeneca’s chief medical officer. “Getting these patients to be functioning members of society has a tremendous benefit in terms of their overall well-being and how they look at themselves, and to get that benefit, the patients are willing to accept some level of side effects.”
The industry continues to market antipsychotics aggressively, leading analysts to question how drugs approved by the Food and Drug Administration for about 1 percent of the population have become the pharmaceutical industry’s biggest sellers — despite recent crackdowns.
Some say the answer to that question isn’t complicated.
“It’s the money,” says Dr. Jerome L. Avorn, a Harvard medical professor and researcher. “When you’re selling $1 billion a year or more of a drug, it’s very tempting for a company to just ignore the traffic ticket and keep speeding.”
NEUROLEPTIC drugs — now known as antipsychotics — were first developed in the 1950s for use in anesthesia and then as powerful sedatives for patients with schizophrenia and other severe psychotic disorders, who previously might have received surgical lobotomies.
But patients often stopped taking those drugs, like Thorazine and Haldol, because they could cause a range of involuntary body movements, tics and restlessness.
A second generation of drugs, called atypical antipsychotics, was introduced in the ’90s and sold to doctors more broadly, on the basis that they were safer than the old ones — an assertion that regulators and researchers are continuing to review because the newer drugs appear to cause a range of other side effects, even if they cause fewer tics.
Contentions that the new drugs are superior have been “greatly exaggerated,” says Dr. Jeffrey A. Lieberman, chairman of the psychiatry department at Columbia University. Such assertions, he says, “may have been encouraged by an overly expectant community of clinicians and patients eager to believe in the power of new medications.”
“At the same time,” he adds, “the aggressive marketing of these drugs may have contributed to this enhanced perception of their effectiveness in the absence of empirical evidence.”
Others agree. “They sold the story they’re more safe, when they aren’t,” says Robert Whitaker, a journalist who has written two books about psychiatric medicines. “They had to cover up the problems. Right from the start, we got this false story.”
The drug companies say all the possible side effects are fully disclosed to the F.D.A., doctors and patients. Side effects like drowsiness, nausea, weight gain, involuntary body movements and links to diabetes are listed on the label. The companies say they have a generally safe record in treating a difficult disease and are fighting lawsuits in which some patients claim harm.
The cases, both civil and criminal, against many of the world’s largest drug makers have unveiled hundreds of previously confidential documents showing that some company officials were aware they were using questionable tactics when they marketed these powerful, expensive drugs.
Such marketing, according to analysts and court documents, included payments, gifts, meals and trips for doctors, biased studies, ghostwritten medical journal articles, promotional conference appearances, and payments for postgraduate medical education that encourages a pro-drug outlook among doctors. All of these are tools that federal investigators say companies have used to exaggerate benefits, play down risks and promote off-label uses, meaning those the F.D.A. hasn’t approved.
While the effectiveness of antipsychotic drugs in some patients remains a matter of great debate, how these drugs became so ubiquitous and profitable is not. Big Pharma got behind them in the 1990s, when they were still seen as treatments for the most serious mental illnesses, like hallucinatory schizophrenia, and recast them for much broader uses, according to previously confidential industry documents that have been produced in a variety of court cases.
Anointed with names like Abilify and Geodon, the drugs were given to a broad swath of patients, from preschoolers to octogenarians. Today, more than a half-million youths take antipsychotic drugs, and fully one-quarter of nursing-home residents have used them. Yet recent government warnings say the drugs may be fatal to some older patients and have unknown effects on children.
The new generation of antipsychotics has also become the single biggest target of the False Claims Act, a federal law once largely aimed at fraud among military contractors. Every major company selling the drugs — Bristol-Myers Squibb, Eli Lilly, Pfizer, AstraZeneca and Johnson & Johnson — has either settled recent government cases for hundreds of millions of dollars or is currently under investigation for possible health care fraud.
Two of the settlements, involving charges of illegal marketing, set records last year for the largest criminal fines ever imposed on corporations. One involved Eli Lilly’s antipsychotic, Zyprexa; the other involved a guilty plea for Pfizer’s marketing of a pain pill, Bextra. In the Bextra case, the government also charged Pfizer with illegally marketing another antipsychotic, Geodon; Pfizer settled that part of the claim for $301 million, without admitting any wrongdoing.
The companies all say their antipsychotics are safe and effective in treating the conditions for which the Food and Drug Administration has approved them — mostly, schizophrenia and bipolar mania — and say they adhere to tight ethical guidelines in sales practices. The drug makers also say that there is a large population of patients who still haven’t taken the drugs but could benefit from them.
AstraZeneca, which markets Seroquel, the top-selling antipsychotic since 2005, says it developed such drugs because they have fewer side effects than older versions.
“It’s a drug that’s been studied in multiple clinical trials in various indications,” says Dr. Howard Hutchinson, AstraZeneca’s chief medical officer. “Getting these patients to be functioning members of society has a tremendous benefit in terms of their overall well-being and how they look at themselves, and to get that benefit, the patients are willing to accept some level of side effects.”
The industry continues to market antipsychotics aggressively, leading analysts to question how drugs approved by the Food and Drug Administration for about 1 percent of the population have become the pharmaceutical industry’s biggest sellers — despite recent crackdowns.
Some say the answer to that question isn’t complicated.
“It’s the money,” says Dr. Jerome L. Avorn, a Harvard medical professor and researcher. “When you’re selling $1 billion a year or more of a drug, it’s very tempting for a company to just ignore the traffic ticket and keep speeding.”
NEUROLEPTIC drugs — now known as antipsychotics — were first developed in the 1950s for use in anesthesia and then as powerful sedatives for patients with schizophrenia and other severe psychotic disorders, who previously might have received surgical lobotomies.
But patients often stopped taking those drugs, like Thorazine and Haldol, because they could cause a range of involuntary body movements, tics and restlessness.
A second generation of drugs, called atypical antipsychotics, was introduced in the ’90s and sold to doctors more broadly, on the basis that they were safer than the old ones — an assertion that regulators and researchers are continuing to review because the newer drugs appear to cause a range of other side effects, even if they cause fewer tics.
Contentions that the new drugs are superior have been “greatly exaggerated,” says Dr. Jeffrey A. Lieberman, chairman of the psychiatry department at Columbia University. Such assertions, he says, “may have been encouraged by an overly expectant community of clinicians and patients eager to believe in the power of new medications.”
“At the same time,” he adds, “the aggressive marketing of these drugs may have contributed to this enhanced perception of their effectiveness in the absence of empirical evidence.”
Others agree. “They sold the story they’re more safe, when they aren’t,” says Robert Whitaker, a journalist who has written two books about psychiatric medicines. “They had to cover up the problems. Right from the start, we got this false story.”
The drug companies say all the possible side effects are fully disclosed to the F.D.A., doctors and patients. Side effects like drowsiness, nausea, weight gain, involuntary body movements and links to diabetes are listed on the label. The companies say they have a generally safe record in treating a difficult disease and are fighting lawsuits in which some patients claim harm.
The cases, both civil and criminal, against many of the world’s largest drug makers have unveiled hundreds of previously confidential documents showing that some company officials were aware they were using questionable tactics when they marketed these powerful, expensive drugs.
Such marketing, according to analysts and court documents, included payments, gifts, meals and trips for doctors, biased studies, ghostwritten medical journal articles, promotional conference appearances, and payments for postgraduate medical education that encourages a pro-drug outlook among doctors. All of these are tools that federal investigators say companies have used to exaggerate benefits, play down risks and promote off-label uses, meaning those the F.D.A. hasn’t approved.
Hindus and Muslims told to share holy site
An Indian court has ruled that a disputed site sacred to Hindus and Muslims should be divided between the two faiths, in a bid to forge a compromise and end a historic battle that has triggered modern India’s most deadly religious clashes.
At issue is the symbolically potent, now heavily guarded, site in the northern town of Ayodhya. A mosque stood there from the 16th century until 1992, when it was destroyed by a Hindu mob convinced it was built over the birthplace of their deity Ram.
The legal dispute goes back to 1949, when Hindu idols were installed in the mosque and Hindu and Muslim groups began filing rival lawsuits for ownership of the holy ground. The claims have been winding through India’s legal system ever since. To adjudicate, the Allahabad High Court was asked to delve into history, considering evidence from a 17th-century traveller’s diary to a 2002 aerial survey and a 2003 archeological dig.
India rocked as religious dispute turns deadly
1528 Mosque built under Mughal emperor Babar.
1855 Hindu-Muslim clashes over worship at mosque site.
1949 Idols of Hindu god Ram “appear” in mosque. Hindu and Muslim groups file property claims; site declared disputed and locked.
1986 Court orders site unlocked after a Hindu petition for access to worship inside. Rightwing Hindu groups claim victory.
1990 In September, L.K. Advani, Hindu nationalist opposition Bharatiya Janata party leader, starts year-long cross-country campaign for construction of a Ram Temple at Ayodhya site, leaving a trail of communal clashes in his wake. In November, security forces fire at thousands of rightwing Hindus trying to storm mosque; 30 killed, mosque partially damaged.
1992 Hindu activists destroy mosque. At least 1,200 killed in riots across India.
2010 In July Allahabad High Court unsuccessfully urges negotiated settlement of dispute.
In their ruling, the judges ordered the site – now controlled by the government – to be divided, with two thirds, including the spot where Hindu idols now stand, going to Hindu groups and one-third to the Muslim community.
Explaining the decision, one judge said the site was the birthplace of Lord Ram “as per the faith and belief of Hindus”, and another said it had an “almost unprecedented” tradition of Hindu worship inside the mosque compound.
Fearing the verdict would reignite simmering inter-religious tensions, India was on high alert on Thursday, with hundreds of thousands of police and paramilitary deployed in sensitive areas.
Rightwing Hindu groups, including the Hindu nationalist opposition Bharatiya Janata party, welcomed what they said was the court’s affirmation of their right to build a grand Ram temple at the site. “It is a significant step,” said L.K. Advani, BJP president, who led an emotional campaign to whip up mass support for a Ram temple, culminating in the destruction of the mosque in 1992 and religious riots that claimed nearly 2,000 lives.
However, the Sunni Waqf Board, which oversees Muslim properties, said it would appeal to India’s Supreme Court. The move means the division of the site will be put on hold indefinitely.
“I don’t believe that this sharing is done on a principle that is legally, historically or socially just,” said Rajeev Dhawan, a Supreme Court lawyer. “In 1992, we saw a mosque being destroyed, and at the end of the day, what the courts said to the minority community is that, ‘this was never yours in the first place; however, we will give you one-third’.”
At issue is the symbolically potent, now heavily guarded, site in the northern town of Ayodhya. A mosque stood there from the 16th century until 1992, when it was destroyed by a Hindu mob convinced it was built over the birthplace of their deity Ram.
The legal dispute goes back to 1949, when Hindu idols were installed in the mosque and Hindu and Muslim groups began filing rival lawsuits for ownership of the holy ground. The claims have been winding through India’s legal system ever since. To adjudicate, the Allahabad High Court was asked to delve into history, considering evidence from a 17th-century traveller’s diary to a 2002 aerial survey and a 2003 archeological dig.
India rocked as religious dispute turns deadly
1528 Mosque built under Mughal emperor Babar.
1855 Hindu-Muslim clashes over worship at mosque site.
1949 Idols of Hindu god Ram “appear” in mosque. Hindu and Muslim groups file property claims; site declared disputed and locked.
1986 Court orders site unlocked after a Hindu petition for access to worship inside. Rightwing Hindu groups claim victory.
1990 In September, L.K. Advani, Hindu nationalist opposition Bharatiya Janata party leader, starts year-long cross-country campaign for construction of a Ram Temple at Ayodhya site, leaving a trail of communal clashes in his wake. In November, security forces fire at thousands of rightwing Hindus trying to storm mosque; 30 killed, mosque partially damaged.
1992 Hindu activists destroy mosque. At least 1,200 killed in riots across India.
2010 In July Allahabad High Court unsuccessfully urges negotiated settlement of dispute.
In their ruling, the judges ordered the site – now controlled by the government – to be divided, with two thirds, including the spot where Hindu idols now stand, going to Hindu groups and one-third to the Muslim community.
Explaining the decision, one judge said the site was the birthplace of Lord Ram “as per the faith and belief of Hindus”, and another said it had an “almost unprecedented” tradition of Hindu worship inside the mosque compound.
Fearing the verdict would reignite simmering inter-religious tensions, India was on high alert on Thursday, with hundreds of thousands of police and paramilitary deployed in sensitive areas.
Rightwing Hindu groups, including the Hindu nationalist opposition Bharatiya Janata party, welcomed what they said was the court’s affirmation of their right to build a grand Ram temple at the site. “It is a significant step,” said L.K. Advani, BJP president, who led an emotional campaign to whip up mass support for a Ram temple, culminating in the destruction of the mosque in 1992 and religious riots that claimed nearly 2,000 lives.
However, the Sunni Waqf Board, which oversees Muslim properties, said it would appeal to India’s Supreme Court. The move means the division of the site will be put on hold indefinitely.
“I don’t believe that this sharing is done on a principle that is legally, historically or socially just,” said Rajeev Dhawan, a Supreme Court lawyer. “In 1992, we saw a mosque being destroyed, and at the end of the day, what the courts said to the minority community is that, ‘this was never yours in the first place; however, we will give you one-third’.”
Delhi on high terror alert as games open
The Commonwealth Games open on Saturday with New Delhi on high alert as western governments warn India of a “particular risk” that terrorists might launch an attack on the event.
As western intelligence agencies keep a close eye on how the games progress, thousands of paramilitary police were being deployed across the capital city for the opening ceremony.
Lashkar-e-Taiba, a Pakistan-based militant group, is thought to pose the greatest threat. It was responsible for the Mumbai attacks in 2008, which killed 131 people and left hundreds more injured at the city’s five-star hotels and its main railway station.
Western diplomats say they have no information on any specific threat to the games. But the UK government is one of a number that are warning travellers of a possible terrorist attack during the tournament.
Western intelligence agencies are also concerned that the last-minute rush to complete the sports venues might compromise security preparations.
“There is a high threat from terrorism throughout India, including a particular risk that terrorists will attempt attacks in the run-up to and during the games,” said a British government official. “Restaurants, hotels, railway stations, markets, and places of worship ... will continue to be potential targets.”
Roads leading to the various sports venues were lined with security forces on Friday. The entrances to the walled stadiums resembled military bases, with armed guards behind sandbagged positions.
Sentries watched from newly erected towers, while visitors to the athletes’ village, including ministers, were being vigorously frisked. The Indian air force has established an air security screen and New Delhi’s airspace will be closed during the game’s opening and closing ceremonies.
“We cannot be complacent about security,” said Tejinder Khanna, the city’s lieutenant-governor, after the Australian sports minister’s vehicle had been stopped from entering the athletes’ village for lack of accreditation. “There is no concession for anybody.”
As western intelligence agencies keep a close eye on how the games progress, thousands of paramilitary police were being deployed across the capital city for the opening ceremony.
Lashkar-e-Taiba, a Pakistan-based militant group, is thought to pose the greatest threat. It was responsible for the Mumbai attacks in 2008, which killed 131 people and left hundreds more injured at the city’s five-star hotels and its main railway station.
Western diplomats say they have no information on any specific threat to the games. But the UK government is one of a number that are warning travellers of a possible terrorist attack during the tournament.
Western intelligence agencies are also concerned that the last-minute rush to complete the sports venues might compromise security preparations.
“There is a high threat from terrorism throughout India, including a particular risk that terrorists will attempt attacks in the run-up to and during the games,” said a British government official. “Restaurants, hotels, railway stations, markets, and places of worship ... will continue to be potential targets.”
Roads leading to the various sports venues were lined with security forces on Friday. The entrances to the walled stadiums resembled military bases, with armed guards behind sandbagged positions.
Sentries watched from newly erected towers, while visitors to the athletes’ village, including ministers, were being vigorously frisked. The Indian air force has established an air security screen and New Delhi’s airspace will be closed during the game’s opening and closing ceremonies.
“We cannot be complacent about security,” said Tejinder Khanna, the city’s lieutenant-governor, after the Australian sports minister’s vehicle had been stopped from entering the athletes’ village for lack of accreditation. “There is no concession for anybody.”
Thursday, September 30, 2010
Singh Shunned as Daiwa Buying Indonesia, KBC Favoring Brazil: India Credit
India is lagging behind Brazil and Russia in attracting debt investors as a lack of sovereign dollar issues and regulatory hurdles deter firms from Daiwa SB Investments to KBC Asset Management SA.
Indian debt attracted $419 million of net inflows from global, high-yield and emerging-market bond funds this year through Sept. 22, according to data compiled by EPFR Global, a research firm tracking companies managing $13 trillion in Cambridge, Massachusetts. That’s 1.4 percent of the $31 billion funneled into emerging-market bond funds. Brazilian debt lured $3.6 billion and Russia attracted $2.3 billion, the data show.
While record buying of Indian bonds this year led Prime Minister Manmohan Singh to raise the overseas investor limit by 50 percent to $30 billion on Sept. 23, regulators have yet to allocate individual debt quotas for international funds more than a week after the change. At the Securities and Exchange Board of India’s auction Aug. 12, the limit for each entity to buy government bonds was 1 billion rupees ($22 million) and 10 billion rupees for company debt.
“There isn’t enough liquidity in India’s bond market and they still have regulations, making us reluctant to buy,” said Kei Katayama, who helps oversee $53.2 billion as head of foreign fixed-income at Daiwa SB in Tokyo.
Daiwa SB says comparable yields and fewer rules make Indonesian securities more attractive, while Luxembourg-based KBC Asset Management favors Brazilian dollar bonds.
Yield Advantage
India’s 10-year local-currency government bonds yielded 7.847 percent, compared with 11.89 percent in Brazil, 7.59 percent in Indonesia, 7.38 percent in Russia and 3.32 percent in China, according to data compiled by Bloomberg. Similar debt offers 2.52 percent in the U.S. and 0.93 percent in Japan.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened to 532 basis points, or 5.32 percentage points, from 526 a week earlier. The spread, which has averaged 318 in the past decade, reached a two-year high of 556 on Aug. 26. The spread between Brazil’s 10- year dollar debt and Treasuries has narrowed to 119 from 150 in the past month.
The government’s decision to expand the quota triggered a rally in government bonds and the rupee.
Bond, Rupee Rally
India’s benchmark 10-year bonds rose every day after the government raised the cap on debt investment to post their first monthly gain since June, pushing yields to the lowest level in more than six weeks. Yields on 7.8 percent notes due in 2020 fell eight basis points last month, according to the central bank’s trading system.
India’s rupee appreciated 4.7 percent in September to 44.94 per dollar, the best performer in Asia after South Korea’s won.
Erste Sparinvest in Vienna said it will consider entering the Indian market after the policy changes.
“I like India as a fundamental story and there’s potential,” said Christian Gaier, who helps manage 1.33 billion euros ($1.8 billion) in emerging-market debt at Erste Sparinvest. “We are confident India will take more steps to open the market.”
India’s economy expanded 8.8 percent last quarter, the same pace as Brazil. Inflation slowed to an eight-month low of 8.5 percent in August after central bank Governor Duvvuri Subbarao raised benchmark interest rates five times since March. The government forecasts the budget deficit will drop to 5.5 percent of gross domestic product in the year to March 31 from 6.9 percent, the steepest cut in 19 years.
No Benchmark
India, which has no sovereign bonds denominated in dollars, euros or yen, isn’t included in JPMorgan Chase & Co.’s bond indexes tracking 41 countries in emerging markets that are benchmarks followed by some of the world’s biggest bond funds.
International investors hold $5 billion of rupee sovereign notes compared with $20.2 billion of overseas holdings in Indonesian rupiah government debt, government statistics show. Holdings of Brazil government domestic debt by foreign investors rose 9.5 percent in August to the equivalent of $9.2 billion.
“India isn’t a benchmark name,” said Lazlo Belgrado, who helps manage $800 million of emerging-market dollar bonds at KBC Asset Management SA in Luxembourg. “It isn’t a particularly strong credit within emerging markets, and you do have to deal with the cost of controls to invest locally there.”
Finance Secretary Ashok Chawla declined to comment yesterday in New Delhi when asked why the country isn’t selling debt denominated in dollars and euros.
Indian government bonds returned 0.7 percent last month, the fourth-best among 10 local-currency debt markets outside Japan, according to HSBC Holdings Plc indexes. The notes returned 3.8 percent this year.
India’s credit rating is BBB- at Standard & Poor’s and Baa3 at Moody’s Investors Service, on par with Brazil.
“There are other countries people can freely invest in and out, and can make money,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., which manages about $24 billion. “We don’t have to enter India’s debt market for now. Many investors probably take a wait-and-see stance.”
Indian debt attracted $419 million of net inflows from global, high-yield and emerging-market bond funds this year through Sept. 22, according to data compiled by EPFR Global, a research firm tracking companies managing $13 trillion in Cambridge, Massachusetts. That’s 1.4 percent of the $31 billion funneled into emerging-market bond funds. Brazilian debt lured $3.6 billion and Russia attracted $2.3 billion, the data show.
While record buying of Indian bonds this year led Prime Minister Manmohan Singh to raise the overseas investor limit by 50 percent to $30 billion on Sept. 23, regulators have yet to allocate individual debt quotas for international funds more than a week after the change. At the Securities and Exchange Board of India’s auction Aug. 12, the limit for each entity to buy government bonds was 1 billion rupees ($22 million) and 10 billion rupees for company debt.
“There isn’t enough liquidity in India’s bond market and they still have regulations, making us reluctant to buy,” said Kei Katayama, who helps oversee $53.2 billion as head of foreign fixed-income at Daiwa SB in Tokyo.
Daiwa SB says comparable yields and fewer rules make Indonesian securities more attractive, while Luxembourg-based KBC Asset Management favors Brazilian dollar bonds.
Yield Advantage
India’s 10-year local-currency government bonds yielded 7.847 percent, compared with 11.89 percent in Brazil, 7.59 percent in Indonesia, 7.38 percent in Russia and 3.32 percent in China, according to data compiled by Bloomberg. Similar debt offers 2.52 percent in the U.S. and 0.93 percent in Japan.
The difference in yields between India’s debt due in a decade and similar-maturity U.S. Treasuries widened to 532 basis points, or 5.32 percentage points, from 526 a week earlier. The spread, which has averaged 318 in the past decade, reached a two-year high of 556 on Aug. 26. The spread between Brazil’s 10- year dollar debt and Treasuries has narrowed to 119 from 150 in the past month.
The government’s decision to expand the quota triggered a rally in government bonds and the rupee.
Bond, Rupee Rally
India’s benchmark 10-year bonds rose every day after the government raised the cap on debt investment to post their first monthly gain since June, pushing yields to the lowest level in more than six weeks. Yields on 7.8 percent notes due in 2020 fell eight basis points last month, according to the central bank’s trading system.
India’s rupee appreciated 4.7 percent in September to 44.94 per dollar, the best performer in Asia after South Korea’s won.
Erste Sparinvest in Vienna said it will consider entering the Indian market after the policy changes.
“I like India as a fundamental story and there’s potential,” said Christian Gaier, who helps manage 1.33 billion euros ($1.8 billion) in emerging-market debt at Erste Sparinvest. “We are confident India will take more steps to open the market.”
India’s economy expanded 8.8 percent last quarter, the same pace as Brazil. Inflation slowed to an eight-month low of 8.5 percent in August after central bank Governor Duvvuri Subbarao raised benchmark interest rates five times since March. The government forecasts the budget deficit will drop to 5.5 percent of gross domestic product in the year to March 31 from 6.9 percent, the steepest cut in 19 years.
No Benchmark
India, which has no sovereign bonds denominated in dollars, euros or yen, isn’t included in JPMorgan Chase & Co.’s bond indexes tracking 41 countries in emerging markets that are benchmarks followed by some of the world’s biggest bond funds.
International investors hold $5 billion of rupee sovereign notes compared with $20.2 billion of overseas holdings in Indonesian rupiah government debt, government statistics show. Holdings of Brazil government domestic debt by foreign investors rose 9.5 percent in August to the equivalent of $9.2 billion.
“India isn’t a benchmark name,” said Lazlo Belgrado, who helps manage $800 million of emerging-market dollar bonds at KBC Asset Management SA in Luxembourg. “It isn’t a particularly strong credit within emerging markets, and you do have to deal with the cost of controls to invest locally there.”
Finance Secretary Ashok Chawla declined to comment yesterday in New Delhi when asked why the country isn’t selling debt denominated in dollars and euros.
Indian government bonds returned 0.7 percent last month, the fourth-best among 10 local-currency debt markets outside Japan, according to HSBC Holdings Plc indexes. The notes returned 3.8 percent this year.
India’s credit rating is BBB- at Standard & Poor’s and Baa3 at Moody’s Investors Service, on par with Brazil.
“There are other countries people can freely invest in and out, and can make money,” said Akira Takei, a fund manager in Tokyo at Mizuho Asset Management Co., which manages about $24 billion. “We don’t have to enter India’s debt market for now. Many investors probably take a wait-and-see stance.”
Asian Stocks Rise as Australian Commodity Shares Gain, Japanese Banks Drop
Asian stocks rose, driving the MSCI Asia Pacific Index to a fifth consecutive weekly advance, as increased crude-oil prices and gold near a record high boosted commodity companies.
BHP Billiton Ltd., Australia’s biggest oil producer, climbed 1.7 percent and Woodside Petroleum Ltd. gained 0.9 percent in Sydney. Newcrest Mining Ltd., Australia’s No. 1 gold producer, advanced 0.7 percent. Mizuho Financial Group Inc. and Resona Holdings Inc. led Japanese banks lower after Morgan Stanley MUFG Securities Co. cut their investment ratings.
The MSCI Asia Pacific Index gained 0.3 percent to 126.62 as of 10:16 a.m. in Tokyo, with about three shares advancing for every two that declined. The index gained 8.4 percent last month, the largest monthly advance since July 2009. The 12 percent climb in the three months ended yesterday was the biggest quarterly increase of the past year.
Japan’s Nikkei 225 Stock Average rose 0.6 percent today, while the broader Topix index fell 0.2 percent. Australia’s S&P/ASX 200 Index increased 0.5 percent. South Korea’s Kospi Index climbed 0.3 percent. Markets are closed in Hong Kong and China for a public holiday.
Futures on the Standard & Poor’s 500 Index increased 0.3 percent. The gauge fell 0.3 percent yesterday in New York, trimming its biggest September gain since 1939, as investors sold some of the month’s best-performing shares amid speculation that the improving economic data will reduce the need for the Federal Reserve to stimulate growth.
U.S. Economic Reports
U.S. stocks climbed yesterday morning after data showed the economy grew at a 1.7 percent annual rate in the second quarter, faster than the 1.6 percent previously estimated. Initial jobless claims fell to 453,000 in the week ended Sept. 25, less than the median forecast of economists surveyed by Bloomberg News. The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 60.4 in September, exceeding the highest estimate of economists surveyed by Bloomberg News.
BHP Billiton rose 1.7 percent to A$39.57, and Woodside Petroleum advanced 0.9 percent to A$44.28. Newcrest rallied 0.7 percent to A$39.93.
Crude oil for November delivery rose 2.7 percent yesterday in New York to settle at a seven-week high of $79.97 a barrel, while gold futures gained 0.5 percent yesterday to a record.
Mizuho Financial fell 2.5 percent to 119 yen and Resona lost 4.1 percent to 718 yen after Morgan Stanley MUFG cut their ratings to ”underweight.” Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded lender, retreated 1 percent to 385 yen.
BHP Billiton Ltd., Australia’s biggest oil producer, climbed 1.7 percent and Woodside Petroleum Ltd. gained 0.9 percent in Sydney. Newcrest Mining Ltd., Australia’s No. 1 gold producer, advanced 0.7 percent. Mizuho Financial Group Inc. and Resona Holdings Inc. led Japanese banks lower after Morgan Stanley MUFG Securities Co. cut their investment ratings.
The MSCI Asia Pacific Index gained 0.3 percent to 126.62 as of 10:16 a.m. in Tokyo, with about three shares advancing for every two that declined. The index gained 8.4 percent last month, the largest monthly advance since July 2009. The 12 percent climb in the three months ended yesterday was the biggest quarterly increase of the past year.
Japan’s Nikkei 225 Stock Average rose 0.6 percent today, while the broader Topix index fell 0.2 percent. Australia’s S&P/ASX 200 Index increased 0.5 percent. South Korea’s Kospi Index climbed 0.3 percent. Markets are closed in Hong Kong and China for a public holiday.
Futures on the Standard & Poor’s 500 Index increased 0.3 percent. The gauge fell 0.3 percent yesterday in New York, trimming its biggest September gain since 1939, as investors sold some of the month’s best-performing shares amid speculation that the improving economic data will reduce the need for the Federal Reserve to stimulate growth.
U.S. Economic Reports
U.S. stocks climbed yesterday morning after data showed the economy grew at a 1.7 percent annual rate in the second quarter, faster than the 1.6 percent previously estimated. Initial jobless claims fell to 453,000 in the week ended Sept. 25, less than the median forecast of economists surveyed by Bloomberg News. The Institute for Supply Management-Chicago Inc. said its business barometer climbed to 60.4 in September, exceeding the highest estimate of economists surveyed by Bloomberg News.
BHP Billiton rose 1.7 percent to A$39.57, and Woodside Petroleum advanced 0.9 percent to A$44.28. Newcrest rallied 0.7 percent to A$39.93.
Crude oil for November delivery rose 2.7 percent yesterday in New York to settle at a seven-week high of $79.97 a barrel, while gold futures gained 0.5 percent yesterday to a record.
Mizuho Financial fell 2.5 percent to 119 yen and Resona lost 4.1 percent to 718 yen after Morgan Stanley MUFG cut their ratings to ”underweight.” Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded lender, retreated 1 percent to 385 yen.
Satyam accounts underline scam woe
Satyam Computer Services, the company at the centre of India’s largest corporate scandal, has released its first audited accounts since the scam was revealed in January last year.
It revealed financial irregularities totalling Rs78.5bn ($1.7bn) – nearly double the amount previously known.
The company, which has since been taken over by India’s Mahindra Group and renamed Mahindra Satyam, is recovering from the scandal after severe downsizing.
Satyam also said on Wednesday that the US Securities and Exchange Commission was considering filing a civil suit against the company. Satyam already faces a separate $68m shareholders’ lawsuit underway in New York.
“The division [of enforcement at the SEC] had tentatively concluded that it would recommend to the commissioners of the SEC that it files a civil suit against the company, alleging fraud and other violations,” the notes to the accounts said, adding that no decision had yet been taken by the SEC.
The notes said the auditors had found the possible “diversion” of $41m from an American Depositary Share issue on the New York Stock Exchange in 2001.
The release of the accounts follows a forensic audit by Deloitte on behalf of Mahindra.
B. Ramalinga Raju, the company’s former chairman, threw India’s corporate sector into turmoil on January 7 last year when he confessed in a letter to his board that he had been fixing the company’s accounts for more than six years, including inventing a cash balance of $1bn.
Fearing that the scandal could lead to a meltdown of India’s outsourcing sector the government temporarily took over management of Satyam. The new managers auctioned the company, with the Mahindra Group, one of the country’s most respected conglomerates, taking over and installing new management.
The accounts show the scandal has taken a heavy toll on Satyam, once one of India’s top five IT companies. It made a net loss in the financial year to March 2009 of Rs81.77bn, mainly on account of the financial irregularities. This narrowed to Rs1.25bn in the year to March 2010.
Revenue during the two-year period shrank from Rs88.13bn to Rs54.81bn.
The company said staff numbers have been reduced almost by half from an original 50,000 employees.
The notes accompanying the financial results ran to 25 pages and warned that the auditors had been unable to piece together the whole story of the company, as there was evidence that documents had been destroyed.
It revealed financial irregularities totalling Rs78.5bn ($1.7bn) – nearly double the amount previously known.
The company, which has since been taken over by India’s Mahindra Group and renamed Mahindra Satyam, is recovering from the scandal after severe downsizing.
Satyam also said on Wednesday that the US Securities and Exchange Commission was considering filing a civil suit against the company. Satyam already faces a separate $68m shareholders’ lawsuit underway in New York.
“The division [of enforcement at the SEC] had tentatively concluded that it would recommend to the commissioners of the SEC that it files a civil suit against the company, alleging fraud and other violations,” the notes to the accounts said, adding that no decision had yet been taken by the SEC.
The notes said the auditors had found the possible “diversion” of $41m from an American Depositary Share issue on the New York Stock Exchange in 2001.
The release of the accounts follows a forensic audit by Deloitte on behalf of Mahindra.
B. Ramalinga Raju, the company’s former chairman, threw India’s corporate sector into turmoil on January 7 last year when he confessed in a letter to his board that he had been fixing the company’s accounts for more than six years, including inventing a cash balance of $1bn.
Fearing that the scandal could lead to a meltdown of India’s outsourcing sector the government temporarily took over management of Satyam. The new managers auctioned the company, with the Mahindra Group, one of the country’s most respected conglomerates, taking over and installing new management.
The accounts show the scandal has taken a heavy toll on Satyam, once one of India’s top five IT companies. It made a net loss in the financial year to March 2009 of Rs81.77bn, mainly on account of the financial irregularities. This narrowed to Rs1.25bn in the year to March 2010.
Revenue during the two-year period shrank from Rs88.13bn to Rs54.81bn.
The company said staff numbers have been reduced almost by half from an original 50,000 employees.
The notes accompanying the financial results ran to 25 pages and warned that the auditors had been unable to piece together the whole story of the company, as there was evidence that documents had been destroyed.
Wednesday, September 29, 2010
Asian Stocks Fluctuate as Financial Companies Drop, Commodity Shares Gain
Asian stocks fell, cutting the MSCI Asia Pacific Index’s biggest monthly gain since May 2009, amid concern Europe’s debt crisis will slow a global economic recovery and after Nintendo Co. cut its profit forecast.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, lost 2 percent. National Australia Bank Ltd. dropped 0.6 percent after UBS AG cut its investment rating. Nintendo Co., the world’s largest maker of video-game machines, sank 9 percent in Osaka, Japan. Tokyo Electric Power Co., Asia’s largest utility, dropped 2.4 percent, extending yesterday’s plunge on a plan to sell stock.
The MSCI Asia Pacific Index fell 0.6 percent to 126.77 as of 10:56 a.m. in Tokyo, with about two shares declining for each that advanced.
“Investors are likely to be in a wait-and-see mood,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “It’s the end of the month today.”
The MSCI index is on course for a 9.3 percent increase in September, the largest monthly advance since May 2009. The 12 percent climb in the three months ending today is the biggest quarterly increase of the past year.
Japan’s Nikkei 225 Stock Average lost 0.4 percent today, Australia’s S&P/ASX 200 Index slid 0.8 percent and South Korea’s Kospi Index was little changed.
Futures on the Standard & Poor’s 500 Index were little changed. The index retreated 0.3 percent yesterday in New York, trimming its best September rally since 1939. U.S. banks followed European lenders lower on concern the region’s most- indebted nations will struggle to finance budget deficits.
Protests in Europe
Spain’s top credit rating at Moody’s Investors Service probably will be cut, possibly this week, according to investors managing about $700 billion. Ireland will today announce the cost of bailing out Anglo Irish Bank Corp.
More than 100,000 protesters descended on Brussels before a meeting between labor union members and European Commission President Jose Barroso, organizers said. Spanish workers disrupted transportation and television broadcasts in the first general strike in eight years. In Athens, rail, communications and port workers staged strikes. Police in Dublin made an arrest after a truck damaged the front gates of the parliament building.
Financial companies were the heaviest drag on the MSCI index among its 10 industry groups. Mitsubishi UFJ lost 2 percent to 396 yen in Tokyo, and Sumitomo Mitsui Financial Group Inc., Japan’s second-largest publicly traded bank, dropped 2.3 percent to 2,472 yen.
Banks Decline
In Sydney, National Australia Bank declined 0.6 percent to A$25.75 after UBS cut its rating to “neutral” from “buy.”
Westpac Banking Corp., Australia’s second-biggest lender by market value, retreated 0.9 percent to A$23.50. Rob Coombe, the lender’s head of retail and business banking, said Australia’s largest banks may be forced to raise borrowing costs in addition to a potential central-bank interest-rate increase, according to the Australian newspaper.
The MSCI gauge has advanced 5.7 percent this year on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of a U.S. economic rebound.
Nintendo plunged 9 percent to 20,940 yen, the biggest drop since January 2009 and the heaviest single drag on the MSCI index. The company slashed its annual profit forecast by 55 percent and said it won’t release its 3DS handheld game player in time for the year-end holiday season.
Tokyo Electric dropped 2.4 percent to 2,054 yen in Tokyo, extending yesterday’s 7.8 percent decline. The company said yesterday after markets closed that it plans to raise as much as 555 billion yen by selling shares to the public. The Nikkei newspaper reported a planned share sale yesterday morning.
Korea Electric Power Corp. retreated 1.2 percent to 29,400 won in Seoul. South Korea’s biggest electricity producer agreed to buy a 40 percent stake in a Philippine power plant for $400 million from BG Group Plc.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, lost 2 percent. National Australia Bank Ltd. dropped 0.6 percent after UBS AG cut its investment rating. Nintendo Co., the world’s largest maker of video-game machines, sank 9 percent in Osaka, Japan. Tokyo Electric Power Co., Asia’s largest utility, dropped 2.4 percent, extending yesterday’s plunge on a plan to sell stock.
The MSCI Asia Pacific Index fell 0.6 percent to 126.77 as of 10:56 a.m. in Tokyo, with about two shares declining for each that advanced.
“Investors are likely to be in a wait-and-see mood,” said Mitsushige Akino, who oversees about $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “It’s the end of the month today.”
The MSCI index is on course for a 9.3 percent increase in September, the largest monthly advance since May 2009. The 12 percent climb in the three months ending today is the biggest quarterly increase of the past year.
Japan’s Nikkei 225 Stock Average lost 0.4 percent today, Australia’s S&P/ASX 200 Index slid 0.8 percent and South Korea’s Kospi Index was little changed.
Futures on the Standard & Poor’s 500 Index were little changed. The index retreated 0.3 percent yesterday in New York, trimming its best September rally since 1939. U.S. banks followed European lenders lower on concern the region’s most- indebted nations will struggle to finance budget deficits.
Protests in Europe
Spain’s top credit rating at Moody’s Investors Service probably will be cut, possibly this week, according to investors managing about $700 billion. Ireland will today announce the cost of bailing out Anglo Irish Bank Corp.
More than 100,000 protesters descended on Brussels before a meeting between labor union members and European Commission President Jose Barroso, organizers said. Spanish workers disrupted transportation and television broadcasts in the first general strike in eight years. In Athens, rail, communications and port workers staged strikes. Police in Dublin made an arrest after a truck damaged the front gates of the parliament building.
Financial companies were the heaviest drag on the MSCI index among its 10 industry groups. Mitsubishi UFJ lost 2 percent to 396 yen in Tokyo, and Sumitomo Mitsui Financial Group Inc., Japan’s second-largest publicly traded bank, dropped 2.3 percent to 2,472 yen.
Banks Decline
In Sydney, National Australia Bank declined 0.6 percent to A$25.75 after UBS cut its rating to “neutral” from “buy.”
Westpac Banking Corp., Australia’s second-biggest lender by market value, retreated 0.9 percent to A$23.50. Rob Coombe, the lender’s head of retail and business banking, said Australia’s largest banks may be forced to raise borrowing costs in addition to a potential central-bank interest-rate increase, according to the Australian newspaper.
The MSCI gauge has advanced 5.7 percent this year on speculation growth in corporate profits will weather Europe’s debt crisis, Chinese steps to curb property-price inflation and concern about the pace of a U.S. economic rebound.
Nintendo plunged 9 percent to 20,940 yen, the biggest drop since January 2009 and the heaviest single drag on the MSCI index. The company slashed its annual profit forecast by 55 percent and said it won’t release its 3DS handheld game player in time for the year-end holiday season.
Tokyo Electric dropped 2.4 percent to 2,054 yen in Tokyo, extending yesterday’s 7.8 percent decline. The company said yesterday after markets closed that it plans to raise as much as 555 billion yen by selling shares to the public. The Nikkei newspaper reported a planned share sale yesterday morning.
Korea Electric Power Corp. retreated 1.2 percent to 29,400 won in Seoul. South Korea’s biggest electricity producer agreed to buy a 40 percent stake in a Philippine power plant for $400 million from BG Group Plc.
Sport organisers play high-stakes game
There are many people who believe New Delhi’s Commonwealth Games fiasco has dealt a mortal blow to India’s chances of staging the Olympics, but the International Olympic Committee is not among them.
When asked if India could host an Olympics, Gilbert Felli, IOC executive director, says: “Yes, why not?”
Athletes’ accommodation described as “filthy” and facilities collapsing have been a public relations nightmare for India. But they have also thrown into question the increasing desire of sporting organisations to stage events in large emerging economies.
The most recent large sports event, the World Cup finals in South Africa three months ago, was a success, but only just. Sepp Blatter, president of Fifa, world football’s governing body, said on the day after the final that awarding the tournament to South Africa was a “question of trust”.
That trust was tested in the preparatory years as Jerome Vacke, secretary-general of Fifa, revealed in May. “There were days where you asked the question about how we will succeed.”
Sports executives say awarding events is about balancing the benefits and burdens for the chosen host city and the organisation. Mr Felli says: “We always try to understand how the emerging countries, at the time they receive their games, can fulfil the task of organisation so that the reputation will be good for us and for them.”
The selection of Rio de Janeiro in Brazil to host the 2016 summer Olympics was an example of the IOC choosing a city on a continent “where we have never been before”, Mr Felli says.
Sponsors’ imperatives are also a significant factor in deciding where events are held. Karen Earl of the European Sponsorship Association says: “Having proved [the] effectiveness [of sporting events] in connecting successfully with consumers in existing markets, companies are keen to use sponsorship in order to drive awareness in new, sizeable emerging markets.”
In spite of the costs and risks, global coverage of the Olympics, the World Cup and Formula One motor racing means there is no shortage of emerging market countries eager to stage such events. They regard hosting them as proof of their emergence on the international stage and an opportunity for important infrastructure investments.
The IOC scored a significant success with the Beijing Summer Olympics in 2008 and played safe by giving London the 2012 games but it is taking more of a gamble with Sochi, in Russia, venue of the 2014 Winter Games, and Rio.
Sochi’s main port for building materials was destroyed by a storm last December and while operations have resumed, they have yet to reach targeted capacity. The Kremlin is losing the support of locals who say they are being compensated insufficiently for land on the site.
Previous Winter Olympics have cost between $1.5bn and $3bn, but Moscow says it will have to spend $14bn, and experts expect a final bill of more than $30bn.
Dmitry Medvedev, the Russian president, had to open an investigation last month amid allegations a senior official had taken $5.7m in bribes in exchange for Olympic contracts. Russia’s sports and tourism ministry is under investigation by the general prosecutor for taking Rbs230m ($7.5m) of the training budget for athletes in the 2010 Vancouver games.
Brazil, which hosts the next football World Cup, in 2014, in addition to the 2016 Summer Olympics, also has much to prove. When it bid for the 2007 Pan American Games it promised 57km of metro and a light railway. Not one kilometre was ready in time for the event.
While Brazil’s stadiums appear adequate, the surrounding infrastructure is not. A lack of hotels led organisers to propose cruise ships be used instead. The city’s main airport is antiquated and needs to upgrade two runways, build two satellite terminals, two more car parks and a cargo and logistics facility.
Fifa is weighing its options for the 2018 World Cup. England and Russia, the bookmakers’ favourites, offer contrasting choices.
Russia would offer Fifa an uncharted and sizeable population but would have to spend large sums on stadiums, transport, public utilities and accommodation in 13 cities while London would be a safe choice.
The award of such events is partly about power politics, says Stefan Szymanski, professor at the Cass Business School in the City of London. “Since developing countries are in the overwhelming majority in [the organisations’] voting systems, the incentive to hand out events to these nations is significant,” he says.
F1 has looked to emerging markets to exploit sponsorship opportunities, and New Delhi will next year stage its inaugural grand prix. But Bernie Ecclestone, F1 commercial supremo, is less worried about that event than about next month’s South Korean race, having warned the track has yet to pass a safety inspection.
When asked if India could host an Olympics, Gilbert Felli, IOC executive director, says: “Yes, why not?”
Athletes’ accommodation described as “filthy” and facilities collapsing have been a public relations nightmare for India. But they have also thrown into question the increasing desire of sporting organisations to stage events in large emerging economies.
The most recent large sports event, the World Cup finals in South Africa three months ago, was a success, but only just. Sepp Blatter, president of Fifa, world football’s governing body, said on the day after the final that awarding the tournament to South Africa was a “question of trust”.
That trust was tested in the preparatory years as Jerome Vacke, secretary-general of Fifa, revealed in May. “There were days where you asked the question about how we will succeed.”
Sports executives say awarding events is about balancing the benefits and burdens for the chosen host city and the organisation. Mr Felli says: “We always try to understand how the emerging countries, at the time they receive their games, can fulfil the task of organisation so that the reputation will be good for us and for them.”
The selection of Rio de Janeiro in Brazil to host the 2016 summer Olympics was an example of the IOC choosing a city on a continent “where we have never been before”, Mr Felli says.
Sponsors’ imperatives are also a significant factor in deciding where events are held. Karen Earl of the European Sponsorship Association says: “Having proved [the] effectiveness [of sporting events] in connecting successfully with consumers in existing markets, companies are keen to use sponsorship in order to drive awareness in new, sizeable emerging markets.”
In spite of the costs and risks, global coverage of the Olympics, the World Cup and Formula One motor racing means there is no shortage of emerging market countries eager to stage such events. They regard hosting them as proof of their emergence on the international stage and an opportunity for important infrastructure investments.
The IOC scored a significant success with the Beijing Summer Olympics in 2008 and played safe by giving London the 2012 games but it is taking more of a gamble with Sochi, in Russia, venue of the 2014 Winter Games, and Rio.
Sochi’s main port for building materials was destroyed by a storm last December and while operations have resumed, they have yet to reach targeted capacity. The Kremlin is losing the support of locals who say they are being compensated insufficiently for land on the site.
Previous Winter Olympics have cost between $1.5bn and $3bn, but Moscow says it will have to spend $14bn, and experts expect a final bill of more than $30bn.
Dmitry Medvedev, the Russian president, had to open an investigation last month amid allegations a senior official had taken $5.7m in bribes in exchange for Olympic contracts. Russia’s sports and tourism ministry is under investigation by the general prosecutor for taking Rbs230m ($7.5m) of the training budget for athletes in the 2010 Vancouver games.
Brazil, which hosts the next football World Cup, in 2014, in addition to the 2016 Summer Olympics, also has much to prove. When it bid for the 2007 Pan American Games it promised 57km of metro and a light railway. Not one kilometre was ready in time for the event.
While Brazil’s stadiums appear adequate, the surrounding infrastructure is not. A lack of hotels led organisers to propose cruise ships be used instead. The city’s main airport is antiquated and needs to upgrade two runways, build two satellite terminals, two more car parks and a cargo and logistics facility.
Fifa is weighing its options for the 2018 World Cup. England and Russia, the bookmakers’ favourites, offer contrasting choices.
Russia would offer Fifa an uncharted and sizeable population but would have to spend large sums on stadiums, transport, public utilities and accommodation in 13 cities while London would be a safe choice.
The award of such events is partly about power politics, says Stefan Szymanski, professor at the Cass Business School in the City of London. “Since developing countries are in the overwhelming majority in [the organisations’] voting systems, the incentive to hand out events to these nations is significant,” he says.
F1 has looked to emerging markets to exploit sponsorship opportunities, and New Delhi will next year stage its inaugural grand prix. But Bernie Ecclestone, F1 commercial supremo, is less worried about that event than about next month’s South Korean race, having warned the track has yet to pass a safety inspection.
In Tax Cut Plan, Debate Over the Definition of Rich
Much of the debate about whether to extend the Bush tax cuts has focused on big economic issues: how the decision might affect the fragile economy, the widening federal deficit and hiring by small businesses.
As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.
President Obama has proposed preserving the cuts for middle-class Americans and letting them expire for the top 2.5 percent of taxpayers — individuals who make more than $200,000 a year and families whose income exceeds $250,000.
But others in Congress have questioned why ending what Mr. Obama frequently calls “tax cuts for millionaires and billionaires” should also raise taxes on families making $250,000. With the Senate unlikely to vote on the matter until after the midterm elections, some Democrats are pushing for a compromise that would leave the cuts in place for those higher up the income scale.
“I think the $250,000 level is too low,” said Senator James Webb, Democrat of Virginia. “I’m asking that it be raised.”
One proposal being discussed is a millionaires’ tax, which would create one or two additional tax brackets for the wealthiest Americans and eliminate the Bush tax cuts only for those who earn more than seven-figure incomes.
But Mr. Obama and Democratic leaders in Congress have thus far held firm to the dividing line of $200,000 for individuals and $250,000 for families. And others warn that making the tax code more complicated often has the unintended consequence of encouraging taxpayers to circumvent the system.
“If you make the tax law simpler, more easily understood and fairer, you end up with a higher level of compliance and more revenue,” said Senator Judd Gregg, Republican of New Hampshire, co-sponsor of a tax overhaul plan that would eliminate many deductions and exemptions and reduce the total number of brackets from six to three.
Leaders in the Senate announced last week that they would not vote on the matter until after the elections on Nov. 2 because some Democrats in tight races worried that Mr. Obama’s plan would leave them vulnerable to campaign attack ads accusing them of raising taxes.
Most of the opposition to the plan has come from those who warn that ending the cuts, even on the wealthiest, would further weaken the struggling economy and harm small businesses.
But because the cuts will have expired for everyone on Jan. 1 unless Congress takes action, lawmakers are virtually certain to revisit the issue in the lame-duck session.
At the heart of the debate is the fact that, like most Western countries, the United States has a progressive tax code that levies higher rates on people with higher incomes. But the concept of class and the issue of taxes are both so politically charged that discussions about how to calibrate those rates and how much income qualifies someone as rich in the contemporary United States are incendiary.
During the presidential campaign in 2008, the Republican nominee, Senator John McCain of Arizona, set off a fury when he was asked the dividing line between middle class and rich and replied that it was $5 million, a statement he said was intended as a joke. Mr. Obama’s response was $150,000, a figure that is three times the median family income.
With unemployment at 9.6 percent and the economy languishing, discussions about the financial pressures facing the wealthiest Americans can quickly devolve into shouting matches.
A University of Chicago professor earlier this month wrote a post on an academic blog complaining that if Mr. Obama’s proposal became law, he and his wife, who earn more than $300,000 combined, might have to lay off their housekeeper.
Responses to the post were so visceral and angry that the professor, M. Todd Henderson, deleted it from the Internet, saying that the “electronic lynch mob” had made him fear for his family’s safety.
But in some expensive sections of the country, many families with income levels near the $250,000 cutoff insist that they have more in common with middle-class Americans than millionaires or billionaires.
“You take a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school,” said Vincent R. Cervone, a certified public accountant in New York City. “They’re grateful to be working. They aren’t in danger of eviction or starving. But the cost of the average house is $500,000 — five times the national average. Taxes are higher than the rest of the country. If they have a couple of children in college, can you call them rich? Not by any common-sense standard.”
The dispute over what income level qualifies as rich is caused, in part, by the tendency of people to gauge their own wealth by comparing themselves to those closest to them. A study released this month by two Princeton University professors found that in most of the country, people feel comfortably middle class if they earn $70,000. But in New York City, the figure was $165,000. The median income in New York City is $55,980, according to the Census Bureau.
As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.
President Obama has proposed preserving the cuts for middle-class Americans and letting them expire for the top 2.5 percent of taxpayers — individuals who make more than $200,000 a year and families whose income exceeds $250,000.
But others in Congress have questioned why ending what Mr. Obama frequently calls “tax cuts for millionaires and billionaires” should also raise taxes on families making $250,000. With the Senate unlikely to vote on the matter until after the midterm elections, some Democrats are pushing for a compromise that would leave the cuts in place for those higher up the income scale.
“I think the $250,000 level is too low,” said Senator James Webb, Democrat of Virginia. “I’m asking that it be raised.”
One proposal being discussed is a millionaires’ tax, which would create one or two additional tax brackets for the wealthiest Americans and eliminate the Bush tax cuts only for those who earn more than seven-figure incomes.
But Mr. Obama and Democratic leaders in Congress have thus far held firm to the dividing line of $200,000 for individuals and $250,000 for families. And others warn that making the tax code more complicated often has the unintended consequence of encouraging taxpayers to circumvent the system.
“If you make the tax law simpler, more easily understood and fairer, you end up with a higher level of compliance and more revenue,” said Senator Judd Gregg, Republican of New Hampshire, co-sponsor of a tax overhaul plan that would eliminate many deductions and exemptions and reduce the total number of brackets from six to three.
Leaders in the Senate announced last week that they would not vote on the matter until after the elections on Nov. 2 because some Democrats in tight races worried that Mr. Obama’s plan would leave them vulnerable to campaign attack ads accusing them of raising taxes.
Most of the opposition to the plan has come from those who warn that ending the cuts, even on the wealthiest, would further weaken the struggling economy and harm small businesses.
But because the cuts will have expired for everyone on Jan. 1 unless Congress takes action, lawmakers are virtually certain to revisit the issue in the lame-duck session.
At the heart of the debate is the fact that, like most Western countries, the United States has a progressive tax code that levies higher rates on people with higher incomes. But the concept of class and the issue of taxes are both so politically charged that discussions about how to calibrate those rates and how much income qualifies someone as rich in the contemporary United States are incendiary.
During the presidential campaign in 2008, the Republican nominee, Senator John McCain of Arizona, set off a fury when he was asked the dividing line between middle class and rich and replied that it was $5 million, a statement he said was intended as a joke. Mr. Obama’s response was $150,000, a figure that is three times the median family income.
With unemployment at 9.6 percent and the economy languishing, discussions about the financial pressures facing the wealthiest Americans can quickly devolve into shouting matches.
A University of Chicago professor earlier this month wrote a post on an academic blog complaining that if Mr. Obama’s proposal became law, he and his wife, who earn more than $300,000 combined, might have to lay off their housekeeper.
Responses to the post were so visceral and angry that the professor, M. Todd Henderson, deleted it from the Internet, saying that the “electronic lynch mob” had made him fear for his family’s safety.
But in some expensive sections of the country, many families with income levels near the $250,000 cutoff insist that they have more in common with middle-class Americans than millionaires or billionaires.
“You take a couple in Westchester County, a police officer with a lot of overtime and a principal at a public school,” said Vincent R. Cervone, a certified public accountant in New York City. “They’re grateful to be working. They aren’t in danger of eviction or starving. But the cost of the average house is $500,000 — five times the national average. Taxes are higher than the rest of the country. If they have a couple of children in college, can you call them rich? Not by any common-sense standard.”
The dispute over what income level qualifies as rich is caused, in part, by the tendency of people to gauge their own wealth by comparing themselves to those closest to them. A study released this month by two Princeton University professors found that in most of the country, people feel comfortably middle class if they earn $70,000. But in New York City, the figure was $165,000. The median income in New York City is $55,980, according to the Census Bureau.
Monday, September 27, 2010
Asian Stocks Fall on European Debt Concerns, Metal Prices; Newcrest Drops
Asian stocks fell, led by declines in Japan, as metal prices dropped and concern grew that European government finances are worsening.
Newcrest Mining Ltd., Australia’s biggest gold producer, dropped 1.3 percent as gold prices fell. Sony Corp., which gets almost 20 percent of its sales from Europe, lost 0.6 percent as yield spreads showed perceptions of Ireland and Portugal’s creditworthiness are deteriorating. American depositary receipts of HSBC Holdings Plc, Europe’s largest bank, yesterday closed 0.7 percent lower than its Hong Kong shares.
“Concerns about the global economic outlook haven’t cleared,” said Yasushi Noguchi, a strategist in Tokyo at SMBC Friend Securities Co. “There are still issues related to Europe’s debt.”
The MSCI Asia Pacific Index lost 0.3 percent to 126.65 as of 9:52 a.m. in Tokyo. Concerns over European government debt contributed to the gauge slumping 15.7 percent from its 2010 high on April 15 to its low for the year on May 25. The index has since climbed 16.3 percent.
Japan’s Nikkei 225 Stock Average sank 0.7 percent. Consumer lender Takefuji Corp. was poised to fall on speculation it will file for bankruptcy protection today.
Australia’s S&P/ASX 200 Index lost 0.2 percent and South Korea’s Kospi Index dropped 0.4 percent.
Futures on the Standard & Poor’s 500 Index increased 0.2 percent. The index dropped 0.6 percent yesterday. Financial companies led the decline as investors speculated that merger talks between M&T Bank Corp. and Banco Santander SA broke down, while the extra yield investors demanded to buy Irish 10-year bonds instead of Germany’s bunds widened to a record yesterday.
Newcrest Mining Ltd., Australia’s biggest gold producer, dropped 1.3 percent as gold prices fell. Sony Corp., which gets almost 20 percent of its sales from Europe, lost 0.6 percent as yield spreads showed perceptions of Ireland and Portugal’s creditworthiness are deteriorating. American depositary receipts of HSBC Holdings Plc, Europe’s largest bank, yesterday closed 0.7 percent lower than its Hong Kong shares.
“Concerns about the global economic outlook haven’t cleared,” said Yasushi Noguchi, a strategist in Tokyo at SMBC Friend Securities Co. “There are still issues related to Europe’s debt.”
The MSCI Asia Pacific Index lost 0.3 percent to 126.65 as of 9:52 a.m. in Tokyo. Concerns over European government debt contributed to the gauge slumping 15.7 percent from its 2010 high on April 15 to its low for the year on May 25. The index has since climbed 16.3 percent.
Japan’s Nikkei 225 Stock Average sank 0.7 percent. Consumer lender Takefuji Corp. was poised to fall on speculation it will file for bankruptcy protection today.
Australia’s S&P/ASX 200 Index lost 0.2 percent and South Korea’s Kospi Index dropped 0.4 percent.
Futures on the Standard & Poor’s 500 Index increased 0.2 percent. The index dropped 0.6 percent yesterday. Financial companies led the decline as investors speculated that merger talks between M&T Bank Corp. and Banco Santander SA broke down, while the extra yield investors demanded to buy Irish 10-year bonds instead of Germany’s bunds widened to a record yesterday.
Indian leaders warm to Mandarin
India is considering introducing the teaching of Mandarin in state schools, a move that would represent a policy shift for a country that has long played down the importance of learning the Chinese language.
China is India’s largest trading partner and neighbour across the Himalayas. Yet the country’s languages are barely taught in India. According to Chinese diplomats, India responded tepidly to a proposal by Beijing to establish Confucius Institutes, which teach Chinese, in the country’s main centres of learning.
The change is being driven by Kapil Sibal, minister of human resources development, who has tried to push for widespread reform in India’s education sector since taking over the portfolio last year.
Mr Sibal has held talks with Chinese officials on the practicalities of giving Indian teachers the skills to teach Mandarin courses, the possibility of Chinese teachers coming to India and the expansion of university student exchanges. He has also consulted India’s Central Board of Secondary Education (CBSE) about broadening language training within the national curriculum. Mr Sibal, who attended the World Economic Forum in Tianjin, favours Mandarin teaching in primary schools to instil an early interest in China, the world’s fastest growing large economy.
An estimated 60 per cent of India’s 1.2bn population is under the age of 25. Mr Sibal said India’s “demographic dividend” could help the country dominate the global services industry and, in the future, export talent to countries with ageing societies.
While many Indians speak English, Mandarin would give them greater international competitiveness. Should Mr Sibal’s proposal gain traction, India could at a stroke increase massively the number of the world’s Mandarin speakers.
Arun Kapur, director at Vasant Valley, a large secondary school in New Delhi, welcomed the promotion of Mandarin.
“We have other foreign languages. I’m surprised CBSE did not introduce Mandarin earlier, especially since it has so many people speaking it,” he said. “Why has it taken CBSE so long? With so many speakers [of Mandarin], it’s good for India to know what the world is saying.”
New Delhi’s interest in promoting Mandarin comes as the number of students learning the language across the globe continues to grow.
Mandarin is now the fourth most studied A-level language in the UK after French, Spanish and German.
China is keen for foreigners to learn Mandarin. In recent years, Beijing has funded programmes “enhancing its cultural and soft power and international competitiveness”, in the words of one senior Chinese propaganda official.
A key element in this strategy to increase China’s global influence is the funding of the Confucius Institutes. Established in 2004, the institutions provide Chinese language and culture classes but present a world view that is in line with Chinese Communist party objectives.
By the end of last year, the Chinese government had helped fund and establish 282 Confucius Institutes and 272 Confucius Classrooms in 88 countries.
A total of 260,000 people worldwide were enrolled in Confucius Centres last year. According to the Confucius Institute Headquarters in Beijing, another 250 institutions from more than 50 countries have expressed interest in establishing their own Confucius Institutes or classrooms.
In the US, the Asia Society identified 263 Chinese language programmes in elementary and secondary schools in 2004 and 779 such programmes in 2008, an almost 200 per cent increase. In Japan, apart from English, Chinese is the foreign language of choice.
China is India’s largest trading partner and neighbour across the Himalayas. Yet the country’s languages are barely taught in India. According to Chinese diplomats, India responded tepidly to a proposal by Beijing to establish Confucius Institutes, which teach Chinese, in the country’s main centres of learning.
The change is being driven by Kapil Sibal, minister of human resources development, who has tried to push for widespread reform in India’s education sector since taking over the portfolio last year.
Mr Sibal has held talks with Chinese officials on the practicalities of giving Indian teachers the skills to teach Mandarin courses, the possibility of Chinese teachers coming to India and the expansion of university student exchanges. He has also consulted India’s Central Board of Secondary Education (CBSE) about broadening language training within the national curriculum. Mr Sibal, who attended the World Economic Forum in Tianjin, favours Mandarin teaching in primary schools to instil an early interest in China, the world’s fastest growing large economy.
An estimated 60 per cent of India’s 1.2bn population is under the age of 25. Mr Sibal said India’s “demographic dividend” could help the country dominate the global services industry and, in the future, export talent to countries with ageing societies.
While many Indians speak English, Mandarin would give them greater international competitiveness. Should Mr Sibal’s proposal gain traction, India could at a stroke increase massively the number of the world’s Mandarin speakers.
Arun Kapur, director at Vasant Valley, a large secondary school in New Delhi, welcomed the promotion of Mandarin.
“We have other foreign languages. I’m surprised CBSE did not introduce Mandarin earlier, especially since it has so many people speaking it,” he said. “Why has it taken CBSE so long? With so many speakers [of Mandarin], it’s good for India to know what the world is saying.”
New Delhi’s interest in promoting Mandarin comes as the number of students learning the language across the globe continues to grow.
Mandarin is now the fourth most studied A-level language in the UK after French, Spanish and German.
China is keen for foreigners to learn Mandarin. In recent years, Beijing has funded programmes “enhancing its cultural and soft power and international competitiveness”, in the words of one senior Chinese propaganda official.
A key element in this strategy to increase China’s global influence is the funding of the Confucius Institutes. Established in 2004, the institutions provide Chinese language and culture classes but present a world view that is in line with Chinese Communist party objectives.
By the end of last year, the Chinese government had helped fund and establish 282 Confucius Institutes and 272 Confucius Classrooms in 88 countries.
A total of 260,000 people worldwide were enrolled in Confucius Centres last year. According to the Confucius Institute Headquarters in Beijing, another 250 institutions from more than 50 countries have expressed interest in establishing their own Confucius Institutes or classrooms.
In the US, the Asia Society identified 263 Chinese language programmes in elementary and secondary schools in 2004 and 779 such programmes in 2008, an almost 200 per cent increase. In Japan, apart from English, Chinese is the foreign language of choice.
Regulators Call Health Claims in Pom Juice Ads Deceptive
WASHINGTON — Pom Wonderful, the pricey and popular pomegranate juice sold in the distinctly curvaceous bottle, is advertised as helping to reduce the risk of heart disease, prostate cancer and impotence. But according to the Federal Trade Commission, the evidence does not back up those claims.
The Resnicks at the opening of the Lynda and Stewart Resnick pavilion at the Los Angeles County Museum of Art last weekend.
On Monday, the F.T.C. charged Pom Wonderful, which markets the juice, and the company’s owners, the billionaire philanthropists Lynda and Stewart Resnick of Los Angeles, with making false and unsubstantiated claims about the power of their pomegranate elixir.
In a complaint that seeks to prevent the company from making any further medical claims unless they are substantiated by the Food and Drug Administration, the commission said the company ignored evidence that contradicted its claims that the juice could help prevent or treat heart disease, reduce the risk of prostate cancer and overcome erectile dysfunction.
The Resnicks said Monday that they planned to contest the charges. Their company has sued the commission in federal district court, claiming that the commission had exceeded its authority and was trampling Pom’s First Amendment rights.
“We stand behind the vast body of scientific research documenting the healthy properties of Wonderful variety pomegranate,” the company said Monday in a statement. “Our research is unprecedented among food and beverage companies, and we take pride in having initiated a program of modern scientific research to investigate the health benefits of this ancient and revered fruit.”
That ancient, revered status as a folk medicine led the Resnicks in 1998 to begin financing research into whether pomegranates and their antioxidants had health benefits, according to a 2008 profile in The New Yorker magazine.
The F.T.C. complaint comes at an awkward time for the Resnicks, whose other business ventures include Teleflora, the flower-delivery service; Fiji Water; Suterra, a maker of environmentally sensitive pest-control products; and Neptune Pacific Line, an Australian shipper. The couple also formerly owned the Franklin Mint, the marketer of commemorative coins, plates and dolls.
Last weekend, the Los Angeles County Museum of Art opened the Resnick Pavilion, a freestanding exhibition space that was financed in part by the couple’s $45 million gift to the museum, where Mrs. Resnick is vice chairman of the board and oversees the acquisitions committee.
Pom Wonderful claims to have spent $34 million on pomegranate research, including 19 clinical trials and multiple studies published in peer-reviewed journals.
In addition to the Resnicks and the company, the commission also charged Matthew Tupper, the president and chief operating officer of Pom Wonderful, and Roll International, which provides administrative services to POM and which, like POM, is owned by a Resnick trust. The charges will be heard by an administrative law judge in Washington next May.
The commission also settled on Monday a related false advertising case against Dr. Mark Dreher, Pom Wonderful’s former vice president of science and regulatory affairs, who also appeared in various media as an expert endorser of Pom Wonderful’s products. Without admitting or denying the charges, Dr. Dreher agreed not to engage in similar acts and to cooperate with further investigations.
The commission does not have statutory authority to assess fines for violations of its regulations, although it can being a lawsuit against someone who violates a consent order. Instead, the commission can order businesses to stop illegal marketing activities and can halt anticompetitive practices.
While not disputing that the company’s medical studies exist, the commission says that the company’s advertising claims overstate the results and ignore that the pomegranate products often showed no more efficacy than a placebo. In addition to the juice, Pom Wonderful sells POMx pill and liquid supplements.
The commission cited examples of Pom advertising that said the products produced “improved heart and prostate health and better erectile function.” Among the results of various studies were a reduction in plaque buildup in the carotid artery and in blood pressure, and slower progression of an indicator for prostate cancer.
Those results ignored the fact, the commission contended, that as early as May 2007 the company knew that a large study financed by the company showed no significant difference in arterial plaque buildup after 18 months between patients who drank Pom and those who drank a placebo.
The commission also stated that the company’s prostate-related claims relied on a study that itself notes uncertainty as to whether the outcomes cited by the company were relevant as an indication of clinical benefit. It also said the company’s studies on erectile function produced no statistically significant results. Pom strongly disputed the commission’s assertions. “We do not make claims that our products act as drugs,” the company said. “What we do, rather, is communicate, through advertising, the promising science relating to pomegranates. Consumers and their health providers have a right to know about this research and its results.”
The commission proposed an order that would require the company to get F.D.A. approval before it makes any future claims that its products prevent or treat serious diseases.
In its federal lawsuit, Pom Wonderful accused the commission of applying a new standard for deceptive advertising to the food and dietary supplement industry that overturns 20 years of commission policy. That policy was laid out earlier this year by the commission in separate deceptive advertising actions against Nestlé HealthCare Nutrition and Iovate Health Sciences.
Pom also said that the commission was, in seeking to require F.D.A. oversight over the company’s claims, treating pomegranate juice as a drug although the products “do not carry the risks associated with pharmaceutical drugs.”
“It’s a shame that the government is unable to understand this fundamental distinction,” the company said, “and instead is wasting taxpayer resources to persecute the pomegranate.”
The Resnicks at the opening of the Lynda and Stewart Resnick pavilion at the Los Angeles County Museum of Art last weekend.
On Monday, the F.T.C. charged Pom Wonderful, which markets the juice, and the company’s owners, the billionaire philanthropists Lynda and Stewart Resnick of Los Angeles, with making false and unsubstantiated claims about the power of their pomegranate elixir.
In a complaint that seeks to prevent the company from making any further medical claims unless they are substantiated by the Food and Drug Administration, the commission said the company ignored evidence that contradicted its claims that the juice could help prevent or treat heart disease, reduce the risk of prostate cancer and overcome erectile dysfunction.
The Resnicks said Monday that they planned to contest the charges. Their company has sued the commission in federal district court, claiming that the commission had exceeded its authority and was trampling Pom’s First Amendment rights.
“We stand behind the vast body of scientific research documenting the healthy properties of Wonderful variety pomegranate,” the company said Monday in a statement. “Our research is unprecedented among food and beverage companies, and we take pride in having initiated a program of modern scientific research to investigate the health benefits of this ancient and revered fruit.”
That ancient, revered status as a folk medicine led the Resnicks in 1998 to begin financing research into whether pomegranates and their antioxidants had health benefits, according to a 2008 profile in The New Yorker magazine.
The F.T.C. complaint comes at an awkward time for the Resnicks, whose other business ventures include Teleflora, the flower-delivery service; Fiji Water; Suterra, a maker of environmentally sensitive pest-control products; and Neptune Pacific Line, an Australian shipper. The couple also formerly owned the Franklin Mint, the marketer of commemorative coins, plates and dolls.
Last weekend, the Los Angeles County Museum of Art opened the Resnick Pavilion, a freestanding exhibition space that was financed in part by the couple’s $45 million gift to the museum, where Mrs. Resnick is vice chairman of the board and oversees the acquisitions committee.
Pom Wonderful claims to have spent $34 million on pomegranate research, including 19 clinical trials and multiple studies published in peer-reviewed journals.
In addition to the Resnicks and the company, the commission also charged Matthew Tupper, the president and chief operating officer of Pom Wonderful, and Roll International, which provides administrative services to POM and which, like POM, is owned by a Resnick trust. The charges will be heard by an administrative law judge in Washington next May.
The commission also settled on Monday a related false advertising case against Dr. Mark Dreher, Pom Wonderful’s former vice president of science and regulatory affairs, who also appeared in various media as an expert endorser of Pom Wonderful’s products. Without admitting or denying the charges, Dr. Dreher agreed not to engage in similar acts and to cooperate with further investigations.
The commission does not have statutory authority to assess fines for violations of its regulations, although it can being a lawsuit against someone who violates a consent order. Instead, the commission can order businesses to stop illegal marketing activities and can halt anticompetitive practices.
While not disputing that the company’s medical studies exist, the commission says that the company’s advertising claims overstate the results and ignore that the pomegranate products often showed no more efficacy than a placebo. In addition to the juice, Pom Wonderful sells POMx pill and liquid supplements.
The commission cited examples of Pom advertising that said the products produced “improved heart and prostate health and better erectile function.” Among the results of various studies were a reduction in plaque buildup in the carotid artery and in blood pressure, and slower progression of an indicator for prostate cancer.
Those results ignored the fact, the commission contended, that as early as May 2007 the company knew that a large study financed by the company showed no significant difference in arterial plaque buildup after 18 months between patients who drank Pom and those who drank a placebo.
The commission also stated that the company’s prostate-related claims relied on a study that itself notes uncertainty as to whether the outcomes cited by the company were relevant as an indication of clinical benefit. It also said the company’s studies on erectile function produced no statistically significant results. Pom strongly disputed the commission’s assertions. “We do not make claims that our products act as drugs,” the company said. “What we do, rather, is communicate, through advertising, the promising science relating to pomegranates. Consumers and their health providers have a right to know about this research and its results.”
The commission proposed an order that would require the company to get F.D.A. approval before it makes any future claims that its products prevent or treat serious diseases.
In its federal lawsuit, Pom Wonderful accused the commission of applying a new standard for deceptive advertising to the food and dietary supplement industry that overturns 20 years of commission policy. That policy was laid out earlier this year by the commission in separate deceptive advertising actions against Nestlé HealthCare Nutrition and Iovate Health Sciences.
Pom also said that the commission was, in seeking to require F.D.A. oversight over the company’s claims, treating pomegranate juice as a drug although the products “do not carry the risks associated with pharmaceutical drugs.”
“It’s a shame that the government is unable to understand this fundamental distinction,” the company said, “and instead is wasting taxpayer resources to persecute the pomegranate.”
Mukherjee Cutting Bond Goal Boosts Demand to Four-Month High: India Credit
India’s combination of reducing targets for debt sales this fiscal year and opening its market to more foreign investment is driving demand at the nation’s bond auctions to a four-month high.
The finance ministry received bids for 2.3 times the 40 billion rupees ($889 million) of 10-year debt on offer at a Sept. 24 sale, the most since May 28, central bank data show. The benchmark 2020 bond may hold its gains even after yields fell almost a quarter-percentage point in the past month as the government cuts borrowing for the first time in four years.
Bond investors are clamoring for India debt as governments in developed economies from the U.K. to Germany step up borrowing in response to faltering growth. Policy makers forecast Asia’s third-biggest economy will grow 8.5 percent, almost four times as much as advanced nations, as Finance Minister Pranab Mukherjee aims to raise 1.46 trillion rupees from sales of state-owned assets and mobile-phone licenses.
“We’ve had many pleasant surprises this year on the fiscal front,” A. Balasubramanian, who oversees the equivalent of $13.6 billion in debt as chief executive officer at Birla Sun Life Asset Management Co. in Mumbai, said in a Sept. 23 telephone interview. “The risk-reward is in favor of investing in government bonds.”
Easing Limits
The nation’s 7.8 percent bond due in May 2020 gained for a sixth day yesterday, the longest winning streak since March, after the government said Sept. 23 it will cut borrowing by 2 percent to 4.47 trillion rupees in the current fiscal year. The same day, the finance ministry doubled the quota for foreigners buying government bonds to $10 billion and raised the limit on corporate debt by 33 percent to $20 billion.
Overseas holdings of India’s corporate and government debt more than doubled in 2010 to a record $17.7 billion as of Sept. 24, according to data provided by the Securities and Exchange Board of India.
The 10-year note yield has slid 21 basis points, or 0.21 percentage point, to 7.86 percent from a four-month high of 8.07 percent on Aug. 25 as the price of the security rose. The yield may drop to 7.5 percent by the end of March, according to Balasubramanian and Ramit Bhasin, the Mumbai-based head of markets in India at Royal Bank of Scotland NV.
If those estimates prove accurate, investors would realize an annualized return of more than 12 percent for the period.
Yield Difference
India’s 10-year bond yield is the highest among major economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.62 percent in Russia, 3.32 percent in China and 2.54 percent in the U.S.
The difference in yields between India’s debt due in a decade and 10-year Treasuries was 5.33 percentage points. The measure, which has averaged 3.17 points in the past decade, reached a two-year high of 5.56 points on Aug. 26.
Mukherjee aims to narrow the budget deficit to 5.5 percent of gross domestic product in the year ending March 31, from a 16-year high of 6.9 percent in fiscal 2010. The federal government plans to sell 110 billion rupees of bonds on Oct. 1, part of a plan to raise 1.63 trillion rupees in the second half.
“The fiscal story is positive so far because tax collections have been better than it was last year, probably well in line with the target,” helping the government pare its borrowings, said Rajeev Radhakrishnan, a Mumbai-based money manager at SBI Funds Management Pvt. The firm is a unit of the nation’s biggest bank, with $4.9 billion assets in debt.
Taxes collected from companies are poised to rise 18 percent to 3 trillion rupees this year, budget estimates show.
Inflation, Rates
The benchmark yield is unlikely to drop below 7.75 percent by the end of March as inflation near 10 percent prompts the central bank to raise interest rates by a further 50 basis points, following a 125 basis-point increase in the repurchase rate since March 19, said Manoj Swain, chief executive officer of Morgan Stanley India Primary Dealer in Mumbai.
Inflation as measured by wholesale prices held above 10 percent for four months since March before slowing to 8.5 percent in August, according to commerce ministry data.
“Monetary aspects are negative,” Swain said in a telephone interview yesterday. “There’s hardly any room for a rally in a big way, though demand would also be better than earlier” after the government raised the limit for foreigners, Swain said.
Debt Returns
The fixed average coupon that India pays on its 20.324 trillion of government bonds outstanding with a weighted average maturity of 10 years is 7.85 percent, according to data compiled by Bloomberg. The rate was 7.89 percent in the year ended March 2010, according to the central bank’s annual report.
India’s government securities returned 3.6 percent this year, the second-worst among 10 local-currency debt markets outside Japan, according to indexes compiled by London-based HSBC Holdings Plc, Europe’s largest bank.
Asia’s third-biggest economy expanded 8.8 percent last quarter from a year earlier, the best since 2007 and the fastest pace among major economies excluding China. It is set for a 9.4 percent gain in 2010, outpacing 2.6 percent growth in advanced countries, the International Monetary Fund forecast in July.
India’s economic outlook led Moody’s Investors Service to raise the nation’s local-currency rating on July 26 by one level to Ba1, the highest non-investment grade, and affirm the nation’s foreign-currency debt rating of Baa3. Standard & Poor’s and Fitch Ratings rate India’s local-currency debt BBB-, the lowest investment grade.
License Fees
Accelerated investment inflows helped the rupee strengthen 4.6 percent against the dollar this month, the best performance among Asia’s 10-most traded currencies. The currency traded at 45.015 per dollar yesterday.
Phone companies, including Reliance Communications Ltd., Vodafone Group Plc’s Indian unit, and Bharti Airtel Ltd., paid the government 677.2 billion rupees this year for permits of mobile-phone licenses. Indian companies also spent 385.4 billion rupees to buy wireless-broadband Internet licenses in an auction held in June.
Policy makers want to raise 400 billion rupees by selling shares in state-owned companies in the year ending March 2011. The government plans to divest 10 percent in Indian Oil Corp., the nation’s second-biggest refiner, and 5 percent in Oil and Natural Gas Corp., its biggest explorer, Secretary S. Sundareshan, the top bureaucrat in the oil ministry, told reporters in New Delhi on Sept. 6.
The revenue, should the government meet its goals, “would be a huge positive on the fiscal side, which will open up the possibility of some more reduction in borrowing,” said SBI Funds Management’s Radhakrishnan.
The finance ministry received bids for 2.3 times the 40 billion rupees ($889 million) of 10-year debt on offer at a Sept. 24 sale, the most since May 28, central bank data show. The benchmark 2020 bond may hold its gains even after yields fell almost a quarter-percentage point in the past month as the government cuts borrowing for the first time in four years.
Bond investors are clamoring for India debt as governments in developed economies from the U.K. to Germany step up borrowing in response to faltering growth. Policy makers forecast Asia’s third-biggest economy will grow 8.5 percent, almost four times as much as advanced nations, as Finance Minister Pranab Mukherjee aims to raise 1.46 trillion rupees from sales of state-owned assets and mobile-phone licenses.
“We’ve had many pleasant surprises this year on the fiscal front,” A. Balasubramanian, who oversees the equivalent of $13.6 billion in debt as chief executive officer at Birla Sun Life Asset Management Co. in Mumbai, said in a Sept. 23 telephone interview. “The risk-reward is in favor of investing in government bonds.”
Easing Limits
The nation’s 7.8 percent bond due in May 2020 gained for a sixth day yesterday, the longest winning streak since March, after the government said Sept. 23 it will cut borrowing by 2 percent to 4.47 trillion rupees in the current fiscal year. The same day, the finance ministry doubled the quota for foreigners buying government bonds to $10 billion and raised the limit on corporate debt by 33 percent to $20 billion.
Overseas holdings of India’s corporate and government debt more than doubled in 2010 to a record $17.7 billion as of Sept. 24, according to data provided by the Securities and Exchange Board of India.
The 10-year note yield has slid 21 basis points, or 0.21 percentage point, to 7.86 percent from a four-month high of 8.07 percent on Aug. 25 as the price of the security rose. The yield may drop to 7.5 percent by the end of March, according to Balasubramanian and Ramit Bhasin, the Mumbai-based head of markets in India at Royal Bank of Scotland NV.
If those estimates prove accurate, investors would realize an annualized return of more than 12 percent for the period.
Yield Difference
India’s 10-year bond yield is the highest among major economies except Brazil, where similar-maturity notes pay 11.59 percent. Comparable securities offer 7.62 percent in Russia, 3.32 percent in China and 2.54 percent in the U.S.
The difference in yields between India’s debt due in a decade and 10-year Treasuries was 5.33 percentage points. The measure, which has averaged 3.17 points in the past decade, reached a two-year high of 5.56 points on Aug. 26.
Mukherjee aims to narrow the budget deficit to 5.5 percent of gross domestic product in the year ending March 31, from a 16-year high of 6.9 percent in fiscal 2010. The federal government plans to sell 110 billion rupees of bonds on Oct. 1, part of a plan to raise 1.63 trillion rupees in the second half.
“The fiscal story is positive so far because tax collections have been better than it was last year, probably well in line with the target,” helping the government pare its borrowings, said Rajeev Radhakrishnan, a Mumbai-based money manager at SBI Funds Management Pvt. The firm is a unit of the nation’s biggest bank, with $4.9 billion assets in debt.
Taxes collected from companies are poised to rise 18 percent to 3 trillion rupees this year, budget estimates show.
Inflation, Rates
The benchmark yield is unlikely to drop below 7.75 percent by the end of March as inflation near 10 percent prompts the central bank to raise interest rates by a further 50 basis points, following a 125 basis-point increase in the repurchase rate since March 19, said Manoj Swain, chief executive officer of Morgan Stanley India Primary Dealer in Mumbai.
Inflation as measured by wholesale prices held above 10 percent for four months since March before slowing to 8.5 percent in August, according to commerce ministry data.
“Monetary aspects are negative,” Swain said in a telephone interview yesterday. “There’s hardly any room for a rally in a big way, though demand would also be better than earlier” after the government raised the limit for foreigners, Swain said.
Debt Returns
The fixed average coupon that India pays on its 20.324 trillion of government bonds outstanding with a weighted average maturity of 10 years is 7.85 percent, according to data compiled by Bloomberg. The rate was 7.89 percent in the year ended March 2010, according to the central bank’s annual report.
India’s government securities returned 3.6 percent this year, the second-worst among 10 local-currency debt markets outside Japan, according to indexes compiled by London-based HSBC Holdings Plc, Europe’s largest bank.
Asia’s third-biggest economy expanded 8.8 percent last quarter from a year earlier, the best since 2007 and the fastest pace among major economies excluding China. It is set for a 9.4 percent gain in 2010, outpacing 2.6 percent growth in advanced countries, the International Monetary Fund forecast in July.
India’s economic outlook led Moody’s Investors Service to raise the nation’s local-currency rating on July 26 by one level to Ba1, the highest non-investment grade, and affirm the nation’s foreign-currency debt rating of Baa3. Standard & Poor’s and Fitch Ratings rate India’s local-currency debt BBB-, the lowest investment grade.
License Fees
Accelerated investment inflows helped the rupee strengthen 4.6 percent against the dollar this month, the best performance among Asia’s 10-most traded currencies. The currency traded at 45.015 per dollar yesterday.
Phone companies, including Reliance Communications Ltd., Vodafone Group Plc’s Indian unit, and Bharti Airtel Ltd., paid the government 677.2 billion rupees this year for permits of mobile-phone licenses. Indian companies also spent 385.4 billion rupees to buy wireless-broadband Internet licenses in an auction held in June.
Policy makers want to raise 400 billion rupees by selling shares in state-owned companies in the year ending March 2011. The government plans to divest 10 percent in Indian Oil Corp., the nation’s second-biggest refiner, and 5 percent in Oil and Natural Gas Corp., its biggest explorer, Secretary S. Sundareshan, the top bureaucrat in the oil ministry, told reporters in New Delhi on Sept. 6.
The revenue, should the government meet its goals, “would be a huge positive on the fiscal side, which will open up the possibility of some more reduction in borrowing,” said SBI Funds Management’s Radhakrishnan.
Sunday, September 26, 2010
Reliance Builds Indonesia Rail Lines to Move Coal to Ports, Standard Says
Reliance Power Ltd., is speeding up the construction of railway lines from coal mines to ports in Indonesia’s South Sumatra region, the Business Standard reported, citing an unidentified official at the Indian company.
Coal from the mines, which are owned by a Reliance subsidiary, is meant for the company’s proposed power plant in Krishnapatnam town, southern India.
Coal from the mines, which are owned by a Reliance subsidiary, is meant for the company’s proposed power plant in Krishnapatnam town, southern India.
India calls on lenders to cut rates for poor
New Delhi is moving to tighten regulation of India’s booming micro-finance industry amid public concern that local companies are charging poor borrowers with usurious rates of interest.
The finance ministry has requested state-owned commercial banks – which provide funding to an industry that lends tiny sums to the poor – to cap the rates the micro-finance companies can charge to end-users.
In a letter, the ministry suggests that poor borrowers should not be charged more than 24 per cent interest for a micro-loan.
Local micro-finance providers such as SKS, Basix and Spandana – which pay interest rates of 11-15 per cent for bank loans and other debt financing – charge rates of up to 30 per cent for loans extended to India’s version of “subprime” borrowers in rural areas and urban slums.
Alok Prasad, chief executive officer of India’s Micro-finance Institutions Network, which represents the country’s 44 biggest profit-oriented micro-finance companies, called the finance ministry directive “a bit ominous” for the industry, which has grown at a blistering pace by reaching out to those with no other access to the formal financial system. “A cap like this is very, very counter-productive,” Mr Prasad said. “We may end up creating a situation where access to formal funding to the poor gets diminished.”
Traditionally, impoverished Indians have relied on unscrupulous local money-lenders, who charge rates of up to 36 per cent a year and are notorious for brutal tactics against defaulters.
In recent years modern micro-finance specialists are credited with providing a better deal for the poor. These companies have seen their loan portfolio grow by 60-70 per cent a year for the last five years, with the biggest companies expanding even faster.
The industry now has about 30m borrowers, with an outstanding loan portfolio estimated at roughly $6.5bn. The average loan size is $250.
However, the recent $350m IPO by Hyderabad-based SKS, India’s biggest micro-finance company, has put a spotlight on the fortunes being made in the sector and has led to the public backlash.
Mr Prasad said the proposed interest rate cap would be difficult to implement and would hurt smaller micro-finance players.
If New Delhi was really concerned with reducing borrowing costs for the poor, he said, it should urge commercial banks to drop lending rates to micro-finance institutions.
The finance ministry has requested state-owned commercial banks – which provide funding to an industry that lends tiny sums to the poor – to cap the rates the micro-finance companies can charge to end-users.
In a letter, the ministry suggests that poor borrowers should not be charged more than 24 per cent interest for a micro-loan.
Local micro-finance providers such as SKS, Basix and Spandana – which pay interest rates of 11-15 per cent for bank loans and other debt financing – charge rates of up to 30 per cent for loans extended to India’s version of “subprime” borrowers in rural areas and urban slums.
Alok Prasad, chief executive officer of India’s Micro-finance Institutions Network, which represents the country’s 44 biggest profit-oriented micro-finance companies, called the finance ministry directive “a bit ominous” for the industry, which has grown at a blistering pace by reaching out to those with no other access to the formal financial system. “A cap like this is very, very counter-productive,” Mr Prasad said. “We may end up creating a situation where access to formal funding to the poor gets diminished.”
Traditionally, impoverished Indians have relied on unscrupulous local money-lenders, who charge rates of up to 36 per cent a year and are notorious for brutal tactics against defaulters.
In recent years modern micro-finance specialists are credited with providing a better deal for the poor. These companies have seen their loan portfolio grow by 60-70 per cent a year for the last five years, with the biggest companies expanding even faster.
The industry now has about 30m borrowers, with an outstanding loan portfolio estimated at roughly $6.5bn. The average loan size is $250.
However, the recent $350m IPO by Hyderabad-based SKS, India’s biggest micro-finance company, has put a spotlight on the fortunes being made in the sector and has led to the public backlash.
Mr Prasad said the proposed interest rate cap would be difficult to implement and would hurt smaller micro-finance players.
If New Delhi was really concerned with reducing borrowing costs for the poor, he said, it should urge commercial banks to drop lending rates to micro-finance institutions.
Bills Yielding 26 Times Treasuries Beat Stocks, Bonds, Gold: India Credit
India’s money market rates at a two-year high are making the shortest-term debt investments more popular than stocks, bonds and gold amid a cash crunch at banks.
The yield on one-year treasury bills rose to 6.55 percent on Sept. 24, about the highest level since December 2008 and 26 times the rate on similar-maturity U.S. Treasuries, data compiled by Bloomberg show. Short-term debt funds took in 532 billion rupees ($11.8 billion) in the first eight months of the year, or 75 percent of the amount asset managers raised, according to the Association of Mutual Funds in India.
India’s bills pay the most in Asia except Vietnam as central bank Governor Duvvuri Subbarao cuts money-supply growth to the slowest rate since 2005 to fight inflation. While policy makers in the U.S. and Japan are injecting cash into economies where rates are already near zero, the Reserve Bank of India has raised borrowing costs five times this year, more than any other monetary authority in the region.
“Short-term debt yields look quite attractive,” Navneet Munot, who oversees $8.5 billion as chief investment officer at Mumbai-based SBI Funds Management Pvt., a unit of the nation’s largest lender, said in a Sept. 23 phone interview. “Yields are now at a peak because the worst of inflation is behind us.”
Bills Versus Bonds
Rates on one-year government debt in India have jumped 1.97 percentage points this year, heading for a record annual surge and dwarfing the 28 basis-point increase in the yield on 10-year debt to 7.87 percent, data compiled by Bloomberg show. The difference, or yield curve, narrowed to 1.32 percentage points from a record 3.44 percentage points in December 2009.
India’s treasury bills returned an annualized 3.6 percent since Dec. 31, beating the 3.2 percent for bonds, Bloomberg calculations based on indexes compiled by the National Stock Exchange of India Ltd. and Bank of America Merrill Lynch show. Gains in the benchmark Sensitive Index of the nation’s shares slowed to 15 percent this year from 74 percent in the year- earlier period. Gold has advanced 18 percent in 2010.
Indians added 254 billion rupees to bond funds and pulled out 76 billion rupees from equities in the eight months through August, according to data from the Association of Mutual Funds.
The government and banks are paying higher rates for short- term borrowing because the central bank is restricting funds as demand for credit increases. Bank notes, or certificates of deposit, due in a year offer 8.07 percent, exceeding 10-year bond yields across Asia excluding Pakistan. Comparable company debt has a rate of 8.43 percent, Bloomberg data show.
Money Supply, Rates
Annual growth in bank lending accelerated to 20 percent in August from a 12-year low of 9.5 percent in October 2009, according to central bank data.
Yearly expansion in money supply slowed to 15 percent this month from 20 percent a year earlier as Subbarao raised the benchmark reverse repurchase rate by 1.75 percentage points this year to 5 percent, Reserve Bank data show. The measure is set for the biggest annual increase since it was introduced in 2000.
The central bank will boost rates at least 50 basis points more in the year ending March 31, ING Investment Management Pvt., an Indian venture of the biggest Dutch financial-services company, forecasts.
Rising borrowing costs have helped lower the nation’s inflation rate, measured by wholesale prices, to 8.5 percent in August from a 20-month high of 11 percent in April. The central bank estimates the pace of price gains, still the fastest in Asia except Pakistan, will slow to 6 percent by March.
ING Forecast
“We’ll see more inflows into short-term debt funds as the RBI continues to keep liquidity tight,” K. Ramanathan, who helps manage the equivalent of $316 million in Mumbai at ING Investment, said in an interview on Sept. 18. “As the central bank raises interest rates, money-market rates will climb.”
The difference between India’s one- and 10-year bond yields will shrink to 1 percentage point as the shorter-term rate increases faster, he said, without specifying a time frame.
India’s reverse repo rate of 5 percent is the highest in Asia excluding Indonesia and compares with benchmark rates of zero to 0.25 percent in the U.S., 7.75 percent in Russia and 10.75 percent in Brazil. Asia’s third-biggest economy grew 8.8 percent last quarter from a year earlier, the most since 2007.
The Reserve Bank’s decision on whether to raise rates further will depend on the pace of price increases as borrowing costs are near their “neutral” level, Governor Subbarao said on Sept. 20 in the southern city of Hyderabad.
Cash at Banks
Cash at India’s banks declined in the year that began April as the government pursued a $99 billion borrowing program and companies paid $23 billion in license fees for wireless-phone services. The rate at which banks lend to one another overnight rose to as high as 6.4 percent on Sept. 22 from 3.3 percent at the start of the year, data compiled by Bloomberg show.
Investors may benefit from the surge in money-market rates by agreeing to receive fixed one-year rates in exchange for variable payments in a so-called interest-rate swap, according to Credit Agricole Corporate and Investment Bank, a unit of France’s second-biggest bank. The one-year swap rate, which has gained 1.38 percentage points this year, was at 6.45 percent on Sept. 24, according to data compiled by Bloomberg.
“We believe that the market is overestimating the hawkish bias of the Reserve Bank and underestimating the potential for improvement in liquidity in the second half of 2011,” Darius Kowalczyk and Frances Cheung, Hong Kong-based strategists at Credit Agricole CIB, wrote in a research note on Sept. 22.
Relative Yields
India’s 10-year bond yield is the highest among major economies except Brazil, where similar-maturity notes pay 11.96 percent. Comparable securities offer 7.62 percent in Russia and 3.23 percent in China and 2.57 percent in the U.S., according to data compiled by Bloomberg.
The difference in yields between India’s debt due in a decade and 10-year Treasuries was 5.26 percentage points on Sept. 24, little changed from a week earlier. The measure, which has averaged 3.18 points in the past decade, reached a two-year high of 5.56 points on Aug. 26.
One-year bills now yield 6.26 percentage points more than the three-month dollar London interbank offered rate, a measure of funding costs for global investors that is currently 0.29 percent, Bloomberg data show. The spread is about the widest since September 2008.
Foreign holdings of India’s corporate and government debt more than doubled in 2010 to a record $17.4 billion on Sept. 23 as yields climbed. Accelerated investment inflows helped the rupee strengthen 4 percent against the dollar this month, the best performance among Asia’s 10-most traded currencies.
“The strong capital inflows will help ease the cash crunch in the coming months,” SBI Funds’ Munot said. “That will boost short-term debt prices, and investors who already own them will gain.”
Indian banks’ loans rose 315 billion rupees in the two weeks ended Sept. 10, raising outstanding advances to 33.8 trillion rupees, central bank data showed Sept. 24. Loans to industry and consumers rose 277 billion rupees during the period, while food credit rose 38.3 billion rupees. Credit rose 19.8 percent, or by 5.58 trillion rupees, in the 12 months through Sept. 10.
The yield on one-year treasury bills rose to 6.55 percent on Sept. 24, about the highest level since December 2008 and 26 times the rate on similar-maturity U.S. Treasuries, data compiled by Bloomberg show. Short-term debt funds took in 532 billion rupees ($11.8 billion) in the first eight months of the year, or 75 percent of the amount asset managers raised, according to the Association of Mutual Funds in India.
India’s bills pay the most in Asia except Vietnam as central bank Governor Duvvuri Subbarao cuts money-supply growth to the slowest rate since 2005 to fight inflation. While policy makers in the U.S. and Japan are injecting cash into economies where rates are already near zero, the Reserve Bank of India has raised borrowing costs five times this year, more than any other monetary authority in the region.
“Short-term debt yields look quite attractive,” Navneet Munot, who oversees $8.5 billion as chief investment officer at Mumbai-based SBI Funds Management Pvt., a unit of the nation’s largest lender, said in a Sept. 23 phone interview. “Yields are now at a peak because the worst of inflation is behind us.”
Bills Versus Bonds
Rates on one-year government debt in India have jumped 1.97 percentage points this year, heading for a record annual surge and dwarfing the 28 basis-point increase in the yield on 10-year debt to 7.87 percent, data compiled by Bloomberg show. The difference, or yield curve, narrowed to 1.32 percentage points from a record 3.44 percentage points in December 2009.
India’s treasury bills returned an annualized 3.6 percent since Dec. 31, beating the 3.2 percent for bonds, Bloomberg calculations based on indexes compiled by the National Stock Exchange of India Ltd. and Bank of America Merrill Lynch show. Gains in the benchmark Sensitive Index of the nation’s shares slowed to 15 percent this year from 74 percent in the year- earlier period. Gold has advanced 18 percent in 2010.
Indians added 254 billion rupees to bond funds and pulled out 76 billion rupees from equities in the eight months through August, according to data from the Association of Mutual Funds.
The government and banks are paying higher rates for short- term borrowing because the central bank is restricting funds as demand for credit increases. Bank notes, or certificates of deposit, due in a year offer 8.07 percent, exceeding 10-year bond yields across Asia excluding Pakistan. Comparable company debt has a rate of 8.43 percent, Bloomberg data show.
Money Supply, Rates
Annual growth in bank lending accelerated to 20 percent in August from a 12-year low of 9.5 percent in October 2009, according to central bank data.
Yearly expansion in money supply slowed to 15 percent this month from 20 percent a year earlier as Subbarao raised the benchmark reverse repurchase rate by 1.75 percentage points this year to 5 percent, Reserve Bank data show. The measure is set for the biggest annual increase since it was introduced in 2000.
The central bank will boost rates at least 50 basis points more in the year ending March 31, ING Investment Management Pvt., an Indian venture of the biggest Dutch financial-services company, forecasts.
Rising borrowing costs have helped lower the nation’s inflation rate, measured by wholesale prices, to 8.5 percent in August from a 20-month high of 11 percent in April. The central bank estimates the pace of price gains, still the fastest in Asia except Pakistan, will slow to 6 percent by March.
ING Forecast
“We’ll see more inflows into short-term debt funds as the RBI continues to keep liquidity tight,” K. Ramanathan, who helps manage the equivalent of $316 million in Mumbai at ING Investment, said in an interview on Sept. 18. “As the central bank raises interest rates, money-market rates will climb.”
The difference between India’s one- and 10-year bond yields will shrink to 1 percentage point as the shorter-term rate increases faster, he said, without specifying a time frame.
India’s reverse repo rate of 5 percent is the highest in Asia excluding Indonesia and compares with benchmark rates of zero to 0.25 percent in the U.S., 7.75 percent in Russia and 10.75 percent in Brazil. Asia’s third-biggest economy grew 8.8 percent last quarter from a year earlier, the most since 2007.
The Reserve Bank’s decision on whether to raise rates further will depend on the pace of price increases as borrowing costs are near their “neutral” level, Governor Subbarao said on Sept. 20 in the southern city of Hyderabad.
Cash at Banks
Cash at India’s banks declined in the year that began April as the government pursued a $99 billion borrowing program and companies paid $23 billion in license fees for wireless-phone services. The rate at which banks lend to one another overnight rose to as high as 6.4 percent on Sept. 22 from 3.3 percent at the start of the year, data compiled by Bloomberg show.
Investors may benefit from the surge in money-market rates by agreeing to receive fixed one-year rates in exchange for variable payments in a so-called interest-rate swap, according to Credit Agricole Corporate and Investment Bank, a unit of France’s second-biggest bank. The one-year swap rate, which has gained 1.38 percentage points this year, was at 6.45 percent on Sept. 24, according to data compiled by Bloomberg.
“We believe that the market is overestimating the hawkish bias of the Reserve Bank and underestimating the potential for improvement in liquidity in the second half of 2011,” Darius Kowalczyk and Frances Cheung, Hong Kong-based strategists at Credit Agricole CIB, wrote in a research note on Sept. 22.
Relative Yields
India’s 10-year bond yield is the highest among major economies except Brazil, where similar-maturity notes pay 11.96 percent. Comparable securities offer 7.62 percent in Russia and 3.23 percent in China and 2.57 percent in the U.S., according to data compiled by Bloomberg.
The difference in yields between India’s debt due in a decade and 10-year Treasuries was 5.26 percentage points on Sept. 24, little changed from a week earlier. The measure, which has averaged 3.18 points in the past decade, reached a two-year high of 5.56 points on Aug. 26.
One-year bills now yield 6.26 percentage points more than the three-month dollar London interbank offered rate, a measure of funding costs for global investors that is currently 0.29 percent, Bloomberg data show. The spread is about the widest since September 2008.
Foreign holdings of India’s corporate and government debt more than doubled in 2010 to a record $17.4 billion on Sept. 23 as yields climbed. Accelerated investment inflows helped the rupee strengthen 4 percent against the dollar this month, the best performance among Asia’s 10-most traded currencies.
“The strong capital inflows will help ease the cash crunch in the coming months,” SBI Funds’ Munot said. “That will boost short-term debt prices, and investors who already own them will gain.”
Indian banks’ loans rose 315 billion rupees in the two weeks ended Sept. 10, raising outstanding advances to 33.8 trillion rupees, central bank data showed Sept. 24. Loans to industry and consumers rose 277 billion rupees during the period, while food credit rose 38.3 billion rupees. Credit rose 19.8 percent, or by 5.58 trillion rupees, in the 12 months through Sept. 10.
Anger as a Private Company Takes Over Libraries
SANTA CLARITA, Calif. — A private company in Maryland has taken over public libraries in ailing cities in California, Oregon, Tennessee and Texas, growing into the country’s fifth-largest library system.
The basic pitch that the company Library Systems & Services makes to cities is that it fixes broken libraries — often by cleaning house.
Readers' Comments
Now the company, Library Systems & Services, has been hired for the first time to run a system in a relatively healthy city, setting off an intense and often acrimonious debate about the role of outsourcing in a ravaged economy.
A $4 million deal to run the three libraries here is a chance for the company to demonstrate that a dose of private management can be good for communities, whatever their financial situation. But in an era when outsourcing is most often an act of budget desperation — with janitors, police forces and even entire city halls farmed out in one town or another — the contract in Santa Clarita has touched a deep nerve and begun a round of second-guessing.
Can a municipal service like a library hold so central a place that it should be entrusted to a profit-driven contractor only as a last resort — and maybe not even then?
“There’s this American flag, apple pie thing about libraries,” said Frank A. Pezzanite, the outsourcing company’s chief executive. He has pledged to save $1 million a year in Santa Clarita, mainly by cutting overhead and replacing unionized employees. “Somehow they have been put in the category of a sacred organization.”
The company, known as L.S.S.I., runs 14 library systems operating 63 locations. Its basic pitch to cities is that it fixes broken libraries — more often than not by cleaning house.
“A lot of libraries are atrocious,” Mr. Pezzanite said. “Their policies are all about job security. That’s why the profession is nervous about us. You can go to a library for 35 years and never have to do anything and then have your retirement. We’re not running our company that way. You come to us, you’re going to have to work.”
The members of the Santa Clarita City Council who voted to hire L.S.S.I. acknowledge there was no immediate threat to the libraries. The council members say they want to ensure the libraries’ long-term survival in a state with increasingly shaky finances.
Until now, the three branch locations have been part of the Los Angeles County library system. Under the new contract, the branches will be withdrawn from county control and all operations — including hiring staff and buying books — ceded to L.S.S.I.
“The libraries are still going to be public libraries,” said the mayor pro tem, Marsha McLean. “When people say we’re privatizing libraries, that is just not a true statement, period.”
Library employees are furious about the contract. But the reaction has been mostly led by patrons who say they cannot imagine Santa Clarita with libraries run for profit.
“A library is the heart of the community,” said one opponent, Jane Hanson. “I’m in favor of private enterprise, but I can’t feel comfortable with what the city is doing here.”
Mrs. Hanson and her husband, Tom, go to their local branch every week or two to pick up tapes for the car and books to read after dinner. Mrs. Hanson recently checked out Willa Cather’s classic “Death Comes for the Archbishop,” although she was only mildly in favor of its episodic style; she has higher hopes for her current choice, on the shadowy world of North Korea.
The suggestion that a library is different — and somehow off limits to the outsourcing fever — has been echoed wherever L.S.S.I. has gone. The head of the county library system, Margaret Donnellan Todd, says L.S.S.I. is viewed as an unwelcome outsider.
“There is no local connection,” she said. “People are receiving superb service in Santa Clarita. I challenge that L.S.S.I. will be able to do much better.”
As a recent afternoon shaded into evening, there were more than a hundred patrons at the main Santa Clarita library. Students were doing their homework. Old men paged through newspapers. Children gathered up arm’s loads of picture books. It was a portrait of civic harmony and engagement.
The basic pitch that the company Library Systems & Services makes to cities is that it fixes broken libraries — often by cleaning house.
Readers' Comments
Now the company, Library Systems & Services, has been hired for the first time to run a system in a relatively healthy city, setting off an intense and often acrimonious debate about the role of outsourcing in a ravaged economy.
A $4 million deal to run the three libraries here is a chance for the company to demonstrate that a dose of private management can be good for communities, whatever their financial situation. But in an era when outsourcing is most often an act of budget desperation — with janitors, police forces and even entire city halls farmed out in one town or another — the contract in Santa Clarita has touched a deep nerve and begun a round of second-guessing.
Can a municipal service like a library hold so central a place that it should be entrusted to a profit-driven contractor only as a last resort — and maybe not even then?
“There’s this American flag, apple pie thing about libraries,” said Frank A. Pezzanite, the outsourcing company’s chief executive. He has pledged to save $1 million a year in Santa Clarita, mainly by cutting overhead and replacing unionized employees. “Somehow they have been put in the category of a sacred organization.”
The company, known as L.S.S.I., runs 14 library systems operating 63 locations. Its basic pitch to cities is that it fixes broken libraries — more often than not by cleaning house.
“A lot of libraries are atrocious,” Mr. Pezzanite said. “Their policies are all about job security. That’s why the profession is nervous about us. You can go to a library for 35 years and never have to do anything and then have your retirement. We’re not running our company that way. You come to us, you’re going to have to work.”
The members of the Santa Clarita City Council who voted to hire L.S.S.I. acknowledge there was no immediate threat to the libraries. The council members say they want to ensure the libraries’ long-term survival in a state with increasingly shaky finances.
Until now, the three branch locations have been part of the Los Angeles County library system. Under the new contract, the branches will be withdrawn from county control and all operations — including hiring staff and buying books — ceded to L.S.S.I.
“The libraries are still going to be public libraries,” said the mayor pro tem, Marsha McLean. “When people say we’re privatizing libraries, that is just not a true statement, period.”
Library employees are furious about the contract. But the reaction has been mostly led by patrons who say they cannot imagine Santa Clarita with libraries run for profit.
“A library is the heart of the community,” said one opponent, Jane Hanson. “I’m in favor of private enterprise, but I can’t feel comfortable with what the city is doing here.”
Mrs. Hanson and her husband, Tom, go to their local branch every week or two to pick up tapes for the car and books to read after dinner. Mrs. Hanson recently checked out Willa Cather’s classic “Death Comes for the Archbishop,” although she was only mildly in favor of its episodic style; she has higher hopes for her current choice, on the shadowy world of North Korea.
The suggestion that a library is different — and somehow off limits to the outsourcing fever — has been echoed wherever L.S.S.I. has gone. The head of the county library system, Margaret Donnellan Todd, says L.S.S.I. is viewed as an unwelcome outsider.
“There is no local connection,” she said. “People are receiving superb service in Santa Clarita. I challenge that L.S.S.I. will be able to do much better.”
As a recent afternoon shaded into evening, there were more than a hundred patrons at the main Santa Clarita library. Students were doing their homework. Old men paged through newspapers. Children gathered up arm’s loads of picture books. It was a portrait of civic harmony and engagement.
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