GAZIPUR, Bangladesh — The eight-lane highway leading from the Bangladeshi capital, Dhaka, narrows repeatedly as it approaches this town about 30 miles north, eventually depositing cars onto a muddy, potholed lane bordered by mangroves and small shops.
But this is no mere rural backwater. It is the sort of place to which foreign manufacturers may increasingly turn, if the rising wage demands of factory workers in China prompt companies to seek new pools of cheap labor elsewhere.
Already, in factories behind steel gates and tall concrete walls, tens of thousands of workers, most of them women, spend their days stitching T-shirts, pants and sweaters for Wal-Mart, H&M, Zara and other Western retailers and brands.
One of the Bangladeshi companies here, the DBL Group, employs 9,000 people making T-shirts and other knitwear. Business has been so good that the company is finishing a new 10-story building with open floors the size of soccer fields, planted with row after row of sewing machines.
“Our family needed the money, so we came here,” said Maasuda Akthar, a 21-year-old sewing machine operator for DBL.
As costs have risen in China, long the world’s shop floor, it is slowly losing work to countries like Bangladesh, Vietnam and Cambodia — at least for cheaper, labor-intensive goods like casual clothes, toys and simple electronics that do not necessarily require literate workers and can tolerate unreliable transportation systems and electrical grids.
Li & Fung, a Hong Kong company that handles sourcing and apparel manufacturing for companies like Wal-Mart and Liz Claiborne, reported that its production in Bangladesh jumped 20 percent last year, while China, its biggest supplier, slid 5 percent.
“Bangladesh is getting very competitive,” William Fung, Li & Fung’s group managing director, told analysts in March.
The flow of jobs to poorer countries like Bangladesh started even before recent labor unrest in China led to big pay raises for many factory workers there — and before changes in Beijing’s currency policy that could also raise the costs of Chinese exports. Now, though, economists expect the migration of China’s low-paying jobs to accelerate.
And while workers in Bangladesh and other developing countries are demanding higher pay, too — leading to a clash between police and protesters earlier this week in a garment hub outside Dhaka — they still earn much less than Chinese factory workers.
Bangladesh, for instance, has the lowest garment wages in the world, according to labor rights advocates. Ms. Akthar, who is relatively well paid by local standards, earns about $64 a month. That compares to minimum wages in China’s coastal industrial provinces ranging from $117 to $147 a month.
“The Chinese firms that are beginning to get into trouble are producing textiles, rubber footwear and things like that,” said Barry Eichengreen, a professor of economics and political science at the University of California. “And there are lots of countries in South Asia and East Asia and in Central America that would like to fill this space.”
But Bangladesh has its own challenges to overcome.
China’s combination of a vast population of migrant workers, many with at least elementary school educations, along with modern roads, railways and power grids in its industrial provinces, has bestowed it with manufacturing capabilities that countries like Bangladesh cannot offer. Beijing also provides low-cost loans and other incentives to its industries that other countries have trouble matching for theirs.
Most of Bangladesh, meanwhile, suffers blackouts six to seven hours a day because it has not invested enough in power plants and natural gas fields — deficiencies that the government is working on but that will not be eliminated quickly.
The country has a literacy rate of only 55 percent — compared with more than 92 percent in China. As a result, workers in this country are only one-fourth as productive as the Chinese in making shirts, jackets and other woven clothes, according to a report by the Center for Policy Dialogue, an independent research organization based in Dhaka.
Despite its handicaps, Bangladesh nearly doubled garment exports from 2004 to 2009. And the industry now employs about three million people, more than any other industrial segment in this largely agrarian country of 160 million. From June through November last year, garment exports accounted for more than 80 percent of the country’s total exports of $7.1 billion.
Among developing countries, Bangladesh is the third-biggest exporter of clothing after mainland China, which exported $120 billion in 2008, and Turkey, a distant No. 2, according to the World Trade Organization.
And with nearly 70 million people of working age, Bangladesh could probably absorb many more of China’s 20 million garment industry jobs.
Still, some of the changes in China could prove to be mixed blessings for Bangladesh. If China allows its currency, the renminbi, to trade more freely, Bangladeshi exports would become more competitive.
But a stronger renminbi could also hurt Bangladesh by raising the price of machinery and fabric imported from China, its biggest supplier, said Ahmed Mushfiq Mobarak, an assistant professor of economics at the Yale School of Management. Over time, Bangladesh could buy more from other countries, like India, but those countries first would need to build up significant production capacity.
Friday, July 16, 2010
Gillard Calls Australian Election After Ending Mining Standoff
July 17 (Bloomberg) -- Australian Prime Minister Julia Gillard called a general election less than a month after she became the nation’s first female leader and settled a dispute with mining companies that propelled her to office.
Gillard, 48, called the ballot for Aug. 21, betting the ruling Labor Party’s record of delivering growth during the global financial crisis will help ensure re-election. Her ouster of former Prime Minister Kevin Rudd restored the party’s lead in opinion polls over Tony Abbott’s Liberal-National coalition.
“I want to keep the economy strong so people can enjoy the benefits of work,” Gillard told reporters in Canberra today. “We do not have to be afraid of the future, we can master big challenges like climate change together.”
The election will determine whether resources companies led by BHP Billiton Ltd. and Rio Tinto Ltd. pay higher taxes, a policy championed by Rudd and diluted by Gillard to win their support. Abbott, bidding to make Labor the first one-term government in 80 years, pledged not to adopt the tax, describing it as a punishment for the nation’s most profitable industry.
“It would defy recent history if the coalition were to defeat Labor: the last time we had a one-term government was during the Great Depression,” said Nick Economou, a political scientist at Monash University in Melbourne. “It’s going to be close. The government will probably just fall over the line.”
Voter surveys indicate a close race. Labor’s support fell three percentage points to 52 percent in a Nielsen poll published July 12, compared with when Gillard had just taken power. The coalition rose three points to 48 percent.
Gillard’s Compromise
Gillard on July 2 announced an agreement with resources companies on a reduced mining levy for a country that is the world’s biggest shipper of coal, iron ore and alumina. She scaled back the planned tax to 30 percent of coal and iron ore earnings from 40 percent on all resource profits.
The election will also be fought on climate-change policies and management of Australia’s A$1.2 trillion ($1 trillion) economy. Gillard said last week the economy is the foundation of her re-election campaign. She also reaffirmed the central bank’s annual inflation target of 2 percent to 3 percent. The Australian dollar is the third-best performer among the world’s 16-most traded currencies during the past decade, gaining about 50 percent against the dollar.
The economy expanded for a fifth straight quarter in the three months ended March 31 as government stimulus spending helped boost consumer demand amid the Group of 20’s most aggressive interest-rate increases. The Reserve Bank of Australia has increased the benchmark rate six times to 4.5 percent since early October from a half-century low of 3 percent.
China Demand
Central bank policy makers expect economic growth to almost double in the next two years as China’s demand for resources spurs a mining investment boom. China is Australia’s biggest trading partner, with two-way trade worth A$85.1 billion in 2009.
Gillard said the government will review plans for a carbon- trading system in 2012, and that the market should set the price for carbon. Labor also wants to generate 20 percent of the nation’s energy from renewable sources like wind, solar and geothermal projects by 2020.
Abbott, 52, opposes any form of carbon tax and proposes an A$1 billion emissions reduction fund to give companies incentives to cut pollutants 5 percent by 2020. The coalition plans to establish a 15,000-strong “green army” to repair and restore the environment.
Abbott in December became the coalition’s third leader since the 2007 election because of a party dispute over whether to support Rudd’s climate plans.
Immigration Policy
Immigration will also feature in the six-week election campaign after the number of asylum seekers arriving by boat jumped to 3,768 so far this year from 2,726 for 2009, immigration department figures show.
Gillard has vowed to open a regional center to process asylum seekers to curb the rising number of refugees from Southeast Asia arriving by sea. She came under fire for suggesting East Timor should house the refugee center before fully negotiating the plan with officials from that country. East Timor’s parliament on July 12 rejected having the facility there in a unanimous vote, the Australian Broadcasting Corp. said.
Rudd ended John Howard’s almost 12-year rule in November 2007. He withdrew Australian troops from Iraq, abolished the unpopular Work Choices labor laws, ratified the Kyoto treaty on climate change and offered the nation’s first apology to Aborigines taken from their families between 1910 and 1970 for assimilation with the white community.
Welsh Roots
Gillard, who emigrated from Wales when she was four after she contracted bronchial pneumonia, replaced Rudd after party factions and key labor unions switched their allegiance.
Abbott is a Rhodes Scholar who won two boxing Blues while studying at Oxford University. He was, under Howard, employment minister between 2001 and 2003 and then health minister until 2007.
He won the leadership of the Liberal Party in December last year, ousting Malcolm Turnbull, a former Goldman Sachs Group Inc. executive, when party lawmakers rejected Turnbull’s support for Rudd’s climate plan.
Labor has 83 lawmakers in the 150-member House of Representatives, compared with 63 Liberal-National coalition members, according to the parliament’s Web site. There are four independents.
Gillard, 48, called the ballot for Aug. 21, betting the ruling Labor Party’s record of delivering growth during the global financial crisis will help ensure re-election. Her ouster of former Prime Minister Kevin Rudd restored the party’s lead in opinion polls over Tony Abbott’s Liberal-National coalition.
“I want to keep the economy strong so people can enjoy the benefits of work,” Gillard told reporters in Canberra today. “We do not have to be afraid of the future, we can master big challenges like climate change together.”
The election will determine whether resources companies led by BHP Billiton Ltd. and Rio Tinto Ltd. pay higher taxes, a policy championed by Rudd and diluted by Gillard to win their support. Abbott, bidding to make Labor the first one-term government in 80 years, pledged not to adopt the tax, describing it as a punishment for the nation’s most profitable industry.
“It would defy recent history if the coalition were to defeat Labor: the last time we had a one-term government was during the Great Depression,” said Nick Economou, a political scientist at Monash University in Melbourne. “It’s going to be close. The government will probably just fall over the line.”
Voter surveys indicate a close race. Labor’s support fell three percentage points to 52 percent in a Nielsen poll published July 12, compared with when Gillard had just taken power. The coalition rose three points to 48 percent.
Gillard’s Compromise
Gillard on July 2 announced an agreement with resources companies on a reduced mining levy for a country that is the world’s biggest shipper of coal, iron ore and alumina. She scaled back the planned tax to 30 percent of coal and iron ore earnings from 40 percent on all resource profits.
The election will also be fought on climate-change policies and management of Australia’s A$1.2 trillion ($1 trillion) economy. Gillard said last week the economy is the foundation of her re-election campaign. She also reaffirmed the central bank’s annual inflation target of 2 percent to 3 percent. The Australian dollar is the third-best performer among the world’s 16-most traded currencies during the past decade, gaining about 50 percent against the dollar.
The economy expanded for a fifth straight quarter in the three months ended March 31 as government stimulus spending helped boost consumer demand amid the Group of 20’s most aggressive interest-rate increases. The Reserve Bank of Australia has increased the benchmark rate six times to 4.5 percent since early October from a half-century low of 3 percent.
China Demand
Central bank policy makers expect economic growth to almost double in the next two years as China’s demand for resources spurs a mining investment boom. China is Australia’s biggest trading partner, with two-way trade worth A$85.1 billion in 2009.
Gillard said the government will review plans for a carbon- trading system in 2012, and that the market should set the price for carbon. Labor also wants to generate 20 percent of the nation’s energy from renewable sources like wind, solar and geothermal projects by 2020.
Abbott, 52, opposes any form of carbon tax and proposes an A$1 billion emissions reduction fund to give companies incentives to cut pollutants 5 percent by 2020. The coalition plans to establish a 15,000-strong “green army” to repair and restore the environment.
Abbott in December became the coalition’s third leader since the 2007 election because of a party dispute over whether to support Rudd’s climate plans.
Immigration Policy
Immigration will also feature in the six-week election campaign after the number of asylum seekers arriving by boat jumped to 3,768 so far this year from 2,726 for 2009, immigration department figures show.
Gillard has vowed to open a regional center to process asylum seekers to curb the rising number of refugees from Southeast Asia arriving by sea. She came under fire for suggesting East Timor should house the refugee center before fully negotiating the plan with officials from that country. East Timor’s parliament on July 12 rejected having the facility there in a unanimous vote, the Australian Broadcasting Corp. said.
Rudd ended John Howard’s almost 12-year rule in November 2007. He withdrew Australian troops from Iraq, abolished the unpopular Work Choices labor laws, ratified the Kyoto treaty on climate change and offered the nation’s first apology to Aborigines taken from their families between 1910 and 1970 for assimilation with the white community.
Welsh Roots
Gillard, who emigrated from Wales when she was four after she contracted bronchial pneumonia, replaced Rudd after party factions and key labor unions switched their allegiance.
Abbott is a Rhodes Scholar who won two boxing Blues while studying at Oxford University. He was, under Howard, employment minister between 2001 and 2003 and then health minister until 2007.
He won the leadership of the Liberal Party in December last year, ousting Malcolm Turnbull, a former Goldman Sachs Group Inc. executive, when party lawmakers rejected Turnbull’s support for Rudd’s climate plan.
Labor has 83 lawmakers in the 150-member House of Representatives, compared with 63 Liberal-National coalition members, according to the parliament’s Web site. There are four independents.
Thursday, July 15, 2010
India struggles to contain Kashmiri rage
Jameela Akhtar, a Kashmiri housewife, sent her teenage son, Ishtiyaq, to a bakery in their middle-class Anantnag neighbourhood to buy bread. It proved to be a fatal errand.
A kilometre away, teenagers were hurling stones at police on the national highway, part of an upsurge of violent clashes pitting frustrated local youth against the might of Indian security forces across Kashmir.
It is unclear whether Ishtiyaq, 15, joined the agitation or was simply caught in the chaos. But police – chasing protesters through the narrow, twisting alleys of the residential colony – pursued him home, then shot him in his courtyard, where he died in front of his family. A friend and a bakery employee were also shot and killed on the spot.
As India and Pakistan’s foreign ministers resumed talks on Thursday about the disputed territory, Ishtiyaq’s devastated family and enraged neighbours were thinking only of justice. His older cousin, Asif Khandey, an engineer, asks: “How is it possible that they would have shot three people at point blank range? Is this justice? Is this India? Is this democracy?”
The anger in Anantnag reflects the broader rage erupting across Indian-controlled Kashmir – India’s only Muslim-majority province – where authorities have been struggling to control an outbreak of civil unrest led by stone-throwing youths calling for freedom from New Delhi’s rule.
Jammu and Kashmir mapFifteen civilians, including a woman and a nine-year-old child, have been killed since mid-June, with scores more injured, by paramilitaries and police. Each death fuels new protests and more casualties in a region fought over three times by New Delhi and Islamabad, which both claim the picturesque Himalayan valley as their own.
To break the latest cycle of violence, the region’s entire population was put under a six-day de facto house arrest last week as Indian authorities imposed a strict curfew. The region remains tense, with paramilitary contingents patrolling largely deserted roads and public squares and most shops and businesses shut down. Hundreds, including a leading local lawyer, have been arrested for waging war against the state.
While New Delhi blames Pakistan-based militants for inciting unrest, local people insist the protests, including small sit-ins in various Srinagar neighbourhoods on Thursday, are indigenous expressions of genuine anger and frustration.
“People want freedom from Indian occupation,” says Wasim Khan, a 26-year-old university student in Anantnag. “When they take up stones, they are showing how much hatred they have towards these cops. But it is a political problem and it should be solved politically.”
Since 1989 around 68,000 people have been killed in Kashmir in an armed Pakistan-backed separatist insurgency and New Delhi’s harsh military counter-measures. But militant violence has plummeted in recent years, as most Kashmiri fighters renounced armed struggle and Pakistan was pressed to curb cross-border infiltration of Islamist fighters.
Even as insurgency has waned, India’s security forces maintain an overbearing presence. Young, English-speaking graduates can’t find jobs. New Delhi, distracted by a Maoist insurgency in central and east India, has made no serious overtures towards the alienated, politicised population. India’s proposals to give Kashmir greater autonomy gather dust.
The 2008 election of Omar Abdullah – the now 40-year-old grandson of Kashmir’s most popular political leader – as Kashmir’s chief minister raised hopes for change as he promised to crack down on human rights abuses in a “zero tolerance” pledge echoed by Manmohan Singh, the prime minister.
Yet Mr Abdullah, remote and seemingly out of touch with the public mood, has struggled to deliver, as the armed forces have resisted efforts to dilute their legal immunity for rights abuses or excessive use of force in Kashmir.
In the absence of any credible political process, Kashmir remains volatile. Anger was stoked by the alleged killing of three villagers by soldiers, who are said to have falsely portrayed the victims as foreign militants to win promotions.
Tech-savvy Kashmiri youth have kept the mood charged with videos of police brutality and victims’ funerals on Facebook and YouTube.
But while the current unrest has put Kashmir back on New Delhi’s radar, Arif Parrey, a lawyer involved in back channel reconciliation efforts, remains pessimistic.
“Whenever there is dialogue, Kashmiris move two steps forward, and India doesn’t move at all,” he says. “They are afraid if they take some political steps, and offer something for a change, we will take that then demand more.”
A kilometre away, teenagers were hurling stones at police on the national highway, part of an upsurge of violent clashes pitting frustrated local youth against the might of Indian security forces across Kashmir.
It is unclear whether Ishtiyaq, 15, joined the agitation or was simply caught in the chaos. But police – chasing protesters through the narrow, twisting alleys of the residential colony – pursued him home, then shot him in his courtyard, where he died in front of his family. A friend and a bakery employee were also shot and killed on the spot.
As India and Pakistan’s foreign ministers resumed talks on Thursday about the disputed territory, Ishtiyaq’s devastated family and enraged neighbours were thinking only of justice. His older cousin, Asif Khandey, an engineer, asks: “How is it possible that they would have shot three people at point blank range? Is this justice? Is this India? Is this democracy?”
The anger in Anantnag reflects the broader rage erupting across Indian-controlled Kashmir – India’s only Muslim-majority province – where authorities have been struggling to control an outbreak of civil unrest led by stone-throwing youths calling for freedom from New Delhi’s rule.
Jammu and Kashmir mapFifteen civilians, including a woman and a nine-year-old child, have been killed since mid-June, with scores more injured, by paramilitaries and police. Each death fuels new protests and more casualties in a region fought over three times by New Delhi and Islamabad, which both claim the picturesque Himalayan valley as their own.
To break the latest cycle of violence, the region’s entire population was put under a six-day de facto house arrest last week as Indian authorities imposed a strict curfew. The region remains tense, with paramilitary contingents patrolling largely deserted roads and public squares and most shops and businesses shut down. Hundreds, including a leading local lawyer, have been arrested for waging war against the state.
While New Delhi blames Pakistan-based militants for inciting unrest, local people insist the protests, including small sit-ins in various Srinagar neighbourhoods on Thursday, are indigenous expressions of genuine anger and frustration.
“People want freedom from Indian occupation,” says Wasim Khan, a 26-year-old university student in Anantnag. “When they take up stones, they are showing how much hatred they have towards these cops. But it is a political problem and it should be solved politically.”
Since 1989 around 68,000 people have been killed in Kashmir in an armed Pakistan-backed separatist insurgency and New Delhi’s harsh military counter-measures. But militant violence has plummeted in recent years, as most Kashmiri fighters renounced armed struggle and Pakistan was pressed to curb cross-border infiltration of Islamist fighters.
Even as insurgency has waned, India’s security forces maintain an overbearing presence. Young, English-speaking graduates can’t find jobs. New Delhi, distracted by a Maoist insurgency in central and east India, has made no serious overtures towards the alienated, politicised population. India’s proposals to give Kashmir greater autonomy gather dust.
The 2008 election of Omar Abdullah – the now 40-year-old grandson of Kashmir’s most popular political leader – as Kashmir’s chief minister raised hopes for change as he promised to crack down on human rights abuses in a “zero tolerance” pledge echoed by Manmohan Singh, the prime minister.
Yet Mr Abdullah, remote and seemingly out of touch with the public mood, has struggled to deliver, as the armed forces have resisted efforts to dilute their legal immunity for rights abuses or excessive use of force in Kashmir.
In the absence of any credible political process, Kashmir remains volatile. Anger was stoked by the alleged killing of three villagers by soldiers, who are said to have falsely portrayed the victims as foreign militants to win promotions.
Tech-savvy Kashmiri youth have kept the mood charged with videos of police brutality and victims’ funerals on Facebook and YouTube.
But while the current unrest has put Kashmir back on New Delhi’s radar, Arif Parrey, a lawyer involved in back channel reconciliation efforts, remains pessimistic.
“Whenever there is dialogue, Kashmiris move two steps forward, and India doesn’t move at all,” he says. “They are afraid if they take some political steps, and offer something for a change, we will take that then demand more.”
Asian Stocks Fall for 2nd Day, Yen Strengthens on U.S. Output
July 16 (Bloomberg) -- Asian stocks fell for a second day, led by Japanese exporters, after the yen strengthened and U.S. manufacturing weakened and Google posted disappointing earnings.
The MSCI Asia Pacific Index lost 0.5 percent to 116.31 at 11:40 a.m. in Tokyo and Japan’s Nikkei 225 Stock Average tumbled 1.6 percent, the most in two weeks. The yen appreciated to as strong as 87.17 per dollar in Tokyo from 87.40 in New York yesterday, near the 2010 high of 86.97 reached on July 1. Standard & Poor’s 500 Index futures rose less than 0.1 percent.
Asian markets retreated after Federal Reserve reports on the Philadelphia and New York regions showed manufacturing growth slowed this month and as Google Inc. reported lower-than- estimated profit. Losses were limited as Goldman Sachs Group Inc. agreed to a $550 million settlement with the Securities and Exchange Commission, the Senate passed a financial-industry regulation overhaul measure and BP Plc said it stopped the flow of oil at its leaking well in the Gulf of Mexico.
“Investors are reacting to the negative data that point to some slowdown in economic activity,” said Chu Moon Sung, a fund manager at Shinhan BNP Paribas Asset Management Co. in Seoul, which manages $26 billion.
Almost three stocks retreated for each that gained among the MSCI index’s 985 companies. Nintendo Co. dropped 3.4 percent to five-week low after its U.S. sales fell by a third in June. Sony Corp. and Nissan Motor Co. also declined more than 2 percent as the yen headed for a 1.6 percent gain this week.
Goldman Settlement
Stocks fell in the U.S. yesterday before staging a rebound in the final hour of trading before the settlement between Goldman Sachs and the SEC was disclosed. In addition to the penalty, the largest ever levied by the regulator against a Wall Street firm, Goldman Sachs acknowledged it made a “mistake,” the agency said. The S&P 500 rose 0.1 percent.
Goldman Sachs surged 4.4 percent. That helped overshadow the 4 percent decline in Google after it reported profit excluding some items of $6.45 a share in the second quarter. Analysts had estimated $6.52 a share, according to a Bloomberg survey.
Agricultural Bank of China Ltd. shares climbed 2.8 percent to HK$3.29 on its first day of trading in Hong Kong. The stock fell 0.4 percent in Shanghai, paring yesterday’s gains that marked the smallest first-day advance among the nine lenders that have sold shares in the city. CapitaMalls Malaysia Trust, the nation’s second-biggest real estate investment trust that also debuted for the first time today, fell 2 percent.
Consumer Prices
New Zealand’s dollar strengthened 1.1 percent to 72.16 U.S. cents from 72.75 cents after Statistics New Zealand said consumer prices rose 0.3 percent in the first quarter. That’s smaller than the median estimate of a 0.4 percent gain in a Bloomberg survey of 15 economists, which may give central bank Governor Alan Bollard room to raise interest rates at a gradual pace.
The U.S. is scheduled to release its consumer price index today, which may show a 0.1 percent decrease compared with May, according to the median estimate of economists surveyed by Bloomberg. A separate report may also show U.S. household sentiment deteriorated this month.
“The market is becoming increasingly worried about downside risks to the U.S. economy,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.
The MSCI Asia Pacific Index lost 0.5 percent to 116.31 at 11:40 a.m. in Tokyo and Japan’s Nikkei 225 Stock Average tumbled 1.6 percent, the most in two weeks. The yen appreciated to as strong as 87.17 per dollar in Tokyo from 87.40 in New York yesterday, near the 2010 high of 86.97 reached on July 1. Standard & Poor’s 500 Index futures rose less than 0.1 percent.
Asian markets retreated after Federal Reserve reports on the Philadelphia and New York regions showed manufacturing growth slowed this month and as Google Inc. reported lower-than- estimated profit. Losses were limited as Goldman Sachs Group Inc. agreed to a $550 million settlement with the Securities and Exchange Commission, the Senate passed a financial-industry regulation overhaul measure and BP Plc said it stopped the flow of oil at its leaking well in the Gulf of Mexico.
“Investors are reacting to the negative data that point to some slowdown in economic activity,” said Chu Moon Sung, a fund manager at Shinhan BNP Paribas Asset Management Co. in Seoul, which manages $26 billion.
Almost three stocks retreated for each that gained among the MSCI index’s 985 companies. Nintendo Co. dropped 3.4 percent to five-week low after its U.S. sales fell by a third in June. Sony Corp. and Nissan Motor Co. also declined more than 2 percent as the yen headed for a 1.6 percent gain this week.
Goldman Settlement
Stocks fell in the U.S. yesterday before staging a rebound in the final hour of trading before the settlement between Goldman Sachs and the SEC was disclosed. In addition to the penalty, the largest ever levied by the regulator against a Wall Street firm, Goldman Sachs acknowledged it made a “mistake,” the agency said. The S&P 500 rose 0.1 percent.
Goldman Sachs surged 4.4 percent. That helped overshadow the 4 percent decline in Google after it reported profit excluding some items of $6.45 a share in the second quarter. Analysts had estimated $6.52 a share, according to a Bloomberg survey.
Agricultural Bank of China Ltd. shares climbed 2.8 percent to HK$3.29 on its first day of trading in Hong Kong. The stock fell 0.4 percent in Shanghai, paring yesterday’s gains that marked the smallest first-day advance among the nine lenders that have sold shares in the city. CapitaMalls Malaysia Trust, the nation’s second-biggest real estate investment trust that also debuted for the first time today, fell 2 percent.
Consumer Prices
New Zealand’s dollar strengthened 1.1 percent to 72.16 U.S. cents from 72.75 cents after Statistics New Zealand said consumer prices rose 0.3 percent in the first quarter. That’s smaller than the median estimate of a 0.4 percent gain in a Bloomberg survey of 15 economists, which may give central bank Governor Alan Bollard room to raise interest rates at a gradual pace.
The U.S. is scheduled to release its consumer price index today, which may show a 0.1 percent decrease compared with May, according to the median estimate of economists surveyed by Bloomberg. A separate report may also show U.S. household sentiment deteriorated this month.
“The market is becoming increasingly worried about downside risks to the U.S. economy,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.
S.E.C. Settling Its Complaints With Goldman
WASHINGTON — Goldman Sachs has agreed to pay $550 million to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse, officials said Thursday.
If approved by a federal judge in Manhattan, the settlement would rank among the largest in the 76-year history of the Securities and Exchange Commission, but it would represent only a small financial dent for Goldman, which reported $13.39 billion in profit last year.
News of the settlement sent Goldman’s shares 5 percent higher in after-hours trading, adding far more to the firm’s market value than the amount it will have to pay in the settlement.
Even so, the settlement is humbling for Goldman, whose elite reputation and lucrative banking business endured through the financial crisis, only to be battered by government investigations that shed light on potential conflicts of interest in its dealings.
“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert S. Khuzami, the commission’s director of enforcement.
The civil suit brought by the S.E.C. focused on a single mortgage security that Goldman created in 2007, just as cracks appeared in the housing market. That security, called Abacus 2007-AC1, enabled a prominent hedge fund manager, John A. Paulson, to place a bet against mortgage bonds.
The commission contended that Goldman misled investors, who were making a positive bet on housing, because Goldman did not disclose Mr. Paulson’s involvement in creating the deal. Mr. Paulson has not been accused of wrongdoing.
Though Goldman did not formally admit to the S.E.C.’s allegations, it agreed to a judicial order barring it from committing intentional fraud in the future under federal securities laws.
In addition, Goldman acknowledged that the marketing materials for Abacus “contained incomplete information” and that it was “a mistake” not to have disclosed Mr. Paulson’s role. As part of the agreement, the bank also said it “regrets that the marketing materials did not contain that disclosure.”
Goldman’s general counsel, Gregory K. Palm, signed the S.E.C. settlement on Wednesday, though it was not announced until after markets closed on Thursday. Officials said the timing was not affected by the Senate’s approval of an overhaul of financial regulations.
Word that Goldman had settled the case began leaking about 30 minutes before the markets closed and appeared to please investors; some analysts had expected a settlement by this Monday, when Goldman, which had been under pressure by shareholders to reach a settlement, was expected to deliver a formal response to the commission’s complaint.
“We believe that this settlement is the right outcome for our firm, our shareholders and our clients,” Goldman said in a written statement on Thursday.
When the commission filed its case in April, Goldman took a notably defensive stance. The bank had apparently been surprised that investigators did not warn its executives about the case and give them a chance to settle at that time.
Yet Goldman began holding settlement talks with the S.E.C. immediately after the complaint was filed. As the weeks and months dragged on, Goldman executives heard concerns from clients and former executives.
Goldman was bound to face another round of questions from analysts next week, when the bank is scheduled to report its earnings.
The settlement removes a significant problem looming over Goldman, but it could still face other legal problems.
Though Goldman said that it understood the S.E.C. was not planning to bring other cases, the commission continues to investigate collateralized debt obligations, like the Abacus security, issued by Goldman and other banks, and could still take action.
The Justice Department also had been reviewing the Abacus deal, and the S.E.C. could refer other findings to prosecutors.
Goldman faces private lawsuits related to multiple mortgage securities and to its decision not to tell its shareholders last year when it received formal notification that the S.E.C. was investigating the Abacus deal.
“Goldman played fast and loose in the Abacus deal, misled its clients, and got called on it today,” said Senator Carl M. Levin, a Michigan Democrat who led a separate Congressional investigation that examined the Abacus deal.
“A key factor in the settlement is that Goldman acknowledges wrongdoing, in addition to paying a fine and changing its practices,” Mr. Levin said in a written statement. “I hope the Goldman settlement together with the new financial reform law — which prohibits additional unethical practices and conflicts of interest — signal an end to the abusive practices that contributed to the 2008 financial crisis and the beginning of needed Wall Street reforms.”
The settlement announced on Thursday awaits approval by a federal judge, Barbara S. Jones, in the Southern District of New York. A year ago, the S.E.C. suffered a black eye when a different judge in that district rejected a settlement between the commission and Bank of America. The commission settled with the bank later on, after substantially increasing the fine.
Under the proposed settlement, Goldman would pay back the $15 million in profit it made from the Abacus deal and also pay a civil penalty of $535 million. The money would be given to the two banks that had losses on the deal — $150 million to IKB Deutsche Industriebank and $100 million to the Royal Bank of Scotland Group — with the rest, $300 million, going to the United States Treasury as a fine.
Goldman’s settlement requires it to make changes in how it reviews and approves offerings of certain mortgage securities.
Cornelius K. Hurley, director of the Morin Center for Banking and Financial Law at Boston University and a former Federal Reserve lawyer, said the dollar amount would not dent the public anger at the banks.
“You have to consider the symbolism of the S.E.C.’s case. When it was filed back in April, it completely changed the dynamic on Capitol Hill,” Mr. Hurley said. “Now comes the settlement and it’s $550 million. Well, two weeks ago we were talking about a $19 billion tax on the likes of Goldman. The public wanted to see either more financial pain or actually have a trial.”
Goldman was not the only Wall Street firm to create complex mortgage securities that allowed investors to make negative bets, and the commission continues to look at other deals from across the industry.
Fabrice P. Tourre, the Goldman vice president who was named in the S.E.C. case, was not included in the settlement.
Mr. Tourre took a leave from Goldman after the case was filed. When he appeared before a Senate committee in April, he said he should have pointed out Mr. Paulson’s involvement in Abacus in the deal’s marketing materials. The lawyer for Mr. Tourre did not return a phone call seeking comment on Thursday.
The Goldman settlement would be larger than the $400 million the mortgage giant Fannie Mae, accused of inflating its earnings while lavishing its executives with bonuses, agreed to pay in 2006, but smaller than the $750 million the telecommunications company WorldCom was ordered to pay in 2003 after an accounting scandal. Fannie Mae was seized by the government in 2008, and WorldCom, after emerging from bankruptcy, eventually became part of Verizon.
If approved by a federal judge in Manhattan, the settlement would rank among the largest in the 76-year history of the Securities and Exchange Commission, but it would represent only a small financial dent for Goldman, which reported $13.39 billion in profit last year.
News of the settlement sent Goldman’s shares 5 percent higher in after-hours trading, adding far more to the firm’s market value than the amount it will have to pay in the settlement.
Even so, the settlement is humbling for Goldman, whose elite reputation and lucrative banking business endured through the financial crisis, only to be battered by government investigations that shed light on potential conflicts of interest in its dealings.
“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert S. Khuzami, the commission’s director of enforcement.
The civil suit brought by the S.E.C. focused on a single mortgage security that Goldman created in 2007, just as cracks appeared in the housing market. That security, called Abacus 2007-AC1, enabled a prominent hedge fund manager, John A. Paulson, to place a bet against mortgage bonds.
The commission contended that Goldman misled investors, who were making a positive bet on housing, because Goldman did not disclose Mr. Paulson’s involvement in creating the deal. Mr. Paulson has not been accused of wrongdoing.
Though Goldman did not formally admit to the S.E.C.’s allegations, it agreed to a judicial order barring it from committing intentional fraud in the future under federal securities laws.
In addition, Goldman acknowledged that the marketing materials for Abacus “contained incomplete information” and that it was “a mistake” not to have disclosed Mr. Paulson’s role. As part of the agreement, the bank also said it “regrets that the marketing materials did not contain that disclosure.”
Goldman’s general counsel, Gregory K. Palm, signed the S.E.C. settlement on Wednesday, though it was not announced until after markets closed on Thursday. Officials said the timing was not affected by the Senate’s approval of an overhaul of financial regulations.
Word that Goldman had settled the case began leaking about 30 minutes before the markets closed and appeared to please investors; some analysts had expected a settlement by this Monday, when Goldman, which had been under pressure by shareholders to reach a settlement, was expected to deliver a formal response to the commission’s complaint.
“We believe that this settlement is the right outcome for our firm, our shareholders and our clients,” Goldman said in a written statement on Thursday.
When the commission filed its case in April, Goldman took a notably defensive stance. The bank had apparently been surprised that investigators did not warn its executives about the case and give them a chance to settle at that time.
Yet Goldman began holding settlement talks with the S.E.C. immediately after the complaint was filed. As the weeks and months dragged on, Goldman executives heard concerns from clients and former executives.
Goldman was bound to face another round of questions from analysts next week, when the bank is scheduled to report its earnings.
The settlement removes a significant problem looming over Goldman, but it could still face other legal problems.
Though Goldman said that it understood the S.E.C. was not planning to bring other cases, the commission continues to investigate collateralized debt obligations, like the Abacus security, issued by Goldman and other banks, and could still take action.
The Justice Department also had been reviewing the Abacus deal, and the S.E.C. could refer other findings to prosecutors.
Goldman faces private lawsuits related to multiple mortgage securities and to its decision not to tell its shareholders last year when it received formal notification that the S.E.C. was investigating the Abacus deal.
“Goldman played fast and loose in the Abacus deal, misled its clients, and got called on it today,” said Senator Carl M. Levin, a Michigan Democrat who led a separate Congressional investigation that examined the Abacus deal.
“A key factor in the settlement is that Goldman acknowledges wrongdoing, in addition to paying a fine and changing its practices,” Mr. Levin said in a written statement. “I hope the Goldman settlement together with the new financial reform law — which prohibits additional unethical practices and conflicts of interest — signal an end to the abusive practices that contributed to the 2008 financial crisis and the beginning of needed Wall Street reforms.”
The settlement announced on Thursday awaits approval by a federal judge, Barbara S. Jones, in the Southern District of New York. A year ago, the S.E.C. suffered a black eye when a different judge in that district rejected a settlement between the commission and Bank of America. The commission settled with the bank later on, after substantially increasing the fine.
Under the proposed settlement, Goldman would pay back the $15 million in profit it made from the Abacus deal and also pay a civil penalty of $535 million. The money would be given to the two banks that had losses on the deal — $150 million to IKB Deutsche Industriebank and $100 million to the Royal Bank of Scotland Group — with the rest, $300 million, going to the United States Treasury as a fine.
Goldman’s settlement requires it to make changes in how it reviews and approves offerings of certain mortgage securities.
Cornelius K. Hurley, director of the Morin Center for Banking and Financial Law at Boston University and a former Federal Reserve lawyer, said the dollar amount would not dent the public anger at the banks.
“You have to consider the symbolism of the S.E.C.’s case. When it was filed back in April, it completely changed the dynamic on Capitol Hill,” Mr. Hurley said. “Now comes the settlement and it’s $550 million. Well, two weeks ago we were talking about a $19 billion tax on the likes of Goldman. The public wanted to see either more financial pain or actually have a trial.”
Goldman was not the only Wall Street firm to create complex mortgage securities that allowed investors to make negative bets, and the commission continues to look at other deals from across the industry.
Fabrice P. Tourre, the Goldman vice president who was named in the S.E.C. case, was not included in the settlement.
Mr. Tourre took a leave from Goldman after the case was filed. When he appeared before a Senate committee in April, he said he should have pointed out Mr. Paulson’s involvement in Abacus in the deal’s marketing materials. The lawyer for Mr. Tourre did not return a phone call seeking comment on Thursday.
The Goldman settlement would be larger than the $400 million the mortgage giant Fannie Mae, accused of inflating its earnings while lavishing its executives with bonuses, agreed to pay in 2006, but smaller than the $750 million the telecommunications company WorldCom was ordered to pay in 2003 after an accounting scandal. Fannie Mae was seized by the government in 2008, and WorldCom, after emerging from bankruptcy, eventually became part of Verizon.
India and Pakistan reopen negotiations
India and Pakistan on Thursday reopened high-level cross-border political talks for the first time since the Mumbai terror attacks almost two years ago.
SM Krishna, India’s foreign minister, and Shah Mahmoud Qureshi, his Pakistani counterpart, met in Islamabad to repair the strained relationship between the two nuclear armed nations set on a knife edge by the ferocious attack on India’s financial capital by Islamist militants.
Mr Krishna, the most senior Indian official to visit Pakistan for two years, has insisted that Pakistan needs to make greater progress towards prosecuting those responsible for the terror attacks that led to a three day stand-off and killed 166 people. He was meeting senior Pakistan officials on Thursday night after which the two sides were expected to issue a joint statement.
Indian commentators view progress over Mumbai as an essential prerequisite to any breakthrough on wider issues, most importantly any discussion about Kashmir, the disputed Himalayan region which lies at the heart of hostilities between two countries that have fought three wars since the end of British rule in 1947.
Manmohan Singh, India’s prime minister, has made rebuilding trust with Pakistan, a central theme of his second term in office. But he is likely to meet strong opposition.
Mr Singh himself has expressed doubts about having a credible negotiating partner in Pakistan that can deliver a lasting peace between the south Asian countries.
“[Mr] Singh is far out in front of Indian politics,” said Maria Kuusisto, an analyst at the Eurasia Group, the political risk consultants. “His approach to Pakistan is deeply unpopular, even within his own party, among those who believe Islamabad has done little to tackle terrorism or even to bring the Mumbai perpetrators to justice.”
New Delhi wants to maintain its focus in the talks on efforts to combat terror, Pakistan is eager to broaden the dialogue. India has repeatedly called on Pakistan to crackdown on militant groups like Lashkar-e-Taiba, blamed for the Mumbai attacks and strikes on Indian targets in Afghanistan.
“Things are not going to move forward unless Pakistan gives something over Mumbai,” said, Pramit Pal Chaudhuri, the foreign editor of the Hindustan Times newspaper.
Pakistan, meanwhile, wants to address Kashmir.
The high-level meeting comes just days after India sent the army onto the streets of Kashmir to quell violent anti-government protests that left 15 people dead. India’s overwhelming security presence in Kashmir is deeply resented by locals. One senior Indian minister explained the upsurge in violence as Kashmiris registering their frustration over New Delhi’s complacency towards their grievances in spite of two years of relative calm in the region.
While General Pervez Musharraf was in power in Pakistan, the two neighbours came close to agreeing a resolution to Kashmir. The blueprint was shelved after his fall from office in 2008.
His former ministers say they remain confident that the plans can be revived. “What gives me confidence is that the documents are still sitting in Delhi and Islamabad,” said one.
Since then, Pakistan has faced a widespread militant onslaught by Pakistani Taliban focused on its border with Afghanistan and Punjab, its most populous province. On Thursday, a suicide bomber struck in Mingora in Pakistan’s Swat Valley, killing six people. Mingora had been considered stable after an army campaign last year pushed Taliban fighters from the area.
SM Krishna, India’s foreign minister, and Shah Mahmoud Qureshi, his Pakistani counterpart, met in Islamabad to repair the strained relationship between the two nuclear armed nations set on a knife edge by the ferocious attack on India’s financial capital by Islamist militants.
Mr Krishna, the most senior Indian official to visit Pakistan for two years, has insisted that Pakistan needs to make greater progress towards prosecuting those responsible for the terror attacks that led to a three day stand-off and killed 166 people. He was meeting senior Pakistan officials on Thursday night after which the two sides were expected to issue a joint statement.
Indian commentators view progress over Mumbai as an essential prerequisite to any breakthrough on wider issues, most importantly any discussion about Kashmir, the disputed Himalayan region which lies at the heart of hostilities between two countries that have fought three wars since the end of British rule in 1947.
Manmohan Singh, India’s prime minister, has made rebuilding trust with Pakistan, a central theme of his second term in office. But he is likely to meet strong opposition.
Mr Singh himself has expressed doubts about having a credible negotiating partner in Pakistan that can deliver a lasting peace between the south Asian countries.
“[Mr] Singh is far out in front of Indian politics,” said Maria Kuusisto, an analyst at the Eurasia Group, the political risk consultants. “His approach to Pakistan is deeply unpopular, even within his own party, among those who believe Islamabad has done little to tackle terrorism or even to bring the Mumbai perpetrators to justice.”
New Delhi wants to maintain its focus in the talks on efforts to combat terror, Pakistan is eager to broaden the dialogue. India has repeatedly called on Pakistan to crackdown on militant groups like Lashkar-e-Taiba, blamed for the Mumbai attacks and strikes on Indian targets in Afghanistan.
“Things are not going to move forward unless Pakistan gives something over Mumbai,” said, Pramit Pal Chaudhuri, the foreign editor of the Hindustan Times newspaper.
Pakistan, meanwhile, wants to address Kashmir.
The high-level meeting comes just days after India sent the army onto the streets of Kashmir to quell violent anti-government protests that left 15 people dead. India’s overwhelming security presence in Kashmir is deeply resented by locals. One senior Indian minister explained the upsurge in violence as Kashmiris registering their frustration over New Delhi’s complacency towards their grievances in spite of two years of relative calm in the region.
While General Pervez Musharraf was in power in Pakistan, the two neighbours came close to agreeing a resolution to Kashmir. The blueprint was shelved after his fall from office in 2008.
His former ministers say they remain confident that the plans can be revived. “What gives me confidence is that the documents are still sitting in Delhi and Islamabad,” said one.
Since then, Pakistan has faced a widespread militant onslaught by Pakistani Taliban focused on its border with Afghanistan and Punjab, its most populous province. On Thursday, a suicide bomber struck in Mingora in Pakistan’s Swat Valley, killing six people. Mingora had been considered stable after an army campaign last year pushed Taliban fighters from the area.
Wednesday, July 14, 2010
Indian inflation stays above 10%
Inflation remained stubbornly high in India last month, piling pressure on the central bank to curb rising prices with a second July rate rise when it meets in two weeks.
Wholesale prices had risen 10.55 per cent in June from a year earlier, data released on Wednesday showed, propelled by rising incomes, low agricultural yields and the fast growing domestic economy. Prices rose 10.16 per cent in May.
Manmohan Singh, prime minister, last month publicly acknowledged the pain that high prices were inflicting on the country’s 1.2bn people and promised to ease inflation to 5-6 per cent by the end of the year.
Most economists expect the Reserve Bank of India to raise the benchmark rate by 25 basis points at its policy review on July 27. At the meeting, the RBI will have to take into account a recent fuel price hike and a slump in industrial output growth in May.
The bank raised rates in an unscheduled action this month by a quarter point, its third hike so far this year.
“Indian inflation has been bouncing around 10 to 11 per cent for five months now, and there is a real risk that this will impact inflation expectations and make it even more difficult to get price pressures under control,” said Brian Jackson, senior strategist at the Royal Bank of Canada.
He described rising prices as “an increasingly difficult political issue” for the Congress party-led government, as it pushes for 9 per cent economic growth.
The Bharatiya Janata party, the Hindu nationalist opposition, has criticised the government for pursuing a high-growth strategy at the cost of India’s most vulnerable, who are particularly sensitive to price rises. This month, the opposition staged a protest in central Delhi against high prices.
Some analysts have warned that India is in danger of over-stimulating its economy in the aftermath of the global financial crisis. They are also becoming concerned that the bank’s actions and messages are increasingly inconsistent.
One analyst said the central bank, which is not fully autonomous, appeared to have so many mandates, it was unclear whether it was prioritising fighting inflation as India recovers from the global economic downturn.
India in recent months has been the most aggressive tightener of monetary policy among the G20 leading nations after Australia.
More interest rate rises are on the way. The RBI has said it will take “baby steps” rather than more dramatic action.
Some analysts predict the repo rate, the rate at which the central bank lends to commercial banks, will rise another 75 basis points from the current rate of 5.50 per cent by year-end.
Wholesale prices had risen 10.55 per cent in June from a year earlier, data released on Wednesday showed, propelled by rising incomes, low agricultural yields and the fast growing domestic economy. Prices rose 10.16 per cent in May.
Manmohan Singh, prime minister, last month publicly acknowledged the pain that high prices were inflicting on the country’s 1.2bn people and promised to ease inflation to 5-6 per cent by the end of the year.
Most economists expect the Reserve Bank of India to raise the benchmark rate by 25 basis points at its policy review on July 27. At the meeting, the RBI will have to take into account a recent fuel price hike and a slump in industrial output growth in May.
The bank raised rates in an unscheduled action this month by a quarter point, its third hike so far this year.
“Indian inflation has been bouncing around 10 to 11 per cent for five months now, and there is a real risk that this will impact inflation expectations and make it even more difficult to get price pressures under control,” said Brian Jackson, senior strategist at the Royal Bank of Canada.
He described rising prices as “an increasingly difficult political issue” for the Congress party-led government, as it pushes for 9 per cent economic growth.
The Bharatiya Janata party, the Hindu nationalist opposition, has criticised the government for pursuing a high-growth strategy at the cost of India’s most vulnerable, who are particularly sensitive to price rises. This month, the opposition staged a protest in central Delhi against high prices.
Some analysts have warned that India is in danger of over-stimulating its economy in the aftermath of the global financial crisis. They are also becoming concerned that the bank’s actions and messages are increasingly inconsistent.
One analyst said the central bank, which is not fully autonomous, appeared to have so many mandates, it was unclear whether it was prioritising fighting inflation as India recovers from the global economic downturn.
India in recent months has been the most aggressive tightener of monetary policy among the G20 leading nations after Australia.
More interest rate rises are on the way. The RBI has said it will take “baby steps” rather than more dramatic action.
Some analysts predict the repo rate, the rate at which the central bank lends to commercial banks, will rise another 75 basis points from the current rate of 5.50 per cent by year-end.
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