profitepaper pakistantoday 16th april, 2012

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South Africa welcomes Pakistani investment with open arms Page 03

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Monday, 16 April, 2012

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ISLAMABAD

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ONLINE

SLAMABAD Chamber of Commerce and Industry (ICCI) has welcomed resumption of PakIndia economic relations as Indian government has taken decision in-principle to allow foreign direct investment from Pakistan.

Yassar Sakhi Butt, President, ICCI chairing a meeting, welcomed the decision of Indian counterparts to open foreign direct investment gateway for Pakistan and termed it a highly positive step which could unleash many benefits for the people of both countries.

Electricity from India

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ICCI applauds India’s decision for FDI from Pakistan ICCI president touts step as beneficial for South Asia Bilateral trade could jump from $2.7 billion to $6 billion

he was of the view that stronger economic relations between India and Pakistan would not only prove beneficial for both the countries, it would also contribute significantly in promoting regional integration and stability in South Asia. The ICCI President said that huge potential exists for increasing economic relations from the current level of bilateral trade which stood around $2.7 billion to more than $6 billion in coming years. he said that opening up of investment relation would likely to cut down the illegal trade

between the two sides which was estimated to be worth billions of dollars.

Butt also appreciated the decision of granting a year-long multiple-entry visas for business visitors to enter and exit through different cities and said that the decision would shut trade through third countries and provide benefit to both countries in long-term. he said the people of both countries share a common border that gives both countries additional advantage to enhance many times the current level of bilateral trade.

The ICCI President said that it is the era of economic collaboration and competition as many regions have already made big strides to promote trade by establishing regional block. however, South Asia was still considered a least integrated region due to which it was way behind in economic progress, he opinioned. he said that the two countries should now focus on resolving other economic issues before moving on to more severe problems. ICCI President stressed the need for bringing more tariff reforms and proactive steps for reduction duty on exports items to India so that bilateral trade relations could be normalized in real terms.

he most prudent step forward. Number one problem on the Pakistani side taken up as soon as trade talks gather momentum. This is just the kind of necessary linkage we mentioned – long term projects that force both parties to play down political differences because of favourable economic and financial barter. And electricity will enable greater trade as well, as soon as there’s enough for manufacturing and industry to perform at more productive levels.

Subsequent value addition will mean more exports, and a healthier fiscal position in Islamabad.

The trade drive is important also because Asian exports are still vulnerable to the sovereign debt nightmare in europe – near zero growth and diminished import expenses – as well as weak growth as best in the US. Perhaps increased intra-regional trade and redrawing of economic linkages is one of the better things to have come out of the ’08 recession’s lingering hangover. As we see regional trade blocs forming, there is a feeling that such movement should have begun a long time ago.

Still, better late than never.

To give credit where it is due, not even the most enduring of optimists would’ve counted unprecedented commercial breakthroughs in their ’12 outlook for Pak-India relations.

And while prospects of an electricity deal have done rounds in the press, surely there are avenues of potential cooperation that will surprise many on both sides. Let’s just hope risk management has been given fair time and attention. We have seen confidence building measures of the past derailed by elements out to harm both countries. They are perhaps the biggest threat to the progress that has been made in the last few months.

China gives currency more freedom with new reform China took a milestone step in turning the yuan into a global currency on Saturday by doubling the size of its trading band against the dollar, pushing through a crucial reform that further liberalises its nascent financial markets.

BEIJING

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REUTERS

he People’s Bank of China said it would allow the yuan to rise or fall 1 percent from a midpoint every day, effective Monday, compared with its previous 0.5 percent limit.

The timing of the move underlines Beijing’s belief that the yuan is near its equilibrium level, and that China’s economy, although cooling, is sturdy enough to handle important, longpromised, structural reforms, analysts said. The move would help China deflect criticism of its controversial currency policy ahead of the annual spring meeting of the International Monetary Fund in Washington next week.

A slowing world economy that has pared investor expectations of a steadily rising yuan likely also gave Beijing the confidence to proceed, knowing that a larger band would not necessarily lead to a stronger currency.

“The central bank chose a good time window to enlarge the trading band.

The market’s expectation for a stronger yuan is weakening,” said Dong Xian’an, chief economist at Peking First Advisory in Beijing.

“The move partially clears away doubts on whether China can manage a soft landing in its economy, and makes clear China’s reform road map.”

Investors have widely expected China to widen the yuan’s trading band this year, thanks to repeated hints from Beijing that the change would take China one step closer to its financial goal: a basically convertible yuan by 2015. having a currency that trades with fewer restrictions also enhances Shanghai’s status as a financial center. China envisions turning the city into a global banking hub by 2020.

“From April 16, 2012, the trading band for the yuan against the dollar in the spot interbank currency market will be widened from 0.5 percent to 1 percent, “ the People’s Bank of China said in a short statement on its website.

“At present, the development of China’s foreign exchange market is maturing, the market’s ability to independently price and manage risks is growing by the day,” the bank said.

Ultimately, the government wants the yuan to rival the dollar as a global reserve currency, and to this end it has gradually allowed the currency to trade more freely.

After a pilot programe last year was

judged successful, in March this year it gave permission for firms across China to pay for imports and exports in yuan, a way of helping to increase the use of the yuan in trade deals.

NO SHARP GAINS: The yuan, also known as the renminbi or “people’s money”, hit a record high of 6.2884 against the dollar on Feb 10, but is little changed against the U.S. currency for the year, softening 0.14 percent since January.

Analysts say its listless showing is likely to persist through 2012, as expectations of future gains are dulled

by China’s easing economic growth, and speculation that the yuan is near equilibrium.

As China this year heads into its biggest leadership changeover in a decade, it would be in Beijing’s interests to avoid dramatic fluctuations in the yuan that could hurt exporters, many of whom are battling rising costs and tepid demand as it is.

“The yuan is close to an equilibrium. We expect it could only gain 1.4 percent against the dollar this year, so the time is right to widen the band,” said Lan Shen, an economist at Standard Chartered Bank in Shanghai.

So muted is the yuan’s outlook that

investors in the offshore non-deliverable forwards (NDF) market believe there is even room for the currency to fall. The benchmark one-year NDF is pricing for a 0.4 percent depreciation.

Any decline would be a stark contrast to the yuan’s steadfast rise in recent years.

It jumped about 5 percent in 2011 on top of nearly 4 percent in 2010, giving investors the impression that China was comfortable with a rising currency.

It has gained about 30 percent in nominal terms against the dollar since the landmark move in the summer of 2005 to de-peg the yuan from the greenback.

A WELCOME MOVE: The yuan’s value has always been a point of contention between China and its trading partners, notably the United States, which say China suppresses the currency to boost exports. China repeatedly rejects the accusation.

Instead, Chinese leaders say the yuan is near its equilibrium level and that authorities aim to keep its value “basically stable”, more flexibility notwithstanding.

Beijing’s desire to have the yuan trade more freely was stressed by both Premier Wen Jiabao and Central Bank Governor Zhou Xiaochuan in March

when they said conditions were ripe for changes.

Their calls came even as China is set to confront its slowest economic growth in a decade this year, leading many to believe Beijing is ready to foresake heady growth for a restructured economy driven more by domestic than export demand.

Although not a primary intention, a more flexible yuan also works in China’s favor in turbulent times by giving it more room to guide the currency lower to aid exports.

“The message of this move is that the renminbi appreciation story is over.

Greater two way volatility will be the name of the game going forward,” said Qu hongbin, an economist at hSBC. Data on Friday showed China’s economy suffered its weakest growth since the global financial crisis in the first quarter by expanding just 8.1 percent, below forecasts for 8.3 percent.

The last time China changed its currency policy was in June 2010, after a two-year period when it effectively re-pegged the yuan to the dollar to shield China from the 2008-09 global financial crisis.

“I think the step should be welcomed by foreign countries, especially the United States, who has called for reforms,” said Dongming Xie, China economist at OCBC Bank in Singapore. “This is also related to growing domestic calls for economic reforms.”

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IntervIew: Cape town Chamber of CommerCe and Industy presIdent, mIChael bagarIm

JETRO Tull South Africa welcomes Pakistani investment with open arms n

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LAHORE

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YASIR HABIB

AKISTAN is welcome to exploit trade and business opportunities in South Africa brimming with enormous potential as an investment destination, offering a unique combination of highly developed first world economic infrastructure with a vibrant emerging market economy.

Cape Town Chamber of Commerce and Industry president Michael Bagarim gave the positive gesture in an exclusive interview with Pakistan Today. he suggested Pakistan to gain a status of potentially sound economic country rising above its fame as cricketing country if it wanted to emerged as developed country. “Cape Town Chamber of Commerce and Industry, being established in 1804 as oldest member-based business organisation with mandated to serve, enable and lead business in the Cape and having plethora of services, networking opportunities as well as robust advocacy on behalf of business, aims to bring together business people within the South Africa and other part of the world to create business opportunities,” he said. “Pakistan has ocean of trade opportunities here and it should gear up to seize all of them,” Mr. Michael added. he emphasized the need for exchange of trade delegations between Pakistan and South Africa, saying the exercise would be beneficial for both the country.

Micheal informed that since the advent of democracy in 1994, South Africa’s economy had been undergoing structural transformation, with the implementation of macro-economic policies aimed at promoting domestic competitiveness, growth and employment and increasing the economy’s outward orientation. he made it clear that foreign investment was welcome in South Africa, and investor-friendly policies supported the public pronouncements. “South Africa’s financial systems are sophisticated, robust and well regulated. South African banking regulations rank with the best in the world, while the sector has long been rated among the top 10 globally.

Foreign banks are well represented and electronic banking facilities are exten-

sive, with internet banking a growth feature of the sector, he revealed.

Located at the southernmost tip of the African continent, South Africa is ideally positioned for access to the 14 countries comprising the Southern African Development Community (SADC) – with a combined market of over 250-million people – as well as the islands off Africa’s east coast, and even the Gulf States and India. South Africa also serves as a trans-shipment point between the emerging markets of Central and South America and the newly industrialised nations of South and Far east Asia.

Major shipping lanes pass along the South African coastline in the South Atlantic and Indian oceans, and its seven commercial ports form by far the largest, best equipped and most efficient network on the continent.

These ports are the conduits for trade between South Africa and her partners in the SADC and the South African Customs Union, as well as hubs for traffic to and from europe, Asia, the Americas and the east and west coasts of Africa. Mr. Michael Bagarim said that not only was South Africa in itself an important emerging market, it was also a minimum requirement for accessing other sub-Saharan markets. “The country borders with Namibia, Botswana,

Zimbabwe, Mozambique, Swaziland and Lesotho, and its well-developed road and rail links provide the platform and infrastructure for ground transportation deep into sub-Saharan Africa,” he added.

“South Africa is also a dynamic force within the 14-member South African Development Community (SADC), and was a key player in the development of the New Partnership forAfrica’s Development (Nepad), the socio-economic renewal programme of the African Union.” he said that market access has been enhanced through free trade agreements with the european Union and the Southern African Development Community and the implementation of the Africa Growth and Opportunity Act by the United States.

The country’s manufacturing output, he said, was increasingly technology-intensive, with high-tech manufacturing sectors – such as machinery, scientific equipment and motor vehicles – enjoying a growing share of total manufacturing production since 1994.

About South Africa’s technological research and quality standards, he said that they were world-renowned and added that country had developed a number of leading technologies, partic-

ularly in the fields of energy and fuels, steel production, deep-level mining, telecommunications and information technology.

About Cape Town Chamber of Commerce and Industry, he said Cape Chamber of Commercehad always played a significant part in keeping its members informed of the latest issues which affected businesses both large and small. Speed networking events, information sessions, staff training and other events were well attended by both members and non-members, he added.

“The tougher than normal economic climate of the last few years has required a much more pragmatic view and the Chamber is finding new ways to practically reach out and help businesses drive efficiencies. Our International desk and business support department have been set up to drive new business deals, assist companies reach export potential and help members run their business more efficiently and within the bounds of national compliance regulations. Access to arbitration and mediation will also be made available to ensure members avoid costly litigation wherever possible,” he added. One of the key functions of the Cape Chamber is advocacy. Lobbying on behalf of its members is gaining traction and the Chamber is now represented at the highest national levels, taking part in bargaining and negotiations at the National economic and Development and Labour Council (NeDLAC) and many other local and provincial bodies.

The Chamber is also working with its active membership to create leadership bodies in various key sectors. The Chamber portfolio committees have been set up to reflect those at national Parliament and through these, the committee chairs comment on policy, legislation and regulatory issues which may impact businesses in various verticals.

The Cape Chamber of Commerce is ever mindful of the fact that it while it is important to provide information and practical measures to help its members better run their businesses, creating deal flow is also critical. For this reason, the leadership has also developed an aggressive pan-African policy which will see it connecting and collaborating with other African chambers, governments and agencies to facilitate expansion into the continent for its members.

Budgetary wishful thinking JEffREy fRANkEL

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hY do many countries find it hard to control their budgets? Concern about budget deficits has become a burning political issue in the United States; helped to persuade the United Kingdom to enact stringent cuts, despite a weak economy; and is the proximate cause of the Greek sovereign-debt crisis, which has grown to engulf the entire eurozone. Indeed, among industrialized countries, hardly anyone is immune from fiscal woes.

Clearly, part of the blame lies with voters who don’t want to hear that budget discipline means cutting programs that matter to them, and with politicians who tell voters only what they want to hear.

But another factor has attracted little notice: systematically over-optimistic official forecasts.

Such forecasts underlie governments’ failure to take advantage of boom periods to strengthen their finances, including running budget surpluses.

During the expansion of 2001-2007, for example, the US government projected

that budget surpluses would remain strong. These forecasts supported enactment of large long-term tax cuts and faster spending growth (both military and otherwise). european countries behaved similarly, running up ever-higher debts. Not surprisingly, when global recession hit in 2008, most countries had little or no “fiscal space” to implement countercyclical policy.

The US Office of Management and Budget (OMB) has perennially turned out optimistic budget forecasts. For eight years, it never stopped forecasting that the budget would return to surplus by 2011, even though virtually every independent forecast showed that deficits would continue into the new decade unabated. The US projections were over-optimistic even at short time horizons. From 1986 to 2009, the bias averaged 0.4% of GDP at the one-year horizon, 1% at two years, and 3.1% at three years.

Sanguine macroeconomic assumptions and fanciful theories about the effects of tax cuts underpinned rosy scenarios. For the quarter-century until 2009, the OMB’s three-year forecasts of economic

growth were biased upward by a whopping 3.8%, on average.

But, in order to get buoyant budget forecasts out of the rival Congressional Budget Office, which is more independent than the OMB, a more extreme strategy was required. elected officials hard-wired misleading projections by excising from current law expensive policies that they had every intention of pursuing.

For example, the wars in Afghanistan and Iraq were financed with “supplemental” budget requests each year, as if they were some unpredictable surprise. Likewise, every year, Congress canceled “planned” cuts in payments to physicians that, if ever implemented, would drive doctors out of the Medicare system. And, on the revenue side, the tax cuts that were enacted in 2001 were all extended into 2011-12, despite an expiry date of 2010; those who proposed the law never intended to allow it to expire.

Unrealistic macroeconomic assumptions, farfetched theories about tax cuts, and legislation that deliberately misrepresented policy plans all worked as intended, yielding

overly optimistic forecasts, which in turn help to explain excessive budget deficits. In particular, such forecasts explain the failure to run surpluses during the economic expansion from 2002-2007: if growth is projected to last indefinitely, retrenchment is deemed unnecessary.

Many have suggested that budget woes can best be held in check through fiscalpolicy rules such as deficit or debt caps.

Some countries have already enacted laws along these lines.

The most important and well-known example is the eurozone’s fiscal rules, which supposedly limit candidate countries’ budget deficits to 3% of GDP, and their public debt to 60% of GDP. The european Union’s Stability and Growth Pact (SGP) dictated that member countries must continue to meet these criteria. We know now how well that worked out.

Other countries have also adopted fiscal rules, most of which fail. Indeed, part of the problem is that governments that are subject to budget rules like europe’s SGP put out official forecasts that are even more biased than those of the US or other countries. The Greek government, for example, projected in 2000 that its fiscal deficit would shrink below 2% of GDP one year in the future and below 1% of GDP two years into the future, and that the fiscal balance would swing to surplus three years into

Japanese delegation visits PBIT, interviews CEO CEO does his best to talk up Punjab as a potential investment hub LAHORE STAFF REPORT

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N official delegation of Japan external Trade Organization (JeTRO), comprising Keiichi Kimura, Director JeTRO, Japan and Kaoru Shiraishi, Country Manager JeTRO Pakistan, visited Punjab Board of Investment & Trade (PBIT).

JeTRO is official trade and investment promotion office of the Government of Japan working under the Ministry of economy, Trade and Industry (MeTI). The JeTRO, team conducted electronic interview of Dr Sajid Yoosufani CeO, PBIT and his team on the Retail Consumer Market in Punjab and the upcoming popular business & investment trends. The documentary on retail sector opportunities being filmed by JeTRO will also include similar insights of the sector in Bangladesh and Sri-Lanka besides Pakistan.

After finalization, the documentary will be projected from the platform of JeTRO amongst the prospecting investors in Japan.

Dr Sajid Yoosufani, CeO PBIT made the case of Punjab, very strongly and comprehensively and highlighted the lucrative and profitable opportunities for Japanese investors in the retail sector in Punjab. he said that with over 93 million consumers, and over half of it under 30 years of age, Punjab offers tremendous opportunities in retail sector presently. Pakistan’s Retail industry is worth USD 42 Billion & with the 18 Million middle class where, an average consumer spends 42% of his income on food and with a sector growth rate of 7.3% per annum, retail sector is rising rapidly. The potential of various segments within the retail sector was amply demonstrated to the JeTRO team, who would in turn convince the Japanese investors to choose Pakistan as their next business destination. Dr Sajid further added that “The provincial government is highly committed to the Private Sector development in Punjab and is offering a very pro-business environment accentuated with a positive policy framework to generate foreign and domestic investment and employment. PBIT is essentially present to promote the viable economic sectors in Punjab and is willing to offer every support and facilitation to the Japanese Investors wanting to invest in Punjab”, he concluded. JeTRO in its endeavors to provide latest information on the current economic and business trends in Pakistan to businessmen in Japan is presently working on gathering information pertaining to the developing consumer trends on the retail sectors in Pakistan. the future. The actual balance was a deficit of 4-5% of GDP – well above the eU’s 3%-of-GDP ceiling.

In almost all industrialized countries, official forecasts have an upward bias, which is stronger at longer time horizons. On average, the gap between the projected budget balance and the realized balance among a set of 33 countries is 0.2% of GDP at the one-year horizon, 0.8 % at the two-year horizon, and 1.5 % at the three-year horizon.

So, how can governments’ tendency to satisfy fiscal targets by wishful thinking be overcome? In 2000, Chile created structural budget institutions that may have solved the problem.

Independent expert panels, insulated from political pressures, are responsible for estimating the long-run trends that determine whether a given deficit is deemed structural or cyclical.

The result is that, unlike in most industrialized countries, Chile’s official forecasts of growth and fiscal performance have not been overly optimistic, even during economic booms. Thus, unlike many countries in the North, Chile took advantage of the 2002-2007 expansion to run substantial budget surpluses, which enabled it to loosen fiscal policy in the 2008-2009 recession. Perhaps other countries should follow its lead.

Courtesy: Project Syndicate

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Why US companies continue to pay dividends DOUGLAS J SkINNER

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UCh has been made of Apple Inc. (AAPL)’s recent decision to begin paying regular dividends, given the company’s large free cash flow (about $1 billion a week) and cash balance (close to $100 billion).

Yet, according to finance theory, stock-market investors should be indifferent to whether they receive their returns as cash dividends or capital gains. In fact, when dividends are tax disadvantaged, as was the case until 2003 and may be so again soon, investors should prefer retention and the resulting capital gains. This led economists -- notably Fischer Black in 1976 -- to describe the payment of dividends as a puzzle.

If dividends were puzzling in 1976, they are even more so today because companies can now return cash to stockholders using stock repurchases, which have at least two advantages over dividends.

First, stock repurchases don’t commit companies to future distributions. By announcing a dividend, however, managers are essentially committing their firms to paying a regular dividend for the foreseeable future.

Second, if President Barack Obama has his way and dividends are returned to their traditional taxdisadvantaged status, the case in favor of stock repurchases becomes even stronger.

STOCK REPURCHASES: For a while, it did seem that dividends were in retreat and that stock repurchases would become the dominant form of payout. The use of stock repurchases has grown tremendously since their emergence in the early 1980s. It is no longer uncommon for there to be years when the dollar

amount of repurchases exceeds that of dividends, something that first occurred in the late 1990s.

Meanwhile, dividends seemed to be disappearing. In a paper published in 2001, the economistseugene Fama and Kenneth French reported that just one-fifth of U.S. nonfinancial firms paid dividends in 1999, compared with two-thirds in the mid-1970s.

Further, survey evidence suggested that the only reason managers of the remaining dividend payers continued that practice was because their companies had done so for many decades.Coca-Cola (KO) Co., for instance, has paid dividends each year since 1920, making it a difficult habit for its investors (and managers) to break.

In recent research, we used data on companies’ payout policies through the financial crisis to shed new light on the dividend puzzle.

The idea was simple: If dividends are an inferior payout vehicle, it was reasonable to expect that managers of companies wishing to end them could use the Great Recession as a convenient excuse. Given the upheaval in the financial markets in 2008 and 2009, along with the related economic downturn, investors would surely understand the need to dispense with dividends.

We found little evidence that nonfinancial firms cut dividends during the crisis. While many banks and other financial firms cut back their payouts, many of them only did so when forced by regulators. Remarkably, even banks receiving taxpayer money from the Troubled Asset Relief Program continued to pay dividends, though the government soon forced them to stop. This fact alone is testament to the staying power of dividends.

For many dividend payers it was business as usual during the crisis:

Blue-chip companies such as McDonald’s Corp. (MCD), Procter & Gamble Co. (PG), Coca-Cola, PepsiCo Inc. (PeP) andexxon Mobil Corp. (XOM) continued to increase their payouts, as they had for many decades.

CONCENTRATION OF COMPANIES: We also found that the share of dividend payers bottomed out at 15 percent in 2002, and has increased since then. Further, as discussed in a 2004 paper I wrote with harry and Linda DeAngelo, there has been a strong increase in the concentration of dividend payments over the last 30 years: While the number of firms paying dividends has declined steadily, the total amount of dividends paid has risen (in real terms, adjusting for inflation). The paper reported that the top 25 dividend-payers accounted for more than half of all dividend payments by public nonfinancial firms in 2000.

Also inconsistent with the idea that repurchases are a substitute for dividends is the fact firms that pay the largest dividends also tend to be the largest repurchasers. Instead of cutting dividends to make repurchases, the small set of large bluechip industrial firms that pay dividends have augmented their payouts with repurchases. Because repurchases are so flexible, these companies can use them to pay out excess earnings in unusually good years, so payout ratios for these firms (the ratio of payouts to earnings) are often well above 50 percent.

In our recent paper, we find that the growth of total payouts -- dividends and repurchases -- has been very strong over the past decade.

From 2001 through 2007, aggregate dividends paid by nonfinancial firms almost doubled while repurchases for these firms increased by a factor of five. Strikingly, aggregate payout ratios increased to about 80 percent in 2006 and 90 percent in 2007, before

Debt reckoning for Europe AMAR BHIDé

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AvING the euro, say the sages of the global economy, requires radical steps. The OeCD recently called for a large european firewall – a mega-bailout fund for troubled governments and banks. Others argue for integrating taxes and borrowing in the eurozone and shedding weak members, like Greece, that struggle with a strong currency.

But tall firewalls, fiscal union, or homogeneity of membership are neither necessary nor desirable.

What is needed are mechanisms that recognize and accommodate differences, rather than new topdown efforts to impose uniformity.

All governments, even Germany’s, tend to spend more than they tax, and to hide shortfalls using accounting sleight-of-hand.

Treaties alone do not induce fiscal virtue. The expectation that all eurozone countries would obey rules aimed at capping their budget deficits was the common currency’s foundational fantasy.

Countries cannot get overly indebted on their own: excessive borrowing by european governments required lenders who overlooked the fact that sovereign debt is in many ways similar to, and in some cases worse than, unsecured private debt or junk bonds. Governments provide no

collateral and offer no covenants to restrain profligacy. As the Greek debacle has shown, governments do not pay penalties for fraudulent accounting. There is neither a legal process for forcing a state to pay off creditors, nor a legal venue for debt renegotiation.

Purchasers of sovereign debt, therefore, should be extremely careful – either shunning spendthrifts or demanding higher interest rates to offset greater risk.

Making excessive borrowing expensive or impossible would cap deficits, treaty or no treaty.

Unfortunately, banks enabled excessive borrowing by reckless governments by accepting interest rates that were only a bit higher than the rates that more cautious governments had to pay. The 2008 debacle should have served as a sharp reminder of credit risk.

Instead, banks increased indiscriminate purchases of government debt, and regulators unwittingly encouraged it by permitting banks to hold sovereign debt without capital reserves that properly reflected the risk. In fact, holding government debt helped banks to meet their liquidity requirements. Not surprisingly, they loaded up on the highest-yielding bonds, ignoring whether the extra interest justified the risks.

This indiscriminate lending now jeopardizes the solvency of banks worldwide. Yet the official response has been more willful blindness to

differences between dodgy and sound debt. The european Central Bank has been lending to banks without regard to the creditworthiness of their government-bond holdings, thereby accumulating debt that threatens its own solvency.

Bailout funds have been created to buy troubled debt. But, while their purchases have temporarily boosted asset prices, they won’t change the reality of over-indebtedness.

The “more integration” camp wants european governments to guarantee each other’s debts explicitly. Such schemes could eliminate risk and interest-rate differentials; however, while some governments, like Germany, are in relatively good shape, their resources are not infinite.

Straining these governments’ finances in the hope of restoring market confidence is a bad bet.

Moreover, any meaningful fiscal union is a non-starter. handing revenues over to a single fiscal authority is unappealing to many europeans. Indeed, regional parties in Spain, Italy, and Belgium are already pushing for greater devolution. And, even if fiscal integration were feasible, the examples of the United States and Japan do not inspire confidence that integrated european finances would exhibit German thrift rather than Greek profligacy.

According to French President Nikolas Sarkozy, “There cannot be a

the crisis caused companies to radically reduce repurchases.

Is it good for the largest companies, those that contribute the lion’s share of earnings, to be distributing so much cash? If firms are distributing the bulk of their earnings to stockholders, it means that they aren’t investing in the equipment or undertaking the research that leads to future improvements in productivity, earnings and job creation.

But back to the original question.

It seems clear from our recent work that dividends are very resilient, and are unlikely to disappear. What explains this staying power?

First, some argue that dividends provide important “signals” about the strength or quality of the firm’s underlying earnings stream. (Because investors know that a significant dividend is a very strong commitment to paying out at least the current dividend amount on a continuing basis.)

Second, dividends help discipline managers’ tendency to squander their firms’ cash on wasteful or unproductive projects or acquisitions.

This is particularly a problem in large, mature companies that generate sizable free cash flow.

Third, it could be that companies are catering to certain investors, who have a strong preference for dividends over capital gains. This not only applies to the traditional “widows and orphans” who might discipline their spending by limiting consumption to dividend income, but also to large institutions such as pension funds that often face institutional and regulatory restrictions forcing them to invest only in dividend- paying stocks.

Although we haven’t yet established the reason, the data are very clear: Dividends, even though they remain a puzzle, are here to stay.

Courtesy: Bloomberg

single currency without economic convergence.” Yet the dollar has served the US as a medium of exchange for nearly 150 years, despite huge regional differences between, say, Silicon valley, the Rust Belt, and the Oil Patch. And dollars are widely used in domestic transactions in places far outside the US, such as Russia and Israel.

Differences in the circumstances of individuals and businesses within and across countries are unavoidable. It behooves all, whether they are struggling or soaring, and whether they are near or far, to use a common medium of exchange to trade with each other.

Like standardized weights, currencies are supposed to calibrate and bridge, not eliminate, differences. The Greek economy was not “unfit” to join the euro in 1999, just as no one is too heavy to be weighed in kilograms.

That is why shrinking the eurozone to exclude weak members reflects another unwarranted predilection for uniformity. Governments, after all, can rarely overborrow without access to international credit.

Indiscriminate lending – not the end of the drachma – saddled Greeks with unbearable debt. And exiting the euro will neither reduce the burden nor erase German and French bank losses.

The least awful solution requires an honest reckoning: writing down debts that cannot be repaid and recapitalizing insolvent banks.

Country-by-country and bank-bybank, the good must be disentangled from the bad.

Courtesy: Project Syndicate

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CORPORATE CORNER Honda inaugurates state-of-the-art 3S authorised dealership

LAHORE: honda Atlas Cars (Pakistan) Limited recently inaugurated its new state-of-the-art 3S authorized Dealership, honda Gateway, on Multan Road near Thokar Niaz Beg, Lahore. The objective of this new facility is to ensure the provision of the best services to honda customers. honda Atlas Cars (Pakistan) Limited has always tried its best to provide the maximum convenience to its customers so that they can fully enjoy the pleasure of driving a honda, the world’s top automobile brand. honda Gateway will not only provide the customers with brand new cars, but will also provide them with honda genuine parts, professional expertise and high levels of service quality. honda’s 3S Dealerships network in Pakistan, set up on the same pattern as that of honda Global guidelines, provides all honda customers with a one-stop solution with the best products and technical services. PRESS RELEASE

pak- China Business Forum and Industrial Exhibition LAHORE: COMSATS Institute of Information Technology is organizing Pak-China Business Forum & Industrial exhibition from April 15-18 at Pak-China Friendship Center. COMSATS-IIT introduces an academia driven model of Business Cooperation by conducting Pak-China Business Forum to promote academia-industry collaboration in business and economic sector for mutual benefit of both the countries. Major Chinese and Pakistani companies, small and medium enterprises, entrepreneurs, universities, and research & development organizations will be attending the forum activities. It is envisaged that the forum would provide an opportunity for commercialization of products and processes of the participating organizations. The main themes of the forum are Renewable energy Technologies, New energy Technologies, Information & Communication Technologies, Water Conservation, Purification & Sanitation, Biomedical Materials and General category. The main features of the event include an exhibition of products by local and Chinese companies and Chinese companies and firms active in Pakistan, workshops and side meetings with industrialists, academicians and Pakistani Business community has been planned for the promotion of business activity among the two countries. Many Chinese companies are expected to participate. A strong driver behind the South-South cooperation is the increasing importance of middle-income countries.

These developments, coupled with the growing number of organizations are dedicated to research based learning. The event partners are Pakistan Science Foundation, National Testing Service, higher education Commission, Xuzhou Normal University, Capital Development Authority, Islamabad Chamber of Commerce & Industry,Rawalpindi Chamber of Commerce & Industry and NADRA Pakistan.

It is important to promote university-industry collaboration to strengthen the economy of the developing countries to improve the living standards of the people. PRESS RELEASE

RAWALPINDI: Kafeel Burney, Head of Public Affairs MCB Bank ltd hosted a dinner in honour of newly elected office bearers of APNS and senior editors at a local hotel. seen in the picture are, Mr. Sarmad Ali, President APNS, Mr. Masood Hamid, GS APNS, Kafeel Burney, Kazi Asad Abid, Asif Zuberi, Dr. Jabbar Khattak, Ilyas Shakir, Mukhtar Aqil Adnan Malik, Shamsi Osman Satthi and others. PRESS RELEASE