profitepaper pakistantoday 30th july, 2012

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Monday, 30 July, 2012

Power sector circular debt gives LCCI the creeps LAHORE ONLINE

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he Lahore Chamber of Commerce and Industry on Saturday expressed grave concern over fast rising power sector circular debt that has touched alarming levels and urged the government to ensure availability of sufficient resources top forestall the unprecedented outages.

In a statement issued here, the LCCI President Irfan Qaiser Sheikh said that if the government fails to take immediate measures the power sector is likely to choke up due to heavy outstanding dues.

The LCCI President said that the Ministry of Finance and the Ministry of Water and Power should take urgent steps for making payments to cope with the fast deteriorating energy situation. Irfan Qaiser Sheikh said that the Lahore Chamber of Commerce and Industry has been calling for a long time now for much needed reforms in the power sector to control pilferage, line losses and to stop corrupt practices.

The LCCI President said that people in general and the industry in particular continue to suffer long blackouts in spite of almost doubling the price of electricity in the last four years. he said that the government in 2008, pledged to revamp the power sector and end electricity shortages. Since, it has raised electricity price by more than 85 per cent to elimi-

nate subsidies but failed to implement reforms to make the power sector efficient.

The LCCI President said that the energy situation would have been quite satisfactory today, had the government eliminated production, transmission and distribution losses; checked electricity theft and recovered the outstanding electricity dues. he said that there is a need to evolve an altogether new policy to attract private sector investment in electricity generation to overcome the gap between the demand for electricity and the supply.

The LCCI President said that the main reason for the growing electricity shortfall is not just the increase in demand but also the declining capacity to produce electricity because of inconsistent policies.

Irfan Qaiser Sheikh said that the ultimate solution to the ongoing energy crisis lies in the construction of mega water reservoirs or tapping the coal potential the country owns. he said that the government should utilise all available resources to win consensus over Kalabagh Dam that has the capacity of ensure cheapest electricity to the masses.

Irfan Qaiser Sheikh said that a further delay in gathering a consensus from all stakeholders on the construction of unduly politicised Kalabagh Dam will cost this country and its coming generations very dearly.

The LCCI President said that all the stakeholders should show some maturity on the issue of Kalabagh.

It is the high time that all undue stands should be brushed aside in order to save the country from that era of darkness. he said that unlike Pakistan, India is constructing dams at every possible site. It has left us decades behind and coming time does not promise any good thing either.

Irfan Qaiser Sheikh said that every one knows that the existing dams are constantly silting up leaving ever decreasing capacity to store water. The construction of Kalabagh dam along with other new dams is desperately needed to store adequate water. According to a conservative estimate about 30 million acre feet of water is being wasted into the sea because the country has no big water reservoirs to store it.

More importantly, as a result of melting of glaciers due to global warming, a sword of Damocles remains hanging over our heads in the shape of floods.

An opinion gained widespread support across the country that the losses of recent floods in Pakistan which are estimated to be more than 45 billion dollars could have been reduced if big dams and water reservoirs were in place. he said that another significant aspect connected with the construction of Kalabagh Dam is the surety of sufficient amount of electricity at comparatively much cheaper price. The country’s depend-

WALL STREET WEEK AHEAD

Rolling out red carpet for central bankers NEW YORK AGENCIES

The U.S. Federal Reserve and the european Central Bank both meet next week amid investor expectations of action to stimulate economic growth and, in the case of the eCB, tackle the spreading euro zone debt crisis.

The drumbeat of weak economic data and disappointing U.S. corporate profits and outlooks mean central banks can be stocks’ best friends. equity prices tend to rise sharply in the hours before a Fed statement like the one expected on Wednesday as traders and investors jockey for position and a chance to make a profit.

Next week’s calendar has a double-whammy. The Fed’s monetary policy statement will come one day before an eCB meeting packed with intrigue. eCB President Mario Draghi said earlier this week the bank was ready to do whatever was necessary, within its mandate, to save the euro.

“People in this business like to get in front of big events, especially if (they) could be very, very positive for the market,” said Brian Reynolds, chief market strategist at agency brokerage Rosenblatt Securities.

In that sense the strategy “is almost like a lottery ticket,” he said.

But was that ticket already cashed? The S&P 500 .SPX .INX rallied to levels not seen since May on Friday, a rally that was sparked a day earlier after Draghi stoked expectations the eCB might resume its Securities Markets Programme (SMP) and possibly adopt more aggressive quantitative easing. Reports of meetings with the head of Germany’s Bundesbank fueled a Friday rally that outpaced Thursday’s gains. equity markets have for weeks been leaning on hoped-for stimulus from the Fed or eCB. Despite weeks of softening economic data, including a dismal payrolls report for June and a poor outlook for corporate profits, the S&P 500 has risen in seven of the past 10 weeks. It closed on Friday near a three-month high.

REMARKABLE PATTERN: At the same time that traders position them-

ence on power generated through thermal sources is costing us way too much causing to face insurmountable challenges to remain competitive both in national and international markets.

Another significant aspect connected with the construction of Kalabagh Dam is the surety of sufficient amount of greener and cheaper electricity. electricity generation through thermal sources is estimated to cost almost Rs.16 per unit whereas the same can be produced at Rs.2.5 to Rs.3 through hydel.

Food exports fall by 6.03 percent ISLAMABAD: Food exports from the country witnessed negative growth of 6.03 to reach at $4.237 billion during the fiscal year 2011/12 as compared to the exports of the same period of the previous year. The food exports during July-June (2011-12) stood at $4.237 billion against the exports of $4.509 billion recorded during July-June (2010-11), according to Pakistan Bureau of Statistics (PBS). The major food commodities that contributed to the negative growth included rice, exports of which decreased by 4.57 percent from $2.160 billion to $2.061 billion. Among the rice commodities, the exports of basmati rice decreased by 14.87 percent, however the exports of other food qualities increased by 3.7 percent during the period under review. exports of vegetables also decreased by 32.65 percent by going down from $268.203 million to $180.622 million while the exports of wheat decreased by 78.56 percent by falling from $586.603 million to $125.748 million. Similarly, the exports of spices decreased from $50.384 million to $50.024 million, showing negative growth of 0.71 percent. Meanwhile, the food products that witnessed positive growth included fish and fish preparations, exports of which increased by 6.53 percent by going up from $296.182 million to $315.525 million. exports of fruits also increased from $292.422 million to $358.201 million, showing 22.49 percent increase while the exports of leguminous vegetables (pulses) increased by 437.51 percent by going up from $1.754 million to $9.428 million. APP

Asia’s not having enough Biryani selves to benefit from the Fed’s latest easy-money policy, those betting against market gains get out of the way and selling pressure recedes.

“It’s very scary to short the market ahead of a Fed meeting,” said Dennis Dick, a proprietary trader at Las Vegas-based Bright Trading and cofounder of Premarketinfo.com. “So you have this short-covering that drives prices up.” That helps explain the rise in stocks in the 24 hours prior to the U.S. central bank’s policy decisions - a pattern that tends to hold irrespective of what the Fed actually says in its statement. economists at the Federal Reserve Bank of New York performed a study of the pattern.

Starting mid-afternoon the day before such decisions, stocks in the United States, Britain, Germany and other major markets begin a sharp rise and don’t stop, on average, until just before the Fed unveils its policy decision at 2:15 p.m. (1815 GMT) the following day. Since 1994 a whopping 80 percent of the premium in gains of U.S. stocks over yields on short-term government bonds has been earned in these 24-hour periods, the study found.

The pattern has grown starker as the Fed took increasingly aggressive actions to rescue the U.S. economy from recession. The two rounds of major asset purchases, known as quantitative easing, or Qe1 and Qe2, in recent years strongly boosted stocks.

“Perhaps this shows markets have given the Fed their seal of approval,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. “At least from a market participant perspective, they are confident the Fed will fulfill its mandate. I try to talk to individual investors to remind them that the stock market is going to react much more quickly than the economy to what the Fed does,” he said.

CENTRAL BANKS OVERSHADOW EARNINGS: The focus on central bank meetings will get in the way of a heavy week of earnings for S&P 500 companies at a time when the outlook continues to worsen.

Major companies due to report include AIG (AIG.N), Kellogg (K.N), Procter & Gamble (PG.N), Kraft Foods (KFT.O), Pfizer (PFe.N), MasterCard (MA.N) and General Motors (Ge.N).

Among the 290 companies in the S&P 500 index that have reported earnings for the second quarter, about 67 percent have beaten analysts’ estimates, slightly higher than the long-term average of about 62 percent. But just 40 percent have beaten on revenues, the worst record since the first quarter of 2009. More worrisome is the market’s outlook. Third-quarter earnings are now expected to decline 0.4 percent from a year ago, compared with an expected rise of 1.4 percent last week, according to Thomson Reuters data.

Rice consumption declines rapidly in Asia as consequences of economic growth

ISLAMABAD: The rice consumption in Asia is declining rapidly as a consequences of the region’s economic growth, rising disposable income and associated lifestyle changes, says Asian Development Bank (ADB) however, rice is still Asia’s most important crop, as it continues to be the single largest source of calories for the majority of consumers who are poor but the consumers of Asian regions are spending less than 5 per cent of their food budgets on rice. According to the Asian Development Bank, global rice consumption is expected to rise from 441 million metric tons in 2010 to about 450 million metric tons in 2020, before declining to just 360 million metric tons in 2050. “Only population growth continues to drive rice consumption upward in Asia, and population growth is slowing in most of the region’s countries,” it said, adding, around 90 per cent of the world’s rice is produced and consumed in the Association of Southeast Asian Nations (ASeAN) countries. The Bank said a 10 per cent rise in food prices, including rice, could push almost 30 million more Indians and nearly 4 million more Bangladeshis into extreme poverty. The two main challenges to rice supply are the extreme price volatility due to policy shocks and the threats to production caused by climate change and low productivity. The global rice export market is relatively concentrated, with Thailand, Viet Nam, India, US, and Pakistan providing nearly four-fifths of available supplies. ONLINE

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Business 02 Don’t like Asian state capitalism?

Blame the West

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PANKAJ MISHRA

TATe capitalism, according to Bloomberg Businessweek, is a serious rival to U.S. and european businesses, which face being excluded from some markets.

“Instead of trying to prevent — or worse, dismiss altogether — the rise of state-capitalist systems,” the magazine argues, “U.S. and european companies and governments would do better to learn from them.”

A similar case was made in the 1980s, when Japan’s state-supported conglomerates briefly threatened to take over the world. For a moment — as I noted in my previous column — Japan’s promotion of its technology industries through protectionism and careful targeting of open foreign markets seemed to affirm the superiority of state-supported capitalism.

The apparent success of China and Brazil’s own versions of state capitalism has now stoked fresh anxiety in AngloAmerica. But most reckonings with it are still bogged down by questions about efficiency: For instance, is state capitalism more or less innovative or competitive than its free-market rival?

OPIuM WARS: Such essentially technocratic arguments scant the long history of economic nationalism: the time, for instance, when many in Asia bristled at the power of state-backed capitalists and economic nationalists of europe and the U.S. The West’s own rivalries set the tone for Asian countries. Writing to the directors of the United east India Company in the early 17th century, Jan Pieterzoon Coon the pioneering Dutch colonizer of Java, was revealingly blunt: “We cannot carry on trade without war or war without trade.”

Fighting off rival european colonialists as well as the Javanese, Coen would have had no time for soggy Scottish notions about the invisible hand. Nor indeed did his competitors in the British east India Company as they repeatedly sought their government’s diplomatic

and military support in Asia.

The nexus between government and business reached its high point during the Opium Wars of the 19th century, when British merchants craving new markets in the Chinese hinterland repeatedly lobbied their country’s politicians into punitive assaults on China.

Nurturing local industries under highly protectionist regimes, U.S. leaders, too, had absorbed europe’s lessons by the end of the 19th century. Woodrow Wilson no less than Theodore Roosevelt knew that American goods and capital must urgently find markets beyond national borders. “Since trade,” Wilson argued in 1907, “ignores national boundaries and the manufacturer insists on having the world as a market, the flag of his nation must follow him, and the doors of the nations which are closed must be battered down.”

Wilson sounds as if he wanted to make the world safe for American goods and capital rather than democracy. But he was only being brutally realistic. The influential German-American economist Friedrich list had already rejected Adam Smith’s free- trade theory as unsuitable for the 19th century conditions of rivalry and inequality between nation-states.

List, who may have been influenced during his stint in the U.S. by Alexander hamilton’s economic nationalism, had also spotted laissez faire’s built-in bias in favor of the trading interests of Britain, which had industrialized ahead of all other countries, and now threatened to undermine their nascent factories.

LATE STARTERS: Certainly, there were few alternatives for Asian countries entering — very late in the game — the race to industrial modernity. Visiting the U.S. in 1903, Liang Qichao, China’s foremost modern intellectual, came to fear its industrial trusts, which he claimed were more powerful than Alexander the Great and Genghis Khan could imagine, and which would soon cross the Pacific to prey upon a weak China.

To withstand the growing power of US economic imperialism and hold its own in the international jungle, argued Liang, China’s agrarian society needed not socialism but industrial production through capitalist methods carefully regulated by the state. he knew that Japan, coerced into the international economic order by the mid-century arrival of America’s “black ships,” had already embarked on a similarly ambitious program of state-led modernization to catch up with the West.

Two generations of Japanese had already absorbed List’s economic nationalism, which went on to survive the devastation of the World War II and an eccentric bout of New Deal welfarism under U.S. occupation.

Japan’s example was then followed by , and Singapore. All these Asian state capitalists ironically received much assistance from the U.S. as it pursued its geopolitical interests, boosting local economies through wars in Korea and Vietnam, foreign aid, and its open markets.

Finally in the late 1970s, China, after a long spell with rigid central planning, started to look to Singapore for ideological guidance. Since then China’s careful adaptation of certain capitalist practices, and the creation of a native class of global businessmen, has periodically sparked optimism that it would follow Anglo-American neoliberalism in all its particulars.

This has proved to be a fantasy, based on a misreading of Chinese motives. The Chinese government’s encouragement of

WASHINGTON AGENCIES

US economic growth slowed in the second quarter as consumers spent at their slowest pace in a year, increasing pressure on the Federal Reserve to do more to bolster the recovery.

Gross domestic product expanded at a 1.5 percent annual rate between April and June, the weakest pace of growth since the third quarter of 2011, the Commerce Department said on Friday.

First-quarter growth was revised up by a tenth of a percent to a 2.0 percent pace.

Details of the report were weak, with foreign trade being a drag and stocks of unsold goods rising. That, together with signs that activity slowed further early in the third quarter strengthens the argument for the Fed to offer the economy additional stimulus at its September meeting.

“The economy has lost altitude and flying pretty close to stall speed. Monetary policy is the only game in town and additional easing is h i g h l y

state-owned enterprises and control of strategic industries is at least partly rooted in the fear of a local entrepreneurial class that might challenge the Communist Party’s monopoly on power. Given the preponderance of various “princelings” in the country’s economic life, China’s state capitalism can seem merely a euphemism for crony capitalism.

Moreover, economic nationalism largely explains China’s increasingly mercantilist trade and investment policies. spelled out its imperatives even as he broke with the disasters and crimes committed by trying to make China catch up with the West. “Our country must develop,” Deng famously warned, “if we do not develop then we will be bullied. Development is the only hard truth.”

NEOLIBERAL TyRANNy: Liang Qichao as well as Deng would have heartily approved of this week’s proposed $15.1 billion acquisition of the Canadian energy giant Nexen Inc. by Cnooc Ltd., which will make the latter a competitor to in . For Liang’s preferred economic policy was one that helped Chinese capitalists “best to engage in external competition.

To this policy all other considerations are subordinate.”

Certainly, Friedrich List seems more prescient than in having recognized that the enlightened self-interest of individuals cannot be a useful principle for national economies that have to compete with one another even in an era of unrestricted trade and capital flows.

As we recover from the baleful intel-

lectual tyranny of neoliberalism, we can see more clearly the many forms of market economies, shaped by historical context and specific political trajectories. This reminder of diversity itself opens up the space for some fresh remedial thinking.

But learning from other examples of capitalism, as Bloomberg Businessweek exhorts, might be more difficult than it seems. The biggest beneficiaries of globalization in the West today embody the Ayn Randian ideal of the profit-maximizing, self-seeking capitalist. A small global elite of businessmen and investors has come to depend more on supply-chain manufacturers in Taiwan and bankers in the Cayman Islands than on workers within any given national borders.

That elite can afford to forgo any sense of national solidarity or a shared economic fate with its fellow citizens.

And in the current U.S. ideological climate, advocacy of collective effort or responsibility is quickly stigmatized as the harbinger of Stalinism.

Such is the impasse, political as well as socioeconomic, into which laissez faire ideologues have led entire nations. It won’t be easily overcome.

Pankaj Mishra whose new book, “From the Ruins of empire: The Revolt Against the West and the Remaking of Asia,” will be published in August, is a Bloomberg View columnist, based in London and Mashobra, India. The opinions expressed are his own.

COURTESY: BLOOMBERG

Second-quarter GDP rises 1.5 percent, slows from Q1 likely,” said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

The ailing economy could cost President Barack Obama a second term in office when Americans vote in November. Obama’s approval rating on his handling of the economy is slipping.

An Ipsos/Thomson Reuters poll published last week showed 36 percent of registered voters believe Republican candidate Mitt Romney has a better plan for the economy, compared to 31 percent who had faith in Obama’s policies.

In a nod to the darkening economic outlook, the White house on Friday cut its growth estimate for this year to 2.3 percent from 2.7 percent back in February. The growth forecast for 2013 was pared to 2.7 percent from 3.0 percent. The economy’s expansion following the 2007-09 recession is the slowest since the 1980-81 period and the recession itself was the deepest in the post-war period.

FED MAy KEEP POWDER DRy: No major policy announcement is expected at the Fed’s two-day meeting next week, but many economists now say the central bank could launch a third round of bond purchases, also known as quantitative easing, when policymakers gather on Sept.12-13. however, there is a chance the Fed could push further into the future its conditional pledge to keep rates near zero through late 2014, economists said. The U.S. central bank has already

injected $2.3 trillion into the economy through asset purchases and slashed overnight interest rates to near zero.

But not all economists believe the Fed will pump more money into the economy in September, arguing that the slowdown in growth was not a sufficient condition on its own. They said the Fed would want to save its limited arsenal for a real crisis. “The Fed will pull the trigger on Qe3 if the sense is we are getting into trouble, but if we are just weak and somewhat limping forward, they will prefer to stay pat,” said Adolfo Laurenti, a senior economist at Mesirow Financial in Chicago.

“They do not want to use whatever ammunition they have left too soon, they want to keep some just because things might get even worse later on.” The economy has been hit by worries of deep government spending cuts and higher taxes scheduled to kick in at the start of 2013, as well as troubles from the debt crisis in europe.

The biggest factor weighing on the recovery is fear that politicians in Washington will be unable to avoid the so-called fiscal cliff at the turn of the year, economists said.

Third-quarter growth is forecast at a rate between 1 and 1.5 percent.

Stocks on Wall Street rallied on expectations of further monetary stimulus, with the Dow Jones industrial average vaulting above the 13,000 mark. however, Treasury debt prices fell as the GDP report was in line with economists’ expectations. The dollar rose against the yen.

Monday, 30 July, 2012