Developing countries: Is secure to invest in them?
Usually we find that a developing country is a temptation to make investments, they need to grow (unemployment is not controlled, poverty exists, distribution of income is not equal, etc.). So, in a word, they try to attract capital into their countries; sometimes offering more opportunities that the ones really exist.
In some of these countries even the interest rate they offer is very high in comparison with the market one (we can talk about 2 times above regular rates).
The try to attract capital through public bonds that sounds very nice at the first look at them, but was it’s not taken into consideration is that those public debts will be paid in five, ten or even more years and that by that time these governors won’t be there any more! So, is the future government prepare – or willing – to pay investors back? Are we sure that that money that is obtained in this way is going to be used in a correct way (lets say investment in public areas that help the society, like education, health care, transport, roads, etc.), or used for “private benefits”
Are there laws that protect investments or the government is free to manage the banking system using the figure of “emergency laws” and can appropriate those funds (or part of them) to cover the emergency?
Can they issue more public bonds to pay the interests from the previous ones?
Are they just exporting primary sector products or there are industries that convert these resources into products (value added idea)?
These are some of the things that I think have to be taken into consideration in order to see if the investment is going to be a real thing or if it’ll turn into a loosing point.
Prof. Lic. Fernando Julio Silva, MSc.
September 2006
Sunday, October 01, 2006
Inflation is a lot lower in Japan than first thought
Inflation is a lot lower in Japan than first thought
Japan's economy
Adjusting the rear-view mirror
Aug 31st 2006From The Economist print edition
ONE of the most glaring mistakes in the recent history of central banking stemmed from a sound response to unsound numbers. The Federal Reserve let inflation get out of hand in the 1970s, because it thought there was more slack in the economy than there turned out to be. A big revision of Japan's inflation figures last week suggests its central bankers may be making the opposite mistake.
The Bank of Japan (BoJ), along with everyone else, had been under the impression that the country escaped deflation late last year, and that consumer prices, excluding fresh food, were now rising at the heady annual rate of 0.6%. Having raised interest rates from the floor in July, the BoJ was expected to do so again this year.
Not any more. Last week, the islands' number-crunchers carried out their five-yearly overhaul of the inflation figures. The new numbers use a more recent “base year” (2005, not 2000), and track the cost of a more up-do-date basket of 584 goods. Hijiki, an edible brown seaweed, is in; “standard” rice is out; doughnuts are included, norimaki sushi tossed aside; fees for dancing school will be counted, those for dressmaking school will not.
This reshuffling of the statistician's shopping basket has rewritten recent history (see chart). Japan, it now seems, did not escape deflation definitively until July, when the core annual inflation rate reached 0.2% for only the second month in a row. As Richard Jerram, of Macquarie Research in Tokyo, puts it “price pressures today are where the BoJ thought they were six months ago.” With hindsight, July's rate hike looks premature and there may not be another one this year. The currency markets, at least, do not seem to expect one: this week traders demanded more than 150 yen for a euro, the worst rate since the single currency was created.
Still, Mr Jerram finds a silver lining in this statistical cloud of confusion. The disturbing lack of inflationary pressure suggests that the economy is more productive than its doubters suggest. And the economy seems to be coping surprisingly well with real interest rates that are, thanks to lower inflation, 0.5 percentage points higher than the BoJ intended. Such optimism drew strength from unemployment's fall to 4.1% in July, resuming a downward drift. There are now 1.09 jobs for every applicant at Japan's government-run employment agencies, the highest ratio since 1992.
America's statisticians have also been unsettling its central bankers. According to revised figures released this week, the economy grew a little more quickly in the second quarter than first thought, expanding at an annual pace of 2.9%, not 2.5%.
A day earlier the Federal Reserve released the minutes of its most recent rate-setting meeting, held on August 8th. At that meeting, the central bankers decided to sit on their hands, leaving interest rates at 5.25%. But not, the minutes reveal, before wringing those hands thoroughly over some more statistical revisionism.
The Fed's committee members are confident the economy will continue to grow in line with its sustainable long-run rate, more or less (probably less). But after the statisticians' yearly overhaul of the country's accounts in July, they are no longer sure what that sustainable rate is. The new figures suggest that America's workers are less productive and better compensated, than first thought. As a result, unit labour costs are higher and the economy will have to lose more steam than the Fed had hoped before price pressures subside.
These second takes on old numbers have left central bankers in Washington and Tokyo in an awkward limbo. What to do? Wait for fresh numbers of course! The Fed's pause will give it a chance to “accumulate more information”, the minutes said. The BoJ, on the other hand, seems to be waiting for October's Tankan survey of businesses before deciding what steps to take next. When the facts change, central bankers do not necessarily change their minds. They just wait for the facts to change again.
http://www.economist.com/finance/displaystory.cfm?story_id=7855585
Japan's economy
Adjusting the rear-view mirror
Aug 31st 2006From The Economist print edition
ONE of the most glaring mistakes in the recent history of central banking stemmed from a sound response to unsound numbers. The Federal Reserve let inflation get out of hand in the 1970s, because it thought there was more slack in the economy than there turned out to be. A big revision of Japan's inflation figures last week suggests its central bankers may be making the opposite mistake.
The Bank of Japan (BoJ), along with everyone else, had been under the impression that the country escaped deflation late last year, and that consumer prices, excluding fresh food, were now rising at the heady annual rate of 0.6%. Having raised interest rates from the floor in July, the BoJ was expected to do so again this year.
Not any more. Last week, the islands' number-crunchers carried out their five-yearly overhaul of the inflation figures. The new numbers use a more recent “base year” (2005, not 2000), and track the cost of a more up-do-date basket of 584 goods. Hijiki, an edible brown seaweed, is in; “standard” rice is out; doughnuts are included, norimaki sushi tossed aside; fees for dancing school will be counted, those for dressmaking school will not.
This reshuffling of the statistician's shopping basket has rewritten recent history (see chart). Japan, it now seems, did not escape deflation definitively until July, when the core annual inflation rate reached 0.2% for only the second month in a row. As Richard Jerram, of Macquarie Research in Tokyo, puts it “price pressures today are where the BoJ thought they were six months ago.” With hindsight, July's rate hike looks premature and there may not be another one this year. The currency markets, at least, do not seem to expect one: this week traders demanded more than 150 yen for a euro, the worst rate since the single currency was created.
Still, Mr Jerram finds a silver lining in this statistical cloud of confusion. The disturbing lack of inflationary pressure suggests that the economy is more productive than its doubters suggest. And the economy seems to be coping surprisingly well with real interest rates that are, thanks to lower inflation, 0.5 percentage points higher than the BoJ intended. Such optimism drew strength from unemployment's fall to 4.1% in July, resuming a downward drift. There are now 1.09 jobs for every applicant at Japan's government-run employment agencies, the highest ratio since 1992.
America's statisticians have also been unsettling its central bankers. According to revised figures released this week, the economy grew a little more quickly in the second quarter than first thought, expanding at an annual pace of 2.9%, not 2.5%.
A day earlier the Federal Reserve released the minutes of its most recent rate-setting meeting, held on August 8th. At that meeting, the central bankers decided to sit on their hands, leaving interest rates at 5.25%. But not, the minutes reveal, before wringing those hands thoroughly over some more statistical revisionism.
The Fed's committee members are confident the economy will continue to grow in line with its sustainable long-run rate, more or less (probably less). But after the statisticians' yearly overhaul of the country's accounts in July, they are no longer sure what that sustainable rate is. The new figures suggest that America's workers are less productive and better compensated, than first thought. As a result, unit labour costs are higher and the economy will have to lose more steam than the Fed had hoped before price pressures subside.
These second takes on old numbers have left central bankers in Washington and Tokyo in an awkward limbo. What to do? Wait for fresh numbers of course! The Fed's pause will give it a chance to “accumulate more information”, the minutes said. The BoJ, on the other hand, seems to be waiting for October's Tankan survey of businesses before deciding what steps to take next. When the facts change, central bankers do not necessarily change their minds. They just wait for the facts to change again.
http://www.economist.com/finance/displaystory.cfm?story_id=7855585
China lets currency rise at a rapid pace
China lets currency rise at a rapid pace
By Keith Bradsher The New York Times
Published: September 28, 2006 – International Herald Tribune
HONG KONG China's government allowed the country's currency to rise through 7.9 to the dollar for the first time on Thursday, the latest in a series of daily highs as its pace of appreciation has mysteriously accelerated.
The currency, known as the yuan or renminbi, has now been rising most days for the past month, climbing 0.8 percent since the start of the month, which works out to an annualized pace of 10 percent. That compares with an annual pace of 2 percent to 2.5 percent during most of the months after China's 2.1 percent revaluation on July 21, 2005.
"The reality is they're moving at a faster pace," said Jonathan Anderson, the chief Asia economist at UBS.
Top Chinese officials, almost always reticent about the value of the country's currency, have been especially quiet over the past two weeks.
Even before the World Bank and International Monetary Fund annual meetings in Singapore at the start of last week, Chinese officials had contented themselves with repeating their longstanding promises to let the market start playing a greater role in the currency's value, without giving any indication of a timetable.
Beijing's leaders have long bridled at foreign criticism, prompting some China watchers to suggest that quiet diplomacy may be more productive in bringing about an appreciation of the yuan than confrontation. Treasury Secretary Henry Paulson Jr., with decades of experience in dealing with China while at Goldman Sachs, has pursued a much more low-key approach to the currency issue this summer than his predecessors or U.S. lawmakers, preferring to raise the issue in private with Chinese leaders.
That has prompted some experts to speculate that the change of tactics may have influenced the Chinese decision to allow faster appreciation now, possibly as a way to reward such behavior on the part of the United States.
"The Chinese are doing this as a gesture of good will," said Tao Dong, chief Asia economist at Credit Suisse.
But the yuan's acceleration also comes at a time when the Chinese economy seems to have settled down to sustained but controlled growth, which may make Chinese officials more prepared to experiment a little more with the value of the yuan.
After signs emerged last spring of possible overheating in investment, China's central bank raised interest rates and tightened bank reserve requirements while other regulators cracked down on provincial officials who proceeded with projects without receiving the central government's permission first. The result has been a slight tempering of growth, from industrial production, to retail sales to the money supply.
The exception among Chinese economic statistics these days is the trade surplus, which is soaring and has set records for four months in a row through August.
"The one big problem sticking out in China like a thumb, like a five-ton thumb, is the trade surplus," said Anderson, the UBS economist.
A stronger yuan makes Chinese exports more expensive in foreign markets, while making imported goods more competitive in China, two effects that could tend to shrink the trade surplus in the long run.
The People's Bank of China, the country's central bank, said when it revalued the currency in July 2005 that it would start setting the value of the yuan based on a basket of foreign currencies, and would no longer peg it just to the dollar. But in practice, the central bank has allowed the yuan to appreciate at a fairly steady but very gradual pace against the dollar; statistical analyses of changes in the yuan's value have shown almost no correlation to currencies other than the dollar.
Through capital controls and other measures, the People's Bank of China has made sure that spot trading of the yuan is conducted only in Shanghai, where the central bank is heavily involved in trading and sets the benchmark exchange rate between the yuan and the dollar each morning.
To prevent the currency from appreciating more rapidly, the central bank has bought dollars and sold yuan on a massive scale, accumulating the world's largest foreign exchange reserves, which are on track to reach $1 trillion in the coming weeks.
The yuan rose 0.07 percent in Shanghai trading on Thursday to trade at 7.8965 at 5:30 p.m., and has climbed at an annual rate of 17 percent in the last two weeks.
The yuan's latest rise above 7.9 to the dollar could create problems for the Hong Kong dollar, which is pegged in a narrow band of 7.75 to 7.85 to the dollar. The Hong Kong Monetary Authority has said repeatedly that it has no plans to abandon this trading range and start pegging the currency to the yuan.
But speculation that the Hong Kong Monetary Authority may shift the Hong Kong dollar to a yuan peg when the two currencies reach parity have periodically shaken currency markets. As the yuan approaches the same value as the Hong Kong dollar, " that might invite a lot of speculation for the Hong Kong dollar peg," said Liang Hong, a China economist at Goldman Sachs.
http://www.iht.com/articles/2006/09/28/business/yuan.php
By Keith Bradsher The New York Times
Published: September 28, 2006 – International Herald Tribune
HONG KONG China's government allowed the country's currency to rise through 7.9 to the dollar for the first time on Thursday, the latest in a series of daily highs as its pace of appreciation has mysteriously accelerated.
The currency, known as the yuan or renminbi, has now been rising most days for the past month, climbing 0.8 percent since the start of the month, which works out to an annualized pace of 10 percent. That compares with an annual pace of 2 percent to 2.5 percent during most of the months after China's 2.1 percent revaluation on July 21, 2005.
"The reality is they're moving at a faster pace," said Jonathan Anderson, the chief Asia economist at UBS.
Top Chinese officials, almost always reticent about the value of the country's currency, have been especially quiet over the past two weeks.
Even before the World Bank and International Monetary Fund annual meetings in Singapore at the start of last week, Chinese officials had contented themselves with repeating their longstanding promises to let the market start playing a greater role in the currency's value, without giving any indication of a timetable.
Beijing's leaders have long bridled at foreign criticism, prompting some China watchers to suggest that quiet diplomacy may be more productive in bringing about an appreciation of the yuan than confrontation. Treasury Secretary Henry Paulson Jr., with decades of experience in dealing with China while at Goldman Sachs, has pursued a much more low-key approach to the currency issue this summer than his predecessors or U.S. lawmakers, preferring to raise the issue in private with Chinese leaders.
That has prompted some experts to speculate that the change of tactics may have influenced the Chinese decision to allow faster appreciation now, possibly as a way to reward such behavior on the part of the United States.
"The Chinese are doing this as a gesture of good will," said Tao Dong, chief Asia economist at Credit Suisse.
But the yuan's acceleration also comes at a time when the Chinese economy seems to have settled down to sustained but controlled growth, which may make Chinese officials more prepared to experiment a little more with the value of the yuan.
After signs emerged last spring of possible overheating in investment, China's central bank raised interest rates and tightened bank reserve requirements while other regulators cracked down on provincial officials who proceeded with projects without receiving the central government's permission first. The result has been a slight tempering of growth, from industrial production, to retail sales to the money supply.
The exception among Chinese economic statistics these days is the trade surplus, which is soaring and has set records for four months in a row through August.
"The one big problem sticking out in China like a thumb, like a five-ton thumb, is the trade surplus," said Anderson, the UBS economist.
A stronger yuan makes Chinese exports more expensive in foreign markets, while making imported goods more competitive in China, two effects that could tend to shrink the trade surplus in the long run.
The People's Bank of China, the country's central bank, said when it revalued the currency in July 2005 that it would start setting the value of the yuan based on a basket of foreign currencies, and would no longer peg it just to the dollar. But in practice, the central bank has allowed the yuan to appreciate at a fairly steady but very gradual pace against the dollar; statistical analyses of changes in the yuan's value have shown almost no correlation to currencies other than the dollar.
Through capital controls and other measures, the People's Bank of China has made sure that spot trading of the yuan is conducted only in Shanghai, where the central bank is heavily involved in trading and sets the benchmark exchange rate between the yuan and the dollar each morning.
To prevent the currency from appreciating more rapidly, the central bank has bought dollars and sold yuan on a massive scale, accumulating the world's largest foreign exchange reserves, which are on track to reach $1 trillion in the coming weeks.
The yuan rose 0.07 percent in Shanghai trading on Thursday to trade at 7.8965 at 5:30 p.m., and has climbed at an annual rate of 17 percent in the last two weeks.
The yuan's latest rise above 7.9 to the dollar could create problems for the Hong Kong dollar, which is pegged in a narrow band of 7.75 to 7.85 to the dollar. The Hong Kong Monetary Authority has said repeatedly that it has no plans to abandon this trading range and start pegging the currency to the yuan.
But speculation that the Hong Kong Monetary Authority may shift the Hong Kong dollar to a yuan peg when the two currencies reach parity have periodically shaken currency markets. As the yuan approaches the same value as the Hong Kong dollar, " that might invite a lot of speculation for the Hong Kong dollar peg," said Liang Hong, a China economist at Goldman Sachs.
http://www.iht.com/articles/2006/09/28/business/yuan.php
Dear Fernando,
I'm not too sure if this is going to be of any help, or even related toyour idea of contributing to the Blog, but I will talk about it anyway.I find this method quite helpful while doing revision with my studentsespecially when exams are just a few weeks away.What I do is that I photostat a few very good scripts on a particularquestion (a past year A-Level exam question) of my students (formerstudents or students from other classes). I then hand over a script toeach group comprising of 3-4 at most, and then get them to mark thescript as per suggested answers, with their respective mark allocation,handed to them as a guide. The scripts are then inter-changed with theother groups, until all the scripts have been read by all the groups.Marks are then compared/ commented upon.By so doing, the weaker students get some ideas to go about answering thatquestion. At the same time, while reading different essays on the sametopic, it helps the students to remember and understand a topic better.
Regards,
Sunthary
I'm not too sure if this is going to be of any help, or even related toyour idea of contributing to the Blog, but I will talk about it anyway.I find this method quite helpful while doing revision with my studentsespecially when exams are just a few weeks away.What I do is that I photostat a few very good scripts on a particularquestion (a past year A-Level exam question) of my students (formerstudents or students from other classes). I then hand over a script toeach group comprising of 3-4 at most, and then get them to mark thescript as per suggested answers, with their respective mark allocation,handed to them as a guide. The scripts are then inter-changed with theother groups, until all the scripts have been read by all the groups.Marks are then compared/ commented upon.By so doing, the weaker students get some ideas to go about answering thatquestion. At the same time, while reading different essays on the sametopic, it helps the students to remember and understand a topic better.
Regards,
Sunthary
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