Economy

India remains global growth champ with 7.8 percent economy expansion in 2016

January 8, 2016 by Nasheman

United Nations: India remains the global growth champion with its economy set to increase by 7.8 percent in the new year although a World Bank report released Thursday cut it from the 7.9 projected last June.

Overall the bank’s Global Economic Prospects Report painted a gloomy global outlook cutting the global growth by almost a half percent to 2.9 percent in 2016 from the 3.3 percent forecast last June.

In the growth race among the major economies, China remains the runner-up with its economy projected to grow by 6.7 percent this year and 6.5 percent next year. The growth projections for U.S. economy are 2.7 this year, 2.4 next year and 2.2 in 2018.

It kept India’s economic growth as measured by increase in gross domestic product at 7.9 percent for 2017, “although the pace of reforms has slowed somewhat.” For 2018, it cut the projection from 8 percent made last June to 7.9 percent.

The report recognised India’s resilience saying, “Compared to most other major developing countries, India is well positioned to withstand near-term headwinds and volatility in global financial markets due to reduced external vulnerabilities, a strengthening domestic business cycle, and a supportive policy environment.”

However, it also drew attention to the dark clouds overhanging the reform process. “In India, progress in reforms is not assured as the upper house of parliament, which the ruling party does not control, has the power to block the government’s legislative agenda,” the report said. “A failure to pass the goods and services tax (GST) could hamper the government’s ability to ramp up spending on infrastructure needs and preserve the status quo of fragmented domestic markets.”

“Slow progress on land reforms could add to investment delays,” it added. “And private investment growth may be unable to build further momentum. The financing of public-private partnerships also remains a challenge.”

The report also referred to another area of concern, the slowdown in industrial production. Both the services and manufacturing Purchasing Managers’ Indices (PMIs) have softened, it said. The PMI fell from 54.5 for December 2014 to 49.15 last month.

On the bright side, the report said, “The investment cycle is gradually picking up, led by a government efforts to boost investment in infrastructure, particularly roads, railways and urban infrastructure.” It added that India’s currency and stock markets weathered the volatility in the global financial markets last year. Sensex, a key Indian stock market index ended 2015 up 1.08 percent.

“Progress on infrastructure improvements and government efforts to boost investment are expected to offset the impact of any tightening of borrowing conditions resulting from tighter U.S. monetary policy,” the report said. “Such investment will also lift potential growth over the medium term. Low international energy prices and domestic energy reforms will ease energy costs for Indian firms that tend to be energy intensive.”

Other positives on India’s report card that the World Bank noted were:

* Sharp reduction in current account deficit, to about 1 percent of GDP in the second quarter of 2015 from about 5 percent in mid-2013 during the turmoil in the financial markets over U.S. Federal Reserve policy.

* The central bank rebuilding reserves while net foreign direct investment (FDI) inflows have stayed positive.

* Reduction in the central government’s fiscal deficit close to 4 percent of the GDP, down from a peak of 7.6 percent in 2009 through fiscal consolidation.

* The recently announced salary increases for public sector employees and support for urban spending from lower inflation offsetting fall in rural incomes because of two successively weak monsoons.

(IANS)

IMF: Saudi running on empty in five years

October 22, 2015 by Nasheman

Gulf kingdom could deplete financial assets within five years as it struggles with slumping oil prices.

The fall in oil prices has led to the Middle East facing export revenue losses amounting to $360bn this year alone [Mosaab Elshamy/AP]

by Abid Ali, Al Jazeera

Saudi Arabia could burn through its financial assets within five years, as the country grapples with slumping oil prices.

The Middle East’s biggest economy is expected to run budget deficits of 21.6 percent in 2015 and 19.4 percent in 2016, according the IMF’s latest regional outlook.

That means Riyadh needs to find money to meet its spending plans. Just like its oil-exporting neighbours, it plans to make substantial cuts to its budgets.

“For the region’s oil exporters, the fall in prices has led to large export revenue losses, amounting to a staggering $360bn this year alone,” Masood Ahmed, the IMF’s Middle East director, told reporters in Dubai.

There has been a trickle of evidence over the last few months that not all is well inside the kingdom.

The Saudi Arabian Monetary Agency has withdrawn $70bn in funds managed by overseas financial institutions. Its foreign reserves have fallen by almost $73bn, since oil prices slumped, leaving it with $654.5bn.

But with a debt-to-GDP ratio of two percent, there is plenty of room for the country to borrow money to fund its growth.

The International Monetary Fund’s regional report also found that.

Syria’s economy has contract as much as 60 percent since the start of the conflict.
Yemen’s economy has slumped nearly 30 percent.
Economic growth for the Middle East, North Africa, Afghanistan and Pakistan could rise to 3.9 percent in 2016 from 2.5 percent this year.
Oil prices are expected to average $52 a barrel in 2015 and could rise to $63 a barrel next year.
With oil prices languishing around $50 a barrel, oil exporters need to diversify their economies to absorb millions of job seekers. “Achieving fiscal sustainability over the medium term will be especially challenging given the need to create jobs for the more than 10 million people anticipated to be looking for work by 2020 in the region’s oil-exporting countries,” Ahmed said.

Modi took lessons from Manmohan Singh on economy: Rahul Gandhi

May 30, 2015 by Nasheman

New Delhi: Former prime minister Manmohan Singh’s meeting with his successor Narendra Modi had fuelled intense speculation but Rahul Gandhi had a different take — the Prime Minister took “lessons” on economy.

In keeping with his new-found aggression, the Congress vice president targeted Modi, saying he called Singh to his residence Wednesday after the economist-turned politician tore into the handling of the economy by the government.

“Manmohan Singh criticised the health of economy in the morning yesterday (Wednesday). Narendra Modi took pathshaala (lessons) from him in the evening. I will ask him (the former PM),” he said addressing the national convention of NSUI, drawing a huge round of applause from the gathering. Hours after slamming the NDA government, Singh met Modi at his 7 Race Course Road residence and discussed issues related to economy and foreign policy.

“Very happy to meet Dr. Manmohan Singh ji & welcome him back to 7RCR. We had a great meeting,” Modi tweeted later along with their photographs.

In a statement, Singh’s office said the former prime minister met Modi at the latter’s “invitation” and “they discussed the economic situation in the country and foreign policy issues.”

At the NSUI event, Gandhi also took potshots at the Prime Minister’s pet ‘Make in India’ scheme, saying a “zero” will come out of it. “Nothing is going to come out of ‘Make in India’. It’s a big zero. It is going to yield a zero. For ‘Make in India’, you have to give power to common man. For ‘Make in India’, you have to give confidence to poor people. They think that they will empower two or three big industrialists and ‘Make in India’ will happen. “It will not happen. See after five years but why five years? Just see the one year of their government. Has anybody got employment,” he asked.

(PTI)

Budget for the rich to get richer and throw crumbs to the poor – Statement by NTUI

March 2, 2015 by Nasheman

by Gautam Mody, NTUI

New Delhi: The Union Budget of 2015-16, the BJP government’s first full budget, has a sense of triumphalism that it ‘can fly’ because it believes that , the ‘opportunity for this exist because we (the BJP government) have created it’ over the last nine-and-a-half months. This government is taking credit for conditions and circumstances that it has nothing to do with or did not, in the remotest way, have the ability or opportunity to contribute to. The BJP government rewards itself with the entire credit for the deceleration of the rate of inflation. It does not anywhere take note of the fact that inflationary pressure and therefore the country’s current account balance, has anything to do with the fact that international oil prices are at their lowest level in 5 years and at, in fact, half of what they were in May 2014. The BJP government would be wise to note that almost identical circumstances marked the euphoria at the start of the second UPA government. Furthermore, although inflation indices may show a decline, the measure of food price inflation is yet to show any significant decline.

The second reason that appears to tell the BJP government that its’ time to ‘fly’ has come is that, based on revised government statistics, it has given itself the title of the ‘fastest growing largest economy’ in the world. The government’s Economic Survey 2014-15 (ES), released on 27 February 2015, indicated that the economy will grow in 2015-16 by anywhere between 8.1 to 8.5 percent from a growth of 5.9 percent in the current year (2014-15).

A substantial part of the Budget Statement is interspersed with the promise that ‘every rupee of public expenditure…will contribute to the betterment of people’s lives through job creation, poverty elimination and economic growth’. Hence the test we must apply to this budget is whether the growth inspired by this budget will indeed contribute to job creation and poverty elimination. Equally, we are concerned about whether this rate of growth will introduce stability in the economy and what its distributional consequences will be for the working class.

Reducing Poverty by Reducing Budgetary Provision on Social Protection

The government’s promise of ‘poverty elimination’ comes with an across-the-board reduction in government expenditure on social protection and social security. The funds allocated for the MGNREGA are frozen at Rs. 34,000 crores and have for the first time come to below 2 percent of government expenditure. Expenditure on health, education, women and child development, both rural and urban housing, drinking water and sanitation, and welfare of SCs, STs and minorities all taken together have faced cuts amounting to 1 percent of the total budgeted expenditure or nearly Rs. 10,000 crores. If we break these down and adjust for the increases in the Prime Ministers pet projects ‘Swachh Bharat’ and urban housing through public private partnerships (PPP), then the reductions in the Sarva Shiksha Abhiyan, the Mid-day Meal Scheme, the Integrated Child Development Scheme (ICDS), the National Rural Health Mission and the Indira Aawas Yojana are not insignificant. Apart from not allowing for the scaling up of these critical programmes, the reduced budgetary support implies that the roughly 1 crore ‘honorarium’ workers employed by these programmes will not see an increase in their meagre wages and will continue to remain close to the poverty line.

Not to be seen as wanting in generosity, the Budget Statement increases the provision for food subsidy by a ‘generous’ sum of Rs. 2,000 crores to Rs. 124,000 crores. The full implementation of the National Food Security Act would require significantly more budgetary support than this which implies, despite the expressed promise of transparency, that the BJP government has decided to accept the Shanta Kumar Committee recommendation of restructuring the Food Corporation of India and curtailing the reach of the NFSA.

Universal Social Security defined by ability to pay

Additionally, the BJP government commits itself to creating a ‘universal social security system’ for which government is willing to commit Rs. 1200 crores. This will support contributory pension, accident and life insurance schemes which the government will support for a maximum of five years. Even through the most generous computation, these schemes can reach 1.2 crore people or about 2.5% of the working population.

Towards furthering a ‘universal social security system’, government commits itself to providing workers a choice between health care benefits under Employee State Insurance and contributory health insurance and between Employees’ Provident Fund and the New Pension Scheme. In ‘choosing’ between health care and retiral benefits that are guaranteed and protected under law, the government is playing on the monetary hardship of workers ‘below a certain threshold of monthly income’ in pushing them to low contribution options in the private sector. The BJP government’s objective is not to create a system of universal social security but to universalise, in every sphere of economic life, the principle of capacity to pay and ability to pay.

‘Ease of Business’ means the exchequer will guarantee the profits

Having turned over the task of social security to private insurance and pension companies, the BJP government recognises that the private sector is in trouble and cannot really drive growth and lacks the capacity to invest in the economy to drive growth and create jobs, as its Economic Survey admitted: ‘The situation of Indian public-sector banks and corporate balance sheets suggests that the expectation that the private sector will drive investment needs to be moderated’. And even though it explicitly acknowledges in both its 2014-15 and 2015-16 budgets that the PPP model does not work, the BJP government committed itself to the PPP model (3PIndia) as the institutionalised sponsorship of the private sector by government in its 2014 Budget, and now, it goes one step further in cementing this sponsorship by confirming that the ‘sovereign will have to bear a major part of the risk’ for capital investment. These ‘sovereign’ or government guaranteed loans will come from tax free bonds.

The commitment of the BJP government to subsidise the private sector cannot be in doubt. The job will not be completed merely by guaranteeing loans for private investment. For a start, it will hand over five ultra mega power projects to the private sector after putting in place ‘all clearances’ in the ‘plug-and-play mode’. Besides these five power projects, government will consider other infrastructure projects, too, including railways, ports, highways and airports. The package of the BJP government’s policy issued through the present and the previous BSs along with the Land Acquisition and Coal Ordinances represent that for ‘ease of business’ to succeed, ‘eminent domain’ must be in place. ‘Eminent domain’ must exist for the private sector so that ease of profit allows Prime Minster Narendra Modi’s ‘ease of business’ model to work.

In the knowledge that ease of profits for infrastructure will not be sufficient to pull in enough investable resources to drive 8+ percent growth, the BJP government must necessarily turn its attention to foreign investment. Various tax concessions have been extended to foreign portfolio investors, including those who do not wish to register themselves in the country. Special provisions are also to be put in place under the BS to ease the functioning of private equity and hedge funds that are in polite company called Alternative Investment Funds. Most of all, the distinction between foreign portfolio investment (that is speculative and moves from one country to another and one company to another) and foreign direct investment (that is stable in a single company) has been effectively extinguished. This will serve to tilt the balance towards more short-termism, more speculation and even less towards long-term investment in technology, innovation and skills than is currently the case with multinational companies.

In addition to the foregoing, the BJP government promises to lower corporate tax – the tax on companies – from the present 30 percent to 25 percent over the length of this government. The budget abolishes wealth tax and replaces it with a 2 percent cess on those with incomes of Rs. 1 crore or more. This will brings in Rs. 9,000 crores a year or about 0.50 percent of the total budgeted government expenditure for 2015-16. Conversely, service tax will rise from 12.36 percent to 14 percent. While on the one hand, the BJP government has made clear that it will continue to provide tax breaks on corporate and personal income taxes by raising service tax and confirming the introduction of the Goods and Service Tax by April 2016, the BJP government will extend the reliance on indirect taxes. Although the BS does announce a new legislation for hunting down black money abroad, its scrapping of the proposal for the Direct Tax Code to plug loopholes in taxes and putting the General Anti-Avoidance Rules on the back burner is an indication of how serious the BJP government is about plugging loopholes at home.

The BJP government’s tax proposals will potentially ‘forego’ about Rs. 600,000 crores. Of this, some 10% or Rs. 60,000 crores will be the direct benefit to private companies. While the BJP government expects the economy to grow at 8+ percent a year, the BS only estimates an increase in tax revenues of 1.35% as compared to the previous year. The Tax-to-GDP ratio is expected to dip to less than 10 percent over the next year. This would mean taking the country back to the same state as at the time of the last BJP government.

Who will pay for government expenditure?

The questions remains: where is the money to meet government expenditure going to come from, in the absence of increased tax revenue, and where will the money for capital investment come from, to create the jobs that will ‘make in India’? Monies to meet government’s expenditure will come from two sources – first, nearly 10 percent of government expenditure will be met through interest and dividend payments to government by public sector undertakings and the sale of shares (disinvestment) in public sector undertakings. The most important source of government funds will come through borrowings.

As for job creation, from its own side, the BJP government plans to invest a sum total of Rs. 70,000 crores in capital investment. The BS does not tell us where it will go. No one knows at this point how much of it will go to shoring up PPPs. At any rate, the amounts on offer are in fact less than 0.50 percent of GDP. This is going to be far from sufficient to drive 8 percent growth or take it to the ‘double-digits’, as the BS promises for the years ahead. The BJP government is relying on an additional Rs. 320,000 crores to be invested by public sector corporations. Hence ‘make in India’, too, will be for the private sector with the resources of the public sector.

The general condition of the economy is poor and the ‘roadmap for the future’, as put forward by the BS, provides little hope for working people. For one, the entire fiscal framework – of taxation and spending – of the BJP government will contribute further to inequalities. Second, the increased ‘sovereign’ borrowings to finance investment will be further tax-free transfers to the rich. And third, the dependence on foreign investment flows pushes up the value of the rupee which makes our exports more expensive abroad and makes it difficult to export our goods abroad. This bodes poorly for sustained and stable levels of economic growth and therefore for job creation and wages with growing inequalities.

And yet, perhaps, there is still a chance for achhe din! The BS promises that if the rich pay taxes beyond expectation (the level of which remains unstated), the BJP government will throw in an additional Rs. 10,000 crores (or a total of 0.50 percent of budgeted expenditure) to fund the MGNREGA, Integrated ICDS, Integrated Child Protection Scheme (ICPS) and the Pradhan Mantri Krishi Sinchai Yojana. Working people must live in the hope that the rich get richer – for it is then that the BJP government will throw crumbs at them.

Gautam Mody is the General Secretary of New Trade Union Initiative (NTUI).

20 years of data reveals 'Free Trade' fallacies

January 16, 2015 by Nasheman

‘In their speeches and commentary, the administration, corporate interests and GOP leadership disregard the real, detrimental impacts that previous fast tracked trade deals…have had on America’s middle class.’

“With such high stakes, we cannot let the Fast Track process lock Congress and the public out of negotiations that will have lasting impacts on the livelihoods, rights and freedoms of American families, workers and businesses,” says Lori Wallach of Public Citizen. (Photo: Caelie_Frampton/flickr/cc)

by Deirdre Fulton, Common Dreams

Fast-tracked international trade deals have led to exploding U.S. trade deficits, soaring food imports into the U.S., increased off-shoring of American jobs, and an “unprecedented rise in income inequality,” according to new data released Thursday by the watchdog group Public Citizen.

The report, “Prosperity Undermined” (pdf), compiles and analyzes 20 years of trade and economic data to show that the arguments again being made in favor of providing the Obama administration with Fast Track trade authority—effectively handing over extensive new executive powers and delegating away core congressional constitutional authorities—have repeatedly proved false.

As an example, Public Citizen points to the damaging consequences of a 2011 trade deal with Korea, which expanded on the NAFTA model:

Since the Obama administration used Fast Track to push a trade agreement with Korea, the U.S. trade deficit with Korea has grown 50 percent—which equates to 50,000 more American jobs lost. The U.S. had a $3 billion monthly trade deficit with Korea in October 2014—the highest monthly U.S. goods trade deficit with the country on record. After the Korea FTA went into effect, U.S. small businesses’ exports to Korea declined more sharply than large firms’ exports, falling 14 percent.

President Barack Obama is expected to push Fast Track for the corporate-friendly Trans-Pacific Partnership (TPP), which has been negotiated largely in secret—with significant input from Wall Street and big business interests. Even in the face of evidence that prior trade deals are not working, Public Citizen says, Obama has “doubled down on the old model with TPP.”

“It’s not surprising that Democrats and Republicans alike are speaking out against Fast Track because it cuts Congress out of shaping trade pacts that most Americans believe cost jobs while empowering the president to sign and enter into secret deals before Congress approves them,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “In their speeches and commentary, the administration, corporate interests and GOP leadership disregard the real, detrimental impacts that previous fast tracked trade deals—which serve as the model for the Trans-Pacific Partnership—have had on America’s middle class over the past 20 years.”

President Obama is likely to use next week’s State of the Union address to push for TPP passage and Fast Track authority, Dave Johnson predicts in an op-ed published Thursday. Echoing many of Public Citizen’s criticisms of NAFTA and the Korea-U.S. trade deal, Johnson notes: “The reason our trade policies are working out this way is because the beneficiaries of this kind of trade deal are the ones controlling and negotiating these trade deals.”

He continues:

The giant, multinational corporations and Wall Street make money from offshoring U.S. jobs and production—partly because our tax laws encourage this activity. The rest of us, including our “Main Street” businesses and the country at large, are net losers. This is obvious to anyone who drives through much of the country or who talks to regular, working people. This is obvious to anyone who looks at the timeline of that trade deficit chart and compares that to the economic shifts of our last few decades.

Our trade negotiating process is rigged from the start. Giant, multinational and Wall Street corporate interests are at the negotiating table. Consumer, labor, environmental, human rights, democracy, health and all the other stakeholder representatives are excluded and the results of these negotiations reflect this. A rigged process called “fast track” is used to essentially force Congress to pre-approve the agreements before the public has a chance to analyze and react to them.

Obviously the giant, multinational and Wall Street corporations would want the public to believe that everyday small businesses gain from our trade deals, when in fact they do not. It is less obvious why President Obama would want to present at the State of the Union the story of one small business that does not reflect the reality of the trade deals he is promoting.

While Public Citizen’s report focuses on Fast Track authority, it is at its core opposed to the so-called free trade pacts that authority is designed to promote.

“Economists across the political spectrum agree that trade flows during the era of free trade pacts have, in fact, contributed to rising U.S. income inequality, including Vice President Joe Biden’s former economic adviser, Jared Bernstein,” the analysis reads. “The only debate is the extent of the blame to be placed on trade. Even the pro-NAFTA Peterson Institute for International Economics has estimated that 39 percent of observed growth in U.S. wage inequality is attributable to trade trends.”

Modi government slashes Centre's allocation to Karnataka under MGNREGA

December 27, 2014 by Nasheman

Bengaluru: Karnataka Rural Development and Panchayat Raj Minister H K Patil today slammed the Narendra Modi-government for “slashing the state’s allocation under the MGNREGA”, saying it would hit developmental work and poor people.

“The slashing of state’s allocation under MNREGA will hit not only the developmental work in rural areas but also poor villagers,” he said after a meeting of Chief Executive officers of Zilla Panchayats here.

Patil flayed the central government for meting out “step-motherly” treatment to the state.
He said the Centre released full amount of Rs 4,210 crore at one go under Mahatma Gandhi National Rural Employment Guarantee Act to Andhra Pradesh but slashed Karnataka’s allocation by Rs 1,200 crore.

Patil said he would be meeting Union Rural Development Minister Chaudhary Birender Singh between January 3 and 4 in New Delhi and request him to increase the allocations for the state under the scheme.

He also said he would attend the RDPR Ministers’ national conclave in Thiruvananthpuram on January 6 where he would once again press for increase in MNREGA allocations for the state.

Patil said “in a federal set up the government at the Centre cannot discriminate between the states or slash the release of funds to the state governments.”

The Minister said the RDPR department has constructed 5.10 lakh toilets as against the target of six lakh set for this year.

“I am confident we shall achieve the target by March end of the financial year,” he said. For next year, the department has set a target of constructing 10 lakh toilets, Patil added.

By 2018, the government is determined to build toilets in all the houses in the state. “By 2018 state will be freed of open defecation menace,” he said.

Patil said there is no proposal before government to postpone the panchayat elections to be held in May.

“Elections to GPs will be held as per schedule – there’s lot of time left to prepare. Six months are left,” he said.

(PTI)

Brazil, Uruguay move away from US dollar in trade

December 13, 2014 by Nasheman

Reuters/Andrew RC Marshall

by RT

Brazil and Uruguay have switched to settling bilateral trade with local currency to stimulate turnover, bypassing the US dollar.

Payments in the Brazilian real and Uruguayan peso started on Monday. The agreement was signed on November 2 by the head of Brazilian Central Bank Alexandro Tombini and his Uruguayan counterpart Alberto Grana. Both countries believe such a move would strengthen trade across Latin America.

“The agreement was the result of long negotiations between the countries belonging to Mercosur [the common market of South American countries – Ed.], as well as the global strategies of BRICS,” RIA quotes Carlos Francisco Teixeira da Silva, Professor of International Relations at the Federal University of Rio de Janeiro.

Silva says the measure is a “step forward” in Latin American monetary independence, and “the best opportunity for the countries of South America to get rid of the old mechanisms of economic regulations dictated by the United States.”

If the new mechanism proves to be successful, it can be further expanded to countries such as Paraguay, Bolivia, or Venezuela.

Alex Luis Ferreira, a doctor of economic sciences from the University of Sao Paulo, says “the Brazilian real is likely to be used as an exchange and reserve medium.”

In November President Vladimir Putin said Russia plans to leave the “dollar dictatorship” of the market and increase the use of the ruble and the yuan in trading with China. Settlements in yuan between China and Russia have increased 800 percent in annual terms between January and September 2014.

Russia, China and Latin American countries are not the only ones interested in ditching the US dollar. The Eurasian Economic Union (EEU) which also includes Belarus and Kazakhstan is planning to create a single market for financial services by 2025 which will simplify switching to dollar-free trading. Earlier this week the Russian State Duma proposed the creation of a single area for payment in national currencies. Such measures are expected to minimize Western influence on the economy of the EEU.

Oil price slide rocks world economy

December 3, 2014 by Nasheman

by Nick Beams, WSWS

Shock waves from last Thursday’s decision by the Saudi-led oil cartel, OPEC, not to cut production in the face of an oversupply on world markets have reverberated throughout the global economy, hitting energy and mining companies as well as financial markets, and threatening whole economies with bankruptcy.

The most immediate impact of the decision was seen in Russia on Monday, where the ruble hit a record low against the US dollar since the ruble’s redenomination in 1998. That followed the Russian default, which occurred in the aftermath of the Asian financial crisis of 1997–98.

The Russian economy, which relies on oil for 60 percent of its export income and 50 percent of its budget revenues, has been hammered by the 40 percent slide in the price of oil since June.

The impact of the decline in oil revenues has been exacerbated by the sanctions imposed by the US and the European Union, which have considerably restricted Russian access to global financial markets and led to the drying up of investment inflows.

Oil has now slumped in price from around $100 per barrel just five months ago to below $70, and is expected to fall further. On Monday, the deputy chairwoman of the Russian central bank, Ksenia Yudaeva, said the bank had been working on the assumption that the oil price could go to $60. But no one knows if the slide will stop there.

Among the other countries most immediately impacted are Venezuela, Iran and Nigeria, all of which are heavily dependent on oil revenues to fund government programs.

In another expression of the global consequences of the OPEC decision, more than $30 billion was wiped off of the Australian share market yesterday, as mining and energy stocks tumbled. The giant global mining company BHP Billiton recorded its lowest share price in five years.

While the trigger for the decline was provided by the Saudi decision, the plunge in the price of oil is indicative of deeper processes. The year 2014 has marked the exhaustion of the various stimulus measures—above all, the program of “quantitative easing” pursued by the US Fed and other major central banks—which have sent asset prices to record highs.

The tendency in the underlying real economy has been continuing economic stagnation and the emergence of outright recession. The movement of the financial markets as compared to the real economy is, to use an analogy once employed by Leon Trotsky, like the opening of the blades of a giant pair of scissors.

Some six years after the eruption of the global financial crisis in 2008, the euro zone economy has not even reached the level of economic output achieved in 2007, with investment levels down by as much as 25 percent, while the inflation rate continues to fall.

The Japanese economy, despite the massive financial stimulus provided by so-called Abenomics, has entered another recession, its fourth in the past six years, as concerns grow over the capacity of the government to repay the public debt, now estimated to be more than 250 percent of gross domestic product. On Monday, the rating agency Moody’s downgraded its credit rating for the country, the world’s third largest single economy, putting it below China and South Korea and on a par with Bermuda, Oman and Estonia.

Over the past six years, the global economy has been sustained to a significant extent by continuing Chinese growth, largely the result of the stimulus package initiated by the Chinese government and the massive expansion of credit, estimated to be equivalent in size to the entire American banking system. But throughout this year it has become increasingly apparent that the Chinese economy is in the grip of a deflationary vortex. So-called “producer prices,” which record the value of commodities as they leave the factory gate, have been falling for the past three years. Property prices have fallen significantly, ending the real estate boom.

This week, a report by official government researchers put a figure on wasteful spending. It said some $6.8 trillion had been laid out since 2009 on “ineffective investment,” including needless steel mills, ghost cites and empty stadiums, as well as other government efforts to insulate China from the impact of the global financial crisis.

While American financial markets appear thus far to have been only marginally affected by the OPEC decision, the falling oil price will have major long-term consequences. One of the motivating factors for the Saudi decision appears to have been its determination to squeeze relatively high-cost US shale oil producers out of the market by driving prices lower. This is a replication of the strategy in the iron ore market, which has experienced a price fall similar to that of oil this year. Major producers, in particular BHP Billiton and Rio, have responded by increasing, rather than cutting, production in an effort to send their higher-cost rivals to the wall.

A continued slide in the oil price will have major consequences for junk bond and leveraged loan markets in the US. With oil prices reaching around $100 per barrel in 2011, shale oil production became profitable, even at extraction costs of between $60 and $70 per barrel. As recently as the start of the year, it was expected that oil prices would remain at $100 per barrel and shale oil was increasingly held up as providing a new vista for American economic expansion.

Over the past five years, using ultra-cheap money provided by the Fed, banks and financial speculators poured money into companies involved in shale oil extraction, with the result that energy debt now accounts for 16 percent of the $1.3 trillion US junk bond market, compared to 4 percent a decade ago.

Unlike more traditional methods of oil production, where physical capital has a relatively long life, shale oil extraction requires the continuous acquisition of new capital equipment. This means the industry is highly dependent on the flow of funds from financial markets. If this begins to dry up, companies could go bankrupt, with major flow-on consequences for the financial system as a whole.

As the case of Russia so clearly demonstrates, the underlying recessionary tendencies have been exacerbated by the increase in geo-political tensions.

Now a negative feedback process could be set in motion as the deepening global slump heightens conflicts among the major powers. Korea and other countries in the Southeast Asian region, together with China, have already been adversely affected by Abenomics, which has led to a fall in the value of the yen, hitting their export markets.

This year has also seen the emergence of tensions between the US and Germany, with the political and foreign policy establishment emphasising the need for Germany to play a greater and more independent role on the global stage in the pursuit of its own interests. With the euro zone economy on the verge of another recession, not least because of a significant weakening of the Germany economy, and the prospect of further financial turbulence, those tensions are certain to deepen.

The oil price slide is another expression of the underlying driving forces of the world capitalist system—towards economic contraction, the rise of inter-imperialist conflicts and, ultimately, war.

US/India WTO agreement: How corporate greed trumps needs of world's poor and hungry

November 15, 2014 by Nasheman

‘The big question is why do governments even need the WTO to decide whether they can guarantee the right to food to their people?

Farmers harvesting in India. (Photo: Asian Development Bank/Rakesh Sahai/flickr/cc)

by Andrea Germanos, Common Dreams

The United States cheered on Thursday an agreement it reached with India as progress for the World Trade Organization (WTO). Critics, however, say deal is likely a win for corporations and economic loss for developing countries.

A fact sheet from the U.S. Trade Representative explains that there are two parts to the deal that broke what had been an impasse over agreements from Ministerial meeting last year in Bali. The first is that the two countries stated they would move forward on the Trade Facilitation Agreement (TFA)—the WTO’s first multilateral trade agreement of the body’s two-decade existence. The second is an agreement on India’s food security program, which allows for domestic “food stockpiling.”

Begging WTO for Food Security

As the Associated Press summed up: “India had insisted on its right to subsidize grains under a national policy to support hundreds of millions of impoverished farmers and provide food security amid high inflation.”

Regarding that food security program, theNew York Times reports, “Indian and American officials agreed to a peace clause that protects India’s program from a legal challenge until W.T.O. members reach a permanent resolution of the dispute.” India had held out on this issue.

But as the Transnational Institute (TNI) pointed out in a report released this week: “The big question is why do governments even need the WTO to decide whether they can guarantee the right to food to their people? The right to food is a universal human right that should not be subject to trade rules.”

The report also notes that the need for such a peace clause highlights the “deep hypocrisy embedded within the WTO,” as the EU and the U.S., unlike India and other developing countries, are able to pour billions into their own agricultural subsidies.

Deborah James, Director of International Programs at the Center for Economic and Policy Research, echoed these points, explaining to Common Dreams: “The entire debate is outrageous.”

“The world has passed through multiple food crises since the WTO rules were written, and nearly every global agricultural agency now recognizes the dire need for developing countries to invest in agricultural production to promote food security, rather than relying on a global market rife with rich countries’ trade-distorting subsidies and speculative distortions. And due to a mass Right to Food movement, India now has a food security program that has been hailed as the most ambitious in the world,” James stated.

“It is beyond shameful that the United States blocked these negotiations all year in 2013, and that India and other developing countries were left with a peace clause as a consolation prize,” she continued.

Mary Louise Malig, Researcher, Trade Analyst, and author new TNI report, stressed that the deal does not offer a permanent solution to food security, and that it “is just a tiny step more than what is already agreed in the Bali Package.”

Yet, according to Timothy A. Wise, who directs the Research and Policy Program at Tufts University’s Global Development and Environment Institute, that India and the U.S. were able to reach an agreement on this issue could be positive.

“India was under enormous pressure to settle this, and its allies were under pressure to abandon India. The good news is that India’s firm stance exacted some concessions from the United States that may lead to good-faith negotiations on the food security issues. Time will tell,” Wise explained to Common Dreams.

The TFA as Corporate Win

The agreement also moves forward the WTO’s TFA, which is also problematic, critics charge.

As CEPR’s James wrote in July:

The new agreement on “Trade Facilitation” would set binding rules on customs procedures and trade operations that would demand huge investments from developing countries and Least Developed Countries (LDCs) to modernize and streamline – according to U.S. and EU standards — their port operations. This means that while we still don’t have binding international rules on, say, the right to water, corporations would have the “right” to have their products exported into developing countries quickly, easily, and cheaply. That’s why nearly 200 organizations around the world opposed the agreement when it was being negotiated last year.

The TFA would also divert limited resources away from priority development needs such as health, education, and domestic infrastructure investments in LDCs and developing countries. Developed countries refused to make binding commitments on financial support during the negotiations. The World Bank announced on July 17 that it would make available, through its Trade Facilitation Support Program (supported by Australia, the EU, the U.S., Canada, Norway and Switzerland) an embarrassingly paltry $30 million for over 100 developing countries to assist them in implementing the TFA.

As TNI’s new report puts bluntly, the TFA is a win for transnational corporations. As they “control the global supply chains across the world, [they] will gain the most from an Agreement that slashes costs and relaxes customs procedures, easing the flow of imports and exports,” the report states.

Malig added in a statement to Common Dreams: “The clear winners of this break in the impasse are the Transnational Corporations, all poised to benefit from the implementation of the Trade Facilitation Agreement.”

While the WTO had touted the economic gains of the Bali deal, Wise stated: “The bad news is that trade facilitation remains a largely unfunded mandate that will not produce the laughable estimate of $1 trillion in economic gains for the world, as my colleague Jeronim Capaldo has shown. And it may well create economic losses for some least developed countries.”

The WTO said Friday that the U.S./India agreement will probably be implemented by the full 160-member body within two weeks.

The Saudi oil war against Russia, Iran and the U.S

October 17, 2014 by Nasheman

A fisherman pulls in his net as an oil tanker is seen at the port in the northwestern city of Duba.(Reuters / Mohamed Al Hwaity)

– by Pepe Escobar, RT

Saudi Arabia has unleashed an economic war against selected oil producers. The strategy masks the House of Saud’s real agenda. But will it work?

Rosneft Vice President Mikhail Leontyev; “Prices can be manipulative…Saudi Arabia has begun making big discounts on oil. This is political manipulation, and Saudi Arabia is being manipulated, which could end badly.”

A correction is in order; the Saudis are not being manipulated. What the House of Saud is launching is“Tomahawks of spin,” insisting they’re OK with oil at $90 a barrel; also at $80 for the next two years; and even at $50 to $60 for Asian and North American clients.

The fact is Brent crude had already fallen to below $90 a barrel because China – and Asia as a whole – was already slowing down economically, although to a lesser degree compared to the West. Production, though, remained high – especially by Saudi Arabia and Kuwait – even with very little Libyan and Syrian oil on the market and with Iran forced to cut exports by a million barrels a day because of the US economic war, a.k.a. sanctions.

The House of Saud is applying a highly predatory pricing strategy, which boils down to reducing market share of its competitors, in the middle- to long-term. At least in theory, this could make life miserable for a lot of players – from the US (energy development, fracking and deepwater drilling become unprofitable) to producers of heavy, sour crude such as Iran and Venezuela. Yet the key target, make no mistake, is Russia.

A strategy that simultaneously hurts Iran, Iraq, Venezuela, Ecuador and Russia cannot escape the temptation of being regarded as an “Empire of Chaos” power play, as in Washington cutting a deal with Riyadh. A deal would imply bombing ISIS/ISIL/Daesh leader Caliph Ibrahim is just a prelude to bombing Bashar al-Assad’s forces; in exchange, the Saudis squeeze oil prices to hurt the enemies of the “Empire of Chaos.”

Yet it’s way more complicated than that.

Sticking it to Washington

Russia’s state budget for 2015 requires oil at least at $100 a barrel. Still, the Kremlin is borrowing no more than $7 billion in 2015 from the usual “foreign investors”, plus $27.2 billion internally. Hardly an economic earthquake.

Besides, the ruble has already fallen over 14 percent since July against the US dollar. By the way, the currencies of key BRICS members have also fallen; 7.8 percent for the Brazilian real, 1.6 percent for the Indian rupee. And Russia, unlike the Yeltsin era, is not broke; it holds at least $455 billion in foreign reserves.

The House of Saud’s target of trying to bypass Russia as a top supplier of oil to the EU is nothing but a pipe dream; EU refineries would have to be reframed to process Saudi light crude, and that costs a fortune.

Geopolitically, it gets juicier when we see that central to the House of Saud strategy is to stick it to Washington for not fulfilling its “Assad must go” promise, as well as the neo-con obsession in bombing Iran. It gets worse (for the Saudis) because Washington – at least for now – seems more concentrated in toppling Caliph Ibrahim than Bashar al-Assad, and might be on the verge of signing a nuclear deal with Tehran as part of the P5+1 on November 24.

On the energy front, the ultimate House of Saud nightmare would be both Iran and Iraq soon being able to take over the Saudi status as key swing oil producers in the world. Thus the Saudi drive to deprive both of much-needed oil revenue. It might work – as in the sanctions biting Tehran even harder. Yet Tehran can always compensate by selling more gas to Asia.

So here’s the bottom line. A beleaguered House of Saud believes it may force Moscow to abandon its support of Damascus, and Washington to scotch a deal with Tehran. All this by selling oil below the average spot price. That smacks of desperation. Additionally, it may be interpreted as the House of Saud dithering if not sabotaging the coalition of the cowards/clueless in its campaign against Caliph Ibrahim’s goons.

Compounding the gloom, the EU might be allowed to muddle through this winter – even considering possible gas supply problems with Russia because of Ukraine. Still, low Saudi oil prices won’t prevent a near certain fourth recession in six years just around the EU corner.

Reuters / Hamad I Mohammed

Go East, young Russian

Russia, meanwhile, slowly but surely looks East. China’s Vice Premier Wang Yang has neatly summarized it; “China is willing to export to Russia such competitive products as agricultural goods, oil and gas equipment, and is ready to import Russian engineering products.” Couple that with increased food imports from Latin America, and it doesn’t look like Moscow is on the ropes.

A hefty Chinese delegation led by Premier Li Keqiang has just signed a package of deals in Moscow ranging from energy to finance, and from satellite navigation to high-speed rail cooperation. For China, which overtook Germany as Russia’s top trading partner in 2011, this is pure win-win.

The central banks of China and Russia have just signed a crucial, 3-year, 150 billion yuan bilateral local-currency swap deal. And the deal is expandable. The City of London basically grumbles – but that’s what they usually do.

This new deal, crucially, bypasses the US dollar. No wonder it’s now a key component of the no holds barred proxy economic war between the US and Asia. Moscow cannot but hail it as sidelining many of the side effects of the Saudi strategy.

The Russia-China strategic partnership has been on the up and up since the “epochal” (Putin’s definition) $400 billion, 30-year “gas deal of the century” clinched in May. And the economic reverberations won’t stop.

There’s bound to be an alignment of the Chinese-driven New Silk Roads with a revamped Trans-Siberian railway. At the Shanghai Cooperation Organization (SCO) summit last month in Dushanbe, President Putin praised the “great potential” of developing a “common SCO transport system” linking “Russia’s Trans-Siberian railway and the Baikal-Amur mainline” with the Chinese Silk Roads, thus“benefiting all countries in Eurasia.”

Moscow is progressively lifting restrictions and is now offering Beijing a wealth of potential investments. Beijing is progressively accessing not only much-needed Russian raw materials but acquiring cutting-edge technology and advanced weapons.

Beijing will get S-400 missile systems and Su-35 fighter jets as soon as the first quarter of 2015. Further on down the road will come Russia’s brand new submarine, the Amur 1650, as well as components for nuclear-powered satellites.

Reuters / Hamad I Mohammed

The road is paved with yuan

Presidents Putin and Xi, who have met no less than nine times since Xi came to power last year, are scaring the hell out of the “Empire of Chaos.” No wonder; their number one shared priority is to dent the hegemony of the US dollar – and especially the petrodollar – in the global financial system.

The yuan has been trading on the Moscow Exchange – the first bourse outside of China to offer regulated yuan trading. It’s still at only $1.1 billion (in September). Russian importers pay for 8 percent of all Chinese goods with yuan instead of dollars, but that’s rising fast. And it will rise exponentially when Moscow finally decides to accept yuan under Gazprom’s $400 billion “gas deal of the century.”

This is the way the multipolar world goes. The House of Saud deploys the petrodollar weapon? The counterpunch is increased trade in a basket of currencies. Additionally, Moscow sends a message to the EU, which is losing a lot of Russia trade because of counter-productive sanctions, thus accelerating the EU’s next recession. Economic war does work both ways.

The House of Saud believes it can dump a tsunami of oil in the market and back it up with a tsunami of spin – creating the illusion the Saudis control oil prices. They don’t. As much as this strategy will fail, Beijing is showing the way out; trading in other currencies stabilizes prices. The only losers, in the end, will be those who stick to trade in US dollars.

Pepe Escobar is the roving correspondent for Asia Times/Hong Kong, an analyst for RT and TomDispatch, and a frequent contributor to websites and radio shows ranging from the US to East Asia.