Dec 03 - 09, 2001

US budget surplus disappears

The US budget surplus looks set to disappear for the next few years — just months after a huge budget surplus was projected.

The head of the White House Office of Management and Budget, Mitch Daniels, said that the recession and the need for more tax cuts meant that the Federal government would run a deficit until 2005.

"It is regrettably my conclusion that we are unlikely to return to balance in the federal accounts before possibly the fiscal year 2005," he said.

The news will make it more difficult for the Congress to reach a deal with the White House over the size and scope of the stimulus package that Mr Bush proposed after the terrorist attacks on 11 September.

This financial year the US government had a surplus of $127bn, the second largest ever prompting Congress to push for increased spending as well as tax cuts.

In August, the Congressional Budget Office forecast a surplus of $172bn and $201bn in the following two years.

But the sharp economic downturn, reduced tax revenues, and the need for more spending meant that the surplus could not be sustained.

The creation of a budget surplus was the result of a long struggle between the White House and Congress that began during the Clinton years.

In the end, the Republican ideal of "small government" and tying Washington's hands won out, with both sides backing the principle.

But the forecasts of a huge surplus led Congress in March to pass a ten-year, $1.35 trillion tax cut package at the behest of the Bush administration.

Now, in the wake of the attacks, a sea change in attitudes means that government is suddenly seen as having a role after all although its magnitude and nature is still the subject of fierce debate.

Japanese output at 13-year low

Japanese industry faces rough ride Industrial production in Japan, the world's second largest economy, fell to its lowest level in 13 years last month, official figures show.

Japanese factory output dipped 0.3% in October to levels not seen since March 1988, the Ministry for Economy, Trade and Industry said.

The gloomy data, the latest in a long line of bad news to emerge from Japan recently, will reinforce fears that Asia's economic powerhouse is heading for a protracted recession.

Although the decline came in well below official forecasts of a 0.8% drop, analysts fear that factory output will fall further in the coming months.

The Japanese government is predicting a 1% decline in November, followed by a 0.8% recovery in December thanks to a seasonal rise in exports to the US and Europe.

METI's latest report shows that buoyant pre-Christmas sales of electronic toys and games to the US are one of the few bright spots for Japan's beleaguered manufacturers.

But independent analysts say even this relatively gloomy government forecast may be over optimistic, citing a sustained decline in domestic demand this year and persistently high inventory levels in Japanese factories.

High levels of inventory, or stock, at a time when demand for manufactured goods is slowing, make companies less likely to place new orders for raw materials.

On Wednesday, the Japanese government said retail sales, which account for two thirds of gross domestic product, fell by 4.9% in the year to September.

The Bank of Japan has cut the cost of borrowing close to zero in a bid to stimulate the flagging economy, but with unemployment at a record 5% and rising, this hasn't lured consumers back into the shops.

South Korea enjoys banking boom

South Korea banks have increased their profits ten fold, according to the country's financial authorities.

The spectacular rise in profits is due to the success of ongoing restructuring efforts, the Financial Supervisory Service said.

The 22 banks reported a combined net profit of 4.39 trillion won ($3.5bn) during the first nine months of the year, ten times higher than for the same period the previous year.

"Following the sale of bad assets, the soundness of the banks' assets improved, leading to greater growth potential," the Financial Supervisory Service said.

Blair echoes tax rise hints

Prime Minister Tony Blair made it clear he is considering tax hikes as he stressed the need to give the NHS a substantial increase in resources.

Mr Blair's show of support for Chancellor Gordon Brown's tax hints included a repeat of his promise to take the UK up to the European average on healthcare spending.

The prime minister clashed in the Commons with Conservative leader Iain Duncan Smith, who accused Labour of failing to press ahead with much needed reform.

The Tory leader said Labour's 1997 election slogan that there were "24 hours to save the NHS" had now changed "to 24 years" following Mr Brown's pre-Budget report on Tuesday.

The prime minister hit back, accusing the Conservatives of wanting to end the principle that the NHS should be free at the point of delivery.

He was asked by Liberal Democrat leader Charles Kennedy whether it was still his aim for the UK to match the EU health spending average by 2005.

Turkey wins $3bn more from IMF

Turkey has won an extra $3bn from the International Monetary Fund to help it shoulder a heavy domestic debt burden.

But in return, the government has had to promise to slash spending by 2% of its gross national product — 5.7 trillion lira ($3.9bn; £2.7bn) — and sell off more state companies.

Turkey's already weakened economy is groaning under the effects of the post-11 September slowdown.

Tourism has slumped, and exports are tailing off. In all the economy is expected to contract by 8.5% this year.

The new money, the third bail-out this year, is the first tranche of a $19bn facility which could be expanded by $10bn in 2002, depending on whether Turkey can live up to its promises.

In a letter of intent to the IMF, confirming the terms of the loan, Ankara has promised to keep its budget in surplus in 2001 and 2002 — not including the cost of servicing debts amounting to 6.5% of GNP.

Hopes build for Afghan deal

Talks on Afghanistan's political future reach a make-or-break stage on Friday, as the four delegations are due to meet to finalise details for an interim government.

Hopes of an agreement were boosted on Thursday when the Northern Alliance, the largest delegation, relaxed its earlier opposition to an international peace-keeping force being sent to Afghanistan.

But UN officials overseeing the talks warned that several sticking points remained, including the make-up of an interim government and the future role of the country's former king, Zahir Shah.

UN spokesman Mr Ahmad Fawzi said that what was being proposed was the creation of an executive body of about 15 to 25 people, with a larger council of up to 200 people given a semi-legislative or parliamentary role.

Japan jobless rate hits new high

The unemployment rate in Japan has hit yet another record high for the third month in a row, and there are few signs that it will fall again in the near future.

The unemployment rate hit 5.4% in October, up from 5.3% in September and 5% in July.

"The unemployment situation remains serious," said the director of the government's Labor Force Statistics Office, Masato Chino.

The October jobless rate was the highest since records began in the 1950s.

UK consumers more optimistic

UK consumer confidence is recovering from depths hit after the 11 September terror attacks, a survey commissioned by the European Commission has said.

In a further sign of the resilience of the UK economy, optimism among Britons rose by an index level of two points this month, the report found.

But the rise was insufficient to return the index to positive territory, meaning that most Britons are still gloomy about economic conditions.

The survey comes the day after a survey by the Bank of England revealed that lending grew by £5bn in October, with mortgages accounting for most of the figure.

WTO chief urges Vietnam reforms

Vietnam faces "economic stagnation" if it fails to seal membership of the World Trade Organisation, the chief of the commerce promotion body has warned.

Mike Moore, WTO director general, urged Vietnam to overcome concerns, over issues such as intellectual property rights and customs valuations, raised by the organisation's 140 member states.

Failure to tackle such sticking points would deny the country the chance to reap the free trade benefits of WTO membership, he said, singling out the potential of Vietnam's farming sector.

"Agriculture could be a winner for Vietnam in the long range," Mr Moore said on a visit to the country.

The country is already the world's second ranking rice exporter, although floods have seriously disrupted output this year.

Accession to the WTO would mark further progress in Vietnam's strategy to take a more prominent international role.

Danish reinsurer goes under

Copenhagen Re has become the first European casualty of the massive insurance bills generated by the World Trade Center attacks.

The company, a subsidiary of Denmark's Alm Brand insurance group, said it is getting rid of two-thirds of its 150 staff and will stop issuing reinsurance.

SAB profits

The company said profits during the six months to September fell by 2.5% to $302m (£215m), blaming a 16% decline in the rand against the dollar over the period.

Japan backtracks on salt

The Japanese government has bowed to pressure from salt producers, fearful of the impact of the planned liberalisation of the industry.

The government now plans to introduce tariffs on imported salt from April, in theory when the industry was expected to be freed up.

Salt has been a government monopoly since pre-modern times until 1997.

Now, despite five years of preparation, salt producers say they are not ready to lose their protection against competitors.

Standard Chartered

Leading emerging market bank Standard Chartered has stressed it will stay independent, despite persistent rumours that it could be a takeover target. The bank's new group chief executive Mervyn Davies said on Thursday the bank was "absolutely committed to remain independent".

US slowdown bites into heartlands

Economic conditions in most parts of America have continued to weaken, the US central bank has said in a much watched report.

While some of the areas of the country have shown signs of economic recovery, most saw the slowdown deepen in October and early November, the Federal Reserve said in its latest monthly "beige book" report.

In manufacturing, activity "weakened further in nearly all regions", with more than two thirds of districts reporting shrinking order books.

And in the service sector, consumer spending remained below levels before the 11 September terror attacks, if showing some revival.

Americans poised for tax holiday

Americans are set to receive a tax holiday worth up to $43bn, in a drive to promote spending and revive the country's recession-hit economy.

Both Republican and Democrat senators have said they are open to plans to give workers and employers a one-month holiday from social security taxes.

And White House sources hinted that US President George W Bush would also agree to some kind of break from the tax, which is broadly equivalent to the UK's national insurance, but also helps fund medical care for the elderly.

A one-month holiday would be worth $207 to a worker earning $40,000 a year, and $413 to a self-employed contractor, said Republican senator Pete Domenici, who proposed the scheme.

French strike threat to euro launch

A leading trade union from the French banking sector is planning to call a strike from 2 January.

This raises the spectre of chaos when euro notes and coins are launched a day earlier.

A wider strike of up to 400,000 bank employees is "a strong likelihood coming out of inter-union talks," taking place, he added.

Tanzania gets $3bn debt relief

After four years of effort, Tanzania has finally won $3bn in debt relief from the World Bank and the International Monetary Fund.

The agreement by the Bank and Fund makes Tanzania the fourth country of a list of more than 36 to have got to this point.

The relief means that by next fiscal year Dar es Salaam should see its interest payments fall to $116m a year from $193m in 1999-2000.

By 2010, the Bank said, the debt repayment should be down to an average of $87m a year.

Until 2020 debt is forecast to remain below 150% of exports — a key target built into the debt relief equations.

All in all, according to Bank and Fund calculations Tanzania will see its external debt drop by 54%.

Japan targets China's 3G market

Japan's leading handset makers, NEC and Matsushita, are working on a joint venture to cash in on China's future market for third generation mobile phone handsets.

The two firms will launch a joint venture later this year, aiming to popularise 3G cell phones in China and help set a Chinese standard for 3G services, according to reports in the Japanese financial daily Nihon Keizai Shimbun.

The joint venture, capitalized at about 300m yen ($2.4m) will give the two firms a head start in the race to dominate the Chinese market.

China's is the world's largest mobile phone handset market, with 120.6 million users.