WALL STREET WEEK AHEAD

Monday, 30 July, 2012

Food exports fall by 6.03 percentISLAMABAD: 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 periodof the previous year. The food exports during July-June (2011-12) stood at $4.237 billionagainst the exports of $4.509 billion recorded during July-June (2010-11), according toPakistan Bureau of Statistics (PBS). The major food commodities that contributed to thenegative growth included rice, exports of which decreased by 4.57 percent from $2.160billion to $2.061 billion. Among the rice commodities, the exports of basmati rice decreasedby 14.87 percent, however the exports of other food qualities increased by 3.7 percent duringthe period under review. exports of vegetables also decreased by 32.65 percent by goingdown from $268.203 million to $180.622 million while the exports of wheat decreased by78.56 percent by falling from $586.603 million to $125.748 million. Similarly, the exports ofspices decreased from $50.384 million to $50.024 million, showing negative growth of 0.71percent. Meanwhile, the food products that witnessed positive growth included fish and fishpreparations, exports of which increased by 6.53 percent by going up from $296.182 millionto $315.525 million. exports of fruits also increased from $292.422 million to $358.201million, 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 Rice consumption declines rapidly in Asia asconsequences of economic growth

ISLAMABAD: The rice consumption in Asia is declining rapidly as a consequences ofthe 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 consumerswho are poor but the consumers of Asian regions are spending less than 5 per cent oftheir food budgets on rice. According to the Asian Development Bank, global rice con-sumption is expected to rise from 441 million metric tons in 2010 to about 450 millionmetric tons in 2020, before declining to just 360 million metric tons in 2050. “Only pop-ulation growth continues to drive rice consumption upward in Asia, and populationgrowth is slowing in most of the region’s countries,” it said, adding, around 90 per centof the world’s rice is produced and consumed in the Association of Southeast Asian Na-tions (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 intoextreme poverty. The two main challenges to rice supply are the extreme price volatilitydue to policy shocks and the threats to production caused by climate change and lowproductivity. The global rice export market is relatively concentrated, with Thailand, VietNam, India, US, and Pakistan providing nearly four-fifths of available supplies. ONLINE

NEW YORK

AGENCIES

The U.S. Federal Reserve and the eu-ropean Central Bank both meet nextweek amid investor expectations of ac-tion to stimulate economic growthand, in the case of the eCB, tackle thespreading euro zone debt crisis.

The drumbeat of weak economicdata and disappointing U.S. corporateprofits and outlooks mean centralbanks can be stocks’ best friends.

equity prices tend to rise sharplyin the hours before a Fed statementlike the one expected on Wednesdayas traders and investors jockey for po-sition and a chance to make a profit.

Next week’s calendar has a dou-ble-whammy. The Fed’s monetary pol-icy statement will come one day beforean eCB meeting packed with intrigue.eCB President Mario Draghi said ear-lier this week the bank was ready to dowhatever was necessary, within itsmandate, to save the euro.

“People in this business like to getin front of big events, especially if(they) could be very, very positive forthe market,” said Brian Reynolds,chief market strategist at agency bro-kerage Rosenblatt Securities.

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

But was that ticket alreadycashed? The S&P 500 .SPX .INX ral-lied to levels not seen since May onFriday, a rally that was sparked a dayearlier after Draghi stoked expecta-tions the eCB might resume its Secu-rities Markets Programme (SMP) andpossibly adopt more aggressive quan-titative easing. Reports of meetingswith the head of Germany’s Bundes-bank fueled a Friday rally that out-paced Thursday’s gains.

equity markets have for weeksbeen leaning on hoped-for stimulusfrom the Fed or eCB. Despite weeks ofsoftening economic data, including adismal payrolls report for June and apoor outlook for corporate profits, theS&P 500 has risen in seven of the past10 weeks. It closed on Friday near athree-month high.REMARKABLE PATTERN: At thesame time that traders position them-

selves to benefit from the Fed’s latesteasy-money policy, those bettingagainst market gains get out of theway and selling pressure recedes.

“It’s very scary to short the marketahead of a Fed meeting,” said DennisDick, a proprietary trader at LasVegas-based Bright Trading and co-founder of Premarketinfo.com. “Soyou have this short-covering thatdrives prices up.” That helps explainthe rise in stocks in the 24 hours priorto the U.S. central bank’s policy deci-sions - a pattern that tends to hold ir-respective of what the Fed actuallysays in its statement. economists atthe Federal Reserve Bank of New Yorkperformed a study of the pattern.

Starting mid-afternoon the day be-fore such decisions, stocks in theUnited States, Britain, Germany andother major markets begin a sharp riseand don’t stop, on average, until justbefore the Fed unveils its policy deci-sion at 2:15 p.m. (1815 GMT) the fol-lowing day. Since 1994 a whopping 80percent of the premium in gains of U.S.stocks over yields on short-term gov-ernment bonds has been earned inthese 24-hour periods, the study found.

The pattern has grown starker asthe Fed took increasingly aggressiveactions to rescue the U.S. economyfrom recession. The two rounds ofmajor asset purchases, known as quan-titative easing, or Qe1 and Qe2, in re-cent years strongly boosted stocks.

“Perhaps this shows markets havegiven the Fed their seal of approval,”said Brian Jacobsen, chief portfoliostrategist at Wells Fargo Funds Man-agement in Menomonee Falls, Wiscon-sin. “At least from a market participantperspective, they are confident the Fedwill fulfill its mandate. I try to talk toindividual investors to remind themthat the stock market is going to reactmuch more quickly than the economyto what the Fed does,” he said.CENTRAL BANKS OVER-

SHADOW EARNINGS: The focuson central bank meetings will get inthe way of a heavy week of earningsfor S&P 500 companies at a time whenthe outlook continues to worsen.

Major companies due to report in-clude 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 theS&P 500 index that have reported earn-ings for the second quarter, about 67percent have beaten analysts’ estimates,slightly higher than the long-term aver-age of about 62 percent. But just 40percent have beaten on revenues, theworst record since the first quarter of2009. More worrisome is the market’soutlook. Third-quarter earnings arenow expected to decline 0.4 percentfrom a year ago, compared with an ex-pected rise of 1.4 percent last week, ac-cording to Thomson Reuters data.

Rolling out red carpet for central bankers

LAHORE

ONLINE

The Lahore Chamber of Commerce and In-dustry on Saturday expressed grave concernover fast rising power sector circular debt thathas touched alarming levels and urged thegovernment 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 failsto take immediate measures the power sector islikely to choke up due to heavy outstanding dues.

The LCCI President said that the Ministry of Fi-nance and the Ministry of Water and Power shouldtake urgent steps for making payments to cope withthe fast deteriorating energy situation. Irfan QaiserSheikh said that the Lahore Chamber of Commerceand Industry has been calling for a long time now formuch needed reforms in the power sector to controlpilferage, line losses and to stop corrupt practices.

The LCCI President said that people in generaland the industry in particular continue to suffer longblackouts in spite of almost doubling the price ofelectricity in the last four years. he said that the gov-ernment in 2008, pledged to revamp the power sec-tor and end electricity shortages. Since, it has raisedelectricity price by more than 85 per cent to elimi-

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

The LCCI President said that the energy situa-tion would have been quite satisfactory today, hadthe government eliminated production, transmissionand distribution losses; checked electricity theft andrecovered the outstanding electricity dues.

he said that there is a need to evolve an alto-gether new policy to attract private sector invest-ment in electricity generation to overcome the gapbetween the demand for electricity and the supply.

The LCCI President said that the main reason forthe growing electricity shortfall is not just the in-crease in demand but also the declining capacity toproduce electricity because of inconsistent policies.

Irfan Qaiser Sheikh said that the ultimate solu-tion to the ongoing energy crisis lies in the construc-tion of mega water reservoirs or tapping the coalpotential the country owns.

he said that the government should utilise allavailable resources to win consensus over KalabaghDam that has the capacity of ensure cheapest elec-tricity to the masses.

Irfan Qaiser Sheikh said that a further delay ingathering a consensus from all stakeholders on theconstruction of unduly politicised Kalabagh Damwill cost this country and its coming generations verydearly.

The LCCI President said that all the stakeholdersshould show some maturity on the issue of Kalabagh.It is the high time that all undue stands should bebrushed aside in order to save the country from thatera of darkness. he said that unlike Pakistan, Indiais constructing dams at every possible site. It has leftus decades behind and coming time does not prom-ise any good thing either.

Irfan Qaiser Sheikh said that every one knows thatthe existing dams are constantly silting up leavingever decreasing capacity to store water. The construc-tion of Kalabagh dam along with other new dams isdesperately needed to store adequate water. Accord-ing to a conservative estimate about 30 million acrefeet of water is being wasted into the sea because thecountry has no big water reservoirs to store it.

More importantly, as a result of melting of gla-ciers due to global warming, a sword of Damocles re-mains hanging over our heads in the shape of floods.An opinion gained widespread support across thecountry that the losses of recent floods in Pakistanwhich are estimated to be more than 45 billion dol-lars could have been reduced if big dams and waterreservoirs were in place.

he said that another significant aspect con-nected with the construction of Kalabagh Dam is thesurety of sufficient amount of electricity at compar-atively much cheaper price. The country’s depend-

ence on power generated through thermal sources iscosting us way too much causing to face insurmount-able challenges to remain competitive both in na-tional and international markets.

Another significant aspect connected with theconstruction of Kalabagh Dam is the surety of suf-ficient amount of greener and cheaper electricity.electricity generation through thermal sources isestimated to cost almost Rs.16 per unit whereasthe same can be produced at Rs.2.5 to Rs.3through hydel.

Power sector circular debtgives LCCI the creeps

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Monday, 30 July, 2012

Business

WASHINGTON

AGENCIES

US economic growth slowed in the secondquarter as consumers spent at their slowestpace in a year, increasing pressure on theFederal Reserve to do more to bolster therecovery.

Gross domestic product expanded at a1.5 percent annual rate between April and

June, the weakest pace of growth since thethird quarter of 2011, the Commerce Depart-ment said on Friday.

First-quarter growth was revised up by atenth of a percent to a 2.0 percent

pace.Details of the re-

port were weak,with foreign tradebeing a drag andstocks of unsoldgoods rising. That,together with signsthat activityslowed furtherearly in the thirdquarter strength-ens the argumentfor the Fed tooffer the econ-omy additionalstimulus at itsS e p t e m b e rmeeting.

“The econ-omy has lostaltitude andflying prettyclose to stallspeed. Mone-tary policy isthe onlygame intown anda d d i t i o n a leasing ish i g h l y

likely,” said Sung Won Sohn, an economics pro-fessor at California State University Channel Is-lands in Camarillo, California.

The ailing economy could cost PresidentBarack Obama a second term in office whenAmericans vote in November. Obama’s ap-proval rating on his handling of the economyis slipping.

An Ipsos/Thomson Reuters poll publishedlast week showed 36 percent of registered vot-ers believe Republican candidate Mitt Romneyhas a better plan for the economy, compared to31 percent who had faith in Obama’s policies.In a nod to the darkening economic outlook, theWhite house on Friday cut its growth estimatefor this year to 2.3 percent from 2.7 percentback in February. The growth forecast for 2013was pared to 2.7 percent from 3.0 percent. Theeconomy’s expansion following the 2007-09 re-cession is the slowest since the 1980-81 periodand the recession itself was the deepest in thepost-war period.FED MAy KEEP POWDER DRy: No majorpolicy announcement is expected at the Fed’stwo-day meeting next week, but many econo-mists now say the central bank could launch athird round of bond purchases, also known asquantitative easing, when policymakers gatheron Sept.12-13.

however, there is a chance the Fed couldpush further into the future its conditional pledgeto keep rates near zero through late 2014, econ-omists said. The U.S. central bank has already

injected $2.3 trillion into the economy throughasset purchases and slashed overnight interestrates to near zero.

But not all economists believe the Fed willpump more money into the economy in Septem-ber, arguing that the slowdown in growth wasnot a sufficient condition on its own. They saidthe Fed would want to save its limited arsenal fora real crisis. “The Fed will pull the trigger onQe3 if the sense is we are getting into trouble,but if we are just weak and somewhat limpingforward, they will prefer to stay pat,” said AdolfoLaurenti, a senior economist at Mesirow Finan-cial in Chicago.

“They do not want to use whatever ammuni-tion they have left too soon, they want to keepsome just because things might get even worselater on.” The economy has been hit by worriesof deep government spending cuts and highertaxes scheduled to kick in at the start of 2013, aswell as troubles from the debt crisis in europe.The biggest factor weighing on the recovery isfear that politicians in Washington will be un-able to avoid the so-called fiscal cliff at the turnof the year, economists said.

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

Stocks on Wall Street rallied on expectationsof further monetary stimulus, with the DowJones industrial average vaulting above the13,000 mark. however, Treasury debt prices fellas the GDP report was in line with economists’expectations. The dollar rose against the yen.

PANKAJ MISHRA

STATe capitalism, according toBloomberg Businessweek, is a se-rious rival to U.S. and europeanbusinesses, which face being ex-cluded from some markets.

“Instead of trying to prevent — orworse, dismiss altogether — the rise ofstate-capitalist systems,” the magazineargues, “U.S. and european companiesand governments would do better tolearn from them.”

A similar case was made in the 1980s,when Japan’s state-supported conglom-erates briefly threatened to take over theworld. For a moment — as I noted in myprevious column — Japan’s promotion ofits technology industries through protec-tionism and careful targeting of open for-eign markets seemed to affirm thesuperiority of state-supported capitalism.

The apparent success of China andBrazil’s own versions of state capitalismhas now stoked fresh anxiety in Anglo-America. But most reckonings with it arestill bogged down by questions about ef-ficiency: For instance, is state capitalismmore or less innovative or competitivethan its free-market rival?OPIuM WARS: Such essentially tech-nocratic arguments scant the long historyof economic nationalism: the time, for in-stance, when many in Asia bristled at thepower of state-backed capitalists and eco-nomic nationalists of europe and the U.S.

The West’s own rivalries set the tonefor Asian countries. Writing to the directorsof the United east India Company in theearly 17th century, Jan Pieterzoon Coon thepioneering Dutch colonizer of Java, was re-vealingly blunt: “We cannot carry on tradewithout war or war without trade.”

Fighting off rival european colonial-ists as well as the Javanese, Coen wouldhave had no time for soggy Scottish no-tions about the invisible hand. Nor in-deed did his competitors in the Britisheast India Company as they repeatedlysought their government’s diplomatic

and military support in Asia.The nexus between government and

business reached its high point duringthe Opium Wars of the 19th century,when British merchants craving newmarkets in the Chinese hinterland repeat-edly lobbied their country’s politiciansinto punitive assaults on China.

Nurturing local industries underhighly protectionist regimes, U.S. lead-ers, too, had absorbed europe’s lessonsby the end of the 19th century. WoodrowWilson no less than Theodore Rooseveltknew that American goods and capitalmust urgently find markets beyond na-tional borders. “Since trade,” Wilson ar-gued in 1907, “ignores nationalboundaries and the manufacturer insistson having the world as a market, the flagof his nation must follow him, and thedoors of the nations which are closedmust be battered down.”

Wilson sounds as if he wanted tomake the world safe for American goodsand capital rather than democracy. Buthe was only being brutally realistic. Theinfluential German-American economistFriedrich list had already rejected AdamSmith’s free- trade theory as unsuitablefor the 19th century conditions of rivalryand inequality between nation-states.

List, who may have been influencedduring his stint in the U.S. by Alexanderhamilton’s economic nationalism, hadalso spotted laissez faire’s built-in bias infavor of the trading interests of Britain,which had industrialized ahead of allother countries, and now threatened toundermine their nascent factories.LATE STARTERS: Certainly, therewere few alternatives for Asian countriesentering — very late in the game — therace to industrial modernity. Visiting theU.S. in 1903, Liang Qichao, China’s fore-most modern intellectual, came to fear itsindustrial trusts, which he claimed weremore powerful than Alexander the Greatand Genghis Khan could imagine, andwhich would soon cross the Pacific to

prey upon a weak China.

To withstand the growing power ofUS economic imperialism and hold itsown in the international jungle, arguedLiang, China’s agrarian society needednot socialism but industrial productionthrough capitalist methods carefully reg-ulated by the state. he knew that Japan,coerced into the international economicorder by the mid-century arrival ofAmerica’s “black ships,” had already em-barked on a similarly ambitious programof state-led modernization to catch upwith the West.

Two generations of Japanese had al-ready absorbed List’s economic national-ism, which went on to survive thedevastation of the World War II and aneccentric bout of New Deal welfarismunder U.S. occupation.

Japan’s example was then followed by, and Singapore. All these Asian state cap-italists ironically received much assistancefrom the U.S. as it pursued its geopoliticalinterests, boosting local economiesthrough wars in Korea and Vietnam, for-eign aid, and its open markets.

Finally in the late 1970s, China, aftera long spell with rigid central planning,started to look to Singapore for ideologicalguidance. Since then China’s careful adap-tation of certain capitalist practices, andthe creation of a native class of global busi-nessmen, has periodically sparked opti-mism that it would follow Anglo-Americanneoliberalism in all its particulars.

This has proved to be a fantasy, basedon a misreading of Chinese motives. TheChinese government’s encouragement of

state-owned enterprises and control ofstrategic industries is at least partlyrooted in the fear of a local entrepreneur-ial class that might challenge the Commu-nist Party’s monopoly on power. Giventhe preponderance of various“princelings” in the country’s economiclife, China’s state capitalism can seemmerely a euphemism for crony capitalism.

Moreover, economic nationalismlargely explains China’s increasingly mer-cantilist trade and investment policies.spelled out its imperatives even as hebroke with the disasters and crimes com-mitted by trying to make China catch upwith the West. “Our country must de-velop,” Deng famously warned, “if we donot develop then we will be bullied. De-velopment is the only hard truth.”NEOLIBERAL TyRANNy: LiangQichao as well as Deng would haveheartily approved of this week’s proposed$15.1 billion acquisition of the Canadianenergy giant Nexen Inc. by Cnooc Ltd.,which will make the latter a competitor toin . For Liang’s preferred economic policywas one that helped Chinese capitalists“best to engage in external competition.To this policy all other considerations aresubordinate.”

Certainly, Friedrich List seems moreprescient than in having recognized thatthe enlightened self-interest of individu-als cannot be a useful principle for na-tional economies that have to competewith one another even in an era of unre-stricted trade and capital flows.

As we recover from the baleful intel-

lectual tyranny of neoliberalism, we cansee more clearly the many forms of mar-ket economies, shaped by historical con-text and specific political trajectories. Thisreminder of diversity itself opens up thespace for some fresh remedial thinking.

But learning from other examples ofcapitalism, as Bloomberg Businessweekexhorts, might be more difficult than itseems. The biggest beneficiaries of glob-alization in the West today embody theAyn Randian ideal of the profit-maximiz-ing, self-seeking capitalist. A small globalelite of businessmen and investors hascome to depend more on supply-chainmanufacturers in Taiwan and bankers inthe Cayman Islands than on workerswithin any given national borders.

That elite can afford to forgo anysense of national solidarity or a sharedeconomic fate with its fellow citizens.And in the current U.S. ideological cli-mate, advocacy of collective effort or re-sponsibility is quickly stigmatized as theharbinger of Stalinism.

Such is the impasse, political as wellas socioeconomic, into which laissez faireideologues have led entire nations. Itwon’t be easily overcome.

Pankaj Mishra whose new book,“From the Ruins of empire: The RevoltAgainst the West and the Remaking ofAsia,” will be published in August, is aBloomberg View columnist, based inLondon and Mashobra, India. The opin-ions expressed are his own.

COURTESY: BLOOMBERG

Don’t like Asian state capitalism? Blame the West

Second-quarterGDP rises 1.5 percent,

slows from Q1

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