In this issue:

Bank of Japan Worries About 'Excessive' Bond Market Decline

Thailand Announces $21 Billion Rail Transport Revolution

India Considers Rail Link from New Delhi to Hanoi

Brazil's Economy Collapsing; Biggest Drop in GDP Since 1998

Argentine Population Worse Off Now, Than in Great Depresssion


From Volume 2, Issue Number 36 of Electronic Intelligence Weekly, Published Sept. 9, 2003

World Economic News

Bank of Japan Worries About 'Excessive' Bond Market Decline

Prices for Japanese government bonds (JGB) have been plunging since mid-June. On the other hand, the yields on government bonds are going sharply up. On July 2, yields on 10-year JGBs reached 1.66%, almost four times the record low of 0.43% from June 11. Yields on five-year JGBs hit a 2.5-year high on the same day. Vice Finance Minister Masakazu Hayashi said Sept. 1 that the current moves of government bond yields are "too rapid," and the government will continue to watch the Japanese bond market, by far the biggest in the world, "with caution." Bank of Japan (BOJ) policy board member Kazuo Ueda, according to the Asahi newspaper, described the rise of bond yields as "excessive" and said the BOJ will take steps to prevent rates from rising further. He thereby raised expectations that the Japanese central bank might soon announce an increase in its monthly purchases of government bonds.

As London's Financial Times noted Aug. 30, the "recent jump in Japanese government bond yields is likely to cause dislocations in the global government bond markets." The ultra-low Japanese bond yields of the past had been a crucial factor in the flooding of global markets by Japanese money as investors looked for better returns abroad. According to data by the Japanese Finance Ministry, Japanese investors put $218 billion (25.4 trillion yen), over the last 12 months, into foreign bond markets. One of the most active such investors was the Bank of Japan itself. And, the FT emphasizes, "it was the U.S. Treasury market that benefited the most from the Japanese funds, a useful source of extra support at a time when Washington's budget deficit was hitting all-time highs." As Japanese bond yields are rising, these capital flows into the U.S. could soon slow down dramatically.

Thailand Announces $21 Billion Rail Transport Revolution

The Thai government plans to develop a nationwide electric tram network within the next five years, hoping the project will help the country save petroleum-based transportation costs by $7 billion annually, Business Day reported Aug. 29. Minister of Transport Suriya Jungrungreangkit said energy consumption for transportation accounts for about 37% of total petroleum use, including the industrial sector, and passenger-car fuel use is much higher than the amount used for public transportation. On a global scale, electric cargo trams make up 30% of transportation networks in developed countries, compared to only 2%-3% in Thailand, said Suriya. The government will fast-track plans to develop electric tram networks across the country within five years, instead of 30 years, as originally planned. Groups of investors from Europe, Japan, and China have expressed eagerness to jointly invest in the project, said Suriya.

Apart from electric trams, the Ministry has a plan to develop a high-speed train project, said Suriya. After completing a feasibility study, the Ministry plans to build high-speed train service on the Bangkok-Nakorn Ratchasima route as a pilot project.

India Considers Rail Link from New Delhi to Hanoi

India is considering building a rail link from New Delhi to Hanoi, North Vietnam, Prime Minister A.B. Vajpayee announced Sept. 4. Vajpayee, who was inaugurating the second India-ASEAN Business Summit in New Delhi, said that the rail link might follow the trilateral highway project, to link Thailand and Myanmar with India.

"Work has started on a trilateral highway project linking Thailand, Myanmar, and India ... under the Mekong-Ganga cooperation, [and] we are also looking at a New Delhi-to-Hanoi rail link," Vajpayee said.

Brazil's Economy Collapsing; Biggest Drop in GDP Since 1998

The average monthly wage of working Brazilians was 16% lower this July than last July (at a miserable U.S.$278.30), while unemployment remained at a near-record 12.8%, down only slightly from the record 13% hit in June. The collapse of people's buying power is even affecting sales of such basics as medicines. Bristol-Meyers of Brazil reports that their Sao Paulo pharmaceutical plant is running at only 70% capacity, due to the drop in sales.

With such real collapses, Brazil's Gross Domestic Product fell by 1.4% in the second quarter, over the same quarter in 2003, in the biggest quarterly contraction since 1998.

Chatter from the Wall Street crowd is that with more cuts in the benchmark Selic interest rate, Brazilians will start to buy the products that they haven't been able to purchase thus far, and the situation will vastly improve. However, without a repudiation of the government's IMF policy, nothing will change; small cuts here and there in the interest rate won't make a dent in the collapsing economy. Indicative of the situation is the prediction of Usinas Siderurgicas de Minas Gerais, Brazil's largest maker of steel for the auto industry, which said it expects demand for its products to drop 8% in the second half of this year, because no one is buying cars. Compared to the first quarter of 2003, GDP declined by 1.6% in the second quarter, but areas such as the construction industry plummeted by a whopping 11%, its biggest quarterly decline since 1992. Industry dropped by 3.7%.

Argentine Population Worse Off Now, Than in Great Depression

Not even the Great Depression of the 1930s was as devastating for Argentina's population as is the economic disaster of the last four years, economist Daniel Muchnik writes in Clarin Aug. 24. Despite the hype about an economic recovery, Muchnik insists, there is no "trickle down" effect on the population. In the first half of this year, GDP increased by 6.5%, yet real wages in May had plummeted by 16.7%, compared to May of 2002. Also, as of May, out of an urban population of 35 million people, at least 2.3 million were unemployed, and another 2.8 million underemployed. "This degree of abandonment has no precedent in Argentine history," Muchnik said. If there is more "oxygen" in the economy, "it hasn't translated into social improvement." He then points out that during the decade of the 1990s, the heyday of the free-market, "the economy expanded, but statistics showed that poverty and social inequality multiplied."

The national budget is not deployed at the service of Argentina's citizens, Muchnik argues, but rather to insure payment of the foreign debt. Thus, aside from a tiny increase in the minimum wage, pensions and state-sector wages are frozen. The public-works program announced by President Kirchner has yet to materialize. La Nacion also reports that there is a new category of "over-employed" in the country, now numbering 4.3 million. These are the people who work more than 45 hours a week, many of them holding down two jobs. There are 405,000 more people in this category than in 2002, and at least half of them work 12-hour days, and more than 62 hours a week.

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