Marshall Islands economy: Not a very bright future.

The Republic of Marshall Islands, though an independent state, is so dependent on U.S. aid that its economy would not count or much without such aid.

Subsistence agriculture, small scale industry restricted to a few products, and a budding tourist industry make up for the major part of the nation’s economic activities, as well as its GDP. The major agricultural produce of the Islands are coconuts, breadfruit, tomatoes, melons, etc. Industries include processing of copra and tuna, and handicrafts production.

There are many aquaculture farms on the Islands where giant clams and sea cucumbers are farmed. Tourism is picking up, and is seen as an important part of the economy for the future. Snorkeling and scuba diving are popular activities that tourists come looking for. Especially the presence of World War II wrecks in the waters off Marshall Islands draw hordes of tourists, mainly from the U.S.

The Government is making efforts to capitalize on these limited attractions and facilities to make the most of it. The Marshall Islands are facing the typical problems of small, isolated Islands that do not have rich resources and are far away from major markets. Further, they are forced to import much more than they have the capacity to export. The rising sea level on account of global warming is threatening their very existence.

According to a report published by the Asian Development Bank, the Marshall Islands would record a low growth rate for 2009, at only 0.5%, while inflation is expected to come down to 9% from a high of 29.4% in 2008. Public debt of the Islands is said to be very high. The United States is the major benefactor of the Islands, though Japan, of late, has contributed substantial sums of money for the Islands development.

The U.S. and the Marshall Islands have a Compact of Free Association, under which the U.S. and the Islands make contributions that will be used in future, to set up a Trust in 2023, that would pay out annuities in perpetuity to Marshall Islands. But otherwise, the future does not appear to be too bright for the Marshall Islands.

El Salvador economy: Slow and steady progress.

El Salvdor has been making slow and steady economic progress in the last few years, and has, in fact, become the third largest economy in Latin America. But for the current global economic slowdown, El Salvador would have continued to grow at the same rate this fiscal.

El Salvador adopted the U.S. Dollar as its national currency in 2001, and depends on the U.S. for two of its major sources of foreign exchange revenues, namely, exports and remittances. Salvadorans working in the United States are reported to have remitted nearly USD 4.00 billion in 2008, according to the country’s Central Bank.

Presently, with the American economy in trouble, El Salvador was bound to suffer, but with the first rays of a recovery visible on the horizon, there is yet hope for El Salvador.

Nearly 65% of El Salvador’s GDP is contributed by the agricultural sector, that also employs 58% of the labor force. Industry contributes about 25% to the GDP, while providing jobs to 25% of the workforce, and agriculture chips in with a contribution of 11% to the GDP, and employs 19% of the workforce.

The major agricultural produce of El Salvador is corn, rice, sugar, coffee, cotton, oilseeds, etc. Among the important industries are beverages, food processing, textiles, fertilizers, chemicals, etc. The country exports coffee, sugar, textiles, apparel, chemicals, etc., and imports raw materials, consumer goods, foodstuffs, fruits, etc.

The United States is the major trading partner of El Salvador and others include Latin American neighbors like Guatemala, Nicaragua, etc. El Salvador has done well in the last decade and reduced unemployment to a considerable extent. It has purposefully utilized the multilateral assistance to improve its economic position and bring relief to its citizens from poverty and unemployment.

The slight improvement in the global economic environment, if sustained for a good period of time, is bound to have a highly beneficial effect on the El Salvador economy, and improve its position further.

Guyanese economy: Looking for solutions.

Guyana is dependent upon favorable commodity prices to manage its economy well. With the present global economic situation as it is, the commodities sector has taken a hit, and has to an extent, affected Guyana adversely.

However, the President of Guyana had recently put up a brave defense in favor of its economy, holding that Guyana was doing well, compared to many other countries in the world. Guyana’s economy is dominated by the agricultural sector, with sugarcane, rice and edible oils the mainstay of agriculture. In the allied areas, livestock breeding is an important activity, with beef, pork, and poultry important contributors.

Among the industries may be mentioned rice milling, sugar, bauxite, textiles, timber, and gold mining. Industrial production is growing at a low 1%, though there is scope to increase its share in the GDP. Agriculture contributes about 40% to the GDP, and services about 47%, with industry coming in third at 21%.

The country exports bauxite, gold, rice, shrimp, molasses, timber, gold, etc., and imports petroleum, food, manufactured items, machinery, etc. Guyana’s major trading partners are the U.S., Canada, the U.K., Trinidad and Tobago, the Netherlands, etc.

The Guyanese Government is said to be taking active steps to alleviate the social situation in the country that has an unemployment rate of 12% and inflation at 8%. Providing cheap housing to the homeless is a priority of the Government.

Among the constraints that are affecting Guyana’s growth are lack of skilled manpower and infrastructure. In fact, both of these go hand in hand and are required for a fruitful partnership in the development process. Guyana has been a beneficiary of the Highly Indebted Poor Countries program of the World Bank, and needs to bring down its high public spending and reduce its level of public debt.

There are no easy solutions for Guyana, but then finding solutions is the only way to move ahead.

Haiti economy: Looking for miracles.

A country that is only 600 miles from the America, the only Super Power in the world, is counted as the poorest one in the entire Western Hemisphere.

80% of the country’s population is said to live below the poverty line. Other notable features of this country apart from abject poverty are political uncertainty, economic mess, high rate of crime, and recurring natural disasters. With such serious problems plaguing the country for a long time, it is no surprise that very few have the courage to stick out their necks to talk about developing the country’s economy.

Agriculture is the major occupation of the people, with coffee, rice, corn, sorghum, sugarcane, etc., being the major produce. Wood is also produced in large quantities, so much so, that deforestration has become a major issue.

Among the industries are cement, textiles, sugar, flour milling, etc. The country exports coffee, cocoa, apparel, etc., and imports machinery, transport equipment, raw materials, fuels, foodstuffs, etc. By far the United States is the largest trading partner.

The United States has a special program in place to help Haiti achieve an acceptable level of socio-economic development. The Haitian Hemisphere Opportunity through Partnership Encouragement (HOPE) Act initiated in the year 2006 has been instrumental in increasing apparel exports from Haiti to the U.S. under a favorable trade regime. Another source of revenues for Haiti is remittances from Haitians working abroad.

Haiti is in urgent need for large infusions of funds for infrastructure development, and job generation. It needs to control high inflation, and create a favorable environment for investment, especially foreign investment. Haiti has also been a beneficiary of the World Bank sponsored Highly Indebted Poor Countries initiative, which shows how badly the country is doing.

While awaiting for a few miracles to happen to help the country, Haiti can also do somethings on its own to improve its economic and social position.

OECD ups global growth forecast.

The Organization for Economic Cooperation and Development, the Paris-based economic advisor to the world’s 30 biggest economies, including the United States and the European Union, has ventured out to predict a positive and upward economic growth for its members, that contribute to 80% of global economic growth, for the year 2010.

The OECD projects economic growth at 1.9% for the year 2010, and 2.5% for the year 2011. Much of this growth appears to be contributed by China, that is going from strengty to strength, and coming to occupy a pivotal position in the global economic development process. The Western and other countries cannot be very enthusiastic and happy about this situation, but there is pretty little they can do about it right now, without hurting themselves in the process. The desperation of their own econmic condition has persuaded them to go along with the present reality of a economically dominant China.

The present global economic crisis has forced avowedly capitalist countries like the United States and the United Kingdom to adopt several measures that are quite contradictory to their capitalist philosophy, and they would surely like to revert to their earlier systems, and regain their credibility. But the situation right now in not conducive to such an exercise.

According to the OECD, slow growth and high unemployment are going to the features of the slow and painful recovery that is now being witnessed, with relief, across the world. While none of the Western economies are expected to touch more than 3% growth, China is expected to clock a growth rate of 9.3% for 2010, and 10.2% for 2011. Other important economies that are likely to record high growth are India, Russia, and Brazil.

The economic crisis has forced a new equation on the world in which the traditional leaders like the U.S., have been forced to take the back seat and let their arch rivals like China do the driving, out of sheer necessity.

The next couple of years would be quite interesting in terms of the changing equations for countries vying to play a leadership role on the world economic and political stage.

Bolivian economy: Facing tough times.

The Latin American nation of Bolivia is among the poorest in the region, with less than good relations with Big Brother, America, to boot.

The economy is sustained mainly on account of revenues from mining and natural gas. Tin, silver, and natural gas exports constitute over half of the foreign exchange earnings of the country. Apart from mining, the other important industries are petroleum, clothing, tobacco, food and beverages, etc.

Industry contributes to about 38% of the GDP, and provides employment to 18% of the workforce. Industrial production is in the range of 7.5% to 8% in fiscal 2009. Agricultural produce from Bolivia includes coffee, cocoa, cotton, soybean, corn, sugar, rice, timber, etc. Agriculture provides 40% of the workforce with a livelihood, and contributes to about 11% of the GDP. As far as the services industry is concerned, it contributes to about 52% of the GDP and provides employment to about 43% of the workforce.

The GDP growth rate is projected to be around 4.5% to 5%, while unemployment is around 7.5%. The country’s exports include crude petroleum, natural gas, soybean and derived products, tin, silver, zinc ore, etc., and imports include plastics, foodstuffs, paper, automobiles, etc. Its main trading partners include Brazil, Argentina, USA, Chile, etc. The balance of payments position of the country is comfortable.

The major problem facing Bolivia right now is the prospect of a severe drought on account of the falling water levels in Lake Titicaca, on account of the El Nino, which has struck the country repeatedly in the last few years. The country is also not able to attract foreign direct investment to develop its industrial and other potential. While falling commodity prices have reduced revenues available for developmental activities. All in all, it is tough going for Bolivia.

Puerto Rican economy: The downslide continues.

Puerto Rico, the autonomous region, or self-governing territory of the United States, is in deep trouble, and it is getting worse by the day.

Known as the ‘Rum capital of the world’, Puerto Rico is cutting jobs in the Government sector that is the largest employer, on account of the economic recession, and Big Brother America does not seem to be doing much to alleviate its suffering. Though the United States has extended assistance to Puerto Rico in the form of public projects, it has not helped in pulling the Island out of trouble.

As against the original demand of USD 22.00 billion aid sought by Puerto Rico for a stimulus program, only USD 6.50 billion was approved by the U.S. The major economic activity of the Island is manufacturing, tourism, and realty. The major part of the tourist industry is supported by mainland America. The major industries of Puerto Rico, apart from rum manufacturing are pharmaceuticals, electronics, apparel, food products, etc. It exports rum, chemicals, electronics, beverages, etc., and imports chemicals, machinery, equipment, clothing, food, petroleum products, etc. Inflation is running at 6.5%, and unemployment is 16.2%, and increasing by the day. The GDP growth rate for this fiscal is expected to be a negative 2.5%.

One of the major objectives of the Puerto Rican local Government is to cut down on the bloated public sector, and create more jobs in the private one. The recent job losses are roughly equal to those created through the stimulus program. The Government has taken several steps to push for growth by investing in infrastructure, and providing cheap finance to business and industry, but nothing seems to be working in favor of the Island, at least for the present.

Unless Uncle Sam does something on a big scale, Puerto Rico appears to be in for a long spell of economic and other kinds of uncertainty.

Contradictory signals of American economic recovery.

Is the U.S. economy on the mend? Are things looking up? Is the worst over for the American economy? If one were to go by the media reports of increased public confidence in the U.S. businesses, a reported surge in the U.S. home sales, as reported by Bloomberg, and such other reports, then it would appear that the dark clouds of recession are giving way to an emerging blue sky.

However, reports emanating from Associated Press that the U.S. Postal authorities are seriously considering the shutting down of hundreds of post offices across the country, in view of the financial distress occasioned by the falling demand for postal services, and the increasing cost of running them.

The primary blame for the predicament of the post office system is put on the Internet which has steadily weaned away consumers from using postal services, by offering a cheaper and faster way of communication via the email. Never mind the adverse affects on the users’ writing skills, the email still scores over its traditional counterpart, because of its sheer convenience. Another factor that has reportedly hit the postal services hard is the fall in the advertisement revenues.

The Government Accountability Office is seized of the matter, and has already targeted the postal services as being a ‘troubled agency’, that would necessitate major structural changes in the way it does business. All aspects of its functioning would be put under the scanner like the delivery schedules, employee remuneration, etc.

It is not known how many jobs would be eventually lost in the above exercise. One thing is for certain. American communities across the length and breadth of the country will soon wake up to a new look postal service, that has served them faithfully for well over two centuries.

Secrecy trouble for Swiss Banking.

This is the second and concluding article on the confrontation between the U.S. and Switzerland on the matter of the secrecy laws governing Swiss banking.

For the Swiss running a Bank without the aid of secrecy laws, is like trying to make chees without milk. Can be quite confusing! Secrecy has been the major attraction of Swiss banking and its engine for growth over the centuries.
Now with unrelenting pressure from the U.S. to disclose the names of about 52,000 American citizens holding secret accounts with the Swiss banking giant, the Union Bank of Switzerland, the Swiss are at their wit’s end on how to deal with this threat to their survival as secret bankers to the world.
The Swiss Government holds that the UBS would be violating Swiss laws by making the above disclosure about its U.S. clients. And that it might be constrained to intervene in the matter by seize the relative records before they are handed over to the U.S. authorities. But the fact is that UBS has already pleaded guilty to the charges leveled against it by the U.S. Government of aiding and abetting tax evasion by its citizens, and has also agreed to pay penalties of USD 780.00 million to the U.S. What’s more, it even admitted to it’s personnel visiting the U.S. to solicit such business.
Having thus admitted to being party to violation of U.S. Tax laws, the Swiss have a weak case going for them, when they cite the violation of their own laws in regard to the disclosure, the U.S. has demanded. And the Americans are not letting of this opportunity, with the State Department, the Treasury, the Justice Department, and the IRS co-ordinating their efforts to nail the Swiss banking system.
The U.S., in fact, has registered partial success in the case, by prying out the names and account details of 250 to 300 of its citizens maintaining secret accounts with the UBS. Having tasted blood, the the Americans want more. And the Swiss, on their part, are not at all secretive of their resentment of this.

Concluded.

Obama wields the broom.

The Obama administration has, at last, carried out it’s threat of a complete overhaul of the American financial system, not seen in the recent past.   Presently, it is a proposal that Congress has to approve, to make it law.   But from the appearance of things, it is likely to go through.

And if the reform package is approved by the Congress, it could be a real and visible body-blow to the market manipulators, and the purveyors of esoteric and incomprehensible-to-the-sensible financial instruments, that have caused so much damage to the financial system, apart from destroying the lives of so many people.

While bringing in vast returns on paper, that few would encash in the hope of making more, the loss they have brought in the wake of their failure, is real that has played havoc with the markets, and caused untold suffering to guillible and not so guillible investors, apart from affecting millions of uninvolved people.

The major areas of reforms proposed by the Obama administration are:

1. Regulation of systemic risk that can have repercussions across the system, and shake up the very foundations of the financial system.
2. To enhance transparency and strengthen disclosure norms for Banks and other financial institutions, to keep a tab on them, lest their predatory activities harm the entire system.
3. Breaking the nexus between executive remuneration and excessive risk taking.   Sky-high remuneration has been the norm for the high fliers, who took excessive risk in maximizing the profits of their firms.
4. Providing higher level of investor protection through proper regulation of the firms.
5. Prevention of regulatory arbitrage.   One of the major sources of revenues, and consequently a major source of risk to financial firms is the practice of regulatory arbitrage, that is sought to be eliminated now.

As pointed out earlier, the above proposals have to pass the Congress to become law.   One can very well expect opposition from the industry that frowns on any kind of controls to their “liberty”.   At the same time, given the current mood of the public, the Congress could well under be pressure to give the green signal to the reforms.

A major criticism of the package is that instead of reducing the multiple layers of supervision, and regulation that has not helped in preventing the kind of financial collapse that we have witnessed, the present package seeks to increase the number of regulatory bodies, while retaining the powers of the Federal Reserve, that is seen as having failed in its basic duties.

These are “interesting” times for the U.S. financial system.

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