Monday, September 26, 2011

It's going to come down to the actors!

Paul Krugman of the NY Times writes that The European Policymakers are unlikely to make reforms necessary to save the European Union.

He cites that recent pronouncements- most likely made during the Sept.,2011 IMF/World Bank Annual Board of Governors meetings- are extremely bland and scary at the same time.

I am not sure how Krugam is thinking, but is obvious that two things are happening simultaneously: 1. Just like the set of bankers/actors that created the financial collapse of 2008, most of them hedged their bets and bet wide on other people's money and bet tight with their own money, often against what they bet on with other people's money; and 2., that there will be more action for political instability, more so from policy think tanks and multi-lateral agencies, companies and actors, even more than from political pressures from the ground in terms of labour unrest and social upheaval.

It's that time where I'm quite sure, certain gaggles of elites, not necessarily from the legislative branches of the leadership community in Europe, are actively considering if not planning the downfall of many of the current and aspiring politicians who have the mindset that keeps the current state of affairs constant.

Sounds like a war is going to break out. This time, cash will be their fuel, the casualties will be dispersed and seemingly inconsequential to the scheme of things, think tanks and social-meetings will be the battle room and the social media will be their primary weapon of choice!

The time to make these decisions whether folks like it or not is here. And, to be fair, it's not like Europe has not had political instability in it's history at all. This time it will be more sophisticated, and hopefully more humane than other shifts in politics in Europe.

Sunday, September 25, 2011

Speeches from the World Bank/IMF Board of Governors Meetings, 2011

Here are the speeches from the 2011 Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund.

See available links to Chairman of The WB/IMF Group, Prime Minister Hubert Ingraham's speech:

President of The World Bank's speech, Robert Zoellick:

Managing Director of The International Monetary Fund Christine Lagarde's speech:

Just for your information!


Thursday, September 22, 2011

IMF posts its World Economic Outlook for Sept. 2011.

Have not read it yet but the title isn't very encouraging.

See here: IMF World Economic Outlook Sept. 2011

Will read it sometime today or tomorrow!

Thursday, September 8, 2011

Big Jobs Speech tonight from Pres. Obama!

Well the big job's speech is going to be tonight and delivered by President Obama. Jobs, jobs, jobs! I wonder what he has to say about it? I think the US is about 10% unemployment and up to 15% real unemployment! Staggering figures. What's even more staggering is that it's been like this for well over two and a half years or thereabouts!

The US has tried stimulus. That fell short and many have said that it has failed. They have tried quantitative easing. That fell way short as well as banks hoarded money and buffered their balance sheets. They tried nationalisation. That didn't work out either as the government held on more debt from once private companies, car companies and banks, which raised the debt level and still created no new jobs or new innovation in the economy. The toolkit is just about empty at this stage.

Mitt Romney- current Republican candidate and former Governor of Massachusetts- said he has a job plan that has over 40 action steps. Rick Perry, Governor of Texas who is also a Republican candidate for President, said that he has created more jobs than Mitt Romney in Texas than Romney did in Mass.. Whatever!

We need jobs now in American. Small states like The Bahamas depend on that tourism investment. We also use jobs indicators to sense where the foreign direct investment money is flowing from in order to plan FDI projects.

If America can't do it, and apparently the EU is in another dream world, then we need some place else to deliver!

Thursday, September 1, 2011

The Bahamian Economy: What, me worry?

No one in The Bahamas is in the mood for more bad news, especially after Hurricane Irene swept through leaving significant damage that some estimate to be well in the millions. But bad news is what we had with the recent downgrade from the ratings agency Moody's on The Bahamas Sovereign Bonds to A3 status.

I remember back in mid-May, 2007 The Bahamas put up a Sovereign Bond package for investors and immediately gobbled up. I'm not sure if the same type of exuberance for Bahamian Bonds will hold true today.

For general information, issuing Sovereign Bonds is a way in which a country can raise money from investors to fund public operations. Aside from direct public borrowing- which can also be buttressed by the application of bonds into the loan structure- it is a very effective way in which a government can obtain money to do things it needs to do.

The main problem with Bahamian bonds being downgraded A3 status- which is the start of the second tier on the Moody's ratings chart- is that investors may see Bahamian Bonds as unstable, with the possibility of the government defaulting on paying back Bond Investors that have already invested.

In 2009 Standard & Poor's - the somewhat disgraced ratings agency that has recently downgraded The United States Sovereign Bonds as well in an act that many call political in nature- also downgraded The Bahamas Sovereign Bond ratings to BBB+, the equivalent to the recent Moody's rating.

The Moody's statement on why they downgraded The Bahamas was based on three factors: "1. The significant run up in government debt levels in recent years; 2. The country's limited growth prospects; 3. The challenges the government is likely to face in raising revenues."

The way Sovereign Bonds work is that investors purchase these bonds, just like a regular investment that’s expected to make a return. What's important with this is that the yield, or in other words the interest paid on these bonds, is how investors make money on the returns from that investment.

The dynamic is that as a country's credit worthiness is put into question in a negative way- as it has been with the recent ratings downgrades- investors will look for higher yields in shorter time frames. For example, they may seek bonds that carry 5 percent yield on a 5 year to maturity dated bond over a 5 percent yield on a 10 year maturity dated bond, and even better if they can get a 7 percent yield on a 5 year maturity date and so on and so forth. As reported by The Central Bank, The Bahamas Government has issued over 2.5 billion dollars worth of Government Bonds with 35 of those issues to reach maturity by 2016, nearly 50 to reach maturity by 2021 and over 80 to reach maturity from 2021 and beyond as far as the year 2037.

The concern over the risk of default in this case is well founded in terms of the ratings downgrade. It’s highly unlikely that an investor would want to be locked into a debt security with an entity that has decreasing means on which to pay that debt.

To some it means nothing. But to others it sends off signals that point to other issues surrounding the Bahamian economy in addition to it all factors highlighting our extensive debt accumulation over the course of the last several years. For example, considering that The Bahamas depends on foreign direct investment, what message do these downgrades send to investors if they want to invest in other portions of the Bahamian economy? How would their investor appetite be affected if there is considerable weakness in the economy?

Other things come to mind as well in terms of addressing this problem in the short and long term. One issue for the short term is confronting the issue of boosting consumer spending. This means not only tackling the astronomical unemployment rate- and the under-employed with the discouraged workers as well- but also boosting real wages in and for the long term.

Another issue is tackling and controlling headline and core inflation for the short and long term respectively. One economist pointed out in January of this year that inflation should not be a main concern, but it rather highlights the signs of recovery in the economy as prices were appreciating. I'm thinking that the exuberance of that statement should be tamped down just a bit.

As we see now- even with lowering oil prices- if boosting consumer spending is to be addressed as a first major step, reducing prices is critical to spurring an appreciation in real wages and increasing employment, most particularly when inflation in The Bahamas is imported and unemployment has little or no effect on inflation domestically. Concentrating on these things are vitally needed in order to generate government revenue in order for the government to have the fiscal headroom to stave off risk of default and meet its other social and regulatory obligations at the same time.

But if investors, both foreign and domestic, would be put off from pumping new money into the Bahamian economy because of these factors aforementioned, then how do we create meaningful jobs, boost consumer spending, while also taking into consideration a softening in the tourism sector? In addition to an increasing dislocation of that tourism product from the main economy (with an increasing bulk of our arrivals choosing the half-day cruise ship stop over, rather than taking that three day trip), how do we assure real investor confidence when tourism is our main industry and is not performing the way it should?

On the other hand the financial services sector has lost jobs and also lost out on business opportunities to other jurisdictions, even though it is virtually un-taxed in comparison.

Another concern is that at the same time with there being no new forms of economic production being presented other than the threat of oil exploration, agriculture is not being given a chance to have a fair start for production for domestic consumption or for export. With that, mostly all other forms of industrial activity and extraction of the natural resources in The Bahamas are being underutilized or under-explored.

Even more concerning- and we have seen this play out in The United States and the debt ceiling debate- is that as politics is becoming more competitive and everyone wants to be credited for the best ideas and the most successful administration, attaining bi-partisan decisions is becoming less and less attainable, which is something that is factored into the determinations on bond ratings most definitely.

Concerns on the long and short term prospects for The Bahamas, even as it is discussed by Moody’s and Standard & Poor’s, should be held by all Bahamians as we begin to see our economic outlook dwindle, and also especially concerning as we see the global economic recovery stall.

One thing is for certain, doing the same things we have been doing and not being more creative and flexible on what can be done in The Bahamas is probably going to create new problems.