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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: Lee who wrote (18624)	6/18/1998 12:25:00 AM
From: IQBAL LATIF	Respond to of 50167

This 'foreign investment' thingie is kind of overstated as far as U markets are concerned, time and time again we have been reminded by many that US is fueled by foreign money, one of the famous incidents was last year somewhere in summer when the Japanese Finance Minister indicated that they may be looking for exiting the US bond market, but imagine go where with all those $'s loaded up, their own markets are completely zero sum game. Imagine they have not been able to employ the capital they used in their own economy efficiently to expect selling US bonds will help them is just nothing but political rhetoric to appease hoe crowd. The reason they like to invest in US is not choice but necessity, limited availability of choices for big money. Matif Bund Gilt's are not big enough to take Japanese money. One other thing I will like to highlight for you is the fact that Japanese are not looking for heavy returns it is rather preservation of capital. In lot of these big government money cases the shareholders are at the whims of beet chewing bureaucracy who have little or no Idea of returns for them it is purely allocation of funds by the book. So my case I am trying to build is that bonds will attract a lot of money if fundamentals remain intact, no inflation and strong growth this has never been possible before for too long but what appear to be a break from traditional economy we are into it right now. The jury is still out if this phenomenon will continue, like Krugman and others thing this whole notion of new paradigm is nothing but an anomaly. I will think that as we progress and economy slows down a bit we may see within 6 months one or two earnings slow down shocks that will result in calls of lower interest rates, yes you are right that no one is going to interested in TB if 5 years rate are equal to 30 years why to take risk, however if it is clear that 5 year rates are going to head lower and inflation may be adjusted as full point lower this inverted yield curve possibility may be averted and we may have our cake and we as well be able to eat it too. By the way the clarion call on bloody Friday on ASEA is so far right on them mark. ASEAN continued strength will give you window of opportunity if we still continue to get 4.3% type of figures on unemployment, here I would like to think that bonds prices may move lower if ASEA China and Russia look stable although in between we will see a lot of hiccups but this was a good test of lows. I am extremely grateful that my adding up on Webs worked perfectly well lets see if this party continues.

To: Lee who wrote (18624)	6/18/1998 6:21:00 AM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

By Lu Ning 18 Jun 1998 Going for expansionary fiscal policy Minister's stance represents a sea change at the treasury HINA'S normally low-key finance minister, Xiang Huaicheng, received more attention than he had anticipated on Tuesday. His one-line comment on the renminbi in an article published in the official People's Daily was picked up by news wires and markets around the globe. It didn't matter that he mentioned the Chinese currency only once and its Japanese counterpart, not at all, in the 5,000-word article. Nervous markets pounced on the remark, taking it as an expression of doubt over the yuan's stability in the face of a free-falling yen. A careful reading of Mr Xiang's article indicates that it is indeed a significant piece, though for a starkly different reason. The main thrust of his article was to stress that China must now turn decidedly to an expansionary fiscal policy to jump-start the economy in order to ensure the 8 per cent GDP growth target for the year. Otherwise, he argued, pressure on employment, the renminbi and state enterprise reform would mount. What is truly remarkable is that this important message came from a top bureaucrat whose job performance is likely to be judged by how well he manages, as the government plan dictates, to wipe out deficit and achieve fiscal balance by the year 2000. Remember the notorious role the Japanese finance ministry played in dragging the Japanese economy into the current mess? Mr Xiang's embracing of an expansionary fiscal policy also represents a sea change at the Chinese treasury which only three months ago unveiled a budget that proved a disappointment to many who were looking for substance to the much-touted three-year US$750 billion (S$1.3 trillion) stimulus package. Unlike the chief manager of China's monetary policy -- central bank governor Dai Xianglong who declared increasing money supply his top priority at the parliamentary session -- Mr Xiang's predecessor adhered to a conservative fiscal policy with a 6.8 per cent cut in infrastructure spending and only a modest increase in treasury bill issue for 1998. The budget also aimed to achieve a 10 billion yuan (S$2.1 billion) reduction in fiscal deficit. Now, Mr Xiang has argued eloquently that although steps have been taken to stimulate consumption, expand investment and increase net exports, the effects would take time to kick in; that even monetary policies have their limits when an economy is in "relative contraction", as the four interest rate cuts since May 1996 have failed to provide enough of a spur. China, he stressed, should now switch from mainly relying on monetary policy to mainly using fiscal policy, which is far more efficient in producing quick results, to expand aggregate demand. To his treasury colleagues, he reasoned that a slower economy is a far greater threat to fiscal revenue under the circumstances. But he cautioned against tax cuts because the tax base is relatively small. Instead, he outlined a five-point plan that stresses reducing various corporate fees, increasing government investment spending, raising export tax rebates, and expanding treasury bill issues. Treasury bills hold the greatest promise. China has already announced expanded plans for infrastructure spending. By the end of last year, outstanding public debt amounted to less than 600 billion yuan, only 8 per cent of its GDP. This makes the 280.86 billion yuan treasury-bill plan look too conservative. With falling interest rates on bank savings, treasury-bills have been hot. Some 90 per cent of the 125 billion yuan bond issue introduced in February were sold within a month. That prompted the finance ministry to make an additional issue in April of 17.36 billion yuan which were again sold out by the end of May. Another issue of 45 billion yuan was added earlier this month as a result. It is more than a little extraordinary that within four months, nearly 70 per cent of the planned issues for the year had been snapped up. Mr Xiang's article indicates that China for now has almost exhausted monetary policy options with little room for more than one additional rate cut. Instead, the government would increasingly rely on fiscal policy to drive the economic recovery. c Copyright Singapore Press Holdings Ltd, 1998. All rights reserved.