CaymanNet Business Tuesday
Cayman NetBusiness Tuesday
OECD foresees US-ledworld recovery
By SHIHOKO GOTO,
UPI Senior Business Correspondent
WASHINGTON, (UPI) -- The agency representingthe world's richest nations reported Thursday that economic growthamong their member countries will expand considerably more in2002 than it did the previous year.
The Organization of Economic Cooperationand Development said its 30 member countries collectively shouldpost a gross domestic product growth rate of 1.9 percent thisyear, compared to 0.7 percent in 2001.
The agency projects GDP in 2003 to expandstill further to 2.9 percent.
"Recovery will spread from the UnitedStates, boosting exports from Europe ... and limit contractionin Japan," said Val Koromzay, OECD director of economics,in his briefing to reporters.
The agency anticipates U.S. GDP expandingto 2.5 percent in 2002, and reaching 3.5 percent in 2003. It seesthe European Union's GDP rising to 1.5 percent this year, goingup to 2.8 percent the following year. Japan's economy is alsoexpected to pick up in 2003 albeit slightly, to 0.3 percent, aftercontracting 0.7 percent this year.
OECD projections for the world economy arelargely in line with that of other international agencies, includingthe International Monetary Fund, which released its semi-annualworld economic outlook report earlier this month.
But though the international community isfar more upbeat about global prospects than they were six monthsago, agencies such as the OECD continue to warn of downside risks,especially with the U.S. economy's recovery still being relativelyweak.
For one, Koromzay warned that the boom inU.S. consumer spending over the past few months wasn't sustainable.
"A lot of the spending activity wasborrowed from the future, and we need to see an increase in capitalinvestments to ensure sustainable growth," he said.
He pointed out that consumers took advantageof low-price deals immediately after the terrorist attacks, suchas zero-interest financing for cars and historically low mortgagerates.
Precisely because consumers rushed to takeadvantage of such special deals at the end of last year and thebeginning of 2002, they are unlikely to buy as much later on thisyear.
"We therefore expect a less dynamicrecovery in the second half of the year," Koromzay said.
Other downside risks cited by the economist were a further devaluationin the stock market, another possible terrorist attack, and ahard hit on trade due to increased protectionism.
But some private sector analysts are alsoincreasingly worried about the still-buoyant housing market, whichhad escaped the economic doldrums of the past year unscathed,as well as the potential rise in interest rates.
As the U.S. economy picks up steadily, thequestion among all economists is when the Federal Reserve willtighten monetary policy once again, rather than if. But interestrate increases are likely to have wide repercussions across theboard for the still fledgling recovery. Particularly vulnerableis the housing market.
The OECD anticipates that the Fed couldstart increasing the key federal funds target rate, currentlystanding at 1.75 percent, as early as next month. Moreover, theagency projects the rate to be at 4 percent by the second halfof 2003.
Such monetary tightening, however, is likelyto hurt the booming housing market.
"The mortgage refinancing boom willend once rates go back up to 3 percent," said Zurich FinancialServices' chief global economist David Hale. He added should therefinancing rate halve, it would cut GDP by 2 to 3 percentagepoints.
The OECD's Koromzay also agreed that whilethe real estate market was "not a huge problem yet,"the inevitable monetary tightening and subsequent higher mortgagerates would spell a drop in the hitherto robust housing prices.
Others, however, counter-argued that whilethe housing market was slightly overheated at the moment, it wasnot over-valued as much as the stock market, and thus would notdrop as much even if the cost of financing new homes went up asa result of a rate increase.
"There has been no housing bubble,and it's strictly been within the natural relation of supply anddemand," said David Malpass, chief global economist at BearStearns.
"Prices could stop going up but therewill be no major correction in housing prices like the Nasdaq(stock market), only a slight weakening in the market," headded.
OECD Commitment LettersSlammed By US Think-Tanks
by Mike Godfrey,
Tax-News.com, Washington
Leading US lobbyists Andrew F. Quinlan ofthe Center for Freedom and Prosperity, and Daniel Mitchell ofthe Heritage Foundation announced following the release of theOECD's updated 'blacklist' that the commitment letters signedby many offshore jurisdictions in an attempt to secure removalare 'virtually meaningless'.
In a joint statement released by the CFP,the Heritage Foundation, and the Cato Institute last week, theCFP President vowed that the efforts of the Center would be focusedon defeating the European Union's Savings Tax Directive, arguingthat as the agreements secured by the OECD are predicated on allcountries agreeing to the same rules, this is the next big challenge.
'This announcement of a new 'blacklist'is a non-event,' he concluded. However, he accused the multilateralorganisation of 'imperialism' and 'hypocrisy'.
This remark echoes the concerns of the BarbadosNation News, which complained this week that despite the factthat there is little, if any, evidence to suggest that terroristfunds were channelled through the Caribbean prior to the September11 attacks, high taxing European OECD members such as Germanyand France are still pressing the Bush administration to 'go afterthe tax havens in the Caribbean' again.
Daniel Mitchell, Senior Fellow at the HeritageFoundation reiterated the remarks made by the Center for Freedomand Prosperity chief, but stressed that although the commitmentletters themselves are meaningless, there is still a danger that:'some politicians in low tax OECD member nations will be willingto sacrifice their nations' economic interests to prop up thedecrepit economies of Europe's welfare states.'
He explained that if the EU 'cartel' isblocked, then low tax nations will be able to opt out of their'so-called commitments'.
Veronique de Rugy, Policy Analyst at theCato Institute, a non-profit public policy research foundation,expressed her support for nations such as Monaco, which had refusedto compromise with the OECD on the issue of tax reform.
'Every nation should have the sovereignright to determine the taxation of income earned inside its borders,'she explained, warning that: 'For the jurisdictions that did signa commitment letter, they must understand that the OECD will notlive up to its end of the Faustian bargain.'
Argentina's new financeminister
By BRADLEY BROOKS,
UPI Business Correspondent
SAO PAULO, Brazil, (UPI) -- Argentina nameda new economy minister Friday, the latest chapter of a story thatis looking like the Myth of Sisyphus.
Just like the protagonist of that tragictale, this country seems forced to eternally roll its economicwoes up a steep incline, only to arrive at the impassable mountainthat is the International Monetary Fund. Repeatedly, with theflick of a foot the IMF sends Argentina's ball of inadequate economicdirection rolling down the hill.
Argentine President Eduardo Duhalde, startingfrom scratch yet again, named the economist and trade specialistRoberto Lavagna as economy minister.
Duhalde's long-time trusted political partner,Jorge Remes Lenicov, resigned on Tuesday after legislation toconvert cash in some banking accounts into government bonds failedto get through the congress.
Lavagna, 60, told reporters upon arrivingin Buenos Aires Friday, "it is necessary to walk a very thinline and pay attention to (Argentina's) production, to the people,to the internal situation in the country, but without closingourselves to the world."
Hopes are high for Lavagna, who has beenArgentina's ambassador to the European Union for the past twoyears. He has a "free-market friendly" label and hisappointment is seen as a signal that Duhalde will continue tryingto cut spending and please investors and international lenders.
But hopes were extremely high for widelyrespected Remes when he was appointed economy minister minutesafter Duhalde took office in early January. Remes failed, however,despite making some headway with the IMF, and Lavagna will falterunless he and Duhalde get some control over powerful provincialgovernors, most of whom are Peronists like Duhalde. The IMF hasmade it clear that cutting the provincial budgets is of the utmostimportance to unlocking new aid for Argentina.
Lavagna has said he wants to protect Argentineindustry, and that foreign companies and investors are going tohave to feel as much pain in this crisis as the country's citizens.What isn't clear is his position on a new currency peg. Therehave been reports this week that Duhalde will peg the peso somewherebetween 2.5 and 3.5 to the dollar.
The peso was freely floated in January afterbeing pegged one-to-one with the dollar for 11 years and losingnearly 70 percent of its value.
While a peg gives comfort to citizens, economistscall that security false and say it only covers up basic structuralproblems in fiscal policy that must be corrected before a fourthyear of recession can be shrugged off.
In the 1980s, Lavagna served as Argentina'sindustry and commerce secretary. In that capacity, he had a bighand in creating Mercosur, the Latin American trade bloc comprisedof Argentina, Brazil, Paraguay and Uruguay.
Argentine officials finally allowed banksto perform limited operations Friday. The banks had been closedsince April 19, leaving Argentines in a mad scramble to find cash.Automatic teller machines across the country ran out of cash earlythis week.
From noon until 5 p.m. Friday, banks alloweddepositors to transfer funds between accounts and retirees towithdraw their pensions. All other withdrawals were not allowed,and that decision may spark heavy protests this evening and throughthe weekend as many in the country literally have not a peso inpocket.
The partial freeze on banking accounts firstwent into effect in December and largely fueled the protests thatforced former President Fernando de la Rua out of office. Officialsenacted the freeze to halt the flight of cash from the financialsystem, a leak that amounted to upwards of $200 million a day.
Duhalde's Cabinet Chief Jorge Capitanichsaid Friday banking restrictions would ease when a law to protectthe banking industry goes into effect. Congress passed the lawThursday, and its effects could begin as early as Friday.
In the past month, thousands of Argentineshave won access to their deposits through lawsuits. Previously,banks were forced to give these people access to their cash immediately.The law passed by Congress allows banks to retain these depositswhile they appeal any lower court decisions to the Supreme Court.
Which, essentially, makes the survival ofthe banking industry a waiting game for IMF aid. Courts acrossthe country have clearly labeled government restrictions on accessto account as unconstitutional and they will continue ruling so.If Duhalde does not win the $9 billion in IMF aid he seeks, thebanking system will fall, as eventually depositors will win accessto their accounts.
While banks were partially open, Argentina'sstock and bond markets, as well as the foreign exchange, remainedshuttered Friday. Exchange officials said in a release that asbanks are not allowed to continue clearing operations and foreignexchange transactions until at least Monday, the markets wouldremain closed indefinitely. Banks are tentatively expected toresume all operations Monday.
Additionally, there are reports in the localArgentine press that Duhalde is losing support from his PeronistParty. Party leaders have reportedly met and are thinking aboutforcing an election this year.
The next presidential election is scheduledfor December of 2003. Congress appointed Duhalde to the presidencyafter the country went through four presidents in a two-week spanin December.
CUC Announces RegularQuarterly Dividend
Caribbean Utilities Company, Ltd. ("CUC")announced today that the Board of Directors has declared a regularquarterly dividend of US$0.155 (CI$0.1291) per Class A OrdinaryShare, or an annualized dividend of US$0.62 (CI$0.5165) per share.The dividend will be payable June 4, 2002 to shareholders of recordMay 17, 2002.
CUC's Class A Ordinary Shares and 8% CumulativeFixed Term Class C, Series 2 Preference Shares are listed in U.S.funds on The Toronto Stock Exchange (Trading Symbols: "CUP.U"and "CUP.PR.U").