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NO DEAL BEFORE A NEW US PRESIDENT?
Conflicting signs on WTO talks
Martin Khor
Will the World Trade Organisation's (WTO) troubled Doha Round suddenly kick back into life, or go on to a new impasse and a possible slow death?
It's still difficult to predict, and the next few weeks should clarify the situation.
There have been mixed signals coming from the United States, the WTO's biggest member, on which the Round hinges recently.
On the one hand there is optimism emanating from a New York meeting between the Presidents of the United States and Brazil. On the other hand is the pessimistic view arising from how US Congress leaders view the Doha Round.
Brazil's President Lula and the United States' President Bush came out beaming from their meeting on the sidelines of the United Nations General Assembly.
Bush said: "We had a good discussion on Doha, a shared commitment to a successful round of trade talks. I assured the (Brazilian) president that the United States would show flexibility, particularly on our agricultural differences, in order to help achieve a breakthrough."
Lula said positive news on the world trade talks could be announced soon. "On the Doha round, Brazil is willing to do whatever is necessary so that we reach agreement," he said.
And Brazil's Foreign Minister Celso Amorim told the press that Bush confirmed the US was ready to cut its maximum trade-distorting agricultural subsidies to between $13 billion and $16.5 billion a year.
Amorim said this is enough to encourage us to deeply engage in negotiations, but added that an agreement would require subsidies to be cut to closer to $13 billion.
However, the US demands a high price for its apparent offer. It wants the developing countries to open their markets wide in agricultural and industrial goods, as well as in services, otherwise there is no deal.
Most developing countries don't mind making some commitments, even significant ones, but not to the extent the US and other developed countries are demanding of them.
If their industrial tariffs are cut to the bone (for example to 5 to 15 per cent), they fear their local firms will not survive the competition from cheap imports. Nor will their farmers escape revenue losses when imports intrude into their market.
The US Trade Representative Susan Schwab has already signaled a 'blame game' should the talks fail. She has pointed a finger at countries like Brazil, India, South Africa as 'spoilers' who won't agree to the steep tariff cuts the US is demanding.
Some diplomats think Schwab's aggressive stance is due to the difficulty she has in delivering, because at the end it is Congress that adopts trade deals.
The US President has lost his fast-track trade authority, and the Democrat-controlled House and Senate are not in a mood to approve trade deals.
In an article titled "Doha success needs new US president", the Financial Times (FT) said there is skepticism in Washington about a breakthrough in the Doha talks.
Success in global trade negotiations will most likely have to wait until a new president is in the White House, according to senior Congress members interviewed by the FT.
Charles Rangel, the chair of the House ways and means committee, which regulates foreign trade, said: "At this point in time I don't think we have to deal with Doha, unfortunately... I think President Clinton is going to have to deal with it." (He was referring to the Democrat presidential hopeful, Hillary Clinton).
Underscoring the difficulties that the US Congress will pose for the Doha negotiations is a letter that ten Senators (seven Republicans and three Democrats) have sent to Schwab asking her to oppose the text on cotton in a draft deal on agriculture before the WTO.
The text wants US subsidies on cotton to be cut deeper than on other products, because of the campaign by African farmers to get a fair deal for their cotton. But the Senators want to continue high protection for US cotton growers. The Senators threatened to reject the whole Doha deal if the cotton text remains.
Cotton is a highly emotional issue of high priority, especially with African delegations. Thus, a move to change the text may cause a lot of dissatisfaction.
In the coming weeks, how the talks go at the WTO will clarify if a deal is possible at the end of this year. If not, the negotiations may shift to 'slow motion' until a new US President, with a new trade mandate, enters.
-Third World Network Features
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Are bank stocks an illusion?
Share Shah
The story is that banks are making a lot of money. As such their earning will increase and so will the profits. When this happens there will be an increase in dividends. Probably there will be attractive bonus and right shares also. Some of what is rumored may be true but the fact is that all that is rumored is never the whole truth. Valuing a share and determining its price is the name of the game if one believes in being an astute player. As such price earning ratios is one way of estimating the value of any stock. But this is never enough.
In case of banks, price-earning ratios are not always the best indicator for shares of banks and financial institutions. What does this little number tell us? In simple terms that it will take an investor X years to recoup his capital! If the earning falls in the future then it may take even longer to get back the capital. The other fact is that bank profits are always an illusion to cover up the requirements of capital adequacy and hide all the facts of expenditure. Banks are great jugglers of accounting figure. But the central bank has rightly caught on to this cat and mouse game being played by banks, which hype up the financial positions. Experts know that bank stocks are tough to evaluate from a profit and loss standpoint. Today there is lot of activity in the second-generation banks. Even some older banks are being benefited by the speculation in prices. Each day the price-earning ratio of these banks is heading north. What does this tell us? The shares are becoming expensive and that one will have to wait longer to get back his capital. The bigger the ratio the longer one will have to wait. But the investors think that the prices will go up and they will win on capital appreciation. Perhaps they may be right if the bull market continues.
It is generally believed that the overall performance of banks and financial institutions in terms of market prices of shares has far exceeded other industries. Strange as it may sound the moneylenders are doing much better than their clients! No wonder that many people want to set up banks rather than set up tangible and productive businesses. Some of these banks have come up with substantial cash dividends and to top it up many have favoured their shareholders with stock dividend. But the most interesting fact is that the so called sponsors of the banks have been gradually divesting their over priced shares through nominee accounts in the market. It reminds one of rats leaving the ship. The rats always are the first to know.
This fact makes one think of the urgency to look again into how the banks are so profitable when rest of the industries is practically going to the dogs. When we analyze banks we typically focus on the company's growth in book value. Book value growth often signifies higher retained earnings - money left over after paying out dividends. One can also take a look at the bank's price-to-book ratio, which will tell one how many times the banking company is trading over its book value. Typically, one looks for a company that is trading at, at least two times the book value - that is a standard benchmark. Return on equity can also give the investors a good idea of how investment-worthy a given bank is, but one should keep in mind that ROE (return on equity) only provides a snapshot of the company's performance to date. Problems down the line will not appear in these numbers right away. As a rule of thumb, banks garner around 14 per cent return on equity - anything lower could signal serious trouble. One may also want to gauge how effectively the company deploys its assets. To be considered competitive, a bank should gain around a one- per cent return on its assets. That is, if a bank has Taka 10 billion in assets, it should be able to generate Taka 100 million in profits. Interest income - the profit earned on the repayment of loans - is yet another area to analyse. In fact, interest income is usually the cornerstone of the bank's revenue and some may forget also the expenditure. If interest receivables are not taken into account or if accrued income is flat or trending downward, it can be a sure sign that the bank's clients are defaulting on their loans at an increasing rate-not at all a good sign for a potential investor!
With these criterions many banks will not look so good. Merely giving dividends is never enough. According to some experts bank accounting reports are not adequate. The Bangladesh Bank has pointed out this fact. In fact an expert has reportedly pointed his finger on the total financial sector companies and its lack of conformity to international accounting standards and practices. Albeit this is something everyone has always suspected. Now we have some facts and standards to re-evaluate the bank's balance sheet, which will probably give a dismal picture. For instance there are inadequate disclosures of maturities of liabilities. There is no disclosure of concentration of assets and liabilities. There is inadequate or no disclosure of related party transactions and no disclosure of assets pledged as security. This is one of the reasons why bank's run into problem in the Artha Rin Courts. Often the collateral is a pledge in name only and has little tangible worth.
What does the present market trend in banking stocks tell us? Who are the players and who are the followers? In a bull market there are always trendsetters and followers. The main players are always the insiders and syndicates. Their basic approach is to capture a large amount of shares and hold on to the position. They never allow the share price to fall. If it does they buy with the support of bank loan. Since some banks have started margin account operations, contrary to SEC rules, the game has become even bigger. The fresh funds available from banks on the current market worth of shares become a 'Ponzi Game.' New prices of shares start support fresh purchase of more shares and with each buy the share prices goes up on a greater demand. Eventually like all 'good' things the prices become truly absurd and then some people get back their sense and start cashing in. Soon everyone follows and a time comes there is none around to support the price. The market has crashed. The mom pop investors may think about taking advantage of the current bull session but should never forget that markets prices are subjective, never objective. They should also look at their bank statement and will find that charges of all sorts have suddenly increased. Are the banks screwing their clients-they are because there is no other way to make an honest buck!
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Building business confidence for accelerated investment
Bangladesh economy is now passing through a difficult time with enormous challenges ahead. The spiralling price hike of essentials and increasing inflation are currently the biggest pressure on the economy. The unabated price rise has put under threat the impressive achievements made after January 11, 2007. The government should, therefore, look into the matter immediately and continue to maintain a liberal import policy as a short-term measure, particularly for food grain import to keep prices under control said editorial of the International Chamber of Commerce (ICC) Bangladesh, bulletin released on 9th October.
No doubt, the present government took office with a strong popular support to hold a credible national election, improve law and order, fight corruption and strengthen governance. Almost 100 per cent public acceptance of this government with full respect at the beginning is now perceived to be on the decline in the public mind mostly due to spiralling prices of food and essential commodities even though the government has limited option to intervene in a free market economy, except fiscal intervention and law and order situation, which of course it is doing.
The current reform measures, including drive against rampant corruption, are very much welcome but unlikely to yield immediate results. The benefits will, however, come in mid-and long-term. But the steps now being taken would definitely contribute in forming a strong base for the future economy.
Notwithstanding a number of internal and external factors afflicting the country's economy, impressive disbursement of term loans during the last fiscal has led to moderately high growth in the manufacturing sector. Robust export growth, buoyant inflow of remittance and improving port situation has signalled strengthened performance of the external sector. Invigorated capital market and increasingly competitive telecom market stood out as positive outcomes of the economy in FY2007.
The balance of payment situation of the country is also in a very good position. Official remittance from the expatriates in the preceding year has reached about US$6 billion, which has certainly provided a big cushion to the Balance of Payment (BoP) situation in FY07.
On the other hand, narrow export basket of Bangladesh is likely to face heightened competition as the EU restrictions on RMG export from China will be withdrawn from day 1 of 2008 while US restrictions will go from January 1, 2009. In this new competitive scenario, sustaining the current high export growth will be an uphill task in coming years. Although the annual export earnings have already reached #12 billion and expected to reach US$ 16 billion in the next two years.
The government's target of 7 per cent GDP for the current fiscal could be possible only if the three major components of GDP, viz. Agriculture, Industry and Service sectors enhance their contribution further to attain this optimistic target. Recent showdown in the growth of gross capital formation and slow private investment, however, does not invoke much optimism in this regard. ADB has expressed the fear that GDP may fall to 6.5 per cent due to flood, while inflation and budget deficit may go up. It is estimated that an additional investment of Tk. 200-250 billion will be required to attain the projected GDP of 7 per cent. The businesses reiterates their earlier suggestions of ensuring an enabling environment for investment including favourable cost of capital.
The challenge for the government is, therefore, to win the confidence of the business community in particular and the public in general. Businessmen should be allowed to manage their affairs with ease and make their own investment decisions. On the basis of faced realities or perceived ones, it is not that businessmen want anti-corruption drive to stop, but they expect this to be done with due care and of course without creating a "panic" situation and thereby impacting the entire business activities of the country.
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