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INDUSTRY RESEARCH & ANALYSIS - IRA
Credit Management Group
NBP Industry Newsletter
Tracking Opportunity & Risk Related Developments
SBP projects 2-3% growth (Page No. 23) IMF: Inflation 13.5%, GDP < 2.75% (Page No. 24) Fiscal deficit reaches 6.3pc in FY10 (Page No. 24) CA deficit widens by 48% (Page No. 24) Trade gap widens (Page No. 24) Bumper wheat crop likely (Page No. 15) Profitability remains up in 2010 (Page No. 09) Two nuclear reactors for Pakistan (Page No. 06) Agreement inked - TAPI gas pipeline (Page No. 06) Pakistan can produce of 7,000 MWs (Page No. 06) Pakistan forced to import over 3 M bales of cotton (Page No. 01) Kick - starting agricultural activity (Page No. 15) Agriculture may need 2 years for recovery (Page No. 14) 310,000 small businesses affected by Floods (Page No. 14) Circular debt update (Page No. 06)
OCT / NOV 2010 ISSUE
Major Developments Textiles (Ginning, Spinning, 1 1 4 6 8 9 11 12 12 14 19 20 22 23 32 33
33 35 39 40 44 48 52
Pakistan forced to import over 3 M bales of cotton
Weaving, Knits, Woven Apparel)
Oil (Marketing, Refining, Sourcing) Power / Energy (Generation, Distribution) Sugar Cement / Construction / Steel Automotive Telecommunication Other Industries Agriculture Micro Business & SME Financial Services Regulatory Macro Environment Table: Risk-Opportunity Trends Accelerating Global Risks - Special Excerpts
Global Deflation Sovereign & US Debt Crises US Dollar Crises - An Alternative Reserve Currency Strategic Divergence US vs China / Russia & Others Iran A new Mid-East war in the making The AF-Pak Theater The End Game Economic Implications of US Congressional Elections (Nov 2010) Downgraded: ratings of largest banks (Page No. 20) NPLs estimate - SBP (Page No. 20)
Pakistan will be forced to import over 3 M bales of raw cotton to meet the demands of local textile industry as cotton production will remain around 11.5 M bales against set target of 14 M bales in crop season 2010-11. Officials at the Ministry of Food and Agriculture told that during the current crop season Pakistan expected to achieve the set target due to favourable conditions, but devastating floods have swept away cotton crop on 600,000 hectares. Before the recent floods Pakistan was expecting a bumper crop of 14 M bales compared to 12.8 M bales produced last year. Officials said that Pakistan's textile industry annually requires around 14 M bales of cotton, officials added. Officials said cotton crop had been sown on 3.4 M hectares, out of which 0.6 M hectares had been destroyed and the country lost about 2.5 M bales. Officials warned that the country would face serious shortage of cotton in coming days as more than 20% of the cotton crop had been destroyed by the floods.
(Business Recorder October 13, 2010) Over 2 M cotton bales destroyed
While expressing his views in connection with the damage to the
Tracking Opportunity & Risk Related Developments
cotton crop as a result of floods, Chairman APTMA Sindh-Balochistan Region said that before the floods Pakistan was expecting a bumper crop of 14 M bales compared to 12.8 M bales produced last year. According to reasonable estimates, the floods have destroyed approximately 2.00 to 2.50 M bales leaving a short fall of about 1.00 M bales in comparison to last year; therefore, the import requirement this year will be additional 1 M bales and total import requirement would be 4 M bales, which will now be procured from international market at world prices. Under the scenario, it can not be expected that the spinning mills will import cotton at international prices in the absence of continuity and assurety of non interfering policy by the Ministry of Textile Industry, as nobody can afford to import raw material at world prices and be denied the rights to sell their product at the international price of cotton yarn in the wake of export duties and quotas. The clear proof of this can be drawn from a comparison of cotton import figures between 2008-09 and 2009-10 when the import figures were 490,000 Metric Tons (2.8 M bales) versus 337,000 Metric Tons (1.98 M bales), respectively. Had curbs on yarn export not been placed during the last year Pakistan would have imported 150,000 MT more of raw cotton at prices, which would have been much cheaper than they are today and consequently availability in the local market would have been much better.
Cotton crisis looming
destroyed by floods in the four provinces and Azad Kashmir, which might compel the country to import many agricultural products including cotton. The total agriculture sector losses are estimated to be about Rs 249 B. Due to flood damage to Pakistan's cotton crop for the 2010-11 season, the officials estimate that the country may import 3.5 to 4 M bales. Major distortion took place in major cottongrowing areas of the central Punjab and southern Sindh. According to a Food and Agriculture Organization (FAO) report, the highest losses were recorded in Punjab where about 661,637 hectares of land with standing crops destroyed. In Sindh, crops on about 357,372 hectares and Khyber Pakhtunkhwa (KP) about 191,020 hectares were damaged.
(Daily Times September 14, 2010) Cotton output to drop by 18.5%
ginneries as on September 1 stood at 9,95,191 bales, showing a decrease of 22.95% over the corresponding period of the last year when ginneries received 12,91,550 bales. According to the Pakistan Cotton Ginners Association's fortnightly report released said that Punjab - the major cotton producing province contributed 4,88,548 bales to take the total to 9,95,191 bales. Sindh's shared in the arrival was 5,06,643 bales.
(Business Recorder September 4, 2010) Imports of 4 M cotton bales
The cotton output in the country is likely to be lower by 18.5% because of floods, PCGA Chairman told here. "I am expecting loss of 18.5% of cotton due to recent flood in Punjab and Sindh," he said that government had targeted 14.11 M bales but now only 11.5 M bales production is expected. According to him, devastating floods and heavy rains severely damaged the cotton crop in the country. Floodaffected areas in Punjab are estimated at 1.415 M acres (1415.6 thousand acres) while in Sindh it is about 303.2 thousand acres. The total area damaged is calculated at about 1.719M acres (1719.8 thousand acres).
Cotton production declines by 22.95%
Flood damage to Pakistan's key cotton crop has cut deep into the forecast for the 2010/11 season, industry officials said, adding the country is likely to import at least 4 M bales. The monsoon flooding, which started over a month ago, damaged about 524,000 hectares (1.3 M acres), out of the total 3.20 M hectares, under cultivation in the major cotton-growing areas of central Punjab and southern Sindh province. Government and industry officials now estimate output of about 11.6 M bales of 170 kg (374.8 lb) each against the government target of 14 M bales. "We will have to probably import a minimum of 4 M bales to meet our demand this season after floods damaged up to 2.25 M bales," a senior official at the private All Pakistan Textile Mills Association, told Reuters.
(Business Recorder September 8, 2010) Growth in Textile export
(Business Recorder September 15, 2010)
(Business Recorder September 14, 2010)
According to the assessment of the United Nations, over 1.31 M hectares of the cultivated area has been
Cotton production has declined by 22.95% as the arrival recorded at
The country's textile export has posted a healthy growth of 23% during the 1st 2 months of the FY 2010-11 mainly due to high unit price in the world market. 02
Tracking Opportunity & Risk Related Developments
According to statistics released by Federal Statistics Bureau, the country's overall textile export have reached $1.975 B mark during the first two months (July-August) of the CFY as compared to $1.601 B exports during the same period of the last FY, depicting an increase of 23.34% or $370 M.
(Business Recorder September 23, 2010) Worlds cotton output, consumption
coming Christmas and New Year events in the West. "Exporters always book orders at least three months ahead of the next season, and if the raw commodity price is higher or short on the local market then striking deals with global buyers becomes difficult," Value-added Textile Forum Co-ordinator said.
(Business Recorder October 20, 2010) Duty on PTA cut to 3%
Representatives of different valueadded organizations, while talking said on that the value added textile industry is crippled owing to frequent load shedding, high electricity and gas tariff, multiple duties and taxes, resulting in high cost of doing business in Pakistan, as compared to the neighbouring states. Chairman said that end product cost has increased manifolds, which is no more acceptable to USA and Europe. The prices of the corresponding period last year, the Federal Bureau of Statistics said. The surge in export numbers can be attributed to higher global demand and increased per unit price of Pakistani textile products. Despite surge in the amount realised, the quantity exported of almost all the products under the category witnessed decline. According to the data, raw cotton exports declined to $7.202 M during July-September against $40.458 M in the corresponding period last year, thereby, witnessing a decline of 82.2%. Contrary to this, cotton yarn exports witnessed growth. The cotton yarn exports reached up to $353.617 M, recording 2.08% growth against the previous years exports of $346.402 M. During the period under review, goods such as cotton cloth, knitwear and bedwear witnessed a surge of 22.88%, 15.79% and 14.73%, respectively. The exports of cotton cloth, which stood at $432.974 M, increased to $532.0.35 M, while that of cotton carded or combed dropped to $141,000 from $5.37 M. 03
World cotton production and consumption are forecast to balance around 25.1 M tons in 2010/11 due to 15% rebound in production and 2% increase in mill use, a statement of the International Cotton Advisory Committee said. The higher production in the USA and a surplus of five Mbales in India would compensate for the damage cause to cotton crop in Pakistan. It would also facilitate Pakistani spinners to cover the shortage through imports, it said. Beginning stocks will account for only 27% of the worlds supply in 2010/11, down from 35% in the previous season. The decline in stocks as a percent of supply suggests that cotton prices in 2010/11 will remain unusually susceptible to changes in crop prospects, the statement added.
(The News September 3, 2010) $1 B foreign orders may be lost
The government has cut customs duty on the import of pure terephthalic acid, a raw material used in the production of polyester fibre, to 3% from 7%. On the contrary, customs duty on polyethylene terephthalate for bottle resin has been increased from 7.5 to 9%. This was announced in a notification issued by the Federal Board of Revenue. In another major decision, the FBR withdrew all duty concessions on the import of 12 types of raw material and different types of yarn for the textile industry. Elaborating, an FBR official said the raw material from which concessions have been removed include textured yarn (nylon), polyester and other types of yarn, mixed staple fibre, yarn made from mixed wool and other products.
(The Express Tribune October 13, 2010) Garments export likely to come down in 2010-11
The country is likely to lose at least a billion dollars of foreign orders next summer because of the acute shortage of cotton yarn on the local market, manufacturers-cum-exporters of value-added textile sector said. Expressing fear, they said the raw commodity's scarcity could curb the value-added textile sector from meeting the export deadline for the
Due to high prices of end product, Pakistan value-added textile export did not seem competitive in Europe as well United States, resultantly export of garments is likely to come down from $3.2 B to $3 B during 2010-11.
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Knitwear and bedwear exports surged from $471.747 M and $420.532 M to $546.247 M and $482.461 M, respectively. Shipments of towel swelled up by 12.12% and that of tents, canvas and tarpaulin dropped by 38.67%. Readymade apparels showed escalation of 38.83%, overseas sales of made-up articles rose by 26.72% and other textile materials exports witnessed a surge of 84.27% during the period under review.
(The News October 20, 2010)
increased following a decline in its local production by a huge amount of 700 to 800 tons per day. The prices of liquefied petroleum gas (LPG) are stable in the market despite a surge of Rs.9,360 per ton in its rate by a local producer OGDCL. This was stated by the chairman of FPCCI Standing Committee on LPG and All Pakistan LPG Distributors Association Chief in a press release.
(The Nation September 5, 2010) Oil import bill increases
(The Nation September 29, 2010) Oil sales down in August
products in the month of August this year as against $7.35 M of the corresponding month of 2009.
20% decline in Refinery output
The country's refinery production has declined by 28% in August 2010 as compared to previous month mainly due to production stoppage at Parco after floods devastated the transportation network in the surrounding region. According to provisional figures, the refinery production in the 1st 2 months of FY11 witnessed a decline of 18% as compared to the same period of previous FY. Reviewing refineries individually, Parco witnessed its market share falling drastically to 29% in the two months of FY11 from 42% after production closure in August 2010. PRL and BYCO too witnessed their shares deteriorating to 20% (from 21%) and 3% (from 8%) respectively during this period. On the other hand, NRL remained the key gainer witnessing its market share surging to 24% (from 13%) in the two months of FY11.
(Business Recorder September 16, 2010) Dependency on imported LPG increases
The countrys oil import bill for the 1st 2 months (July-August) of the FY 20010-11 has increased by 25.28%, Federal Bureau of Statistics reported. Total oil imports, including crude and petroleum products, amounted to $1.9 B during July-September period of the prevalent FY from $1.52 B in the same period last year. On the contrary, the petroleum products imports stood at $933.1 M as against $994.7 M, showing a decline of 6.20% YoY in growth over the same period of FY10. Showing the similar trend, the quantum of the petroleum crude products imported into the country during the period under review reached the level of $950 M when compared to $509 M in Jul-Aug FY10. In addition, this group showed 86.90% YoY raise in growth. According to official figures released by the Federal Bureau of Statistics, in August 2010 alone, the petroleum groups imports swelled by 16.67 per cent on month-on-month basis. Likewise the entire imports in this broad category up by 7.19%. The FBS data revealed that Pakistan spent $858 M on the import of oil
The oil sales in local market have declined by 24% to 1.418 M tons during the month of August 2010. The decrease in sales of Furnace Oil (FO) and High Speed Diesel (HSD) were amongst the major causes for the overall decline, analysts said. The sales of HSD have declined by 34% followed by FO sales, which were down 21%, an analyst at JS Global Capital said. The oil sales during the 1st 2 months of FY11 stood at 3.285 M tons, down 8% on yearly basis. PSO sales during this period dipped by 12% to 2.2 M tons mainly due to its larger presence in the flood affected areas compared to growths of 17% and 14% witnessed in the sales of APL and SHELL, respectively. As a result, PSO lost its market share by 322bps to 67.2%. Meanwhile APL and SHELL improved their shares to 6.1% (up 130bps) and 14.8% (up 277bps), respectively.
(Business Recorder September 9, 2010) OGDCL to start drilling in Zin Block
Pakistans security forces have finally given clearance to the OGDCL to start drilling in one of the most prospective, but insurgency-hit parts of Balochistan, top company officials said. OGDCL will initiate drilling of the first well in Zin Block of Dera Bugti district, to check the size and quality of gas reservoir more than six years after a survey suggested presence of hydrocarbon reserves there, they said. 04
The dependency on the imported Liquefied Petroleum Gas (LPG) has
Tracking Opportunity & Risk Related Developments
Work heads off later this month or in the first week of November, one of the officials said requesting anonymity. Some evaluation of the reserve needs to be carried out, but seismic and geological studies are already with us. The largest petroleum producer has engaged six platoons, 216 soldiers of the Frontier Constabulary for security. OGDCL will pay for their service and the company has even bought them equipment.
(The News October 12, 2010) OGDCL seen borrowing next year 21 gas fields - Ogra raises wellhead prices
Oil and Gas Regulatory Authority has raised the wellhead prices of around 21 gas producing fields due to variation in exchange rate and global oil prices effective from JulyDecember 2010. Ogra official said that impact of increase in recent well head gas prices will also be reflected in consumer prices effective from January 1, 2011. Ogra has revised wellhead gas prices of 32 gas fields and there has been made no change in prices of some gas fields. The government sets, through Ogra, the wellhead price and then gas is provided to the gas distribution companies, like SNGPL and Sui SSGC for sales to industrial, commercial and domestic consumers.
(Business Recorder October 10, 2010) Oil consumption falls
B during the first quarter of the CFY from $2.188 B in the corresponding quarter FY10, showing an increase of 9.33%, the Federal Bureau of Statistics said. The import of petroleum products came down by 10.79% to $1.295 B during the period under review from $1.452 B in July-September 2009. The imports of crude petroleum, however, registered a significant increase of 49.08% to $1.096 B from $735 M. The y-o-y imports in September fell sharply by 25.65% to $509.43 M against $685.2 M during the same month last year.
Once Pakistans most cash rich company, OGDCL now has only Rs.6 B in liquid reserves, which will force it to borrow from banks in the first half of 2011, a top company official said. The companys assets that can be readily converted into cash have come down sharply from around Rs.19 B in June 2010 after payments of deferred taxes and dividends, said the official, requesting anonymity. We can avoid banks in remaining months of this fiscal (Jul/Jun 2010/11) only if inter-corporate circular debt falls, he said. But I dont see that happening anytime soon. OGDCL awaits payment of over Rs.80 B by 5 refineries and the 2 gas utilities. The company has annual cash flow of Rs.93 B from sale of oil and gas and its strong balance sheet has helped it stay away from banks during last five years. The state-run petroleum giant will have to raise between $400 and $500 M from banks in fiscal 2011/12, he said. Loan proposals and negotiations for credit lines will start as early as December 2010.
(The News October 8, 2010)
(The News October 20, 2010) Deregulation of Oil prices
The oil consumption in the country has declined to 4.7 M tons during the first quarter of FY11, 7% lower than the same quarter last year. The oil consumption continued to post weak data following the flash floods as demand dipped 6% in September 2010 as compared to the same month last year. Likewise, oil sales were 2% lower from the previous month as the seasonal Ramadan effect kicked in as well. Analysts said that the shutdown of some power plants due to flood inundation and improved hydel generation ability proved demand dampener for furnace oil (FO), while retarded agricultural activity dragged down diesel sales. Hence, consumption in the 1st Q of FY11 was down 7% on y-o-y basis.
(Business Recorder October 8, 2010) Oil import bill up
The ECC of the Cabinet has approved, in principle, de-regulation of oil prices and Inland Freight Equalisation Margin (IFEM). The ECC has also approved to fix margins of oil marketing companies (OMCs) and dealers which will result in reduction of oil prices by 35 paisa per litre if calculated based on price of October, an official of Petroleum Ministry said. The ECC has also directed Petroleum Ministry to seek ratification of decision from the Cabinet before its implementation. "IFEM will fall in controlled-deregulation because the Oil and Gas Regulatory Authority (Ogra) will notify it from one destination to other destination but so far as prices of petroleum products are concerned, refineries and OMCs will determine the prices on monthly basis whereas Ogra will monitor it," the official said, adding that imported price will be benchmark for prices and refineries as well, as OMCs will not be allowed to charge over set 'bench mark price' to protect consumers interests. He said that in new oil 05
The oil import bill increased to $2.392
and invited the IAEA to exercise safeguards and oversight of this project. and is courting investors from the West.188 barrel per day (bpd) in the 1st Q of FY11. "This project is based on an agreement signed between the two countries in 2003 about co-operation in the nuclear power field. especially the refineries which are now running at 60 percent of their capacity. 2010) Pakistan can produce of 7. a Pakistani official said. the role of Ogra was more effective. 2010) Bradford Power wants to set up wind power project A foreign consortium company of Canada and China M/s Bradford Power has shown interest to set up a wind power project of 200 MW in Pakistan and estimated investment of $500 M. Afghanistan. (Business Recorder October 09. an international council of governments. . one joint venture with Engro. The spokeswoman said China plans to help Pakistan expand its Chashma nuclear energy complex in Punjab by building two reactors in addition to one already operating and another nearing completion. if the infrastructure is completed on priority basis and international donors like World Bank and ADB are actively persuaded by the government. China and other Asian countries. is keen to revive plans to build the Tapi pipeline through Afghanistan to the markets of Pakistan and India. The planned pipeline would have initial capacity for 33 billion cubic metres a year and would run for nearly 2.Tracking Opportunity & Risk Related Developments pricing formula. (Daily Times October 8.4% on y-o-y basis. as compared to 63.000 MW from coal based power generation projects by 2015 if the government aggressively pursues investors. then the power generation can be increased to 7000 MW.250 miles).700 MW of electricity will be generated from Thar coal with the existing number of projects and current pace of development by 2015.000 km (1. 2010) Pakistan can produce as much as 7. The official informed the Minister that the Bradford Power (Pvt) Ltd is a special purpose company established by A-Power. said Secretary Coal and Energy Sindh. 2010) Circular debt update China on gave its firmest government confirmation yet of plans to build two new nuclear reactors for Pakistan.946mmcfd in the same quarter last year. The gas production. holder of the worlds fourth-largest natural gas reserves. but a Foreign Ministry spokeswoman said she did not know about talks over a bigger reactor deal. 2010) 64. Pakistan and India signed the framework of an agreement to construct a gigantic pipeline pumping natural gas to South Asia." he told a regular news conference. P. He pointed out that one British company Oracle. China and Monteva Holding Inc. The former Soviet state is looking to diversify energy sales from its traditional market.3% on y-o-y basis to 4. one Australian firm. citing plans to build the No 3 and No 4 reactors of about 300 megawatts each at Chashma.188 bpd per day Oil production has already notified the International Atomic Energy Agency about the relevant details.000 MWs The country's oil production stood at 64. slightly up by only 0. "China The circular debt of the petroleum ministry has soared to Rs 235 billion. including 735 km across Afghanistan and another 800 km through Pakistan. the government will have to take some concrete steps to resolve the issue once and for all." said he added. Canada for setting up wind power projects in Pakistan as 06 Turkmenistan. This was said by official of the Bradford Power (Pvt) Ltd while talking to the Minister for Water and Power. some of whose members have voiced qualms about the deal. However. (Daily Times September 23.907bpd in the corresponding quarter in FY10. (Business Recorder October 19. undermining efforts of the entities working in the oil sector. 2010) Agreement inked . Russia. in an exclusive interview published in monthly Energy Update. POWER / ENERGY Two nuclear reactors for Pakistan (The Express Tribune September 21. (Business Recorder September 22. one UAE Company and a joint venture between Sindh and federal government for coal gasification are at various stages of initial work and the response from is very positive and they are willing to undertake coalbased projects in Thar and other coalfields of Sindh.TAPI gas pipeline Turkmenistan. says an official.037bcfd in this quarter against 3. increased by 2. A delegation of the Bradford called on him.R. Her comments also suggested Beijing may see no need to seek approval for the two new Chashma reactors from the Nuclear Suppliers Group (NSG). He said that there are projections that at least 2. however.
" KESC said in the letter (written to Ministry of Water and Power on August 27.000 BOE worldwide.730 B during the period under review. the petroleum ministry did not send the complete record of the project to the law ministry while seeking its advice on a deal finalised with the consortium comprising 4Gas and GDF Suez. Two wells are already being drilled while drilling of planned wells will start during CFY. in phases. OMV said in a press release. The law ministry interpreted the project on the basis of partial information as a part of the summary did not reach it. 2010) adding that the project is expected to come online.78. The ministry was asked to advise if the project should be signed in view of the Supreme Court judgment on the matter. a multi-billion-dollar project for import of liquefied natural gas (LNG) for 20 years through a consortium of European companies is facing procedural problems. the government has decided to allow distribution companies (Discos) of Wapda to enter into direct power purchase contracts with small independent power producers (SIPPs) of up to 50MW capacity under a crash programme. Under the new policy likely to be formally approved by the ECC of the cabinet at its next meeting. it has learnt. KAPCO posts Rs 5. According to financial results. Sources said that IDB is leasing $138 M for some of the civil work components of the Neelum Jhelum Hydroelectric Project (NJHEP). It said that to-date 3 L/Cs have been posted to the Engineering. 2010 and announced a final cash dividend of Rs.Tracking Opportunity & Risk Related Developments independent power producer and the said project will be completed in two years in Sindh province. official sources told. Seismic data acquisition work has been planed to delineate a drillable structure at the field. OGDCL has also made preparation to start drilling of an exploratory well in Zin area of District Dera Bugti as well. an official said. A formal request had already been submitted to IDB and Economic Affairs Division. The purchase will increase OMVs gas production in Pakistan to around 25. 2010) The Islamic Development Bank (IDB) has reportedly agreed to extend $220 M for 969 MW Neelum Jhelum Hydroelectric Project (NJHEP) in addition to $138 M which has already been leased.000 BOE a day in Pakistan and 318. from July 2011 to March 2012 period. The Bank has now offered lease financing of $220 M for turbines. sources added.089 B for the year ending . (Daily Times September 3. 2010) KESC raises $280 M for 560 MW power plant transformers of the project.75 per share. (Dawn September 24. Asian Development Bank and local lenders to set up 560 MW Combined Cycle Power Plant . Neelum Jhelum Hydro-electric Project With gas and electricity shortfalls on the rise. 2010) With short-term power deficit estimated at 5. The company has completed geological mapping and seismic data acquisition work in Kalchas Block of Balochistan Province. An IDB appraisal mission is in Islamabad to discuss modalities of further financing for the project.7.000 barrels of oil equivalent (BOE) a day by 2014. 2010) Further delay in LNG project The Karachi Electric Supply Company (KESC) has raised $280 M from International Finance Corporation. smaller local investors will sign sale and purchase agreements with Discos for 25 years. 07 (Business Recorder September 8. 2010) Take over by OMV The Oil and Gas Development Company Limited has planned to drill 11 development wells in Uch Gas field area of Balochistan. According to sources. ADB and a syndicate of local lenders. generators and associated OMV has taken over Petronas International Corporations rights to explore and produce gas in Pakistan. 2010) Kot Addu Power Company (KAPCO) has posted a record profit after tax (PAT) of Rs 5. The EPS of the company stood at Rs 5. (Dawn September 27. 2010) OGDCL to drill 11 wells in Balochistan on June 30.000 MW.08bn profit after tax (Business Recorder September 4. the profit before tax surged to Rs. (Business Recorder September 8. Purchase of power from small producers (Business Recorder September 28. The Vienna-based oil and gas giant currently produces around 14. "We have been successful in raising $280 M in debt for this critical project through IFC.2. Procurement and Construction (EPC) contractor for a combined total of $215 M.
said the chief minister.6. 2010) SUGAR Withdrawal of 25% regulatory duty (The Express Tribune October 6. the man leading the reforms. (Daily Times October 12. He said that sugar price in the international market rose by 18%.Tracking Opportunity & Risk Related Developments The agreement includes the Mubarak.26 M tons more sugar will arrive from India by next month. The decision to this effect was taken by the ECC meeting presided over by Finance Minister. Change the culture. (The Express Tribune September 22. hinting at recovering the remaining Rs. Mehar and Daphro exploration licences and the Mehar and Mubarak development and production leases. (The Express Tribune October 20.2 M tons of sugar shortfall is expected next year. The total price difference has been worked out in the range of Rs. The declaration of the region as a special economic zone and area of strategic importance has also been approved. He also expressed his wishes to facilitate the contacts between the regulatory institutions of the two main markets in Condense Natural Gas (CNG).1 M tons for the same period of last year and 1. Argentine Ambassador participated as guest speaker in the inauguration session of the Exhibition/Fuelling Pakistan 2010 at Karachi Expo Centre. A 1% tariff increase amounts to approximately Rs. however. (Business Recorder September 22. According to the press release issued by the Argentine Embassy. Briefing media after the meeting. has entered a joint venture with Wah Industries Ltd. He said currently 0. He also said that INFLEX. The (power sector) business plan needs to be consistent with the allocated Rs. for the first 30 years in a bid to attract investors.6 M tons stock of sugar is available with the TCP against 1. This was disclosed by Chief Minister Sindh during a press briefing at the CM House. This time.2 b and the government has to increase the prices by at least 28 to 30% within a year if it again fails to turn around the lossmaking power distribution companies. Thar coalfields would be declared a project of national security. The Economic Coordination Committee has granted an incentive package to attract foreign investors to Thar.30 B subsidy. confirming that two billion tons of coal reserves are available in Block II alone a quantity enough to generate 5.000 megawatts of electricity over the next 50 years. As part of the package. learn to provide uninterrupted services and learn to pay for services. he explained that the government would guarantee an internal rate of return of 20% to firms which will achieve financial close by 2015 and investors will be exempt from paying customs duties on the import of coal mining and construction machinery for a period of 30 years. said a key official of the finance ministry who deals with public sector enterprises. Argentina willing to assist energy sector. 2010) Argentina expressed its interest to play the role to improve petroleum and power sector of Pakistan particularly Hydroelectricity and Gas Transportation sector.000 tons of white 08 .180 B primarily from consumers. Under the federal governments incentive package. 2010) Surge in Electricity Prices from next month Giving details about the incentives. 2010) Deputy Chairman Planning Commission. Ambassador of Argentina in Pakistan has been making efforts to persuade the Argentinean Company IMPSA Corporation to participate in the several hydro projects that the government of Pakistan has planned to initiate. TCP A feasibility study of Thar coal reserves has been completed. he said. unveiled the broader contours for overhauling the bleeding The Trading Corporation of Pakistan has established two LCs worth $243 M for import of 320. holding a zero accidents record. the priority would be on improving efficiency rather than on increasing tariffs. He. and we expect that the new company INFLEX-WAH would soon commence production of CNG cylinders in Pakistan to supply the internal and regional markets.210-225 B for the CFY. the government would not charge levies. he said. 2010) Generate 5000 MWs for 50 years The ECC of the Cabinet decided to withdraw 25% regulatory duty on import of raw sugar and allowed private sector to import the commodity. was reluctant to share by how much the tariff would actually be increased. including federal excise duty and withholding tax. Secretary Finance said that 1.
2010) Fall in Cement prices Cement manufacturers have reduced prices by Rs. Sources told that with the opening of two LCs it is expected that first shipment of sugar would reach Pakistan in mid-September.000 tons of white refined sugar. declined by 09 The new plan of trade assistance by the European Union (EU) to Pakistan .290Rs. (Daily Times October 09. Analyst said that despite worse economic conditions around the globe.265-275 during the next few months. 2009 to import 200. The other contract for 70.8 M tons in the same period last year. local agents of Agrocorp International of Singapore.4. TCP had finalised two deals of sugar import at $724. said an analyst at Topline Securities. The market leader Lucky Cement was also better off in terms profitability (13% net margin) while better performers in the north included FCCL and DGKC.Tracking Opportunity & Risk Related Developments refined sugar. causing a crisis leading to a countrywide increase in prices and shortfall in supply. the AGP concludes in the investigation. Commerce Secretary said that the EU has unilaterally given the trade assistance programme to Pakistan and the 30% duties on export of ethanol from Pakistan has been withdrawn. 2010) Major gainers of Pak-EU trade CEMENT / CONSTRUCTION / STEEL Profitability remains up in 2010 Amid adverse economic conditions the overall cement sector performance was sluggish during FY (FY) 2010 cement companies continued to perform well in terms of better profitability and higher interest coverage.15-25 per bag to Rs. Analyst added that manufacturers might have to reduce the prices further because demand for cement has fallen since floods hit the nation. One deal. amid volumetric growth of 9% YoY in total dispatches during the year.000 tons sugar. delayed a decision on the import of 200. of 250. the local cement companies witnessed well net margins. remain low for next few months until reconstruction activities picked up.36. (The Express Tribune October 14. said the analyst. Local sales in the first two months of the fiscal year fell by 15% to 3. they added. Cement prices had remained around Rs.325 per bag have started to cool down and are currently hovering around Rs. A high official of Attock Cement confirmed that the price of the commodity has fallen by about 15%. Prices may fall further by Rs. a brokerage house said.2 M tons from 3. he said. a 100% increase. superior interest coverage while the sector also continued to benefit from superior quality and brand image (reflected by higher retention prices realised by the company compared to the sector).300 per bag. tasked with ensuring the availability of sugar in the market.000 tons of refined sugar to cope with an anticipated shortfall following a decline in domestic production. Ethanol is the key greenback earner for the sugar mills and the country has been exporting an average of 250.7 B Delay in Sugar import will not only give a boost to the textile and leather sectors but the sugar mills would be the major gainers too as the proposed programme will allow duty free exports of ethanol to the EU countries.72 per kg from Rs.000 tons was signed with Meshe International.325 per 50-kg for last few months.000 tons ethanol annually and after the zero-rated regime is implemented the exports could even reach 300.September 1. was finalised with Shanig Associates Karachi. Cement demand would The office of the Auditor General of Pakistan has established that the Trading Corporation of Pakistan (TCP). The delay in import pushed sugar prices to Rs. as average cement prices tumbled during FY10 by 18% yearon-year topline of the sector accordingly recorded a decline of 14% YoY. Cement prices after peaking at Rs. local agent of Scuden Middle East Dubai. This will give a boost to the sugar industry and the production at the distilleries will be enhanced. (Business Recorder .5 per ton with two different suppliers on August 2. which account for more than 32% of total dispatches. 2010 for import of 320. Non-compliance with (government) directives indicated that undue favour was extended to the sugar cartel. On the cost front.000 tons annually. (Daily Times October 19. 2010) Loss of Rs. The ECC of the cabinet had directed the TCP on February 3. rupee depreciation of 7% YoY alongside rise in power tariff and gas prices kept overall cost under check.000 tons of sugar before Ramazan in 2009. Exports. in this regard Attock Cement realised highest net margin. 2010) However lower prices shrank revenues.25-35 in the north region because floods have brought the demand down.
2010) Pakistans Cement exports to suffer Analyst said that Lucky export concentration to the Far Eastern nations is 15% of exports while 5% DG Khan Cement exports are dispatched to Sri Lanka. The cost of sales increased to Rs. Local cement exporters are likely to substitute African markets with Far Eastern markets. Similarly. (Daily Times October 3.776. (Business Recorder October 20. The board of directors of the company in its meeting declared that the company's EPS declined to Re.022 M as compared to Rs. another cement trader said that cement manufacturers are operating at 20% capacity and any increase in cement prices reflects collusive behaviour.12. the local sales have witnessed a bruising start to FY11. (Business Recorder September 30. 2010) DGK Cement profit declines Cement prices increased The after-tax profit of D G Khan Cement in the year ended June 30. sales were down seven percent. down 22% on yearly basis and the largest yearly decline since April 2001. However. 2010) Common External Tariff on import of cement in East Africa is likely to be increased from 25% to 35% that may hurt countrys export.275 B in FY10 against Rs. However. 358. Pakistan cement exports could face pressure in short-term. Pakistan has one of the lowest ratios 10 . Analysts expect demand to pick up post 1HFY11. unexplored potential in countries like Sri Lanka and Myanmar is expected to be the future growth avenue for local cement companies.038 B recorded in FY09.8 M vehicles on the road.6 M tones in July and August compared with 2 M tons in these two months of last year. may compel the Competition Commission of Pakistan (CCP) to intervene. down 16% on yearly basis in the 1Q owing to factors ranging from the recent flash floods to poor law and order situation.72 in the period under review against Rs.16. 2010) Lowest Cement Exports since Dec 08 Cement sales in September 2010 hit a 21-month low. due to Ramazan.18.358 M. and reconstructing 128-km of damaged roads that provide vital access to remote and disaster-prone communities. largely in line with its 10-year average decline of 12%. analysts reckon. According to the financial results the company's net sales declined to Rs.581 M earned in FY09.Tracking Opportunity & Risk Related Developments 20% to 1. again. Pakistan has about 8. "Current trend of cement prices may have a negative impact on the government's efforts to build houses for flood affectees. has approved a credit worth $130 M in additional financing for the Pakistan Highway Rehabilitation Project to continue revitalising and modernising Pakistan's highway system. 2010) IDA approves $130 M credit Cement manufacturers have raised cement prices by Rs.1. 525. resurfacing 342-km of highways. 18% lower from the corresponding period last year. analysts eyeing a potential decline of 4% in the industrys volumes in FY11. Despite the restoration of pricing consensus among the cement manufacturers. sales were down 16% as reduced business activity in the month of Ramazan also took its toll. with reversal in the current trend gathering pace from FY12 and beyond as reconstruction activities take shape.569 B against Rs. said that quota fixation for every district and underutilization of capacity are the main reasons for the fresh bullish trend in cement prices. owing to passive domestic demand following the recent flash floods. growing at about 10% annually projected to increase to over 70 M by 2030. industry sources told. They said that Saudi cement exports are coming to the forefront (following a partial cement export ban removal). Cement manufacturers hope that their sales will increase by 20% when reconstruction gets underway. Hence. arriving at 2 M tons.9 M tons.55 per bag in two months which. (Business Recorder September 18. albeit slowly. on a monthly basis. dispatches for 1QFY11 stood at 6. 2010) Housing Finance to GDP ratio International Development Association.403 M in FY10 against Rs." he said.900 M earned in FY09. On a monthly basis. The project consists of three components: rehabilitating 514-km of highways.0. 13. The company's profit before taxation declined to Rs. In this regard. 2010 (FY10) declined to Rs 233. A cement trader. (Daily Times October 6. (The News September 7.63 a year back.
In sharp contrast Habib motorcycle sales in August 2010 rose to 1. according to the data released by Pakistan Automotive Manufacturers Association. while Honda has increased prices by Rs 30. Loans for residential housing and construction amount to less than 1% of the GDP in Pakistan. the amount has been handed over to deputy commissioner Diamer so as to start the land acquisition process. However. This is in stark contrast to India where the same ratio is seven per cent.659 units in July. data showed. which enjoys big share in rural areas.000 of Honda City effective from September 18. .e.000 while Altis price will be increased by Rs 35.021 units in July.394 units from 1.000 to Rs 15. The report said that housing finance is out of the reach of low-income groups and housing finance loans are extremely expensive.224 units in July.663 units in September. (Dawn September 22. according to a World Bank report on housing finance for low-income groups in South Asia. Similarly.176 units from 70. Yamaha sales slightly plunged to 9.955 units from 2. This is despite the fact that the outgoing quarter remained turbulent for manufacturing concerns as both security issues and flood devastation 11 The government has released an amount of Rs.700 M for the acquisition of land for the mega Diamer Bhasha Dam project as the first installment.000. 2010) Sale of Japanese bikes falls AUTOMOTIVE Car prices increased Due to the unprecedented strengthening of the Yen which is at a 15 year high against major currencies. In addition to providing water for agriculture.Tracking Opportunity & Risk Related Developments of housing finance to gross domestic product (GDP) in the world. It would store 8. who had recently visited the Diamer Bhasha Dam site. sources added.acquisition of Bhasha Dam WAPDA chairman. Both the companies.1 M-acre feet (MAF) of water and generate 4. has marginally increase its car prices with immediate effect. the overall sale in JulyAugust 2010-11 had swelled to 85.496 units against 30. The sales during July-September period increased to 33. said an authorized dealer.000 per unit on all models of Honda Civic and Rs 35. According to the sources of the Ministry of Water and Power. Indus Motor Company.September 16/Daily Times September 19.501 units in August 2010 from 3. he added. Housing loans are normally provided to high-income groups and the share of private financial institutions is quite low.184 units in July. sale of Honda bike. gave appreciation of yen against rupee as a reason for this increase in prices. 2010) Fund released .561 units in July but its overall sale in July-August rose to 2.519 units in the same period last year. The housing finance to GDP ratio is between 50 & 70% in developed countries. Pakistans housing finance to GDP ratio is as dismal as some of the most underdeveloped countries in the world.000 on different Suzuki models. has plunged to 40. Suzuki motorcycle sale to 1. said that dam would be the largest project in the countrys history. The report said that in contrast to the impressive growth in the banking sector.500 MWs of lowcost electricity.130 units in the same period of last fiscal. (Business Recorder . The ground breaking of WAPDA offices and colonies is expected next month.155 units in August 2010 from 45. (The Express Tribune October 12. Car sales grew by 6% to 11. i.609 units in the same period last fiscal. thus making the imported CKD and even local parts more costly as most of the raw materials are also imported. the project will also contribute 18 B units of electricity per annum to the national grid.588 units from 10.408 units from 1. prices of all Corolla variants will be increased by Rs 25. 2010) Cars sale surges by 10pc The sales of cars and light commercial vehicles in the country have increased by 10% during the 1st Q of CFY. however. Pak Suzuki Motors Co Ltd and Honda Atlas Car Pakistan Ltd have also decided to increase prices from Rs 8. Hero bike sales improved to 3. 2010) According to figures released by Pakistan Automotive Manufacturers Association. (Daily Times October 15.
with its various m-banking services recorded over 6 M transactions carried under its brand EasyPaisa by the end of first year. the mobile banking in Pakistan has gained tremendous popularity among customers with rapid pace as colossal amount of Rs 10 B was transacted through a single cellular operator in a year. dealers said. 2010) 12 .2 B tons economically mineable reserves by deploying a cutting edge technology at Rico Diq. B OTHER INDUSTRIES 'Rico Diq project to fetch $3. launched in Karachi early this year.show rising trend Abu Dhabi Group has injected over Rs 2. Qubee said that Qubee has been actively involved in technology up-gradation since its launch in Pakistan.2 B FDI' In its initial stages.1 B in the Wateen Telecom Limited during past few weeks which is likely to be welcomed warmly by the general public and stock exchanges of Pakistan. depicting an increase of $19. as compared to 8. (Business Recorder September 29.1 B Qubee invests $70m in broadband sector Qubee is receiving excellent response from its customers in Lahore and twin cities of Islamabad and Rawalpindi where the service has been launched recently. According to SBPs 4th Quarterly Report on Retail E-Payments and Paper Based Instruments released.Tracking Opportunity & Risk Related Developments restricted their business operations. 2010) Injection of over Rs 2.7% increase in value. Chagai. it implies an influx of US dollars into the country while for Wateen Telecom it shows shareholders' confidence in the company and its management while supporting the business plan. "We have submitted a feasibility study to Balochistan government and having talks with Provincial government to conclude an agreement which will result in take-off for the project in next four years. 2010) Electronic payments continued to show a rising trend as both the number and value of such transactions increased in the fourth quarter (AprilJune) of the last 2009-10 FY (FY10).2% in number and 7. 2010) E-payments . is the newest entrant in the WiMAX market of Pakistan with an initial investment of more than $70 M and a commitment to bring high speed fast. (Daily Times October 15.4 M and Tethyan Copper Company Pakistan plans to operate a world class copper. 2 B benchmark. 2010) TELECOMMUNICATION Mobile phone import up Import of mobile phones mounted by 100% during July this year. Telenor Pakistan. (Business Recorder September 14. according to official statistics.4% increase in number and 8. reliable and competitively priced broadband internet to residential and small business customers across Pakistan. (Business Recorder September 18. respectively showing an increase of 6.016 M in July 2010 as compared to $19. CEO. said an analyst at the Topline Securities. For Pakistan. Balochistan as a joint venture with Government of Balochistan with initial $3.2 B foreign direct investment over four years.425 M in July this year. 2010) Rs 4. the subsidiary of Norwegian telecom giant. Qubee committed to provide the customers amazingly reliable services. 2010) Telenor Easypaisa transaction crosses Rs. as the demand for low-cost multi-purposed Chinese handsets continued to grow.8 trillion.591 M in the same period of last fiscal year 2009. Balochistan will get 25% profit plus royalty and taxes to federal and provincial governments. (The Nation October 8.2% increase in value in the previous quarter. according to dealers at Karachi's mobile phone market in Saddar. The country's import of mobile phones stood at $39. (Business Recorder October 13. gold mine with 2. (The News October 13. Qubee. The volume and value of E-Payments transactions in the country during the 4th Q of FY10 reached to 53. Company sources revealed the number of carried transactions has been increasing over a period of time that has reached 1 M in a single month with transacted amount crossed Rs. The 1300cc market leader Indus Motor posted highest sales growth of 13% in the outgoing quarter. Import of mobile phones has already outnumbered the country's total import of cellular phones because they are low-priced with high communication features.
He said that Pakistan managed to secure this tender after beating China and India in quality and price competition. Chairman of Federal 'B' Area Association of Trade and Industry (FBAATI) and Director of Premier Cables.Tracking Opportunity & Risk Related Developments 14% decline in fertiliser sales The floods also hurt the sale of fertiliser.000 tons.520 per bag compared to Rs. The duties are valid for up to 5 years and reflect Europe's concern that EU industry is falling behind oil-rich states with competitive and booming plastics markets.9 M tons. it is considered necessary" to launch the new tariffs.70 euros ($188. The urea consumption is projected at 3.7% to 4.180 M tons against 3.will face EU import duties of 139. he added.2. The decision means Polyethylene terephthalate from Iran.000 tons of Dye Ammonium Phosphate (DAP). Pakistan and the UAE . and cumulative fertiliser offtake has been down by 14% in 8 months of current calendar year. the EU's executive Commission said in the EU's official journal. down by 14%.953 per bag during the same period of last year. (Daily Times September 26. Pakistan has huge potential for export of optic fibre cable. and African countries. total fertiliser offtake in January-August 2010 stood at 4. 2010) $115m for Karachi port project The European Union imposed new In the coming Rabi season (October- The Board of Directors of the World 13 .7 M tons of last year.003 Mtons as compared to last year consumption of 4. "In view of the magnitude of the countervailable subsidies found and in the light of the level of the injury caused to the (European) Union's industry.000 tons. down 54% YoY.3%. HQs USA. (Daily Times September 26. and 38% MoM.02 euros and 42.1. Fertiliser offtake during August stood at 417. The investment will be on the basis of $1 per share. said that Pakistan exported almost 1000 km optic fibre cable to these countries. March). TSP/MAP to meet the domestic demand for the coming Rabi season 2010-11.256 M tons of previous season showing a decrease of about 2. Moreover the government will import 20 thousands tons of TSP/MAP and 10000 tons of SOP/MOP in October 2010.1). has committed to invest in Pakistan Cables by taking up a 25% equity stake in the company business. According to data released by National Fertiliser Development Centre. sources told. Offtake of other phosphate (TSP/MAP) products may also decrease. 2010) New duties on Pakistan plastics The government will reportedly import 230.used for bottles and food packaging . The offtake of DAP fertilizer is expected to decrease by 4. and more orders were in pipeline for export. The decrease was primarily down to a massive decline in August as a result of the floods. compared to 5.000 tons import of different fertilizers For the first time Pakistan has started export of optic fibre cable to Afghanistan. The import of this urea consists of 100000 tons of DAP in December 2010 and further 100000 tons in January 2011 and total import of DAP for Rabi season is 200 000 tons. 2010) Pakistan starts optic fibre cable export duties on plastics from Iran. 2010) Urea consumption to shrink 27% in Rabi season Pakistan Cables has announced that General Cable Corporation. (Business Recorder September 14. The decline has been on account of high DAP price which averaged at Rs. Pakistan and the United Arab Emirates saying the three were illegally subsidizing exports to Europe's growing softdrinks market.116 M tons. and a Fortune 500 company. Official sources claimed the main reasons behind lower demand for urea fertilizer was said to be inundation of a large agricultural area with floodwater and high price of phosphate fertilizers prevailing in both domestic and international market for the last six months. (Business Recorder September 29. CEO Pakistan Cables Corporation said during the signing ceremony. DAP offtake registered a decline of 53% YoY in January-August to 425. The General Cable will invest in Pakistan Cables on long-term basis after which the paid up capital of Pakistan Cables will increase to 28 M shares as compared to 21 M shares currently. 2010) US Company to invest in Pakistan Cables (Business Recorder September 30.34 euros per ton respectively until 2015. (Daily Times September 8.3% over last Rabi 2009-10. the overall off take of all types of urea fertilizer is likely to fall by 2. 44. 2010) Import 230.
" said a press release.8 M Karachi Port Improvement Project. which destroyed 1. chairman BMG APMMPIEA. he lamented. maize and sugarcane. (Business Recorder October 8. the industry faced around 18-hour production loss on average daily. the cargo handling time at this terminal will be a third of what it takes today at other bulk cargo terminals in the country. he added. majority of which were subsistence enterprises with less than 10 employees and an annual turnover below Rs 500. 2010) Marble Industry more than $150m exports loss (Daily Times October 3. "Fertiliser sector will continue (to function) in the post flood scenario since countrywide agriculture productivity depends upon access and affordability of agriculture inputs. 2010) Fertiliser subsidy to continue The government will continue giving subsidy to the fertiliser sector in the post flood scenario. The meeting was convened to discuss national fertiliser strategy. 2010) Pakistans agriculture industry. relying on loans from relatives and the accumulated life savings of these entrepreneurs.400 M a month. 2010) (Business Recorder September 18. said.10 B. (Dawn September 11. SMEDA CEO revealed this in a meeting held to discuss rehabilitative steps required to counter post-flood recovery challenges facing the nation amid the worst natural disaster and rehabilitation of small and medium enterprises. He said export target given by the Ministry of Industries and Production and TDAP for the said period of April 2010 was also missed by $10 M.000 investment. commitmentlinked repayment schedule. and with an average discharge rate of over 1. The meeting also assured that gas curtailment to the sector would end as soon as gas situation improves. The total investment of the project is Rs. This translated into a heavy loss to the developing export oriented industry to the tune of $21 M in JulySeptember 2010. The terminal is capable of handling 4 M tons of dry bulk cargo per annum. (The Express Tribune October 17. the ADB said.3 M hectares of crops just before the harvest of key products such as rice. The scale of the project meant that a consortium would be required to execute it successfully. he explained. He said during the last 18 months till September 2010. informed CEO of Fauji Akbar Portia Marine Terminals Limited (FAP). said WB Country Director for Pakistan. Improving the efficiency of Pakistans trade corridors is a key element of the banks support to trade facilitation in the country. a pillar of the economy. The ADB and the World Bank are assessing the damage caused by one of Pakistans worst natural disasters. fully-automated grain and fertiliser terminal of the country at Port Qasim is all set to welcome its first vessel later this month. The financial close of the project was in July 2008 whereas physical work started in September-October 2008.500. 14 The marble exports incurred a loss of .5 years. could take up to two years to start recovering from devastating summer floods. of which Rs. He said the economic impact of the floods has yet to be fully quantified though it is evident that agriculture sector has been hit hardest. All Pakistan Marble Mining Processing Industry and Exporters Association (APMMPIEA) said.000 small businesses were affected by the devastating floods across the country.000 small businesses affected by Floods Small and Medium Enterprises Development Authority has estimated that around 310. AGRICULTURE 310. 000. The export target set by APMMPIEA is missing by $10 M every month while production loss is being estimated to be Rs. in an interview. 2010) Debut of Automated bulk cargo terminal more than $150 M in 18 months (April 2009-Sept 2010) due to power outages and closure of mines. This was decided at a meeting presided over by Minister for Industries and Production. level repayments.Tracking Opportunity & Risk Related Developments Bank has endorsed $115.000 tons per hour.9 B has already been spent on the terminal facilities. Many of these ventures were established with less than Rs 1. The financing is an IBRD flexible loan with fixed-spread. and 28 years maturity including a grace period of 7. Agriculture may need 2 years for recovery The first of its kind.
4 M growers or one fifth of an estimated seven M potential borrowers. the newly-appointed SBP Governor is expected to announce a set of guidelines for concessional agricultural financing in flood-hit areas. They said that this year due to soil's better moisture level wheat production in barani areas is expected to reach 2. (Dawn September 20. said a central banker. 2010) Kick . Farmers estimate cumulative annual demand for crop and agricultural development loans at Rs. (Dawn September 20. 2010) 500. This would provide a basis for an immediate agricultural revival package that the central bank may announce shortly.8 M tons of wheat. Banks should focus now on additional demand for agricultural loans created after the floods. said the head of an agricultural credit of a large local bank. particularly in the Rabi sowing season. a total of 973684. he told. The provincial governments were in the process of re-assessment and it would take a little more time before their final figures are tabulated. donkeys. accounting for over 21% of gross domestic product. whereas About 1 Macres of forest land has been destroyed by floods in the four provinces and Azad Kashmir. (Daily Times September 3. Most of small and medium-sized growers have no access to agricultural loans and they borrow from informal sources.55 acres of forest land 15 .5 M tons. 2010) 1 M acres of forest land destroyed The SBP has received input from banks on what needs to be done to facilitate flood-hit growers across the country. We are thinking within that time horizon we should be able to see the agriculture sector coming back. Officials maintained last year.86 M tons last year. it will be able to meet part of those agricultural import needs that will happen over the next two years. Final estimate would emerge once the SBP and the federal and provincial governments come up with precise calculations. farmers in barani areas managed to produce only 0. goat. Filling in this gap is a long-term policy issue. sources told. according to a report "Preliminary Assessment of 2010 flood impacts in Pakistan" conducted by Pakistan Agricultural Research Council (PARC).Tracking Opportunity & Risk Related Developments Once the country gets back on its feet. Askari Bank and ZTBL has submitted its report. 2010) Bumper wheat crop likely these areas have the capacity to produce over 2 M tons. Initial estimate of this additional demand is Rs. Faysal Bank. HBL.300 B.000 animals perished Initial estimates of the provinces revealed that the ongoing colossal deluge about 500. etc are died during the recent colossal deluge. Even these figures were yet to be confirmed as decided in a recent meeting in ministry of livestock.000 animals including buffaloes. Nearly 62% of the population depends on agriculture for their livelihoods.2000 B whereas banks lending remains below Rs. told. The Agriculture Finance Committee comprising representatives from NBP. camels. But bankers say they will also have to build a mechanism for heavier disbursement of development loans to enable flood-hit farmers to buy agricultural implements and inputs and to repair damaged water courses.50 M was compared the total livestock population 160 Mfigures as per 2006 census was to be relied. sheep. Banks will have to extend larger amounts of crop loans at cheaper rates Pakistan is likely to produce another bumper wheat crop during the upcoming Rabi crop season. while the wheat production in canal irrigated areas would be around 23 M tons. According to the report available with Business Recorder. DG of ADBs private sector operations.starting agricultural activity to reactivate agricultural activity. (Business Recorder October 16.250 B. officials at Ministry of Food and Agriculture said. Bankers say the SBP is devising a concessional agricultural refinance scheme for banks to ensure availability of adequate financing to flood-affected farmers at singledigit interest rates. Officials said that due to favorable weather conditions Pakistan is in a position to produce about 25 M tons of wheat as compared to 23. UBL. Banks provide farm loans to about 1. horses. mules. the sources maintained. The damages to total livestock became 1% if the 0. Now. Agriculture is Pakistans second largest sector. ratio of the died animals became just one percent.
citing early estimates. orchards and vegetables) appears Pakistans next wheat harvest is at risk after floods destroyed more than 0.6 M tons of wheat stock needed for the wheat planting season death of 1. (The Express Tribune September 1.85 were damaged by the floods. according to Pakistan Cotton Ginners Association. Forest land in about 41 districts across the country has been adversely affected by floods. 2010) Rs. rice.000 farming families and needed additional funding to be able to provide seeds for twice that number.g.5 Mtons of seed stocks in Asias third-largest wheat producer.5-0.25 acres. The highest loss was recorded in Sindh where about 494559. said. farmland). cattle.05 M hectares in 2009.6 M hectares of outstanding crop The FAO said it had completed procurement for the provision of seeds to 200.2 M livestock and 6 M poultry were lost in the flooding and over one M buffalo. seed stocks.6 M hectares of standing maize. with the heaviest loss in Punjab with 18 affected districts and an 11.g.38% of the total provincial land area. If the next wheat crop is not salvaged. yielding 24. In Khyber Pakhtunkhwa (KP) forests in 9 districts accounting for 3.3 M hectares of standing crops have been damaged countrywide damage to millions of hectares of cultivatable land. the food security of millions will be at risk. including standing crops (e. rice. Asia. the United Nations food agency said. sheep and goats owned by households in the flooded areas would starve if animal feed is not provided urgently. Across the country.78 acres of forest land was destroyed. (Daily Times September 4.Tracking Opportunity & Risk Related Developments was damaged by the current devastating floods triggered by monsoon rains across the country. This planting season is vital as wheat is Pakistans main staple crop. silt deposits and damage to irrigation structures mean that work must start now to clear and prepare the soil for planting and to repair water systems for upcoming planting seasons. Response to needs in the agriculture sector cannot be underestimated nor delayed. followed by Sindh where 14 districts with a %age of 14.2 M large and small animals. fertilizers and farming tools are not provided rapidly. The estimated loss to the cotton crop in recent flash floods in Punjab and Sindh stands at more than Rs. many farmers will miss this years wheat planting season. FAO is currently focusing on two time-sensitive challenges: (i) meeting the upcoming wheat planting season and (ii) saving livestock.75 B. livestock. Food aid alone will not be enough.7 acres. An estimated 1. 2010) Damage to 3. Chief of FAOs Emergency Operations. irrigation.05 M tons) and provides 60% of the carbohydrate and protein requirement for an average Pakistani. and 6 M poultry (Department of Livestock). cotton. Chief of FAOs said. completed in half of all the flood-affected districts. (i) Wheat planting season. The cotton crop in terms of value faced more than 30% of the total losses 16 . Near East.75 B loss to cotton crop The scale of losses to the agriculture sector in the country caused by the floods is unprecedented and further unfolding. The latest cumulative estimates are as follows: The Agriculture Cluster rapid damage assessments. the Food and Agriculture Organisation said in a statement. the FAO said. Europe and Special Emergencies.8% of total land area was destroyed while forests in 2 districts of Kashmir suffered damages. millions of people have lost their entire means to sustain themselves in the immediate and longer term owing to the destruction/damage of standing crops and means of agricultural production (e. Khyber Pakhtunkhwa 46034. Pakistans worst floods in decades have damaged 3. (Business Recorder September 8. maize. cotton and sugar cane. found that 1. beginning in September/October. If wheat seeds. sugar cane. Extensive water-logging. followed by Punjab where the recorded loss was 430887. 2010) Immense Losses to agriculture sector likely loss of 0. and may not be able to harvest wheat again until spring 2012. says Food & Agriculture Organisation (FAO). accounts for two-thirds of national cereal production (planted on 9. Unless people get seeds over the next few weeks they will not be able to plant wheat for a year.827 acres and Azad Kashmir 2202.
according to the initial surveys conducted.5 B in Khyber-Pakhtunkhwa (K-P) due to the havoc wreaked by the recent floods.6 M hectares had been destroyed.1% to 2. Additionally Rs. with higher volumetric sales and better margins.946 livestock have been killed by the floods while another 437.4.666 tons.Tracking Opportunity & Risk Related Developments to major crops in the recent devastating floods.48. PCGA Patronin-Chief said. witnessed volumetric growth of 13% during 1H2010. out of which 0. driven by festival demand in Asia. (The Express Tribune September 1. Millat Tractor.07 M in fodders have been lost. A severe jolt by this flood has also given a deathblow to the national economy.644 ringgit ($850) trading break in Kuala Lumpur.4 M hectares. Poultry losses have exceeded Rs.000 hectares of land valued at Rs. 5 B Livestock losses in KP and 220. the highest level since Aug 16.261 domestic poultry The worst-ever flood in the history of the country has almost devastated the basic infrastructure of the country and is still engulfing agricultural lands mostly in Punjab and Sindh. the water still floating in cultivated areas will also hurt the tractor sales in second half of the fiscal year 2010.5 M bales against the production target of 14. Among two listed tractor assemblers. buffaloes. as the figures released are based on initial reports. Approximately 6.86 B have either died or been otherwise affected by the deluge. which enjoyed 56% market share. up by 13% followed by Al-Ghazi.8bn last year.75 m used for cultivating fodder and animal feed has also been destroyed. 2010) Rs. (Daily Times September 7.762 B. The PDA has estimated that indirect losses to the sector stand at Rs.4k units in same period last year. a traders group said.1. Hence.5. which showed an increase of 9%. Rs. And this trend would keep on at least in the short run.5 M bales to 12. These include deaths of more than 369.674 ringgit. the official spokesperson of the association told. Palm oil has advanced 18% from near an 8 months low on July 7.237 animals have been affected. Both these measures provided impetus for additional tractor demand due to lower prices and accessibility to lower income persons. tractor sales have witnessed an increase of 11 percent to 38k units in Pakistan. 2010) Tractors sale to hurt 1H2010. He said the country lost about 2. He said the flood affected around 600.11.50. The company was able to sell 21k units compared to 18. PDA data informed. highest volumetric growth was witnessed in Millat Tractors.8% to 2. Prices jumped 1.890 commercial poultry.5 M bales in crop season 2010-11. the cumulative earnings of both the companies stood higher by 27% during 1H2010. may buy 10% less of the commodity in October and November than in July after the countrys worst. Along with this. 2010) Palm-oil imports may drop Livestock losses have reached almost Rs.40. (The Nation September 8. 2010) 17 . With all these initiatives. Our imports may decline after floods washed away our selling points and imports in July were 147. Industry experts said that tractor sales would likely to decline by 25% in the month of September. Cows. (Daily Times September 14. goats and sheep worth at least Rs. according to data compiled by the Pakistan Dairy Association.2 M in poultry feed.7bn compared to Rs.000 hectares cotton sowing areas across the country.05 M in feed concentrate and Rs. Officials stressed that the numbers are likely to rise even further.345 M.9.ever floods destroyed villages. according to the Federal Bureau of Statistics. the worlds third-biggest importer of palm oil. Findings have highlighted that at least 140. Cotton crop had been sown on 3. It is to be noted that to enhance agri activities government announced many incentives directly related to agriculture sector like removal of sales tax on tractors and Benazir Tractor Scheme. Hence net revenues for the company improved by 20% to Rs. Futures for November delivery declined 1.
seafood exports during July stood at $14. fertilizers. (The News September 30. 2010) Palm oil imports seen steady Canadian Government announced further support in agriculture sector for those affected by the recent floods in Pakistan. He expected overall buying for 2010 to be 10% higher as compared to 2009.18%. the Indus River System Authority said that the country might confront a 15% water shortage during the upcoming Rabi season 2010-11 for agriculture purposes as only 34.55% during July/August this year amid robust demand in the international markets.296 M during July-August (2009/10).010 M against the exports of $9.700 M against the exports of $16. vice chairman of the Pakistan Edible Oil Refiners Association.000 tons of palm oil a month in the OctoberDecember quarter. as traders earn profits on current stocks in a bull-run global market. financing will be provided at affordable/concessional markup rates through banks. Pakistan made large palm oil purchases in September.25% during the 1st 2 months of the CY against the same period last year.044 tons. everybody is making margins on the current stocks.5 MAF water would be available. Canada is providing urgently needed agricultural support to make sure that farmers can recover and 18 The seafood exports from the country Pakistan may buy up to 170. Exports of seafood during August witnessed 55. Buying will not be as good as in September but I think it will remain between 150. attributing the rise to a possible change in the consumption pattern. According to the data.690 and in August it increased by 1.625 during August 2009. According to a circular (SMEFD Circular No 15) issued under the scheme.500 M has been allocated to encourage farmers to sow canola in the flood affected areas of the country for the current Rabi season. according to the data released by the Federal Bureau of Statistics. so they are buying. (The Nation October 15. The sources said that during the next crop season. it said.74 M during the 1st 2 months of FY 2010/11. This was revealed during the IRSA technical committees meeting at the authoritys office under the chairmanship of IRSA Chairman to review the water availability for Rabi season 2010-11. The fish and fish preparations during July-August (2010/11) were recorded at $29. When the market is on a bull-run. in a news release issued here said the contribution responds to agricultural recovery needs by providing seeds. Provisional statistics of export receipts released by the SBP show that the rice exports soared to $360.95% increase over the same month last year. when Pakistan imported about 3 M tons of palm oil. 2010) Canada to support Pakistan in Agriculture sector Pakistans rice exports have registered an increase of 42. (The News September 22. The export in the same months last year remained $253 M. Indus zone might face up to 20% water shortage. experts said. Minister of International Cooperation Canada. and tools and by supporting the rehabilitation of land and livestock sector in Pakistan. a leading industry . (Daily Times September 25. Imports from Malaysia alone stood at 203.000-170.Tracking Opportunity & Risk Related Developments Rabi season 2010-11 . 2010) Surge in Seafood exports The SBP has launched a concessional financing and guarantee scheme. Exports in August were recorded at $15. said. under which an amount of Rs.000 tons a month in the October-December quarter. 2010) SBP launched concessional financing official said. Today.Country may face 15% water shortage With 50 M acre feet (MAF) floodwater gone into the sea due to flaw in the water storage mechanism. 2010) Rice exports up by 43% surged by 82. which will start from next month (October). (Daily Times October 6. while River Chenab and Jehlum will probably deal with 5% water shortage.
000 jobs in the microfinance sector.000 people and 4. and coordination and logistics and for the restoration of links to communities cut off by the flooding. (Daily Times October 19. shelter. He said that out of Rs.5 M will be provided by CIDA from the Pakistan Flood Relief Fund to the UN Food and Agriculture Organisation ($6 M). A total of $11. protection. if the actual market price is unfavorable for growers the Recent floods have adversely affected . Cash Management is one of the focus areas. which has been extended to SME customers to help them manage their cash flows through electronic channels. MFIs extend loans on comparatively higher interest rates to clients without collateral. These estimates have been provided by the Pakistan Microfinance Network. an umbrella organization for all the microfinance institutions.000 of these will have to be laid off if the government does not rescue the sector. 2010) 40% of small borrowers are affected Production cost of Paddy (IRRI) in Sindh has increased by 21% to Rs. Previous financial contributions were for the provision of emergency food. relief supplies.5 M).7 B worth of loans. said CEO of the Pakistan Microfinance Network.8 B of microfinance loans were disbursed in those areas which have been adversely affected by the floods. to set The recent intervention prices were established by Agriculture Policy Institute (API) a sub-ordinate department of ministry of food and agriculture. MFIs clients have reached 1. He said at least Rs.2. the government has announced intervention prices for super basmati. To safeguard the interest of rice producers. Rs. With todays announcement.490/40 kg last year. Standard Chartered SME banking was established as a dedicated business in Pakistan with an aim to meet unique needs of its customers. said the Chairman of Pakistan Microfinance Network. sanitation. The payments solution will be made available through the banks electronic banking platform. (Business Recorder September 15.97 M and the lending portfolio has reached Rs. Save the Children Canada ($3. which are synchronized with their Enterprise Resource Planning (ERP) systems. The Bank's SME Banking comprises team of qualified professionals who design and structure financial solutions that fulfil customers' requirements. 19 MICRO BUSINESS & SME SME Cash Management Services Standard Chartered and Oasis Travel. Preliminary estimates show that recent floods have affected 733. sources told. 2010) four out of ten borrowers of a small loan which will lead to the writing off of almost 11% of the microfinance institutions balance sheets. Through this arrangement Standard Chartered will provide a comprehensive payments and collections solution.595 per 40 kg in 2010-11 compared with Rs.25 B.1 B is required to offset the impact of the written-off loans and to give new loans to affected individuals. (Daily Times October 17. the sources maintained. basmati and IRRI across the country. water. Our help will also prevent further loss of livestock that is critical to the well-being of farmers in the flooded regions. health services.Tracking Opportunity & Risk Related Developments plant on their land in time for the critical wheat season currently underway. The sector employs 11. allowing these organizations to help meet the humanitarian and early recovery needs associated with the agricultural sector for the current Rabi wheat season.250 M to revamp. Straight2Bank. Normally. and Development and Peace ($2 M). 2010) Production cost of paddy rises government decides intervention prices. The network has sought a bailout package from the government and international donors to restore the livelihood of 733. signed an agreement for Small and Medium Enterprises (SME) Cash Management services.000 clients and will result in a write-off of Rs. In line with the Bank's SME Banking platform.000 borrowers and save another 4.25 B.5. He also said that the floods damaged 87 offices of microfinance institutions that will cost Rs. the government of Canadas response to the flood relief efforts in Pakistan now totals $52 M.
CEO of Smeda told. (Dawn October 11. 2010) NPLs estimate .Tracking Opportunity & Risk Related Developments As much as 55% of small loans have been extended to borrowers from rural areas. available under 40-60 arrangement. MCB. The average loan size is $147 or Rs. The officials informed MCCI officebearers that the Private Sector Investment (PSI) programme of Netherland government. they apprised.680 and the average interest rate is 25%. Training of people and Project management.28 B while the total NPLs caused by the flood was around Rs. 2010) deposits and the financial strength of savings of five Pakistani banks has been changed from stable to negative by Moodys Investors Service. NBP and UBL has been downgraded to negative. he said. They said that the funding. is subject to certain evaluation to be conducted by Holland government officials. The suggested package has been given to the federal industries ministry for getting the governments approval.2.61 M).42 B. Non-performing loans are expected to increase. We have proposed to the government to create a special fund Credit Markup Sharing Fund for totally or partially subsidizing bank loans to the flood-hit businesses as well as to seek foreign donations for providing grants to the affected enterprises. So far the reported default in the agriculture sector has reached about Rs. The funds are released during the project. Under this programme. 2010) Reviving SME businesses Holland offers 60% of funding Netherlands has offered up to 60% of funding to Pakistani projects (SMEs) having a maximum cost of 1. The profitability of banks will be affected going forward. (The Express Tribune September 21. while three are under consideration. three projects in chemical industry and dairy sector are underway. the ratings agency has affirmed that the foreign currency deposit ratings of B3/Not-Prime assigned to these banks.SBP The Small and Medium Enterprises Development Authority. open in Pakistan since 2005 with an annual budget of 70 M Euros. especially those extended to small and medium enterprises and to the agriculture sector. he summed up.5 M Euros (Rs. Our support package basically comprises two recommendations. after achieving predefined results. The offer was renewed by Head of Economic Affairs of Embassy of Netherlands. 2010) The flood has changed the trend of NPLs as most of the NPLs are being reported from agriculture sector which may hurt the governments as well as State Banks move to persuade banks for greater participation for the recovery of agriculture sector.176. The long-term outlook of ABL.50 B due to flood. the federal government and the World Bank.HBL. The suggested package envisages grants and/or interest-free loans to the flood-hit small businesses for rehabilitation.5 M Euros allows spending on hardware (equipment. recently proposed to the government fiscal measures for helping smaller enterprises hit by the recent floods. 20 FINANCIAL SERVICES Downgraded: ratings of largest banks Outlook on long-term local currency . while talking to the members and Senior Vice President of MCCI. A senior banker of large a bank said banks could not afford to face further losses as the increasing load of NPLs has already reached to optimum point. Real estate and operational costs excluded. one project in sports wear in Pakistan has already been completed. The total funding of 1. commented Research Head at InvestCap. About forty-one per cent has been disbursed in the agriculture sector and around a third given out in the trade sector. is aimed at alleviating poverty and strengthening private sector investment. (Business Recorder October 11. machinery). Simultaneously. The damage assessment in the microfinance sector is based on the estimates of the State Bank of Pakistan (SBP). (The Express Tribune September 3. The SBP in an early estimate had said that NPLs could surge by another Rs.
Both companies are rated amongst the best managed companies in the country. (Dawn October 3. Bankislami announced that its offer . (The News September 29. 2010) Engro launches Rupiya certificates The net profit of the listed non-life insurance companies increased by 9%. President and CEO of Tameer Bank said this while chairing the discussion on Financial Inclusion at the United Nations Private Sector Forum on Millennium Development Goals held recently at the UN Headquarters.000. said a statement issued. The acquisition will have to wait for regulatory approval by the SBP. which may serve as an agent of positive change and a much-awaited good omen for the industry..475 M. The joint entity is expected to become the largest private sector asset management company. The size of the Citibanks housing portfolio is close to Rs. The deal was delayed because the board took time to ensure that the acquisition meets Islamic banking laws.31 B (approximately $370 M) between them. Analysts said that despite a 27% decline in the underwriting results. Of the total. he said. who did not want to be named. is Rs. The merger is likely to provide the new entity the requisite critical mass to broaden the reach. the initial offer is worth Rs. which will be available at 11 banks and TCS outlets from Friday with a minimum investment of Rs. analyst at JS Global Capital. said.Tracking Opportunity & Risk Related Developments The NPLs of banking sector witnessed rapid increase especially in the last two years as it jumped by 137% with an addition of Rs. (The News October 12.1.266 B to a total of Rs.a. the listed noninsurance sector posted a decent growth in the bottom line. Our Shariah Board has given green signal to the deal. The amount at which the acquisition will take place has not been disclosed.25. and demonstrated visible strength during the severe liquidity crunch and credit crunch of 2008. 2010) 9% rise in non-life insurance sector profits He said that more than 2.7 B people in the world have no access to any formal financial services and if the financial inclusion goals are to be achieved. said.460 B.1 B. (Business Recorder October 5. The total size of the TFCs. As independent entities MCB AMC and Arif Habib Investments manage approximately Rs. A MoU was signed in this regard by MCB Bank and Arif Habib Securities recently. Bankislami said in a notice to the Karachi Stock Exchange. 2010) Bank services for all MCB Asset Management and Arif Habib Investments would be merged subject to all regulatory approvals and compliance. the solution has to be transformational not transitional. 2010) Citibank accepts Bankislamis offer Engro Corporation announced the launch of Rupiya Certificates with an aim to target retail investors and gather funds to meet expansion requirements of its fertiliser and food businesses.434 M in the corresponding period of last year. "This increase is primarily attributable to higher dividend income and lower provision for impairment during the first half of 2010 and low general and administration expenses". who will now switch to Islamic mode of banking.2 21 Around 70% of the population of Pakistan with currently no access to banking facilities will have financial services by 2015 through Easypaisa. to Rs. It will bring together rich experience and skill of the two groups in the financial sector. which Engro believes is a good attraction for people who usually invest in long-term National Savings Certificates. (Business Recorder September 9. a senior Bankislami official. The asset-backed issue of TFCs will be for a period of 3 years offering a return of 14. There are 415 customers. 2010. in the half-year period ended on June 30.5% p.4 B. 2010) Merger to buy Citibank Pakistans house financing portfolio had been accepted. MCB Bank's 1100 branches network in the country would provide wider reach to the various products being offered by the two asset management companies. The investment income increased by 23% and the general and administration expenses reduced by 2% in the 1st half of 2010 over the same period last year. This acquisition will be in line with the principles of shariah. as compared to Rs. claimed the bank.
6. Due to contained increase in NPLs.8 % (4. the provision coverage ratio of NPLs improved to 73. mainly occurred in banks balances.1% market share Rs 5. 2010) New guidelines issued by State Bank Islamic banking institutions have improved their market share in the countrys banking industry despite prevailing of a depressive economic situation. The guidelines cover areas such as credit appraisal.4% in the January-March quarter of FY10. Collateral Arrangements.128 B in April-June quarter compared with overall deposits of Rs. banks/DFIs have been advised to use the guidelines for developing products for financing to infrastructure sectors according to their policy and operational and market requirements.4. The salient features of the revised guidelines include the requirement for establishing a mechanism for generating feasibility reports and assessing risk mitigation means in the development.1% in June 2009. (Business Recorder September 7. 2010) Markup rate subsidy REGULATORY Infrastructure project finance Pakistans banking industry witnessed a 5.4% growth in its asset base to Rs. payment of markup rate subsidy on business loans to textile sector for the period from January 1. According to a Circular issued by SBP.2% (70. government papers and public sector commodity finance. 2010. project insurance and regulatory compliance. According to SBPs Quarterly Performance Review of the Banking System for the quarter ended on June 30. This was revealed in a circular issued by the SBP. (The Express Tribune . The Islamic banking witnessed a double digit growth in assets during the 2nd Q (May-June) 2010 despite the fact that a couple of Islamic banks went through consolidation phase affecting the Islamic banking activities. interbank lending.7%. 2010) (G-1). security packages. 2010) Banking industrys asset base grown Revised guidelines for infrastructure project financing for banks and development financial institutions (DFIs) have been issued by the SBP. (The Express Tribune October 15. FATA and PATA. 2010 to June 30.774 B in January-March quarter of FY10. collateral arrangements. The Report pointed out that the banking system witnessed a letup in the inflow of fresh non-performing loans (NPLs) during the quarter under review that has been a leading challenge for the last two years or so. construction. 2010) Islamic banks grasp 6. (Dawn October 11. The NPLs of banks registered a marginal growth of 0. Referring to SMEFD circular 11 July 1.460 B in April-June 2010 quarter (Rs. The SBP in its recent report noted that Islamic banking continued to flourish and increased its share in banking system to 6. (Daily Times October 7. the increase in asset base of the banking system.782 B during April-June quarter of the 2009-2010 FY (FY10) compared with a contraction of 1. subject to compliance with relevant SBP regulations.1% at the end of June 2010 from 5.2% in March-10).Tracking Opportunity & Risk Related Developments B with a green shoe option of another Rs. which was well supported by growth in deposits. Banking industrys deposits rose to The SBP issued revised guidelines for Infrastructure Project Finance to facilitate banks and development finance institutions (DFIs) in providing financing solutions to infrastructure projects in the country. said the report. 2010 regarding the subject SBP said in this connection it is advised that the federal government has included the entire textile sector of Khyber 22 . start-up and operation stages of the project. 2010.457 B in March-10) as compared to last two years average quarterly growth of 9. Security Package and Project Insurance (G-2) besides Regulatory Compliance (G-3).9% in March10) and net NPLs to Loans ratio declined to 3.2 B.6 % to Rs. which was adequately covered by loan loss provisioning.September 7. etc. Guidelines broadly cover areas such as Credit Appraisal SBP directed all banks and DFIs to ensure fiscal relief to rehabilitate the economic life in Khyber Pakhtunkhwa.
6% y-o-y rise in its food component. as a percentage of GDP.5% and fiscal and current account deficits at 5-6% and 3-4% of the GDP. . it said. these expenditures. (Daily Times September 1. it said. The new rate will take effect from October 1. increasing it by 50 bps to 9% per annum. The rating agency should have reviewed/assigned the rating within previous 15 months. 2010) MACRO ENVIRONMENT SBP projects 2-3% growth The SBP has predicted 2-3% GDP growth in the CFY despite severe flood losses. The previous refinance rate was 8.5-14.5%. Securities Lending and Borrowing and Pledging) Rules.7% growth in subsidies and losses of public sector enterprises was particularly disappointing.Tracking Opportunity & Risk Related Developments Pakhtunkhwa in Prime Ministers fiscal relief package for FATA/PATA/ Khyber Pakhtunkhwa. In addition. The SECP would also incorporate the viewpoint of the stakeholders to incorporate viable proposals to ensure protection to the investors and minimise risk to the market. It projected an average annual inflation in FY11 at 13. 1996. 1984 (the Ordinance). the SECP has also decided to amend the draft Securities (Margin Financing.1%. 2010) Rate of Refinance up The Securities and Exchange Commission of Pakistan has reviewed and amended the Companies (Issue of Capital) Rules. The amendments are being notified in the official gazette to solicit public opinion as required under sub-section (1) of Section 506 of the Companies Ordinance. (Business Recorder September 16. banks/DFIs should have mechanism to monitor changes in ratings (upgrade. The draft Securities (Margin Financing. These ratings must fulfil all requirements. (Dawn September 9. The target set in the budget was 4. according to BSD Circular No 5 of October 5. (The Express Tribune October 1. compared to 1. 2010) Issue of capital rules and Borrowing and Pledging) Rules. In this regard. (Daily Times September 8. 2010. 2010) Banks-DFIs to use only recognized ECAIs solicited ratings In a circular issued the SBP said that banks can charge a maximum margin of 1% on financing facilities provided to exporters. 2010 would be amended to allow the concept of Margin Trading System. The SECP has approved the concept of the MTS in a meeting held at the commission.2% in the preceding year. Securities Lending The SBP revised the refinance rate under the Export Finance Scheme. The banks are also directed to form specific committees to address these complaints and ensure conducive environment for working women. 2010) Guidelines to comply Anti-Harassment Law The SBP has issued instructions to all the banks to comply with the Protection Against Harassment of Women at Work Place Act 2010 displaying the Code of Conduct within their premises. In FY10. (Business Recorder October 6. and all ratings used should be publicly disclosed by the ECAIs along with its history. were almost equal to the combined total for health and education. A 10. downgrade and withdrawals) for accurate Capital Adequacy Ratio reporting.5%. The banks annual report for 2009-10 issued said there was a noticeable improvement in macroeconomic indicators during FY10 with the economy growing at 4. adding that this was by no means an acceptable situation. 2010) More risk mitigating measures added The Securities and Exchange Commission of Pakistan has approved the concept of Margin Trading System (MTS) with additional risk mitigating measures. The report said the total public debt and liabilities had substantially 23 The SBP has said that banks/DFIs would be allowed to use only solicited ratings assigned by recognized external credit assessment institutions (ECAIs) for the purpose of capital adequacy with immediate effect. 2010. The report said the impact of floods had strengthened inflationary expectations and the August CPI showed a 15.
respectively. analyst said. (Dawn October 11.5%.850 B against $3. The fiscal deficit has reached a record Rs.668 B of GDP during July-June FY10. Asian export recovery has been largely driven by intra-regional trade with the US and Europe. The rise in deficit appears to go up during next months as the country will start to import more oil and food items for bridging the domestic shortfall in power and farm produce.5%. The heavy floods in the Indus River resulting from monsoon rains have caused widespread damage to the economy. 2010) Fiscal deficit reaches 6.586 B last year.5%. It projected that workers remittances were likely to stay between $9.3pc in FY10 Inflation in Pakistan is expected to accelerate to 13. Exports grew by 16.148 B last year mainly due to rising furnace oil imports used in power generation. slightly below the 11. 2010) CA deficit widens by 48% borrowing by the banking sources to meet inflation-hit public expenditures also swelled the size of fiscal deficit to a great extent in FY10. The higher growth in the governments fiscal deficit is attributed to low tax revenues.27% in 1st 3 months of the CFY to a larger than expected $3. US and Europe were directly responsible for less than 15% of Asian economies export growth in H1-2010 (with the exception of China and the Philippines). reflecting poor performance of economy on external front while signaling a red alert for the ailing economy.5 B and $10.02% to $9. The last FY was much better for Pakistan as external deficit fell by 63% to $3. The economic outlook has deteriorated sharply as a result of the floods. 2010) IMF: Inflation 13. The SBP reported that external deficit during July-August of the CFY reached $944 M against $635 M during the corresponding period of last year. the governments heavy budgetary In 2010.3 % of GDP.5% surge during the entire course of FY10. In Pakistan.2% in FY 2008-09 and higher than the revised FY10 fiscal deficit target of 5.5% this year as massive summer floods push up prices for food and other staples.1%. Prior to the disaster.2. while exports and imports were likely to be $20 B to $21 B and $34 B to $35 B. making this one of the worst natural disasters in history. Official figures released here on Friday by the federal bureau of statistics (FBS) showed that import bill increased by 19.75% rose at a faster clip than exports during the months (July-Sept) under review after a slight narrowing in deficit in previous months. The trade gap ballooned as imports . He said nearly 20 Mpeople have been displaced.437 billion last year.7% of GDP in FY09 to 69.029 B in July-Sept. The government earlier had targeted GDP growth of 4.14.7% to $5.2% increase while expenditure recorded at Rs. whereas the IMF expected it at 4. showing 14. 2010) Economy hit by flood Current account deficit of the country rose sharply by 48% during the 1st 2 months of the new fiscal.8 trillion with 20. Similarly.495 B against the deficit of $9. high current expenditures and shortfalls in projected external financing. (The Nation September 1. The Ministry of Finance reported that the government has collected total revenues of Rs. GDP < 2.75% this FY year.3. (Dawn September 22.5% this year. 2010 against $7. compared to 5.25%. 24 Pakistans trade deficit widened by a robust 22. floods have hit economy hard.5 B.261 B in the FY 2008-09.Tracking Opportunity & Risk Related Developments increased from 68.179 B in the 1st Q of 2010 against $4. (Dawn October 26. with losses estimated at $4 B (2% of GDP). making limited contributions. the IMF had projected average inflation for the current 2010/11 FY at 11. adding that GDP growth was unlikely to exceed 2.7% seen last year.8 trillion.930 B or Rs. 2010) Trade gap widens Pakistans fiscal deficit for the FY 200910 (July-June) is reported to have soared by 6. economist of Standard Chartered Bank Pakistan said. (Dawn September 21. the IMF said in its country report. the IMF said.
88 B with Rs. this would follow growth of 4. infrastructure and public and private property in the four provinces and Fata. severely hampering supply of essential food commodities to villages and towns. while over 300 rice and other mills have so far been damaged.5 B. "The situation is that water is not receding in the affected areas of the province.000. Khyber Pakhtunkhwa Rs. the details will be known only after the completion of a damage assessment report jointly initiated by the World Bank and the Asian Development Bank (ADB).Tracking Opportunity & Risk Related Developments Nearly 1. in terms of damaged crops. with supply of 1.000 tons.5 B the damage caused by floods. due in October.103 B. depending on the extent of the damage and the measures taken by the government to reconstruct and rebuild the affected areas. but the reconstruction of infrastructure again and compensation to be paid to people who had lost their sources of livelihood would cast between $25 B to $30 B.1 B in agriculture sector on account of damage to crops over 3. Initial estimates suggest that total loss in the province by flood was Rs.446.446. Damages: The floods have damaged public infrastructure. over 2. The Ministry of Food. and the bad news is that it might not be able to even plant the 'Rabbi' crops in standing water. The country expects a significant slowdown in GDP growth in FY11 (ends June 2011) and lower growth forecast to 2.5% from 4. exacerbating the existing energy crisis and further stalling growth.55 B and Fata Rs. it said. he added. Livestock sector suffered a loss of Rs.000 bridges and more than 400 km of road infrastructure have been destroyed.8 B losses to Sindh Sindh has suffered Rs. The National Highway Authority estimates nearly 1. More than 2. "We will not be able to plant rabbi crops because the water which reached the province after causing devastation in Khyber Pakhtoonkhwa and Punjab is not receding at the normal pace as the slope of fields is not towards the sea".8 B. borrowing from the central bank and implementation of the value added tax (VAT).8 B loss on account of damage to various sectors of the economy. 2010) Flood losses at $9.1% in FY10. 2010) Rs. suffered losses of crops and livestock to the tune of Rs.4 46.5 B (over Rs800 B) in recent floods. and might remain in the cropping areas for quite some time" said by advisor to Sindh chief minister for planning and development.5%. with road links cut off. after the government missed key performance targets in areas including the fiscal deficit. He said that the government has to take decision for import of essential commodities to avert their shortage due to losses to crops by the floods. he informed.122. the backbone of the economy.000 watersupply facilities have been damaged. Sources in the planning commission said the report had only highlighted . he maintained. IMF role: Relations with the IMF hit a roadblock in June 2010. Individuals.253 B. (Dawn October 13. Losses to the economy are estimated at close to $4 B (2% of GDP). Agriculture analyst said the floods have caused widespread damage to the standing crop. According to the report. However.l4 B on account 25 A preliminary Damage Need Assessment (DNA) report prepared by the World Bank and Asian Development Bank says that Pakistan suffered a loss of about $9. He said that over 7274 villages and 43 towns have been inundated.11.500MW disrupted due to damage to power plants. Agriculture and Livestock estimates losses to the agriculture sector at $ 2. with nearly 30% of cultivable land destroyed by the flooding. It is expected FY11 inflation to jump sharply to 15%. leaving most of the affected households without shelter. The power infrastructure has also been badly damaged.428 B. (Daily Times September 9. and another $ 450 M in losses in the livestock sector. power stations shut down.2 M acres of cropland is under water. followed by Punjab Rs.25 M houses have been completely destroyed.500 schools. Balochistan Rs. and gas and petroleum supplies suspended. according to the National Disaster Management Agency. Sindh suffered the maximum damage amounting to around Rs350 billion. versus earlier forecast of 12%. 175 health centres and 1.
000 houses.1% or $34. Losses in crops and livestock. in the following season will create shortages of food and other commodities while 26 The flood-hit and food starved Pakistan exported 29% more food items during the last few months.000 km roads. the ADB says in its annual flagship economic publication Asian Development Outlook (ADO) 2010 Update released. Portfolio investment mounted to $95. and Rs. depicting an increase of $113 M. potentially. as 100 health centres have been damaged. However. As the major transportation arteries of the country have been severely damaged. compared to the same period of last year. and limited economic activity in a large part of the country will dampen growth prospects in virtually every sector.4 M as compared to $344. shortages of goods and serviceseven with rapidly rampedup importsare expected to put substantial upward pressure on prices. The SBP said that the country's services sector trade deficit was gradually rising and overall imports and deficit are on surge. or 40. (Business Recorder September 26. irrigation Rs. the likelihood of delayed sowing of crops in the upcoming season and.134. to $267 M during July-August of CFY against $405.3 B because of damage to 1. imports under services sector registered an increase of 11% due to high payments on account of transportation. Similarly. The information showed that Pakistan exported food items worth $547 M during the two months against $425 M during the corresponding period of last year.1 M. travel and government services. 2010) 18% rise in services sector deficit posted August of FY 2010-11 as compared to $1.10 B to government buildings. the economic impact will be heavily negative in the short-run.1% decline in foreign investment Services trade deficit posted an increase of 18% during the 1st 2 months of the CFY mainly due to high imports followed by rising payments on account of transportation.9 M in same period of last fiscal year.37.5% is expected in FY 2011. (Business Recorder September 18. due to extensive damage and reallocation of resources to cater to urgent needs. 2010) 40.40 B to municipal infrastructure as 43 towns have been affected with a loss of Rs.7 M. travel services. or $173. Rs.600 units was estimated at Rs. portfolio investment. According to SBP major decline took place in FDI. Services sector posted a deficit of $567 M in July-August of CFY as compared to $481 M in corresponding period of last FY. Developing Asias robust recovery from the global crisis is gaining further momentum.043 B in corresponding period of FY 2009-10. technical fee. royalties and government sector.26. (Dawn September 23.87% or $86 M.5. and policy makers should take some steps to check the reason of poor performance of this sector.6 M in 1st 2 months of CFY against $60.15 M in the corresponding period of last FY 2010.2. to $171.4 M in same period of last FY.52 B. Moreover. The ADO Update on Pakistan said that the picture should also be a little clearer when an international donors conference is held in late November. damage to infrastructure. reconstruction and rehabilitation activities will subsequently have a positive impact on the GDP.156 B in July- The SBP said that foreign investment posted a decrease of $138.Tracking Opportunity & Risk Related Developments of 200.1%.2%. 2010) . mainly in stocks. Total loss to the housing sector was Rs. such that tepid gross domestic product (GDP) growth of 2.000 animals.6 B. Nevertheless. Export of Services trade mounted by 5% or $27 M to $589 M in 1st 2 months of CFY relative to $562 M in same period of last FY. Economists said that increasing deficit and imports of services sector is a matter concern. depicting an increase of 17.021. 2010) Rise in food items export Asian Development Outlook 2010 Update The impact on Pakistans economic prospects of the massive flooding that began in early August 2010 is difficult to quantify. insurance. (Business Recorder September 8.4 M.5 B following destruction 8. Total loss to the education on account of damage to 4. Services sector imports stood at $1. with a drop of 50. while in health sector the loss was estimated at Rs.9. registered a surge of 57. however.
Inflation. 2010 to improve revenue. which could lift tax revenue by 20%. therefore the Government and textile stakeholders should import cotton bales in time. Flood-related damage and social safety net requirements will necessarily impact the expected deficit for FY 2011. 2010) Discount rate raised According to a Monetary Policy Statement issued. Moreover. among other factors.5%. workers remittances. the SBP increased the discount rate to 13. the deterioration in the current account deficit may be limited to 4. while the central bank will find it difficult to fully implement its earlier monetary stance in the present circumstances. The statement said the recent catastrophic floods had serious implications for macroeconomic stability and growth prospects. (Dawn September 30. Also. reforms to that tax from October 1. the SBP said.2% in July to August 2010. (The Nation September 4. otherwise it would not be possible to achieve the annual textile export target set for the year 2010-11. Specific tax measures included in the FY 2011 budget. Revenue measures are more urgent in view of the massive reconstruction requirements. because of fears of higher government borrowing and inflation and lower economic growth and revenue during the CFY. 2010) Export target linked with cotton bales import Sources in All Pakistan Textile Mills Association said that the country would face a shortfall of 4 to 4. (Daily Times September 29. relative to the budget posted for FY 2011. The textile export showed a healthy growth of 23pc in the first month (July) of the current fiscal year. 2010) Export to Malaysia increased The SBP once again increased the policy interest rate by 50 bps. Additional revenue measures are being formulated to generate revenue for relief and reconstruction. and water.5%). as it was recorded at $986 M in July 2010 against $802 M in the same month of 2009.5% of the GDP to 4. The SBP in its monetary policy for FY 2011 projected inflation at 11 to 12% (higher than the federal government target of 9. over the same period the previous year. The FY 2011 budget targets a rise in federal government public sector development spending of about one third relative to the FY 2010 outturn. Pakistan's exports to Malaysia recorded a healthy increase of 81% with exports of RM 352 M in the 1st 6 months of this year as compared to 27 . it will need to make substantial efforts to keep demand for credit from exacerbating inflation pressures. to be determined also by the absorptive capacity of the economy. is expected to be higher than the eight percent forecast in Aprils ADO 2010 Update.5% from an earlier target of 4. Still.3% of the GDP. as are improvements in revenue administration and collection. taking outlays up from 3.Tracking Opportunity & Risk Related Developments undermining farmers incomes. This update projects average inflation in FY 2011 at 13%. Flood-related expenditure will also alter the fiscal outcome. The budget for FY 2011 also called for an aggressive 45% reduction in total subsidies. These lower subsidies would require efficiency measures that produce saving equivalent to the 3040% increase in tariffs that would otherwise be required to meet cost recovery. are expected to remain strong. Highly provisional estimates suggest that economic growth for FY11 could come down to 2.5 M bales of cotton in the current fiscal year.5%. The Government has fixed the annual textile export target at $ 14b for the CFY 2010-11 under the 5 years textile policy. In this context. If substantial grant aid is provided for relief.4% in FY 2011. Pressures on the current account will also intensify in FY 2011. include a 1% increase in the goods and services tax to 17%. including a 67% reduction in allocations to cover electricity tariff differentials. widening the fiscal deficit from the targeted 4%. investment spending was reprioritized to secure more timely completion of key ongoing projects in the areas of transportation. for the most part induced by supply-side constraints. External support in response to floodrelated damage will contribute to higher increases in development spending with the magnitude of the increase for FY2011. it will be even more important to address trends that were troublesome for the FY 2010 outturn. which increased by 13. hydropower.
2010) Pakistan falls 22 places to 123 According to the Economic Freedom of the World: 2010 Annual Report. Switzerland retains the top overall ranking in the Global Competitiveness Report of 2010-2011. In the same way.2 M from $313. by 15-17%. which were currently exempted from general sales tax. says the report. the reform programme envisaged a $400 M funding to support a second generation of capital market reforms. (The Nation September 22. Hong Kong maintains the highest level of economic freedom worldwide with a score of 9. depending on the tax rate to be decided by the federal government. says a new study released. 2010) Release of $200m by ADB The World Economic Forum has revised downward the Pakistans global competitiveness ranking from 101 in the world to 123rd place among 139 nations. (Dawn September 21. Pakistans score dropped from 3. Pakistans export earnings in services trade have slightly augmented by 4. stood at $305. services exports saw an increase of $28 M in the overall volume of trade services exports largely on account of improvement in receipts under government services and higher proceeds from transportation business during the period under review. 88 (71. Pakistans score declined this year to 5. The USA fell two places to the 4th position.Tracking Opportunity & Risk Related Developments RM 194 M in the corresponding period of 2009 with rice and onion being the biggest contributors.5%) recorded increase. including food items. overtaken by Sweden (2nd) and Singapore (3rd). According to the latest data obtained from Malaysian Trade Development Authority (MARTRADE) by Pakistan High Commission in Kuala Lumpur. (The News September 14. While this is a relatively modest decrease in numeric terms. released by the Alternate Solutions Institute.5%) saw their rankings decrease. (Daily Times September 10.50 this year. it was sufficient to move Pakistan from 101st to 123rd place among 139 nations ranked by the WEF. the rice made up more than half of the total exports with an export of RM 188 M compared to RM 46 M of last year registered a robust growth of 307%.91pc The Asian Development Bank has released the 2nd tranche worth $200 M of its second generation of capital market reforms programme early this month to the Ministry of Economic Affairs and Statistics of Pakistan after the bank found status of covenants of the first tranche satisfactory. 2010) GST to cause price hike of 15-17% According to provisional statistics on services trade released by SBP. (Dawn September 30. The Asian Development Bank has decided to stop or abandon problematic projects and divert up to 28 .95 in 2009. would be brought under the RGST net. while only 35 (28. 2010) Pakistans economic freedom ranking falls The withdrawal of exemptions under the proposed reformed general sales tax (RGST) early next month is estimated to increase prices of over 122 major categories. and yield about Rs. the bank said in a document. Of the 123 countries with economic freedom rankings dating back to 1980. According to Global Competitiveness Report.91% to $589 M during the 1st 2 months (July-August) of CFY compared to $561 M in the same period of last year. building on key achievements made under the capital market development programme (CMDP) and financial (non-bank) markets and governance programme (FMGP). (Business Recorder September 22.80 from 5. 2010) Trade finance programme The level of economic freedom in Pakistan dropped as its index ranking deteriorated to the 118th place from the 110th last year among 141 countries.58 in 2009 to 3.1 M in the reported months of prevailing FY. 2010) Services exports up 4.05 out of 10. exports of services on month-on-month basis. A senior official told Dawn that preliminary estimates suggest that about 22 categories in the food group and agriculture.150 B in additional revenue to the exchequer. According to details issued by the ADB.
The central bank said that net foreign investment comprising foreign direct investment (FDI) and portfolio investment had continuously weakened and net foreign investment registered a decline of $181 M during the 1st 3 months (July-Sep) of FY 2010-11. He said that with a view to promote exports and encourage exporters in this regard no tax would be imposed on any export good. shown a 24% y-o-y growth in the 2nd Q of CY.60. Exporters should keep this in mind that all export will remain always zero-rated and there should be no confusion in this regard. (The Express Tribune September 20. 2010) Zero rated Export Net foreign investment posted a decline of 28% during the 1st Q of the CFY. net foreign investment decreased to $455. 2010) Decline in foreign investment According to a research report of a team of analysts at JS Global Capital Limited the total profitability of the sample companies of the corporate sector has increased to Rs. (The Nation October 6. Auto sector's positive momentum continued in the 2nd Q of 2010. (Business Recorder October 16.1 M during the 1st Q of the CFY as compared to $636. said Federal Board of Revenue Chairman.5%. Refinery sector profits experienced a slight breather as GRMs during the second quarter of 2010 recovered slightly.741 B recorded in the corresponding period last year. According to sources. (Business Recorder October 2. registered a y-o-y growth of 14%.1 M in the same period of last FY 2009. Analyzing the banking sector's profitability based on sample of 9 banks. recording a negative earnings growth of 24% during the 2nd Q of 2010. inventory losses and higher tax expense negatively affected oil marketing companies' performance. Despite the fact that KAPCO's profitability fell 8% in the 2nd Q of 2010. which stood at 67.3 M for its member states including Pakistan and $90-M leasing for Uch II power expansion project.5 B from these sources to launching rehabilitation projects in flood-affected areas. rising by an impressive 34% in the 2nd Q of 2010. 2010) IDB approves $772. while major decline was in portfolio investment. as compared to Rs. the bank has handed over a list of around 30 projects to the government. Despite robust furnace oil sales. he said. the power sector considering our sample.44.3 M The corporate sector profitability continued to register an upward trend.2 M for Reconstruction & Upgrading of M39 29 . With current decline. The E&P sector led the sector's earnings growth with a higher than expected growth of 49% on yearly basis in its profitability. The financing includes $167. The financing was endorsed at the banks Board of Executive Directors meeting chaired by IDB President. which includes KAPCO and HUBCO. Textile analysis indicates notable earnings growth in the 2nd Q of 2010 for the textile sector at large. The Manila-based donor agency informed government officials of its decision. According to statistics. mainly due to low portfolio investment. as its profits jumped 76% on yearly basis. compared to the corresponding period last year.Tracking Opportunity & Risk Related Developments $1.132 B in the 2nd Q (April-June) of 2010. Lower cement prices due to disagreement in on pricing amongst manufacturers led to the downfall of the cement companies during the 2nd Q of 2010. 2010) Corporate sector profitability The government will not impose any tax on any exportable good. PTCL's profitability fell to 26% during the 2nd Q of 2010 deteriorated mainly owing to exceptionally high marketing expenses incurred. Fertiliser sector performed admirably during the 2nd Q of 2010 on the back of higher urea and DAP prices. which are either slow-moving or problematic and could be shelved for a better cause.5% during the period. FDI posted a decrease of 9. Islamic Development Bank has approved financing of new development projects worth $772.
(Daily Times October 7. "This proposal will offer a real boost to Pakistan's economic recovery. In automobile sector.5% 3. The production of buses was down 41. unveiled will suspend tariffs on 75 types of Pakistani-made goods which account for about 27% of exports to the EU. boosting sales by about 100 M euros.5%. production of TV sets was up 26. The move is meant to help Pakistan recover from devastating floods and maintain political stability. Production of cement was down 4. as compared with $806.Tracking Opportunity & Risk Related Developments road in Surkhandarya region Uzbekistan. Ministry of Industries & Provincial Bureau of Statistics indexes of LSM. slippers and truffles will be among 900 M euros ($1. Most of the trade concessions will be on textile exports. 2010) LSM up 3. Production of paper & board was higher by 22. signaling the improving conditions in this key sector of the economy.64% etc.94% and 3.05% whereas production of deep freezers and air conditioners was down 18. registering an increase of 13. though there will be no tariff cuts on Pakistan's main product .77% LPG 6." EU trade chief told reporters.17 M during the same corresponding period of the last FY. $140 M for Padma Multipurpose Bridge Project Bangladesh.82% soda ash 12.646 B was received in the first quarter (JulySeptember) of the CFY. production of tractors was higher by 15.40 M loan for Development.04%.8 M or 13.05 % in CFY Jeans. The production of blended tea was down 8. Quality Improvement of Semarang State University Project .05% in the 1st month of CFY.bed linen . $15. In September 2010.18%.66% trucks 14.05% respectively.56% and solvent naphtha 41.29% and 32. Production of cotton yarn and cotton cloth dropped 12.12% and motorcycles 12.05% starch & its products 17. The breakup of different sectors shows that in petroleum sector. In parallel. The monthly average remittances for the July-September 2010 period comes to $882. vegetable oil production moved up 2.49% high-speed diesel 8. Islamabad has agreed to take back illegal migrants returned by EU states.09% respectively. up 14. which indicated an across-the-board recovery in this sector. 2010) Major trade boost Remittances sent home by overseas Pakistanis continued to show a rising trend as an amount of $2.01%.40% cooking oil 20.26 percent.23% diesel oil 24. Ministry of Industries index registered a 1.87%. During the month of July 2010-11. $80 M for Algadarif Water Supply Project Sudan. OCAC index posted 5. The plan 30 Large Scale Manufacturing was up . The scheme. In electronics goods.12 M received in the same month last year. The growth was seen in all the three OCAC.A.06 M was sent home by overseas Pakistanis.06% kerosene oil 20. $25.31% refrigerators 38.. 2010) Remittances up 13.because of EU industry opposition.83% and pig iron 1.36% wheat & grain milling 6.10 M as compared to $777. Federal Bureau of Statistics reported.67%.38% or $115. showing an increase of $314.73 M plus $6.5% over the same period last FY. grant for Integrated Community Driven Development Phase-II Project Indonesia.46% growth and provincial BoS index was up 5.94 M. (Business Recorder October 12.63% and glass plates & sheets 13.64 M installment sale for Construction and Equipping of new Dental Care Project .3 B) in Pakistani goods allowed into the European Union duty-free from next year under EU plans for trade assistance to the flood-hit country.09% lubricating oil 9.39%.Turkmenistan. an amount of $922.91 M installment sale plus $3.09% LCVs 29.27% furnace oil 1.86%. (Daily Times October 1.13 M plus $13. which otherwise remained under stress throughout the past fiscal when it recorded big falls in its production. The production of jet fuel oil decreased 7.69% coke 18. while at the same time taking into account sensitivities of EU industries. motor spirits production rose 11. $136 M plus $10 M (under terms and conditions of Jeddah Declaration) plus $6 M Loan plus $45 M T.29% jeeps & cars 45.61%. In Food group.Indonesia.
31 The local capital and money markets US and Pakistan signed a five-year partnership agreement under which $831 M will be utilised on various . total volume was more than Rs. (Business Recorder October 8. Singapore and Hong Kong.762. It must be approved by EU governments.1 B each of them with record highs.264. The allocation of $831 M is part of the more than $1 B in development assistance funds which US will provide to USAID programmes in Pakistan this year.000.820. 2010) NCEL grows 654% in Q1 have witnessed above $100 B capital outflow from the country in the 1st half of current calendar year 2010 amid fragile economy and lack of investment opportunities.6. US sign $831 M partnership agreement programmes in key sectors. (Business Recorder October 1. Education $179. Energy $44.76 B. chairman NCEL said. EU officials said they hope for full approval by January. The total amount of $831 M for this agreement is divided as follows: Social Sector Health $130.454. Bangladesh. Total volume in the corresponding quarter of last year was Rs. Sri Lanka and Bangladesh. Sources told that the phenomenon of flight of capital has once again appeared on the economic scene of the country mainly because of exchange rate depreciation. he added.712.711. (The Nation October 13. While addressing the signing ceremony. and will include monitoring to ensure exporters from other states do not try to smuggle their wares into Europe via Pakistan to avoid duties. Canada and Indonesia through various channels.957. slowdown in FDI. Currently. he said. During the first quarter (July-Sept) of FY 2010-11 NCELs total traded volume increased to Rs. (Daily Times October 09. which compete with Pakistan for textile sales to Europe. US Co-ordinator for Economic and Development Assistance said that the agreement was an important element in the implementation of the Kerry-LugarBerman Bill.000.000. This group is investing over Rs. generating the employment opportunities to nearly 2. Sources said despite record-high remittances and large foreign exchange aid flow.74 B. the investors seem unwilling to invest here and they have been transferring their assets and capital to foreign countries since the beginning of this year. Agriculture $56.25 B and average daily volume was more than Rs. high external debt and political instability. it was Rs. This represents a growth of 654% and 63% respectively.493. After Dubai. and reluctance of domestic and foreign investors to invest into the equity and real estate markets.000 workers.156.51.425. 2010) Over $100B flew out The British Oxygen.87 B and in the previous quarter (Apr-June 2010). "We will implement our assistance in the most open." said Ambassador. has started construction in Sunder Industrial Estate (SIE) on a five-acre plot recently allotted to them.825. Stabilization and Humanitarian Assistance FATA $111. Malaysia and Kuwait the said amount of foreign exchange is being transferred to Bangladesh.2 B. so that the people of Pakistan and of the US know where the money is going. Ambassador.Tracking Opportunity & Risk Related Developments foresees suspending tariffs for up to three years. 2010) Pakistan. including India.2 B Trading volumes at National Commodity Exchange Limited (NCEL) show a growth of 654% in the 1st Q of FY 2010-11.31. Economic Opportunity $144. and KPK $65. a noted multinational group manufacturing industrial and medical gases all over the world including India. Economic Growth. these countries are new destinations and safe heavens for the investors due to providing many initiatives and exemptions for the investors with regard to investment and regulatory environment. the European Parliament and members of the World Trade Organisation. transparent and accountable manner. 2010) Investment of Rs. During September 2010.
At the end of June 2010. According to SBP.78 B. as compared to preceding quarter. (industrial gases). from its peak of Rs. service imports into the country also grew by 10. (Business Recorder October 10.193 B in March 2010. manufacturing / fabrication. compared with $2. (Business Recorder October 13. SBP is gradually increasing the mark up rates. 2010) Exports of services sector grew by 32 . during the quarter under review.186 B at the end of June. the data revealed.745 M during July-August (2009-10). 2010 as compared to Rs.83 percent by going up from $1.156 B during the same the 1st 2 months of CY. Through its core business. (Daily Times October 20. The country's trade deficit for the first three-months of the 2010/11 FY was $3.8 B.198 B in December 2009 to Rs.16 B Pakistan's trade deficit widened to $1. the Federal Bureau of Statistics said.Tracking Opportunity & Risk Related Developments This was stated by a spokesperson of Punjab Industrial Estates talking to a group of Journalists here.7. chemicals and defense. 2010) Increase in Services exports 4.41 B in September last year.12 B in the first half of 2010. Overall services exports were recorded at $589.043 billion in July-August (2009-10) to $1. The services trade deficit during the period under review increased by 17.186 B as on June 30. The rising mark-up rate of EFS may be a major reason of decline in financing as the following the directives of IMF to rationalize the mark-up rates under the EFS. The spokesperson added that this multinational group would deal in industrial gases. Exports stood at $1.089 M in July-August (2010-11) against exports of $561. construction. (The Nation October 9. in which outstanding amount was Rs.85 B compared with $3. 2010.87% during the 1st 2 months of the CFY against the same period of last year.16 B in September from $911 M in September last year. the EFS outstanding amount declined to Rs. against $1.78% when compared to the deficit of the corresponding period of last year. 2010) Export financing declined Table: RISK & OPPORTUNITY TRENDS (Based on Current Developments) SECTOR Textile Oil Power / Energy Sugar Cement / Construction / Steel Automotive Telecommunication Other Industries Agriculture Micro Business & SME Financial Services Regulatory Macro Environment * Up Down No Change RISK OPPORTUNITY Financing under Export Finance Scheme for export promotion witnessed a decline of Rs. but grew by 5% when compared to the same quarter of last year 2009. It is worthwhile to mention that this multinational company has over 53000 employees world over. On the other hand.50 B a year ago. it will meet the significant and emerging needs in the metal processing.61 B in September this year. or Rs.177 B.14 B in the year-ago period. data provided by Federal Bureau of Statistics reveals. 2010) September trade deficit at $1. health care petro chemicals industries etc. Imports were worth $2. healthcare and welding products. EFS witnessed a decline of some 4%.
and uniqueness. 2010 If you strip away the political correctness. As a result there is widespread. its Two years after the 2008 bailout. The global economy is highly unlikely to return to a sustainable path of normalcy anytime soon. TRAPPED IN THE SPIRAL OF BASEL III. Suffice to say that within these scenarios are embedded considerable threats as well as enormous opportunities for growth and strengthening. ACCELERATING GLOBAL RISKS SPECIAL EXCERPTS We continue to be in the midst of an unprecedented global. Simon Johnson. Yet most forecasters seem to lose sight of this rather obvious reality. Russia. Ellen Brown September 18. (followed by Turkey. There is growing evidence. Brazil) on the other hand A new US driven mid-east war targeting Iran The Af-Pak theater and the US/NATO end game economy and the whole array of industries. 2010 All of these scenarios are work-in process and have deep and profound implications for Pakistan. The pied pipers. and set off global domino triggered by the next acute financial crises. if you will. TIGHTENING THE NOOSE ON CREDIT SPELLS DISASTER Global Research. the economy continues to struggle with a lack of credit. Japan. the hallmark 33 .Tracking Opportunity & Risk Related Developments and geo-politically. Point in case is the specter of the recent Greek default. uncertainty and nervousness in the global marketplace. Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe. economically GLOBAL DEFLATION IMF ADMITS THAT THE WEST IS STUCK IN NEAR DEPRESSION Telegraph. Britain and America in slump for a long time. that would fundamentally start to alter the global power equations. based on new extracts from a wide array of credible and reputable publications. in support of the case that the worst is yet to come. (Outlook for a) US-sovereign debt crises US Dollar-Euro crises & the rise of an alternative reserve currency (Consequent or Concurrent to the Debt Crises) Rapid strategic divergence primarily between US on the one hand. and China. in favor of this perspective. The much orchestrated recovery. however. It didnt. create economic and political strife and lead to radically new geo-political realities. a case is being made. This is Economics 101 and the writing is on all the walls. for the key developing scenarios that were highlighted as key risks in our Outlook 2009-10 (of August 2009). and unprecedented. So keeping in mind the gravity. has waned. prone to contend that the crises ended sometime in 2009. By Ambrose Evans-Pritchard October 3. These developing scenarios have been clubbed under the following heads: (Prospects of) Global Deflation. And that too is likely to happen once the next set of crises that are in the works have run their course and resulted in a global deflation (and in some places stagflation) of historical proportions. by Dr. crises. of the current global situation. and analytics. financial and economic. And there is ample proof. Many are. The appetite for massive new sovereign debt for the next set of bailouts is fast reaching a breaking point. theyre market makers and confidence builders. and support. the ex Chief Economist for IMF offers an insightful explanation: most (global) economists arent forecasters any longer. courtesy of unprecedented bailouts. in this months Tracker.
S. 3. so it is trying to convince investors to invest and banks to lend more. We are still trapped in that spiral today. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. businesses and policymakers agree. These are regulations and burdens on bank results that only make sense in times of monetary and credit expansion. The strategy has been termed "QE2" because it is the second time the Fed has used this arcane monetary policy tool . who would then spend more money. This is why the US is not recovering properly. are skeptical. 2010 Consumers are 70 percent of the economy. WHY MOST ECONOMISTS ARE NOT HOPEFUL ABOUT "QUANTITATIVE EASING. Fiscal policy is deadlocked. despite massive quantitative easing (essentially money-printing) by the Federal Reserve. Credit is issued by banks and is the source of virtually all money today. the markets expect the Fed to announce that it has decided to create somewhere between $500 billion and $1." Essentially. September 21. creating more economic activity. ranging from the wonks at the libertarian Cato Institute to liberal Nobel-winner Joe Stiglitz. Growth this slow is the equivalent of heading downward relative to the growth needed to get us out of the hole were in . Even Fed Chairman Ben Bernanke sounds uncertain. So. the Fedwhich purchases only government-backed assets. The money supply has continued to shrink in 2010 at an alarming rate. economy's biggest problem. By Robert Reich. Consumer confidence is down.2 trillion that it will then spend to help goose economic growth.Every indicator suggests third-quarter growth will be as slow if not slower than in the second quarter. Commercial real estate is in trouble. Ambrose Evans-Pritchard quoted Professor Tim Congdon from International Monetary Research. a move many analysts saw as a precursor to more easing . apparently. said the (new Basel) rules could hamper the fragile recovery. in a vicious spiral of debt and depression. there is insufficient money to buy goods or pay salaries. If only people and companies would buy more stuff. There is also the risk that the Fed spooks investors.Tracking Opportunity & Risk Related Developments of recessions and depressions. though." he sighed in a speech earlier this month. When credit is not available. And many prominent economists. recovery could another trillion The U. so workers get laid off and businesses shut down. Retail sales are down. "Monetary policymaking in an era of low inflation has not proved to be entirely straightforward. On Nov. the theory goesa car. an office park. By Annie Lowrey October 20.S. is monetary policy . and they're in no rush to spend." Slate.So the Fed is turning to a policy known as "quantitative easing. Juan Jose Toribio. who warned: The plunge in M3 [the largest measure of the money supply] has no precedent since the Great Depression. former executive director at the IMF and now dean of IESE Business School in Madrid. the Fed is using its license to print money. a forkliftthen the stores and companies that make and sell that stuff would hire more workers. Rather than buying space in office parks or forklifts. Housing sales are down. is widespread lack of demand.The problem is that the strategy is indirect.September 20. Maybe were not in a double-dip but we might as well be in one. 34 . FED MULLS TRILLION-DOLLAR POLICY QUESTION CNBC . The Fed cannot just buy up goods and services. In an article in The Financial Times titled US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus. 2010 dollars or two buy? That's a tricky question for the Federal Reserve At the Fed's August meeting it decided to reinvest maturing mortgage-debt in Treasuries to keep its balance sheet steady. and just like that (or almost)economic growth .Some policymakers worry that more easing could fuel market imbalances or sow the seeds of skyhigh inflation ahead. like bondswill probably pick up long-term Treasury debt. he said. WHY NO AMOUNT OF STIMULUS MONEY WILL BE ENOUGH Salon.6 percent means even higher unemployment ahead. A growth rate of 1. 2010 How much of a boost to the U.
When normalizing for TARP.1%.6%. their QE has had far less than the expected impact. or GSEs. duration risk. as it relates to the United States. Greece: 115. Then. Greece: 13. they ballooned their balance sheets with massive bond purchases in what euphemistically was called "quantitative easing. At some point these boosts would have to end and the economy would have to be able to run on its own. After three decades of flat wages during which almost all the gains of growth have gone to the very top. the key ratios are: debt as percentage of GDP. economies at or near zero percent. 2010 CENTRAL BANKS EMBRACE RISKY CURRENCY GAMBIT Barrons (WSJ). SOVEREIGN & US DEBT CRISES SHOULD US GOVERNMENT DEBT BE RATED JUNK? Fortune. which we consider a 1-time expenditure. with short-term interest rates in most Typically.the key ratios from which we use to analyze a nation appear very similar between the United States and Greece. we are actually most concerned with the risk related to future repayment. the main weapon in their arsenal. By Daryl G. Despite this. central banks have run out of basis points. interest rates were slashed by central banks in reaction to the credit crisis of 2008. But the destruction of the world's reserve currency threatens to end the Era of Globalization The most newsworthy nation to currently be rated junk status is Greece . DEBT AS % OF GDP: US: 86. even if fiscal and monetary policy werent deadlocked." Now. inflationary risks. if so.2%. But it cant run on its own because consumers have reached the end of their ropes. central bankers are utilizing their next optioncurrency intervention . In this instance. Forsyth September 17. which require incremental debt funding? If so. Specifically. but if we include the debt of government sponsored entities. the United States actually has a worse ratio than Greece Specifically.1%.(however) United States has been running a deficit for 22 straight months. Having run out of conventional options of lowering short-term interest rates and getting less from their relatively unconventional tool of buying bonds to bring down longterm rates. will the United States be able to repay its debt and. is it expected that the nation will be running future deficits. Say the White House and Ben Bernanke got everything they wanted to boost the economy. and therefore pays higher yields to the owners of the bonds to make up for the risk.Anyone who thinks China will get us out of this fix and make up for the shortfall in demand is blind to reality. the United States appears to do better than Greece.4%. September 3. deficit as a percentage of GDP. with projected deficits for at least the next fifty years. Moreover. DEBT AS % OF REVENUE: US: 358. the U.5% (including GSE debt: 121.Having the world's reserve currency gives the U. In general. spending for the first 10 months of the government's fiscal year is up an astonishing 10. government has not taken any aggressive austerity measures to attempt 35 . the advantage in this race to the bottom. typically known as austerity measures . We've outlined a comparative analysis between a typical junk-rated sovereign issues. 2010 First. Specifically. which is certainly a positive. and debt as a percentage of revenue. despite their divergent credit ratings. and the United States. wed still face the same conundrum. the middle class no longer has the buying power to keep the economy going . in this case Greece. Jones. the owner of a bond is subject to many risks: interest rate risk.4%. currency risk.S.S. a bond receives junk status due to its increased risk of default. our policymakers may have to implement policies designed to narrow this funding gap. on what terms? On two of the ratios. DEFICIT AS % OF GDP: US: 10.Tracking Opportunity & Risk Related Developments Ultimately. and so forth. Greece: 312.6%). By Randall W.
S. deficits will expand for decades. DEBT RATING The Washington Times. As long as China remains the No. most European nations have taken aggressive actions on both the revenue -. The company also accused U. the dominant credit agency in China.to get their fiscal houses in order . By James A. which share an oligopoly enforced by government fiat. and I think its fair to still use the term unfortunately. To add insult to injury. This summer. 2010 The big three credit-rating agencies that totally missed the meltdown of the subprime mortgage market Moody's. We can debate forever whether the U. Bacon September 2.S. 1 owner of U. We could use that term in late 2008. including more than 200 analysts with master's degrees or doctorates and 50 with postdoctorates.which has a Paul Volcker (ex Federal Reserve Chairman) spoke at the Chicago Federal Reserve Bank on September 23rd. (Yes) very different view of the strength of U. of contributing to the 2007-08 financial crisis by applying the coveted AAA rating to loads of junk subprime mortgage debt. But there's a newcomer in the credit-rating game . as part of a symposium cosponsored by the IMF." Dagong gave our debt a mere AA . which it awarded an AA+). but let's be clear about one thing: Dagong is not a chump outfit.S.S.increasing taxes -. In contrast. future deficits should shrink and debt balances eventually decline. U. under our current course. agencies." Chairman Guan Jianzhong told the Financial Times in July. government.S. and they do not adhere to objective standards. the opinions of the Chinese matter whether we like them or not. it rated the sovereign debt of 50 nations making up 90 percent of the world's economy. Standard & Poor's and Fitch . should U.lower than that of 11 other countries (including China. We know that parts of it are absolutely broken.S. is pushing into international markets. Treasuries as the "safest investment in the world.S. The company boasts of more than 500 employees. He said: The financial system is broken." If for no other reason. in theory.S. the firm declared the U. like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U. debt is worth heeding because it influences the thinking of the Chinese government and those in charge of investing surplus Chinese capital." Dagong has set off something of a hissy fit in the credit-rating world.and cost sides -. the answer is quite obvious. Dagong's appraisal of U. October 3. The Chinese finance ministry has directed the company to "participate in the construction of [the] Asian bond market.S. outlook to be "negative.Dagong Global Credit Rating . agencies employ more analytical rigor in the rating of their sovereign debt than Dagong. Beijing-headquartered Dagong. "The Western rating agencies are politicized and highly ideological.S. finances. government debt be downgraded to junk status? If we simply look at the ratios and the future outlook. While Americans still tend to regard U.still give the United States a AAA credit rating. In contrast.The result of the actions in Europe are that. VOLCKER: "THE FINANCIAL SYSTEM IS BROKEN" Global Research. 2010 CHINA'S CREDIT RATING AGENCY DAGONG DOWNGRADES U.reducing government expenditures -.S. Treasury securities.Tracking Opportunity & Risk Related Developments to narrow the current and projected deficits. So. Volcker is right that the mortgage market has become a subsidiary 36 .
there would not be any need for Basel III regulations .The simple truth is that as long as the derivative casino is still running and banks are allowed to continue their off balance sheet activities. BASEL III: THE GLOBAL BANKS AT THE EDGE OF THE PRECIPICE. 2010 Shoddy mortgage lending has led bankers into a two-front war. The biggest U.The banks have only themselves to blame for the fix theyre in. one of the lessons the public should have learned is that the leaders of these companies often have no idea whats going on inside them. 2010 BANKS CLUELESS ON FORECLOSURE MESS SEVERITY Bloomberg. the people in charge of running them have no way to know if that is true. of which $1.. pitting them against U. Dozens of federal and state agencies are investigating. Its like a massive game of dine and dash. the implementation of which will be delayed till 2017 and some till 2019. By Jonathan Weil October 20. If the banks were at all adequately capitalized and the central bankers were prevented from manipulations. By John Gittelsohn and Jody Shenn Oct 21.mortgage records and foreclosure proceedings are out there waiting to be unearthed. We may be witnessing the same phenomenon again. This is an express admission that all banks would require such a long transition 37 The global Too Big To Fail banks are so precarious that literally anything can trigger a collapse in the coming months.Its troubling that the people who caused the problem have walked away and left everybody else to fight over who gets stuck with the tab. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion. Basel III is pure spin and its timing was to assuage the deep-seated fears that there are no solutions in sight to save the fiat money system and fractional reserve banking. nothing will be resolved... How can the ultimate capital requirement of 8 percent be adequate when leverage under Basel III is still allowed at the astronomical rate of 33:1?. bond insurers and private investors . as the subprime mortgage crisis began to spiral. Volcker also said: I don't think anyone doubts that the underlying problem in the markets is the too big to fail syndrome. a bigger threat may be the cost to buy back faulty loans that banks bundled into securities . The reality is these companies are so big and unmanageable. The major global banks are all undercapitalized and this was all too apparent when Lehman Bros. The aggrieved bondholders include governmentcontrolled firms Fannie Mae and Freddie Mac.and it is a no brainer to conclude that the banking crisis (if we are lucky) may be resolved by 2015 but it is most likely that it can be only resolved by 2017/2018 . by Matthias Chang September 20. mortgage lenders and servicers say theyre putting the foreclosure mess behind them. they were staring at a black-hole in the trillions. Reading the commentaries on Basel III posted to various renowned websites and financial publications. Its anyones guess what they might turn up . Global Research. collapsed. Three years ago. One thing that remains unknowable is how many flawed home. Banks were borrowing so much and so recklessly to play at the global casino that when the bets went sour.Tracking Opportunity & Risk Related Developments of Uncle Sam.3 trillion remain. BANKS FACE A TWO-FRONT WAR ON MORTGAGES.. and the bailouts. 2010 deliberately misled) the underlying message of the proposals. but they missed (or . While federal regulators and state attorneys general have focused on flawed foreclosures.S.S.The biggest risks for banks may be loans packaged into mortgage-backed securities during the housing bubble. And it is ironic that government-owned GSEs Freddie and Fannie are shareholders of MERS one of the main sources of mortgage fraud in the country. Eggert said in a telephone interview. In fact the banks are all insolvent. FORECLOSURES Bloomberg.. The problem was compounded when the central bankers turned a blind eye to how bankers defined what constituted capital so as to circumvent the need to maintain the capital ratio. Theres no excuse this time for anyone to be surprised. and that it never was a major problem.
since the recessions of the European peripheral countries will likely deepen considerably in the year ahead as they attempt to undertake major fiscal adjustment programs without the benefit of currency depreciations. the combined sovereign debt of Greece. AND SOON American Enterprise Institute. since they have lent the equivalent of 37 percent of France's GDP to those countries.Time Line? Between now and anytime in 2011. seriously threatening both the European and the global economic recovery. I cannot give a precise time-line as to how long the FED and the global central banks can prolong the confidence game. This is essentially what happened in Argentina in 2001 after several years of painful and not very fruitful austerity measures. All of a sudden. this crisis will likely intensify in the months ahead as markets increasingly focus on the intractable solvency and competitiveness issues confronting countries like Greece.The eurozone's sovereign-debt crisis casts a pall over today's alreadyfragile global economic outlook. Portugal. Spain. By Desmond Lachman. the banking patient will be in Intensive Care until 2017. Spain. At this moment. The more immediate threat to the continuation of the eurozone in its present form is the possible loss of political willingness in Europe's periphery to continue hewing to IMFstyle austerity measures. and . When confidence in banks evaporates for whatever reasons. The first indication that the game is up is when US treasuries are increasingly purchased by the FED to make up for the shortfalls by foreign creditors and to finance the ballooning US deficits. It is my view that Basel III is pure spin and is intended to convey the impression that the central bankers and regulators have things under control. which in turn will call into question the health of the European banking system. and a major part of that debt sits on the European banks' balance sheets. the tipping point is reached and all hell breaks loose! .. some entities may start to get real nervous and unload the treasuries. Such deepening will undermine their public finances by eroding their tax bases and will raise questions about their ability to service their sovereign debt. Such intensification will affect Europe's already-troubled banking system. the consequences will be ugly and there will be massive social upheavals across the globe. and Ireland. European policymakers fully understand that a default in any peripheral eurozone country would likely trigger contagion to the other peripheral members. 2012. After all.. At some point.At the latest. as the recession deepens and unemployment rises with no end in sight. and the FED steps in to shore up treasuries. Then. Portugal. hoodwinking the public and sovereign creditors that all is well. They also understand that a series of defaults in the eurozone's periphery would have devastating consequences for the European banking system. To use an analogy. EURO WILL UNRAVEL. which is rather optimistic for the projection implies that the patient may be able to recover. The Bank for International Settlements estimates that the French banks are particularly exposed to the troubles in the peripheral countries. There is little reason to expect a 38 The outbreak of a sovereign-debt crisis in the euro zones peripheral economies has been among the more important developments in the global economy in 2010. serious questions may arise in the periphery as to whether these countries would not be better served by restructuring their debt and exiting the euro. Sadly. September 2010 Ireland is around US$2 trillion. .Tracking Opportunity & Risk Related Developments period to comply with the new requirements! The stark reality is that the Too Big To Fail Banks do not have the ability and or the means to raise capital at this critical juncture.
AN ALTERNATIVE RESERVE CURRENCY (Consequent or Concurrent to the Debt Crises) CHINA FEARS DEPRECIATION OF $2. Separately Hu Xiaolian. Multilateralism with a more prominent role for emerging market countries is essential now to prevent competitive currency debauchery by China and the US from blowing up the system. and 3pc in yen. internal and external. 26pc in euros. labour groups seek strong action against the undervalued renminbi.Tracking Opportunity & Risk Related Developments different outcome in the eurozone's peripheral countries. with 65pc held in dollars.Charles Li. and has raised its holdings of South Korean bonds. deficiencies and systemic risks in the current international currency system. By Angela Monaghan September 3. the chief executive officer of Hong Kongs stock exchange. Until now the allocation of China's foreign exchange reserves was considered a state secret. The report was published in official newspaper the China Securities Journal and confirmed analysts' estimates that about two-thirds of the reserves are invested in dollars. "Once a reserve currency's value becomes unstable. Chinas takes the form of not letting its currency strengthen (which makes the recent monetary tightening deflationary for others). China has signalled a shift away from dollar assets in recent months. whose economic imbalances are far greater than Argentina's were. 2010 Chinas yuan will gradually become a reserve currency . By Arvind Subramanian October 20 2010 US CURRENCY CRISES DOLLAR CRISES . AMERICA CANNOT WIN THE CURRENCY WARS ALONE Financial Times. said in a commentary on the exchanges website today. China could leverage its economic status as a large buyer of goods and services (commercial and defense) to hurt American businesses and jobs. there will be quite large depreciation risks for assets. 2010 The external problem is Chinas possible retaliation. At a time of high unemployment. 39 . in a bid to diversify. warned that depreciation was a risk for the foreign exchange reserves held by developing countries. It could withhold co-operation on North Korea and Iran.US unilateralism runs into two difficulties. YUAN WILL BECOME RESERVE CURRENCY.59 trillion). HONG KONG EXCHANGE HEAD SAYS Bloomberg News September 20. America is divided. a vice governor with the People's Bank of China." she said. It has sharply increased its net purchases of Japanese debt. The Chinese Government holds the largest stockpile of currency reserves at $2. "A diversified international currency system will be more conducive to international economic and financial stability. "The outbreak and spread of the global financial crisis has highlighted the inherent How ironic that the worlds reserve currency issuer (the US) and its longterm rival to that status (China) are competing to nearly debauch their own currencies? Americas behaviour more effect than intent takes the form of quantitative easing. a central bank magazine. .45 TRILLION OF RESERVES STILL HEAVY IN DOLLARS Telegraph." she wrote in an article that appeared in the latest issue of China Finance. Domestically. But US companies are ambivalent because capital is mobile and can escape the effects of the undervaluation. 5pc in pounds. Chinese threats of dumping US Treasury bonds are perhaps overstated.45 trillion (£1." she added. calling for greater crossborder use of the yuan. Why would they take action that would result in the very outcome dollar decline that China has worked to avoid? But other retaliatory options could hurt.
when the sterling was no longer the worlds reserve currency Dont blame the Chinese. Berkeley. it has a way to go before its currency is attractive as a vehicle for foreign investment and holding reserves. October 19. author of Rising Powers.US VS CHINA / RUSSIA / OTHERS CHINA AS A SUPERPOWER Korea Times. either The Chinese are only doing this to protect themselves from all their exposure to the dollar. things here in the US will change drastically Just ask anyone who lived in the UK after WWII. Only this summer. "There are 40 . the Middle East." says Michael Klare. In foreign- "We have to recognize that China is the first real economic competitor that has ever threatened America's standing as the global economic superpower.. Ty showed me a story from The Wall Street Journal about how Turkey and China had signed a trade agreement that would. October 4. 2010 STRATEGIC DIVERGENCE . China will attempt to protect its domestic transformation by securing resources and access to foreign markets. euro.the US dollar. Shrinking Planet. 2010 ." But America doesn't adjust well. Brazil and now Turkey All of these countries only use their currencies in trade. Lets see now China has signed up almost all of Asia. only use their currencies in the trade. which one?. 2010 THE competition for reserve-currency status is conventionally portrayed as a winner-take-all game. and yuan will share the roles of invoicing currency. the Obama administration started laying bricks in a Great Wall of Containment around China by mending ties with a brutal Indonesian special forces unit and taking sides against China in a potentially dangerous dispute over Beijing's claim to a string of islands in the South China Sea." Few would argue that the rise of China has world-altering significance . And. Argentina. Indeed. despite the massive problems that the country is confronting.China was gaining a wider acceptance of their currency and removing the dollar from trading agreements Well. professor of economics at the University of California. thus excluding the Given its rapid and successful development. CHINA IN THE DRIVER'S SEAT The Nation. CHINESE YUAN: NEXT WORLD RESERVE CURRENCY? The Daily Reckoning. Robert Dreyfuss September 2. And you could sprinkle in protectionism measures and a host of other things that have built up against the dollar in the past decade. where there is room for just one full-fledged international currency. America has to adjust. although China is aggressively promoting international use of the yuan in trade settlements.. Willingness to hold the US dollar may be undercut by concern with America's twin fiscal and external deficits. The only question is. To be sure. Uncertainty about whether the European Union will hold together could limit the use of the euro. corporate scandals. and reserve currency in coming years. policy terms. By Joschka Fischer Germanys foreign minister and vice chancellor from 1998 until 2005. there can be no doubt that the Peoples Republic of China will become one of the dominant global powers (soon). The US has brought this on with all its deficit spending. all three currencies have their critics. Africa and beyond. by Chuck Butler October 10. settlement currency. from now on. etc. and no longer need dollars Let me make certain that you understand whats happening. "It would be disastrous for progressives to provide fodder for the military-industrial complex by demonizing China. It's hard to imagine a US politician making the case that Washington should pull back from its overextended posture in Asia and the Pacific or cede an expanded presence to China.Tracking Opportunity & Risk Related Developments SWIMMING AGAINST THE MASTER CURRENCY CURRENT Sydney Morning Herald . 2010 dollar. by Barry Eichengreen.. the Indian Ocean. Belarus. it could even emerge as the global power. like bubbles. folks The Chinese are taking steps to become the next reserve currency And when that happens.Along with China's growing economic power comes an inevitable corollary: China's eventual emergence as a political and military power wielding its influence from East Asia to the Pacific.
Twelve years later. In February Turkish Culture and Tourism Minister Ertugrul Gunay offered to do likewise with Egypt. 2010 China-Pakistan nuclear ties worry U.Tracking Opportunity & Risk Related Developments very powerful interests in Washington who want to set us on a path of confrontation. but it's our own financial. China's Foreign Ministry said on Tuesday Beijing had invited the IAEA to "exercise safeguards and oversight of this project.S. has set targets to invest $117. fresh from a resounding constitutional referendum win by the AKP.6 billion in nuclear projects by 2020." says Orville Schell. India. The comments by Thomas D'Agostino. 2010 ATOM BODY SHOULD ADDRESS CHINA-PAKISTAN DEAL--U. September 22.S. There is a great new plan of creating a Middle East Union as a regional equivalent of the European Union with Turkey. President . Libya and Syria last year. then-Prime Minister Atal Bihari Vajpayee asserted that India and the United States were "natural allies in the quest for a better future for the world in the 21st century"." CHINA EXPANDS NUKE PLANS. Under Secretary for Nuclear Security. And it's not a foregone conclusion that it will be easy. Jordan." In particular. 41 In 1998. one of the few countries outside a global antinuclear weapons pact. despite an array of promising advances over the past decade. writes Israel Shamir. Oct 22. The neocon plan to transform the Middle East and Central Asia into a pliant client of the US empire and its onlydemocracy-in-the-Middle-East is now facing a very different playing field. The empire faces a resurgent Turkey. As part of a dynamic diplomatic outreach under the Justice and Development Party (AKP). U. or even peaceable. the relationship between Washington and New Delhi is falling short of its full potential. Chinas civilian nuclear investments in Pakistan have raised strategic concerns in the US and India." REJUVENATING US-INDIA STRATEGIC PARTNERSHIP Times of India. "It isn't just China's rise. China may not seek approval of Nuclear Suppliers Group Barack Obama's upcoming trip to India provides an opportunity to jumpstart progress toward defining a true US-India strategic partnership TURKEY AND RUSSIA DEFY AMERICA'S IMPERIAL DESIGN IN THE MIDDLE EAST AND CENTRAL ASIA Al-Ahram Weekly. the issue of Taiwan is a flash point. and to influence it. Reuters. which revealed plans to build a one-gigawatt nuclear power plant in Pakistan on Monday. and if relations between Beijing and Washington spiral downward. A news report quoted CNNC vice president Qiu Jiangang saying that both sides are in discussions over CNNC exporting a one-gigawatt nuclear plant to Pakistan. political and cultural collapse that is cause for even more consternation.S.S. official suggested on Wednesday the 46-nation Nuclear Suppliers Group (NSG) should address Chinese plans to build two new reactors in Pakistan. but they have set in motion unforeseen moves by all the regional players. by Richard Fontaine. a conflagration between the two nuclear powers could erupt over the Chinese island. Not only are the wars against the Palestinians. Lebanon. came a day after China indicated it may see no need to seek approval from the NSG. Turkey reestablished the Caliphate era visa-free tradition with Albania. 2010 The new Ottomans and the new Byzantines are poised for an intercept as the US stumbles in the current Great Game. which is tectonic. LEAVES INDIA IN SHADE Hindustan Times September 21. Eric Walberg October 1. Afghans and Iraqis floundering. A senior U. 2010 Chinas largest nuclear power company. CNNC is completing a second civilian nuclear reactor in Pakistans Chashma and plans to build two more. some of whose members have voiced qualms about the plan to build two new reactors at Pakistan's Chasma nuclear energy complex. "We need to find ways to accommodate China..
Looking at it another way.Turkey's bold move with Brazil to defuse the West's stand-off with Iran caught the world's imagination in May. WIDENING REACH World Politics Review. Turkey has never officially supported the Uighur separatist movement. Blood and Oil. since it concurrently acquires the leverage to compel the West to negotiate with it. most recently. Syria and Iran . But safeguard it they will. with a visa-free regime and ambitious trade and investment plans (denominated in rubles and lira). not the artificial one imposed over the past 150 years by the British and now US empires . where from the US angle the great game is no longer about driving a wedge between Russia and Western Europe. In a delicious irony. including Russia. it will be about offering incentives to Russia to hold it back from diversifying away from Western energy markets towards China. How Russia and China safeguard their growing strategic partnership from Western pressures will become clearer in the coming period. and the latter cannot but aspire to try to deflect it. invasions by the US and Israel in the Middle East and Eurasia have not cowed the countries affected. creating the basis for a new alignment of forces. was made 42 . Turkey. Medvedev's visit to China underlines emphatically that Moscow will be loath to allow the Russia-China strategic partnership to be eroded by its reset with the US.Tracking Opportunity & Risk Related Developments Turkey also established a strategic partnership with Russia during the past two years. With this in mind. Shrinking Planet. What all this adds up to is that Russia is practicing its own version of a reset with the US. . there is immense geopolitical significance to the fact that Russia has appeared by China's side over the current tensions in the AsiaPacific region involving Japan. His previous book. CHINA: ENERGY SUPERPOWER Asia Times By Michael T Klare What emerges is that the trajectory of Russia-China cooperation is beginning to substantially impact on the Western countries' core interests. the growing strategic partnership with China enhances The news that Turkey and China had organized a joint military exercise at the huge Konya airbase in Turkey's central Anatolian region last month came as a surprise to many. strengthening its partnership with China gains it more strategic space. What explains such a dramatic improvement in relations between Turkey and China? And how should this military exercise be understood Michael T Klare is a professor of peace and world security studies at Hampshire College and the author. For Russia. which has historically been the main obstacle in Turkey-China relations . so to speak.ties between the two countries have been deepening since former Chinese President Jiang Zemin's visit to Turkey in April 2000 opened a new chapter in bilateral relations.This brings us to the threshold of a tantalizing prospect: is the great game over Caspian oil withering away? How relevant are US-Russia energy rivalries with the appearance of China in the equation as an energy guzzler that can keep buying all that Russia can supply? This is a new ball game. especially in Central Asia and Afghanistan. At that time. but emboldened them to work together. just as the latter has been doing with Russia. by Mehmet Ozkan 22 Oct 2010 in the context of the current shifts taking place in global power politics?. of Rising Powers. IS RUSSIA PLAYING THE "CHINA CARD"? Asia Times. including the construction of new pipelines and nuclear energy facilities.. TURKEY-CHINA MILITARY DRILL REVEALS DEEPENING TIES. 2010 Russia's capacity to withstand Western pressures. The US reset with Russia already has an unobtrusive objective of incrementally eroding the Russia-China strategic understanding so as to isolate China.. Its defiance of Israel after the Israeli attack on the Peace Flotilla trying to break the siege of Gaza in June made it the darling of the Arab world. Instead. the two countries signed several agreements (and) Since then.This is the natural regional geopolitical logic. By M K Bhadrakumar October 2.
DEEP REASONS FOR CHINA AND US TO BRISTLE Asia Times. In 2009. '10 Bristling over territorial disputes in the South China Sea fits American concerns that China is deliberately nudging the US out of East Asia at a time it is trying to reassert its primacy.com. Rarely has a simple press interview said more about the global power shifts taking place in our world. China will also become an ever more dominant international actor and so set the pace in shaping our global future. Jingdong Yuan Aug 19. This is exactly the path once taken by Washington . If you want to know which way the global wind is blowing (or the sun shining or the coal burning). not only in the South China Sea.bloodandoilmovie. a geopolitical shift of great significance given the history of USSaudi relations. RISING CHINA TESTS THE WATERS Asia Times. Especially striking has been the way Beijing has sought to undercut US influence in Saudi Arabia and with other crucial Persian Gulf oil producers. Washington is already watching with anxiety. the decisions China makes regarding its energy portfolio will have far-reaching consequences. Oman. At present.S. by becoming the world's leading energy consumer. WHILE U. Beijing has been dispatching its top leaders to woo Riyadh. At this point. Sudan. Although not competing with Washington when it comes to military aid. Abraham M Denmark and Daniel M Kliman Aug 19. promising to support Saudi aspirations without employing the human rights or pro-democracy rhetoric usually associated with American foreign policy. 2010 Hu Jintao and Kim Jong-il in Jilin province explicitly placed China's Korean Peninsula eggs in the North's basket. The idea that Beijing will acquiesce to the collapse of the Pyongyang regime and reunification under the aegis of South Korea is a discounted commodity. the chief economist of the International Energy Agency (IEA). Iran. China for the first time imported more Saudi oil than the US. watch China. The United States should insist on open access. here. That's the news for our energy future and for the future of greatpower politics on planet Earth. By Robert D.and with some of the same countries. and Venezuela. Russia. IS DISTRACTED. Fatih Birol. Angola. Kaplan September 26. Because energy is tied to so many aspects of the global economy.Tracking Opportunity & Risk Related Developments into a documentary film and is available at www. only one thing is clear: the greater China's reliance on imported petroleum. and because doubts are growing about the future availability of oil and other vital fuels.and the United States is ill-equipped to respond. 2010 A long handshake between President The greatest geopolitical development 43 . Peter Lee September 2. China called South Korea's bluff . click here or. Libya. the greater the risk of friction and conflict with the United States CHINA MAKES ITS NORTH KOREA MOVE Asia Times. Eager to ensure the reliability of the oil flow from these countries. in some cases providing them with significant economic and military assistance. told the Wall Street Journal that China had overtaken the United States to become the world's number one energy consumer. China's state-controlled energy firms have also forged "strategic partnerships" with counterpart enterprises in these countries and in some cases acquired the right to develop major oil deposits as well. to download it to your iPod. Beijing has established close ties with their leaders. Tensions are also high on most fronts associated with China's attempt to reclaim what it sees as its rightful place. Kuwait. To catch Klare discussing China's energy superpowerdom on Timothy MacBain's latest TomCast audio interview. China obtains most of its imported oil from Saudi Arabia. '10 Beijing views the South China Sea as a leading indicator of how the international community will respond to China's growing power and assertiveness. An anemic international reaction will embolden Beijing. Kazakhstan. CHINA DEVELOPS SEA POWER Washington Post. On July 20. but elsewhere as well.
China will be able to redirect its naval energies. through which passes a third of all commercial maritime traffic worldwide and half of the hydrocarbons destined for Japan. With that backing. We underestimate the importance of what is occurring between China and Taiwan. Sri Lanka.. We are paying in blood and treasure to stabilize Afghanistan while China is building transport and pipeline networks throughout Central Asia that will ultimately reach Kabul and the trillion dollars' worth of minerals lying underground. Washington Post.to the second island chain (Guam) and in the opposite direction. and thus to the entire arc of Islam.China is quietly incorporating Taiwan into its dominion. ultimately to be protected by its warships America's preoccupation with the Middle East suits China perfectly. after only the United States China's 66 submarines constitute roughly twice as many warships as the entire British Royal Navy If our economy remains wobbly while China's continues to rise this will have repercussions for each nation's sea power. 10 saying.In an apparent snub to international opinion. By Clifford McCoy 16 Sep.China has the world's second-largest naval service. Once it becomes clear. The United States and others consider the South China Sea an international waterway. Myanmar's generals can now proceed unconcerned by Western criticism of the election process or the results . to the Indian Ocean.. China considers it a "core interest. a few years hence." China seeks domination of the South China Sea to be the dominant power in much of the Eastern Hemisphere. the Korean Peninsula and northeastern China. And with 90 percent of commercial goods worldwide still transported by ship. that the United States cannot credibly defend Taiwan. That sea grants Beijing access to the Indian Ocean via the Strait of Malacca. China is building a far-flung trading network. The geographical heart of America's hard-power competition with China will be the South China Sea. from East Africa to Southeast Asia. MYANMAR REAFFIRM STRATEGIC VOWS Asia Times. by Fareed Zakaria October 18.When North Korea collapses. . this policy will not alter. . Bangladesh and Pakistan. even as it is helping to fund and construct ports in Burma. events that are unlikely but with the potential to cause major disruption. at the northern end of the South China Sea . sea control is critical. these harbors will be visited by Chinese warships and will provide warehousing for Chinese consumer goods destined for the Middle East. Hu was quoted on state television on September 8 IRAN . China is building a blue water navy.this is what could produce serious geopolitical instability. To wit.the collapse of North Korea . 2010 The most important lesson to have come out of the financial crisis is to worry about "black swans. In geopolitics there is one such event that should have us all thinking hard -. Consolidating and developing SinoMyanmar cooperation and friendship is our unswerving policy. No matter how the international situation changes. Forget genteel rows over the yuan's value -.A NEW MIDEAST WAR IN THE MAKING 44 . in Nassim Nicholas Taleb's formulation. "China pays a great deal of attention to relations with Myanmar. it is easy to imagine chaos on the Korean peninsula that triggers a series of reactions from Beijing and Washington that are competing and hostile. CHINA.." WHEN NORTH KOREA FALLS ." These are. Myanmar leader Senior General Than Shwe's visit to China last week won public support from Beijing for his government's planned national elections on November 7.Tracking Opportunity & Risk Related Developments that has occurred largely beneath the radar of our Middle East-focused media over the past decade has been the rise of Chinese sea power.
The founders created a system in which the president is inherently weak in domestic policy and able to take action only when his position in Congress is extremely strong. The result will either be gridlock or a very different legislative agenda than we have seen in the first two years.The Democrats will lose their ability to impose cloture in the Senate and thereby shut off debate. the president will have to begin his campaign. and party discipline will not be strong enough (it never is) to prevent some defections. With the Iowa caucuses about 15 months away and the Republicans holding momentum.Interestingly. The first is to continue to press his agenda. with the sole exception of Afghanistan where he was assertive is unlikely to yield a major foreign policy success. The large majority held by the Democrats will be gone. if Obama's goal is to appear strong on national security while regaining the center. Obama appears vulnerable and the Republican nomination has become extremely valuable. and there are a host of other foreign issues. The outcome is already locked in. Obama also has a third option. Obama now has two options in terms of domestic strategy. which would reinforce his image as an accommodationist in foreign policy. If he focuses on foreign policy and the U. which is to shift his focus from domestic policy to foreign policy. ranging from China's increasing assertiveness to Russia's resurgent power to the ongoing decline in military power of America's European allies. Whether they lose the House or not. If it doesn't. even with powerful majorities in both houses. knowing that it will be voted down. If the domestic situation improves. When we consider the difficulties President Barack Obama had passing his health care legislation. The second option is to abandon his agenda. many of which would resonate with at least some voters and allow Obama to be presidential in spite of weak political support. or continued war. Obama does not have much time to lose in reshaping his presidency. 2010 We are a week away from the 2010 U. troops still there. For his part. Afghanistan offers the least attractive venue. His choices are negotiation. he takes credit for it.S.S. A negotiated settlement will be portrayed by the Republicans as capitulation rather than triumph . by George Friedman October 26.The second problem is that his presidency and campaign have been based on the general principle of accommodation rather than confrontation in foreign affairs. which is not particularly new territory.000 U. Both have political advantages and disadvantages and present an important strategic decision for Obama to make. they made the president quite powerful in foreign policy regardless of Congress Historically. This was how the founders sought to avoid the tyranny of narrow majorities. one option he has had is to appear powerful by focusing on foreign policy. and the Iranian issue wide open. Whether the Republicans take the House or the Senate is close to immaterial . with 50. The international environment allows him to take a much more assertive stance than he has over the past two years. There are a range of issues that need to be addressed at the presidential level. The first is that the country is focused on the economy and on domestic issues. Israeli-Palestinian talks are also faltering. Given his low approval ratings. he runs against Republican partisanship.Tracking Opportunity & Risk Related Developments WOULD A BEATEN OBAMA ATTACK IRAN? Stratfor/Real Clear Politics.S. the Democrats will lose the ability to pass legislation at the will of the House Democratic leadership. economy does not improve by 2012. 45 . midterm elections. when the president has been weak domestically. The Iraq war is far from stable. it will cost him the election . Should the Republicans win an overwhelming victory in both houses next week. The war in Afghanistan is reaching a delicate negotiating state as reports of ongoing talks circulate. At the same time. they will still not have the votes to override presidential vetoes. it is clear that he will not be able to push through any significant legislation without Republican agreement. cooperate with the Republicans and re-establish his image as a centrist. unless that success is a negotiated settlement with the Taliban. There are two problems with Obama becoming a foreign policy president.
but neither would have much choice should the United States deal with Iran quickly and effectively. given the situation in Afghanistan. First. particularly after the crackdown on the Green Movement. In the face of this assertion. There is little to be done in Iraq at the moment except delay the withdrawal of forces. obviously. Moreover. and the psychology in Afghanistan could also shift. Coming from Obama. Its nuclear facilities are in a number of places and Iran has had years to harden those facilities. create a massive crisis with Pakistan. Obama has avoided overt military action against Iran. and achieve some positive results in relations with foreign governments. the one place he could do it would be Iran. The Republicans could not easily attack him. are hostile. Nor would the claim be a lie. Obama's policy toward Iran has been to incrementally increase sanctions by building a weak coalition and allow the sanctions to create shifts in Iran's domestic political situation. The European. but it would be extremely unlikely that such an effort would end well. He could. stance. The most obvious justification would be to claim that Iran is about to construct a nuclear device. destroying Iran's nuclear capability does not involve a one-day raid. Russian and Chinese situations are of great importance. which adds little to his political position Obama could attempt to force an Israeli-Palestinian settlement. If Obama were to use foreign policy to enhance his political standing through decisive action.Tracking Opportunity & Risk Related Developments He could deploy even more forces into Afghanistan. He could appear reluctant to his base. which is unlikely The problem with Israel and the Palestinians is that peace talks have a nasty tendency to end in chaos. as are the Chinese. Bush's. The Israelis. It requires merely a shift in definitions and assumptions. decisive to the rest. no one would be in a position to challenge the claim. unless it ends quickly and successfully and without a disruption of oil supplies. Obama would be forced to take action. Defining what it means to almost possess nuclear weapons is nearly a metaphysical discussion. which would require a justification. Destroying the facilities might take an extended air campaign and might even require the use of special operations units to verify battle damage and complete the mission. but then would risk looking like Lyndon Johnson in 1967. hurt him more than an aggressive stance against Iran that failed to achieve its goals or turned into a military disaster for the United States. but it can be aligned with reasonable concerns. who are assumed to be more moderate and less inclined to pursue nuclear weapons. particularly Saudi Arabia. second. The Republicans have portrayed Obama as weak on combating militant Islamism. This is a cynical scenario. anti-ship missile launchers would have to be attacked and Iranian air force and air defenses taken 46 . of course. so a confrontation with Iran would require a deliberate shift in the U. and. Nothing could. So far. the situation in Iraq would improve if Iran were to be neutralized. The Russians like the Iranians are a thorn in the American side. The issue is what he might have to do and what the risks would be. Whether or not this is true would be immaterial. The Iranian Option: This leaves the obvious choice: Iran. but that would require Hamas to change its position.S. Iran is the one issue on which the president could galvanize public opinion. In addition. given that Obama does not have the 2003 weapons-ofmass-destruction debacle to deal with and has the advantage of not having made such a claim before. but they are not conducive to dramatic acts. hurling troops at the enemy without a clear plan. nor is Iran without the ability to retaliate. The Europeans are hostile to Iran but want to avoid escalation. The Arabian Peninsula. Obama's credibility in making the assertion would be much greater than George W. after all. is afraid of Iran and wants the United States to do something more than provide $60 billion-worth of weapons over the next 10 years. while the Democrats would be hard-pressed to challenge him. military action against Iran's naval forces would be needed to protect the oil routes through the Persian Gulf from small boat swarms and mines. The idea is to weaken President Mahmoud Ahmadinejad and strengthen his enemies. Many of the Democrats see Iran as a repressive violator of human rights. Foreign policy presidents need to be successful. the claim would confirm the views of the Republicans.
there is little or no evidence so far that Iran's top leadership is willing.S. at least to delay it for years to come. Speaking at a counter-terrorism conference at the Interdisciplinary Center in Herzliya on Sunday. It would also cause the Russians and Chinese to become very thoughtful. and there is no credible threat of force. but eviscerated militarily. The only obvious way to achieve success that would have a positive effect on the U. or can be forced. can blame him for the gridlock. An attack on Iran would not be an invasion. I am arguing the following. These two developments may be connected. First. A campaign against Iran would have its risks. Sanctions are having almost no impact. U. the Iranian regime would be stronger politically. Ryan Jones September 21. Such an attack would have substantial advantages and very real dangers. withdrawal from Iraq. which would represent a threat to the region. Obama needs to be seen as an effective commander in chief and Iran is the logical target. the Republicans.S. so these forces would have to be attacked and reduced as well. at least for a while. the risks outweigh the rewards. to . physical confrontation rolls ever closer. . Simon Tisdall 21 October 2010 fundamentally change its ways. it seems the world has accepted a nuclear-armed Iran as a foregone conclusion. sending the global economy into a deep recession on soaring oil prices. nor would it be a short war. a shift to a foreign policy emphasis makes sense. strategic position is to attack Iran. AN IRAN CONFLICT IS DRAWING CLOSER The Guardian.given the domestic gridlock that appears to be in the offing. In an interview with Fox News on Monday. if not to completely remove the threat.S. Figure out for yourselves what that means. All of these are possible risks. 2010 Israeli officials are becoming increasingly frustrated by the international communitys footdragging regarding Irans defiant nuclear program. Yatom told his audience. If the campaign were successful. calm the Saudis and demonstrate to the Europeans American capability and will. And so the dread juggernaut of direct. and. The US is quietly ratcheting up economic and financial pressure on Iran amid signs that talks about Tehran's suspect nuclear program could resume next month.Tracking Opportunity & Risk Related Developments out. This has its advantages and disadvantages. Obama will be paralyzed on domestic policies by this election. He can craft a re-election campaign blaming the Republicans for gridlock. This would not solve the problem of the rest of Iran's conventional forces. The other option for Obama is to look for triumph in foreign policy where he has a weak hand. former Mossad chief Danny Yatom (said) If the modern air forces led by the United States mobilize their capabilities it is possible. it would be an extended air war lasting an unknown number of months. But neither sanctions nor diplomacy can wholly obviate the dreaded possibility of military confrontation unless something fundamental changes soon at the heart of Iran's fundamentalist regime. intelligence could have missed the fact that the Iranians already have a deliverable nuclear weapon. Iran could launch a terrorist campaign and attempt to close the Strait of Hormuz. It could change the dynamics of the Middle East and it could be a military failure. ISRAEL: NO CHOICE BUT TO ATTACK IRAN Israel Today. It could also create a civil war in Iraq. Israeli Defense Minister Ehud Barak warned US President Barack Obama that history will judge his administration largely on 47 Mahmoud Ahmadinejads provocative posturing in Lebanon last week showed Iran is unlikely to change its ways. and so Israel must retain the right to self-defense. For most Israelis. But Europe and the Obama Administration have signaled they have absolutely no intention of using force to stop Iran. Like Yugoslavia in 1999. . It can go either way. Ahmadinejad's provocative posturing in Lebanon last week made that plain enough. A successful campaign would ease the U. according to STRATFOR's thinking. charging that he refused to adjust to the electorate's wishes.
At the same time. help establish a trade corridor from Pakistan into Central Asia. 2010 THE AF-PAK THEATER THE END GAME THE U. feckless retreat. is conducting a more or less orderly retreat. Pakistans institutions. or disastrous (Napoleons from Russia). not a serious plan of systematically handing over security matters to carefully prepared indigenous forces. Zalmay Khalilzad. Iraq and the United Nations during the Bush administration. was the ambassador to Afghanistan. Washington must offer Islamabad a stark choice between positive incentives and negative consequences. By Zalmay Khalilzad.S. strategic withdrawals can be elegant (de Gaulles from Algeria. are sufficiently strong to preclude such an outcome. the USSRs from Poland). the U. for example.S. With Pakistani civilian and military leaders meeting with Obama administration officials this week in Washington and with The Times report on Tuesday that Afghan and Taliban leaders are holding direct. the United States will have to choose between fighting a longer and bloodier war in Afghanistan than is necessary. In exchange for demonstrable Pakistani cooperation. AFGHANISTAN AND THE REST OF THE WORLD. and the American people will not miss their 65-year total immersion in the world any more than the world will be heartbroken to be less dominated by the Americans. or accepting a major setback in Afghanistan and in the surrounding region. US ENDGAME IN AFGHANISTAN: THE EVIL OF THREE LESSERS Al-Jazeerah. GET TOUGH ON PAKISTAN New York Times.Tracking Opportunity & Risk Related Developments whether or not Iran went nuclear on his watch. They are confident that if they continue to frustrate our military and political strategy even actively impede reconciliation between Kabul and Taliban groups willing to make peace pro-Pakistani forces will have the upper hand in Afghanistan after the United States departs. Both are undesirable options. from the Philippines). To induce quicker and more significant changes. and ensure that Pakistans adversaries do not use Afghanistans territory to support insurgents in Pakistani Baluchistan. the United States should offer to mediate disputes between Pakistan and Afghanistan.S. Without inducing a change in Pakistans posture. But it all has the appearance and feel of a default position. Pakistan has long played a vital positive part and a troublingly negative one. and depending on what is in all those secret underground facilities Iran is building. In the region and in the wider war against terrorism. Pakistani military leaders believe that our current surge will be the last push before we begin a face-saving troop drawdown next July. with or without Pakistani consent. Nonetheless. significant incentives. particularly the countrys security organs. unpunctuated with military disasters. high-level talks to end the war cutting through this Gordian knot has become more urgent and more difficult than ever before. Sensible. To deal with an interruption of our supply lines to Afghanistan. almost inadvertent. Conrad Black October 21. we should present clear. by Eric Walberg September 20. The United States should demand that Pakistan shut down all sanctuaries and military support programs for insurgents or else we will carry out operations against those insurgent havens. National Review. 2010 48 . this aggressive approach would require the United States to think through a series of likely Pakistani responses. it could be much sooner.S DISORGANIZED RETREAT: OUT OF IRAQ. Barak said that it would be no more than a year or two before Iran fields a nuclear weapon. disorganized (Britains from India and Palestine. Arguments that such pressure would cause Pakistan to disintegrate are overstated. October 19. Pakistan gives not only sanctuary but also support to the Afghan Taliban Whats more. at the cost of many young American lives and many billions of dollars. of unplanned. 2010 The U. we must stockpile supplies and start bringing in more material through the northern supply routes and via air.
It holds the fate of this US endgame in its hands. but. This is a recipe for unending civil war too horrible to contemplate. By B Raman September 27th. Iran has offered to help do this. will meet the external trade requirements of Chinese-controlled Xinjiang and other regions of Western China.. however.Tracking Opportunity & Risk Related Developments The US has three choices at this point: the easy one is to just pull out and leave the Taliban to disarm the Western-created warlord militias and to work with the less odious members of the Karzai regime to create a viable regime in a peaceful. Its third option is a lame compromise between the above.S. . offering to cede control of the south to the Taliban while keeping control of the north.Nixon claimed: "We take this action not for the purpose of expanding the war into Cambodia. The US support for the Chinese policy will be to the detriment of India. mediated by Pakistan and the Saudis.Forty years ago Obama's predecessor Richard Nixon began his speech announcing the expansion of the Vietnam War into Cambodia He claimed that "enemy sanctuaries" in Cambodia "endanger the lives of Americans who are in Vietnam. Chinese role in Afghanistanyes. The U." and "if this enemy effort succeeds. US is finally talking to the Taliban commanders. By Rick Rozoff September 28. And that means cleaning out major North Vietnamese and Vietcong occupied territories The practical application of the policy was that "attacks are being launched this week to clean out major enemy sanctuaries on the Cambodian-Vietnam border. anecdotal and self-interested the reports upon which they are based prove to be. will continue India will have to learn to live with the new Russian-Pakistani 49 . That is the policy of the Obama Administration. 2010 to escalate attacks with Hellfire missiles against whomever it chooses. Vladimir Radyuhin September 9. however inaccurate. CHINA: CHECKMATING INDIA IN AFGHANISTAN Indian Defense Review.." Washington indeed expanded the Vietnam War into Cambodia.. Afghanistan and Pakistan will not fare any better. Council for Foreign Relations President Richard Haass suggests partitioning Afghanistan. and soon thereafter departed Southeast Asia in defeat. if very poor and devastated country. CHANGING FACE OF RUSSIAPAKISTAN TIES The Hindu. 2010 NATO will continue to launch lethal attacks inside Pakistan against whichever targets it sees fit and will proffer neither warnings nor apologies. handing over Pashtun areas to the Taliban and arming the other ethnic groups to defend themselves." In language that has been heard again lately in Washington and Brussels with nothing but the place names changed .Indian role in Afghanistanyes. Its second option is to let the regional governments take over in stabilizing the current regime. The total value of the Chinese investment in the copper mine alone will be almost three times the total value of the Indian investments in all projects in Afghanistan . would require a revolution in US thinking: mend fences between it and Iran. While the railway line through GilgitBaltistan. leaving vast stretches of Vietnam and Cambodia in ruins. absolutely. ultimately extending up to Gwadar on the Mekran coast. This. 2010 China has shown interest in the construction of two railway linesone in Pakistan via the Gilgit-Baltistan region and the other in Afghanistan. the proposed line in Afghanistan will meet the requirements of a copper mine which China is developing in the Aynak area in Afghanistan. Cambodia would become a vast enemy staging area and a springboard for attacks on South Vietnam The course he ordered was to "go to the heart of the trouble. The Chinese policy in Afghanistan has two objectives -to enhance its strategic presence and influence and to checkmate the Indian strategic presence and influence. but for the purpose of ending the war in Vietnam. including Sirajuddin Haqqani. NATO EXPANDS AFGHAN WAR INTO PAKISTAN Global Research. with what disastrous effects the world is fully aware.
2010 Stratfor. 50 . the Americans met privately with Gen. Obama had said toward the start of his fall 2009 Afghanistan-Pakistan strategy review that the more pressing U. . punishing attack inside Pakistan. September 2010. which India helped to renovate.It is also possible that the political shock induced by the floods and a successful reconstruction effort entailing abundant job opportunities will stimulate new thinking and bring about hitherto-elusive beneficial structural change Fears about Pakistan had been driving President Obama's national security team for more than a year. is pushing for a shake-up of the elected government The military. Should a future attempt be successful. "If that happens. No. PAKISTAN'S FLOODS: BROADER IMPLICATIONS International Institute for Strategic Studies (IISS). but he refused to do much. THE CANCER IS IN PAKISTAN' Washington Post. interests were really in Pakistan. both to balance growing Chinese influence in and partnership with Pakistan.The Sochi summit also dimmed India's hopes of gaining a strategic foothold in Tajikistan. They were talking with Zardari. "No one will be able to stop the response and consequences. a dominant military and an intelligence service that sponsored terrorist groups . Ashfaq Kayani.Tracking Opportunity & Risk Related Developments bonhomie. the SUV had blown up in Times Square.If. 2010 The Pakistani military. angered by the inept handling of the countrys devastating floods and alarmed by a collapse of the economy. as it has many times before. Jones told Zardari.Kayani would not budge much. The two countries agreed to set up the joint commission 10 years ago but Moscow has. The effects and implications will extend beyond the 12% of the Pakistani population who have been directly affected by the floods and will impinge upon the policy objectives of the US-led coalition engaged in Afghanistan . By Jane Perlez September 28. has made clear it is not eager to take over the government. Obama would be forced to do things that Pakistan would not like. but Indian presence there looks doubtful now in the context of the emerging Russia-AfghanistanPakistan-Tajikistan axis." Afterward. a nuclear power with a fragile civilian government. The Obama administration had a "retribution" plan. one of the most sensitive and secretive of all military contingencies. blocked its launch .Jones said he was alarmed that success in Afghanistan was tied to what the Pakistanis would or would not do. just a statement of political fact. till now.In another breakthrough for Pakistan. Medvedev in Sochi gave the green signal for an inaugural meeting of the Russian-Pakistani Inter-Governmental Commission on Trade and Economic and Scientific-Technological Cooperation in Islamabad this month." the security adviser said. Kayani had the power to deliver. 'WE NEED TO MAKE CLEAR . But this can by no means be taken for granted. There might be no way to save the strategic partnership. military officials and politicians said. Nobody could tell him otherwise. both Jones and Panetta said. 2010 (Floods) have also exposed with yet greater clarity Pakistan's political and institutional shortcomings.S. He had other concerns . India and Russia had planned to jointly use the Ayni airfield. "This is not a threat. Mr. in its stride . preoccupied by a war against militants and reluctant to assume direct responsibility for the economic crisis. By George Friedman Pakistan is an American ally which the United States needs. Underscoring Jones's point. who could deliver nothing. HOW PAKISTAN CAN END THE AFGHAN WAR September 28. Panetta said. we wouldn't be having this conversation. chief of the Pakistani army and the most powerful figure in the country . just as Russia has taken India's entanglement with the U. in Pakistan. The plan called for bombing about 150 identified terrorist camps in a brutal.S." Jones did not give specifics about what he meant. The bottom line was depressing: This had been a charade .The United States was getting nowhere fast with these guys. God forbid. . GENERALS IN PAKISTAN PUSH FOR A SHAKE-UP OF GOVERNMENT New York Times. all bets are off. By Bob Woodward September 29.
It must have a stable or relatively stable Afghanistan to secure its western frontier. Pakistan has every reason to play this role. Kayani will seek his pound of flesh on Kashmir. 2010 Could Indian withdrawal from Kashmir initiate the Dulles nightmare of a domino effect? Back in the bad old days of the Cold War.S. 2010 The political reality is that Pakistan has escalated its rhetoric on Kashmir. Dr. would make little difference in the fight against transnational jihad. The government's invitation to China to invest in the development of J&K indeed underscores our growing sense of awareness. The Intifada unfolding in the Valley has diverse moorings and the killing of innocents may well turn out to be a sideshow in the 20-year deadly game that is far from played out. INDIA'S MAOIST INSURGENCY International Institute for Strategic Studies (IISS) September 2010 The Intifada unfolding in the Valley has diverse moorings. However. His government.Tracking Opportunity & Risk Related Developments and to contain India. However. and the current goal is rather difficult to take seriously. But it needs its withdrawal to take place in a manner that strengthens its influence rather than weakens it. and Pakistan can provide the cover for turning a retreat into a negotiated settlement. few measures have been put in place that will enable the government to fulfil its pledge to overcome the problem of left-wing extremism within three years. Bhadrakumar September 20. Vithal Rajan October 9. the United States needs a withdrawal that is not a defeat. INDIA'S UNFOLDING INTIFADA IN KASHMIR The Hindu. interests. this is an ambitious goal. A regime change in Srinagar is not the priority today. the U. the Dantewada massacre was a 'wake-up call' that emphasized the urgency of addressing the Maoist insurgency. And playing this role would enhance Pakistan's status in the Islamic world. KASHMIR: THINKING THE UNTHINKABLE (INDIA SHOULD GIVE KASHMIR TO PAKISTAN) The Hindu. something the United States could benefit from. Even a victory. M. We suspect that all sides are moving toward this end. coined the phrase thinking the 51 .-Pakistan axis is pivotal for the U. Herman Kahn. regional strategies in Central Asia and in a not-toodistant future Mr. Politicising the crisis will be a most irresponsible thing to do.S. Such a strategic shift is not without profound political complexity and difficulties. We need to carefully measure the timeline available to normalise the J&K situation. but a defeat could harm U. Meanwhile. The United States has no strong national interest in how Afghanistan is run so long as it does not support and espouse transnational jihadism. The political reality is that Pakistan has escalated its rhetoric on Kashmir . India's long-running Maoist insurgency has increased in intensity in recent months. Pakistan needs the United States for the same reason. It needs the United States over the long term to balance against India. According to Chidambaram. K. Prime Minister Manmohan Singh has described the rebellion as 'India's gravest security threat. forays into Pakistan that are destabilizing the regime.Most important. Therefore. has pledged that 'the problem of left-wing extremism [will] be overcome in the next three years'. whatever that would look like. the heaviest of the backroom hawks of the Pentagon. too. The United States isn't going to defeat the Taliban. It needs an end to U.S.S. The original goal of the war is irrelevant. the Taliban wants to run Afghanistan. under strong pressure to act decisively against the Maoists.
The American people are dependent on oil from the Middle East. India should use its scarce resources where they are most needed. would it jeopardise the security of Indians? Not really. because the people there do not consider Let us ask another hard question. and a bankrupt diplomatic policy. If Indian troops are out of Kashmir. Ronald Reagan had a better idea. The answer clearly is a resounding No'! There are no resources' of any kind from Kashmir. The mountainous barrier between the Kashmir Valley and India is a better defensive line to guard than the present long untenable frontier of the Line of Control. What will be lost along with Kashmir? An unreal and bloated sense of self-importance. they are spread thinly everywhere and new partitions are a geographical impracticality. elitist. Should we be there in Kashmir against all odds out of moral obligation. themselves Indians. 52 Could Indian withdrawal from Kashmir initiate the Dulles nightmare of a domino effect. Indians have no such reason to retain control of Kashmir. or Commonwealth Games. tighten military spending. do Indians need Kashmir? By Indians. the same result could be achieved by an undeclared economic war and arms race that would force the communists to scratch themselves out of the tournament. Would not letting Kashmir go give the palm to Pakistan. to regain if possible. because the people of the Valley are dependent on our protection? No'. because discontent against corrupt. The government must cauterise the Kashmir wound. the supply of which is crucial for our well-being. not only among Muslims but across a wide section of the poor and middle-classes. Indian rulers have yet to realize they are no longer in charge of the jewel in the crown. is the answer once again. Luckily for all of us. modern standards of governance. high-handedness. it should not fritter away its resources on nuclear weapons. and the struggling middle classes.' Indians are not the leaders of Asia the Chinese are. India's inveterate enemy? On the contrary. India must be proactive in demanding an immediate international settlement of a problem created by Nehru. it might catastrophically weaken its real enemy Whatever the final shape of the outcome. cruelty. Hanging on to the great economic resource drain of Kashmir will only worsen the situation. and that is the real reason for their hegemonic control over the region.' meaning strategies for wiping out the Soviet Union with nukes. perhaps unjustly. we mean the ordinary aamjanta of the poor. If India wishes to be considered a good second to China. ECONOMIC IMPLICATIONS OF US CONGRESSIONAL ELECTIONS (NOV 2010) .Tracking Opportunity & Risk Related Developments unthinkable. but that is the end result of poor governance. and strictly prevent any more human rights abuses. Would withdrawal increase militancy? Most probably.' and wish all Indians to go to the devil. to help people raise themselves out of poverty. It has taken Great Britain 60 years to realize it is no longer the centre of an empire. aircraft carriers. with all Indian Muslims rising up as one man to demand more partitions? While few Indian Muslims have any reason to thank the Indian state for the non-benign neglect they have received over 60 years. and non-democratic rule is widespread. Can we use similar hardline approaches to review the Kashmir imbroglio? The first question to ask is.
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