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Russia Cuts Budget to Try to Spur Growth

September 19, 2013 by

Making the move more unusual, the cuts come midway through a previously approved spending plan, and they reflect a shift in strategy away from reliance on consumer spending. In Russia, budgets are approved for three years in advance rather than year by year.

The Finance Ministry now projects that revenue will be 3.5 percent lower in 2014 and 7 percent lower in 2015 than it predicted a year ago, when the government of President Vladimir V. Putin approved the three-year spending plan.

Under the revised budget, military salaries will be frozen next year and the government will put less money into a pension fund for future retirees. It will use the money to meet current pension obligations instead.

“The budget turned out really tough,” Dmitri A. Medvedev, the prime minister and a former president, said in comments carried by Russian news agencies on Thursday when he presented the new plan. “We had to work off the real situation in the economy in our country, and in the world.”

The problems for Russia’s economy run deeper than its overwhelming dependence on oil and gas revenue, which account for more than half the federal budget.

Wages that for years rose faster than labor productivity under economic policies that made Mr. Putin widely popular have now priced Russians out of the market for many goods and services globally.

Russia’s economy is now growing more slowly than that of the United States. In the second quarter, the gross domestic product rose 1.2 percent in Russia, compared with 2.5 percent in the United States.

Officials spent the summer debating how to reverse the slowing of economic growth here.

In a speech in June, Mr. Putin suggested the Kremlin would try to prime the economy with government spending by dipping into about $171 billion in reserves in sovereign wealth funds to finance infrastructure projects like modernizing the trans-Siberian railway. Those spending plans were never carried out.

Since then, the economic policy team has changed direction, economists say, and the new approach became clear with the release of the plan for cutting the three-year budget rather than running higher deficits.

“They want to change the model of growth in Russia’s economy” away from dependence on consumer spending, Vladimir I. Tikhomirov, chief economist at the Otkritie brokerage house, said of the new policy. “The government and central bank have decided their top priority is to bring inflation down.”

This shift, Mr. Tikhomirov said, reflects a deep-seated aversion by Mr. Putin to foreign borrowing of the type that made the Soviet Union beholden to Western banks in its later years. In light of the worsening slowdown here, further stimulus would require foreign borrowing.

“It goes against normal economic policy” to cut spending in the face of an economic slowdown, Mr. Tikhomirov said.

The new Russian policy instead retraces a growth strategy followed successfully in the late 1990s by Eastern European nations like Poland, which focused intensely on controlling inflation and borrowing costs for businesses. Though this brought a temporary slowdown, and even recession in some countries, business activity picked up as rates came down.

The Russian government predicted several years of slow growth of about 3 percent, down from the 4.5 percent previously forecast.

But inflation, the bane of post-Soviet Russia for many years, is projected to drop to 4.5 to 5.5 percent next year and below 5 percent in subsequent years, from around 6 percent this year.

Without new growth produced by low interest rates in the later part of this decade, the government will struggle to meet demands for increased spending on pensions for the country’s aging population.

In the short term, as inflation is brought under control and before growth picks up, Mr. Putin could find his political support eroding. Mr. Tikhomirov, the Otkritie economist, said the policy should start showing results in 2016 or so, before Mr. Putin is up for re-election in 2018.

The government must submit the plan to the Parliament for approval by Oct. 1, though major changes are unlikely.

Article source: http://www.nytimes.com/2013/09/20/business/global/russia-cuts-budget-to-try-to-spur-growth.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Economic Expansion Slows Down in Japan

August 11, 2013 by

TOKYO — Japan’s economic growth slowed in the second quarter to an annualized rate of 2.6 percent, government data showed on Monday, clouding the outlook for the economic policies of Prime Minister Shinzo Abe and raising concerns that he may put off moves to tackle the country’s enormous public debt.

This was the third consecutive quarter of growth for Japan’s roughly $5 trillion gross domestic product, the third-largest in the world after the United States and China. Still, the expansion fell short of analysts’ expectations for Japan, whose economy grew at a robust pace of 3.8 percent in the previous quarter, helped by the Abe government’s bold monetary and fiscal stimulus drive.

Economists polled by Reuters had expected Japan’s economy to grow at a similarly healthy clip in the April-June quarter. But weak capital expenditure, reflecting continued caution among Japanese corporations over the country’s long-term prospects, slowed growth, according to figures released by the Cabinet Office.

Compared with the previous quarter, the Japanese economy grew 0.6 percent in the latest quarter. Private consumption rose a better-than-expected 0.8 percent over the previous quarter, as a brightening mood in Japan pushed up spending on food, travel and luxury products. But capital expenditure fell by 0.1 percent, below a market forecast for a 0.7 percent increase.

Signs of slowing growth could strengthen the hand of critics of Mr. Abe’s economic drive, which has relied heavily on monetary stimulus and government spending to revive growth in Japan’s long-deflationary economy. Mr. Abe has promised to follow up with market deregulation and easing trade barriers to raise Japan’s long-term growth potential.

Weaker growth could also derail Japan’s plans to raise taxes and pare back its soaring debt, which reached 1 quadrillion yen ($10 trillion) in the second quarter, more than twice the size of its economy. To start easing that debt burden, the government plans to raise a flat consumption tax rate to 8 percent in April 2014 from the current level of 5 percent, and to 10 percent in October 2015.

According to government calculations, raising the consumption tax rate could double tax receipts to more than 5 percent of Japan’s gross domestic product, compared with the current 2 to 3 percent, helping Japan better balance its finances.

Whether Japan goes ahead with raising taxes will depend on how sustainable the government deems current economic growth to be. Under the current plan, the consumption tax will proceed if it is likely that the Japanese economy can sustain at least 2 percent real G.D.P. growth for the next decade.

Some economists warn that raising taxes too soon could derail Japan’s nascent recovery.

“A tightening in fiscal policy would almost certainly snuff out the current cyclical rebound,” Duncan Wooldridge and Silvia Liu, economists at UBS, said in a note to clients ahead of the G.D.P. numbers.

“The desire for fiscal consolidation in the long run must not sacrifice the war on deflation in the short run,” they said. “To hike or not to hike the consumption tax is the only policy which matters over the next four quarters.”

Article source: http://www.nytimes.com/2013/08/12/business/global/economic-expansion-slows-down-in-japan.html?partner=rss&emc=rss

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Japan’s Economy Growing at 3.5% Annualized Rate

May 15, 2013 by Leave a Comment

TOKYO — Japan’s economy grew at a robust annualized pace of 3.5 percent in the first quarter, preliminary data showed, the first sign that the bold monetary and economic policies of Prime Minister Shinzo Abe were starting to bear fruit.

Japanese growth came to 0.9 percent for the January-to-March period compared with a year ago, driven by higher household consumption and exports, government data showed. That beat market expectations of 0.7 percent for the quarter, or 2.8 percent for the annualized pace.

Exports grew 3.8 percent, pushed higher by strong shipments of cars and other manufactured goods to the United States on the back of a weaker yen, offsetting a slump in exports to China and Europe.

Personal consumption, which makes up the largest part of Japan’s gross domestic product, grew 0.9 percent, as consumer sentiment brightened amid signs of an economic recovery.

The solid pace, which came after two quarters of contraction and a quarter of just 0.2 percent growth, appeared to point to the beginnings of a long-awaited turnaround in the world’s third-largest economy, after the United States and China. “It is a sign that the Abe administration’s economic policies are starting to show results,” the economics minister, Akira Amari, said.

The latest numbers have come as early validation for Mr. Abe, who took office in December, and has used what has been called a three-arrowed bid to lift Japan out of its long deflationary slump. He has focused on an aggressive monetary policy that has flooded the economy with cheap money, major fiscal spending and reforms to make the economy more competitive.

Under Mr. Abe, the central bank has sought to double its monetary base and to generate inflation of 2 percent by 2014. This first arrow has been accompanied by a devaluation of the yen by some 20 percent in the last six months, which has been a boon for exporters. Exporters from Toyota to Sony have reported a rebound in profit in the first quarter of 2013, thanks in good part to the policy.

In recent days, however, concerns have grown over rising interest rates in the government bonds market, which could threaten Japan’s monetary policy. Japan is vulnerable to rising borrowing because of its high public debt burden, which is twice the size of its economy.

Still, investors have piled into Japan’s stock market, emboldened by expectations of rosy corporate profits and an economic recovery. The Nikkei stock index has risen by an astonishing 46 percent since Mr. Abe took office.

Japan is also getting a boost from the second arrow, more fiscal spending. Mr. Abe pushed through an emergency stimulus package of 10 trillion yen in February, and has followed up with a 92.6 trillion yen initial budget for 2013, which Japan’s Parliament approved late Wednesday.

Economists say that for the economy to keep growing, the third arrow will be crucial: mainly structural reforms that aim to make the economy more competitive, for example by making Japan’s labor market more flexible and lowering barriers to trade.

“For the rally to continue and be fundamentally driven, Abe must convince the market that his ‘third arrow’ will benefit Japan’s underlying economy,” the UBS economists Daiju Aoki and Toru Ibayashi said.

Article source: http://www.nytimes.com/2013/05/16/business/global/japans-economy-growing-at-3-5-annualized-rate.html?partner=rss&emc=rss

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Hungary’s New Central Bank Chief Tightens Grip

March 5, 2013 by Leave a Comment

BUDAPEST — Gyorgy Matolcsy, the new governor of Hungary’s central bank, tightened his grip on power during his first day in office Monday, issuing new rules that curb the powers of the bank’s deputy governors.

The bank’s Web site indicated that Mr. Matolcsy issued new articles of association on Feb. 28, when he was still the government’s economy minister, requiring that deputy governors represent the bank only jointly with a new chief director. The deputy governors previously had the right to represent the bank in their own field of expertise.

Prime Minister Viktor Orban on Friday put Mr. Matolcsy in charge of the bank, choosing him over a critic of the prime minister’s go-it-alone economic policies. The appointment is seen as Mr. Orban’s latest move to increase the Fidesz Party’s influence over independent state institutions.

Two of the three deputy governors at the bank were appointed by a previous Socialist-dominated administration, in contrast to the rest of the bank’s policy council, who were nominated by the Fidesz majority in Parliament.

Mr. Matolcsy, the architect of a government policy that has seized private-sector assets for the state and increased taxes on big businesses, will also have direct rights over the hiring, dismissal and pay of all central bank employees and can delegate this power to the new chief director.

Investors fear the appointment will lead the bank to take risky steps with monetary policy to lift the recession-hit economy, which could threaten the country’s already-volatile currency, the forint.

During questioning in Parliament on Friday, Mr. Matolcsy said he supported “conservative, responsible” monetary policy. He said the bank would stay independent and would examine new tools to spur economic growth.

But he added that it must strive for a “strategic partnership” with the cabinet, while also maintaining price stability.

Mr. Orban also nominated a third deputy governor, Adam Balog, to the bank when he appointed Mr. Matolcsy on Friday. In addition, parliamentary documents showed that the economic committee on Monday would hold a confirmation hearing for a new nominee, Gyula Pleschinger, state secretary at the Economy Ministry, to the central bank’s rate-setting Monetary Council.

Article source: http://www.nytimes.com/2013/03/05/business/global/hungarys-new-central-bank-chief-tightens-grip.html?partner=rss&emc=rss

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Regulating the Internet in a Multifaceted World

June 26, 2011 by Leave a Comment

Last month, President Nicolas Sarkozy of France invited Internet company executives, digital policy makers and others to the French capital for a special meeting in advance of the gathering of leaders of the Group of 8 industrialized nations in Deauville, France. This week, it is the turn of the Organization for Economic Cooperation and Development to summon the digerati to Paris.

Like Mr. Sarkozy, the O.E.C.D., which analyzes the economic policies of the 34 industrialized democracies that make up its membership, aims to highlight the growing importance of the Internet in driving innovation and economic growth. In addition, the backdrop of both meetings is a growing interest in the future governance of the Internet.

The G-8 leaders, for example, called for greater global coordination of efforts to curb copyright piracy, child pornography and other lawlessness that thrives on the digital frontier, a cause that Mr. Sarkozy has championed. The tone of the discussions this week is expected to be more moderate, according to people involved in drafting the agenda.

“We’re trying to get the message across that if you hamper the flow of information, you are shooting yourself in the foot in terms of the economic benefits of the Internet,” said Sam Paltridge, an official in the O.E.C.D.’s directorate for science, technology and industry. “If someone comes along and threatens that openness, that’s a real problem for economic growth.”

A discussion document prepared for the O.E.C.D. meeting highlights the benefits of the existing model of Internet governance, in which governments, private companies and independent organizations all have roles to play but in which no single entity operates without checks and balances. This so-called multistakeholder approach has underpinned the openness and dynamism of the Internet, supporters say.

Yet the multistakeholder approach is not enshrined in any law or treaty, and it is not universally liked. The governments of Russia and some developing countries, which are not members of the O.E.C.D., have expressed dissatisfaction with it. They would like to see the International Telecommunication Union, a U.N. agency, exercise greater oversight.

Prime Minister Vladimir V. Putin of Russia met with Hamadoun Touré, secretary general of the I.T.U., this month in Geneva, where he said that “Russia was determined to contribute to the work of the union and to strengthen the collaboration with the organization,” according to an I.T.U. news release.

The official Russian government Web site carries a more detailed description of the discussions, saying Mr. Putin told Mr. Touré: “We are thankful to you for the ideas that you have proposed for discussion. One of them is establishing international control over the Internet using the monitoring and supervisory capabilities of the International Telecommunication Union.”

The I.T.U., which coordinates international use of the radio spectrum and allocates satellite orbits, among other things, also plans an international discussion on the future of the Internet during a meeting next year at its headquarters in Geneva. There, I.T.U. members are scheduled to discuss revising existing international telecommunications regulations, which were written in 1988, when the Internet was in its infancy.

O.E.C.D. members are said largely to agree on a desire to exclude the Internet from a revised telecommunications agreement.

“There is a realization that Internet governance wouldn’t work under a traditional treaty model,” Mr. Paltridge of the O.E.C.D. said. “If you do this via a treaty, are you putting a straitjacket on innovation?”

The I.T.U. does not plan to attend the O.E.C.D. meeting, said Sanjay Acharya, an I.T.U. spokesman.

Even among supporters of multistakeholder governance, some recent developments have raised concerns about the existing approach.

Last week, one of the key stakeholders, the Internet Corporation for Assigned Names and Numbers, which oversees the Internet address system, approved plans for a vast expansion in the range of addresses available. In doing so, the organization overrode doubts expressed by the United States, the European Union and other governments, as well as organizations representing trademark holders.

At a meeting of the board of the assigning corporation and its Governmental Advisory Committee, Gerard de Graaf, an E.U. representative on the committee, compared the situation to a conversation between “the deaf and the stupid.”

Even if multistakeholder governance is sometimes messy, advocates of an open Internet say it is preferable to alternatives, like greater government supervision.

Constance Bommelaer, director of public policy at the Internet Society, a group that campaigns against restrictions on the Internet, said her organization had been invited to participate in the drafting of a communiqué to be issued at the O.E.C.D. meeting. At the G-8 meeting, by contrast, the communiqué had been drafted in advance by government representatives.

“This time, we will participate on an equal footing with business and government, which is very encouraging,” she said.

Article source: http://www.nytimes.com/2011/06/27/technology/internet/27iht-internet27.html?partner=rss&emc=rss

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