China Economy: 2009 Forecast

 

The Chinese economy grew a whopping 9.9% in the first three quarters of 2008, and 11.9% in 2007. Forecasts for 2009 are nowhere near as rosy.

In 2008, the Chinese government took significant action to encourage growth amid the worldwide financial slowdown. It unveiled a US $585 billion stimulus package which will extend into 2010, and slashed the interest rate three times. It also relaxed credit regulations.

India Economy: Satyam’s Demise and the Future of India’s IT Industry

“Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The Balance Sheet carries as of September 20, 2008

a. Inflated (non-existent) cash and bank balances or Rs.5,040 crore (as against Rs. 5361 crore reflected in the books)

b. An accrued interest of Rs. 376 crore which is non-existent

c. An understated liability of Rs. 1,230 crore on account of funds arranged by me

d. An over stated debtors position of Rs. 490 crore (as against Rs. 2651 reflected in the books)”

And so continued the confession letter of Chairman Ramalinga Raju, former Chairman of Satyam Computer Services, further outlining the accounting cover-ups. It attempts to exonerate Raju’s wife and the Board of Directors by saying they knew nothing of the scandal. It also says that, “…neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results.”

When a young Ramalinga Raju founded Satyam Computers in 1987 he had big dreams and an ambitious vision. The small software company quickly grew to international prominence with thousands of employees, and emerged as one of India’s premier consulting and information technology services companies. Then on 7 January, 2009, at 10:53am, Raju sent out a fax to the Satyam Board of Directors confessing to having falsified the accounts. What ensued was India’s version of the US Enron scandal.

With bailouts in vogue during these financially-strained times, the prospect of Satyam being saved by the government has been raised. Millions of dollars worth of projects are at stake, and this seems to be a simple solution to recover them, especially for the state government in Andhra Pradesh (Satyam is based in Hyderabad, Andhra Pradesh) which has committed nearly Rs 30,000 crore in various infrastructure projects with Satyam and other companies run by Raju and his family.

But that’s not going to be so easy. Prime Minister Manmohan Singh is adamantly against using tax payers’ money to rescue a firm whose problems were created by one person acting maliciously. His senior cabinet colleagues said, “There is no question of any bailout package.”

One minister posed the question, “The government can intervene if a particular sector is under stress. But how can the government intervene when Satyam seems to be a case of the promoter running away with the money?”

Delhi fired the entire board of Satyam, and Raju and his brother Rama (who was a Satyam director) were arrested. They were charged with criminal conspiracy and forgery. The US $1 billion corporate fraud case is India’s biggest ever. They face life in prison.

A new board was appointed, consisting of Kiran Karnik, the former head of technology group Nasscom; Deepak Parekh, who is in charge of the Housing Development Finance Corporation; and C Achuthan, previously from the Securities and Exchange Board of India.

“The board’s first priority would clearly be to restore the company’s credibility, customer confidence and employee morale,” noted Corporate Affairs Minister Prem Chand Gupta.

“Such a board will provide the necessary vision, along with responsible and accountable leadership to the company in this hour of crisis.”

“I think it’s a first good move towards restoring client confidence,” said Sudin Apte, analyst from research group Forrester. But we still have a long way to go. We still have to see how quickly the reality of this scandal comes out in the world.”

This will certainly put a damper on the Indian IT industry and its reputation, as well as the accounting and auditing procedures used. Ernst & Young is taking over the Satyam books from PWC, for what that’s worth. Many felt India was largely immune or at least protected from global financial shocks, but when they originate in India it’s another story.

Thousands of university graduates had been promised jobs in Satyam, and the existing 53,000 worldwide have uncertain futures.

But now, many American and European companies will undoubtedly lose trust in Indian IT firms. IT outsourcing and various types of FDI are likely to slow even more than they already have been amid existing financial turmoil.

Fears of similar fraud festering in other firms exist. The Financial Times wrote, “Its disclosure will ring alarm bells for hundreds of Fortune 500 companies across the world that entrust their most critical data and computer systems to Indian outsourcing companies and threatens to damage the country’s reputation as a place to do business.”

Source :  EconomyWatch.com

US Economy: Automaker and Porn Bailout

Car makers are going through a government-sponsored rescue plan. They aren’t the only ones asking for help – porn moguls are trying to cash in too.

The US automotive industry has long been plagued with problems. These problems have been exacerbated by the recent financial meltdown resulting in a bleak future for American car manufacturers.

UK Economy: RBS Losses at Record High

Royal Bank of Scotland announced it would report losses before write-downs of £7 to £8 billion for 2008. This has caused its shares to sink 67%.

Furthermore, it will report losses of assets related to its 2007 ABN Amro acquisition of nearly £20 billion. This beats even Vodafone’s record losses of £15 billion in 2006. Jobs will be lost as well, according to the bank.

India Economy: 2009 Forecast

2008 started out well enough with growth figures approaching 10%. However, with the massive financial troubles which began towards the end of 2008, 2009 does not look quite as good. The Asian Development Bank (ADB) has projected growth of a mere 6.5%. Previously, it had forecast 7%, down from another earlier estimate of 7.4%.

US lawmakers ask Ex-Im to suspend aid to RIL over Iran ties

 A group of US Congressmen have asked the country’s Export-Import Bank to suspend $900 million worth assistance to Reliance Ind, until the Mukesh Ambani-led Indian conglomerate stops business with Iran. 
In a statement issued here, Congressman Brad Sherman said that he along with a “bipartisan group of House colleagues” have sent… letter to the Ex-Im president calling on the bank to suspend assistance for RIL, until it agrees to stop selling gasoline to Iran. 

The letter also calls on Ex-Im to do a better job in the future to ensure that the projects it supports are not in conflict with US national interests. 

Ex-Im has approved two separate loan guarantees worth $900 million, including a $400 million package in August, 2008. 

Reliance has been a major supplier of refined petroleum products to Iran. According to some reports, Reliance has at times provided as much as 30 per cent of oil-rich Iran’s need for imported refined petroleum products. 

Ex-Im’s assistance was approved to help finance the expansion of Reliance’s refining complex at Jamnagar, the very facility that provides Iran with gasoline. 

Reliance’s subsidiary RPL is set to fully commission its 580,000 barrels per day only-for-exports refinery at Jamnagar by March and along with its existing 660,000 barrels per day facility would become the world’s largest single location refinery. 

“I very much support the Export-Import Bank’s mission of supporting US exports. However, we must ensure that when we provide assistance, the corporate recipients are not doing business with our enemies,” said Congressman Brad Sherman. 

Iran imports about 40 per cent of its gasoline. “We could greatly increase our leverage against Tehran in the dispute over its nuclear programme by encouraging those supplying them with gasoline to halt their trade with Iran,” Sherman said Sherman’s letter follows another sent by Senators Lieberman and Kyl in early November. The Lieberman-Kyl letter raised similar concerns about Ex-Im projects. 
Ex-Im’s response to that letter failed to address the critical shortcomings in the approval process for these loans. 

Sherman and his House colleagues are calling on Ex-Im to conduct a more robust investigation of the companies it assists, and to do a better job coordinating with the State Department and other foreign policy agencies to ensure that the assistance provided is in accord with our vital national security concerns.

Source: Economic Times

No cheer for existing home loan borrowers

Existing borrowers will not benefit from the special home loan schemes to be unveiled by state-owned banks as part of the government’s  stimulus package. The reduced loan rates will only be applicable to fresh home purchases. The scheme is likely to be announced by the Indian Bank Association (IBA) on Monday.

Market Await Policy Cues To Tide Over Slowdown

With shrinking industrial production (IIP) numbers for November intensifying fears of a sharper economic slowdown in India, investors are awaiting suitable policy responses. There is an anticipation of second tranche of fiscal sops from the government and additional interest rate cuts by the central bank. 
In addition to domestic triggers, investors will keep a close watch on the extent of rate cuts in the US, comments on the interest rate outlook by the Federal Reserve on Tuesday and a likely bailout package for the troubled automobile giants. The Fed is expected to cut the benchmark rates by 50 basis points to 0.5% as part of its attempts to revive consumer spending. 

Analysts said the US is unlikely to allow auto giants, including General Motors and Ford, to fail as this will have severe implications on an already-sagging economy. The resurgence of the US is considered to be critical for most emerging markets, including India as it consumes roughly 15% of the world’s exports.  Back home, analysts believe that any measures taken by the government and RBI to protect India from a global recession will assuage nervous investor sentiment only temporarily. There will be no immediate impact on India’s weakening economy. 
“While the government’s fiscal stimulus package and monetary measures are positive, they are unlikely to reverse the slowdown in growth and the downside risk appears to be increasing,” said Citigroup economists Rohini Malkani and Anushka Shah in a report. 
With the market already rebounding 10% off its low and the uncertain investment climate, brokers are advising clients against purchasing aggressively. However, they do not rule out more upsides. 

“The risk-reward ratio is certainly not favourable at the moment. We are advising clients to take it slow,” said an official at brokerage Sharekhan. The markets may correct another 20% from current levels, going by the general perception. 

Credit Suisse expects the Sensex to revisit 9,000 “again and again ahead of the elections in 1H09E (first half of 2009)”. It ended at 9,370.87 on Friday. 

“In 2H09E, the market could rebound sharply if the general elections end with a conclusive result and a reformist government. Otherwise, the Sensex could remain at the bottom-of-range valuations, trading around 9,000 for a while more, as consensus expectations continue to contract,” the investment bank added

Source: Economic Times

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