Bhutto Death Makes Investors Jittery

sharon sanders · Dec 27, 2007

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'</script>What Bhutto's Death Changes

<script type="text/javascript" charset="utf-8"> new Draggable('emailConfirmation', {zindex:1000}</script>by Pranay Gupte

Dec 27 2007
 Assassination unnerves foreign investors and imperils an economic boom.
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Photograph by: John Moore/Getty Images

With the assassination of former prime minister Benazir Bhutto, the political and economic landscape of Pakistan has changed dramatically.

Benazir Bhutto was killed today at an election rally in the garrison city of Rawalpindi . The BBC reports that 15 others were killed by gunshots and an explosion in what appeared to be a suicide attack. News of her death dragged down global stock markets and sparked a wave of buying of United States Treasury securities, a traditional safe haven. Crude oil futures rose above $97 a barrel.

Despite the increasing violence and political unrest in the country, Pakistan's economy has so far thrived, growing at an average annual rate of 7 percent for nearly a decade. The stock markets in Karachi and Lahore have risen 1,000 percent since 1999.

But the economy is also in need of additional investment from the United States and Europe that had appeared to depend largely on the outcome of the election in January. Foreign investors have been cautious since President Musharraf declared a state of emergency in November. Afterward, Shaukat Aziz, a former Citigroup executive who was the architect of Pakistan's economic recovery, resigned as prime minister, in an apparent private protest.

The United States—which buys nearly 25 percent of Pakistan's exports of textiles and agricultural products—has been particularly eager to see signs that Pakistan is moving toward a more democratic and more transparent system. The assassination today throws that outlook in doubt.

"Pakistan's economy has performed remarkably better than would be expected in a political crisis," said Anwer Sher, a Pakistani banker and real-estate consultant, based in Dubai, where Bhutto maintained a home and where her three children still live with their father, businessman Asif Zardari, as does her mother Nusrat. "This can partially be explained on grounds that the civil disturbances have not been crippling and, largely, that the economic sector does see that, either way, an election in January and the settling of tensions domestically and with India will eventually happen.

"But now everything has been thrown off balance," he added. "Until the situation settles down, investors are going to be skittish, if not downright reluctant to pour more money into an economy that suddenly plunged into a political crisis of this dimension."

Bhutto's murder is the fourth time that a member of her family was killed. Her father, former prime minister Zulfikar Ali Bhutto, was hanged by President Zia ul-Haq in April 1979. (General ul-Haq was himself killed when a plane in which he was riding with several diplomats, including the U.S. ambassador, was mysteriously blown up.) The next year, Benazir's brother Shahnawaz, was murdered in still unexplained circumstances in France. And in 1996, another brother, Mir Murtaza, was also murdered.

There was no certainty that Bhutto's Pakistan People's Party would have won the parliamentary elections next month, and quite possibly made her prime minister for the third time in two decades.

But foreign investors, particularly ones from the United States whom she had assiduously cultivated in her seven years of exile, seemed inclined to support the view that her political ascendancy would have meant opening up more sectors of Pakistan's economy to foreign investment.

These sectors included agribusiness, textiles, and manufacturing - sectors that lent themselves for badly needed job creation in a country of nearly 170 million mostly poor people, and one where the unemployment rate is touching 10 percent.

One leading investor based in Dubai said today that he had been assured that Pakistan's economy would become a "model of free enterprise" if Bhutto regained political power.

"Benazir did not think that there was an inherent contradiction between Pakistan being constitutionally an Islamic state but one which promoted laissez-faire economics," said the investor, who is a native of the United Arab Emirates. "On the contrary, she felt that the Islamic theocracy would welcome the creation of more jobs for the restless youth of Pakistan. Benazir felt that poverty wasn't ennobling, and that even the mullahs had to worry about how their followers would obtain a gainful livelihood. She felt that nation building couldn't occur by harboring religious resentments. As much as their Muslim faith, Pakistanis needed jobs."

Bhutto's assassination follows disclosures that Pakistan's ruling regime diverted much of the $5 billion provided by the United States to combat Al Qaeda and the Taliban to weapons systems designed to counter neighboring India.

Indeed, both Bhutto and her husband have previously been accused of illegally taking more than $1 billion in commissions from foreign defense suppliers, including Dassault of France. The couple denied the accusations, but criminal charges were filed against them nevertheless, and her husband, spent several years in a Pakistani prison.

Bhutto's own economic views went through a significant metamorphosis during the eight years that she spent in political exile. Earlier, she was a staunch backer of a strong military budget, one that was primarily aimed at developing weapons systems aimed at India, also a nuclear power like Pakistan.

What is surprising is that despite the escalating arms race in the Subcontinent, the economies of both countries have been performing remarkably well. India's abandonment of socialism and its embracing of more market-oriented policies—with increased investment from American companies in the manufacturing sector and the equity markets—have resulted in average annual economic-growth rates of between 7 and 9 percent for the last seven years. But Pakistan hasn't been far behind.

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sharon sanders · Dec 27, 2007

Re: Bhutto Death Makes Investors Jittery

Asian Stocks Drop Most in Two Weeks; Toyota Leads Declines
By Hanny Wan and Kotaro Tsunetomi

Dec. 28 (Bloomberg) -- Asian stocks fell after Pakistan's former Prime Minister Benazir Bhutto was assassinated and government reports in the U.S. and Japan added to concern growth is slowing in the world's two biggest economies.
Toyota Motor Co. fell the most in a month and Samsung Electronics Co. slid after U.S. orders for durable goods rose less than forecast. Yamada Denki Co., Japan's largest consumer electronics retailer, retreated after the nation's inflation accelerated and household spending fell.
Mitsubishi UFJ Financial Group Inc. led a drop among banks after Goldman, Sachs & Co. said the biggest U.S. financial institutions may have additional writedowns linked to the collapse of the subprime-mortgage market.
``This is a dark end to the year,'' said Daisuke Shimazu, an investment manager at Sumitomo Trust Banking Co. in Tokyo, which has about $200 billion in assets. ``The market can't shake the subprime problem, so investors have to be cautious.''
The MSCI Asia Pacific Index lost 0.7 percent to 155.90 as of 11:51 a.m. in Tokyo, its steepest decline since Dec. 17 and adding to a 3.8 percent drop this quarter. The measure has risen 11 percent this year, on course for its worst annual gain in five years. All of the gauge's 10 industry groups declined today.
The Nikkei 225 Stock Average lost 1.7 percent to 15,307.78, the biggest decline among Asian benchmarks, which all dropped. Today is the last trading day of the year in Japan and the Tokyo Stock Exchange closed after the morning session.
U.S. stocks fell the most in a week yesterday, pushing the Standard & Poor's 500 Index down 1.4 percent.
Bhutto was killed in an election-rally attack in Rawalpindi in Pakistan last night, threatening the stability of a nuclear- armed nation that is a focal point of the West's war on terror.
`Creates Uncertainty'
``The assassination may be having an impact on today's market because it creates uncertainty,'' said Hiromichi Tsuyukubo, who helps manage about $800 million at Myojo Asset Management Japan Co. in Tokyo.
The Bank of New York Mellon India American Depositary Receipts index, which tracks U.S.-listed shares of Indian companies, slumped 4.4 percent. All 14 Indian ADRs tracked by the Bank of New York index traded lower.
Toyota slid 2 percent to 6,040 yen, extending its drop this year to 24 percent. Sony Corp., the maker of the PlayStation 3 game console, slid 2.2 percent to 6,200 yen. Samsung Electronics Co., South Korea's biggest exporter, lost 1.8 percent to 560,000 won.
Orders for cars, aircraft and other items made to last several years rose 0.1 percent in November, compared with a median forecast of 2 percent in a Bloomberg survey of economists, as companies cut spending on capital goods. Separate figures from the Labor Department showed jobless claims unexpectedly rose last week.
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net

Last Updated: December 27, 2007 22:22 EST

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sharon sanders · Dec 27, 2007

Re: Bhutto Death Makes Investors Jittery

Japan Inflation Quickens to 0.4%, Fastest Since 1998 (Update1)
By Mayumi Otsuma

Dec. 28 (Bloomberg) -- Japan's inflation rose at the fastest pace in more than nine years in November and industrial production and household spending declined, signaling rising oil costs may derail the economy's longest postwar expansion.
Core consumer prices, which exclude fresh food, climbed 0.4 percent from a year earlier, the statistics bureau said today in Tokyo. Factory output slid 1.6 percent from a month earlier. Households cut spending 0.6 percent, the first drop since July.
Wages fell and employment prospects worsened as job seekers outnumbered vacancies for the first time in two years, the Labor Ministry said. Faster inflation isn't likely to prompt the Bank of Japan to raise interest rates after it cut its economic assessment last week for the first time in three years.
``Japan's economy is entering into a new phase of accelerating inflation and slowing growth,'' said Susumu Kato, chief economist at Calyon Securities in Tokyo. ``The bank will probably keep rates on hold in the next two to three quarters.''
The jobs-to-applicants ratio fell to 0.99 in November from 1.02 in October, the Labor Ministry said. Wages slid 0.2 percent from a year earlier. Pay has only risen in one month this year.
The yield on Japan's 10-year bond fell 4.5 basis points to 1.5 percent at 11.15 a.m. in Tokyo. The yen traded at 113.54 per dollar from 113.80 before the figures were published.
Core consumer prices rose faster than the 0.3 percent median estimate of 36 economists surveyed by Bloomberg News. Gasoline and kerosene contributed three-quarters of the gain, which was the quickest since March 1998, when an increase in the country's sales tax pushed the gauge to 1.8 percent.
China, South Korea
Food and oil costs are fanning inflation across Asia. South Korea's consumer prices rose to a three-year high in November and China's inflation was the quickest in 11 years. Singapore's consumer prices rose the most in 25 years.
``The gain was mainly due to rising oil prices and not because of higher wages and consumer demand,'' Mari Iwashita, a strategist at Daiwa Securities SMBC Co. in Tokyo. ``The central bank probably won't raise rates until July at least.''
The central bank has wanted to see stable gains in core prices to back up its view that Japan's borrowing costs are too low and should be raised to avoid excessive investment that may threaten growth. Economic and Fiscal Policy Minister Hiroko Ota said the economy is still trying to shake off deflation.
The inflation that's emerging is ``undesirable'' because it can choke off spending by consumers and companies, Ota told reporters in Tokyo.
Worsening Labor Market
Japan is facing higher inflation at a time when job growth is slowing, a phenomenon it hasn't seen since a recession a decade ago. While prices are rising, wages have fallen an average 0.5 percent this year. Consumers were better equipped to cope in 1997, when incomes rose an average 1.7 percent.
``The economic slowdown since mid-2007 is now causing, after a time lag, deterioration in the labor market,'' said Naoki Murakami, an economist at Goldman Sachs Group Inc. in Tokyo. ``With employment now starting to slow, we see little likelihood of a recovery in consumption.''
Retail sales rose 1.6 percent, the fastest gain in two years, as consumers paid more for gasoline and food, the Trade Ministry said today. Households last month became the most pessimistic they've been in almost four years.
``Drivers can't quit driving just because oil got more expensive,'' said Takahide Arai, a Trade Ministry spokesman.
Tokyo's taxi operators this month increased fares for the first time in a decade. All Nippon Airways Co., Japan's largest domestic airline, last week said it will raise some domestic fares from April 1.
Deflation Fight
J-Oil Mills Inc. said on Dec. 26 it plans to raise margarine prices about 10 percent in March because of higher edible-oil costs. Chuetsu Pulp & Paper Co. said on the same day it will increase copy paper prices for the second time in five months.
Japan's central bank raised the benchmark overnight lending rate in July 2006 after holding it near zero for more than five years to fight deflation. Policy makers doubled the rate to 0.5 percent in February and have kept it on hold since.
Gasoline climbed to a record 155.5 yen a liter on Dec. 10. Retail kerosene surged to the highest ever last week, according to the Tokyo-based Oil Information Center.
Higher oil prices are eating into corporate profits, which fell for the first time in five years last quarter. Last month's drop in factory production came as exports to the U.S., Europe and China all slackened as the effects of the U.S. housing recession and global financial-market turmoil spread.

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sharon sanders · Dec 27, 2007

Re: Bhutto Death Makes Investors Jittery

Yuan Heads for Biggest Weekly Gain Since China Ended Dollar Peg
By Belinda Cao

Dec. 28 (Bloomberg) -- The yuan headed for the biggest weekly gain since China ended its fixed exchange rate in 2005 as strategists said the central bank plans to allow faster appreciation.
The Chinese currency advanced 6.7 percent versus the dollar this year, compared with 3.3 percent in 2006, as policy makers sought to curb inflation and cut a record trade surplus that has strained ties with the U.S. and Europe. Gains in the yuan will help ``lower import costs and curb low-end exports,'' Yao Jingyuan, chief economist of the National Bureau of Statistics, told a seminar in Beijing yesterday.
``Some of the price activity seen in the Chinese currency markets this week suggests that a slight shift in policy may be under way,'' Simon Derrick, the London-based chief currency strategist at Bank of New York Mellon Corp., wrote in a research report yesterday.
The yuan rose by 0.02 percent to 7.3160 per dollar as of 9:46 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency gained 0.74 percent this week, more than three times the average fluctuation in the past three months. It touched 7.3045 per dollar, the strongest since its revaluation in 2005.
China's trade surplus, which surged 52 percent in the 11 months through November to $238.1 billion, has driven foreign- exchange reserves to a record $1.46 trillion, making it difficult for the government to slow growth and tame asset-price inflation.
``With commodity prices on the rise once again over the course of the past two weeks, the incentive for the authorities to get on with the job in hand will also rise as the end of the year approaches,'' Derrick wrote. ``It looks as if the start of 2008 could prove particularly interesting.''
China allows the yuan to fluctuate by 0.5 percent on either side of a target value set by the authorities.

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Bhutto Death Makes Investors Jittery

sharon sanders

Editor-in-Chief & President

sharon sanders

Editor-in-Chief & President

sharon sanders

Editor-in-Chief & President

sharon sanders

Editor-in-Chief & President