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10-17-04, 09:38 PM
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| India to sell its USD reserves India to sell its foreign currency reserves (i.e. USD's) and repatriate the money home to build roads. http://news.ft.com/cms/s/096fc2d8-1ed9-11d9-9015-00000e2511c8.html India in precedent setting infrastructure move By Edward Luce in New Delhi Published: October 15 2004 19:37 | Last updated: October 15 2004 19:37 India is drawing up plans to use some of its almost $120bn of foreign exchange reserves to fund domestic infrastructure projects in a step that has no precedent elsewhere. The plan, which is likely to prove controversial, would help raise badly needed capital to upgrade India's ailing roads, railway and power sectors. India spends just $2bn a year on its road network, compared to $30bn spent in neighbouring China. The new Congress-led coalition, which unexpectedly came to power in May, has made expensive commitments to raise spending on health, education and other social priorities, none of which will provide a direct return to the government unlike infrastructure. Critics of the plan say it would be an inappropriate use of India's foreign exchange reserves and would add to India's already high fiscal deficit, which is roughly 10 per cent of gross domestic product if both central and state deficits are included. But senior officials say India's reserves, which have almost tripled in the past three years, are more than enough to cover any exchange rate shock, amounting to almost 20 months worth of imports. In addition, India's record foreign exchange reserves represent a large “opportunity cost”, they say, since most of the money is invested in low-yielding US Treasury bonds. “We are subsidising the American economy,” said one official. “These are scarce resources that can be put to better use.” Under the plan, India's central bank would issue a bond of between $10bn and $15bn, the proceeds of which would go to a public infrastructure fund, which, in turn, would attract private capital. The resulting inflationary impact would be offset by a reduction in import duties, which is what New Delhi has pledged to do anyway. Montek Singh Ahluwalia, head of India's Planning Commission, said it would be more effective than simply “monetising” the proceeds of a normal government bond and assuming the resulting fall in interest rates would stimulate higher private sector investment in infrastructure. “Infrastructure investment generates a much higher yield than other investments but requires a large public sector component to stimulate activity,” Mr Singh said. “Ultimately it depends on whether you think India needs its foreign reserves to be as high as this.” Critics say it would risk creating “white elephant” projects since the funds would be controlled by the public sector, which has a poor record in India. But Montek Singh, who is the closest adviser to Manmohan Singh, the prime minister, says India's infrastructure needs cannot be fully met by public spending. “It is a question of thinking pragmatically,” says one official. At just over $4bn last year, India attracts a fraction of the foreign direct investment of China. Economists say India needs to drastically upgrade its infrastructure if it is to raise annual growth from 6 per cent to 8 per cent. |
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10-18-04, 05:36 AM
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| Thanks for the info novice. I like to read about all this wheeling and dealing although my mind boggles at the enormity of it all. Keep posting and good trading           |
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10-18-04, 06:39 AM
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| Two possible interpretations: 1 India's new government is returning to its socialist/communist roots thus building roads and social programs. If I have made a mistake re Indian politics my apologies working on the assumption the BJP was right of centre the new government is left of centre. 2 They really don't want to hold USD's. If the second case is true and the next largest developing economy besides China cares not for the USD it is a major development. In particular the support the USD gets from its role as a reserve currency. |
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10-25-04, 06:17 PM
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| More of the same: http://www.minesite.com/storyFull.php?storySeq=160 Minews Story Date: October 25, 2004 Stop Press!!! India Puts The Boot Into US Dollar. No it wasn’t hindsight. Minews was sitting on Eurostar on the way to Paris last weekend when his eye was drawn to a headline in the Pinker than Pink ‘Un which read as follows. “India to dip into forex reserves to build roads.” Looks innocuous enough, but it was the signal long awaited that the US dollar would finally crack. For a long time now India, China, Japan and a number of other countries have been reinvesting the dollars they have been paid for exports in low yielding US Treasury bonds. India has around US$120 billion foreign exchange reserves and most of that is in these bonds which have been depreciating against the euro, pound and yen. The scales have now dropped from their eyes and the Indian government is going to spend a goodly part of this money on roads, rail systems and power stations. Now that one country has come to its senses, others will follow as it dawns that they are simply subsidising the US economy at their own cost by holding these bonds. India’s reserves have tripled in the last three years, and the authorities need to find a way to attract more inward investment. Infrastructure is the key to an improvement in annual growth and the costs of improvement cannot be met out of public spending. One week later and back on home territory Minews scans the Saturday Financial Times. Sure enough the currency column is headlined, “The greenback could be on the edge of a cliff”. During the week the dollar moved out of a trading range against the euro it had maintained since March and fell 1.2 per cent to US$1.2630. This is only a whisker away from the US$1.2930 which was the 7 year low recorded in February. Chartists are already pointing further into the gloom that we have been expecting for some time. The huge US current account deficit is hardly going to disappear with the economy slowing down, and high oil prices will kibosh any imminent recovery. India will not be the only country watching events unfold.. China’s foreign exchange reserves are many times larger and we have pointed out on a number of occasions that it holds the future of the US dollar in the palm of its hand. Nevertheless it needs the greedy US consumer to go on buying its goods, so will have to play its currency reserve cards quite carefully. Gradually the world will awaken to just how far the geo-political axis has moved to the east. Last week we carried a piece by Anthony Hilton of the London Evening Standard predicting that in twenty years’ time the renminbi could have supplanted the US dollar as the world’s reserve currency. As things are going now twenty years could be an over-estimate. Watch out for metals traders giving prices in euros rather than dollars and keep an eye on gold as valued in sterling. These are interesting times and we are in new territory.. |
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10-26-04, 06:44 AM
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| FOREX Reserves India Hi, this is in reply to your query whether this news was mainstream or not. the answer is no. it is not uncommon for the government to use all sorts of mechanisms to fund its working. sometime in the future there will be a meltdown due to excessive spending but till that time the same will continue. the fact that the govt is selling usd is not an indicator of its perception of exchange rates. the money is being spent for the golden quadrilateral project which is to link the major cities of india through expressways (elevated). Now i've only traveled to a few countries but as far as i understand roads are usually built by the government and do NOT indicate the governments socialistic tendency. the govt is running out of money and hence its using some of the pot of money in another account to fund a major project. Less reading into this is required, I would recommend that you talk to people in the countries you study a little more. It makes understanding non american and non european policies a little easier. i'll check back at a couple of times in case you have anyother follow up questions. alternatively the best resource for indian news is businessstandard.com and economictimes.com ks |
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10-26-04, 07:12 AM
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| Quote:
If I replace socialist/communist with statist would that be better? So in your opinion they sold the reserves simply to fund the state? |
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10-26-04, 07:19 AM
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| Venezuela using forex reserves to fund government programs http://www.forbes.com/business/newswire/2004/01/07/rtr1201667.html Chavez threatens Venezuela central bank takeover Reuters, 01.07.04, 2:40 PM ET By Pascal Fletcher CARACAS, Venezuela, Jan 7 (Reuters) - Venezuelan President Hugo Chavez threatened on Wednesday to take over the country's autonomous central bank if it did not agree to his demand to hand over $1 billion in reserves to finance farming projects. The left-wing populist president has waged a noisy two-month public campaign to pressure the Central Bank of Venezuela (BCV) to free the funds for his government, which has clashed with the bank in the past over economic policies. Central bank directors have so far resisted the president's repeated public threats, arguing that the country's laws do not allow them to use international reserves to finance the government's current spending. "Well, we'll see. If the Central Bank of Venezuela has to be taken over, then it will be," Chavez said at a rally in the western oil state of Maracaibo. As he spoke, around 100 of his supporters demonstrated outside central bank headquarters in Caracas to back his demand for the $1 billion handout to finance food production. Chavez said it was "illogical and absurd" that the bank should be holding international reserves of more than $21 billion, while the government was spending millions of dollars to import basic food staples like beans, milk and chicken. He wants to tap the foreign reserves to set up farm cooperatives as part of his self-styled "revolution", and to finance increased food crops in the world's No. 5 oil exporter, which imports around 60 percent of its total consumer needs. "SABOTAGE" Chavez accused his political opponents, who are seeking a referendum this year on whether he should stay in office, of backing the central bank in its refusal to free the funds. Their aim was to "block the country's development, sabotage the government", he said. He has also threatened to appeal to the Supreme Court if the bank does not release the reserves. The pro-Chavez demonstrators in Caracas set off firecrackers and waved banners calling for government intervention in the central bank. They also draped a large banner of Argentine-Cuban revolutionary legend Ernesto "Che" Guevara over the steps of the bank headquarters. Chavez's determined campaign has raised fears that he may try to seize complete control of the central bank. It currently enjoys autonomous status but is bound by the constitution to coordinate economic and fiscal policy with the government. "This money belongs to the people ... the central bank hasn't been helping the country," said Lucy Barquilla, a pro-government farm cooperative leader who took part in the Caracas protest. Political foes of the president, who has ruled for five years after winning a 1998 election, have accused him of accumulating dictatorial powers by seizing political control of key state bodies and economic institutions. They point to his firings of more than 18,000 employees of the state oil firm PDVSA after an anti-government strike in December 2002 and January last year. These firings allowed Chavez's government to completely take over and run the strategic company, which had previously enjoyed a large degree of corporate autonomy. Copyright 2004, Reuters News Service |
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10-29-04, 12:56 AM
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| india forex reserves i didnt take offense, i just wanted to make the point that the congress is the ruling party now and has decided to continue with the infrastructure development plan as was formulated by the last party (BJP) The new prime minister is (finally) well educated and an economist to boot. However the fact that india is using its forex reserves for these projects, indicates two things. 1. Their inability to finance them any other way 2. The feeling that the reserves are higher than they need to be, there is such a thing as too much money for a rainy day! i'm mighty pleased that people keep upto date on indian politics, but it is not possible to understand how politics works (sic) in India when you are based in another country. For now the real estate bubble should be more interesting (USA) cheers, ks |
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