"Finance World Special" BRICS to look at bid for top World Bank job

The world's major emerging economies rejected the tradition that an American automatically is selected to head the World Bank and they will look at putting forward their own candidate for the open job.

Finance chiefs from the BRICS group of emerging market powerhouses - Brazil, Russia, India, China and South Africa - met on the sidelines of a G20 meeting in Mexico City and agreed the top World Bank job should be open to all countries. "Candidates should be based on merit and not on nationality," Brazilian Finance Minister Guido Mantega told reporters. Another BRICS official said the group will discuss the possibility of putting up their own candidate to challenge whoever the U.S. government nominates. "Certainly it is a discussion we will have." Countries have until March 23 to submit names for the top post and a decision is likely by April meetings of the World Bank and International Monetary Fund. Americans have held the top job since the World Bank was set up at the end of the Second World War but the unwritten rule has in recent years faced more resistance, along with the tradition that a European heads the International Monetary Fund, as emerging economies gain more economic clout. "It is time we break the traditions of the U.S. and Europe sharing the two seats and amongst all of us we must try harder this time to find some consensus," said Pravin Gordhan, South Africa's finance minister. Robert Zoellick, the current World Bank president, plans to step down at the end of June after deciding against seeking a second five-year term. The United States has said it will nominate a replacement candidate but has not yet said who it will be. Possible candidates are thought to include former U.S. treasury secretary Lawrence Summers, current Secretary of State Hillary Clinton, and Susan Rice, the U.S. ambassador to the United Nations. The State Department has said Clinton would not be taking the job. The World Bank is the leading provider of development aid to poorer countries and its president is one of the world's top policymakers. "They can put forward their candidate," Gordhan said, referring to the United States. "But rather than it becoming a destructive exercise, it should be a constructive process so that we attempt to build consensus on who the candidate should be. It is idealistic but let's give it a shot."

"Eurozone Special" Bond markets wary as Greece offers debt deal

GREECE has announced plans to slash its outstanding debts by more than 50 per cent, even as a top credit rating agency warned that aspects of the deal could further destabilise Europe's government bond markets.

In what the International Monetary Fund has called the largest debt restructuring ever, the Greek Finance Ministry posted its offer to investors on a website set up to manage it. Under the terms of the deal, existing Greek bonds can be swapped for a new 30-year note worth 31.5 per cent of the face value, plus a second short-term security worth another 15 per cent that is backed by the entire euro zone and is meant to be as good as cash. Greek officials hope private investors will choose to accept a steep write-down in the value of their bond holdings to avoid even worse losses if the country were to default. If enough investors participate, the exercise would reduce the country's outstanding debts by as much as €107 billion ($134 billion) and help clear the way for a €130 billion package of new loans from the rest of Europe and the IMF. If the bond exchange falls short, the new international loans will be in doubt and Greece's economic crisis would intensify, with a government default likely by late next month. About 90 per cent of Greece's outstanding $260 billion in privately held bonds will need to be included in the bond exchange for the deal to move forward, according to the terms announced by the Greek Finance Ministry. Although the debt swap is meant to be voluntary, Greek MPs in recent days changed the law to require that any holdout investors be forced to participate if a majority of investors, representing two-thirds of the outstanding bonds, agrees to the exchange. The debt swap has been negotiated in recent weeks between Greek authorities and a committee representing banks, pension funds and other large investors who hold the bulk of the outstanding debts. Charles Dallara, managing director of the Institute of International Finance and a lead negotiator for the investors, said he was confident the debt swap would succeed. ''We remain quite optimistic that once investors study this proposal.there will be high take-up,'' said Mr Dallara, who is in Mexico this weekend for a round of meetings of G20 finance ministers. Standard & Poor's said Greece's debt exchange could harm other European governments. The deal exempts from losses some $80 billion in bonds accumulated by the European Central Bank early in the crisis. S&P argued that has created a new class of bond that in turn could discourage investors from buying the bonds of countries such as Italy or Spain.

New York-based Citi sold a total of 145.3 million shares of HDFC at Rs 657.56 apiece through multiple block deals

Citigroup Inc, the third largest lender by assets in the US,sold its entire 9.85 per cent stake in the country’s biggest housing finance company, Housing Development Finance Corporation (HDFC), for Rs 9,550 crore ($1.9 billion). The exit was meant to help the US bank shore up its balance sheet to meet the tighter Basel III requirements. According to a release, Citi made a pre-tax gain of $1.1 billion (Rs 5,490 crore) and an after-tax gain of approximately $722 million (Rs 3,550 crore).

“The after-tax gain reflects Citi's tax liability to the US government,” said a Citi spokesperson. The New York-based Citi sold a total of 145.3 million shares of HDFC at Rs 657.56 apiece through multiple block deals. “The sale of Citi’s remaining stake in HDFC is part of Citi’s ongoing capital planning efforts,” the bank said in a statement. HDFC shares closed 3.62 per cent lower at Rs 675.9 on the National Stock Exchange (NSE) on Friday. The stock fell to as low as Rs 657.5 intra-day. The transaction was at a six per cent discount to HDFC's closing price on Thursday, when Citi announced its exit plan. It had invited bids in the range of Rs 630-703.5 a share and received twice the demand than the shares of offer, according to brokers. The HDFC stock had gained 7.6 per cent this year, underperforming the benchmark Sensex (which has added 17 per cent). Citi, which was the largest foreign investor in HDFC, had first invested in 2005 but a significant portion was acquired when it bought Standard Life’s 9.3 per cent stake in HDFC for $673 million in 2006. “We are pleased with the results of our investment in HDFC,” Citi India CEO Pramit Jhaveri said in a release. In June 2011, Citi had pared its stake in HDFC from 11.4 per cent to 9.85 per cent. Besides Citi, private equity firm Carlyle had sold about 20 million shares in HDFC on February 1, raising about Rs 1,350 crore and nearly doubling the money from its 2007 investment in the lender. In the past few weeks, global financial institutions, including Singapore’s sovereign fund Temasek Holdings, have sold stakes in Indian financial firms. Warburg Pincus had sold about 17.5 million shares in Kotak Mahindra Bank this month through open market deals to raise about $170 million.

"Indian Budget 2012 Special": Exporters unlikely to get tax incentives

With the government hard pressed to reduce fiscal deficit, exporters are unlikely to get tax incentives in the Budget for 2012-13 to be presented by finance minister Pranab Mukherjee next month. "Finance ministry's fiscal room for manoeuvre has gone. They are in a tight fiscal situation, who is going to give you sops," a senior commerce ministry official said. In order to arrest deceleration in export growth, the Federation of Indian Export Organisations (Fieo) has urged the government to give complete exemption of excise duty on handmade carpets, reduction of excise duty on man-made fibres and service tax exemption on ECGC premium and on currency conversion for exports. The exporters are also demanding exemption of minimum alternative tax on special economic zones, key exporting hubs. From a peak of 82 per cent in July 2011, export growth has slipped to 44.25 per cent in August 2011, 36.36 per cent in September 2011, 10.8 per cent in October last year and 10.1 per cent in January.

Mukherjee, according to the official, may not provide tax incentives as his foremost priority would be to bridge the fiscal deficit, which is the gap between revenue and expenditure. During the current year, the fiscal deficit is expected to exceed the budget target of 4.6 per cent of the Gross Domestic Product (GDP), mainly on account of rising subsidy bill and poor realisation from sale of equity in state-owned companies. Commerce secretary Rahul Khullar has recently said that the country's exports are going to face difficulties during the coming months due to the global economic uncertainties. However, exporters too are not optimistic about announcement of fiscal incentives in the Budget. "Looking at the current revenue situation of the government, we are not expecting much in the Budget. It is not possible for the Finance Minister to extend fiscal benefits to us," Fieo Director General Ajay Sahai said. In the last Budget, the government had allowed exporters to do self-as customs authorities, a moved aimed at fastening the clearance of the cargo by customs authorities. The finance minister also allowed duty-free import of some inputs used in the manufacture of leather and textile products for export purpose.

Inflation and the Adoption of Financial Technology

Since the mid-1960's, computerized technology has been continuously changing payment systems world-wide. However, the level of technological sophistication in the banking sector, and the timing of the new computerized Financial technologies implementation, significantly differ across countries. Some of the observed cross-country variation can be traced to differences in the countries wealth. To examine the relationship between financial technology, wealth and the rate of inflation among countries with similar inflation histories, wealthier ones tend to have larger ATM networks. However, when wealth alone is used to predict the level of a country's technological sophistication in the financial sector, the results indicate that other factors, such as inflation, must be involved. For example, countries that have experienced hyperinflation, such as Turkey, have implemented more ATMs than their wealth per capita would predict while countries such as Saudi Arabia that have experienced long periods of deflation have purchased fewer ATMs, and at much later date, than would have been predicted by their wealth. In fact,demonstrates, both inflation and per capital income are significant predictors of the number of ATMs per 1000 persons in a country.

Inflation and its Positive and Negative effects.

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions),and encouraging investment in non-monetary capital projects. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.

Today, most economists favor a low, steady rate of inflation.Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy.The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements

Capital Rationing

The act of placing restrictions on the amount of new investments or projects undertaken by a company. This is accomplished by imposing a higher cost of capital for investment consideration or by setting a ceiling on the specific sections of the budget. Companies may want to implement capital rationing in situations where past returns of investment were lower than expected. For example, suppose ABC Corp. has a cost of capital of 10% but that the company has undertaken too many projects, many of which are incomplete. This causes the company's actual return on investment to drop well below the 10% level. As a result, management decides to place a cap on the number of new projects by raising the cost of capital for these new projects to 15%. Starting fewer new projects would give the company more time and resources to complete existing projects.

Capital rationing is technique which is used with capital budgeting techniques. Capital rationing technique is used when company has limited fund for investing in profitable investment proposals. In other words Capital rationing is a strategy employed by companies to make investments based on the current relevant circumstances of the company. For example, Company fixes his priority to invest his money in more profitable projects. Suppose a company has $ 1 million dollar and after using the Profitability index technique of capital budgeting company found that three projects of $ 600000, $ 300000 and $ 400000 are profitable out of seven projects but if company has limited cash of $ 1 million only. With this money, company can use capital rationing technique. Under this technique, if company sees that First and third proposal’s profitability index is high than second, then they will select only two projects combination out of three projects. Read also second example of capital rationing.