Showing posts with label GDP. Show all posts
Showing posts with label GDP. Show all posts

Saturday, February 9, 2013

VENEZUELA: RECESSION

Chávez’ inadequate macroeconomic and exchange rate policies have worsened the ongoing recession. He needs to get back to the drawing board if he wants to prevent Venezuela from a disaster. by Manish k Pandey
 
It’s not as if the Venezuelan Central Bank doesn’t realise the magnitude of the government’s fiscal troubles. In fact, with regards to fiscal condition, Banco Central de Venezuela has already submitted a report to Congress which clearly mentions that Venezuela’s fiscal deficit has already reached a 10-year high of 5.4% of GDP (2009), up sharply from 2.2% in the previous year. But it seems as if the Chávez administration has been sleeping over it as it continues with its policy of heavy public spending. In fact, it’s interesting to note that though the fiscal spending has reached 26.8% of GDP in 2009 (up from 26.2% in 2008), capital spending has actually fallen in 2009. This makes the situation further difficult for the policymakers who are already struggling to tame the galloping inflation which is all set to cross the 40% mark in 2010 (Royal Bank of Scotland estimate).

Further, a sharp decline in oil revenues is continuously widening the budget gap. Government oil revenues have already fallen as a share of GDP from 12.3% in 2008 to just 7.6% in 2009. But then, that’s a small problem, once the oil price in international market moves up, the revenues are likely to increase. What is more worrisome is that it’s the royalty revenues (For starters: Decline in royalty revenues reflects a sharp contraction in output) which have seen a major fall during this period, from 9% of GDP to just 5.1%. This points towards intensifying operational problems, and a lack of investment. In fact, oil production has already contracted by 10.2% in Q4 2009, which means a serious dent in revenue flow for the Venezuelan economy.

Though Venezuela’s international reserves – which despite higher oil price have fallen by about 20% since the end of 2009 and were at $28.97 billion on April 9, 2010, the lowest level in over a year – remain at a still-comfortable level (reserves currently cover about 10 months of imports, a relatively good ratio compared with other developing nations), yet the decline in reserves, if prolonged (a more likely phenomenon), can be really dangerous. Since Venezuela has limited access to international markets, a sharp drop in reserves could even lead to an external debt default. Moreover, such a scenario would certainly prompt a new devaluation of the bolivar extending stagflation. No doubt, as a counter step, Chávez has reopened Venezuela’s bond market which he had shut down on May 19, 2010, but how far will that help in controlling the situation is still a big question. Through the new system (which gives government full control of the exchange rate as companies will now necessarily have to buy dollar-denominated bonds rather than conducting direct sales of bolívars for foreign currency) Chávez plans to prevent the speculative trading that fuels inflation, but then the move only follows the trend of Chávez’ Leftist recession-fighting policies such as nationalisation of industries, controls on prices, et al, which have been a major reason for the outflow of capital from the country. In fact, critics feel the new system will actually increase inflation by another 5%.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Wednesday, November 28, 2012

WAR DOCTRINE: POST COLD WAR AND ADVENT OF LOW INTENSITY CONFLICT

Low Intensity Conflict and the shift from mass destruction to precision-strikes are changing paradigms

 The last decade of the twentieth century had a lasting impact on how the war doctrines would undergo a structural shift. First, the disintegration of the Soviet Union vindicated the fact that the secured existence of a nation cannot be guaranteed by the mere presence of a huge arsenal of weapon systems unless the economy is strong enough. Strangely enough, for forty long years, the US planned the demise of the USSR, but when that happened in reality, not a single bullet was fired. USSR was crippled by its own weight and for diverting critical economic resources for war preparedness, which took the economy into coma. It was from that time onwards that countries started keeping an eye on what proportion of their GDP goes into defence spending and that it doesn’t cross certain limits. On the other hand, countries like China, in their quest to increase the defence expenditure to fuel their global expansions, kept aside all their inhibitions with respect to economic globalisation and made sure that they became the key hub for global industrial production. They realised that it was only through this they can pile up their forex reserves and GDP for fuelling their defence spending. More GDP would mean more earnings from taxes, which then could be diverted for defence spending. Today, if USA is a superpower and if India and China are increasingly becoming forces to reckon with, it’s not just because of their growing military might but because of their increasing ability to compliment it with economic clout.

The two Gulf Wars and NATO crusades over Serbia with respect to the Kosovo issue reminded the world that the German concept of Blitzkrieg and US concept of ‘Shock and Awe’ have not lost their prominence till date. It also vindicated that war from now on would be decided on quality and not on quantity. The Iraqi Army was quantitatively far superior to the western force but was no match to the sophistication of US’s arsenal. So when the Tomahawk missiles were launched in hundreds from the US warships stationed in Persian Gulf and Red Sea followed by aerial bombings by the B-52, the B-1 and B-2 bombers, Iraqi forces were pulverised and almost defeated with their fleets of tanks and missiles of Russian vintage being of no match. The remaining work was finished by the ground invasion along with close air support from the Apache Attach Helicopters and A-10 Thunderbolt gunships. Even in the case of Kosovo war, US literally decimated Serbia with aerial bombing for 75 days. And that was good enough to make Serbia President Milosevic surrender. Truly so, blitzkrieg and ‘Shock and Awe’ was alive and thriving.


Source : IIPM Editorial, 2012.

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Friday, August 10, 2012

RAMAN SINGH, CM, CHHATTISGARH

“We have delivered on our promises”

Chattisgarh Chief Minister Raman Singh spells out his political and social vision to Anil Dwivedi

You have been adjudged the fourth best CM in the country. How do you perceive this commendation?

It feels good when your work is recognized. The biggest recognition of course has come from the people who have given me the chance to rule again. The challenge is to keep that momentum and match the expectations of people. We are aware of that and doing our best. The proof is this award. Such assessments of chief ministers should be done on a regular basis to keep them on their toes.

The state is ranked second in the list of best governed small states. Will this journey continue?

We have spent six long decades of adversity post independence. But I can happily add that in the last few years the state has shown progress that is worth feeling proud about. We are on top of the list in several indicators. The per capita income, which was Rs. 10,000 at the turn of the century, has gone up to Rs. 29,000 now. The GDP has grown by 18.61%, the highest in the country. Apart from cement, the state is on the way to become the largest producer of steel, aluminum and energy. Our next plan is to start a Metro project. It will ease the traffic in the between Raipur-Durg-Bilaspur section. But this requires meticulous planning. As far as expenditure is concerned, that can be arranged through other sources. But this is not for the first time that we have taken up such a big project. We have laid the country’s biggest power transmission line.

What has your government done for the downtrodden?

Our priority has been farmers and economically downtrodden and our plans have always been made keeping them in mind. Farmers constitute a majority of the state’s populace. They have been fighting with adversities for years. We procured the rice on MSP and gave them bonus on that. This year, we are planning to dispense a bonus of Rs. 200 crore. We are also giving agriculture loan to the tune of Rs. 1300 crore on the paltry interest rate of 3%. We have installed 1,60,000 irrigation pumps, and have distributed agriculture equipment besides providing free electricity to farmers.


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