Editorial | Articles about Cambodia | Khmer
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Until 2008, Cambodia's construction industry saw some spectacular growth rates however the global recession has highlighted the country's susceptibility to external risks and the lack of support provided by its poor business environment. We estimate that the construction sector shrank 5.8% in 2009 and will contract a further 2.1% in 2010.
Growth is expected to return from 2011 onward; however, rates will be significantly lower than the 19% year-on-year (y-o-y) growth seen in 2008. Average growth from 2010 to 2014 will be 6.7% y-o-y taking the industry value to just under US$1bn.
Project financing has started to trickle back into the country with a number of projects announced at the start of 2010. China has a strong interest in Cambodian ventures. One of the largest Chinese power companies, Huadian Corp., signed an agreement for the construction of a US$558mn hydropower plant in January 2010. This follows an engineering, procurement and construction (EPC) contract the company signed with Cambodia Energy in December 2009, for the construction of two coal-fired power plants in Cambodia.
In terms of its business environment Cambodia remains seriously disadvantaged compared with its regional peers. Widespread corruption and a lack of regulatory enforcement hamper project development at all stages and provide downside risk for investors. Overall Cambodia scores only 27 for its business environment placing it last in our ratings for the Asia Pacific region. Similarly in terms of project financing the country faces issues; however, strong growth rates resulting from Cambodia weak base position ensure that investment continues to appear higher in ratings.
The country's immediate development path is far from simple with many obstacles to overcome before the country becomes a secure investment environment. However, closer links to regional neighbours, in particular China, are likely to drive movement towards an improved regulatory system. Cambodia's aim of joining the Association of Southeast Asian Nations (ASEAN)-China free trade agreement in 2015, will drive further improvements.
Labels: Economic, Global Market
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President Bush, right, smiles during the G20 ministerial meeting at the International Monetary Fund Saturday, Oct. 11, 2008 in Washington. From left, Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and Bush. (AP Photo/Evan Vucci) (Evan Vucci - AP)
U.S. Forces Nine Major Banks To Accept Partial Nationalization
Dow Soars 11 Percent; Biggest Point Gain Ever
By David Cho, Neil Irwin and Peter Whoriskey
Washington Post Staff Writers
Tuesday, October 14, 2008; Page A01
The U.S. government is dramatically escalating its response to the financial crisis by planning to invest $250 billion in the country's banks, forcing nine of the largest to accept a Treasury stake in what amounts to a partial nationalization.
News that European governments also planned to take stakes in their banks and anticipation of new U.S. measures unleashed a tremendous surge in U.S. stock prices yesterday, with the Dow Jones industrial average soaring to the biggest percentage gain since the 1930s, up 11.1 percent. It ended 936.42 points higher, the largest point gain ever, just days after the Dow had its steepest weekly decline in history.
The Treasury Department's decision to take equity stakes in banks represents a significant reversal, coming just weeks after Treasury Secretary Henry M. Paulson Jr. had opposed the idea. In a momentous meeting yesterday afternoon in Washington, Paulson, flanked by top financial regulators, told the executives of nine leading banks that they needed to participate in the program for the good of the national economy, two industry sources said on condition of anonymity because they were not authorized to speak publicly.
The government's initiative, which was to be announced this morning before the markets open for New York trading, is part of a wider plan that goes beyond the $700 billion rescue package approved by Congress earlier this month. The Federal Deposit Insurance Corp. is also set to announce today the launch of an insurance fund to guarantee new issues of bank debt. It will provide unlimited deposit insurance for non-interest-bearing accounts, which are widely used by small businesses for payroll and other purposes.
In pressing the bank executives to accept partial government ownership, Paulson's message was clear: Though officially the program was voluntary, the banks had little choice in the matter. In exchange for giving the Treasury minority stakes, the nine firms would jointly receive an investment worth $125 billion. The government would make another $125 billion available for the next 30 days to thousands of other banks and thrifts across the country.
Federal officials set conditions, telling the banks they could not raise their dividends without government permission and could not offer their executives new retirement packages, though the old packages would remain intact.
Paulson told them the moves would shore up confidence in their own institutions, spark lending throughout the system and send a message to smaller institutions that there is no stigma in accepting federal funding. Though some were reluctant, all of the executives complied.
There is a risk that banks will take the new government capital and use it to bolster their balance sheets but still not resume lending, and the Treasury is not getting any specific contractual guarantee to prevent that from happening. But bank regulators, particularly the Federal Reserve, will lean heavily on the firms receiving infusions to use the capital to increase their lending to businesses and consumers.
Taken together, the steps planned by the Treasury, the FDIC and the Federal Reserve amount to a monumental effort to jump-start the business of lending, which all but dried up in recent weeks as banks have lost faith in one another and their customers. Global markets began to melt down. Some emerging nations teetered on the brink of financial collapse.
Over the weekend, global leaders agreed in meetings in Washington to launch a coordinated program of injecting cash into the world's banks and guaranteeing their debt. The action by U.S. officials yesterday represented the U.S. version of those broad principles, and it was matched by similar efforts in Europe yesterday.
As part of the effort to flood the financial system with cash, the Federal Reserve made unlimited funds available early yesterday to other major central banks so they could inject money into banks in their countries and ease the shortage of dollars they face. Previously, the Fed's program of lending dollars to the European Central Bank, Bank of England, Bank of Japan and others had been capped at a total of $380 billion.
Under the rescue legislation signed into law earlier this month, the Treasury is allowed to take equity stakes in banks.
During debates on Capitol Hill, Paulson repeatedly described that measure as a way to shore up ailing financial institutions by buying their troubled mortgage securities and other assets.
Now that he has decided to use the $250 billion installment to pump capital directly into the banking system, he is planning to immediately ask Congress for a second installment of $100 billion to buy or insure the assets from institutions, according to congressional staff and banking industry executives briefed on the plan.
"When I was talking to members of Congress back then, they believed they were voting to buy up troubled assets, not to make capital infusions in banks," said Alan Blinder, a Princeton economist and a former Fed vice chairman. "If I were a member of Congress, I would be wondering about bait and switch because that was not really discussed."
Among the first to push the idea of injecting money into banks in exchange for an equity stake was Rep. Spencer Bachus (R-Ala.), who proposed the idea at a Sept. 18 night meeting on Capitol Hill that included legislators as well as Paulson and Federal Reserve Chairman Ben S. Bernanke.
After Paulson described his plan for the Treasury to buy up mortgage backed securities, Bachus suggested there were certainly other ways to address the crisis. "There has to be alternatives," he recalled telling the group, in an account that is consistent with accounts of others who were present at the meeting. "Why not inject capital into the institutions?"
At the meeting, Rep. Barney Frank (D-Mass.) and Sen. Jack Reed (D-R.I.) expressed support for the idea, according to people at the meeting.
But Treasury officials "said this is a crisis and that there was no time," Bachus said. Paulson "was very fearful that if we didn't do something immediately, we were going to see terrible things happen."
He said he thought that Paulson had acted with "integrity" but that "I do believe they had this one plan, and they were saying 'This is it.' "
Bachus answered the objection by saying that the government could take a non-voting stake in the institutions. But opponents in the meeting, including Treasury, were unmoved.
"I do think there were some ideological predisposition against capital injections," Sen. Charles E. Schumer (D-N.Y.) said of the meeting. Also, "their view was that it would take too long because you'd have to do it on a bank-by-bank basis."
Yesterday, few lawmakers took issue with the plan to recapitalize banks. But key Democrats argued that strict executive compensation limits should apply to any institution that accepts government money.
"Restrictions on executive compensation will ensure that taxpayer money is not wasted enriching the same people whose poor decision-making created this crisis," Schumer wrote in a letter to Paulson yesterday. "It is imperative that these restrictions, including limitations on the incentives for executives to take excessive risks and the elimination of golden parachutes, should apply to any capital injection program."
The new insurance program that will be launched by the FDIC to insure non-interest-bearing accounts is aimed mainly at small businesses, which tend to keep the largest balances in bank accounts and therefore are particularly likely to withdraw money if they believe their bank is having financial problems. Because banks are barred by law from paying interest on business accounts, the new guarantee will basically encompass all such accounts.
The extended guarantee matches similar guarantees by European countries, easing a concern that businesses would move money to overseas accounts. But the move also raises questions again about whether the FDIC will have enough money to meet its growing obligations as banks continue to fail.
The FDIC's bank debt guarantee would be open to newly issued bonds and other forms of debt that are issued before June of next year. The government's guarantee would last three years.
Earlier yesterday, while speaking to international bankers, Neel Kashkari, who is temporarily overseeing the government's $700 billion rescue package, laid out some details of the Treasury's efforts on that plan and acknowledged the need to move quickly. Kashkari, who was appointed interim assistant Treasury secretary for financial stability last week, said that key appointments, including a "prime contractor" company to oversee and run the purchase of troubled assets from banks, will be announced as early as today. It has also received "hundreds" of applications from firms seeking to become asset managers for the securities that Treasury will purchase. Other officials added that the department has hired law firm Simpson Thacher & Bartlett and investment consultants Ennis Knupp & Associates to help with the selection of contractors for the program.
Kashkari said the Treasury will be clarifying conflicts of interests among any firms that it hires because "firms with the relevant financial expertise may also hold assets that become eligible for sale."
Staff writers Binyamin Appelbaum, Zachary A. Goldfarb and Lori Montgomery contributed to this report. Labels: Economic, Global Economy, Global Market
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Friday, Oct. 10, 2008
Can the G-7 Save the World from Financial Chaos?
By Massimo Calabresi / Washington and Bill Saporito / New York
It may be too much to ask the G-7, which normally reserves its energy for pointless but massively expensive annual summits in deluxe resorts like Heiligendamm, Germany or Sea Island, Georgia, to take dramatic steps to address the financial crisis that is sweeping the world. But we should at least expect that the seven most powerful national economies would not make things worse at a moment of global need. Or should we?
The world's economists have been nearly unanimous in saying that only a coordinated, worldwide effort can stem the current credit crunch and companion market meltdown. Their proposed solutions include: cut interest rates, recapitalize the banks and insure deposits; get governments to step in and guarantee short term interbank lending. "The first good thing about this situation is that it does not call for different central banks and Treasuries to do different things, but rather for them all to do the same thing in unison without fouling each other's oars. That should be relatively easy to arrange," wrote University of California Berkeley professor J. Bradford DeLong in a new e-book about the crisis.
Maybe. The G-7 Finance Ministers and central bankers met in Washington this afternoon and issued what they called a plan of action, although it was a curiously action-free plan. In fact, the document they produced was only an opaque statement of principles, devoid of action. "We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth," the statement said. No specifics were mentioned. They may be over the weekend, away from the glare of global stock markets.
U.S. officials were quick to back the non-action plan. "Behind the principles are an expectation of action, just not a detailed plan for action," said one White House official. President Bush himself tried to put a positive face on things in a statement on the economy Friday morning but all he could manage was to argue that through the international meetings, "the world is sending an unmistakable signal: We're in this together, and we'll come through this together."
Global stock markets were sending an unmistakable signal, too. Panic. The Dow Jones Industrial Average finished its worst week ever, off about 22%. On Friday the market swung wildly, dropping 500 points on three occasions, then vaulting into positive territory before coughing up its gains in the last half hour of trading to finish the day down 128 at 8451. The Nasdaq even managed a small gain. But European and Asian markets were pummeled again.
The danger is that the G-7, always fractious and inclined to inaction, may be unable to agree on what moves to make. Worse, it's not just the G-7 that's in the spotlight. The other pillars of 20th century international financial stability are meeting this weekend in Washington, and expectations for action by the International Monetary Fund, the World Bank and the G-20 are also low. The less the international organizations seem likely to do, the louder the cry for help becomes. "This is a financial crisis that is global and needs a global response," says Prof. Helge Berger, of the Freie Universitat in Berlin, "Piecemeal won't work."
What should the G-7 and the other international institutions do?
There's absolute agreement that banks have to be recapitalized. Britain for one has already done so, offering its big banks $692 billion in capital in return for preference shares. U.S. Treasury Secretary Henry Paulson announced this evening that the U.S. is working on a plan to go this route, saying that it intends to use some of the $700 billion rescue package passed by Congress to pour money (with some strings attached) into any bank that needs funds. But Japan and EU countries like Germany have been reticent.
To get credit markets moving again, economists have called for governments to guarantee short term interbank loans. "Recapitalization by itself won't fix the interbank lending market," says Roger Craine another UC Berkley professor and a former Federal Reserve economist. The big problem now is that banks are unwilling to let go of their money because of counterparty risk — the fear that the borrower may go under, sticking the bank with the loss. "If the bank you lend to has assets in a hedge fund that goes under then they are likely to go under," explains Craine. A coordinated interbank debt guarantee by governments would temper that fear of lending. There's a moral hazard here, too, in that a guarantee might also tempt banks to get too risky again, but most experts say that hazard can be handled by forcing them to put up some of their own capital as margin. At the same time, depositors need to be assured that their money is safe. That's why the FDIC moved to temporarily raise the insurance limit on savings accounts to $250,000 from $100,000. Ireland and England have also made similar guarantees.
There's also a role for the world's lender of last resort, the IMF. The IMF, say economists, should step up and publish details of a ready-to-use financial help package for any countries that may be in danger of going the way of Iceland, which was unable to bolster over-leveraged banks that fail. Panicked trading Friday in Eastern Europe raised concerns that some emerging economies there could be in trouble. The IMF should set aside many of the more stringent conditions it has imposed on borrowers in the past to encourage countries to draw on its assets.
Lastly, the G-20 central banks need to unveil another coordinated rate cut to increase liquidity. The European Central Bank, for instance, has been resistant to cuts because it focuses on inflation. Nouriel Roubini, an economics professor at New York University and one of the few who predicted the extent of the current crisis, called yesterday for "at least 150 basis points (1.5 percentage points) on average globally." Roubini also backed the idea of deposit guarantees, guaranteeing interbank lending and other measures. "At this point anything short of these radical and coordinated actions may lead to a market crash, a global systemic financial meltdown and to a global depression."
Roubini has been particularly apocalyptic, but given how things have gone in the world economy over the last few weeks it's worth listening to this prophet of doom. Maybe things aren't as dire as he says. But maybe only the prospect of global catastrophe can compel world leaders to act forcefully, while we still have some money left.
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http://www.time.com/time/business/article/0,8599,1849385,00.htmlLabels: Global Economy, Global Market
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October 10, 2008, 6:45 pm
Paulson: ‘Aggressive’ Global Effort Planned; U.S. to Take Bank Stakes
U.S. Treasury Secretary Paulson said he and his Group of Seven counterparts had agreed to an “aggressive” plan to deal with a financial turmoil that has quickly ballooned into a “global event.” While the U.S. has come up with its own bank rescue plan, Paulson said other countries are considering options appropriate to their own situations. The $700 billion U.S. rescue plan will be used not only to buy and insure mortgage assets, but to buy equity in financial institutions, he said. “We are working to develop a standardized program that is open to a broad array of financial institutions,” Paulson said. Here is the text of his statment:
Statement by Secretary Henry M. Paulson, Jr. Following Meeting of the G-7 Finance Ministers and Central Bank Governors
Washington, DC– At today’s meeting of the G-7 Finance Ministers and Central Bank Governors, we finalized an aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions. This action plan provides a coherent framework that will direct our individual and collective policy steps to provide liquidity to markets, strengthen financial institutions, protect savers, and enforce investor protections.
The G-7 is compelled to robust international partnership and cooperation. Never has it been more essential to find collective solutions to ensure stable and efficient financial markets and restore the health of the world economy.
Global financial market conditions are severely strained. In the United States, our economy has been facing a prolonged period of uncertainty and our financial markets are experiencing unprecedented and extraordinary challenges. A root cause of this situation is the housing correction and a lack of confidence in mortgage assets, as well as a lack of confidence in many of the financial institutions that hold these assets. We are squarely focused on the immediate need to stabilize our financial markets, and recognize that investor confidence is critical to restore liquidity and enhance the stability of our financial system.
As recent developments have demonstrated, the market turmoil is a global event. Governments around the world have taken actions to address financial market developments, and international cooperation and coordination has been robust. It is critical for governments to continue to take individual and collective actions to provide much-needed liquidity, strengthen financial institutions, enhance market stability, and develop a comprehensive regulatory response. We must continue to closely coordinate our actions and work within a common framework so that the action of one country does not come at the expense of others or the stability of the system as a whole.
Central banks from around the world have acted together to provide additional liquidity for financial institutions, taking the necessary steps to support the global economy. The Federal Reserve has established swap lines with nine central banks to reduce pressures in global short-term U.S. dollar markets. Additionally, the U.S. Treasury implemented a temporary guaranty program for the U.S. money market mutual fund industry.
Here in the United States, the members of the President’s Working Group on Financial Markets (PWG) made it clear that we will coordinate the use of our existing and new authorities to restore market confidence. Other countries are considering appropriate programs given their national circumstances, and we pledge to stay in close contact as they move forward with their plans.
I briefed my colleagues on the work we are pursuing to implement swiftly and thoughtfully the new financial rescue package. We are developing strategies to use the authority to purchase and insure mortgage assets and to purchase equity in financial institutions, as deemed necessary to promote financial market stability. As we develop plans to purchase equity, as in the approach we are taking to broad mortgage asset purchases, we are working to develop a standardized program that is open to a broad array of financial institutions. Such a program would be designed to encourage the raising of new private capital to complement public capital. Consistent with the legislation, any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market standard terms to protect our rights as investors.
Securities regulators around the world have taken measures to enhance market stability by addressing market abuse. Here in the United States, we have taken steps to protect the savings of the American people by increasing deposit insurance limits, and the European Union member states have raised individual deposit limits to an EU-wide minimum.
The G-7 and others are working together through the Financial Stability Forum (FSF) to ensure a comprehensive, international regulatory response to the financial market turmoil. FSF Chairman Mario Draghi reported to us on the good progress that has been made in improving prudential supervision and regulation, increasing disclosure and transparency, and enhancing accounting frameworks. I am committed to making sure this work continues. We are also committed to tackling the next steps laid out by Chairman Draghi to be done by the end of this year and our ambitious agenda for 2009.Labels: Global Economy, Global Market
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