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World Bank sees Afghan economic growth tumbling 10 percent in 2013

World Bank sees Afghan economic growth tumbling 10 percent in 2013 | The Corliss Group | Scoop.it
KABUL (Reuters) - Afghan economic growth, largely reliant on international aid and security spending, will tumble more than 10 percent this year as foreign troops withdraw and endemic corruption and violence...
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(Reuters) - Afghan economic growth, largely reliant on international aid and security spending, will tumble more than 10 percent this year as foreign troops withdraw and endemic corruption and violence sap development, the World Bank said. Afghanistan ranks among the most corrupt nations in the world and international aid donors have threatened to cut funds unless there is a crackdown. Norway has already announced a reduction in its planned aid over Kabul's failure to tackle graft and violence against women. President Hamid Karzai's government also faces a deteriorating security situation ahead of elections next April that is hindering plans to develop Afghan natural resources, the World Bank said in its South Asia Economic Focus report. "Afghanistan sticks out in terms of the size of its slowdown... mainly driven by increased uncertainty stemming from the political and security transition," the report said. "Continued violence, economic crime and systemic corruption also have undermined progress." Economic growth is expected to reach 3.1 percent this year and 3.5 percent in 2014, down sharply from 14.4 percent in 2012, the report said. In a major blow to Afghan hopes for economic independence, Chinese investors have demanded a review of a landmark three billion dollar deal to produce copper amid security concerns. A smaller but symbolically important oil project in northern Afghanistan has also ground to a halt. The government's failure to improve tax collection is also a major factor behind the weakening economy, the World Bank said. At a donors' conference in Tokyo last year, the Karzai government promised to increase tax revenues by about five percent to 15 percent of national output by 2016. "The current decline in revenue therefore poses risks not only to long-term fiscal sustainability but also to the achievement of the Tokyo... targets," the report said. Delegates from 80 nations and international organisations pledged in Tokyo 16 billion dollars in aid over four years, but tied the funding to a much stronger effort to combat corruption. Another threat to growth is a deteriorating outlook for agriculture, a key sector which accounts for a quarter of the Afghan economy and which benefited from an especially strong harvest last year. Most foreign forces are due to withdraw from Afghanistan by the end of 2014, leaving security entirely in the hands of Afghan forces. Rising casualties among the Afghan forces and a high desertion rate have cast doubt over their ability to manage on their own.
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The Corliss Group on US meltdown over China

The Corliss Group on US meltdown over China | The Corliss Group | Scoop.it
But observers believe Beijing could use its massive foreign reserves to save financial system if shadow banking activity spirals out of control
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But observers believe Beijing could use its massive foreign reserves to save financial system if shadow banking activity spirals out of control..

 

Parallels between the United States and China have started to look more ominous after several years of rampant credit growth and the emergence of an increasingly uncontrollable and unsustainable shadow banking system.

 

China's massive foreign reserves could, however, be the last tool in the bag for its bank-centric financial system if no timely regulations are implemented.

 

With the memory of the collapse of Lehman Brothers in 2008 still fresh, investors are fretting over the growth of thinly regulated shadow banking activity. Trusts, entrusted loans and bank acceptance bills shot up sharply to a record 294 billion yuan (HK$370 billion) last month.

 

According to Moody's Analytics, China's core shadow banking products, which are often opaque and subject to little or no regulation, almost doubled to 20.5 trillion yuan last year from 11.7 trillion yuan in 2010. The US firm excludes entrusted loans and trust loans as they own underlying assets.

 

Late last year, a wealth management product (WMP) sold by a Shanghai branch of Huaxia Bank caused a stir when dozens of investors were informed that Zhongding Wealth Investment Centre, the borrower, would default on repayment.

 

The scandal prompted the banking regulator to increase its scrutiny of WMPs and order banks to refrain from issuing similar products.

 

"A key systemic risk is the growth in shadow banking and the role of state-owned enterprises [SOEs] and local governments," Andrew Sheng, the former chairman of Hong Kong's Securities and Futures Commission, told the South China Morning Post.

 

He said an important first step to address this was the recent move to identify the debt of all government agencies, including SOEs and local governments, paving the way for cleaning up core shadow banking products, the issuers of which take deposits and put the money in risky but low-yielding investments.

Sheng, who is now the chief adviser to the China Banking Regulatory Commission, said the host of banking regulations to address the problems of too-big-to-fail institutions were necessary but not sufficient conditions for global financial stability.

 

Sharp rises in irrational lending, together with years of prosperity in the property market, laid the foundation for the US financial crisis in 2008, which serves as a mirror for China's policymakers to learn from the mistakes made by their US counterparts.

 

Sheng believes there will always be failures in a large system of banks, in which small failures can prevent big ones.

 

China's credit situation is somewhat different, though, as it has a high saving rate and massive foreign reserves.

 

Mervyn Davies, a former head of Standard Chartered and British government minister, said: "China is very rich in reserves … At the end of the day, the [Chinese] banks do need recapitalising, which is not a huge challenge to them because the government can recapitalise the banks."

 

Davies is now the vice-chairman and a partner of Corsair Capital, a US private equity firm.

 

Echoing Davies' view, Hang Seng Bank's executive director Andrew Fung said: "Underlying assets of shadow banking on the mainland are very different from US subprime assets. It is more liquidity risk rather than credit risk. I do not see the risk of a big bank failure in China."

 

In October, Xiao Gang, then chairman of Bank of China and now chairman of the China Securities Regulatory Commission, wrote: "Regular banking and shadow banking are not isolated from each other. Many activities in the two systems feed into each other and could influence each other if things start to deteriorate."

 

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Beatriz Nikolai's comment, September 15, 2013 3:22 AM
I read all of your articles all the time. keep up the good work, I especially like reading articles about economy.