Saturday, April 18, 2015
Sunday, April 12, 2015
By Barry Grey
11 April 2015
The International Monetary Fund warned Wednesday that the world economy would remain locked in a pattern of slow growth, high unemployment and high debt for a prolonged period. The forecast, contained in the organization’s updated World Economic Outlook (WEO), marks a shift from previous economic projections in acknowledging that there is little prospect of a return to the growth levels that prevailed prior to the 2008 Wall Street crash.
Parts of the semi-annual WEO were released ahead of the report’s formal issuance this coming Tuesday. The publication of the economic update is timed to coincide with next weekend’s spring meetings of the IMF and World Bank in Washington.
The document’s grim analysis amounts to a tacit acknowledgement that the crisis ushered in nearly seven years ago by the financial meltdown is of a historical and fundamental character, and that the underlying problems in the global capitalist system have not been resolved.
The report focuses on a sharp and persistent decline in productive business investment, particularly in the advanced economies of North America, Europe and Asia, and concludes that “potential growth in advanced economies is likely to remain below pre-crisis rates, while it is expected to decrease further in emerging market economies in the medium term.”
The report adds, “These findings imply that living standards may expand more slowly in the future. In addition, fiscal sustainability will be more difficult to maintain as the tax base will grow more slowly.”
While pointing to a number of factors behind the global slowdown, including an aging population in the advanced economies and declining productivity rates, the IMF overlooks the colossal role of financial parasitism in diverting resources from the productive forces—including, above all, the international working class.
This omission is all the more glaring in light of this week’s developments. European stock markets hit record highs, Asian markets soared, and three mega-merger deals were announced, including two totaling $100 billion in a single day.
These examples of wealth-creation for the corporate-financial elite, entirely divorced from and at the expense of productive investment, illustrate the manner in which the world’s capitalist governments and central banks are financing a bonanza for the rich and super-rich, while the real economy remains mired in slump and the living standards of the vast majority of the planet’s people are driven down.
Speaking Thursday before the Atlantic Council, a Washington DC international affairs think tank, IMF Managing Director Christine Lagarde said, “Six months ago, I warned about the risk of a ‘new mediocre’—low growth for a long time. Today, we must prevent that new mediocre from becoming the ‘new reality.’”
She pointed to “what I have called the ‘low-low, high-high’ scenario: the risk of low growth-low inflation, and high debt-high unemployment persisting for a number of advanced economies.”
Lagarde warned that subnormal growth increased the risks of a new financial breakdown. “This means that liquidity can evaporate quickly if everyone rushes for the exit at the same time—which could, for example, make for a bumpy ride when the Federal Reserve begins to raise short-term rates.”
She also noted that 2015 would likely mark the fourth consecutive year of below-average trade growth.
Her prescriptions for accelerating growth by increasing demand and productive investment were tailored to the interests of big business and hostile to those of the working class. She stressed the need for “structural reforms” in labor markets—a euphemism for stripping workers of whatever job protections remain in place—and removing energy subsidies in oil-importing emerging economies.
The IMF report and Lagarde’s statements echo the warning issued last week in a Financial Times column by Lawrence Summers, Harvard economics professor and former US treasury secretary. Alluding to the concurrence of ultra-low interest rates, soaring stock markets and underlying deflation in the real economy, Summers wrote:
“We may be headed into a world where capital is abundant and deflationary pressures are substantial. Demand could be in short supply for some time. In no big industrialized country do markets expect real interest rates to be much above zero in 2020 or inflation targets to be achieved."
In the World Economic Outlook, the IMF predicts that, in the advanced economies, growth in “potential output,” i.e., output consistent with stable inflation, will average 1.6 percent a year between 2015 and 2020, much lower than the average growth rates before the 2008 crash, when potential output expanded at 2.25 percent.
The IMF forecasts an even sharper decline in growth in emerging markets such as China, India, Brazil and Russia, with potential output overall set to fall from 6.5 percent a year between 2008 and 2014, to 5.2 percent over the next five years.
Alluding to the depth and scope of the current crisis, the document states: “Unlike previous financial crises, the global financial crisis is associated not only with a reduction in the level of potential output, but also with a reduction in its growth rate… Shortly after the crisis hit in September 2008, economic activity collapsed, and more than six years after the crisis, growth is still weaker than was expected before the crisis.”
In a chapter entitled “Private Investment: What’s the Holdup?,” the document explains that business investment in the advanced economies declined, on average, by 20 percent during the six years after the onset of the financial crisis, twice the average decline of 10 percent during the six years following historical recessions.
It really is no mystery why productive investment has fallen so sharply in the current crisis. Reflecting the immense decay of capitalism as a whole, and, in particular, American capitalism, the corporations have hoarded the trillions they accumulated by slashing jobs and cutting wages and benefits on the one hand, and speculating with the virtually free cash from the central banks and profiting from the inflation of stock prices on the other.
Instead of investing this money in production, they have used it for parasitic purposes such as stock buybacks and mergers and acquisitions. These activities create no real value, but they add to the fortunes of the financial elite. Corporate buyouts, in fact, shrink the productive forces by consolidating facilities and slashing jobs.
This explosion of parasitism was in full swing this week as European stocks climbed to new records, and Japan’s Nikkei index topped 20,000 for the first time in 15 years on Friday, before falling back to 19,907.
The Stoxx Europe 600 index rose 4.49 points Thursday to close at 409.15, surpassing the previous peak of 405.50 reached at the height of the dot-com boom in March 2000. The benchmark index is up more than 19 percent so far this year.
Germany’s DAX index, which hit a record earlier this year, is up 24 percent so far in 2015. Major indexes in France and Italy have recorded gains of more than 20 percent.
In Asia, Japan’s Nikkei has risen 14 percent and Hong Kong’s Hang Seng has climbed 14 percent.
On Wednesday, meanwhile, Royal Dutch Shell confirmed it had agreed to buy Britain’s BG Group for some $70 billion in the biggest deal in the energy sector in more than a decade. This takeover is expected to usher in further mergers and consolidations in the oil and gas industry, resulting in thousands of job cuts.
The same day, Mylan, one of the biggest generic drug groups, announced a bid to buy Perrigo, a maker of cough medicine and allergy remedies, for $28.9 billion. Already, in the first three months of 2015, the total value of health industry deals surpassed $95 billion, a 70 percent increase from the same period a year ago. The day before, the Dutch package delivery company TNT Express agreed to be bought by FedEx for $4.8 billion.
The value of all takeovers announced thus far in 2015 is more than $1 trillion. At the current pace, the volume of mergers and acquisitions for the full year will exceed $3.7 trillion, making it the second biggest year in history after 2007—the year before the financial crash.
Wall Street bankers are raking in millions from these deals. On Wednesday alone, Goldman Sachs helped organize the Shell-BG and Mylan-Perrigo deals, totaling $100 billion. The bank could pocket over $50 million from the Shell takeover alone.
Wednesday, April 8, 2015
BRPSE (Board for Reconstruction of Public Sector Enterprises) is the body meant for advising the Government on reviving the sick PSUs. Modi Government is now planning to abolish it and establish a new body in its place. This is what the Minister for Heavy Industries Sri Anant Gite has told on 7.4.2015. What for? As per the news paper reports, the move is meant for clearing the way for the Government to pursue option of disinvesting most of the 65 sick PSUs. Thus instead of exploring the possibilities of reviving sick industries, the Government will try to disinvest them. Modi Government is so anxious to get rid of the PSUs somehow!
Friday, April 3, 2015
Communications Minister Mr.Ravishankar Prasad, it is not enough to blame Manmohan Singh Government for the BSNL’s losses, your Government has to prove its sincerity by taking suitable measures for saving BSNL
On 2.4.2015, in an interview given to PTI, the Communications Minister Shri Ravishankar Prasad has stated,” This issue has always baffled me. BSNSL was in Rs 10000 crore profit when Mr (Atal Bihari) Vajpayee left the office. It reported about Rs 9000 crore loss under Dr Manmohan Singh. Which were the forces that were keen to ensure that BSNL runs in loss, same with MTNL”. He is questioning as if he does not know the causes for the losses to BSNL. This is nothing but pretending innocence. In fact, is it not the Government of Sri Atal Bihari Vajpayee which laid the foundation for the losses to BSNL?
When BSNL was being formed in the year 2000, several intellectuals as well as telecom unions told that the formation of BSNL would lead to losses to it. But ignoring all this, the Vajpayee Government converted telecom services under DoT into BSNL on 1.10.2000. At the time of formation of BSNL, it was assured to compensate BSNL for the losses faced by it on rural land line losses. The Prime Minister Mr. Vajpayee had constituted a GoM (Group of Ministers) and the GoM has assured the following:
“Financial viability: (i) Bharat Sanchar Nigam Ltd would be duly compensated for discharging obligations in regard to rural telephony or any other uneconomic service in accordance with any Government directive for implementation of NTP-99. (ii) GoM has further assured that under no circumstances Bharat Sanchar Nigam Ltd would be allowed to become non-viable as this would be a potential instrument in the hands of the Government for achieving its NTP-99 objectives”
The above assurance was mentioned in the Cabinet Note submitted by the GoM on 25.9.2000 for the approval of the Cabinet. But within two days, this assurance was diluted and the Cabinet approved the following: “Government will consider and provide a package of measures so that the viability of BSNL is not impaired because of implementation of any socially desirable uneconomic activity, such as rural telephony, undertaken by BSNL at the behest of Government.”
It is to be noted that while the Cabinet note prepared by the GoM assured to compensate the loss of BSNL on rural landlines without mentioning any ceiling on how long such compensation would be paid, the Cabinet approval is only for a limited package applicable for a limited period for compensating BSNL’s losses on rural landlines. Accordingly the Vajpayee Government at first approved for reimbursement of license fee and spectrum charges to BSNL only until 2002-03. It later extended it for one more year till 2003-04. It limited the moratorium on payment of principal and interest on loan taken by BSNL at the time of its formation ( it was only a notional loan written in the books of BSNL without actually paying to it) until March 2005 only. The UPA Government extended the reimbursement of license fee and spectrum charge to BSNL for one more year, till 2005-06, of course, with a reduced rate. Thus it is the Vajpayee Government which laid the foundation for the losses to BSNL by limiting the assurance of compensation to BSNL for its losses on land lines to a package applicable for a few years.
BSNL’s losses on its rural landlines, on an average, were Rs 8000 crore per year since 2001-02to 2013-14.At this rate, The total loss for this period was estimated to be around Rs 1,04,000 crores. But the compensation paid to BSNL under various heads for the losses incurred by it on rural landlines was Rs 41370 crores only. It is only 40% of its loss. While thus refusing the full compensation justified for BSNL, the Vajpayee Government had showered unjustifiable benefits on the private telecom operators. It extended their license period from 10 years to 20 years and allowed them to pay their license fee as a small share of their revenue annually, instead of paying at one go their total license fee, as per the tender condition. The value of these unfair concessions given to private operators was Rs 43000 crore, as per the reply given by the UPA Government in the Parliament. Therefore the policy of the Vajpayee Government for limiting the compensation to BSNL for its continuous losses on its landlines to a package applicable for a limited period is the cause for creating losses to BSNL subsequently.
The Manmohan Singh Government had continued the same policy of Vajpayee and restricted the compensation to BSNL until 2006-07 only and thereafter, stopped it. Besides, during the tenure of the Manmohan Singh Government, no GSM equipment could be procured by BSNL during the period 2008 to 20132 due to the ill motivated cancellation of the equipment tenders and as a result, BSNL suffered in mobile services market. The Manmohan Singh Government has collected Rs 18500 crore from BSNL in 2010 in the name of 3G and BWA spectrum in an unjustified manner and depleted its cash reserves. Thus, the losses to BSNL are due to the anti BSNL policies of Vajpayee and Manmohan Singh Governments. Therefore it is a bluff on the part of the present Communications Minister Ravishankar Prasad to absove Vajpayee Government from the sin of making BSNL a loss making undertaking.
Modi Government, in which Mr.Ravishankar Prasad is the Communications Minister, has been intensifying the very same liberalization-privatization-globalization policies of Mr. Manmohan Singh’s Government. Modi Government is devotedly immersed in serving the Corporates and the rich and for this purpose attacking the PSUs, the people’s welfare and the working class rights more and more.
If Mr. Ravishankar Prasad is really serious for reviving BSNL, he should clarify the stand of the Modi Government in which he is a minister, on the following issues:
- The Manmohan Singh Government decided in February 2012 for refunding Rs 6724 crores to BSNL for the BWA spectrum returned by it in 6 circles. But Modi Government, instead of refunding the entire amount in one go immediately, has allotted Rs 100 crores in the budget of 2014-15 and Rs 830 crore in the budget of 2015-16. Why the amount is not being paid entirely and why it is allotting such small amounts in the budget thus proposing to take at least one decade for its refund? What you, as a Communications Minister, have done for seeing that this refund of the entire amount of Rs 6724 crore is paid to BSNL immediately?
- As per the recommendations of the TRAI, Rs 1250 crore are to be paid to BSNL from the USO fund to support it for the losses it incurred on its rural landlines during the year 2012-13. Why your Governemnt is not paying this due amount to BSNL?
- Why your Government is not coming forward to see that BSNL gets the required loan with nominal interest for investing in the expansion of its net work? Why the Government is reluctant to give guarantee to the bank for this loan to BSNL? When your Government is showering concessions upon concessions to the Corporates and the rich and issuing ordinances upon ordinances to take away land from the farmers without their consent, for the benefit of the Corporates, is not coming forward to stand as a surety for the BSNL to get a soft loan?
Therefore the foundation for the losses to BSNL was laid down by the policies of the Vajpayee Government and those policies were further implemented by Manmohan Singh Government resulting in losses to BSNL. If the Minister Mr.Ravishankar Prasad thinks that his Government is different from that of Manmohan Singh’s Government, it should pay the above said amounts of Rs 6724 crores and Rs 1250 crores to BSNL and should see that BSNL gets the soft loan required for expanding and upgrading its network.