Business News: It's a Great Time to Be Rich

Business News: It's a Great Time to Be Rich

It's a Great Time to Be Rich

Posted: 15 Dec 2010 08:50 PM PST

Heathrow, Frankfurt Face Cancellations, Delays on Snow

Posted: 19 Dec 2010 04:29 AM PST

add to Business Exchange

By Tim Barwell and Anchalee Worrachate

(Updates with Heathrow comment in sixth paragraph.)

Dec. 19 (Bloomberg) -- Air travelers across Europe were grappling with a second day of cancellations and delays as snow and ice played havoc with airports including London’s Heathrow and Frankfurt.

Heathrow said it will manage a “limited number of departures” and won’t accept any arrivals today after being closed for much of yesterday. More than 510 inbound and outbound flights were canceled at Frankfurt today, according to Waltraud Riehemann, a spokeswoman for hub operator Fraport AG.

“While Heathrow’s northern runway remains clear, the change in temperature overnight has led to a significant buildup of ice on parking stands around the planes and this requires the airfield to remain closed until it is safe to move planes around,” the airport said on its website.

The snow blanketing western Europe disrupted holiday travel plans as well as affecting retailers during the last weekend before Christmas.

Roissy-Charles de Gaulle will cancel about a quarter of its flights until 4 p.m. local time today because of snow showers, France’s civil aviation regulator said.

A “handful” of departures will take place from Heathrow’s Terminal 3 and Terminal 5 while teams clear an area nine times larger than London’s Hyde Park, Donna O’Brien, a BAA Airports Ltd. spokeswoman, said today by telephone. The airport expected to process 200,000 inbound and outbound passengers today, she said. Heathrow is posting updates on a Twitter feed.

‘Next Christmas’

“This is the second time in two days that my flight to London has been canceled,” said Henry Abrahamian, 61, a passenger stranded at Vienna airport en route to Los Angeles via London. “I’ll find my way there eventually, maybe for next Christmas.”

London’s Gatwick aims to return to “near-normal capacity” by late this afternoon after 60 departures and arrivals since 6:55 a.m., Sarah Baranowski, a spokeswoman for the airport, said by telephone. The airport has canceled 48 out of a total 708 scheduled flights today, she said.

“Further snow is expected in the south and west” tomorrow, the U.K.’s Met Office said on its website. As much as 15 centimeters (six inches) of snow fell in southwest England yesterday, forcing the closure of Heathrow and Gatwick airports for most of the day.

Deutsche Bahn AG said in an e-mail it expects weather disruptions and an increase in passengers after the halts to cause bottlenecks in the German railway system this afternoon.

Amsterdam’s Schiphol said on its website passengers should be prepared for delays and cancellations.

--With assistance from Karin Matussek in Berlin, Martijn van der Starre in Amsterdam, Francois De Beaupuy in Paris, Grant Smith in London, and Zoe Schneeweiss in Vienna. Editors: Rob Verdonck, Jennifer M. Freedman

To contact the reporters on this story: Tim Barwell in London at tbarwell@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

Dubai Index Gains for Second Day on DIC Debt Deal; Israel Rises

Posted: 19 Dec 2010 03:57 AM PST

add to Business Exchange

By Zahraa Alkhalisi

Dec. 19 (Bloomberg) -- Dubai’s shares rose for a second day as Dubai International Capital LLC, an investment company owned by the emirate’s ruler, reached an agreement with creditors to restructure about $2.5 billion. Abu Dhabi’s benchmark gained.

Arabtec Holding Co., the biggest construction company in the United Arab Emirates, advanced the most since Dec. 7 and Dubai Islamic Bank PJSC, the biggest Shariah-compliant lender in the country, gained the most since Dec. 1. Dubai’s DFM General Index inrcreased as much as 0.9 percent, before closing 0.1 percent higher at 1,641.15 at 2 p.m. in the emirate. Abu Dhabi’s index increased 0.3 percent, the most in more than a week. In Israel, the TA-25 Index added 0.3 percent to 1,309.66 at 1:41 p.m. in Tel Aviv, poised for the highest close on record.

“Positive development over the weekend with the DIC restructuring” pushed stocks higher, said Akram Annous, MENA strategist at Al Mal Capital PSC in Dubai. ’’It’s another resolution of an outstanding issue tied to debt restructuring which needs to be dealt with for the economy to mend.’’

Dubai International said Dec. 17 “headline economic terms have been agreed in principle” with the coordinating committee of lenders representing the company’s creditors to alter terms on the debt. Lenders will get 2 percent interest on $2 billion of loans and extend maturities to six years, the company said. About $500 million of loans will have maturities extended for four years with an unchanged cash interest coupon.

Borse Dubai Sale

Borse Dubai Ltd., the company that controls Dubai’s two stock exchanges, sold shares in Nasdaq OMX Group Inc. to help pay $1.1 billion of a $2.45 billion term-loan. It raised $497 million from the sale of 22.78 million shares to Nasdaq OMX and $175 million from the sale of 8 million Nasdaq OMX shares to Nomura Holdings Inc, the Dubai government’s media office said in an e-mailed statement Dec. 16.

Separately, Abu Dhabi offered $1.5 billion to buy the 20 percent stake in London Stock Exchange Group Plc owned by Borse Dubai, the Sunday Times reported, without saying where it got the information. The three stock exchanges in the U.A.E. may merge as part of the deal, the report said.

“One U.A.E. exchange makes the market more profitable, more unified to outside investors,” said Al Mal’s Annous.

London Stock Exchange spokesman Alastair Fairbrother and a Borse Dubai spokesman declined to comment when contacted by telephone today.

Arabtec jumped 2.6 percent to 2 dirhams. Dubai Islamic gained 1.9 percent to 2.17 dirhams.

Government Bonds

Emaar Properties PJSC, the nation’s biggest property developer, increased 0.6 percent to 3.57 dirhams, the highest since Dec. 14. The company said Dec. 16 it has identified “better and viable” options than converting debt into equity in Amlak Finance PJSC.

Oman’s gauge rose 0.7 percent. The Bloomberg GCC 200 Index of companies in the Persian Gulf was little changed, decreasing less than 0.1 percent. Saudi Arabia’s Tadawul All Share Index and the Kuwait Stock Exchange Index were little changed, also gaining or declining less than 0.1 percent. Markets in Bahrain and Qatar were closed for a holiday.

Egypt’s benchmark EGX 30 Index retreated for a third day, falling 0.4 percent.

In Israel, government bonds rose. The yield on the benchmark 5 percent Mimshal Shiklit due January 2020 dropped 4 basis points to 4.66 percent, the lowest since Dec. 7. The shekel weakened 0.1 percent to 3.593 against the dollar Dec. 17.

--With assistance from David Wainer and Ronit Goodman in Tel Aviv: Editors: Shanthy Nambiar, Claudia Maedler.

To contact the reporters on this story: Zahraa Alkhalisi in Abu Dhabi at zalkhalisi@bloomberg.net;

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

Padoa-Schioppa, Founding Member of ECB Board, Dies

Posted: 19 Dec 2010 02:15 AM PST

add to Business Exchange

By Lorenzo Totaro, Brian Swint and Flavia Krause-Jackson

(Adds company statement from third paragraph.)

Dec. 19 (Bloomberg) -- Tommaso Padoa-Schioppa, architect of the euro currency and founding member of the European Central Bank’s executive board, has died. He was 70.

Padoa-Schioppa died after suffering a heart attack in Rome last night while at a dinner with about 100 people, the newspaper La Repubblica reported on its website.

“Tommaso Padoa-Schioppa was a renowned figure in international finance and politics, and I am honored to say he was a dear friend of mine for decades,” Eugene A. Ludwig, chief executive officer of Promontory Financial Group, said in a statement on the company’s website. “His death is a deep loss to me personally, and will be felt by all those in the international community who shared his commitment to bringing about a more civil and decent world order.”

Padoa-Schioppa, who fought for the single currency as a catalyst for European integration, served on the ECB’s executive board from 1999 until 2005. He was deputy director general of the Bank of Italy for 13 years, during which time he was passed over for the governorship in favor of Antonio Fazio in 1993. He was named finance minister under Italian Prime Minister Romano Prodi in May 2006, a position he kept until the government collapsed in January 2008.

The central banker completed a seven-year term on the ECB board overseeing the euro at the end of May 2005. The only founding board member to serve longer was Chief Economist Otmar Issing.

“Our new currency unites not only economies, but also the people of Europe,” he said in June 1999, six months after the euro’s launch. “The society with these unifying bonds is now the European society, and not only a national society: this, I think, represents a profound change in human history.”

Son of Schoolteacher

Tommaso Padoa-Schioppa was born July 23, 1940, in Belluno, northern Italy. His father, Fabio Padoa-Schioppa, worked in insurance and was a schoolteacher. He studied at the Bocconi University in Milan, where he got a degree in economics in 1966, and at the Massachusetts Institute of Technology. He was fluent in German and English.

He called his family “a cultivated” one in an interview with the Guardian newspaper in 2000. A former artillery officer, he described both his parents as “intellectual.”

“Tommaso was well-liked and a very capable person,” said Richard S. Eckaus, Padoa-Schioppa’s thesis supervisor at MIT, where the Italian was awarded a master’s degree in economics in 1970.

Padoa-Schioppa’s devotion to Europe and the euro was clear even in his jokes. Opening a dinner speech in Frankfurt in October 2004, he said his topic was the “emu,” an abbreviation for Economic and Monetary Union as well as the name of an ostrich-like Australian bird. “Neither,” he said, “can go backwards.”

Single Currency

In 1988, Padoa-Schioppa served as joint secretary to the Delors Committee, called after the then-president of the European Commission, which was formed to investigate how European Union countries could remove all common trade barriers by introducing a single currency. The committee came up with a three-stage plan that was later included in the 1992 Maastricht Treaty that instituted the single currency.

Concerned that countries might retreat from their commitments to the single currency, Padoa-Schioppa developed a timetable for currency conversion that made it harder for member countries to back out of the project.

On the flight to Maastricht, he persuaded Giulio Andreotti, then Italian prime minister, to push for the euro’s initiation in 1999 if a majority of members didn’t agree on a date to start by 1997, according to Matt Marshall in his 1999 book on the euro’s creation called “The Bank.”

Currency Without State

The euro was introduced on Jan. 1, 1999, and was coined “a currency without a state” by Padoa-Schioppa.

“I do not think that a single currency is an event for the last days of the history of mankind that simply crowns perfection,” he said in his testimony before the European Parliament in May 1998. “It is something that has to be in reality while reality evolves.”

Padoa-Schioppa was picked to serve as Italian finance minister at a time when the country’s economy had stalled for two out of five years and the debt burden had ballooned to the largest in the EU. He focused on cutting government spending, often taking low-cost airlines to international meetings.

His efforts to cut spending ensured Italy’s budget deficit fell below the EU limit in 2007 for the first time since 2002. Before him, the annual deficit had widened to 4.3 percent of gross domestic product in 2005, a 10-year high at the time.

The Brussels-based European Commission estimated on Nov. 29 that Italy’s budget deficit will be 4.3 percent of GDP next year, worse than the government’s 3.9 percent forecast.

In 2007, Padoa-Schioppa was named chairman of the International Monetary Fund’s policy advisory committee, a position he maintained even after Prodi’s government collapsed. He was replaced in May 2008 by Egyptian Finance Minister, Youssef Boutros-Ghali.

Promontory Europe, the European unit of the financial- services consulting firm Promontory Financial Group, named Padoa-Schioppa as its chairman in June 2009. Four days ago Fiat Industrial SpA appointed him to the board of the unit being spun off from the carmaker next month.

The Italian national helped Italy, regarded for years as the weakest euro member by investors, curb its deficit. Those skills will aid Greece, which only avoided default after the EU and the IMF forged a bailout worth 110 billion euros ($141 billion).

Padoa-Schioppa’s pro-bono assignment added Greece to a curriculum spanning 37 years of public service, beginning at the Bank of Italy in Rome in 1968 and including stints running the bank’s money-market and economic-research divisions before becoming deputy director general for 13 years from 1984. “I am independent, I don’t have conflicts of interest and I won’t get paid for what I do,” he said about his new position.

--With assistance from Kitty Donaldson in London and Giovanni Salzano in Rome. Editors: Cecile Gutscher, Jennifer Freedman

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net; Brian Swint in London at bswint@bloomberg.net; Flavia Krause-Jackson in Washington at fjackson@bloomberg.net.

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

Iran Cuts Energy Subsidies as Sanctions Take Toll

Posted: 19 Dec 2010 12:49 AM PST

add to Business Exchange

By Ladane Nasseri and Caroline Alexander

(Adds analyst quote in 12th paragraph.)

Dec. 19 (Bloomberg) -- Iran started phasing out energy subsidies and replacing them with cash payments to the poor, under a five-year plan promoted by President Mahmoud Ahmadinejad as an “economic revolution.”

Ahmadinejad said the changes would lead to a better distribution of wealth, state-run Press TV reported today. The price supports totaled about $4,000 a year for a family of four, more than the income of many Iranians, and turned the nation into “one of the most wasteful” for energy consumption, the International Monetary Fund has said. The Central Bank put the cost of the energy subsidies alone at $40 billion to $100 billion a year, depending on oil prices.

The three-decade-old subsidies, which allowed Iranians to buy gasoline recently at 38 cents a gallon, are being phased out as pressure mounts from four rounds of United Nations sanctions and measures from the U.S. and the European Union aimed at curbing the country’s nuclear program. The punishments include restrictions on trade related to Iran’s oil and gas industries.

“The government is squeezed as it has never been before and is seeking to cut costs,” Hossein Askari, professor of business and international affairs at the Elliott School of International Affairs at George Washington University in Washington, said in a phone interview before the cuts began.

Under the price supports, an Iranian consumer was permitted to buy a monthly maximum of 60 liters (16 gallons) of gasoline at the subsidized price of 1,000 rials (10 cents) a liter. It will now cost 4,000 rials a liter for 50 liters a month, and 7,000 rials a liter for bigger amounts, Press TV said today. After the five-year phasing out of subsidies, gasoline will sell domestically for 90 percent of the price in the region, according to the legislation.

Wholesale Price

The government also plans to cut subsidies for diesel fuel, kerosene, natural gas and electricity today, Press TV reported. Subsidies as well will be reduced on wheat, rice, cooking oil, milk, sugar, postal services, air travel and rail tickets, according to the plan.

Iran aims to use 80 percent of the money saved to provide cash grants to its poorest citizens and to support energy- intensive industries. About 60 million Iranians have signed up to receive the cash, officials said.

The sanctions have increased the country’s trade costs by about 20 percent, Askari said. The crude output of Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries, hasn’t risen, while its domestic fuel consumption has, Askari said.

‘Correctly Used’

The main aim of the program “is for consumption to be optimized and for the country’s riches to be correctly used,” Ahmadinejad said in an Oct. 30 television interview.

Iran’s government knows that ending subsidies is necessary for the economy to grow at the pace of “vibrant emerging-market countries,” Dominique Guillaume, IMF mission chief, said on the fund’s website in September.

“They realize that the only way to do so is to restore market pricing of energy.” Guillaume said. “From a domestic perspective, if prices are higher, the energy sector in Iran will become more profitable and hence be able to invest, extract and produce more. Furthermore, if the Iranian people are able to restrain their consumption, this will have a positive side effect on the global oil market.”

U.S. Undersecretary of State William Burns said Dec. 1 that tougher American sanctions over Iran’s nuclear program are costing Iran as much as $60 billion in lost energy investments. The U.S. and its allies allege that Iran’s atomic work may be cover for weapons development, a claim the country denies.

Refining Capacity

Iran had relied on imports for as much as 40 percent of its gasoline because it lacked refining capacity. Iran’s projects in the oil and gas industries have been stalled since the U.S. put pressure on international companies to halt their investments in the country in an effort to isolate it. Iran needs to invest about $46 billion to upgrade its nine refineries and build seven more, officials have said.

Iran’s economy is projected to grow 1.6 percent this year after expanding 1.1 percent in 2009, the IMF said in October.

Two presidents before Ahmadinejad failed in their efforts to revise the subsidy system, which was set up when the country was at war with neighboring Iraq. Such attempts in the 1990s sparked public protests.

Nationwide Demonstrations

Iran was rocked by nationwide demonstrations by protesters who alleged that Ahmadinejad’s June 2009 re-election was fraudulent, a swelling of anti-government sentiment that was put down violently by security forces.

While fear of a crackdown will prevent unrest over the subsidy cuts, Ahmadinejad may face a challenge among members of parliament if they feel the plan isn’t well received by the public, said Scott Lucas, professor of American Studies at the University of Birmingham in England and founder of EA WorldView, a website on U.S. foreign policy and international affairs.

The government projects savings of as much as $20 billion in the first 12 months of the subsidy cuts, down from an initial estimate of $40 billion before the current budget of 3,470 trillion rials was approved in March. The spending plan is based on oil at $65 a barrel. Crude for January delivery climbed 32 cents to settle at $88.02 a barrel on the New York Mercantile Exchange on Dec. 17.

--With assistance from Anthony DiPaola in Dubai and Glen Carey in Riyadh. Editors: Heather Langan, Louis Meixler, Peter Hirschberg, Jennifer Freedman.

To contact the reporters on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net; Caroline Alexander in London at calexander1@bloomberg.net.

To contact the editor responsible for this Peter Hirschberg at phirschberg@bloomberg.net

Qatar Cup to Lift Shariah Loans Off 5-Year Low: Islamic Finance

Posted: 19 Dec 2010 12:08 AM PST

add to Business Exchange

By Dana El Baltaji and Soraya Permatasari

Dec. 19 (Bloomberg) -- Islamic loans in the Middle East will rebound in 2011 from a five-year low, said HSBC Holdings Plc, this year’s biggest lender, as accelerating economic growth and Qatar’s building for the soccer World Cup boosts spending.

Syndicated loans dropped 18 percent this year to $6.5 billion, according to data compiled by Bloomberg. Loans peaked at $24 billion in 2007, before the worst financial crisis since the Great Depression. Borrowers from the Middle East dominated the market in 2010, receiving all but one of the 14 loans tracked by Bloomberg in Europe, the Middle East and Africa.

“We have a number of transactions in the pipeline” which may close in the first half of next year, Mohammed Dawood, Dubai-based director of debt capital markets at HSBC Amanah, said in a telephone interview from Abu Dhabi on Dec. 15. “We’ll definitely do more loan deals in 2011 compared to this year.”

The debt restructuring in September of Dubai World, one of the emirate’s three main holding companies, helped restore confidence, said John Tofarides, a banking analyst at Moody’s Investors Service. Moody’s and Standard & Poor’s announced a combined nine upgrades this quarter for the region, outnumbering the pair’s downgrades for the first time since the three months ended June 30, 2008, according to data compiled by Bloomberg.

Banks in the United Arab Emirates have improved their financial position by lowering debt-to-equity levels, Dubai- based Tofarides said in an interview Dec. 16. A slump in U.A.E. property prices and canceled investment projects deterred lenders this year, he said.

‘Sustainable Growth’

“We expect to see more mature and sustainable loan growth in the U.A.E., especially in Dubai which was at the epicenter of the property crisis,” said Tofarides. “We don’t expect to see pre-crisis lending growth levels again because that was triggered by excess liquidity and a totally different perception on credit risk.”

HSBC was the biggest arranger among 36 lenders for Islamic financing this year in Europe, the Middle East and Africa, lending $1 billion, according to data compiled by Bloomberg. Standard Chartered Plc was second with $914 million.

Dubai World agreed with creditors to alter terms on $24.9 billion of liabilities. Concern the company would default on its debt contributed to a 24 percent drop in sales of Islamic bonds, or sukuk, which pay assets returns to comply with the religion’s ban on interest, to $15.1 billion this year.

Europe Crisis

The extent of the recovery in the Shariah-compliant loan market next year will depend on the size of regional development projects and whether Europe can avoid further contagion from its debt crisis, Moinuddin Malim, chief executive officer at Dubai- based Mashreq Al Islamic, said in an interview Dec. 16.

Moody’s said on Dec. 15 it may cut Spain’s Aa1 credit rating on concern it will join Greece and Ireland in seeking a bailout from the European Union. Spain was already reduced by Moody’s in September.

“We expect the majority of the projects to come out of Qatar, Saudi Arabia and Abu Dhabi next year,” Malim said. “Banks in the region may assume that the worst is behind them and are more likely to participate in syndicated loans.”

Saudi Electricity Co., the state-controlled utility, signed a 5 billion-riyal ($1.3 billion) Islamic finance agreement with National Commercial Bank, Saudi British Bank, Banque Saudi Fransi and Samba Financial Group on Dec. 13. Abu Dhabi Islamic Bank PJSC was lead arranger for 1.14 billion dirhams ($310 million) of syndicated Islamic financing for Majid Al Futtaim Group, the bank said in an e-mailed statement Dec. 14.

Gulf Growth

Economic growth in the Middle East and North Africa will accelerate to 4.1 percent this year and 5.1 percent in 2011, from 2 percent last year, the International Monetary Fund said Oct. 6.

Qatar’s economy will expand 20 percent next year, the IMF said last week. Getting the Persian Gulf sheikhdom ready for the 2022 world cup, the most-watched sporting event around the globe, will cost as much as $65 billion, Merrill Lynch estimates.

Shariah-compliant bonds returned 1.1 percent this month, while debt in developing markets dropped 1.2 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

The spread between the average yield for sukuk and the London interbank offered rate narrowed 61 basis points this month to 300 as of Dec. 17, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

The extra yield investors demand to hold Dubai’s dollar sukuk rather than Malaysia’s 3.928 percent Islamic note due June 2015 has narrowed 42 basis points to 349 in December, according to data compiled by Bloomberg. The yield on Dubai’s 6.396 percent sukuk maturing in November 2014 dropped 2.2 basis points to 6.57 percent on Dec. 17, the data show.

--With assistance by Garfield Reynolds in Sydney. Editors: Simon Harvey, Claudia Maedler

To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net; Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

South Korea Imposes Bank Levy to Reduce Volatility

Posted: 18 Dec 2010 11:24 PM PST

add to Business Exchange

By Eunkyung Seo and Frances Yoon

(Updates with timing in second paragraph, minister’s comment in third, derivatives limit in ninth.)

Dec. 19 (Bloomberg) -- South Korea aims to apply a levy on banks’ foreign-exchange borrowings to prevent any repeat of the sudden capital outflows that caused a financial crisis more than a decade ago.

The toll will be imposed on non-deposit foreign-currency liabilities held by all domestic and foreign banks, according to a joint statement released today by the Ministry of Strategy and Finance, the Bank of Korea and the Financial Supervisory Service. It will be proposed to the National Assembly in February, and will take effect after July 1 if approved, Vice Finance Minister Yim Jong Yong said today.

“We wanted to regulate systemic risk from excessive capital inflows and outflows, and we decided implementation of a bank levy would be good to reduce volatility,” Vice Finance Minister Yim said at a press conference in Seoul after the measure was announced.

Short-term debt, which poses a greater risk, will be subject to a higher levy than long-term borrowing, the statement said, adding that the banks will pay in U.S. dollars. The government is considering a 20 basis point levy on debt maturing in less than one year, subject to change after further consultation, Yim said. A basis point is 0.01 percentage point.

Proceeds from the charge will be used to provide liquidity to financial institutions in times of risk, Yim said.

The measure comes as the flow of global funds into emerging markets is accelerating amid low interest rates in developed nations and the Federal Reserve’s quantitative easing, the statement said. The country is “highly vulnerable” to extreme changes in the global economy and sudden capital movements, it added.

“It is a prudent move over the long term,” Singapore- based Wai Ho Leong, senior regional economist at Barclays Capital, said today. “As banks grow their businesses by funding from Korean won sources, the problem of large and sudden inflows should gradually dissipate.”

Currency Volatility

Nations from China to South Africa are striving to limit currency volatility as near-zero borrowing costs in advanced economies spur demand for higher-yielding assets in emerging- markets.

South Korea may also tighten its cap on banks’ holdings of foreign-exchange derivative after completing a review on Jan. 9, Yim said today. The government in October imposed a limit of 250 percent of equity capital on foreign banks and 50 percent on domestic banks to reduce volatility in capital flows and trading of the won.

The government will also strengthen punitive measures on reporting of foreign-exchange activity, according to the statement. Domestic banks held $168.9 billion in non-deposit foreign-currency liabilities as of October and foreign bank branches had $104.6 billion, it added.

‘Macro-Prudential’

Bank of Korea Governor Kim Choong Soo said on Dec. 13 that the nation needs to use “macro-prudential” measures to reduce the volatility of the won because sharp fluctuations are an obstacle to financial-market stability.

South Korea’s won has appreciated 33 percent since February last year, the most in Asia, dampening the nation’s export- driven economic expansion. The currency closed at 1,152.58 to the U.S. dollar on Dec. 17.

U.S. Federal Reserve Chairman Ben S. Bernanke said on Dec. 5 the purchase of more Treasuries beyond the $600 billion announced is “certainly possible,” which would boost the supply of dollars that can be invested in emerging-market assets.

South Korean regulators began an audit of how banks should handle foreign-currency derivatives on Oct. 19 to tackle speculation. The National Assembly on Dec. 8 passed a bill that will from Jan. 1 tax interest income from treasury and central bank bonds by as much as 14 percent and put a 20 percent levy on capital gains from their sale.

--Editors: Lily Nonomiya, Jim McDonald

To contact the reporter on this story: Eunkyung Seo in Seoul at eseo3@bloomberg.net Frances Yoon in Seoul at fyoon2@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

Australia Won’t Be ‘Stampeded’ by Retailers Over Online Sales

Posted: 18 Dec 2010 09:37 PM PST

add to Business Exchange

By Shani Raja

Dec. 19 (Bloomberg) -- The Australian government won’t be “stampeded’ by retailers over the threat to businesses from goods sold by offshore websites, Assistant Treasurer Bill Shorten said.

‘‘We respect the fact that large retailers have ongoing concerns,’’ Shorten told Bloomberg News today in an e-mail. ‘‘But we will not be stampeded into making rash decisions because of a vocal minority, especially when the majority of the sector and consumer groups support our sensible, measured approach.’’

Harvey Norman Holdings Ltd., Australia’s largest furniture and electrical retailer, and Premier Investments Ltd., whose Chairman, Solomon Lew, was a former executive chairman of Coles Myer Ltd., are among retailers who criticized a government inquiry into the future of retailing announced yesterday. They say the probe will be too slow to tackle the danger from the growth in online purchases from abroad.

Prime Minister Julia Gillard’s administration yesterday announced the inquiry into the impact of globalization on domestic retailers. It said the Productivity Commission will report its findings in 2011 as the government seeks to safeguard the future of an A$242 billion ($239 billion) industry.

The Commission also plans to start a ‘‘compliance campaign” to ensure that sales taxes and customs duty concessions on imports aren’t being exploited, Minister for Home Affairs Brendan O’Connor said in yesterday’s statement.

Too Late

The inquiry will be completed “too late” to stop some retailers going out of business shortly after Christmas, Harvey Norman’s executive chairman Gerry Harvey said in a telephone interview yesterday.

The Australian National Retailers Association -- which represents companies including Woolworths Ltd., Australia’s biggest retailer, as well as Harvey Norman and others -- and the Australian Retailers Association, whose members are smaller companies, today backed the government’s approach.

“We’re all trying to achieve the same end here,” ARA’s Executive Director Russell Zimmerman said by telephone from Sydney. “The government has taken a very holistic approach to this review, and I think to try and force the government’s hand without knowledge of what the actual problem is means you may end up fixing it the wrong way.”

He said only about 3 percent of Australia’s retail market is currently affected by a problem that is nonetheless “growing exponentially.”

The government “has taken seriously the concerns of the retail sector in difficult economic conditions,” ANRA’s Chief Executive Margy Osmond said in a statement e-mailed today.

The associations together represent the bulk of Australia’s retailing industry.

Evading Duty

“You’ve got every second person in the country importing things from overseas, evading duty, not paying sales tax,” Harvey said yesterday. “It’s gaining momentum at a rapid rate. Rather than clip it in the bud, they’ll end up doing something about it, but it will be too late.”

Premier Investments’ Lew, who has also been a Reserve Bank of Australia board member, echoed Harvey’s sentiments.

“What we all agree on is that the Australian retail sector is hurting and the government appears to be on the side of the overseas retailers,” he said in an e-mail today.

He called on the government to immediately abolish the sales tax for all purchases under the present A$1,000 threshold, rather than only in the case of offshore purchases.

‘All we’re asking for is an even playing field,’’ Lew said. “Then consumers really will see savings.” Premier is Australia’s largest specialty-clothing retailer.

Australian Dollar

The threat to retailers has been exacerbated by a strengthening currency, which has increased the spending power of consumers shopping overseas. The Australian dollar has advanced 18 percent since the end of June, the most of 16 major currencies tracked by Bloomberg, reaching parity with the greenback in October for the first time since July 1982.

“There is no denying that retailers are doing it tough,” Shorten said today. “But having no GST on a relatively small number of overseas imports is not the chief reason for slow retail in Australia. Other factors, including the high Australian dollar, ongoing aftershocks of the global financial crisis and the fact that Australians are simply spending less this Christmas are much larger concerns.”

Harvey said an alliance of retailers has been formed to press the case. The group includes Westfield Group, the world’s largest owner of shopping centers, and Myers Holdings Ltd., Australia’s biggest department store chain, the Weekend Australian newspaper reported yesterday.

Ad Campaign

The report said the alliance is planning newspaper and television advertisements similar to those used by the mining industry against a resources tax, which played a part in toppling former Labor Prime Minister Kevin Rudd.

A separate article in the Weekend Australian said mining companies are planning new advertisements against the government, believing they were misled over the so-called mineral resources rent tax.

“All certain people are doing at the moment is joining together to try and figure out what to do,” Harvey said. “If that means mounting an advertising campaign at the same time as the miners are going to do theirs or whatever, certainly if the government’s faced with a double onslaught like that, and the slightest little thing happens out there, see you later government.”

--Editors: Paul Tighe, Garfield Reynolds.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net