NEWS,20.03.2013

UK budget overshadowed by leak

Details of Britain's market moving budget were published on the Internet by a reporter at a London newspaper minutes before the finance minister stood up to give his speech in parliament on Wednesday, prompting calls for an investigation from lawmakers.

A copy of the front page of the London Evening Standard, containing details of economic forecasts, tax changes and borrowing, was published on Twitter at least fifteen minutes before George Osborne rose to his feet.

Some opposition lawmakers waved copies of the page, which had been compiled with embargoed details of the speech, at Osborne while he spoke in the lower chamber of parliament, the House of Commons.

"He almost needn't have bothered coming to the House because the whole budget, including the market sensitive forecasts, were in the Standard before he rose to his feet," Ed Miliband, leader of the opposition Labour party, told Osborne.

"I'm sure he'll investigate and report back to the House," Miliband said.

Osborne's ministry was unavailable for immediate comment.

The newspaper's editor, Sarah Sands, apologised and said the paper's journalists were "devastated" that an embargo had been breached.

"An investigation is immediately underway into how this front page was made public and the individual who tweeted the page has been suspended while this takes place," Sands said.

Sands told the BBC that a young journalist had tweeted a copy of the front page.

The budget is supposed to be kept secret until the chancellor of the exchequer, as the finance minister is known in Britain, briefs parliament on its contents.

In 1947, Labour finance minister Hugh Dalton resigned after divulging details of his budget to a newspaper journalist before his statement to parliament.

Britain sticks to austerity in budget

British finance minister George Osborne stuck firmly to the government's controversial austerity plan as he presented his annual budget to parliament Wednesday, despite a promise to spend on infrastructure to boost a weak economy.

Chancellor of the Exchequer Osborne, whose is facing calls from within his own Conservative party to change course, told MPs that Britain "must hold to the right track" as he outlined his tax and spending plans for 2013/14.

"We are slowly but surely fixing our country's economic problems," Osborne told the nation.

"We have now cut the deficit, not by a quarter but by a third. Despite the progress we have made there is much more to do and today I am going to level with people... It is taking longer than anyone hoped but we must hold to the right track."

This referred to sticking to his so-called Plan A of driving down the record budget deficit inherited from the previous Labour administration in 2010, despite calls from both inside and outside the coalition government to curb massive spending cuts to kick-start the economy.

Osborne's insistence on driving down the deficit comes despite the chancellor announcing that the government was halving its economic growth forecast for 2013.

Gross domestic product (GDP) was expected to grow by just 0.6% this year compared with a previous forecast of 1.2%, according to estimates issued by the Office for Budget Responsibility (OBR).

Economic growth guidance for 2014 was also cut to 1.8% from the previous estimate of 2% that was given in December.

Osborne added that Britain was on course to avoid sinking into its third recession since the 2008 global financial crisis, despite its economy contracting by 0.3% in the final three months of 2012.

In better news, Osborne said infrastructure plans would be backed by €3.5bn a year from 2015-2016, to ensure that the "economic arteries of every part of this country" could benefit.

On the eve of the budget, Prime Minister David Cameron's Downing Street office said some government departments would be made to cut their budgets to save 2.5bn over the next two years.

The money saved between now and 2015 -- the time of the next general election -- would be used on infrastructure spending, a spokesperson said.

The decision is at odds with Business Secretary Vince Cable, who has called on the government to consider borrowing more to stimulate economic growth.

Cable, a leading member of the Liberal Democrats which shares power with the Conservatives, said that the danger of slow growth may now be more damaging than the loss of confidence through increased borrowing.

But Cameron earlier this month insisted that his government, which passed the mid-term mark in January, would stick to the path of austerity despite a turbulent few weeks that saw Britain stripped of its top-level AAA credit rating.

In a further blow to the prime minister, civil servants were Wednesday holding a 24-hour strike in a row over pay and other working conditions.

The Public and Commercial Services union said up to 250 000 of its members would join the walkout, hitting government departments, jobcentres, tax offices, border patrols and courts.

On Tuesday meanwhile, a pool showed that more than four out of 10 voters believe Osborne should be sacked.

Cyprus in limbo after bank levy rejection

Cypriots faced uncertainty on Wednesday after parliament rejected a controversial levy on savings that had been agreed with international creditors as part of a bailout deal.

Lawmakers on Tuesday evening overwhelmingly rejected plans to apply a one-off tax of up to 10% on people's bank deposits, leaving decision makers scrambling on how to avert the Mediterranean island's bankruptcy or exit from the eurozone.

The euro was slightly down on the dollar, while the German stock market lost 0.6% during early morning trading Wednesday.

"The decision was the right one to take, but I would be lying if I said I am not worried - we need help and we need it now," said 50-year-old Michalis Michael, a shopkeeper in central Nicosia.

Banks across the island remained closed as the government and the country's central bank were working on an alternative proposal to find €5.8bn in funds, as requested by the European Union and the International Monetary Fund.

The eurozone, together with IMF, has asked the Cypriot government to raise the amount as part of negotiations for a €10bn package to bail out its banks and shore up the country's public finances.

Banks were not expected to reopen until Tuesday, according to news reports, although no official decision had yet been taken by the central bank.

ATMs have been dispensing cash, while credit and debit cards were working normally, although electronic transfers continued to be blocked, bank officials confirmed to dpa.

For the time being, the European Central Bank has vowed to continue to provide liquidity to the island's banks.

Cyprus' influential Orthodox Church has offered to help, with Archbishop Chrysostomos II saying the church was willing to mortgage its properties to invest in government bonds.

Nicosia was looking to renegotiate its bailout deal, with President Nicos Anastasiades due to meet creditors later in the day.

Meanwhile, Finance Minister Michalis Sarris was in Moscow to see if an existing loan of €3bn taken out in 2011 with Russia could be extended or increased to €5bn.

"We had a good meeting  no decision has been made - discussions will continue later in the day," Sarris said after he emerged from the talks in Moscow.

Anastasiades had a telephone conservation the night before with Russian President Vladimir Putin, whose country holds billions of euros in Cypriot banks.

Reports said Cyprus would attempt to also strike a deal with Moscow for the sale of troubled Popular Bank of Cyprus, known as Laiki, as well as the Bank of Cyprus.

Cypriot state broadcaster RIK said Russia would likely seek compensation for such an investment, possibly in the form of a naval port in Cyprus for the Russian fleet, and access to the country's natural gas reserves.

Anastasiades is also believed to be looking at the option of making use of social security fund reserves, which amount to €5bn, and offering depositors with more than €100 000 natural gas-indexed bonds in return for voluntarily paying a levy.

India's billionaires slow to share riches

They may build skyscraper mansions, travel by private jet and throw sumptuous wedding parties, but it seems India's super-rich are much slower at opening their wallets for charity.

India now has 55 dollar billionaires, the fifth-biggest number in the world, according to a Forbes ranking this month.

But like other emerging economies such as China, its charitable giving still lags markedly behind that in the West where the tradition of wealthy businessmen donating chunks of their fortunes is much more deeply ingrained.

High net worth Indians gave up an average 3.1% of their income to charitable causes in 2011 - up from 2010 but far behind the 9.1% average in the United States, according to global consultancy Bain & Company.

But analysts say the upturn in giving as more Indians get seriously rich is going at a snail's pace.

"The pace for corporate India and especially the new rich giving up its wealth is excruciatingly slow," said Manjeet Kripalani, executive director at Gateway House, a Mumbai-based think tank.

"Corporate philanthropy needs to look at a thoughtful way of scaling up giving," she said.

While impressive growth in the past decade has created a swathe of Indian tycoons, the more recent economic slowdown has compounded the slow take-up of philanthropy, despite a pressing need to tackle widespread poverty.

"Giving is impacted by sentiment, which remains weak at the moment. It is likely to be flat or extremely moderate in terms of growth," said Arpan Sheth, author of Bain's annual Indian study.

The latest report released this month did not give fresh statistics, but said donors were "putting a higher bar on understanding the impact of their giving, before they commit to causes" in the tough business environment.

India's richest man Mukesh Ambani, chief of Reliance Industries and owner of a billion-dollar, 27-storey family home, has criticised Western corporate charity as a "disempowering tool" that "increases dependency".

India does not lack a culture of giving.

Reliance has followed the lead of large industrial groups such as Tata and Aditya Birla, which donate heavily to charity through their own trusts, with projects ranging from healthcare and education to rural infrastructure.

Azim Premji, chief of software giant Wipro, last month gave $2.3bn from his own pocket to the education charity he controls, and he is now considered "Asia's most generous man" by Forbes.

He was the first Indian to join the "Giving Pledge" club, set up by Microsoft co-founder Bill Gates and billionaire investor Warren Buffet to encourage the world's wealthiest to donate at least half their fortunes to charity.

But the scale of Premji's donation has renewed the debate on why the richest are not giving away more of their wealth.

"Many others haven't demonstrated the same kind of generosity," said business journalist Anand Mahadevan in an Economic Times column.

One explanation from businessmen, Mahadevan said, is that wealth creation is still a recent phenomenon in India compared with countries such as the United States, and philanthropy usually comes further down the road.

Also, Indian charity often takes a more informal form: people might donate to local schools or hospitals in kind, or "give money, hair, gold, to our temples as charity", said Kripalani.

India currently ranks a lowly 133rd out of 146 countries in the latest World Giving Index - down from 91st position in 2011 - based on surveys of charitable behaviour around the globe.

Its far poorer neighbours Pakistan and Bangladesh came in respectively at 85 and 109 in the same survey.

Analysts say a major barrier to giving is not knowing whether donations will produce sustainable results, given the lack of accountability, transparency and impact assessments.

"When we met philanthropists, the message we got was: show us the impact, we will give more," said Anant Bhagwati, co-author of the Bain report, at a conference in Mumbai this month to encourage a greater philanthropic culture.

The trends may be encouraging: last year's Bain survey found more than 70% of donors had less than three years of philanthropic experience and more than a third were 30 or younger.

Manas Ratha, director of the non-profit Dasra group which helps to pair donors with charities, said willing philanthropists were there but needed more guidance.

"A lot of work needs to be done. There is good reason to be optimistic, but we are losing time and opportunity," he said.

Ripples from Cyprus

ONE of the most interesting banking countries in the world is Cyprus, as technically it is still a country at war with its northern neighbour, making it an unlikely candidate for a safe haven.

Cyprus also has the highest private sector debt to gross domestic product (GDP) ratio in the world, which should have set alarm bells ringing to any savers - let alone Russians - who are taking their money to the island.

The Russians too are an interesting bunch in this picture, as many of them are hiding money in Cyprus due to the Russian taxman. President Vladimir Putin is out fighting the European Union for Russian private interests, and not to collect rightful Russian taxes.

A friend said this of Russian money in Cyprus: “I believe that there is a lot of money from Russia that was stolen by members of the previous communist regime and banked in Cyprus.

"There are many exceptionally wealthy Russians living in Cyprus. I wonder what Putin's agenda is.”

Nothing is what it seems in Cyprus as the overall €15bn bailout is very, very small in the bigger €16 trillion EU picture.

Yes, the bailout is less than 7% of the size of that of Greece and would be the smallest country bailout in the EU by far - smaller than some private bank bailouts in 2008. 

Something changed here, and that is that Germany - which has been the major financier of the bailouts -  has an election in September. The citizens are worried that their country’s debt to GDP is staying high at 80%, and that they are picking up the tab for everyone else.

That is one thing; the other is that the never-ending bailouts are starting to get northern Europe in a tangle as country after country in the south has a problem but does not want to fix it.

Italy had an election and those newly elected do not want to fix state overspending; neither actually did the Greeks. The Spanish are also feeling pain, but much is done to avert future social spending cuts which are still needed.

So enter Cyprus: a small EU member which allowed its banking system to rise and rise until it was out of all proportion to its economic size.

It paid 4% plus interest while European Central Bank rates are under 1%, and savers in Germany only get 0.75% a year.

Germany started taxing social pensions to help pay for all the problems, and people with savings in the bank also get hammered as interest rates are very low.

The Finns and the Dutch have also been complaining in recent years about their payments to others, and with the Russians not part of the EU and some making use of guarantees in EU banking systems while evading taxes back home, Cyprus was never going to be such an important country for the EU to bail out.

Britain is not part of the eurozone but is seen by richer members as shouting solutions while not helping to pay for them.

The English are subscribers to the EU with a discounted subscription and many solutions northern Europeans have to pay for via taxes.

They are very, very unpopular at present and you can bet your bottom dollar that the most sane English advice is at least ignored in public.

So when Barclays shouted “fire” about Cyprus, that made the situation worse politically for Angela Merkel.

Yes, the wrong medicine was prescribed - “you get a third of the money from your depositors and we will present the rest”. Savers get hammered, even if Russian, and that makes other weak countries' savers very nervous.

Already, I suppose many in Italy are putting their money in German banks because they now fear a “Cyprus” in their own country. This policy was a mistake.

The problem is that the banking system in Cyprus could now be allowed to collapse, as parliament decided that this savers' tax option was not on. This too would make the rest of southern Europe nervous.

The banks are intertwined and I suspect that this may be a small problem that turns big, like Iceland, the Lehman Brothers, etc. Each of the banks allowed to fail would have assets in other banks, and so the situation would broaden.

But that would still be a small problem  the real issue however is the idea that a country goes back to the Middle Ages, as no money in the banks would result in a cash and barter economy and having all savings tied up for decades would also hurt.

Imagine you are have saving in Italy or Spain or worse, in Greece where banks are dicey and confidence is just coming back. The confidence in southern Europe could go up in smoke again - big time - with knock-on effects into the Middle East, Russia and other weaker European states.

Again, some world growth could get taken away.

The EU has drawn a line in the sand and said to governments and banks"'we will let you fail or make you pay a price".

This actually should have been worked out before the eurozone was established so everyone knew what the rules were, but it is human to make rules up in a crisis.

My feeling is that this was not the time for it, as the world economy was just getting back to slightly faster expansion and better prospects.

If commodity prices fall again as a result of weaker growth if confidence slips again, then I am afraid South Africa’s current account will again get exposed. The rand may dip yet again and inflation will go another few basis points higher, exposing our already extremely low rates. 

Raising rates is something the South African Reserve Bank would be loath to do, but it creeps in and confidence and growth decline here again.

With ongoing wildcat strikes in the Post Office and parts of agriculture, the economy may also stall just as the first signs of higher growth showed up on the BankservAfrica Economic Transaction Index.

How ironic that another small situation is allowed to get big. Policy makers are looking at too many interest groups to make the right decisions.

Is this 2008 all over again? No, please no.

Britain awaits tough new budget

Britain's government was on Wednesday set to unveil plans to grow the country's recession-threatened economy, despite insisting on greater state savings as it struggles to meet its deficit-reduction target.

Finance minister George Osborne unveils his latest tax and spending plans in an annual budget likely to stick firmly to the coalition government's austerity drive, even though the country's economy is sailing close to another recession.

Chancellor of the Exchequer Osborne, whose Conservative party heads a coalition government with the Liberal Democrats, will present his 2013-14 budget to parliament at 12:30 GMT on Wednesday.

Analysts expect Osborne to stick to his so-called Plan A of driving down the record budget deficit inherited from the previous Labour administration in 2010 - despite calls from both inside and outside the government to curb massive spending cuts.

On the eve of the budget announcement, Prime Minister David Cameron's Downing Street office said some government departments would be made to cut their budgets to save €2.5bn over the next two years.

The money saved would be used to on infrastructure spending, a spokesperson said.

"All unprotected departmental resource budgets will be reduced by a further 1.0% a year for the next two years," the spokesman told reporters.

"That will help fund further investment in capital spending which will be announced" in the budget.

He added that spending on health, schools and overseas development aid would be protected, while defence would benefit over the next two years from €1.6bn in underspend in its previous budget allocation.

UniCredit Research economist Mauro Giorgio Marrano said that "any new measures implying an increase in expenditure... will need to be funded by spending cuts and/or higher taxes in other areas, leaving little scope for a significant stimulus to the economy."

Cameron earlier this month insisted that his government, which passed the mid-term mark in January, would stick to the path of austerity despite a turbulent few weeks that saw Britain stripped of its top-level AAA credit rating.

But Business Secretary Vince Cable has called on the government to consider borrowing more to stimulate economic growth.

Cable, a leading Liberal Democrat, said that the danger of slow growth may now be more damaging than the loss of confidence through increased borrowing.

Also on Wednesday, Osborne was expected to revise the government's growth and budget-deficit forecasts to better illustrate Britain's present economic woes.

Markets were also waiting to see whether Osborne uses the budget to announce changes to the Bank of England's inflation target to boost an economy at risk of its third recession since the start of the global financial crisis five years ago.

The chancellor traditionally uses the budget to state the central bank's policy mandate, which for many years has been to meet an inflation target of 2.0%.

Incoming Bank of England governor Mark Carney, the Canadian central bank chief who takes up his role in July, has suggested that economic output might be a better target measure than inflation.

The BoE uses interest rates as a tool to try and keep inflation close to the government-set target, but in recent years it has spiked above 5.0%, hampering economic recovery.

British 12-month inflation rose to 2.8% in February from 2.7% in January, official data showed on Tuesday.