Saturday, February 9, 2013

Prof. Chávez’ macroeconomics

Chávez’ inadequate macroeconomic and exchange rate policies have worsened the ongoing recession. He needs to get back to the drawing board if he wants to prevent Venezuela from a disaster. by Manish k Pandey

Almost two years ago, when a financial tornado was wreaking havoc across the globe, Hugo Chávez, Venezuela’s Leftist President, was standing tall and smiling wide (thanks to Venezuela’s annual GDP growth rate of 7.8% in Q2 2008) claiming that the crisis couldn’t even touch his country’s borders, leave aside the possibility of a chaos within the economy. Apparently, all this changed when the oil price plunged in the international market (from around $147 per barrel in July 2008 to around $33 per barrel in December 2008) and shattered the so-called well-shielded walls of the economy that primarily bets on oil exports (oil accounts for over 90% of Venezuela’s export revenue) for its growth. The tango of dreams and realities after all could not afford to last long.

Although oil prices have risen strongly since then (around $77 per barrel at present; even touched $80 a week back), the Venezuelan economy hasn’t. The country, which possesses the biggest oil reserves outside the Middle East (100 billion barrels as per British Petroleum estimates) and supplies more than 10% of US oil imports, continues to grapple with a severe recession. While the Venezuelan economy shrank 3.3% last year, it contracted by 5.8% in the first quarter of 2010. Inflation too is at 32% (a seven-year high) and is likely to rise further. Bolívar, the Venezuelan currency, has already been devalued (by 50%; bolívar had been officially fixed at 2.15 to the US dollar) in January 2010 and is still sinking in Caracas’s parallel money market. Private consumption, which accounts for about 70% of total GDP, too has gone down by over 6% in the last quarter. Even exports have fallen by 6.6% in Q1 2010 (and are expected to contract by about 15% in the Q3 2010), further intensifying the problem.

Considering all this, foreign investors are now staying away from Venezuela. While total foreign investment in Latin America in 2009 was about $126 billion, only $600 million were invested in Venezuela. In fact, on the contrary, the Venezuelan economy saw a direct investment outflow of $3 billion in 2009 as several companies pulled out of the country following nationalisations in the steel, cement, oil and food industries. In all, the current state of Venezuelan economy looks frightening and the future bleak. “The Venezuelan economy will struggle in 2010. GDP will contract 3.6% over the year, by far the worst performance of any major economy in Latin America,” Juan Pablo Fuentes, Economist, Moody’s tells B&E. IMF too predicts that Venezuela’s GDP will shrink by 2.6% in 2010, making it the only Latin American economy, and the world’s only oil exporter, to see a contraction in 2010. In fact, Morgan Stanley goes a step forward and boldly announces that it expects the Venezuelan economy to shrink by 6.2% this year and by 1.2% in 2011. And interestingly, this is when the overall growth rate of the Latin American region is expected stay above 4% in 2010.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

 
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Thursday, February 7, 2013

It Pays to Unbelong

West’s shifting of the goalpost on Iran and its disregard for the Turkey-Brazil brokered Nuclear Swap deal has jeopardised the legitimacy of the UNSC, says Saurabh Kumar Shahi

Just a week before the Turkey-Brazil brokered Nuclear Swap deal, I, like many other Iran watchers, was pretty optimistic about its outcome. We had info that the deal will cover all the aspects of the previous deal that the West offered last October. However, a European diplomat friend of mine pricked my confidence just a night prior to the announcement. Casually, he put forward a question which I was not prepared for. “What if we shift the goalpost?” he said, with a smirk on his face. I did not take it just as another bout of cynicism which many diplomats suffer from. I, at least, was sure what fate awaits the deal. As the week unfolded, both I, and over and above, my diplomat friend, were right.

As it happened, the US had yet again shifted the goalpost on Iran in order to warrant that the face-off wasn't resolved even with Iran’s concession on the Uranium swap deal. And also, by doing so, the US has abandoned its own Uranium swap deal bid. Now, this should come as no revelation since experts have long maintained that Uncle Sam's present stance, like its earlier stands, was purely intended to drag out the confrontation rather than resolve it. The matter is now pretty clear, the US still persists on zero enrichment in Iran, a presumably unattainable touchstone proposed to avert a resolution.

Several of the pro-Western analysts decrying Turkey-Brazil Swap deal-popularly called Tehran Research Reactor (TRR) deal- are harping on the fact that Iran never stopped producing enriched Uranium since the Americans put forward the first version in October last year. This, according to them, means that albeit some of the low enriched Uranium goes to Turkey, “the residual would be adequate to produce a theoretical nuclear weapon if Iran ever wished to exercise Article X of the NPT and broke out of the NPT regime. This analysis, nonetheless, completely discounts the fact that the initial offer by the US never reflected that Iran should stop enrichment. So, discontinuing the enrichment was by no means a part of the bargain. “Actually, this aspect was the real disclosure of the initial proposal, for it was broadly understood as an implicit US acceptance of Iran’s right to enrich Uranium. It was, in effect, LEU generated at Natanz that was to be swapped over for new fuel cells,” says noted Iranian watcher and proliferation expert Cyrus Safdari, while talking to B&E.

Moreover, the alarm of Tehran achieving “breakout capacity” is hogwash and relies merely on pretexts as, technically speaking, any nation with a nuclear programme could hypothetically produce bombs. Going by the IAEA’s own assessment, presently 42 nations can swiftly make nukes if they so desired, which essentially means that it is not an Iran specific issue. On the posturing front, the regime in Washington has suffered a credibility setback of biblical proportions. Therefore, understandably, the US is acting swiftly to reclaim the initiative and summon up the impetus. And to do that, Washington will need not merely to unravel the deal, but essentially discredit the whole idea of parley and negotiations with Tehran. However, above all, the regime will do whatever possible to badly humiliate Turkey and Brazil and show them their “right place”.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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Wednesday, February 6, 2013

EXPATS CEOS: IGNOMINY, ADVANTAGE, PERFORMANCE

Appointing an expat CEO, for traditional Indian companies, has always been a high stakes game, especially as their being ‘culture unfriendly’ is a huge disadvantage! Then why do Indian companies still take expat CEOs? Any valuable lessons yet?

If one were to call a spade a spade, considering India’s vast diversified culture where each state is as good as a country in itself, appointment of a global CEO who isn’t well-aware of the cultural differences and the state of affairs is surely an extremely high risk affair. But on the other hand, the international experience they bring is undeniably invaluable and could transform a company’s vision superlatively. So what is the critical factor companies look for when recruiting expat CEOs?

One answer could lie in domain specialisation. Often, successful matches are about balancing off the expat leader’s specialisation with the cultural functional void in his/her profile. When Brian Tempest was employed in Ranbaxy Laboratories, the R&D expertise that he enabled helped the company immensely. K. R. Kim, former LG India head honcho, was taken up by Videocon as the company planned a radical branding and business transformation. And the top management is quite pleased so far with his efforts. “Appointing a foreign national as the CEO of a company such as Tata Motors and Ranbaxy with deep Indian roots makes sense when the goals to be achieved are clearly defined,” says Vikas Pota, MD, Saffron Chase. Infosys goes one step ahead. It recruits a person in the top management position only if the individual – irrespective of nationality – has grown within the company over time from lower positions (and therefore knows the company’s culture inside out), “but a leader has to have specialisation in at least one domain,” says CEO Kris Gopalakrishnan.

The aviation industry has been striving for global standards of service, so it is logical that expats make their presence felt. Nikos Kardassis, who held the post of CEO at Jet Airways from 1993 to 1999, truly transformed the way global counterparts looked at the Indian aviation industry. Kardassis joined back Jet Airways in 2008 and was appointed as the acting CEO in 2009 after Wolfgang Prock-Schauer resigned from the post. Similarly, Bruce Ashby, who was the President at Indigo Airlines from 2006-2008 played a major role in establishing Indigo as a prominent player in the Indian aviation sphere. But Jet Airways learnt some painful lessons while dealing with expats. Schaeur, for instance, first resigned in 2007 to join Kingfisher Airlines but Naresh Goyal persuaded the Austrian to stay back. But things got complicated, as the Indian pilots and other employees developed an acrimonious relationship with expat employees. Schaeur was practically invisible from the rift between the airlines and the pilots last year.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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Tuesday, February 5, 2013

RBI: Q3 MONETARY POLICY REVIEW

low growth or inflation; it was a tough choice to be made by the RBI Governor. The problem is, despite a quarterly review of the Monetary Policy, he’s still to make the choice, says Manish K. Pandey

As per the Central Statistical Organisation, the GDP grew by 7% in H1, FY2010. So if overall expansion for FY2010 is targeted at 7.5% (not to forget that RBI expects Q3 growth to be lower than the 7.9% attained in Q2), it would require the economy to grow by over 8-8.5% during Q4, FY2010, which at present seems be an unlikely phenomenon. Raison d’être: RBI’s growth assumption is based on a flat growth of the agricultural sector, but given an expected 16% fall in kharif crop output this year, the sector’s contribution to GDP is estimated to fall by over 5%. Moreover, the current momentum in the industrial and services sectors don’t appear to be compensating the fall. So, in all likelihood, the chances of Indian economy clocking a 7.5% growth this fiscal, is as good as the Indian football team making it to the FIFA World Cup this year (India was eliminated in the first round of the FIFA 2010 World Cup Qualifiers by Lebanon)! Perchance a miracle happens, and RBI’s own growth and inflation projections materialise, the latest CRR hike will still prove insufficient to tackle the situation! By increasing CRR, RBI has explicitly shifted its stance from “managing the crisis” to “managing the recovery” (as Subbarao puts it), but then at the same time, one should not forget that amidst concerns about inflation, the recovery is yet to fully set in. “A tightening of monetary policy when the economy is beginning to get out of the downturn (and credit growth & investment demand are still anaemic), will surely have an adverse effect on investment demand even if banks maintain lending rates,” agrees Rajiv Kumar, Director & Chief Executive of ICRIER.

Subbarao’s worry is understandable as over the past three quarters, food prices have risen at the fastest pace in the last one decade. From a low of 1.2% in March 2009 (of course, it fell to a negative 1.74% in August 2009 due to the large statistical base effect), the WPI inflation has accelerated to 4.8% in November 2009 and further to 7.3% in December 2009. Even the consumer prices have risen by around 13% as compared to a year earlier. In fact, weekly WPI data on primary articles indicate that primary food articles prices have increased by 17.4% (y-o-y) for the week ending January 16, 2010. But then, food inflation can’t be contained directly by a hike in CRR, since it’s purely a supply side phenomenon (thanks to last year’s drought & poorly managed logistics). That makes this fight against inflation a little different and more difficult than perceived previously.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

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Sunday, February 3, 2013

Yahoo! to Boohoo!

Yahoo! had a chance to grow & survive. It ‘had’!

So what’s the biggest mistake that Yahoo! ever made? Well, allow us to rephrase that... what are the biggest mistakes made by Terry Semel and his successor Jerry Yang? Allow us to reflect back on what happened in 2001. That year, Yahoo’s chief, Terry Semel met the co-founders & co-Presidents of Google – Larry Page and Sergey Brin – to discuss the acquisition of Google. Semel offered them much lower than the $5 billion, that the co-founders asked for. As a justification, Semel stated that “no one could truly value Google,” and that there was “no way he would shell out such a hefty amount” for the search-engine start-up. Eight years later, Google commands a market value of $121.1 billion, while Yahoo!, a lamentable $19 billion! Then there was Semel’s successor, Jerry Yang, who in 2007 brushed aside Microsoft’s bid for Yahoo! for a mind-blowing $46 billion.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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