Month: January 2018

Middle Eastern countries should pursue fiscal policies to support growth and build broader tax bases to fund infrastructure projects and social spending, the head of the International Monetary Fund said Tuesday.

“A key priority is building broader and more equitable tax bases. All must pay their fair share, while the poor must be protected,” IMF Managing Director Christine Lagarde told an economic conference in Marrakech, organized by the Washington-based fund and the kingdom.

That would allow them to spend more on social safety nets, health and education services than the current 11 percent of gross domestic product in the region. “Fiscal policy can and must be redesigned to support inclusive growth in the region,” Lagarde said.

More efforts are also needed to support the private sector, she said. The state, the dominant employer in many Arab countries with their young populations, can no longer hire newcomers to the labor market.

“This, too, can help make room for high-return social and infrastructure outlays,” Largarde said, adding that better access to finance, a more favorable business environment and fewer barriers such as red tape were necessary.

“Protracted regional conflicts, low commodity prices, weak productivity and poor governance have held back the considerable potential of the region,” the final statement issued by the IMF and two other international bodies said.

“Growth has not been strong enough to reduce unemployment significantly, and a staggering 25 percent of young people are jobless,” it added.
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Venezuela is abandoning the most-overvalued of its two official foreign exchange rates, which had been used for state imports of food and medicine amid a worsening economic crisis.

The move could potentially encourage businesses to import more and put more goods on store shelves and in pharmacies, but only if the government carries it out as written, said Francisco Rodriguez, a former Venezuelan official who is now chief economist at the New York-based Torino Capital.

“This is not a place where there’s a good tradition of following the letter of the law,” Rodriguez said Tuesday. “I don’t think that one should get too optimistic.”

Oil-rich Venezuela is in the fifth year of a deepening economic crisis that has brought scarcities of basic foods and medicine after nearly two decades of socialist rule and mismanagement of the world’s largest crude oil reserves.

The exchange rate reforms became public Monday when published in the nation’s official gazette, signaling that all transactions will now use a second official exchange rate known as Dicom. That rate still contrasts sharply with the black market exchange rate.

One U.S. dollar buys 3,345 bolivars at the Dicom rate, while Venezuelans are paying an average of nearly 250,000 bolivars per U.S. dollar on the black market.

The rate being abandoned, known as the Dipro, was set at 10 bolivars per dollar.

Venezuela has been operating with two official exchange rates, though most Venezuelans can buy dollars only on the illegal black market.

Rodriguez cautioned that the shift in exchange rates may only allow for the import of high-value goods, which are out of reach from most Venezuelans.

The government decree goes beyond eliminating the official protected rate Dipro rate, opening up access to the exchange system by relaxing government controls, so more imports could begin to flow, he said.

On Tuesday, Maduro announced new government subsidies for millions of Venezuelans. But with the slipping value of the bolivar, their value adds up to tiny sums.

The monthly minimum wage many working Venezuelans earn is now worth the equivalent of just $3. A program for 315,000 pregnant Venezuelan women would provide each about $21 at the black market exchange rate. Eight million Venezuelans who will be eligible to receive state money for the upcoming Carnival season will receive the equivalent of about $2.81.

Venezuela’s inflation hit 2,616 percent last year, according to estimates by the opposition-controlled National Assembly. The International Monetary Fund estimates inflation could soar to 13,000 percent this year.
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Amazon is diving into health care, teaming up with Warren Buffett’s Berkshire Hathaway and the New York bank JPMorgan Chase, to create a company that helps their U.S. employees find quality care “at a reasonable cost.”

The leaders of each company, Amazon’s Jeff Bezos, Buffett, and JPMorgan’s Jamie Dimon, offered few details Tuesday and said that the project is in the early planning stage.

“The ballooning costs of [health care] act as a hungry tapeworm on the American economy,” Buffett said in a prepared statement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”

The new company will be independent and “free from profit-making incentives and constraints.” The businesses said the new venture’s initial focus would be on technology that provides “simplified, high-quality and transparent” care.

It was not clear if the ultimate goal involves expanding the ambitious project beyond Amazon, Berkshire or JPMorgan. However, JPMorgan’s Dimon said Tuesday that, “our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans.”

Shares in health care companies took a big hit in early trading Tuesday, hinting at the threat of the new entity to how health care is paid for and delivered in the U.S.

Before the opening bell, eight of the top 10 decliners on the Standard & Poor’s 500 index were health care companies.

 The need for a solution to the health care crises in the U.S. is intense. With about 151 million non-elderly people, employer-sponsored coverage is the largest part of the U.S. health insurance market.

Health care costs for companies routinely rise faster than inflation and eat up bigger portions of their budgets. Americans are mired in a confusing system that creates a mix of prices in the same market for the same procedure or drug and offers no easy path for finding the best deal.

Employers have hiked deductibles and other expenses for employees and their families to dissipate the costs, which have hit Americans hard.

Only 50 percent of companies with three to 49 employees offered coverage last year, according to the nonprofit Kaiser Family Foundation. That’s down from 66 percent more than a decade ago. The federal Affordable Care Act requires all companies with 50 or more full-time employees to offer it.

Amazon, Berkshire and JP Morgan say they can bring their scale and “complementary expertise” to what they describe as a long-term campaign.

Amazon’s entry into the health market has been perceived as imminent, even though the company had announced nothing publicly.

It has been watched very closely on Wall Street, which has seen Amazon disrupt numerous industries ranging from book stores to clothing chains.

Amazon, which mostly sold books when it was founded more than 20 years ago, has radically altered the way in which people buy diapers, toys or paper towels. Most recently it has upended the grocery sector, spending $14 billion last year for Whole Foods Market Inc.

AP writer Joseph Pisani contributed to this report from New York. Murphy reported from Indianapolis.
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As trade tensions grow between the United States and China, there is concern among foreign companies in China that a possible trade war between the two countries could leave them caught in the crossfire.

President Donald Trump has been ratcheting up trade pressure on China, and a senior administration official has said the U.S. leader would be “emphasizing the fair and reciprocal nature of trade” in his State of the Union speech Tuesday.

Already, Trump has issued what some believe could be the opening salvo in a more intense showdown over trade, recently slapping stiff import tariffs on solar panel imports and washing machines. More trade actions could be announced soon.

“If that does go forward, I have been told by certain officials [in China] that yes, definitely, there will be retaliation,” said William Zarit, chairman of the American Chamber of Commerce in China, or AmCham China. “And what we’ve been telling our interlocutors is that if there is some kind of tariff and if the Chinese do want to retaliate, they do so maturely and with precision so as to not actually adversely affect their own economy.”

Zarit spoke on Tuesday at the launch of AmCham China’s annual survey on the business climate in the world’s second-largest economy. The survey for 2017 was conducted at the time of Trump’s visit late last year and cited growing optimism among members about the outlook for growth and investment in China.

Seventy-eight percent of the respondents said that positive relations between the U.S. and China are extremely important or very important, compared with 64 percent in 2015.

Three out of every four companies surveyed, however, said they still feel unwelcome in China. One key driver of that perception – regulatory barriers for foreign companies and unfair treatment relative to local ones, the survey found.

While no one wants a trade war, the survey found that more than 60 percent are advocating for the U.S. government to take actions to help correct trade imbalances.

Zarit said some have grown weary of years of negotiations on trade and investment issues between the governments and think Washington should use pressure.

“Strictly just dialogue has not really brought much in terms of progress. So, perhaps some pressure will help get us more progress to a more balanced economic and commercial relationship,” he said.

Seeking ‘level playing field’

According to the survey, 27 percent of its business members “advocate more strongly for a level playing field” for U.S. businesses in China. Another 19 percent want the U.S. government to “apply investment reciprocity as an approach to improve market access in China.”

A third group comprising 14 percent of AmCham members wants Washington to pursue a new multilateral trade agreement that would include the U.S. replacing the Trans-Pacific Partnership, or TPP.

One of Trump’s first actions in office was to pull the United States out of the TPP, but last week at the World Economic Forum in Davos, he hinted at a possible path back toward the TPP or something similar to the trade agreement.

Lester Ross, head of AmCham China’s policy committee, said American companies should be ready to deal with harsh measures and other forms of retaliation from Beijing.

“I don’t think any company wants to absorb or make a sacrifice for trade relations, but I think some companies will inevitably suffer some repercussions if there are trade frictions between the two countries,” he said. “They [U.S. companies] have to consider that possibility.”

Ross said retaliation from the Chinese government could include measures targeting the airline and agriculture sectors, and possibly affecting industries and communities where support for Trump was strong during the elections.

“It would be likely that they [Chinese] will target sectors that have political resonance in the United States, and particular products or commodities,” he said.

Rising friction over trade is not the only way companies doing business in China could be caught in the middle.

As part of Trump’s efforts to exert more pressure on North Korea, he previously has complained that China is not doing enough and used the threat of possible trade actions as a carrot and stick to try to get Beijing to do more.

Some analysts said the Trump administration might go slowly on trade remedies against China if Beijing does more to help Washington in resolving the North Korea problem.

But that, in turn, could distract Washington from its plans to deal with what the U.S. sees as Beijing’s unfair trade practices.

Zarit said AmCham members also want the North Korea issue to be resolved as peacefully as possible.

“We also hope that our needs for addressing the structural imbalances in the relationship are not sacrificed in the process,” he said.

 
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Tourism to Cuba, one of the few bright spots in its ailing economy, has slid in the wake of Hurricane Irma and the Trump administration’s tighter restrictions on travel to the Caribbean island, a Cuban tourism official said on Monday.

Although the number of visitors rose nearly 20 percent in 2017, it fell 10 percent on the year in December, and is down 7-8 percent this month, Jose Manuel Bisbe York, the president of Cuban state travel agency conglomerate Viajes Cuba, said.

Arrivals from the United States, which had surged in the wake of the U.S.-Cuban detente in 2014, took the worst hit, dropping 30 percent last December, he told Reuters.

“Since Hurricane Irma, we’ve seen arrivals shrink,” Bisbe York said on the sidelines of the event organized by U.S. travel agency insightCuba to dispel tourist misperceptions about Cuba.

Irma hit in September, just as the tourism sector was taking reservations for its high season from November to March.

Images of destruction put many would-be visitors off although Cuba had fixed its tourism installations within two months, said Bisbe York. Arrivals of Canadians, the largest group of tourists to Cuba, were down 4-5 percent.

“But we see this as a temporary thing and what we are seeing is that arrivals are recovering from month to month,” said Bisbe York, adding that Cuba would go ahead with its plans to launch more than 15 hotels island-wide this year.

“The first trimester will be the most difficult, because logically the change in the public perception takes time.”

Occupancy rates at the hotels in Cuba managed by Spain’s Meliá Hotels International S.A. were down around 20 percent on the year in December and January, said Francisco Camps, Meliá’s Cuba deputy general manager.

“From February though, we are already reaching figures similar to those we had in previous years,” he said.

Republican President Donald Trump’s more hostile stance towards Cuba than his Democratic predecessor Barack Obama looks set to have a more lasting impact than Irma.

The number of U.S. visitors had surged since the Obama administration created greater exemptions to a ban on tourism to the Caribbean’s largest island and restored regular commercial flights and cruises.

Arrivals reached a record 619,523 last year, up from 91,254 in 2014.

But the Trump administration in September issued a warning on travel there due to a spate of alleged health attacks on U.S. diplomats in Havana. In November, tighter travel regulations also went into effect.

The double whammy seriously depressed U.S. visits, American tour operators and a cruise line said at Monday’s event, although in reality the restrictions remain looser than before the detente and travel easier.

Cuba is also still one of the safest destinations worldwide, they said.

“While the regulations he changed very little the perception in the U.S. was that you no longer could travel to Cuba legally,” said insightCuba’s Tom Popper, noting his agency’s reservations were down 50 percent this year. “Part of hosting this event was to communicate that it is 100 percent legal to travel to Cuba.”
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