Pakistan's post-9/11 economic boom

Many wealthy Pakistanis in America have responded to increased monitoring of wealth and assets, particularly owned by Muslims, by sending a substantial part of their savings back home.And areas like the up-market Defence Housing Authority in Lahore have benefited enormously.A recent ballot to allocate 300 residential plots in this area received nearly 70,000 applications. The huge interest of investors in this and other well-to-do areas is typical of the unprecedented surge in real estate businesses in big cities like Lahore and Karachi following the attack on the World Trade Centre.Since then, the value of one plot in the Defence Housing Authority has shot up from about $65,000 before 11 September to in excess of $1.5m after it.In the town of Johar, another affluent middle class locality, average prices have risen on an equally spectacular basis - from about $35,000 to more than $132,000.The boom has led to a mushrooming of Pakistan's middle class housing suburbs, often at an unprecedented speed.The growth of Lahore's Defence Housing Authority is so phenomenal that it has announced five new building phases since 2002."The property boom in Lahore would not have been possible had 9/11 not occurred," says Sahir Chaudhary, a real-estate developer in Lahore, "The price of the real estate went up by as much as 1,000% in the city in the last five years."The rocketing real estate prices in Lahore have resulted in hundreds of rags-to-riches stories.Poor farmers with small pieces of land in the villages close to the municipal limits could hardly make ends meet. But with the fast expansion of the city's frontiers, they sold off their property, pocketing millions of rupees overnight.The city's roads are now clogged with brand new four-by-fours - the names of BMW and Lexus are becoming increasingly common on the streets.The cars are just one sign of the ostentatious new rich, showing off money which was unheard of a few years back.More than 30m cellular phone subscribers is another signpost of the upturn.Pakistan's electricity company chief Tariq Hameed says there have also been record sales of refrigerators, washing machines and split air conditioners which have caused a sudden surge in electricity demand. Not surprising then that this summer there were many power cuts in peak hours.All this is all the more amazing when one considers that just five years ago, Pakistan was on the verge of bankruptcy, with only a little more than $1bn in foreign exchange reserves and its stock market teetering at 1,000 points.Two months after 9/11, the forex reserves went up to $4bn as Pakistan joined the US coalition against the "war on terror". The forex reserves now stand at more than $12bn.And there is little doubt that the catalyst for this growth has been the massive amount of remittances sent back by non-resident Pakistanis in the US and later from Europe.In 2001, the remittances totalled a little more than $1bn.But since 2002, Pakistan has received nearly $4bn in remittances every year.That means an additional inflow of $14-15bn has been returned to the country since the 2001 attacks.No wonder, then, that the once ever-declining rupee has been stable at around 60-61 to a dollar since then.The wealth flowing in to Pakistan now is second only to the boom created by money sent back to the country by its blue-collar workers in the Middle East in the 1980s.The difference is that the 1980s money created a lower middle class, whereas today the principal beneficiaries are upper middle class people in big cities.They brandish credit cards and drive Mitsubishis. Their children go to grammar schools, eat burgers and pizzas and celebrate Halloween and Valentine's Day.Strange then that the vast majority still have few kind words for the US - even though it is arguably the source of their new-found prosperity.

New forex controls By Argentina

New exchange controls slapped on the peso by Argentina's central bank have failed to stem a slide in the currency's value to record lows.Startled by the accelerating slump, the bank threw its reserves at the peso.But with nearly one tenth of the reserves - totalling $1.2bn - spent to little avail, the Central Bank has now banned foreign exchange traders and banks from buying dollars from it at the market rate.The new controls also limit the sale of dollars to $1,000 for each individual or $10,000 per company, while bureaux de change have had their opening hours slashed by half to just 3-1/2 hours a day.Still, so far there has been little effect.Before devaluation in January, the peso was pegged at parity with the US dollar.The decision to let it float saw a starting rate of 1.40 pesos to the greenback.By 1800 GMT, a single dollar was buying 3.75 pesos - a fall of 75%."In the absence of having some credible fiscal policy and economic management, spending reserves was just throwing money away," IDEAglobal head of Latin American research Doug Smith told the Reuters news agency.The sharp fall is raising fears that inflation could shoot up, since the shifting currency means the price of any goods sourced from outside Argentina is shooting up.Argentines, half of whom are below the poverty line amid unemployment above 20%, fear that the moves could be the harbinger of a return to the bad old days.The dollar-peso peg was introduced in the early 1990s to stem rampant inflation and turn around an economy hampered by deep-seated corruption.But the country's heavy debt burden - brought on by years of excessive government spending - combined with a four-year recession and ill-timed austerity measures demanded by lenders to force the country into decline, default and finally devaluation.Now the government - the fifth since early December - of President Eduardo Duhalde is struggling to keep the country going, desperate for new loans from a very reluctant International Monetary Fund.Aldo Avram, director of economic consultancy Exante, told the BBC's World Business Report he believes Argentina should consider dollarisation although there would be political problems, he said.it must be an ordered dollarisation, he added."Hyperinflation is a way in which you go to a dollarisation but in a disordered and chaotic way."

Argentina peso hits new low

In Argentina, the peso has slipped to a record low amid gloomy predictions that the country's worst ever economic crisis will deepen further this year.Until devaluation in January, the peso was tied to the US dollar at one-to-one for a decade. It has now slipped to 2.5 to the dollar.President Eduardo Duhalde, who is Argentina's fifth leader since December, is desperately trying to negotiate a restoration of IMF aid to reverse a four-year recession.President Duhalde says that without IMF help in the next month, Argentina faces a return to the rioting and unrest which left 27 people dead and toppled former President de la Rua in December. The statistics paint a frightening picture of Argentina's continued decline. Nearly half the population now live below the poverty line, unable to pay for basics like food, rent and essential services.More than 20% are officially unemployed, and unofficial estimates are higher.The IMF is now predicting the economy will shrink by another 8% this year, which means more companies closing and more job cuts.IMF officials, while welcoming some changes in Argentina, have also warned the government to stop printing money.The government, which is still running a deficit, is printing billions of pesos to try to pay its workers.So are provincial governments - there are now 14 different local bonds or currencies in circulation.An annexe of Congress has had to be boarded up with metal sheets to protect those inside from angry protestors, some threatening to kill politicians.Many banks have done the same.Politicians on the street have also been attacked and abused.But the IMF, under criticism in the United States that it bailed out Argentina for too long, shows no signs of restoring aid until there is evidence that the government's policies can lead to a sustained recovery.

Allied Irish Bank's lost more than £500m

Allied Irish Bank's admission that it has lost more than £500m on the foreign exchange markets thanks to a trader who has since absconded sounds impossible to believe.Except, of course, that it happened in 1995, when Nick Leeson brought down Barings Bank, after losing at least £800m in the derivatives market. No-one is suggesting that AIB is going under. AIB is a retail bank with deep pockets, while Barings was badly undercapitalised.But still the implications are serious.The complexity of the trading - and the memory of how Nick Leeson broke Barings - means that oversight systems should have been much more robust, market watchers say."This isn't going to hurt AIB as badly as Barings in financial terms," one London trader told BBC News Online."But after Leeson people are expected to have much tighter systems in place. Their internal controls, the auditors, even the regulators are looking very, very bad over this. And there could be others like this. The big investment banks have really tight procedures, but the more staid mid-tier outfits have never been looked at as closely."There could well be other skeletons in the cupboard."Still, to the layman the idea of a bank "discovering" that it has lost half a billion pounds in buying and selling foreign currency sounds like lunacy.But the hole Allied Irish Banks has discovered in its accounts pales beside the sheer magnitude of foreign exchange trading worldwide.Trillions of dollars pass daily through the forex markets, as they are known - the same money, churning from one currency to another minute by minute.Traders look for fluctuations in exchange rates, and take advantages of situations where a rate looks promising compared with where they think it is likely to move in the future.On the face of it, that is not too complicated a proposition.But bets can go wrong, so traders cover their backs by hedging: using options, bets with another institution that will pay out if a currency falls or rises a certain amount by a certain date.The theory is that the options will offset losses should a guess go wrong. If it goes right, then the option does not have to be cashed in, and the only cost is the commission for taking out what amounts to insurance in the first place.It is this part of the forex business which is hurting AIB.Early indications are that its trader ran up huge losses by backing - metaphorically speaking - the wrong horse with what AIB chief executive Michael Buckley has called "a very, very large number of trades".Traders are meant to follow strict rules on allowable risk, given the huge sums that can be lost.But this man did not get authorisation for his bets, and so he tried to cover his tracks. He created imaginary options deals in the firm's books, deals which never took place.A cursory glance would have made it seem that the books balanced, that the losses were being matched by profits on options elsewhere which were the mirror image of the failed trades.Somehow, the "back office" - the part of a trading operation which checks what the front-line traders are doing and looks after the book-keeping - overlooked it.AIB believes that could well be the result of an internal conspiracy.As any unlucky gambler knows, once you fall deep into the red the bets needed to get back out again soon spiral out of control.And before long, $750m had simply evaporated.

Average turnover on the world's forex

Average turnover on the world's foreign exchange (forex) markets reached almost $1,500bn a day in April this year, according to the Bank for International Settlements (BIS).The volume of forex trading is far greater than the size of foreign currency reserves held by any country.The size of forex trade has played its part in the currency crises of emerging nations over the past year.The exact figure, $1,490bn, or $1.49 trillion, is 26% higher than when the BIS, which represents central banks, last measured flows in 43 different countries three years ago.Almost a third of all forex trading occurs in London, by far the world's largest centre, with New York and Tokyo second and third.At current values, transactions involving US dollars on side of the trade accounted for 87% of forex business. The Japanese Yen was the second-most traded currency.However, less than half the transactions were simple 'spot' deals, the immediate purchase of currency for commercial transactions.Most forex trading is on the futures market where currency buyers undertake to buy at a set price at a specified date in the future.Foreign exchange futures allow companies to plan their import, export and foreign investment operations with the certainty of knowing what will be the value of the currencies they trade in.However, increasingly the forex futures market is home to rich individuals and 'hedge funds' who speculate against currency movements attempting reap windfall gains.George Soros is the most high-profile example of such currency speculators.The advent of the euro next year is expected start to stem the sharp increases in forex dealings as eleven European currencies consolidate into one over the next three years.The figures shed some light on how financial crises began in emerging economies over the last year.The ability for massive daily foreign currency flows to take place made possible the almost overnight collapses of the currencies of countries like Thailand, Indonesia and Russia.As confidence in the economies of these countries fell away, demand for their currencies fell as investors took their capital out or stopped bringing it in.Governments had tried to buy their own currencies to underpin their value but couldn't keep up with the sellers.When they stopped their own forex activity, the forces of demand and supply saw the baht, rupiah and rouble in turn crash in value deepening the crisis of confidence and economic slowdown.Speculators constantly watching for these market developments hastened the process.

UK inflation rate rises

The Consumer Prices Index (CPI) climbed to 1.5% in October, up from 1.1% in September.Meanwhile the Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, rose to -0.8% from -1.4%.Inflation accelerated mainly because fuel prices fell by a lot less than they did in the same period a year ago.The Office for National Statistics (ONS) said fuel costs fell by just 0.7% between September and October, compared with a record 6.1% fall last year.That fall was caused by a dramatic slide in the price of oil.
Prices of second-hand cars, which rose at the fastest rate on record, also contributed to the inflation rise in October, the ONS said.It also said rising prices of recording devices, games and toys helped to push inflation up.Cuts in the cost of banking services, particularly overdraft charges and mortgage arrangement fees, helped to offset some of the price rises.The rise in the RPI - the biggest monthly rise since 1990 - was due in part to the fact that house prices are currently rising, but were falling last year.Analysts had expected the rate of inflation to rise, so the figures came as no surprise to the City."I don't think this is anything that will worry the Monetary Policy Committee [of the Bank of England] too much," said Amit Kara at UBS."The MPC has highlighted that inflation is going to be very volatile in the near term."The committee sets interest rates which are the main policy tool available to control inflation.The Bank of England has also said inflation will probably go up after the temporary reduction in VAT expires in January, although inflation is then expected to fall back again.However, October's rise in inflation did lead some analysts to question whether the Bank would pump more money into the economy beyond the £200bn it has already announced under its quantitative easing (QE) programme."While such a spike [in inflation] is expected to prove a temporary affair, it is hard to reconcile the Bank rolling out QE yet further in February hot on the heels of CPI potentially returning to letter-writing territory," said Richard McGuire at RBC.The government target for the CPI measure is 2%. The governor of the Bank of England has to write to the chancellor if the annual rate of CPI inflation is more than 3% or less than 1%.But while some questioned the wisdom of expanding QE, others urged the Bank to continue pumping money into the economy."Given the serious risks facing the UK economy and the dangers of a double-dip recession in 2010, it is important for the MPC to persevere with an aggressive QE programme, and to consider special measures aimed at boosting bank lending to businesses," said David Kern, chief economist at the British Chambers of Commerce.

Billionaire Strikes Back

Billionaire Henry T. Nicholas III fired damning accusations Friday night at a former contractor, accusing him of evading taxes and creditors. In a complaint filed in U.S Bankruptcy Court, Nicholas demanded Roman James, an Orange Country contractor who is likely a key witnesses for the U.S. government in a drug-related case against the co-founder, pay him $858,156 in attorney fees.The lawyer fees, incurred during a 2008 breach of contract dispute in which James accused Nicholas of breaking a confidentiality agreement, are likely inconsequential to Nicholas, who ranked 236th on the Forbes list of the 400 richest Americans with a net worth of $1.5 billion in October."I think it's just a smear campaign, they're just posturing," James says. "I'm just a humble contractor with a little baby, this is way out of my league. I'm not a legal expert. I'm getting schooled by a billionaire's defense team." Nicholas' complaint alleges that "for most of his adult life, James has engaged in a pattern and practice of evading creditors--including the Internal Revenue Service and the State Franchise Tax Board."It goes on to list James' two former girlfriends, an ex-wife, his current wife and a personal friend who have allegedly provided James with a "veil of secrecy" and served as conduits for him to conduct his business affairs while concealing his assets.The complaint also suggests James has not had a bank account in his own name for decades and has used "highly irregular transactions designed to conceal income and assets and misdirect creditors." James was the lead builder on a massive expansion of Nicholas' Laguna Hills mansion earlier this decade. As part of that renovation, James helped build what he and others claim was a series of secret rooms, one of which was used as what the media has dubbed a "sex lair." In 2002 James and several other contractors working on the Nicholas home drafted a lawsuit alleging they had not been compensated for their work. The lawsuit suggested Nicholas held wild parties complete with drugs and prostitutes in the sex lair underneath Nicholas' house. The suit was never filed. Instead, James and the other contractors had settled for an undisclosed sum.The information James claims to have about what went on at the Nicholas residence--and at a warehouse a five-minute drive from the mansion, where a replica of the secret rooms were built--makes him a key witness to the U.S. government, which has charged Nicholas in two separate indictments.The first of those indictments, which accuses Nicholas of 21 federal charges of options backdating, is scheduled to go to trial in February.The second trial, slated to begin next October, is on four drug-related charges. It is this trial where James is expected to testify. If convicted on all counts, Nicholas could face as much as 360 years in prison. As part of their settlement, neither James nor Nicholas could talk about one another. When James felt that confidentiality was breached, he filed a lawsuit against Nicholas. The suit was sent to arbitration, where Nicholas won in 2008. James was ordered to pay Nicholas $858,156.18 in attorney fees for the matter. Following the arbitration ruling, James filed for bankruptcy on May 27, 2009, one day before he was to sit for his Judgment Debtor's Examination, according to Nicholas' complaint. "All of this is inaccurate, this is a total joke," James says. "My attorney fees were 10 grand, his were $800,000. As far as having a business in my wife's name, who doesn't? She paid taxes on it."