Archive for December, 2008

Japan unveils economic aid, Belgian government falls (Reuters)

Saturday, December 20th, 2008 | Finance News

LONDON/NEW YORK (Reuters) –
Japan, Germany and Canada pledged new measures on Saturday to confront a financial crisis that has toppled banks, endangered the global auto industry and now played a part in the demise of Belgium's government.

Tokyo joined governments worldwide in pledging hundreds of billions of dollars of fiscal stimulus to lessen the impact of the crisis on their economies, many of which, Japan's included, are already in recession.

Its extra 4.79 trillion yen ($54 billion) budget, approved by the Cabinet on Saturday, will help finance two already-unveiled spending packages totaling 10 trillion yen.

In Canada, Prime Minister Stephen Harper unleashed C$4 billion ($3.3 billion) in emergency loans to the Canadian arms of Detroit's ailing automakers to keep them operating while they restructure their businesses. The lifeline comes just a day after the White House unveiled a $17.4 billion package to shore up Detroit's auto industry.

Harper also announced two new federal measures to support the overall industry -- one to benefit automotive suppliers and a second to help consumers get credit to buy cars.

"There are literally across the country hundreds of thousands, if not millions, of potentially affected families by the distress of this industry," Harper said.

German Chancellor Angela Merkel said her country would take "a further step" in January to boost its economy, having previously limited herself to saying government leaders would meet in the new year to review the situation.

In neighboring Belgium, King Albert consulted political leaders after the government collapsed following its botched attempt to bail out financial group Fortis.

Prime Minister Yves Leterme tendered his government's resignation on Friday after a report by the Supreme Court found signs of political meddling to sway a court ruling on the future of the bank, a victim of the credit crunch.

The king, who under the constitution must decide whether to accept the resignation, held successive talks with the heads of the five ruling-coalition parties until 2 a.m. on Saturday.

Consultations were to continue later in the day. Belgian media said there was little chance of Leterme staying on.

Leterme denied accusations he had sought to influence an appeal court that last week upheld a challenge by shareholders to a state-led carve-up of the bank, but acknowledged that the Supreme Court's findings made his position untenable.

The global economy's lifeblood -- credit -- remains severely constrained despite authorities spending trillions of dollars to keep money markets functioning, propping up banks and producing economic stimulus packages.

The boss of Britain's Barclays bank said it would be tough to get credit for up to two years yet.

"I think that we will see the process of reduced borrowing play out over at least the course of the next 12 months maybe, maybe 24 months," John Varley told BBC Television's Panorama program.

CHINESE, GERMAN PLEDGES

China expanded its pledge to help neighbors ride out the crisis, saying it was willing to meet requests for assistance from Taiwan.

Ties between China and Taiwan, separated since the end of the Chinese civil war in 1949, have been warming since Taiwanese President Ma Ying-jeou took office in May.

"If ... Taiwan asks for measures to ease its economic difficulties, the mainland is willing to do its utmost to provide aid," said Jia Qinglin, the fourth most senior leader of China's ruling Communist Party.

The financial crisis, sparked by a 2007 U.S. housing market meltdown and huge bank losses that ensued, has pushed much of the world into recession and curbed even China's fast growth.

In her weekly podcast, Merkel said Berlin would do everything possible next year to keep the economy -- already in recession -- on a sound footing, after passing a stimulus package two weeks ago that was criticized as insufficient.

"We'll take a further step in January," she said, confirming for the first time concrete measures were on the way.

Analysts said Japan's measures could also be inadequate, given they are unlikely to be implemented until April.

"The problem is that it is taking more than five months for Prime Minister Aso to carry out his economic measures at a time when economic conditions are rapidly changing at home and abroad," said Takahide Kiuchi, economist at Nomura Securities.

Tokyo's move caps a dramatic week when it and the United States cut interest rates virtually to zero and Washington threw a $17.4 billion lifeline to its crippled auto firms.

But General Motors and Chrysler LLC are not out of the woods yet. Washington set a deadline of March 31 for the companies to prove they can restructure enough to ensure their survival or have the loans called back.

A collapse of the Detroit Three automakers would put nearly 600,000 Canadians out of work within five years, most of them in Ontario, according to a provincial advisory panel report.

Under Canada's rescue plan, the federal government will provide C$2.7 billion in short-term loans and Ontario C$1.3 billion.

Harper said Canada would not allow a restructuring of the industry on U.S. terms in a way that spark Canadian job loss.

"We may well have much smaller companies but they will not fail in my judgment," Harper said. "The question then for Canada is to ensure that as they are restructured that we retain our market share."

(Editing by Doina Chiacu)

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Bush throws lifeline to U.S. automakers (Reuters)

Saturday, December 20th, 2008 | Finance News

WASHINGTON (Reuters) –
President George W. Bush bailed out U.S. automakers on Friday with $17.4 billion in emergency loans as he sought to stave off a collapse that would have cost hundreds of thousands of jobs.

Bush, seeking to bolster his legacy and bucking some fellow Republicans who would prefer the car industry to deal with its problems without government aid, said it would be irresponsible in a time of economic crisis to let carmakers die.

The government will offer up to $17.4 billion in loans to the U.S. automakers, reeling from a slump in consumer demand, and expects General Motors and Chrysler LLC to access the money immediately. The White House said the loan agreements had been signed.

Ford Motor Co, the other firm in Detroit's storied Big Three, said its liquidity was adequate for now and it did not need a loan at this point.

"If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers," Bush said, warning that to do nothing would deepen and prolong the U.S. recession.

U.S. stocks rose on the news of the lifeline to the sector, with GM shares jumping 10.9 percent.

The White House moved on its own after Republicans in the Democratic-controlled U.S. Congress blocked a deal last week. That plan followed weeks of negotiations that included desperate pleas on Capitol Hill from the auto chiefs.

Some $13.4 billion of the total package will be made available in December and January from a $700 billion Wall Street bailout fund originally designed to rescue struggling financial institutions.

Bush attached a string of conditions to the three-year loans and set a deadline of March 31 for the companies to prove they can restructure enough to ensure their survival or have the loans called back.

But the White House opted against a "car czar" proposal that was a cornerstone of the failed bailout efforts in Congress, and handed oversight responsibility to Treasury Secretary Henry Paulson instead.

"We don't think that's something that we should impose ... just for 31 days when the next administration may or may not have a different view about how they want to handle it," deputy White House chief of staff Joel Kaplan said.

Democratic President-elect Barack Obama, who takes over from Bush on January 20 and will inherit the handling of the deal, welcomed the loan move as a necessary step. But he said he wanted to make sure workers did not bear the brunt of the restructuring.

"My top priority in this administration is to create 2.5 million new jobs and I want some of those jobs to be in the auto industry," Obama said at a news conference.

Obama has been calling for short-term loans to the sector based on steps toward long-term viability.

LABOR TERMS

Other Democrats and the main auto labor union assailed the deal as unfair, saying workers were going to have to concede too much.

One provision in the loan terms on worker pay brought protests from the United Auto Workers union, and then a change in wording by the U.S. Treasury. The Treasury altered the wording of the terms for automakers to seek reductions in wages and benefits to levels "competitive with" Japanese rivals.

Under wording released earlier in the day, the Treasury said it would require reductions to levels "equal to" average compensation paid per hour and employee by Toyota Motor Corp, Nissan Motor Co and Honda Motor Corp in the United States.

The change was described as a correction of a grammatical error by a Treasury spokeswoman.

GM CEO Rick Wagoner said the company would now focus on fully implementing its restructuring plan and was confident of meeting the government's requirements.

Chrysler, widely seen as the weakest of the Big Three, said concessions would happen quickly and it would continue to undertake "significant cost reductions."

Private equity firm Cerberus said in a statement it would use the first $2 billion of proceeds from Chrysler's auto financing arm, Chrysler Financial, to backstop the government loan allocated to its struggling Chrysler car unit.

Ford, while not seeking an immediate loan under the program, has said it would like a line of credit from the government only to be used if its finances worsen significantly in 2009.

Analysts noted the automakers' woes were far from over.

"It's a lifeline, but it doesn't get them completely out of the woods. It takes them (GM and Chrysler) forward until March. Basically the next administration has to deal with it." said Erich Merkle, an analyst with Crowe Horwath in Michigan.

DIRE PICTURE

Some Republicans opposed to bailing out Detroit were dismayed at the loan package.

"I find it unacceptable that we would leave the American taxpayer with a tab of tens of billions of dollars while failing to receive any serious concessions from the industry," said Arizona Republican Sen. John McCain, who lost the presidential election to Obama on November 4.

The White House presented a dire picture if it did not act, saying that if the auto industry were to collapse, it could reduce U.S. economic growth by more than 1 percent, put about 1.1 million workers out of jobs and cost some $13 billion in new unemployment claims.

Underscoring the damage already done, auto parts maker Federal Mogul Corp said on Friday it was cutting 4,600 jobs.

The loan conditions included limits on executive compensation. Auto companies must pay back all their loans to the government and show their firms can earn a profit and achieve a positive net worth. The automakers would also have to provide warrants for nonvoting stock.

WALL ST BAILOUT FUNDS

Both GM and Chrysler have said a bankruptcy filing is not an option they would chose because of the risk it would drive more consumers away from their brands. Both have idled plants and laid off thousands of workers across North America.

A bankruptcy filing by one company could topple suppliers and endanger the remaining two companies because of the overlap in their key parts suppliers.

The Treasury said the move to help the automakers had effectively exhausted the initial $350 billion of the Wall Street bailout funds approved by Congress and that it now needed to access the rest of the $700 billion.

The remaining $4 billion in autos aid is contingent on the administration seeking the second half of the Troubled Asset Relief Program, an administration official said.

The loans would have an interest rate of at least 5 percent but could rise to 10 percent if the carmakers default, officials said.

In a ripple from the U.S. auto slump, Mexican conglomerate Alfa said on Friday it was temporarily halting production at its nine auto parts plants in Mexico that supply U.S. carmakers.

No automakers have been spared in the global sales slump.

Japan's Toyota Motor Corp could report its first annual parent-only operating loss in 71 years in the year to end-March, and may issue a profit warning at a scheduled year-end news conference on Monday, Japanese media reported.

Toyota, which declined to comment on the reports, last saw an operating loss in its first year of operation in 1937/38.

Japan's carmakers are also feeling the pinch from a strong yen.

Canadian Prime Minister Stephen Harper was set to announce an aid package for his country's auto industry on Saturday. That aid could amount to several billion dollars.

(Additional reporting by U.S. autos team and Tokyo bureau; Writing by Steve Holland; Editing by Frances Kerry and Peter Cooney)

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Ecuador’s Correa says “stupid” to scrap U.S. dollar (Reuters)

Saturday, December 20th, 2008 | Finance News

QUITO (Reuters) –
Ecuadorean President Rafael Correa said on Saturday it would be "really stupid" to abandon the U.S. dollar and vowed to keep the greenback as the OPEC nation's official currency.

Economists fear the leftist Correa will scrap the dollar to better deal with an economy reeling from plummeting oil prices and limited foreign credit after he defaulted on $3.8 billion in sovereign bonds over illegalities charges.

"It will be really stupid to scrap the dollar," Correa said during his weekly media address. "Our government has done more than anyone to protect the dollarized (economy)."

The dollar, adopted as Ecuador's currency in 2000 to halt devaluations after a crippling financial crisis, is widely popular among Ecuadoreans who see it as an anchor of economic stability.

Correa said he will reduce public spending and restrict imports to keep more dollars in the country.

Analysts say lower public spending could hurt Correa's buoyant popularity as he faces re-election in April.

The U.S.-trained economist warned that the global financial crisis "will hit us and hit us hard," and said his government will take "imaginative" measures to counter its effects on the oil-producing nation's poor majority.

He also said his government will face "a grave financing problem" that it plans to tackle by seeking loans from regional lenders and issuing debt for the social security institute to buy. The head of the institute has said it can buy up to $1.2 billion in domestic bonds to help the government.

Correa said he will ask for loans from lenders like the Inter-American Development Bank, Andean Development Corporation and Latin American Reserve Fund. Analysts have warned Ecuador's debt default will severely reduce multilateral credit.

Correa, a former economic minister, also denied rumors he plans to freeze banks' deposits, which were in part fueled by a newspaper ad from major banks who said the government's growing role in the economy jeopardizes the stability of the sector.

He threatened to jail bankers if they issue another statement that sparks rumors among depositors.

Thousands of Ecuadoreans lost their life savings during the 1999 banking collapse that forced the government to freeze deposits to prevent a massive withdraws from hurting liquidity.

(Reporting by Alonso Soto; Editing by Bill Trott)

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