"Obviously Ukraine is heading into a major recession in 2009 fueled by the nasty cocktail of a credit crunch, a terms of trade deterioration, and a consequent massive slowdown in both internal and export demand. Given the damage to competitiveness caused by two years of double digit inflation, macroeconomic stabilization will require a very large and significant correction, and this will mean a significant tightening of aggregate demand and a shift in its composition away from domestic consumption and towards net exports."But to whom will they export? He goes on to point out that Urkaine is thus especially vulnerable to external variables, and I infer by that he means in part Moscow's decisions.
"The danger of total financial meltdown (which would be in this case in the private banking sector, not sovereign debt) is real and significant. The economic downturn has only just started and further downside risks are large and depend critically on the size of external shocks and the limitations imposed by inadequate policy responses."Worth reading in full. (The piece came to my attention via Krugman's blog.)
2. Ta Bao Long at Bloomberg reports that Vietnam's central bank has allowed the dong to depreciate against the dollar over the last few days in an effort to gird exports.
"'The new reference rate will help increase exports, narrow the trade deficit, and also ensure the stability of balance of payments,' the central bank said on its Web site yesterday."3. Stephan Kueffner at Bloomberg writes that the newspaper Diario Hoy reported that Ecuador sold $700 million in bonds to the country's social security organization on December 24, and that it will sell an additional $750 million to the organization on December 29. Ecuador decided to default on its debt in the middle of December. (see Daily Sources 12/15 #1) Ecuador, a member of OPEC, does not have a national currency, but uses US dollars which is what contracts for crude oil is mostly priced in globally. The decision has led some analysts to predict that Quito will introduce a national currency and drop the dollar. (see Daily Sources 12/17 #5)
4. Erwan Quintin and Edward Skelton of the Federal Reserve Bank of Dallas report that Mexico is better positioned to weather the financial crisis than it has been in the past. They point out that Mexico has tamed inflation and their sovereign debt held by institutions outside the country is down to 40% from 85% at the time of the Tequila Crisis. Large dollar reserves held by the government and the decision by the Fed to provide $30 billion to help Mexico manage demand for the dollar are also signs that Mexico is better equipped to handle the crisis than most. (On October 29 the Fed established dollar swap lines with Banco de Mexico and three other emerging markets central banks--see Daily Sources 10/30 #4) Skelton and Quintin's piece is worth reading in full. (h/t Mark Thoma at Economist's View)
5. Mark Shenk at Bloomberg reports that Adnoc, the Abu Dhabi National Oil Co., will reduce the supply of the Murban crude by 15% and the Upper Zakum crude by 3% as part of its effort to meet its obligations under the December 17 OPEC oil allocation cut. Production capacity for Upper Zakum is about 500 kb/d. Murban production capacity is about 1.5 mb/d. The UAE produced about 2.35 mb/d in November. MEES estimated the UAE's total production capacity to be about 2.55 mb/d in 2003 and expected total capacity to be about 2.85 mb/d by now--at the time of their writing.
6. The head of Saudi Intelligence from 1977 to 2001 and Riyadh's Ambassador to the United States from 2005-7, Turki al-Faisal, urges President-elect Obama to pursue peace in the Middle East via the plan outlined in the Arab peace initiative of 2002. Four main points:
"· Call for an immediate withdrawal of Israeli forces from Shebaa Farms in Lebanon. This would remove the issue of "national liberation" from the arsenal of Hezbollah's propaganda and mitigate Syrian and Iranian interference in Lebanon.Well worth reading in full.
· Work with the U.N. Security Council for a resolution guaranteeing Iraq's territorial integrity. This would dampen Iraqi politicians' ambitions for dismembering Iraq and force them to negotiate for national reconciliation, putting their interests as Iraqis before their interests as Arabs, Kurds, Shiites or Sunnis. It would also stop any ambitions -- economic or territorial -- that Iraq's neighbors may be considering.
· Encourage Israeli-Syrian negotiations for peace. This would engage Syria and diminish Iranian obstructionism. It would also force Palestinian groups based in Syria to follow the Syrian example.
· Declare America's intention to work for a Middle East free of weapons of mass destruction, with a security umbrella and other incentives for countries that sign up and a sanctions regime for those that don't. This would remove the issue of double standards that the Iranian government uses to raise support among its people for its nuclear policy. It would also resolve the security concerns with which Israel's leaders justify their possession of nuclear weapons."
7. Alissa J. Rubin at the New York Times gives a decent summary of the political situation in Baghdad.
8. Richard A. Oppel Jr. in the New York Times writes that 20,000 or so troops in Pakistan are being deployed away from the Northwest province where the struggle with the Taliban is taking place as tensions with India continue to build. Pakistani officials would not indicate where these troops were being sent. The military is also denying soldiers leave.
9. Min Zin asks that we not forget the struggle for freedom in Burma in a piece in the Wall Street Journal.
10. Ann Zimmerman, Jennifer Saranow and Miguel Bustillo at the Wall Street Journal write that MasterCard Advisors report that consumer spending fell 8% in December from a year earlier, more steeply than the 5% fall they saw in November from a year earlier. Not being in possession of the report, I cannot intelligently critique it. But, if the numbers, as would be plausible, are the result of aggregated credit card receipts, then they may be partially a result of people choosing--for reasons of thrift or of new credit limits--to use cash. The Commerce Department on December 24 reported that consumer spending had actually increased by 0.6%, after adjusting for inflation, in November from the month earlier. On the 23rd, the Commerce Department reported that consumer spending had fallen by 3.8% from a year earlier in the third quarter. (see Daily Sources 12/24 #14)