February 8, 2010
By Svenja O’Donnell and David Tweed Feb. 9 (Bloomberg) — Greek Finance Minister George Papaconstantinou said he can’t call for outside aid as his government struggles to cut the European Union’s largest budget deficit. “The worst possible signal which we could send out is one calling for outside help,” he said in an interview with Bloomberg Television in Athens yesterday. “We will tackle the deficit,” he said, adding that tax revenues in January exceeded forecasts “by some percentage points.” Papaconstantinou has so far failed to convince investors that Greece can push the deficit below the EU’s ceiling of 3 percent of gross domestic product. With European leaders meeting on Feb. 11 to discuss the economic outlook, Greek two-year bond yields have surged to the highest in almost a decade and concerns about budget sustainability are spreading to Spain and Portugal. “The current state of the markets suggests Greece may need conditional support from the key European institutions and governments,” said Janet Henry , chief European economist at HSBC Holdings Plc, in an e-mailed note. European finance officials are for now sticking to their line that Greece, which has a deficit of 12.7 percent of GDP, won’t need outside help. European Central Bank President Jean- Claude Trichet said Feb. 4 he’s “confident” measures announced by Greece will work and EU Monetary Affairs Commissioner Joaquin Almunia says there’s no “plan B” for Greece. Woes Overshadow Greece’s budget woes threaten to overshadow a summit of European Union leaders that compelled Trichet to shorten his trip to a Reserve Bank of Australia symposium in Sydney by one day. The EU meeting was called to lay the groundwork for a 10- year economic program to strengthen the region’s competitiveness. Nobel Prize-winning economist Joseph E. Stiglitz said in an interview with Sky News yesterday that Greece has been the target of a “speculative attack” and doesn’t need a bailout. Papaconstantinou said yesterday that Greece’s budget plan will get the “green light” from European finance ministers. He may this week unveil an overhaul of Greece’s tax system that imposes the top 40 percent levy on Greeks earning less than the current threshold of 75,000 euros per year. Investors are turning a deaf ear to EU officials as Greece’s fiscal woes focus their attention on gaping budget deficits across the euro region’s southern fringe. Credit- default swaps on Spain and Portugal rose to a record yesterday. Raise Concern “Greece, Portugal and Spain have the most challenging fundamentals but Italy and Belgium could also start to raise some concerns,” said HSBC’s Henry. Italian Finance Ministry Undersecretary Luigi Casero told Sky TG24 yesterday his government must “maintain a policy of fiscal rigor” to avoid “difficulties.” Trichet’s efforts to shore up confidence in the euro region as a whole are also being ignored. While the ECB president said on Feb. 4 the bloc’s combined budget deficit may be lower than those of the U.S. and Japan this year, the euro fell the next day, extending its slide since the start of December to almost 10 percent. To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net ; David Tweed in Athens on jtweed@bloomberg.net .
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January 7, 2010
By Anchalee Worrachate and David Tweed Jan. 8 (Bloomberg) — Thailand’s interest rates shouldn’t rise just yet because inflation hasn’t accelerated enough and there’s no sign of an asset bubble, Finance Minister Korn Chatikavanij said. “We are likely to see some pickup in inflation, but at this stage it’s not sufficient for interest rates to rise,” Korn said in an interview with Bloomberg Television in London yesterday. “A large part of that is because the oil price is roughly about double where it was a year ago. It’s not a reflection of a recovery in demand. The central bank is an independent body and it’s their decision.” The Bank of Thailand, which kept its benchmark interest rate unchanged last month at a five-year low of 1.25 percent, will take its next decision on Jan. 13. Thailand’s inflation accelerated to a 14-month high in December, adding to signs the nation is emerging from its yearlong recession. “One of the reasons why I don’t believe there is an argument for a pickup in interest rates is that there is no evidence of an asset bubble,” Korn said. “The fact that our foreign reserves have been rising is almost entirely a result of the current-account surplus that we’ve been running rather than hot money coming in for speculation purposes.” The Bank of Thailand cut its interest rate by a total of 2.5 percentage points from December 2008 to April last year. Deputy Governor Bandid Nijathaworn said Dec. 25 that the bank will consider exiting monetary stimulus when the economy recovers as it seeks to balance between spurring growth and taming inflation. Yen, Dollar Bonds Thailand’s inflation has accelerated after food and commodity costs increased. An index of consumer prices rose 3.5 percent from a year earlier in December after climbing 1.9 percent, according to Commerce Ministry’s data on Jan. 4. That marks the third month of gains. The government may consider selling yen or dollar- denominated bonds to finance the budget deficit and show investors the country has regained its “economic strength,” Korn said. Thailand, which sold yen-denominated debt in 2008, may “do the same this year,” he said, adding that issuing dollar- denominated bonds may also be “interesting.” Korn said the government may spend as much as 5 percent of the nation’s gross domestic product in 2010 to boost the economy. “We can mostly fund this domestically,” Korn said. “Nevertheless, we haven’t shut the door.” Selling bonds in the international market “would have a potential side benefit of showing the world that Thailand is back where it belongs in terms of its economic strength,” he said. Baht Strength The last time the Thai government issued bonds in dollars was in February 2006, according to Bloomberg data. It also sold 55 billion yen ($590 million) of so-called samurai bonds to Japanese investors in May 2008. The baht has risen against the dollar because of capital flows into the region. That may hurt exports, he said. “The surplus is about a billion dollars a month, which is having a natural impact on the strengthening currency,” Korn said. “It’s a concern because we are reliant on exports as a major growth driver.” Korn said he wants China to allow its currency to appreciate, declining to specify when it should happen. “We have to accept the fact that we need, the world needs, the Chinese economy to keep humming,” he said. “In order to do that China has to keep their currency relatively weak. But the side effect of that is that it’s making economies such as Thailand, Indonesia, and Vietnam less competitive against China. Eventually we’d like all currencies to be moving along according to market conditions.” The baht gained 4 percent against the dollar last year. Against the euro, it rose 2.35 percent. To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net ; David Tweed in London at egotkine@bloomberg.net .
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