October 5, 2010
By SEWELL CHAN
WASHINGTON — The United States is increasingly looking to the International Monetary Fund to hold countries like China accountable for “rebalancing” the global economy, a Treasury Department official said Tuesday.
Exchange rates are expected to be a major topic when finance ministers gather here this weekend for the annual meetings of the I.M.F. and the World Bank.
In a briefing Tuesday, a senior Treasury official said the United States was looking to the I.M.F. to ensure that countries contribute to “strong, sustainable and balanced growth” — the mantra adopted when leaders of the Group of 20 economic powers, including President Obama, gathered in Pittsburgh in September 2009 to coordinate the world’s emergence from the financial crisis.
In practical terms, the slogan means that export-oriented economies like China, Japan and Germany should stimulate domestic demand while heavily indebted countries, like the United States, should reduce their trade and budget deficits, by saving and investing more and borrowing and spending less. But while the world’s biggest economies have adopted those goals in principle, achieving them in practice has proved difficult.
The unity of the G-20 countries has been repeatedly tested this year, by the European debt crisis, China’s reluctance to allow its currency to appreciate in value, steep budget cuts in Britain, and Japan’s recent move to devalue the yen, among other developments.
The official, who spoke on the condition of anonymity under ground rules set by the Treasury, did not single out China by name but made it clear that the Obama administration was impatient over Beijing’s halting progress in permitting greater exchange-rate flexibility for its currency, the renminbi, as Chinese officials promised to do in June.
“The United States has been very consistent in its position that the leading economies should be supporting exchange rates based on market fundamentals,” the official said, adding: “We expect that countries will continue to move toward honoring the full set of their G-20 commitments.”
The I.M.F. managing director, Dominique Strauss-Kahn, said last week that he did not see a great risk of a “currency war” — with countries devaluing their currencies to make their exports cheaper — as some countries, like Brazil, fear. Nonetheless, he is expected to make currency a priority this weekend.
In its semiannual report on global financial stability, the fund also warned Tuesday that the world financial system “is still in a period of significant uncertainty and remains the Achilles’ heel of the economic recovery.”
José Viñals, director of the monetary and capital markets department at the I.M.F., called for countries to tackle the high public debts through fiscal consolidation over the medium term, address lingering vulnerabilities in their banking systems and make more progress on overhauling financial regulations.
Mr. Viñals also said that countries in Latin America and Asia were experiencing “very large amounts” of capital inflows, a result of the attractive investment returns, growth prospects and solid balance sheets. Large influxes of capital could cause macroeconomic instability if they were not carefully monitored, he said.
Progress toward stability “experienced a setback” since the last such report was released in April, the new report found, a result of anxieties over heavily indebted countries like Greece and Spain.
Both countries have taken drastic measures to pare government spending. They have been joined by Britain, whose budget cuts have been so severe that Americans have expressed anxiety about the potential impact on the world economy if too many governments cut their budgets at once as they exit from stimulus programs adopted in response to the crisis.
“We have to be careful to avoid a premature, synchronized exit that could threaten the global economic recovery,” said the Treasury official who briefed reporters on Tuesday.
The I.M.F. report also addressed other risks to global financial stability.
It drew attention to “liquidity disruption” — “the simultaneous and protracted inability of financial institutions to roll over or obtain new short-term funding across both markets and borders” — as a defining characteristic of the financial crisis. And it argued that the reliance on credit rating agencies to assess the risks facing sovereign countries had contributed to the instability that surrounded Europe’s debt crisis this year.
But the Treasury official underscored the reality that the fund’s main power is to produce research and monitor its members’ practices; it does not have the tools to enforce global agreements or compliance.
“It’s ultimately the responsibility of countries to act, but the fund must speak out effectively about the need for those actions,” the Treasury official said, adding that the I.M.F. needed to be “very clear in its communications on the extent to which countries are living up to their obligations.”
American officials also plan to use the meetings to continue a push for Europe to give up some of its seats on the I.M.F. board to allow greater representation of big emerging economies. Despite European resistance, the United States will push ahead “because of the critical importance of strengthening the I.M.F.’s legitimacy and credibility,” the officials said.
05/10 E.U. Presses Beijing to Open Its Projects to European Bidders
October 5, 2010
By JAMES KANTER
BRUSSELS — The European Union’s trade chief said Tuesday the bloc could limit the ability of Chinese companies to bid for public works projects unless European companies get the same access to China’s fast-growing economy.
The trade commissioner, Karel de Gucht, speaking as the Chinese prime minister, Wen Jiabao, was meeting with E.U. leaders here, repeated the European position that the Chinese currency was undervalued, which he said was a prime concern for European businesses.
But he said he was not planning any official initiative to penalize Beijing because the currency, the renminbi, was likely to rise in value on its own over time.
Instead, Mr. de Gucht said one of the best ways to help European industry take advantage of the booming Chinese economy was to ensure European companies could participate in public procurement contracts.
Such rules would give Europe “a tool whereby we can impose reciprocity,” Mr. de Gucht said.
“Imagine a Chinese company that participates in a bid, and on the other hand the same sector, or subsector, of public procurement is not open in China, then we could make an intervention,” he said.
Mr. de Gucht said he could make the suggestion for the mechanism as soon as the end of the month. He would then aim to make a fuller proposal in coming months, or next year.
Such a mechanism would also need approval by governments and the European Parliament — a process that can take several months — before going into force.
Mr. de Gucht said the mechanism was necessary because European companies were increasingly frustrated by roadblocks to investment in China at a time when Chinese investors are making inroads into Europe.
In Poland last year, a Chinese consortium won the contract to construct two sections of a highway from Lodz to Warsaw, the first time that a non-Polish or non-European company had been awarded a contract that would be financed partly by the European Union.
That case, and in another in Germany, had aroused anger because Chinese investors made bids that were far lower than competitors’ bids, Mr. de Gucht said.
Some countries had said that “this is completely unacceptable” and that the “European Union should react,” he said. “The only way to react to that is that we say, ‘Look, this cannot be done by a country, or a company from country where there is no reciprocity in this respect.”’
Speaking about the Chinese currency, Mr. de Gucht cast some doubt on whether other countries would be able to require China to change its valuation. He suggested that factors within China, like higher inflation, were likely to be more effective in bringing about an appreciation of the renminbi, also known as the yuan.
“Whether we are in position to force them to appreciate the yuan, I’m not sure,” he said. “We, as a commission, do not plan to take such an initiative.”
He spoke as euro-area policy makers pressed China at an Asia-Europe meeting in Brussels for a faster appreciation of the currency to help rebalance the world economy.
Jean-Claude Juncker, chairman of the group of finance ministers from the 16 countries that use the euro, said that message had come as little surprise to the Chinese, but that the “Chinese authorities do not share our view.”
Mr. de Gucht also said he was concerned about E.U. countries gaining greater access to rare earth metals, which are mined in the largest quantities in the world in China and are important for automotive, electronics and clean-energy industries.
China has maintained that opening up additional rare earth mines risks damaging the environment. But Mr. de Gucht said that his office was continuing to examine evidence of trade distortions.
“We will look into it,” said Mr. de Gucht, who added that if expanding market access to rare earth metals was “really an environmental problem” then Europe might be able to help ease those concerns.
Mr. de Gucht also has led the E.U. response to a long-running battle with the United States over subsidies for the commercial aircraft sector. The World Trade Organization this year criticized both the way that European governments supported Airbus and the way that the U.S. government and individual states supported Boeing.
Since those preliminary rulings, Mr. de Gucht said it was more evident than ever that authorities on both sides of the Atlantic were guilty of supporting their aircraft industries, and he urged U.S. legislators not to use the earlier ruling against Europe as a pretext for impeding Airbus’s parent company, European Aeronautic Defense & Space, in its bidding on a U.S. Air Force tanker project.
“It would be a mistake to use it in the tanker deal,” he said, referring to the findings against Airbus. It was “a fact of life” that producing large aircraft required help from governments, he said.
Mr. de Gucht also urged the U.S. trade representative, Ron Kirk, to respond to his invitations over recent months to start negotiations on new financing rules for the aerospace industry.
“It’s up to the United States to give an answer,” he said.
The U.S. Trade Representative’s office in Washington was not immediately available for comment.
By JAMES KANTER
BRUSSELS — The European Union’s trade chief said Tuesday the bloc could limit the ability of Chinese companies to bid for public works projects unless European companies get the same access to China’s fast-growing economy.
The trade commissioner, Karel de Gucht, speaking as the Chinese prime minister, Wen Jiabao, was meeting with E.U. leaders here, repeated the European position that the Chinese currency was undervalued, which he said was a prime concern for European businesses.
But he said he was not planning any official initiative to penalize Beijing because the currency, the renminbi, was likely to rise in value on its own over time.
Instead, Mr. de Gucht said one of the best ways to help European industry take advantage of the booming Chinese economy was to ensure European companies could participate in public procurement contracts.
Such rules would give Europe “a tool whereby we can impose reciprocity,” Mr. de Gucht said.
“Imagine a Chinese company that participates in a bid, and on the other hand the same sector, or subsector, of public procurement is not open in China, then we could make an intervention,” he said.
Mr. de Gucht said he could make the suggestion for the mechanism as soon as the end of the month. He would then aim to make a fuller proposal in coming months, or next year.
Such a mechanism would also need approval by governments and the European Parliament — a process that can take several months — before going into force.
Mr. de Gucht said the mechanism was necessary because European companies were increasingly frustrated by roadblocks to investment in China at a time when Chinese investors are making inroads into Europe.
In Poland last year, a Chinese consortium won the contract to construct two sections of a highway from Lodz to Warsaw, the first time that a non-Polish or non-European company had been awarded a contract that would be financed partly by the European Union.
That case, and in another in Germany, had aroused anger because Chinese investors made bids that were far lower than competitors’ bids, Mr. de Gucht said.
Some countries had said that “this is completely unacceptable” and that the “European Union should react,” he said. “The only way to react to that is that we say, ‘Look, this cannot be done by a country, or a company from country where there is no reciprocity in this respect.”’
Speaking about the Chinese currency, Mr. de Gucht cast some doubt on whether other countries would be able to require China to change its valuation. He suggested that factors within China, like higher inflation, were likely to be more effective in bringing about an appreciation of the renminbi, also known as the yuan.
“Whether we are in position to force them to appreciate the yuan, I’m not sure,” he said. “We, as a commission, do not plan to take such an initiative.”
He spoke as euro-area policy makers pressed China at an Asia-Europe meeting in Brussels for a faster appreciation of the currency to help rebalance the world economy.
Jean-Claude Juncker, chairman of the group of finance ministers from the 16 countries that use the euro, said that message had come as little surprise to the Chinese, but that the “Chinese authorities do not share our view.”
Mr. de Gucht also said he was concerned about E.U. countries gaining greater access to rare earth metals, which are mined in the largest quantities in the world in China and are important for automotive, electronics and clean-energy industries.
China has maintained that opening up additional rare earth mines risks damaging the environment. But Mr. de Gucht said that his office was continuing to examine evidence of trade distortions.
“We will look into it,” said Mr. de Gucht, who added that if expanding market access to rare earth metals was “really an environmental problem” then Europe might be able to help ease those concerns.
Mr. de Gucht also has led the E.U. response to a long-running battle with the United States over subsidies for the commercial aircraft sector. The World Trade Organization this year criticized both the way that European governments supported Airbus and the way that the U.S. government and individual states supported Boeing.
Since those preliminary rulings, Mr. de Gucht said it was more evident than ever that authorities on both sides of the Atlantic were guilty of supporting their aircraft industries, and he urged U.S. legislators not to use the earlier ruling against Europe as a pretext for impeding Airbus’s parent company, European Aeronautic Defense & Space, in its bidding on a U.S. Air Force tanker project.
“It would be a mistake to use it in the tanker deal,” he said, referring to the findings against Airbus. It was “a fact of life” that producing large aircraft required help from governments, he said.
Mr. de Gucht also urged the U.S. trade representative, Ron Kirk, to respond to his invitations over recent months to start negotiations on new financing rules for the aerospace industry.
“It’s up to the United States to give an answer,” he said.
The U.S. Trade Representative’s office in Washington was not immediately available for comment.
05/10 Sun Co-Founder Uses Capitalism to Help Poor
October 5, 2010
By VIKAS BAJAJ
MUMBAI, India — Vinod Khosla, the billionaire venture capitalist and co-founder of Sun Microsystems, was already among the world’s richest men when he invested a few years ago in SKS Microfinance, a lender to poor women in India.
But the roaring success of SKS’s recent initial public stock offering in Mumbai has made him richer by about $117 million — money he says he plans to plow back into other ventures that aim to fight poverty while also trying to turn a profit.
And he says he wants to challenge other rich Indians to do more to help their country’s poor.
An Indian transplant to Silicon Valley, Mr. Khosla plans to start a venture capital fund to invest in companies that focus on the poor in India, Africa and elsewhere by providing services like health, energy and education.
By backing businesses that provide education loans or distribute solar panels in villages, he says, he wants to show that commercial entities can better help people in poverty than most nonprofit charitable organizations.
“There needs to be more experiments in building sustainable businesses going after the market for the poor,” he said in a telephone interview from his office in Menlo Park, Calif. “It has to be done in a sustainable way. There is not enough money to be given away in the world to make the poor well off.”
Mr. Khosla’s advocacy of the bootstrap powers of capitalism is part of an increasingly popular school of thought: businesses, not governments or nonprofit groups, should lead the effort to eradicate global poverty.
Some nonprofit experts say commercial social enterprises have significant limitations and pose conflicts of interest. But proponents like Mr. Khosla draw inspiration from the astounding global growth of microfinance — the business of giving small loans to poor entrepreneurs, of which SKS Microfinance is a notable practitioner.
Advocates also find intellectual support for the idea from the work of business management professors like the late C. K. Prahalad, who have argued that large corporations can do well and do good by aiming at people at the so-called bottom of the pyramid.
Besides Mr. Khosla, entrepreneurs like Pierre Omidyar, a co-founder of eBay, and Stephen M. Case, a co-founder of America Online, have started funds with similar aims.
But Mr. Khosla, 55, who moved to the United States from India as a graduate student in 1976, has another motive, too. He wants to goad other rich Indians into giving away more of their wealth.
India’s torrid growth over the last decade has helped enrich many here — Forbes estimates that India now has 69 billionaires, up from seven in 2000 — but only a few have set up large charities, endowments or venture capital funds.
“It surprises me that in India there is not a tradition of large-scale giving and helping to solve social problems and set a social model,” Mr. Khosla said.
Mr. Khosla is not alone in worrying about the state of Indian philanthropy. Bill Gates, the Microsoft co-founder, who was in China last week with the billionaire investor Warren E. Buffett, said Thursday that he and Mr. Buffett might go to India as part of their campaign to get the very rich to give away half their wealth.
Charitable activities and venture capital investing have been a mainstay for some Indian business families like the Tatas and for technology entrepreneurs like Aziz Premji of Wipro, the Bangalore outsourcing firm. But many others have given very little.
A recent Bain & Company study estimated that Indians give much less as a percentage of the country’s gross domestic product than Americans. Moreover, individual and corporate donations account for just 10 percent of the charitable giving in India, compared with 75 percent in the United States and 34 percent in Britain. The balance comes from the government and foreign organizations.
Rich Indians “are more into temple building and things like that,” said Samit Ghosh, the chief executive of Ujjivan Financial, a microlender based in Bangalore, “rather than putting their money into real programs, which will have real impact on poverty alleviation.”
Mr. Khosla said his experience with microfinance had helped shape his views on the best way to tackle poverty. He has invested in commercial microfinance lenders and has donated to nonprofit ones, and he said that moneymaking versions had grown much faster and reached many more needy borrowers.
He said he wanted to help create a new generation of companies like SKS, which started lending as a commercial company in 2006. It now has 6.8 million customers and a loan portfolio of 43 billion rupees ($940 million).
By contrast, CashPor, a nonprofit Indian lender to which Mr. Khosla has also given money, has 417,000 borrowers and a portfolio of 2.7 billion rupees ($58 million) even though it started operations in 1996.
Besides growing faster, SKS, India’s largest microfinance company, has become a stock market darling. The company floated its shares on India’s stock exchanges in mid-August, and they have risen 40 percent since then.
At current prices, Mr. Khosla’s 6 percent stake in SKS is worth about $120 million, about 37 times what he invested in the firm in 2006 and 2007. (Shares of SKS fell 7 percent on Monday after the company said it had fired its chief executive, Suresh Gurumani. An SKS spokesman, Atul Takle, declined to answer questions.)
Mr. Khosla said it might take at least a year to set up his new venture fund. He intends to finance it from his SKS profits and then return to the fund any profits from subsequent ventures it backs.
Mr. Khosla has already been investing in companies that he says fit his model of profitable poverty alleviation. One is MokshaYug Access, which sets up milk collection and chilling plants in India to help dairy farmers. The company says it helps farmers reduce transportation costs and get higher prices for their milk than they can with local distributors.
Philanthropy experts say commercial companies play an important role in combating poverty by creating jobs. But they say these “social enterprises,” as they are sometimes known, cannot be solely relied upon to address the many entrenched causes of poverty.
Moreover, as the fallout from the global financial crisis has made clear, the profit-maximizing tendencies of businesses can hurt society, said Phil Buchanan, president for the Center for Effective Philanthropy, a research organization based in Cambridge, Mass.
Nonprofits are effective because they can “take issue with the unbridled pursuit of profit at the expense of people’s lives,” Mr. Buchanan said. “I think some of that gets lost in all of the hype around social enterprise.”
Mr. Khosla says that he is not completely opposed to charities — that his fund may even donate to some nonprofit entities. But he says he is generally skeptical that nongovernmental organizations can accomplish much because they tend to drift away from what their donors wanted them to do.
“I am relatively negative on most N.G.O.’s and their effectiveness,” he said. “I am not negative on their intentions.”
By VIKAS BAJAJ
MUMBAI, India — Vinod Khosla, the billionaire venture capitalist and co-founder of Sun Microsystems, was already among the world’s richest men when he invested a few years ago in SKS Microfinance, a lender to poor women in India.
But the roaring success of SKS’s recent initial public stock offering in Mumbai has made him richer by about $117 million — money he says he plans to plow back into other ventures that aim to fight poverty while also trying to turn a profit.
And he says he wants to challenge other rich Indians to do more to help their country’s poor.
An Indian transplant to Silicon Valley, Mr. Khosla plans to start a venture capital fund to invest in companies that focus on the poor in India, Africa and elsewhere by providing services like health, energy and education.
By backing businesses that provide education loans or distribute solar panels in villages, he says, he wants to show that commercial entities can better help people in poverty than most nonprofit charitable organizations.
“There needs to be more experiments in building sustainable businesses going after the market for the poor,” he said in a telephone interview from his office in Menlo Park, Calif. “It has to be done in a sustainable way. There is not enough money to be given away in the world to make the poor well off.”
Mr. Khosla’s advocacy of the bootstrap powers of capitalism is part of an increasingly popular school of thought: businesses, not governments or nonprofit groups, should lead the effort to eradicate global poverty.
Some nonprofit experts say commercial social enterprises have significant limitations and pose conflicts of interest. But proponents like Mr. Khosla draw inspiration from the astounding global growth of microfinance — the business of giving small loans to poor entrepreneurs, of which SKS Microfinance is a notable practitioner.
Advocates also find intellectual support for the idea from the work of business management professors like the late C. K. Prahalad, who have argued that large corporations can do well and do good by aiming at people at the so-called bottom of the pyramid.
Besides Mr. Khosla, entrepreneurs like Pierre Omidyar, a co-founder of eBay, and Stephen M. Case, a co-founder of America Online, have started funds with similar aims.
But Mr. Khosla, 55, who moved to the United States from India as a graduate student in 1976, has another motive, too. He wants to goad other rich Indians into giving away more of their wealth.
India’s torrid growth over the last decade has helped enrich many here — Forbes estimates that India now has 69 billionaires, up from seven in 2000 — but only a few have set up large charities, endowments or venture capital funds.
“It surprises me that in India there is not a tradition of large-scale giving and helping to solve social problems and set a social model,” Mr. Khosla said.
Mr. Khosla is not alone in worrying about the state of Indian philanthropy. Bill Gates, the Microsoft co-founder, who was in China last week with the billionaire investor Warren E. Buffett, said Thursday that he and Mr. Buffett might go to India as part of their campaign to get the very rich to give away half their wealth.
Charitable activities and venture capital investing have been a mainstay for some Indian business families like the Tatas and for technology entrepreneurs like Aziz Premji of Wipro, the Bangalore outsourcing firm. But many others have given very little.
A recent Bain & Company study estimated that Indians give much less as a percentage of the country’s gross domestic product than Americans. Moreover, individual and corporate donations account for just 10 percent of the charitable giving in India, compared with 75 percent in the United States and 34 percent in Britain. The balance comes from the government and foreign organizations.
Rich Indians “are more into temple building and things like that,” said Samit Ghosh, the chief executive of Ujjivan Financial, a microlender based in Bangalore, “rather than putting their money into real programs, which will have real impact on poverty alleviation.”
Mr. Khosla said his experience with microfinance had helped shape his views on the best way to tackle poverty. He has invested in commercial microfinance lenders and has donated to nonprofit ones, and he said that moneymaking versions had grown much faster and reached many more needy borrowers.
He said he wanted to help create a new generation of companies like SKS, which started lending as a commercial company in 2006. It now has 6.8 million customers and a loan portfolio of 43 billion rupees ($940 million).
By contrast, CashPor, a nonprofit Indian lender to which Mr. Khosla has also given money, has 417,000 borrowers and a portfolio of 2.7 billion rupees ($58 million) even though it started operations in 1996.
Besides growing faster, SKS, India’s largest microfinance company, has become a stock market darling. The company floated its shares on India’s stock exchanges in mid-August, and they have risen 40 percent since then.
At current prices, Mr. Khosla’s 6 percent stake in SKS is worth about $120 million, about 37 times what he invested in the firm in 2006 and 2007. (Shares of SKS fell 7 percent on Monday after the company said it had fired its chief executive, Suresh Gurumani. An SKS spokesman, Atul Takle, declined to answer questions.)
Mr. Khosla said it might take at least a year to set up his new venture fund. He intends to finance it from his SKS profits and then return to the fund any profits from subsequent ventures it backs.
Mr. Khosla has already been investing in companies that he says fit his model of profitable poverty alleviation. One is MokshaYug Access, which sets up milk collection and chilling plants in India to help dairy farmers. The company says it helps farmers reduce transportation costs and get higher prices for their milk than they can with local distributors.
Philanthropy experts say commercial companies play an important role in combating poverty by creating jobs. But they say these “social enterprises,” as they are sometimes known, cannot be solely relied upon to address the many entrenched causes of poverty.
Moreover, as the fallout from the global financial crisis has made clear, the profit-maximizing tendencies of businesses can hurt society, said Phil Buchanan, president for the Center for Effective Philanthropy, a research organization based in Cambridge, Mass.
Nonprofits are effective because they can “take issue with the unbridled pursuit of profit at the expense of people’s lives,” Mr. Buchanan said. “I think some of that gets lost in all of the hype around social enterprise.”
Mr. Khosla says that he is not completely opposed to charities — that his fund may even donate to some nonprofit entities. But he says he is generally skeptical that nongovernmental organizations can accomplish much because they tend to drift away from what their donors wanted them to do.
“I am relatively negative on most N.G.O.’s and their effectiveness,” he said. “I am not negative on their intentions.”
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