S'pore inflation to stay high, cool in 2nd half year

Straits Times 28/4/08

SINGAPORE'S central bank said on Tuesday inflation would cool to an average 4 per cent in the second half of 2008, after it hit a 26-year high above 6 per cent in the first six months of the year.

In its twice-yearly Macroeconomic Review, the Monetary Authority of Singapore said its economic growth target of 4 to 6 per cent this year was intact and was based on a gentle downturn in the United States' economy.

But it warned trade-dependent Singapore could be considerably hit by a more widespread slowdown.

'Inflation will stay high in 2008 due to a confluence of external and domestic factors, although it should moderate somewhat in the second half,' it said.

'However, there are upside risks to global oil and food prices. Even if these prices were to level off, upward pressure on wages and rentals, reflecting domestic capacity constraints, are likely to remain.'

Reacting to the inflation threat, Singapore's central bank earlier this month tightened monetary policy by allowing a rise in the Singapore dollar, its main policy tool.

The market is looking for clues on whether policy could be tightened yet again at the next review in October. The Singapore dollar has risen 5.4 per cent against the US dollar since the start of the year.

'The April monetary policy decision provides affirmation that the exchange rate path is consistent with the prevailing macroeconomic conditions in the economy,' the MAS said in its review on Tuesday.

It also said that gross domestic product growth would likely weaken over the next two to three quarters.

'This baseline forecast is predicated on a mild US downturn for 2008. However, if there is a more widespread decline in global and regional economic activity, Singapore's GDP growth will be more significantly affected.'

First-quarter GDP growth came in unexpectedly strong, running at an annualised seasonally adjusted rate of 16.9 per cent, and economists said the data had calmed fears that the weakness of the US economy would drag on Singapore, giving the central bank room to tighten policy.

Manufacturing accounts for about a quarter of economic output and the city-state would be hit by any global economic downturn because of its heavy reliance on exports to Europe and the United States.

The MAS also pointed out that the cost of doing business in Singapore, a base for international companies and their families in Asia, had risen.

It said the unit business cost index for the manufacturing sector - which measures changes in the cost of producing one unit of manufacturing output after accounting for productivity changes - rose 4.5 per cent in the fourth quarter from a year ago, the seventh straight quarter of growth and the most rapid rate of increase since the fourth quarter of 2001.

This mainly reflected a sharp rise in unit labour costs as well as government rates and fees.

Questions

1. Explain the domestic and external factors currently affecting the rate of inflation in Singapore.
   
2. In view of the current global economic climate, comment on the impact on the Singapore economy of rising domestic costs.

Mars-Wrigley merger creates world's largest confectionery player

By Linda Rano (29/04/2008)

Leading global confectioners Mars and the Wrigley have announced that they will merge, creating what Bill Wrigley called 'the world's leading confectionery company'.

Both companies have issued statements enthusiastically supporting the merger, which also highlights that they are looking forward to increased growth as a result.

Bill Wrigley said in his letter: "Together , we will be a company with over $27 billion in sales and more than 64,000 associates worldwide. This combined entity will be, among other things, the world's leading confectionery company, with the resources and critical mass to explore new geographies and categories that might have been beyond our reach in the past."

Combining core strengths
In a company statement Wrigley said that the merger combined Wrigley's strengths with the resources and proven brand-building know-how of Mars and will result in "a powerful force for innovation and growth in the confectionery marketplace."

Mars said that the transaction would help the company strengthen and diversify its confectionery business, and enhance its potential for growth in the chocolate, non-chocolate confectionery and gum categories.

The combined company would have "a strong foundation" of established brands in six core growth categories: chocolate, non-chocolate confectionery, gum, food, drinks and petcare. Brands will include M&Ms, Snickers, Mars, Orbit, Extra and Doublemint.

Deal likely to re-ignite Cadbury Schweppes and Hershey talks
According to Reuters the merger is likely to prompt Cadbury Schweppes into re-starting talks with Hersey Co. An Investec Securities analyst is quoted as saying: "Cadbury will have to look at its options and the most obvious is to re-open talks with Hershey over a merger."

Another report: Mars-Wrigley Merger May Cut Costs(30 April 2008)
By Anatoly Medetsky/Staff Writer (Moscow Times)

A merger of confectionery giants Mars and Wrigley could help them cut distribution costs in Russia, where they control a combined six production units, analysts said Tuesday.

Mars and Wrigley agreed to merge in a $23 billion deal that will leave Wrigley a stand-alone subsidiary of Mars, the firms announced Monday. The transaction will create the world's largest confectionery company.

Mars, a maker of confectionery, food and pet-food products, has four factories in Russia, mostly around Moscow. One of them produces chocolate bars in Stupino, 100 kilometers south of the city. Two other Moscow region factories make dog food and cat food in the town of Luzhniki and ready soups in Lukhovitsy. One more factory churns out dog and cat food in Novosibirsk.

Wrigley runs a gum-making plant in St. Petersburg and owns 80 percent in the Odintsovo-based chocolate maker A. Korkunov.

The combined company could "substantially" reduce its spending on distribution and personnel if they operated their warehouses and deliveries from a single center, said Andrei Verkholantsev, an analyst at Atlanta Capital brokerage.

"Labor force costs have been rising if we speak about Russia," he said.

Questions

1. Explain the revenue and cost advantages to Wrigley and Mars from the merger.
2. Assess the impact of the merger on consumers, producers and society as a whole.

Latest News Updates - Link the articles to Economics concepts & ideas you have learnt!

• Bush calls for economy kick-start
  - US President George W Bush has called for a special package of measures worth billions of dollars to avoid a downturn in the world's biggest economy [read more]
  

• Wheat prices down 40% from peak
  - The price of wheat has fallen 40% from a record peak set in February on expectations of a bumper harvest. [read more]

• Brown's biofuels caution welcomed
  - UK Prime Minister Gordon Brown has pledged to examine the impact of biofuels on world food prices, at a meeting with aid agencies, scientists, supermarkets and farmers. [read more]

• UN calls for farming revolution
  - A UN-sponsored report has called for urgent changes to the way food is produced, as soaring food prices risk driving millions of people to poverty. [read more]

• Firms jostle for managers in China as business booms
  - China's rapidly expanding economy has created a seemingly insatiable appetite for Chinese-speaking managers. Yet even though 3 million university graduates enter China's workforce every year, multinational companies are finding it hard to find local talent to meet that demand. [read more]

• Recession Diet Just One Way to Tighten Belt
  - Stung by rising gasoline and food prices, Americans are finding creative ways to cut costs on routine items like groceries and clothing, forcing retailers, restaurants and manufacturers to decode the tastes of a suddenly thrifty public. [read more]

UK teachers, civil servants stage 1-day strike over pay

25 April 2008 Copyright © The Associated Press

LONDON (AP) — Hundreds of thousands of teachers and civil servants staged a one-day strike in England and Wales Thursday, protesting government proposals for pay raises below the inflation rate.

(From another report...

The union wants the 2.45% pay rise for 2008 lifted at least above inflation.

General secretary Steve Sinnott said: "I call on the government to think again and ensure that salaries at least keep pay in line with inflation and that there is a recognition of the continuing workload pressures on teachers."

Headline inflation was currently 4.1%, he said.)

The first national teachers' strike in 21 years disrupted about a third of schools across Britain. Teachers picketed schools and thousands marched in London.

All the main political parties condemned the strike, which saw about 400,000 teachers and civil servants stay away from their jobs for the day. Prime Minister Gordon Brown called it "unjustifiable."

The National Union of Teachers threatened to make the walkout the first move in a long campaign.

Teachers are demanding a 4.1 percent increase in pay. The government is offering less than 2.5 percent to keep a tight grip on public sector pay.

Also: Read article from BBC News- "Teachers vote to hold pay strike"; and article "Teachers' strike closes schools" on previous strike by the National Union of Teachers (NUT) (in March 2002) over cost of living allowances.

Questions

Imagine that you are an economic advisor to the UK government. Give your recommendations to the government on whether to accede to the trade union's demands for salaries to "at least keep in line with inflation".

Singapore monetary policy (strengthening SGD) criticized

By Vidya Ranganathan
Reuters (Tuesday, April 15, 2008)

SINGAPORE: When Singapore announced a somewhat unusual monetary tightening measure last week, economists praised a move that they felt tackled soaring inflation and made up for an overdue policy adjustment in one stroke.

But, as the dust settles, market participants are increasingly worried about the side effects of what was effectively a revaluation of the currency and the pitfalls of the peculiar Singaporean policy settings.

Critics argue that by endorsing an appreciating trend in the Singapore dollar, the central bank is opening the door to more capital inflows and more cash in the local market.

The result could be downward pressure on domestic interest rates and so more inflationary pressure.

Others point to the unsuitability of a system whose main policy instrument is the currency and in which inflationary pressures force currency appreciation at a time when slowing economies in the United States and Europe could depress demand for Singaporean exports.

"If you had complete flexibility to move your various policy levers, you'd probably want a weak currency and higher interest rates," said an HSBC strategist, Daniel Hui. "You'd want to be a little more accommodative on the external sector which has a lot of downside risk ahead of it."

Singapore does not have that flexibility. The Monetary Authority of Singapore conducts policy by guiding the currency within a secretive trade-weighted band, rather than by setting interest rates.

Last week, the authority said it was recentering the currency's trade-weighted band around its current levels.

To most economists, that meant the central bank was effectively revaluing the Singapore dollar, to firmer levels that the market had already been trading it at for about six months.

The Singapore dollar hit a record high against the dollar after that announcement. Simultaneously, inter-bank rates fell as traders braced for more speculative inflows into a rising Singapore dollar.

One-month interbank rates hit 1 percent, their lowest in three-and-a-half years. Real interest rates, adjusted for inflation, turned more negative.

The Singaporean central bank keeps all parameters of its policy band secret, but economists estimate the trade-weighted currency band is being shifted up by at least 1 to 2 percent, which by some measures equals a policy tightening of at least 100 basis points.

That would help reduce the heavy cost of the food and fuel that the resource-deficient Singaporean economy must import. But what of the soaring rents within the country, rising transport and education costs and even wages in some sectors?

Singapore has enough grounds to focus on its currency. With exports equivalent to 185 percent of gross domestic product and imports at nearly 170 percent of gross domestic product, it is one of most exposed Asian countries to foreign markets.

"If there is a country in Asia that can use currency appreciation to quash inflation, then Singapore stands out as a leading candidate," said a Lehman Brothers' Asian economist, Rob Subbaraman.

Economic growth has held up well in the past 6 months, despite slowing U.S. demand and volatile credit markets.

The economy expanded 7.7 percent in 2007 and a current account surplus of 24 percent of gross domestic product affords it ample leeway on export earnings.

At the same time, much of the economic growth has been driven by investment and domestic housing demand, more sensitive to interest rates than currency levels.

Inflation, which hit a 26-year high of 6.6 percent in January, is driven in part by the huge amounts of fuel and food that Singapore imports. Yet, economists say local rents and wages drive a larger part of food inflation, while taxi fares and road tolls have pushed transport and communication prices.

Housing inflation is running near 9 percent, while health care costs are also rising at a more than 7 percent annual pace.

"A lot of inflation can be attributed to domestic factors and strong domestic growth and that does suggest that perhaps the current policy regime that Singapore has isn't well-suited to address the current challenges," Hui said.

The Broken Window Fallacy

The parable of the broken window was created by Frédéric Bastiat in his 1850 essay Ce qu'on voit et ce qu'on ne voit pas (That Which Is Seen and That Which Is Unseen)

The parable describes a shopkeeper whose window is broken by a little boy. Everyone sympathizes with the man whose window was broken, but pretty soon they start to suggest that the broken window makes work for the glazier, who will then buy bread, benefiting the baker, who will then buy shoes, benefiting the cobbler, etc. Finally, the onlookers conclude that the little boy was not guilty of vandalism; instead he was a public benefactor, creating economic benefits for everyone in town.

excerpts from ECONOMICS IN ONE LESSON by Henry Hazlitt (Chapter II, "The Broken Window")...

A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it.

How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sun. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles.

The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.

Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace the window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.*

the extract below is from about.com (link)

In a real life example, scientist and environmental activist David Suzuki has often claimed that a corporation polluting a river adds to a country's GDP. If the river has become polluted, an expensive program will be required to clean up the river. Residents may choose to buy more expensive bottled water rather than cheaper tap water. Suzuki points to this new economic activity, which will raise GDP, and claim that the GDP has risen overall in the community although the quality of life surely has decreased. Dr. Suzuki, however, forgot to take into account all the decreases in GDP that will be caused by the water pollution precisely because the economic losers are far more difficult to identify than the economic winners. We do not know what the government or the taxpayers would have done with the money had they not needed to clean up the river. We know from the Broken Window Fallacy that there will be an overall decline in GDP, not a rise. One has to wonder if politicians and activists are arguing in good faith or if they realize the logical fallacies in their arguments but hope the voters will not.

Now on to wars.

From the Broken Window Fallacy it is quite easy to see why war will not benefit the economy. The extra money spent on war is money that will not be spent elsewhere. The war can be funded in a combination of three ways:

1. Increasing taxes
2. Decrease spending in other areas
3. Increasing the debt

Increasing taxes reduces consumer spending, which does not help the economy improve at all. Suppose we decrease government spending on social programs. Firstly we've lost the benefits those social programs provide. The recipients of those programs will now have less money to spend on other items, so the economy will decline as a whole. Increasing the debt means that we'll either have to decrease spending or increase taxes in the future; it's a way to delay the inevitable. Plus there's all those interest payments in the meantime.

If you're not convinced yet, imagine that instead of dropping bombs on Baghdad, the army was dropping refrigerators in the ocean.

Next time you hear someone discuss the economic benefits of the war, please tell them a little story about a windowbreaker and a shopkeeper.

Tackling inflation needs multiple measures

The Business Times 11/04/2008

STRONGER-THAN-EXPECTED economic growth has given more room for the Monetary Authority of Singapore (MAS) to tighten monetary policy to fight inflation (through strengthening the Singapore dollar), but that luxury may not be afforded by the central bank going into the second half of the year.

Singapore's economy grew 7.2 per cent in the first quarter, beating economists' expectations. In its monetary policy statement announced alongside the flash growth estimates, the MAS said that it has decided on an "upward shift" in the range in which it manages the Singapore currency. "An upward shift of the policy band will help to moderate inflation going forward while providing for sustainable growth in the economy," the central bank said in its twice-yearly review.

"Inflation is expected to remain high until the middle of the year before easing in the second half," it added. The move, unexpected by the market, sent the Singapore dollar to a record high against the US currency. The MAS uses the Singapore dollar exchange rate as its main inflation management tool. A stronger currency helps reduce the surging cost of imported food, which Singapore is dependent on.

According to official estimates, inflation is set to hit 4.5-5.5 per cent this year, but many private sector forecasts exceed this. That said, the Singapore dollar exchange rate remains a blunt tool to control inflation. Allowing the currency to appreciate, while cheapening imports, also has the effect of making exports less competitive. This may not be an issue when economic growth comes in as strong as the first-quarter numbers, but could pose a policy challenge should growth taper off going forward.

The key question remains the extent, and the intensity, of the expected US slowdown in the wake of the sub-prime crisis, and the impact this will have on the Singapore economy. Economic growth in Singapore could be as little as 3 per cent this year if the US economy tanks, according to an earlier forecast from economists at the Nanyang Technological University (NTU), although growth is expected to stay at a decent 5.5 per cent should the US escape a full-blown recession – within the official 4-6 per cent forecast range. Giving its assessment yesterday, the MAS said that the economy is likely to grow at a "more moderate pace" while inflationary pressures remain high.

For the moment, the MAS should have enough flexibility to target inflation without worrying about growth. This might change, however, should growth come under greater threat in the later part of the year. In this context, more direct ways to tackle inflation – or at least, its impact – are needed.

The recent move to set aside $1 million to help needy Singaporeans cope with the rising cost of living is welcome, as is the indication that increases in government charges would be postponed. More of such measures will probably be needed to complement the use of the exchange rate in the fight against inflation.

Questions

1. With the aid of a diagram, explain how monetary policy works in addressing the current problem of inflation in Singapore.
   
2. Evaluate the effectiveness of Singapore's monetary policy in fighting inflation and ensuring long-term growth of the economy.
3. Suggest other policies that can be used to complement monetary policy in controlling inflation for the Singapore economy.
   

India's economy flying high, amid clouds

The Business Times 28/02/2007

THE Annual Economic Survey (2006/07) for India, released yesterday by the Indian government tells a remarkably upbeat, though not unblemished, story - which also contains hints as to what might be forthcoming in the country's budget, to be announced today.

The Indian economy has had perhaps its best year since the nation's independence in 1947. In 2006/07 (ending March 31, 2007), India's GDP growth is set to come in at 9.2 per cent. The fiscal deficit has been cut to 3.8 per cent of GDP thanks mainly to buoyant tax revenues. The investment rate is running at about one-third of GDP - suggesting that high growth will be sustained. Export growth for the first nine months of FY06/07 was a stunning 36.3 per cent. Net inflows of foreign direct investment (April to September 2006) were up more than 98 per cent, and foreign exchange reserves are at a record of more than US$185 billion.

If there were any lingering suspicions that the Indian economy's stellar growth performance of recent years might be a flash in the pan, these should now be buried once and for all. As the survey points out 'the economy appears to have decidedly taken off and moved from a phase of moderate growth to a new phase of high growth'.

However, as one might expect for any huge, low-income country, there are enormous development challenges ahead - most of all, tackling mass poverty, which remains a serious, though diminishing, problem. But right now, the flashing red light on Indian policymakers' radar screens is inflation, a particularly sensitive issue that has been known to even bring down governments. Wholesale price inflation is now running at around 6.6 per cent, well above the the Reserve Bank of India's comfort level of under 5.5 per cent. India's Congress party-led government, which faces seven state elections this year, is understandably concerned.

The Economic Survey debunks the idea that India's growth needs to be slowed down to deal with inflation; quite rightly, it suggests that the problem lies in removing supply-side bottlenecks, especially in the rural sector, which is also lagging behind. While India's central bank is doing its part to tackle inflation by draining reserves from the banking system (it has twice in two months raised the amount of cash banks must set aside to cover deposits), this is clearly not enough. Fiscal policy too needs to be supportive - as well as inclusive in the Indian context. Today's budget is likely to have a strong anti-inflationary and pro-rural bias: cuts in customs duties rather than income taxes; reductions in some fuel surcharges; heavy spending to boost the supply side of the economy - particularly in the rural sector - which would include massive hikes in spending on infrastructure and irrigation, as well as on health and education.

The signs are that India's budget today is unlikely to be brimming with tax breaks for the private sector, including foreign investors. Nevertheless, it will almost certainly be pro-growth, designed to keep the Indian economy flying high. That should give business some cause for cheer.

Questions

1. Explain how the indicators show that the Indian economy has done well.
   
2. Explain why inflation might be a concern to the Indian government.
   
3. Explain and evaluate the measures that could be taken to address the problems faced by India at this time.
   

World Economic Growth - Some References

• IMF World Economic Outlook 2008 - "IMF Predicts Slower World Growth Amid Serious Market Crisis"

• IMF World Economic Outlook (1st update - July 2007) - "The global economy continues to grow strongly"

• IMF World Economic Outlook (Full report - April 2007) - "Spillovers and Cycles in the Global Economy"

• People's Daily Online - "World economic growth expected to be solid in 2006"

• Impact Of High Oil Prices On World Economic Growth: A Mixed Assessment (June 2004)

• Economic Overview - Prospects for world economic growth, 2007 to 2012 (Note: This gives you quite a good summary of recent global economic developments and includes a detailed look at the economic prospects for Australia)
  

• Economic Growth (2007) & podcast - by Paul Romer

• Factors affecting economic growth in developing countries

• Third World Economic Development (1992) by Clive Crook
  

Israel: Economic growth, or else

Economic growth is transformative, he argued. "Higher growth would change every aspect of life for everybody" - from education to culture, through to our very survival. "That's why I worry," he said, "that we may sometimes emphasize our serious current problems without focusing sufficiently on the need to maintain economic growth."

Read more

The cost of food: facts and figures

Explore the facts and figures behind the rising price of food across the globe (8 April 2008)

See link from BBC News

Announcements

1. H2 Economics Mid-Year Examinations

• Date: 15th May 2008 (Thursday)
• Duration: 2 hr 40 mins (1 Case Study + 2 Essays - More details at previous post)
• Time: 4.30 - 7.10pm
• Venue:
• - LT1: Lecture Group A (07A01, 07A02, 07L01, 07L02, 07S28, 07S29, 07S30, , 07S32, 07S33, 07S34);
• - LT2: Lecture Group B (07S01, 07S02, 07S09, 07S10, 07S11, 07S26, 07S27,07S35, 07S36)

2. Term 2 Consultation Slots Are Available for Booking!

• Timetable is in my pigeonhole for Term 2 Weeks 5 to 10 - Pls book 1 hour slots.
  
• Bring necessary materials (Lecture Notes, Tutorials, Test Scripts, etc etc) as well as any questions you need to clarify.
• If you need advice on certain sections of the exam (e.g. case study, essay skills), or on the overall revision for the subject, do highlight it to me.
  

3. Ten-Year Series (1997 - 2007)

• The stock of TYS has arrived at Knowledge Box. It includes Paper 1-2 from 1997 to 2007. Cost is $2.80. It is compulsory for ALL J2 students to have one. Some of you who have previous years' copies can choose not to buy but to photocopy the additional years.
  
• Econs reps please take orders using the class list and collect the money. You can pass the orders to Jolene of Knowledge Box directly and collect the TYS immediately.

Upcoming Econs Assessments

Do note the following:

• T2 Wk 6: Lecture Test (Case Study - 25 marks) - Macroeconomic variables to assess health of an economy (NY growth, SOL, EG, CPI, Unemployment, BOP & Income distribution); Govt Macroeconomic Objectives (especially conflicts between objectives - Topic 7); Macroeconomic Problems - Causes & Consequences (Price Instability, Unsustained Economic Growth, Unemployment (Topics 3 to 5). Do note that a good grasp of concepts & analysis in Topic 2 (Keynesian Model of Income Determination, AD/AS framework) is also expected.
  

• T2 Wk 9: Mid-year Exams (Choose 2 essays out of 3 - Total 50 marks; 1 Case Study - Total 30 marks) - All topics from Year 2 (up to Supply-side Policy), i.e. Topic 1 to 10
  

To prepare:

• Form a study group to analyse and discuss essay and case study questions. A study group also allows you to check that you are focusing on the right areas in your revision.

• Seek help from tutors (e.g. me) if you need to clarify any concepts or need help in writing your essays or working on case studies. You can also seek help in going through your individual scripts for the earlier tests to seek out areas for improvement.

• Ensure you are thoroughly familiar with the key concepts and analysis in your lecture notes (practice analysing diagrams and recalling definitions of key concepts, e.g. demand pull inflation- causes and consequences)
  

• Go through your tutorials and download all suggested answers from Litespeed, examining carefully how a certain answer fulfills the question requirements in terms of content (i.e. the various content areas covered in a particular topic/s) and skills (showing higher order skills such as application, analysis and evaluation).

• Read through news articles posted on Litespeed or on this blog for relevant examples you can include in your essays.
  

• Work on all the supplementary practice questions given to you for the individual topics

National Economic and Finance Management Quiz 2008

NUS Economics Society will be organizing the annual National Economics and Finance Management Quiz 2008. NEFMQ 2008 will focus on improving the financial literacy (click for definition) of young people and helping them to better understand the importance of managing their own finances.

This competition is open to Junior College, Centralised Institution, Polytechnic and IP students. Students will need to form teams of three people each and schools can send as many teams as possible.

Date of preliminary round: 26 July 2008

Format:Each team works on a paper of 40 multiple-choice questions (MCQs) and 5 computational questions. (24 MCQ questions will be based on economics and 16 MCQ questions will be based on general financial management)

Duration: 1 hour

The top four teams will be selected to participate in the final round. Details of the final round will be mailed to these four schools in time to come.

Administration:

1. Class reps will indicate on the class list the students who are interested and submit the class list to their tutors by 15^th Apr (Tues).
2. Formation of teams of 3 will take place at a later briefing, scheduled on 16^th Apr (Weds) at 2pm in room 217.
3. There will be a lecture to improve their understanding of financial literacy in Term 3 Week 1. Time to be confirmed.

FASS@NUS Day

To help you make the right choice, the NUS has invited all of you JC2 students to their FASS@NUS Day on Saturday, 19 May 2007, 9am to 5pm. Their Vice Deans and Professors from all disciplines will be available to answer your questions. Take this wonderful opportunity to explore their wide range of offerings, and enjoy the informative exhibitions and exciting activities put up by their Departments and Student Societies.

Rampant Inflation Adds to Somalia's Woes

Listen to mp3
Related article: Somali c.bank to overhaul currency, counter fakes (Reuters Africa)

By Alisha Ryu
01 April 2008

In Somalia, continuing insecurity, a surge in food and fuel prices, and uncontrolled printing of money have created runaway inflation that is threatening the lives of millions already suffering from 18 years of war and lawlessness. From the Somali capital Mogadishu, VOA Correspondent Alisha Ryu reports that with virtually no central authority to put the brakes on hyper-inflation, the country is on the brink of an economic catastrophe.

Shopkeeper Abdi Mohamed Islow looks down at the dozens of bags of Italian spaghetti he has had on display for days at his store in south Mogadishu.

He says up until a few months ago, the bags used to sell in a matter of hours. Now, spaghetti in this former Italian colony is a luxury few people can afford.

Islow says, "At the beginning of this month, one package of spaghetti cost 20,000 Somali shillings. It has now jumped to 32,000 shillings and the price is still going up."

For many people living in a country that is already at the bottom of economic growth indices worldwide, an annual inflation rate that has now reached triple digits is nothing short of a disaster. Staples such as sugar, flour, cooking oil, and rice are imported and priced in dollars.

Although the U.S. dollar has weakened in recent months against many other currencies, it has strengthened significantly against the Somali shilling.

A month ago, one dollar was worth about 22,000 Somali shillings. Now, the shilling is at an all-time low of about 26,000. Meanwhile, the price of a 50-kilogram bag of sugar, for example, has risen from $15 a year ago to nearly $30. That means Somalis are earning less every day while having to pay much more for goods.

AU peacekeepers patrol bullet and artillery-ravaged avenue in Mogadishu, (2007 file photo)

In the capital, the economic crisis is severely testing the resourcefulness of hundreds of thousands of Somalis, who have managed to survive 17 years of incessant factional warfare and 15 months of violent anti-Ethiopian, anti-government insurgency that has killed 6,000 civilians and uprooted 700,000 others. But even the hardiest of residents say they are deeply worried that they may not be able to live through this crisis.

Fifty one-year-old Fatima Mohamed ran a small vegetable stand in Mogadishu's main Bakara market for 24 years until earlier this month, when everything she owned was stolen by government troops on a massive looting spree.

In Islow's store, she clutches a bundle of Somali shillings equivalent to about 50 cents, hoping to buy something that can keep her stomach filled for the day. After a few minutes, she leaves the shop empty-handed.

"Everything is so expensive," she says, adding that she had to beg all day just to earn 50 cents. She says she is starving and does not know how she will survive.

Mogadishu bakara attacks

A surge in food and oil prices globally is one factor battering Somalia's fragile economy. Another factor affecting prices is the continuing insecurity in the country, which has forced 80 percent of Somali businessmen to leave. Their absence has reduced competition, allowing the remaining businessmen to raise their prices.

The spokesman for a regional business association, Abas Mohamed Duale, says at the same time, a massive, uncontrolled influx of newly-printed money from Somalia's semi-autonomous region of Puntland is causing the Somali currency to rapidly lose its value.

Duale declined to identify the people he believes are responsible for printing Somali shillings in Puntland. But he says huge amounts are being brought into the country by plane and being exchanged in the markets for dollars.

Since the collapse of Dictator Mohamed Siad Barre's government in 1991, there has been no legal printing of currency. Instead, currency notes have either been printed in the country by factional leaders or printed abroad and imported by individual businessmen.

Somalia's internationally-recognized interim government, which has been struggling to assert control since it came to power on the back of an Ethiopia-led military campaign against Somali Islamists in December, 2006, is in charge of a central bank that has little authority to officiate monetary policy.

Bank Director General Sharif Mohamed Hassan has vowed to clamp down on people printing and importing money and has promised to introduce new notes to end inflation.

But shopkeeper Islow repeats what many Somalis in the capital believe - that a top leader in the interim government may be the source of the problem. He holds up a 1,000 Somali shilling note printed in the late 1980s, and then another one that is brand new.


Abdullahi Yusuf (Nov 2007)

"This one, Mohamed Siad Barre. This one, Abdullahi Yusuf," Islow said.

Abdullahi Yusuf was Puntland's first president after the region was organized in 1998 and remained in power until he assumed the presidency of Somalia's transitional federal government in 2004.

Allegations that President Yusuf and some senior Puntland government officials were printing Somali money to raise hard currency surfaced in Puntland as early as last July, when the region's inflation rate began to spiral out of control. As in central and southern Somalia, food prices in Puntland have doubled, and in some cases tripled, in the past eight months.

Officials in Puntland and in the interim government blame local businessmen for sparking the currency crisis, printing more money than they were allowed and then flooding the markets with fake notes. The Puntland government says the printing of money by private individuals has been banned.

But the ban may be too late to prevent what international aid agencies say is a humanitarian catastrophe in the making.

In the first incident of its kind in Mogadishu in recent years, dozens of hungry residents last week attacked the driver of a commercial truck, carrying wheat flour to the market, and looted the contents. With a prolonged drought hitting large parts of the country, businessman Abas Mohamed Duale predicts the worst is yet to come.

He says civilians will begin dying of hunger because there is no solution to the problem. He says only God can help the Somali people now.