Saturday, September 27, 2008

On Liberalisation & De-regulation in Singapore

Define: Privatisation, Deregulation and Liberalisation

Privatisation (alternately"denationalisation") is the transfer of ownership from the public sector (government) to the private sector (business). A transfer in the opposite direction could be referred to the nationalisation of some property or responsibility.

One of the main arguments for the privatization of publicly owned operations is the estimated increases in efficiency that can result from private ownership. The increased efficiency is thought to come from the greater importance private owners tend to place on profit maximization as compared to government, which tends to be less concerned about profits. Proponents of privatization argue that whereas government producers have no incentive to hold down production costs, private producers who contract with the government to provide the service have more at stake, thus encouraging them to perform at a higher level for lower cost. The lower the cost incurred by the firm in satisfying the contract, the greater profit it makes. On the other hand, the absence of competition and profit incentives in the public sector is not likely to result in cost minimization.

Click to read "Overview of Privatisation in Singapore - A 10 year process"

In many countries, privatisation of state-owned entities was followed by deregulation and liberalisation of the industries to open up the market further to enhance competition.

Deregulation is the process by which governments remove, reduce, or simplify restrictions on business and individuals with the intent of encouraging the efficient operation of markets. The stated rationale for deregulation is often that fewer and simpler regulations will lead to a raised level of competitiveness, therefore higher productivity, more efficiency and lower prices overall.

Economic liberalization is a broad term that usually refers to less government regulations and restrictions in the economy in exchange for greater participation of private entities. The arguments for economic liberalization include greater efficiency and effectiveness that would translate to a "bigger pie" for everybody.

In developing countries, economic liberalization refers more to liberalization or further "opening up" of their respective economies to foreign capital and investments. Three of the fastest growing developing economies today; China, Brazil and India, have achieved rapid economic growth in the past several years or decades after they have "liberalized" their economies to foreign capital. Many countries nowadays, particularly those in the third world, arguably have no choice but to also "liberalize" their economies in order to remain competitive in attracting and retaining both their domestic and foreign investments.

Deregulation is different from liberalization because a liberalized market, while often having less and simpler regulations, can also have regulations in order to increase efficiency and protect consumer's rights, one example being anti-trust legislation (to control monopoly power). However, the terms are often used interchangeably within deregulated/liberalised industries.

Market Liberalisation in Singapore

Some forces that drive liberalisation:
  • efficiency gains from introduction of new technology and entry of new players new
  • technological changes renders less significant certain natural monopoly elements in network industries
  • globalisation
In Singapore, the telecommunication, power and mass media sectors were liberalised in phases. Other industries that have been liberalised includes: banking and finance, transport and postal sectors.

Deregulation of Telecommunications Industry

In 1989 the government of Singapore started eliminating restrictions on the sale of telecom consumer goods to make businesses more competitive. In recent years the government of Singapore has realized that technological advances in the areas of telecommunications have made deregulation and liberalization almost impossible to avoid and have taken a number of steps to open the market. The government is working to deregulate the telecommunications market in order to attract new competitors, lower prices, and provide a larger range of services and products to the citizens.

Along with the efforts to deregulate the industry, barriers to market penetration have been lowered and at the present time, Singapore does not have any barriers to imported telecom equipment. As a result of the current trend towards deregulation, the telecommunications market is becoming a fast growing sector of the Singapore economy due to its openness. This deregulation has also started to provide numerous opportunities for companies to get into the telecommunications market.

Read "The Liberalisation and Privatisation of Telecommunications in Singapore by Mr Lim Chuan Poh, Director-General of Telecommunication Authority of Singapore (TAS); and article from IHT: Analysts Split on Deregulation's Impact : For Singapore Telecom, Battle on Home Front

Deregulation of Electricity Retail Market
The Singapore electricity retail market is being liberalised to facilitate competition and to allow consumers to buy electricity from retailers of their choice. Companies that operate in the competitive parts of the industry have been separated from those that operate the natural monopolies at the ownership level. To further enhance competition and market efficiency, a new electricity market has been developed to replace the existing Singapore Electricity Pool which has facilitated wholesale trading of electricity since April 1998.

The deregulation of the electricity market was aimed at introducing competition to achieve a more efficient market. The deregulated market has so far benefited customers through more competitive electricity prices and electricity package choices. Under the deregulated market, contestable customers are free to choose independent electricity retailers, such as Tuas Power Supply and the type of contract that will best meet their business needs.

Read more: SINGAPORE’S ELECTRICITY AND GAS SECTOR: The Competitive Market Moves Forward; and slides

Liberalisation of Singapore media market
MediaCorp has held a virtualised monopoly in the television broadcasting market, and most of the radio broadcasting market for a substantial amount of years. In June 2006, the Singapore government announced a liberalisation of the Singapore media market to introduce competition in the broadcast and newspaper industry. With the liberalisation of Singapore media in January 1,2001, SPH MediaWorks, a division of Singapore Press Holdings entered the market, transmitting 2 new free-to-air terrestrial television channels, Channel U and TV Works, broadcasting in Mandarin Chinese and English respectively. The process of establishing the 2 new channels entailed one of the largest staff crossovers in Singapore. A significant number of MediaCorp’s employees moved to SPH MediaWorks, including renowned producers, celebrated artistes and notably the media veteran, Man Shu Sum, one of the pioneers in the local broadcasting industry.

However, losses by both companies due to competition led to a merger, and as of 1 January 2005, MediaCorp once again became the monopoly in the mass market free-to-air terrestrial television provider. At present, MediaCorp runs 6 television channels and 14 radio channels, making MediaCorp the largest media broadcaster and provider in Singapore.

Liberalisation of Singapore's Gas Market
The Government deregulated Singapore's gas market on 14 February 2008. The amended Gas Act will cover technical and operational aspects of rules for gas installations to the licensing of gas service workers. The Act will allow both gas importers and retailers to have open, competitive access to Singapore's gas pipeline grid. This includes the upcoming liquefied natural gas (LNG) terminal on Jurong Island. Under the changes, all natural gas imports will eventually be accessible to all industry players from a common gas pipeline grid. This will prevent any power outages caused by a cut in gas supply from a single source, an expensive problem for industry and businesses.

Singapore's Postal Sector Fully Liberalised
In 1 April 2007, Singapore's postal sector was fully liberalised. The Government decided to open the Basic Mail Services market, which includes the collection and delivery of letters and postcards, within, into and out of Singapore, after a 15-year monopoly by Singapore Post Ltd (SingPost). With this, new players will be allowed in both domestic and international mail services. This adds greater competition to Singapore's postal sector, which has seen the liberalisation of other segments such as Express Letter Services as early as 1995. The decision will further the Government's commitment towards building an open economy and strengthening Singapore's position as a regional business hub. Liberalisation is expected to generate cost savings of S$8 million to S$25 million per year over the next two to three years, to largely benefit businesses. Today, businesses account for almost 95 per cent of Singapore's total domestic mail.

Liberalisation of Commercial Banking Sector
MAS announced on 17 May 1999 a programme to liberalise commercial banking in Singapore. This was aimed at promoting a more open and competitive environment and to spur the development and upgrading of local banks. The programme included a package of new banking privileges and licences for foreign banks, to be granted over 3 years (1999-2001).

One of Singapore's core strengths, built up over the 1980s, has been its financial centre status. It is intimately linked to Singapore's status as a trading and regional business hub, given the importance of financing and credit to business. Fairness, efficiency, liquidity and transparency are all key attributes for a top banking system, and these have all been key features driving Singapore's rise as a financial centre. As a follow-through to the dominant late-twentieth century trends of globalisation, deregulation and liberalisation, and to drive the next phase of growth, the government recognised the need for Singapore's banking sector to open up to foreign competition.

MAS issued full qualifying banking licences to six foreign banks (Citibank, ABN Amro, Maybank, HSBC, BNP, Stanchart) through 1999-2002, the most privileged status for foreign banks that allows them to open new branches locally and to develop their ATM network (even Citibank's expansion of its presence into the heartlands). At the same time new wholesale licences (the next most privileged status) were given to banks from Switzerland, Japan, France, Australia etc. The number of branches that these banks can open, and the number of ATMs that they can operate, both key measures of permitted penetration into the local commercial banking sector, are set to rise further.

The local banks have responded to the coming foreign competition by a process of consolidation to achieve the necessary operational scale: DBS with POSB, UOB with OUB, OCBC with Keppel-Tat Lee. On the investment banking side, there are the less-publicised acquisitions of Vickers Ballas by DBS and Kay Hian by UOB. The three main local banks were also required by the government to dispose of non-core assets by 2006: a measure probably designed to prevent conflicts of interest and abuses of the great power bankers wield over their clients, and presumably also to give greater focus to the core banking business. Additionally, there was a wave of expansion overseas: DBS bought Dao Heng Bank in Hong Kong to establish a Northeast-Asia presence, UOB established a strong presence in Malaysia (long-standing) and Thailand (through Bank of Asia), while OCBC built on its traditional presence in Malaysia. Clearly, the banks were diversifying their revenue sources and risks in view of the coming foreign threat onto local shores.


Click here to read related article on the trend of deregulation, privatisation and market liberalisation in Asian markets, including Singapore: Regulatory Environment: Creating Stable and Expanding Markets - Remarks by Yong Ying-I, CEO, Infocomm Development Authority (IDA) -

Thursday, September 25, 2008

Brazil, Russia, India and China - BRIC

What does 'BRIC' Mean?

An acronym for the economies of Brazil, Russia, India and China combined. The general consensus is that the term was first prominently used in a Goldman Sachs report from 2003, which speculated that by 2050 these four economies would be wealthier than most of the current major economic powers.

The BRIC research findings:
If things go right, the firm’s economists argued that, given sound political decision-making and good luck, the BRIC economies together could become larger than those of the world’s six most developed countries in less than 40 years. i.e BRIC economies of Brazil, Russia, India and China together would be larger than G6 (G7 excluding Canada) in USD in less than 40 years. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050

Investopedia Says...

The BRIC thesis posits that China and India will become the world's dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials. It's important to note that the Goldman Sachs thesis isn't that these countries are a political alliance (like the European Union) or a formal trading association - but they have the potential to form a powerful economic bloc.

BRIC is now also used as a more generic marketing term to refer to these four large emerging economies.

Wikipedia Says...

BRIC or BRICs are terms used in economics to refer to the combination of Brazil, Russia, India, and China. The acronym was first coined in 2001 and prominently used in a thesis of the Goldman Sachs investment bank. The main point of these papers was to argue that the economies of the BRICs are rapidly developing and by 2050 will eclipse most of the current richest countries of the world. The Goldman Sachs thesis proposed something like an economic bloc, or a formal trading association, like the European Union.

However, there are strong indications that the "four BRIC countries have been seeking to form a political club" or "alliance", and thereby
converting "their growing economic power into greater geopolitical clout". One of the recent indications was from a BRIC Summit meeting in 2008, in the Russian city of Yekaterinburg between the foreign ministers from the BRIC countries.

Click here for the detailed study of BRICs by Goldman Sachs - look especially at the research report called “Dreaming with BRICs: The Path to 2050″ and here for the world map of where they are.

Saturday, September 20, 2008

The Prospects Ahead for the World Economy

The following slides illustrate the history and predictions on the global economy through 2050 [Presented by Spiegel Online with data sourced from Madison, IMF, and Goldman Sachs].

In 2005 - China has risen to the ranks of a global economic power and sets out on a course to surpass other nations in terms of economic might. Russia lags, India starts to develop, even if only gradually.

The World in 2050 - The investment bank Goldman Sachs peers into the time machine: China has soared above the United States. Europe, once the motor of industrialization, has fallen markedly behind -- even India is ahead. Resource rich Russia has reestablished itself as a global player.

Article: World May Face `Japan-Like' Economic Stagnation, GIC's Tan Says by Shamim Adam

Sept. 15 (Bloomberg) -- The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Government of Singapore Investment Corp. said.

Global growth will probably be weak in the next few years, and protectionist and populist policies are likely to emerge, said Tony Tan, deputy chairman of GIC, in a speech in Geneva yesterday. The sovereign fund, which oversees more than $100 billion, has pumped billions into UBS AG and Citigroup Inc. after they posted writedowns linked to U.S. subprime mortgages.

``Policy responses so far have tried to minimize the likelihood of a Japan-like deflationary spiral but the adjustment could take a couple of years and be very painful,'' Tan said. ``Over the near term, debt deflation and deleveraging in the U.S. and other major developed economies will exert downward pressure on growth in many economies.''

An asset-price bubble in Japan burst in the early 1990s, triggering a property and stock market collapse that heralded a decade of stagnation in the world's second-largest economy. Financial institutions worldwide have reported more than $500 billion in losses and writedowns since the beginning of 2007 and the credit-market collapse erased $11 trillion from global stocks in the past year.

The worst U.S. housing slump since the 1930s is showing little sign of abating and more than 10 lenders in the world's largest economy have collapsed this year. The U.S. Treasury Department and the Federal Housing Finance Agency this month seized control of Fannie Mae and Freddie Mac after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies.

`More Severe'

``If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably,'' Tan said. ``A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue.''

Lehman Brothers Holdings Inc. is preparing to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm, according to a person with direct knowledge of the firm's plans.

Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.

Emerging Markets

Japan's economy shrank 3 percent last quarter, the steepest decline since 2001, while the euro-area economy contracted 0.2 percent in the same period. The U.S. economy, which expanded at a 3.3 percent annual pace in the second quarter, has lost 605,000 jobs in the first eight months of the year.

Emerging markets will account for more than half of the world's growth in the next decade, from about a fifth in 2000, Tan predicts.

``Growth in emerging markets can be expected to remain relatively robust,'' he said. ``Emerging economies will displace the G-7 as the world's largest economies over the next two to three decades.''

A rising ``middle-class'' in emerging markets will also increase demand for commodities and increase supply constraints that may spur competition for resources, he said.

Natural Resources

``International tensions could rise as countries compete for natural resources, especially food, energy and water,'' Tan said. ``Commodity-producing countries are likely to exert stronger control over their natural resources, potentially exacerbating supply concerns. Countries that are reliant on imports of commodities could be more aggressive in their pursuit of supplies.''

Weaker employment and income growth could lead to a rise in protectionist policies, especially in the U.S. and Europe, Tan said. Governments need to increase conflict-resolution mechanisms and boost cooperation to solve issues amid the emergence of new major economies, he said, citing the World Trade Organization Doha Round of talks as an example.

Trade ministers have tried and failed to reach a breakthrough in the so-called Doha Round talks in each of the past three years. A nine-day summit at the WTO in Geneva collapsed on July 29 after India and the U.S. disagreed over how poor nations could increase duties to protect their economies from surging farm imports.

``Significant stagnation as well as inflation risks suggest that challenges and potential conflicts arising from both protectionism as well as resource nationalism could seriously jeopardize globalization of production and markets,'' Tan said.

Cheap? Yes — but now China has quality issue (China's Exports faces problems)

Extract from article (NY times) - An Export Boom Suddenly Facing a Quality Crisis

SHANGHAI, May 17 2007 — Weeks after tainted Chinese pet food ingredients killed and sickened thousands of dogs and cats in the United States, this country is facing growing international pressure to prove that its food exports are safe to eat.

But simmering beneath the surface is a thornier problem that worries Chinese officials: how to assure the world that this is not a nation of counterfeits and that “Made in China” means well made.

Already, the contamination has produced one of the largest pet food recalls in American history, heightening global fears about the quality and safety of China’s agricultural products. And evidence has also shown that China exported fake drug ingredients, threatening to undermine the credibility of another booming export.

“This isn’t an international crisis yet, but if they don’t do something about it quickly, it will be,” said David Zweig, a China specialist who teaches at the Hong Kong University of Science and Technology. “The question is whether it spills over and ‘Made in China’ becomes known as ‘Buyer Beware.’ ”

[read more]

Related articles:

Dubai - Reducing the dependence on Oil (A quick look at an economy's successful diversification)

The UAE controls roughly 10 percent of the world's oil supply and nearly 5 percent of the world's proven natural gas reserves. Oil and gas production provides about one-third of the GDP ($57.7 billion - 2003 est.)

Although the UAE's economy has been based mainly on the export of oil and gas, nevertheless the UAE government has been implementing several plans as means of diversifying the economy. The new industries which have been created as part of this plan include: Construction, Information Technology, Finance, Manufacture of consumer goods, Tourism.

Another industry which has been part of the government's diversification strategy has been the establishment of re-export centres and Free Trade Zones. Such areas offer various incentives to investors such as the right to 100% foreign ownership and the absence of taxes and absence of import and export duties. As a result the UAE government has managed to make this industry into another major source of income for the country. Other smaller industries include Agriculture and Fisheries.

At the same time UAE is making serious headway in its plans to become a major financial centre in the region through the creation of the "Dubai International Finance Centre - DIFC". The UAE government hopes that the DIFC's size and reputation will rival those of London and New York. Evidence of strong international confidence in the DIFC's future came with the recent decision by the Al Salam Group, a Saudi Arabian development company, to invest 550 million dirhams ($150 USD million) in purchase and construction of the DIFC. This is thought to be one of the largest foreign direct investment of its type in the Middle East.

The results of the diversification plan show that the government has been successful as the country's dependency on oil and gas has been reduced from a figure of 70% to estimates ranging from 30 - 50%.

UAE's main export commodities (crude oil, natural gas, reexports, dried fish, dates) are sold to exporting destinations such as: Japan, South Korea, Iran. UAE's main import commodities (machinery and transport equipment, chemicals, food) are imported mainly from: China, Japan, Germany, US, and France.

Most of UAE's economic development has been concentrated in the two richest and most powerful of the seven Emirates which are Abu Dhabi and Dubai. In comparison the remaining five Emirates are relatively underdeveloped.

UAE continues to play a role in the Petroleum market as a member of the OPEC, as well as a member of the GCC Customs and tariffs Union. The country's strategic position on the shores of the Persian Gulf and its proximity to the straight of Hormuz have placed it on the map of many shipping companies as well as trading organisations as an important trading point. UAE's important position in the region is likely to continue owing to its economic strength.

Related websites:
Related Articles:

Politician wants to treat unemployed like cattle (Uemployment in Australia - Consequences & Govt Measures??)

How do you motivate employees to work? An Australian politician suggests you use a cattle prod.

Newly elected Senator John Williams, in his first speech in the Australian parliament, called for unemployed idlers to be stung on the backside with cattle prods to get them to work.

Nationals Senator John Williams made the remarks in the Senate this evening, telling the chamber about his views on people receiving welfare payments.

"The family farm cannot afford to pay wages when the person never shows up for work," Senator Williams said.

"So too as a nation, I believe that if you are in good health and are capable of working, then you should work."

Senator Williams said he has seen many who are "determined not to work".

"They are simply getting a free ride on behalf of tax payers of Australia and
it is about time they received a touch on the backside with a cattle prodder to get them off their butts and actually do some work," he said.

If people were in good health and youth was on their side, they should not receive a dole cheque unless they contribute to the nation, he said.

"However I do believe that the genuine unemployed should have a safety net and should be helped through their tough times until they find employment."

Friday, September 19, 2008

Controversy over the production of Tata 'NANO'- The Word's Cheapest Car

Tata offered alternative site for Nano plant
By Joe Leahy in Mumbai: September 19 2008

Tata Motors of India has received one of its strongest offers yet to move its controversial plant to make the world's cheapest car, the Nano, from West Bengal.

The offer from southern Karnataka state for a 1,000-acre plot comes ahead of an important moment today in the stand-off in West Bengal, with the opposition party that is protesting against the project set to meet the state governor.

"We are watching the situation and actively looking at alternatives," said Ravi Kant, Tata Motors managing director, after a meeting with BS Yediyurappa, the Karnataka chief minister who is based in Bangalore, the state capital.

At least 13 rival state governments have flocked to Tata with offers of land for the embattled Nano project after the group was forced to suspend work at its partially built plant in Singur, near Calcutta.(Well, as they say, one man's loss is another man's gain.. while West Bengal loses, it still remains to be seen who will get the much coveted investment..)

The opposition Trinamool Congress wants the Tata group to return part of the 1,000-acre factory site it says was forcibly taken from farmers by West Bengal's state government to make way for the plant. [read whole article]

Related article - Tata seeking new sites for Nano

See Tata 'NANO'- The People's Car (aka 'The World's Cheapest Car at $2500); Exclusive look at the Tata Nano (with video)

Monday, September 15, 2008

Singapore still tops for business (A boost for MEC!)

It retains No. 1 World Bank ranking for third year, thanks to key reforms

IT’S a hat-trick.

For the third year running, Singapore has been ranked as the world’s easiest place to do business by the World Bank.

Around the globe, a record 239 reforms were introduced in 113 economies in the last year.

But it was two important reforms - shortening the time periods needed to start a business and to obtain a construction permit - that kept Singapore narrowly above New Zealand in the World Bank’s latest Doing Business rankings.

Making full use of the Internet was the key to Singapore’s success. An online one-stop shop helped slash the time it takes to issue a construction permit from 102 days to just 38 days.

Singapore also simplified the online process for starting a business - slicing a day off the already rapid procedure. It now takes only four days and $365 to start up a business here.

The news was welcomed by Singapore’s trade associations, the Singapore Business Federation and the Association of Small and Medium Enterprises. They noted that easing regulations for firms had certainly helped to offset the rising costs of doing business.

Programme manager for the report Sylvia Solf said enforcing contracts was one area in which Singapore could improve. It takes one month more than it did the previous year to enforce a contract, and the cost of taking a case to court is about a quarter of the claim value.

Ms Solf said the top 10 economies remained almost unchanged - a reflection of the continuous commitment of richer nations to simplify regulations. Any country that stops reforming will lose its position in the competition, she said.

The annual report, now in its sixth year, is put up by the World Bank and its private lending arm, the International Finance Corp (IFC). It ranks 181 economies according to 10 indicators of business regulation - from starting a business to paying taxes and closing a business.

The aim is to show how simplifying procedures encourages investment, creates jobs and spurs growth. The top 10 are all high-income economies.

East Asia and the Pacific had the greatest momentum of reform among all the regions with 63 reforms made in the past year, up from 46 the year before, the report noted. Leading the charge was Thailand, which recorded four big improvements to climb from 19th to 13th place.

Ms Dahlia Khalifa, a co-author of the report, said that countries recognised the need for regulatory reform to make them more competitive and are ‘clearly committed to reform agendas’.

Overall, Azerbaijan was deemed the top reformer, after upgrading in seven areas. It leapt 64 places from 97 to 33. The Central Asian and Eastern European region recorded the most number of reforms in the world, with 26 of the 28 countries implementing a total of 69 reforms.

World Bank/IFC vice-president for financial and private sector development Michael Klein said that having ‘good rules is a better basis for healthy business than ‘who you know’.’

Source : Straits Times - 11 Sep 2008

OPEC Surprises With Output Cut;

Wednesday, September 10, 2008 (AP)

July 10: Secretary General of the Organization of the Petroleum Exporting Countries, OPEC, Abdalla Salem El-Badri in Vienna.

VIENNA, Austria — OPEC oil ministers agreed Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices.

The news sparked a rebound in oil prices. Light, sweet crude for October delivery rose $1.00 to $104.26 a barrel in electronic trading on the New York Mercantile Exchange, but later fell back to its original price near $103.

The OPEC announcement reflected OPEC efforts to cover all bases in an oil market that saw prices spike to a record high just short of $150 a barrel in July, only to shed nearly 30 percent off those peaks in subsequent months.

VIENNA, Austria — OPEC oil ministers agreed Wednesday to trim overall output by more than 500,000 barrels a day in a compromise meant to avoid new turmoil in crude markets while seeking to bolster falling prices.

The news sparked a rebound in oil prices. Light, sweet crude for October delivery rose $1.00 to $104.26 a barrel in electronic trading on the New York Mercantile Exchange, but later fell back to its original price near $103.

The OPEC announcement reflected OPEC efforts to cover all bases in an oil market that saw prices spike to a record high just short of $150 a barrel in July, only to shed nearly 30 percent off those peaks in subsequent months.

Oil prices had lost more ground Tuesday ahead of the OPEC decision, falling $3.08 to settle at $103.26 on the Nymex, the lowest settlement price since April 1.

An OPEC statement issued after oil ministers ended their meeting early Wednesday said the organization agreed to produce 28.8 million barrels a day. OPEC President Chakib Khelil said that quota in effect meant that member countries had agreed to cut back 520,000 barrels a day in production over the established quota.

Saudi Arabia alone accounts for more than that amount of output over its official quota — all members of the 13-nation OPEC have such formal production limits allotted to them except violence-torn Iraq. But Khelil said that the cutbacks in overproduction would apply proportionally to all OPEC members bound by quotas.

OPEC overall regularly churns out oil above the organization's overall quota, last set in November at 27.3 million barrels a day, and it remained unclear whether group members would abide by the decision to keep to their limits.

Still, the decision could have the psychological effect of steadying eroding prices at or above the $100 mark — the red line for many OPEC nations concerned about their rapid loss of revenue in recent months.

While the new production limit of 28.8 million barrels a day is above that set in November, the statement said it reflected adjustments to include new members Angola and Ecuador and excluding Iraq, as well as Indonesia, which used the Vienna meeting to announce it was suspending its full membership.

The statement noted that "prices had dropped significantly in recent weeks driven by a weakening world economy ... with its concomitant lower oil demand growth, coupled with higher crude supply, a strengthening of the U.S. dollar and an easing of geopolitical tensions." And it warned of the possibility of further price erosion, forecasting a possible "shift in market sentiment, causing downside risks to the global oil market outlook."

But analysts said several factors could stem any further slide in prices over the next few months.

"There are good reasons ahead for prices to turn toward the upside," said Johannes Benigni, managing director of JBC Energy in Vienna. "Take the next hurricane," he said, alluding to the chances that — after a few near misses in recent weeks — further storms could savage oil installations in the Gulf of Mexico.

He also warned against expectations that non-OPEC suppliers could make up for any added demand for crude in the traditionally high-use Western Hemisphere winter season, saying "OPEC will have to step in to fill the gap" if other suppliers come up short.

Others said that OPEC's concerns were well founded.

Oil analyst Cornelia Meyer said she expected OPEC to "wait and see what is happening to the global economy and depending on whether China and India are (also) affected, we will see them do a cut" in December.

Oil demand from China's and India's booming economies have helped fuel oil demand and drive up prices.

Ehsan ul-Haq, head of research at JBC Energy, also said it that OPEC "might have to cut production below its set target." He mentioned a further downturn in the U.S. economy and the possibility of a mild winter as possibly depressing the world's appetite for crude by year's end.

Khelil said the request to curb overproduction was effective immediately with a 40-day window for it to take effect. And he suggested bigger cuts may be in the offing if prices continue to slide, telling reporters that OPEC would "swiftly respond to energy developments which may threaten oil (market) stability."

At the next OPEC meeting Dec. 17, in Oran, Algeria, the organization would "reassess the market situation," he added.

Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 percent. Still, prices remain close to 14 percent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.

As G-8 meets, free trade under fire

Recent economic woes are raising new doubts about the benefits of globalization.

By Mark Trumbull | Staff writer of The Christian Science Monitor

The long trend toward open trade and global markets is under new stress as problems from food shortages to climate change test its staying power.

The march toward economic globalization is not shifting into reverse gear, but it shows signs of deceleration as leaders of the developed world meet in Japan this week for their annual summit.

They'll be focusing on issues of immediate concern – from how to tame the alarming inflation levels to non economic concerns such as delicate nuclear diplomacy with North Korea. But their agenda also includes a more general problem: how to maintain expansion of global commerce, which has helped many countries reach new levels of prosperity but has costs as well as benefits for workers.

This problem isn't new, but it has greater urgency this year because of a slowing economy that has dampened consumer confidence worldwide. The rising clout of emerging economies adds another challenge – balancing the interests of rich countries against those of developing nations.

Finding the right path forward is tricky.

"There's real risk here, and the stakes are pretty high" says Michael Spence, an economist who recently chaired a commission on global development. "The main thing that's enabled the high growth where it's occurred ... is really access to the global economy."

The trials of 2008 – soaring food and energy prices and a downturn in the vital US economy – are just the sort of environment in which doubts about free trade often increase. But this environment may also represent an opportunity, a nudge for world leaders to make sure that the benefits of economic policies are shared as widely as possible.

"Part of the problem here is that we've had too little attention ... to the distributional issues," says Mr. Spence, a senior fellow at the Hoover Institution in Stanford, Calif.

That concern came through loudly in an international poll released early this year.

The majority of the public in 27 out of 34 countries surveyed said the benefits and burdens of economic change are not being shared fairly.

Still, most people around the world don't wish to backtrack entirely on globalization. It's more that they want to see the process better managed, according to the BBC poll, which was conducted by Globescan and the University of Maryland's Program on International Policy Attitudes. Half of those surveyed said trade and global investment are growing too quickly, while 35 percent said "too slowly."

[read more]