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Daily Archives: April 14th, 2009

William Pesek
April 14, 2009

IF YOU’RE looking for signs the world economy is bottoming out, South Korea could be the place.

It’s entirely possible things will get worse globally. Recessions may deepen, asset prices may slide further and credit markets may remain locked up. Doomsayers such as Nouriel Roubini still make plausible arguments that things will just get nastier.

Amid such risks, hints that the Bank of Korea’s most aggressive round of interest rate cuts in a decade is coming to an end are a rare ray of sunlight. Among developed economies, Korea’s was arguably the first sent into freefall by the global crisis. Iceland got more headlines, but as the world’s 13th-largest economy, South Korea is one that really matters.

Signs that Korea’s deepest contraction in more than a decade is abating could be a harbinger of a more stable world economy. After 18 months of plunging stocks and household panic, a steadier Korea would indeed be a positive development. The reason: it would have significance not only in Seoul, but 11,300 kilometres away in New York.

It really is hard to think of an economy that went from growth to crisis faster than South Korea. It was the first nation to rebound from Asia’s 1997-98 financial crisis. In late 2008, Korean officials found themselves shooting down speculation their economy would again cascade into chaos. Today, there’s far less chatter about Korea going the way of Iceland.

Risks abound, of course. South Korea’s vulnerability was painfully apparent after the failure of Lehman Brothers. The US and Japanese recessions are far from over. Korea’s ability to export its way back to health is very limited. And North Korea’s recent rocket launch added a new layer of geopolitical risk.

Protesters forced the cancellation of a weekend meeting of Asian leaders in Pattaya, Thailand. That would have been a rare opportunity for Korea, Japan, China and other regional powers to co-operate to stem the global crisis.

South Korea’s central bank governor, Lee Seong Tae, made a significant observation last week: the pace of Korea’s slowdown “moderated significantly” since the bank’s February meeting. Policy makers last week left the benchmark rate unchanged for a second month. Also, factory output gained for a second month in February and manufacturer confidence rose to a five-month high.

Such data fit with some signs that the US may be nearing a bottom. Asian stocks were buoyed when US first-time claims for unemployment insurance fell 20,000 in recent report and Wells Fargo reported a record quarterly profit.

White House chief economic adviser Lawrence Summers said conditions had eased in credit markets and voiced confidence that the slide in US growth would end within the next few months. Federal Reserve Bank of Kansas City president Thomas Hoenig said government stress tests of banks would probably indicate most did not need more taxpayer money. US President Barack Obama said he was “starting to see progress” towards a recovering economy.

Again, it’s all tentative and subject to big and sudden surprises. If you had a dollar for every time in the past two years that a pundit said “this is the bottom”, you could probably open your own hedge fund. Yet unlike two months ago, there’s actually some comforting news to be found about the global economy.

Korea is a case in point.

“An economic recovery will be very slow,” Kim Jae-chun, director-general at the central bank, said last week. And yet after the turbulence and fear of the past couple of years, that sounds pretty good.

Asian governments need to learn how to live for a while with 1 per cent or 2 per cent growth — not the usual 6 per cent or 7 per cent. That transition will be as difficult for Korea as anywhere. In December, the central bank predicted 2 per cent growth in 2009. It now expects a 2.4 per cent contraction.

Still, I never bought into the view that Korea was the basket case many claimed. Last week’s bond sale should shelve talk of short-term liquidity or balance-of-payments shock. South Korea sold $US3 billion ($A4.14 billion) of dollar-denominated bonds overseas to bolster the won. It’s good news for credit markets from Seoul to New York that Korea attracted orders for more than double that amount.

Governments also are acting more quickly to stabilise growth. South Korea’s most recent plan, for example, spends 17.7 trillion won ($A17.9 billion) on cash handouts, cheap loans and job training to revive things.

It’s a positive development for world growth. Events in Seoul may offer an early indication that such steps are paying off and that it’s time to buy the Dow Jones Industrial Average.

William Pesek is a Bloomberg News columnist.

John Garnaut
April 14, 2009

CHINESE investors are punting on an imminent economic recovery, with the Chinese Government underscoring its relative financial strength by pledging $US25 billion ($35 billion) in new funds and loans to South-East Asia.

Investors pushed the Shanghai Composite Index up 2.7 per cent late yesterday and 38 per cent so far this year, breaching the 2500 mark for the first time since August. The market was buoyed after the Premier, Wen Jiabao, revealed in a newspaper interview that industrial production had risen 8.3 per cent in the year to March. Steel and resources company shares were up strongly. Commodity importers were also anticipating a pick-up in underlying steel consumption, with iron ore stockpiles in the 20 major ports up 12 per cent to 66.9 million tonnes in the month to yesterday, according calculations by Steel Business Briefing.

“This is reflecting the crazy amount of iron ore imports we’ve seen in the last few months,” the China editor of Steel Business Briefing, Paul Bartholomew, said.

“All of this stimulus money is starting to have an impact on construction volumes and therefore demand for machinery and raw materials,” Arthur Kroeber, principal of the Beijing consultancy Dragonomics, said.

“Pretty much every Asian economy is seeing a significant rebound in its export growth based on sales to China,” he said.

China stands alone among the major economies in boasting strong government, banking, corporate and household balance sheets despite the global financial crisis.

In recent weeks the Chinese Government has deployed its relative financial strength to help stabilise other nations, particularly its neighbours.

According to the Foreign Minister, Yang Jiechi, Mr Wen was ready to announce $US15 billion in credit facilities at the summit of ASEAN leaders before it was cancelled when protesters occupied the venue.

Almost all sectors of the Chinese economy appear to have bottomed out since the export shock and construction slump of late last year. Most of the new activity appears to flow directly from the Government’s all-out fiscal and monetary stimulus effort.

Stephanie Peatling
April 14, 2009

THE Federal Government is being urged to consider less onerous conditions for job seekers as part of the transition to a new system for employment services.

Talks with welfare groups have been brought forward by the Government, which wants to hear their suggestions about how to help unemployed people deal with the new arrangements.

“Employment service providers generally do a good job, but the current situation is very difficult for unemployed people and no one seems to be focusing on those difficulties,” the policy officer at the National Welfare Rights Network, Gerard Thomas, said.

The Job Network will be renamed Job Services Australia and all existing employment programs merged from July 1.

As a result of the changes some existing job agencies will be replaced by new operators.

A meeting between the Welfare Rights Network and the Minister for Employment Participation, Brendan O’Connor, was scheduled to be held late next month but will be held this month to help ensure the changeover period runs smoothly.

Welfare groups are concerned the transition period may lead to a higher rate of penalties for job seekers who fail to meet the conditions of their payments due to confusion over the changes.

They want a formal transition period in which welfare recipients have the conditions of their payments eased and penalties applied more sparingly.

The main change that the welfare network wants introduced is a reduction in the number of jobs unemployed people must apply for to continue receiving their welfare payments. “The Government should review in the current economic climate whether it is still reasonable for job seekers to look for 10 jobs a fortnight,” Mr Thomas said.

Other transitional arrangements the network wants include making it easier for job seekers to change case workers if they report to someone they do not get along with.

Employment agencies already have a high staff turnover – about 35 per cent a year.

“This lack of continuity is a major source of complaint for job seekers,” Mr Thomas said.

“It takes a lot for job seekers to tell managers what the barriers to them finding work are. That might be mental illness or a situation of domestic violence.”

Other changes the network wants the Government to consider are increasing the supplement paid to people who participate in work for the dole projects, and directing employment agencies to take a more compassionate approach to job seekers struggling to come to terms with the new system. The Government has already said it is aware of the confusion the changes to the employment system could cause.

Mr O’Connor has announced there will be a one-year transition period to shepherd in the changes but he has not yet announced the details.

At a conference last week he defended the changes, arguing that they were necessary to help the growing number of people who are losing their jobs because of the deteriorating economy.

Eric Johnston
April 14, 2009

COMPANIES could be forced to pour hundreds of millions of dollars into their defined benefit superannuation funds over the next year after sliding investment returns have caused deficits on corporate funds to blow out to $25 billion.

The Australian Prudential Regulation Authority is believed to have recently stepped up monitoring of corporate superannuation plans operated by a raft of listed companies, including BHP Billion, Telstra and Qantas.

APRA has warned super trustees to ensure defined benefit plans were well funded with assets crunched by the financial crisis.

It has also advised funds to prepare for increased demands on payments, with more employees being made redundant as the economy slows.

Qantas was recently forced to pump $66 million into its $5 billion superannuation scheme to cover a shortfall caused by the global economic crisis.

A new study by the investment consultant Watson Wyatt has found a $2 billion deficit across corporate defined benefit super funds last June is likely to have ballooned to about $25 billion by the end of December as the global financial crisis deepened.

“What happened in that second six months was unprecedented,” said David McNeice, a principal at Watson Wyatt.

“Liabilities are going up because of the reduction in interest rates. At the same times the value of assets in the funds are falling given collapses in stockmarkets and property markets,” Mr McNeice said.

Defined benefit schemes, which are mostly closed to new members, guarantee a fixed retirement payout regardless of investment performance.

Payouts are usually calculated on a combination of years of employment and salary at retirement.

According to Watson Wyatt, about 54-listed companies continue to operate a defined benefit scheme.

Since the introduction of compulsory superannuation, more than 90 per cent of Australian superannuation funds under management are now accumulation style, where payouts are influenced by investment returns.

Last year super funds suffered some of their worst performances on record, with investment returns down nearly 20 per cent in the year to February.

The mining giant Rio Tinto operates one of the biggest defined benefit programs with $US13.1 billion ($18.1 billion) worth of liabilities at the end of December. According to Rio

Tinto’s latest accounts, it is sitting on a total pension fund shortfall of $US2.65 billion.

Rio Tinto expects to pump about $US765 million into its pension plan this year, on top of the $US615 million it poured into the plan last year.

Elsewhere, Telstra has said it could be forced to add a further $282 million into its defined benefit scheme this financial year after plunging investment returns saw the plan swing from a $182 million surplus to a $1.17 billion deficit in the six months to the end of December.

The Commonwealth Bank of Australia added $18 million into its defined superannuation plan during the six months to the end of December, although the banking giant’s $7.3 billion fund is currently sitting on a $620 million surplus.

Still, the shortfall of corporate funds is dwarfed by the more than $156 billion deficit of public sector superannuation funds across state and federal governments. The bulk of this is made up of Commonwealth liabilities, although the establishment of the Future Fund is expected to be fully funded by 2020 when it is scheduled to start making payouts.

Even with the bulk of super assets classed as long term liabilities, Watson Wyatt’s Mr McNeice said pressure remains on superannuation trustees to ensure funds have enough assets.

Mr McNeice said more companies were likely to pump funds into their defined superannuation plans during the next year.

“All companies with a defined benefit plan have seen the funds’ financial strength weakened – in some cases they’re pretty big dollars that are involved,” he said.

April 14, 2009 07:27am

AUSTRALIA’S car industry will not survive the economic recession, and Holden will probably be the first to go, an industry expert says.

Editor of the car buyers Dog & Lemon Guide, Clive Matthew-Wilson, said the Australian car manufacturer is poised to shut down for good because it can no longer compete in the global market.

Holden signalled the beginning of the end when it recently halved production at its South Australian plant, he said.

In early April the company announced that from May 4 it will reduce production at its Adelaide plant from about 600 vehicles a day to 310, citing reduced demand in domestic and export markets.

“Australia’s car factories are losing money on every vehicle they make,” Mr Matthew-Wilson said in a statement.

“No amount of incentives from the state and federal governments can solve this basic problem.

“It’s not a matter of whether they close down, but when they close down.”

He said Holden will be the first to go, followed by Ford and then Toyota.

“People falsely believe that Ford is doing okay. That’s not true,” he said.

“American Ford’s sales are down 43 per cent in the first quarter of this year.

“Ford is losing billions just like GM; it’s just that Ford arranged private sector finance before the recession, so it’s not quite so obvious how serious things are.”

Amid the financial turmoil, the big three US car makers – Ford, Chrysler and Holden owner General Motors – have asked the US government for a loan guarantee of $US25 billion ($37.51 billion).

Earlier this year Toyota, the world’s No.1 car maker and Australian market leader, accepted a $35 million federal government grant to build a hybrid version of its four-cylinder Camry sedan in Melbourne from 2010.

But Mr Matthew-Wilson said the money is a waste.

“Globally, there’s a glut of new cars at bargain prices, yet Australia, which produces a small number of high cost cars, is trying to compete with countries like China, which produces ten million cars a year and pays its car workers as little as one dollar per hour.

“The Australian government can throw $6 billion or $600 billion at these car plants, but they still won’t be economically feasible,” he said.

“Australia’s car plants are losing money faster than a drunk at a casino and there’s no feasible way of turning this around.

“The Australian car industry can re-focus on small cars, green cars, blue cars or red cars. None of this will make the slightest difference.”

Mr Matthew-Wilson believes the government money would have been better spent by giving it to the affected car workers.,21985,25331630-5005961,00.html

14 April 2009 6:40am

Recruiters make mistakes in any market, but six in particular are significantly more costly during a downturn, according to recruitment trainer Ross Clennett.

Clennett says that during the downturns in 1991/92 and 2001/02 he made mistakes but they fortunately didn’t cost him his job.

“As I work with and talk to numerous recruitment company owners and recruiters across the country, I see many of the same mistakes that I made, being repeated by people recruiting in their first down market.”

Here is his list of the top six mistakes:

Chasing jobs outside your niche – this happens when desperate recruiters see their job flow drop and panic, Clennett says. To drive up their ‘jobs-in’ statistic, “they chase any old job they can bring in”.

Instead, he says, recruiters should consider whether they have truly called every single prospect in their current niche. “What message about your expertise are you sending to your current clients and candidates? Even if you can fill the job, how long will it take to fill? What if you invest a lot of time and don’t fill the job? Could you readily place elsewhere, any of the candidates you spent many hours interviewing? Would you be motivated to even start such an activity? Could you easily fill the job again if your placement bombed out?”

Being lax with terms of business and credit checks – recruiters who are overjoyed at bringing in a job often think that “paperwork” will just slow things down and soak up critical time that might be used by their competitors to fill the job ahead of them, Clennett says.

But recruiters who have read any business media recently should be particularly wary about cash flow problems, credit clamp-downs, big-name companies going broke and spending drying up.

“In other words, many organisations – big and small – won’t be able to pay their bills. In desperation, they will use anything to dispute a due and proper payment. Not having your terms of business properly signed and returned (before starting work on any assignment) is such a basic error that, frankly, you deserve what’s coming to you if it turns out pear-shaped.”

Not qualifying jobs – this can happen when a recruiter, sick of telephone prospecting all day, gets so excited about a new job to work on that they start the assignment without properly qualifying the job.

Clennett points out that if you think not having jobs to work on is demoralising, “imagine how it feels to invest hours or days on an assignment and then find out that the client isn’t ready to hire now; hasn’t gained proper hiring authorisation; or refuses to be at all flexible on the remuneration offered to your A1 candidate?”

Interviewing too many candidates – there is now a reasonable flow of very good candidates seeking new positions but this doesn’t mean recruiters should over-compensate for the times of drought and interview all of them, Clennett says.

“The shortage is now in jobs, not candidates, so time allocated to candidate interviews needs to be carefully rationed. Interviewing masses of candidates each week will not bring in more jobs.

My advice is to find new job-hunting tactics rather than soak up precious time interviewing a candidate you have no short-term hope of finding a job for.”

Giving clients more control – with fewer jobs to fill, recruiters feel more vulnerable to the impact of a client’s commercial decision to give or not to give them an assignment to fill, Clennett says. They have “now is not the time to push back on client demands” running through their heads.

But the changed market hasn’t made any recruiter less of an expert than they were before, he says. “In fact it’s the opposite – our expertise is even more valuable and important in securing optimum recruitment outcomes. A poor hiring decision, in the current climate, could be even more costly for a client than in rosier times.

“Now is exactly the time to assert your expertise and provide your client with (potentially) unpopular, but accurate, advice about market salaries, quality candidate supply and the like. Who knows more about tax: a tax accountant or their client? Who knows more about architecture: an architect or their client? Who knows more about recruitment: a recruiter or their client?”

Wishing, hoping or thinking things will get easier – recruiters are as likely as anyone else to experience denial, Clennett says. “We would like to believe that things are not as they are and we act in accordance with our dream-world rather than the real world.”

But, he says, “spending time thinking or talking about something you have no control over is about as useful as hair gel for Peter Garrett.

“Results are caused by actions. If your current results are not to your liking, your choices are clear – get better at what you are currently doing, do more of what you are currently doing, or do something different.”