US loses top competitiveness spot

The U.S. has lost its status as the world's most competitive economy, according to the World Economic Forum. The U.S. now ranks only sixth in the body's league table of global competitiveness, behind Switzerland, Finland, Sweden, Denmark and Singapore.

Risks attached to the large U.S. trade and fiscal deficits prompted its fall. The UK has retained its place among the world's 10 most competitive economies but China, Russia and Brazil have all fallen down the rankings.

Imbalances

Countries were judged on how conducive their business climates are to sustaining economic growth.
Publishing its Global Competitiveness Index, the World Economic Forum (WEF) said the best performing countries were distinguished by their competent economic stewardship, investment in higher education and a emphasis on technological development and innovation.
Although the U.S. remained the global engine of technology, WEF said its business environment was being endangered by the fragile state of its public finances.
The U.S. has seen its budget and trade deficits spiral in the past few years as a result of heavy government spending and rising trade imbalances with countries such as China and Japan.
The U.S. trade deficit is expected to top last year's record level of $717 bn ( £378 bn; 565 bn euros) in 2006, while the budget shortfall, although expected to be significantly lower than last year, is still forecast to be close to $300 bn.

U.S. competitiveness is threatened by large macroeconomic imbalances, particularly rising levels of public indebtedness associated with repeated fiscal deficits. Its relative ranking remains vulnerable to a possible disorderly adjustment of such imbalances.

World Economic Forum, Global Competitiveness Index´s report

Swiss peak

Switzerland is now regarded as the world's most competitive economy, with Nordic countries holding three of the five top rankings.
The WEF praised the UK for its flexible labour markets and low unemployment rate compared to the rest of continental Europe. But it said the UK, in common with Germany and Italy, was afflicted by public sector deficits and rising levels of public indebtedness.
China, Russia and Brazil, among the world's fastest growing economies, all suffered a decline in their relative competitiveness.
China fell from 48 to 54 in the ranking, its rapid economic growth and low inflation offset by an over-regulated banking sector and low penetration of mobile and internet technology outside urban areas.
Russia slipped from 53 to 62, with concerns over the independence of the country's legal system and safeguarding of property rights singled out as key concerns, the WEF.

"The private sector in Russia has serious misgivings about the independence of the judiciary and the administration of justice," it said.

No time for generals

Neither the months-long political impasse that preceded it nor Tuesday's so-far bloodless coup have done much to dent Thailand's status as a star economic performer in Southeast Asia. But lasting harm could come if the current situation descends into a political struggle between the country's new military leadership and the former prime minister, billionaire Thaksin Shinawatra.

If democratic rule is not quickly restored, the resulting political instability could crimp domestic consumption, delay needed spending on infrastructure and scare off foreign investors.
On Wednesday, Gen. Sondhi Boonyaratklin, the leader of the Thai army, assured the nation in a televised address: "We don't have any intention to rule the country and will return power to the Thai people as soon as possible." Sondhi said the country would be returned to civilian rule within two weeks.

Tim Condon, Singapore-based head of Asia research with ING, said he expected a sharp decline on the Thai stock market, particularly shares held by the Thaksin family. He also sees weakness in the baht until the political situation stabilizes.

The Thai stock market was ordered closed by the military on Wednesday, though trading is expected to resume on Thursday. After news of the coup spread in New York on Tuesday, two closed-end funds specializing in Thailand fell about 4%, presaging weakness when Bangkok trading resumes.

The baht fell 2% against the dollar, a large decline for what had been a strong currency this year, but not a fall that indicated a total collapse in investor confidence. Given the country has foreign reserves of $59.6 billion, fast-growing exports and improved public finance, there does not seem to be much chance that the economy will suffer the way it did in 1997, when foreign investors suddenly pulled out of Thailand, setting off an economic crisis across Asia.

After rising to 37.95 baht in New York late Tuesday, the dollar stabilized against the Thai currency in London, slipping to 37.70.

Moody's Investors Service, the bond-rating agency, told clients it considered the coup as "primarily a domestic political development, rather than as a financial development." It suggested the political situation could rapidly normalize if the coup clears the way for elections. A vote had been scheduled for November before the military action, but it was unclear if it could be arranged that quickly.
Moody's noted that Thaksin's administration was generally friendly to foreign investors, which might not be the case among the major opposition parties.

A rival rating agency, Standard & Poor's, was less optimistic. Ping Chew, a credit analyst, said the political impasse already has taken a toll on domestic consumption and investment interest in the country, and that a continuing of current impasse would affect the country's investment climate. Standard & Poor's put Thailand's triple-B-plus debt on its Credit Watch list of issues whose ratings might change, with negative implications.

The political paralysis in the past few months has claimed casualties in a projected $7 billion spending on public infrastructure projects, which is critical to Thailand's economic growth in the next few years. Already, the political uncertainty has halted the extension of Bangkok metro line and new highway plans.

More immediately, the automobile industry, which has drawn significant foreign investment, is suffering from plant closures on Wednesday at Nissan Motor and Mazda Motor in what has been declared as a day of "public holiday."

Another casualty will likely be Thailand's plans to become a regional transportation hub. The government had planned to use the Sept. 28 opening of Suvarnabhumi, or Golden Land, airport in Bangkok as a showcase. The airport has been touted as the most modern in Asia, but the plans to draw international traffic will probably have to wait for a while.

India attacks 'flawed' IMF reform

India has attacked changes to the voting structure of the International Monetary Fund (IMF) after it saw its share of the vote decrease.

Its comments came after the 184 IMF nations agreed a deal on Monday to give some emerging economies a bigger vote.
While China, South Korea, Turkey and Mexico all saw their voting quotas rise, India's declined.
India said the reforms were "hopelessly flawed". The IMF has now pledged to overhaul its voting system by 2008.

New formula

Indian Finance Minister Palaniappan Chidambaram said it would "hold the IMF to its promise" of a complete reform of the voting system within two years.

"We may have lost the vote but we have not lost the argument," ,he said.

Under the temporary reforms agreed at the IMF's annual meetings in Singapore on Monday, India saw its voting quota drop slightly to 1.91% from 1.95%.
Mr Chidambaram said the reform formula used to determine Monday's changes - including a country's GDP and market openness - did not accurately reflect the economic might of emerging economies such as India.
India wants the next formula to take into account the need of large developing economies to protect their farmers and young industries from foreign competition

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Economic growth: What the game's about

OPEC has steadfastly refused to set a formal price target, but is on alert for any signals that oil's slide could be prolonged by fundamental market imbalances or by an economic slowdown.

U.S. industrial output fell last month for the first time since January, providing fresh evidence of a cooling economy.

"We are following (U.S. economic growth) with a lot of attention, because this element is critical for petroleum demand in the next few years,"

Algerian Oil Minister Chakib Khelil

But there is a chance for the prices to stay above $50 in the coming years. No new risks to supply emerged over the weekend.

China urged Iran to be more flexible about its atomic work after a week of European Union talks left officials upbeat that a row between Tehran and the West could be resolved.

Weather concerns were also on the backburner, with the fourth storm of the Atlantic hurricane season - Helene - churning over the open seas but posing no immediate threat to land, U.S. forecasters said.