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Abenomics- Pass or fail?

Chief Cabinet Secretary Yoshihide Suga was officially confirmed as Japan’s new prime minister on the 16th of September 2020. This confirmed the end of Shinzo Abe’s near eight-year reign which was a sudden halt three weeks earlier to his resignation announcement on the grounds of health reasons.  Abe’s departure marks the end of his second period as prime minister, having initially led the nation in 2006-07 and then for a much longer stint beginning at the end of 2012. In his second term he had introduced Abenomics to the desperate country to shake itself out of the long running economic malaise. He stood proudly on the floor of New York Stock Exchange a year after his Abenomics and urged the investors to buy it. Abe’s much-discussed strategy hinged on three main policy “arrows”: aggressive monetary easing, fiscal consolidation and structural reforms to boost competitiveness and economic growth. Designed to jump start the Japan’s economy after facing two decades of tepid deflationary growth. By the early-2000s, the economy was granted some respite through a wave of government bailouts for troubled lenders and the emergence of China as a global economic force, which eased the pain for manufacturing exporters. But despite the modest recovery during this time, the economy remained largely stagnant as low growth and chronic deflation persisted. Abe marketed his three prolonged policy as one such policy which would end this deflationary cycle and give Japan its first shot towards economic revival. The government’s relentless spending to stimulate growth, coupled with its insistence on keeping taxes low, which meant that it ended up running a massive fiscal deficit year after year from 1991 onwards. When the Abenomics was introduced Japan was already in massive debt at 232 per cent of GDP. And thus Abenomics was at the least moderately effecting and plugging the fiscal hole.

But Abenomics failed to bring a reduction in the Japan’s overall public debt ratio. Japan’s gross government debt ratio was around 230 per cent of GDP at the end of 2019 and it is highest ever record in the Fitch rated sovereigns, Fitch is one of the leading ratings industry. But there certainly was some wins for macroeconomic front of which Abe can certainly be proud. Shigeto Nagai, head of Japan economics at Oxford Economics stated that “Abenomics has been effective in supporting large firms by boosting equity markets and nurturing the sense of stability that a sharp appreciation of the Yen will not happen again. During Abe’s time in office, the profitability of large firms has risen significantly, by expanding their business abroad.” The unemployment rate came down from 4 per cent to near 2.2 per cent before the pandemic stuck. “Abenomics did create growth and avoided the worst-case scenarios for (the) Japanese economy,” Josh Lipsky, director of the global business and economics program at think tank Atlantic Council, told CNBC in early September. While it had such notable successes, inflation remained below target and debts remained at sky high and reforms weren’t delivered as much as it was hoped to deliver. Abe implemented key governance measures designed to boost the profitability of Japanese firms and, in turn, attract more foreign investment, including raising the number of independent external directors, requiring the disclosure of risk-management and governance policies, strengthening external monitoring processes and improving accountability to shareholders.

But if viewed in a global context, it can regarded with more positive approach. Many economies are struggling with chronically low inflation and mounting public debt, while key reforms in some countries have delivered similarly lackluster results. As such, Abenomics distinctly remains a work in progress.

Finance

Euro zone ministers expect inflation to slow in 2022

The acceleration of euro zone inflation, driven energy prices, is mostly temporary. Then the price growth will slow down again. The euro zone finance ministers agreed that, that too the next year as forecasted by the European Central Bank and the European Commission.

Paschal Donohoe, chaired the talks of the ministers in Luxembourg. In a news conference he said that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy. This is under the EU’s ambitious plan of reducing CO2 emissions to zero by the year 2050.

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Finance

Under new rules, borrowing for investment sensible

British finance minister Rishi Sunak said that the government borrowing to fund investment was a sensible thing. This is to allow under new fiscal rules that he is likely to announce, unlike borrowing for day-to-day spending. He said that borrowing for capital investment that is going to drive up their growth is probably a sensible thing for them. And that too particularly in an environment of slightly lower interest rate. Sunak stated this in an event on the sidelines of the annual conference of Britain’s ruling Conservative Party. This event was organized by the Taxpayers’ Alliance advocacy group. Sunak stated in that event, that borrowing for more day-to-day spending is probably less something that you would want to have as part of your framework.

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Finance

IMF board to interview Georgieva-sources

The International Monetary Fund’s executive board is going to interview Managing Director Kristalina Georgieva. This is regarding that; its reviews claims that she pressured World Bank staff to alter data to favor China in her previous role. Board members were initially expected to meet with Georgieva. But spent their time working on other regular business matters.

The board members spent hours for questioning lawyers from the WilmerHale firm. This is about their World Bank investigation report which alleged that Georgieva, as the bank‘s CEO applied undue pressure on staff, to alter data in the flagship “Doing Business” report to benefit China. Then, an IMF spokesperson said that the IMF board remains committed to a thorough, objective, and timely review of the matter. Georgieva has strongly denied the accusations.

The upcoming interviews could prove pivotal in either increasing support for Georgieva. This is with many IMF shareholders are keen to wrap up the board’s deliberations on the matter. The fund’s most influential member governments, including the top shareholder the United States, have withheld public judgment. The World Bank tasked WilmerHale with investigating the “Doing Business” data irregularities identified in 2020. The law firm’s report contends Georgieva. The former World Bank President Jim Yong Kim’s office pressured staff to manipulate data so that the China’s global ranking in the “Doing Business 2018” study of investment climates rose to 78th from 85th.

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