World Bank Snippets: Press Freedom -- Prometheus Unbound, A Bit. and Sri Lanka Needs Reforms, Rural Investment

Press Freedom -- Prometheus Unbound, A Bit.

The world's media are much freer than they used to be, The Economist writes. The Soviet Union's collapse sent liberating tremors not only through Russia, but also through its array of colonies and satellites. Furthermore, the cold war's end prompted western donors to stop propping up anti-communist dictators and to start insisting on democratic reforms, of which unshackling the press was one. Of the former members of the Soviet block, only a few, such as the Czech Republic and Lithuania, have managed to become proper democracies where speech is truly free. But only a few, such as North Korea, Cuba and Turkmenistan, still silence dissent completely.

The most uniformly repressed region is the Middle East, writes the weekly.

But even there new voices are being heard. Though they try, the most dictatorial Arab regimes have failed to insulate their people from the legions of (sometimes wildly conspiratorial and unpleasant) Arabic current-affairs websites. Neither have they stifled the pugnacious new satellite television news stations, such as al-Jazeera and al-Arabiya.

Dictators are rarer than before in Latin America and East Asia, and censorship laxer. Progress has been most striking, however, in sub-Saharan Africa. In the late 1980s, when Africa was still a battleground for the superpowers, only three countries (Botswana, the Gambia and Mauritius) allowed their people to say, write and broadcast what they pleased. The rest were more like Zaire (now Congo), where state television showed President Mobutu Sese Seko's image descending godlike from on high. Private newspapers are now available almost everywhere in Africa, and the number of independent local radio stations has risen 100-fold, from ten in 1985 to over 1,000 today. Television is still state-dominated, but, in general, relatively unfiltered news is reaching far more people than ever before.

The media watchdog Freedom House says that few poor countries are as free as they should be, though most are heading in the right direction. China is an example. It is less oppressive than it was under Mao Zedong, and that is reflected in its media. The number of Chinese newspapers soared from 382 in 1980 to 2,119 in 2003, says the government. Direct criticism of the Communist Party is still taboo, but other comment is a bit freer. Chinese journalists can write about economics, foreign affairs and practical problems facing their readers in a way that would not have been tolerated 20 years ago. At a local level, they can also expose corruption, even among party officials. Freedom House also reports that since 1985, the proportion of the world's population living in places where the media are “not free” has fallen slightly, from 46 percent to 43 percent. On the other hand, the proportion who live in countries classified as “free” has also fallen, from 29 percent to 17 percent. This does not mean that lots of countries have regressed from “free” to “partly free”. Rather, it reflects faster population growth in poor countries.

Sri Lanka Needs Reforms, Rural Investment: World Bank.

Sri Lanka badly needs rural infrastructure investment and reforms to boost a stagnant agriculture sector to speed up economic growth, the World Bank said on Thursday, saying future aid may depend on it, reports Reuters.

Sri Lanka should trim its fiscal deficit, cut back public debt equal to 100 percent of gross domestic product and focus on poverty reduction, the bank said in a new development policy review. Ensuring lasting peace between the government and Tamil Tigers rebels after two decades of civil war was also vital to the Indian Ocean island's economic prospects, it added. "There is a need for agricultural reform," said World Bank country director Peter Harrold, launching the review in Colombo. "But it won't work unless it is accompanied by investment in infrastructure like roads and power."

Fiscal deficit and public debt reduction, investment in transport, education and the power sector and reforms to increase rural productivity are the best ways to tackle poverty reduction and broaden the base of economic growth, the report said. "These the World Bank regards as the key issues that would need to be considered in defining a more pro-poor growth strategy for Sri Lanka, and which will be guiding our assistance to Sri Lanka in the coming years," the report added. The government's newly approved 2005 budget focuses spending on rural infrastructure, as well as incentives for power generation projects and small and medium businesses.

Sri Lanka's road and rail networks have deteriorated in recent years as the government channeled spending into defense to fight Tamil Tiger rebels and neglected areas like health and education. The bank estimates the civil war between the rebels and government, which has killed more than 64,000 people on both sides, reduced GDP growth by 2.0-3.0 percentage points per year on average between 1983-2002. "Sri Lanka is at a crossroads on its development path," the report said. "Any resumption of conflict poses a major risk to Sri Lanka's development prospects." The government is targeting 6.0-8.0 percent growth in 2005 and 6.0-7.0 percent growth in the medium-term. But inflation is expected to rise to 8.0 percent in 2005 from 6.0-7.0 percent his year, the rupee is at all-time lows and the budget deficit is forecast at 7.6 percent of GDP next year compared to 8.6 percent forecast for 2004.

Bloomberg's William Pesek Jr. : Investors Got Asia Right in 2004. And 2005?

Investors Got Asia Right in 2004. And 2005?

by William Pesek Jr.
Bloomberg

Dec. 17 (Bloomberg) -- Anyone looking for a reality check on Asia could do worse than come to the scene of the crime, so to speak. That would be here in Bangkok, where this region's worst financial crisis in decades was set in motion.

Thailand didn't cause the meltdown, though its currency devaluation in July 1997 marked the beginning of the end of the double-digit growth rates investors came to expect from Asia. In the seven-plus years since, Thailand's economy and markets have often been the vanguard of investors' sentiment toward Asia.

Scenes in this spirited city of 8 million do indeed say much about Asia's strong post-crisis revival. So strong is Asia's ninth- biggest economy these days that Thailand's central bank just unexpectedly raised its key interest rate to 2 percent from 1.75 percent for the third time in four months to curb inflation.

Wandering Bangkok's streets, it's not hard to see why. While there is still considerable poverty, increasing numbers of twenty- somethings linger in trendy downtown cafes, nursing cappuccinos or French wine. Fashionably dressed Thais saunter from boutique to boutique shopping for the latest styles from Louis Vuitton and Gucci. And hotel lounges are again abuzz with foreign investors on the lookout for opportunities.

It's a striking contrast from just a few years ago, when Thailand, like much of Southeast Asia, lay coughing and wheezing amid Asia's financial crisis.

`White Hot'

``Asia is certainly white hot at the moment,'' says Callum Henderson, head of currency strategy at Standard Chartered Plc. ``It reminds me of 1996.''

There's a key difference, though: Investors' exuberance toward Asia is far less irrational than it was back then.

2004 has been a year when many investors got Asia right. Stock markets in Australia, Hong Kong, India, Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, South Korea and Sri Lanka are recording double-digit gains this year.

Japanese stocks are up 8 percent, while Taiwanese shares are up more than 7 percent. Thailand, even with 6 percent growth and its role as a barometer for Asia, is one of the few laggards; its SET Index is down 13 this year. Yet much of the loss can be explained by the fact Thai shares jumped 117 percent in 2003. Investors are waiting see if 2003's rally was justified.

Will investors' bets on Asia also pay off in 2005? It's quite possible.

Risks and Wild Card

Asia, after all, has what the West doesn't: rapid gross domestic product growth, swelling populations, emerging middle- class consumer sectors, growing cities and evolving markets. Many investors believe Asia's equity markets are trading at much lower price-to-earnings ratios than larger ones.

Furthermore, many investors are underweight Asian equities because of their small role in indexes like the MSCI World Free Index. Foreign investors fed up with paltry returns on bond yields in the West may increasingly look toward the East.

This region also has a rising superpower in its backyard: China. Asia's No. 2 economy is boosting intra-Asian trade to an unprecedented degree. China's 9 percent growth even gets most of the credit for Japan's return to the plus column. Not bad, considering China's economy is a one-third the size of Japan's.

Much could go wrong, of course. A U.S. dollar crash is but one of the risks facing a region that's still too dependent on exports. Further declines in the dollar would damp Asia's economies.

China is another wild card. If policy makers in Beijing err in their efforts to slow growth and inflation, Asia's outlook would change dramatically. China's efforts to avoid a hard landing are, at best, a work in progress and may include a possible currency revaluation.

`Buy Asia'

Finally, the ``buy Asia'' dynamic coursing through global markets leaves the region in a put-up-or-shut-up position in 2005. It's crucial to continue building a sound economic foundation to underpin the 1996-like construction boom one sees in cities such as Bangkok.

One of the best ways to do that is reduce debt. Asia cut foreign-currency debt and its banks reduced non-performing loans after the 1997-1998 crisis. Yet growth in local-currency public debt in the second half of the 1990s was too rapid for comfort; it went from about 40 percent of aggregate GDP in 1996 to about 65 percent. If Asia uses today's growth to trim debt levels, tomorrow's prosperity will look even better.

Still, this year's rise in stocks is a reminder of how far Asia has come since the late 1990s. It shored up banking systems, improved transparency, unpegged currencies, made central banks more independent and privatized many state-owned assets. Corporate balance sheets are cleaner and a sense of political stability has returned to many countries.

Japan Stabalizing

Even Japan is on more stable footing. Asia's biggest economy is still grappling with deflation and its recovery has been less vibrant than hoped. Yet for the first time in a decade, Japan is likely to contribute a bit of growth to the region instead of holding it back.

Throughout Asia there's a ``prevailing cautious optimism that the Japanese economy can resume its uptrend,'' says David Cohen, Singapore-based director of Asian economic forecasting at Action Economics.

It sure does feel like 1996 all over again in Asia. Only this time, the region's economies may be sound enough to keep the good times going.

Slate.com's Henry Blodget: "Born Suckers-The greatest Wall Street danger of all: YOU"

Prudent Investor says: THIS IS A MUST READ FOR YOU...

Born Suckers
The greatest Wall Street danger of all: YOU.
By Henry Blodget
Posted Tuesday, Dec. 14, 2004, at 5:11 AM PT

This self-defense guide would not be complete if I did not address the greatest Wall Street danger of all: you.

Human beings, it turns out, are wired to make dumb investing mistakes. What's more, we are wired not to learn from them, but to make them again and again. If there is consolation, it is that it's not our fault. We are born suckers.

In the past 30 years, academic research has progressed beyond efficient-markets theory, which mistook humans for robots, into behavioral finance, which acknowledges that we are, in fact, sweating, breathing, herding, hoarding, pleasure-seeking, pain-avoiding animals who employ a looser definition of "rational" than computer chips. A full enumeration of the innate tendencies that doom most of us to investing mediocrity would fill a hard drive. So, here are some highlights (thanks in advance to James Montier of Dresdner Kleinwort Wasserstein Research, Michael Mauboussin of Legg Mason Funds, Warren Buffett, and www.behaviouralfinance.net):

Self-attribution Bias: We attribute our successes to ourselves, and we blame our losses on others or bad luck. This hobbles us in two ways. First, we don't learn from our mistakes because we don't see them as mistakes. Second, we assume we are skilled or smart when we're just lucky.

The Gambler's Fallacy: We tend to believe, incorrectly, that if a flipped coin has come up heads three times in a row it is more likely come up tails next time. Similarly, just because a stock or market has gone up or down for a while doesn't mean it is more likely to go the other way soon.

Prospect Theory: We have an irrational tendency to sell our winners to lock in profits and keep our losers to avoid taking losses. This causes us to sell too early when the market is going up and too late when it is going down. We also feel the pain of loss more than the pleasure of gain and, therefore, blow out losing positions in panic when we should just hang on.

Conservatism Bias and Confirmatory Bias: Once we form opinions, we tend to overvalue information that reinforces them and undervalue information that undermines them (conservatism bias). We even tend to seek out supporting information (confirmatory bias). Thus, we irrationally cling to incorrect conclusions, and, to paraphrase Simon and Garfunkel, hear what we want to hear and disregard the rest.

Overoptimism: We tend to be overoptimistic and overconfident. According to James Montier, when students are asked whether they will perform in the top half of their class, an average of 80 percent say yes. This tendency makes it easier for part-time hobbyists to dismiss a century's worth of academic research showing that only a tiny fraction of full-time professionals can beat the market.

Outcome Bias: We tend to evaluate decisions based on outcomes instead of probabilities. Thus, we congratulate ourselves for stupid choices that happen to turn out well and vow to never again make smart choices that happen to turn out badly. Our errors get reinforced, and our wise decisions rejected.

Buffett's "Rearview Mirror": We base our expectations for the future on what has happened in the recent past. Thus, we are most bullish at the end of long bull markets, when we should be most bearish, and most bearish at the end of long bear markets, when we should be most bullish.

Hindsight Bias: When we reflect on the past, we imagine that we knew what was going to happen when we didn't. As James Montier puts it, "You didn't know it all along, you just think you did." This allows us to imagine, for example, that we knew that the tech boom of the late '90s was a bubble and that everyone who suggested otherwise was an idiot or crook. It also makes us overconfident about our ability to predict what will happen next.

A recent paper by Michael Mauboussin, one of the leading experts on behavioral finance (also a practitioner), discusses two of our most unsettling psychological tendencies: the extent to which we conform our decisions to those of other people and our willingness to defer to authority.

Mauboussin describes experiments conducted by psychologist Solomon Asch in which subjects were asked to make simple judgments in the presence of others. Unbeknownst to the one subject in each test, the other participants were actors. The group was asked easy questions—for example, "Which of these three lines is the same length as this other line?"—and then each person answered in turn. For the first few rounds, Asch's actors gave correct answers, and the real subject got the question right almost every time. Then the actors started giving answers that were obviously wrong. Some of the test subjects expressed shock at the obvious mistakes, but 35 percent simply went along with the group. As Mauboussin concludes, "group dynamics—often revealed as stock price performance—tempt investors to go along with the majority, albeit to varying degrees."

Mauboussin also describes the famous Milgram experiments, in which subjects were asked to administer a shock to another "subject" (an actor) each time the faux-subject got a question wrong. With each incorrect answer, the intensity of the shock increased. When subjects hesitated to administer additional shocks—for example, when the actor was screaming in agony or the gauge indicated that the intensity had reached a lethal level—the lab-coated test administrator simply said, "The experiment requires that you go on," or "It is absolutely essential that you continue." The results were horrifying: Approximately half of the subjects administered shocks that would have killed a real subject.

As Mauboussin concludes, "Investors—both professional and individual—have a tendency to defer to perceived authority figures, including successful investors, strategies, or other market prognosticators." When I was an analyst, I saw both sides of this. I placed too much stock in the opinions of those who seemed to know more than I did (my fault, not theirs). More unsettlingly, I saw others do the same with me.

People's natural tendency (here we go again …) is to view the conclusions of behavioral finance theorists as yet another indication of how dumb everyone else is rather than how handicapped we all are as we try to outwit the market and each other. But the biggest lie of the 1990s—the biggest lie of every bull market—is that investing is so easy that anyone can do it, that all you have to do to win is play. The reality, of course, is that only a tiny handful of people are dedicated and talented enough to overcome their DNA, confront the long odds, and come out ahead of the market averages, and they are as rare as world-class athletes. As for the rest of us, we may have fun trying (and this, in and of itself, is enough reason to play), but, alas, we are almost sure to lose.

Henry Blodget, a former securities analyst, lives in New York City.

Elliott Wave International's Robert Folsom: All the Success, Intelligence, Experience, and Street Smarts on Earth...

All the Success, Intelligence, Experience, and Street Smarts on Earth...

by Robert Folsom

Elliott Wave International
12/15/2004 6:31:56 PM

Tom Wolfe's Bonfire of the Vanities is the best treatment I've ever read of what it's like to be at the center of a media frenzy: People you cannot control seize control of who the world thinks you are. Your identity is extinguished.

This may be how Mr. Bernard Kerik feels after the past several days, not that I'm trying to solicit sympathy for the man. Nominated on Dec. 3 to be homeland security secretary, Kerik withdrew his name a week later, apparently because he employed a nanny "who may have been in the country illegally and whose taxes he had not paid."

Yet this was just the iceberg's proverbial tip. The press in New York (and elsewhere) has followed up with story after story of his scandalous behavior -- and if even a few of the allegations are true, he really is a rogue. With one mistress in his pocket and his wife pregnant, Kerik reportedly had an affair with Judith Regan, the most powerful book agent in the publishing business. The lady is known for a temperament and persona that could match Kerik's own toughness.

So, why the heck am I describing this vulgar political soap opera on a page devoted to financial topics?

Because it illustrates a basic truth about the human condition, one we would all prefer not to see in ourselves. We'd rather look at this story and chuckle over sordid details and think that that's all there is to it. But the question that begs to be asked is, How could such intelligent people behave so ... irrationally?

Bernard Kerik knew full well that he would face the FBI's ruthlessly thorough background check, never mind the media's scrutiny; yet he concluded that the allegations would not become public. As for Ms. Regan, one would like to assume that she would not take the kind of risk that could end up with her name in a banner headline on The Drudge Report.

In this case, arrogance led to the irrational choices. In financial markets, rational thinking is overcome by greed and fear. Either way -- all the success, intelligence, experience, and street smarts on earth do not immunize people from bouts of extraordinarily irrational behavior

New York Times Editorial: No Bang for Our Cheap Buck

No Bang for Our Cheap Buck

Published: December 15, 2004
New York Times Editorial

The Bush administration's de facto weak-dollar policy - its preferred "cure" for the American trade deficit - is not working. Yesterday's trade deficit report shows that imports outpaced exports by a record $55.5 billion in October. The huge imbalance was worse than the gloomiest expectations.

So far, the administration has been hoping that the weaker dollar will raise the price of imports, leading American consumers to buy less from abroad, and will at the same time make our exports cheaper so foreigners will buy more American goods. That's supposed to shrink the trade deficit and, with it, America's need to attract nearly $2 billion each day from abroad to balance its books.

But the dollar has been declining since February 2002 - it's down by 55 percent against the euro and 22 percent against the yen - and the trade deficit has stubbornly refused to shrink along with it. The falling dollar has done nothing to diminish America's appetite for foreign goods - such imports continue to rise at a faster rate than exports. According to yesterday's report, imports were some 50 percent greater than exports in October. Much of October's import growth was caused by high oil prices, which have since subsided. But that's no reason to shrug off the disturbing evidence of the weak dollar's failure to fix the trade gap. The United States is now on track for a trade deficit of more than $60 billion next June.

As the American economy heads for higher global imbalances, the need to borrow from abroad grows. And the more we borrow, the weaker the dollar becomes. That's because the markets that set the value of freely traded currencies, like the dollar and the euro, punish indebted nations by pushing down their currencies. The United States, by any measure - trade, the federal budget, personal consumption - is by far the world's biggest debtor. The need to borrow in the face of an already weak dollar portends higher prices and higher interest rates.

How high and how fast? Who knows? But one thing is sure: that American tourists need to pay $5 for a demitasse in Paris will be the least of our worries if mortgage rates spike, the stock market falls, and businesses curb their already modest hiring.

A cheaper dollar would not be as threatening if it was part of a comprehensive strategy to close the trade deficit. For instance, the United States must demonstrate to our trading partners and the currency markets that it intends to reduce the federal budget deficit - thereby lessening its need to borrow from abroad and reducing downward pressure on the dollar. Unless and until it does so, the United States will lack the credibility and the authority to press for changes that need to occur in other countries to balance out global trade. There are alternatives to a single-minded pursuit of a weak dollar fix. What is lacking is the leadership to pursue them.

Bloomberg: Foreigners Bought Net $48.1 Billion in U.S. Assets in October

Foreigners Bought Net $48.1 Billion in U.S. Assets in October

Dec. 15 (Bloomberg) -- International investors increased their holdings of U.S. assets in October by $48.1 billion, the smallest gain in a year, the Treasury Department said in Washington.

Combined purchases of Treasury notes, corporate bonds, stocks, and other financial assets had risen by $67.5 billion in September, more than previously reported. Higher demand in October for U.S. Treasuries, corporate bonds and stocks was offset by net sales of foreign assets held in the U.S.

The last time holdings grew less was in October 2003, when they rose by $27.5 billion. International investors and central banks complain that an unprecedented trade deficit, combined with a record budget shortfall, is making American assets less attractive and pushing the dollar to a succession of record lows against the euro. Japan's government and investors cut their holdings of U.S. Treasuries for a second consecutive month, and demand from China slowed to $300 million in net purchases.

``There is a worry that the pace of foreign inflows into the U.S. won't keep up with the swelling trade deficit,'' Ashraf Laidi, chief currency strategist at MG Financial Group in New York, said before the report. ``The trend is for diminishing demand.''

The overall net figure in today's report comprises Treasury notes and bonds, debt of so-called agencies such as Fannie Mae and Freddie Mac, corporate bonds and stocks, and the stocks and bonds of foreign companies bought from U.S. investors.

Treasury Secretary John Snow said in an interview today he was ``not concerned'' that foreign demand for U.S. assets would fade and promised to halve the budget deficit within four years. ``We have the deepest, most liquid and best capital markets in the world and we're going to keep them like that.''

Details

Total purchases of domestic securities were $1.22 trillion in October, while total sales were $1.16 trillion.

Purchases of Treasury holdings rose by $18.3 billion. Demand for U.S. corporate bonds rose by $19.2 billion.

Foreigners also had net sales of $3.2 billion in foreign bonds traded in the U.S. and net sales of $12 billion in foreign stocks traded in the U.S. Demand for U.S. agency holdings rose by $22 billion.

Investors abroad held $1.9 trillion of the $3.8 trillion in marketable U.S. Treasury securities outstanding during that month, according to Treasury figures. Private investment of long-term domestic securities rose a net $49.1 billion in October. Central banks and other agencies accounted for the rest.

Concern Over Deficits

Concern is growing in financial markets that trade, current account and budget shortfalls mean the U.S. is living beyond its means and that international demand for dollar-denominated assets may soon sour, said C. Fred Bergsten, director of the Institute for International Economics, a Washington-based research group. On Dec. 7, the U.S. currency fell to a record $1.3470 per euro.

``This gradual and orderly decline in the dollar may accelerate, turning into a freefall, and create a hard landing,'' Bergsten said yesterday. He predicted the dollar needed to fall another 15 percent to halve the trade gap.

The U.S. current account hasn't been in balance or posted a surplus since the second quarter of 1991. The shortfall grew to a record $166.2 billion in the second quarter as higher oil prices contributed to a wider trade gap. A report tomorrow from the Commerce Department is likely to show a further widening, to $171 billion, in the third quarter, according to the median forecast in a survey of economists.

At an annual rate, the current account deficit was equivalent to 5.7 percent of the $11.6 trillion economy in the April-June period, up from 5.1 percent in the first quarter.

The deficit in goods and services trade grew to an all-time high of $55.9 billion in October, and the U.S. budget deficit reached an unprecedented $412.3 billion in the fiscal year that ended Sept. 30, reports this month showed.

Euro Holdings

The Zurich-based Bank for International Settlements, which provides banking services for 120 financial institutions and central banks, said Dec. 6 that Asian central banks and members of the Organization of Petroleum Exporting Countries may be increasing their holdings of euros and selling dollars. Should that trend continue, the U.S. will struggle to compensate for the trade shortfall, the bank said.

Alan Greenspan, the chairman of the Federal Reserve, told the European Banking Congress in Frankfurt on Nov. 19 that foreign investors may tire of funding the trade gap and channel money into other currencies. Central bankers in Indonesia and Russia have said they may do just that should the U.S currency extend its drop.

Japan, the largest foreign holder of government securities, sold a net $5.1 billion in October, the second straight decline. That follows a net sale of $1.9 billion in September, which was the first drop since October 2002. Japan accounts for $715.2 billion of Treasuries held by overseas investors, followed by China with $174.6 billion and the U.K. with $140.9 billion.

Until March, Japan bought Treasuries with proceeds from yen sales it undertook to hold down the value of its currency as a way of helping its exporters. Japan hasn't sold yen since exchanging $290 billion worth of its currency for dollars in the first three months of 2004.

China buys dollars to ensure its currency, the yuan, stays at about 8.3 to the dollar, where it has been fixed for nine years. The Chinese net purchases of $300 million were the smallest a decline in February. Net purchases in September were $2.1 billion. The U.S. is encouraging China to let its currency be set instead in free markets.

Caribbean holdings, which analysts link to hedge funds located in the region, fell by $3.2 billion. They have climbed to $85.2 billion in October from $55.2 billion in January.

The Caribbean is the fourth biggest buyer of U.S. Treasuries. Richard Waugh, a managing director at Principal Global Investors in Des Moines, Iowa, said hedge funds have fickle tastes and ``the risk is that if they suddenly decided to sell their Treasuries, we could be flooded with securities.''

The Treasury Department said it will release on Dec. 17 revisions to the benchmarks for the report. They were last revised in 2001.

New York Times: "Triggers: Chill! You'll Give Yourself a Stroke"

Triggers: Chill! You'll Give Yourself a Stroke
By JOHN O'NEIL

New York Times, December 14, 2004

Anger appears to have a bigger effect on the onset of strokes than positive emotions, according to a study released yesterday.

The study also found that other negative emotions, in addition to sudden movements, like responses to startling events, appeared to act as triggers.

The study's lead researcher, Dr. Silvia Koton of the Israel Center for Disease Control, said many patients reported that stroke symptoms began after episodes of "overwhelming emotion."

For the new study, which was published in the journal Neurology, 200 patients were interviewed within a few days of a stroke and asked to rate their moods and recall notable events hour by hour for the day leading up to the start of their symptoms. The events and emotions in the two hours immediately before the stroke were then compared with what had been reported for the corresponding two-hour period the day before.

The study found that 43 patients experienced significant anger or negative emotions during the two hours before the stroke, but that only six reported them from the day before. The same pattern held concerning a sudden posture change in response to something unexpected: such events occurred to 24 patients just before having a stroke, but to only 2 the day before.

The effect was most pronounced among patients younger than 69, the study said.

Dr. Koton said further research might be able to identify the people most vulnerable to strokes set off by particular occurrences. "Although people cannot be told not to get mad, stress- and anger-coping programs can be offered to high-risk groups," he said.

Bloomberg: Dollar Posts Its Biggest Weekly Advance Against the Yen Since February

Dollar Posts Its Biggest Weekly Advance Against the Yen Since February

Dec. 10 (Bloomberg) -- The dollar posted its biggest weekly gain since February against the yen on signs Japan's economy is stalling while economists raise estimates for U.S. growth. The dollar also rallied this week against the euro and 14 other major currencies.

The U.S. currency reached an almost five-year low against the yen on Dec. 2, sparking concern Japan's exports will slow. Japanese government data Dec. 8 showed weaker-than-expected economic growth last quarter, and the Bank of Japan's Tankan survey next week is forecast to show waning business confidence.

``There's no reason to suspect that Japan can now generate a domestic growth story,'' said Steve Pearson, head of currency strategy at HBOS Plc in London. ``Just when we thought there was no risk in being short dollars, the market reminds you it can go up and down.'' Short positions are bets on a decline in price.

The dollar surged 3.1 percent against the yen this week, to 105.22 yen at 5 p.m. in New York from 104.68 late yesterday, according to electronic currency-dealing system EBS. It climbed 1.7 percent this week to $1.3223 per euro, its largest increase in three months.

This week's gain against the yen is the biggest since Japan was selling a record amount of its currency in the first quarter to stem the yen's climb. Japan hasn't sold yen since March. The euro reached 139.85 yen today, the strongest since June 2003.

Hedge funds and other speculators reduced bets on further euro gains for the fourth straight week this week, data from the Commodity Futures Trading Commission showed today.

Higher Forecasts

Gains for the dollar this week accelerated after European and Japanese officials said its slide was unwelcome. Japan grew at a less-than-expected 0.2 percent annual clip last quarter, government data showed. French industrial output dropped for the third month in four in October, the government said today.

In the U.S., economists raised their growth forecast for this quarter, according to a monthly survey by Bloomberg News. A 3.8 percent annual rate of expansion is forecast for gross domestic product in October through December, up from the 3.5 percent projected last month.

``Money's going to go where it can get the highest growth and it's not Europe or Japan,'' said Joseph Portera, managing director overseeing $8 billion of global fixed income at Mackay- Shields Financial Corp. in New York. The stronger yen ``certainly hurts their competitiveness globally,'' just as the higher euro crimps European growth, he said.

The U.S. currency fell to a record $1.3470 per euro on Dec. 7. It dropped to 101.83 yen this month, the weakest since January 2000.

Fed Expectations

Expectations for higher U.S. interest rates may also help the dollar. The Federal Reserve may lift its benchmark rate by a quarter percentage point on Dec. 14, for the fifth boost this year, to 2.25 percent, the median estimate in a Bloomberg survey shows. The European Central Bank's benchmark is now 2 percent.

The dollar had fallen the past 10 weeks against the yen and eight straight weeks against the euro.

``The market had moved a long way in a short period of time,'' said James McCormick, London-based head of foreign- exchange research at Lehman Brothers Holdings Inc. ``We really needed to see a pause.''

Lehman, the most accurate forecaster of exchange rates last quarter in a Bloomberg survey, predicted the dollar will resume its decline, reaching $1.40 per euro next year.

Japanese Prime Minister Junichiro Koizumi yesterday in Tokyo said the yen's climb has been ``unwelcome.'' ECB policy makers, including Jose Manuel Gonzalez-Paramo and Nout Wellink, said the euro's gain to a record threatens the region's economy.

Officials' Comments

``Finance officials want to see the pace and the volatility of the dollar's move diminished,'' said Thomas O'Malley, head of global currency fund management in San Francisco at Barclays Global Investors, with more than $1 trillion of assets.

The dollar's decline has eroded the purchasing power of revenue earned by oil-exporting countries.

``We should consider the dollar depreciation in changing the price band floor'' set by OPEC for oil, Iranian oil minister Bijan Namdar Zanganeh said in an interview today before a meeting in Cairo of Organization of Petroleum Exporting Countries.

A stronger currency euro damp European growth by making exports more expensive. Industrial production in France, the euro- region's second-largest economy, fell 0.7 percent in October. Exports account for a fifth of the 12-nation euro-region's economy.

The quarterly Tankan index of confidence among large manufacturers may fall to 23 in December from a 13-year high of 26 in September, according to the median of 20 forecasts in a Bloomberg survey. The report is scheduled for release Dec. 15.

Current-Account Deficit

The dollar's slide may resume on speculation U.S. officials favor a weaker currency to narrow the deficit in the current account, the widest measure of trade.

Because of the U.S. deficits, ``it's really hard to be long- term bullish on the dollar,'' Portera at Mackay-Shields said. He said he may buy euros if it goes below $1.30.

A government report will probably show on Dec. 16 that the U.S. current-account deficit reached a record $171 billion in the third quarter, according to the median forecast. A widening gap means an increasing amount of dollars need to be converted into other currencies to pay for imports.

U.S. Treasury Secretary John Snow suggested in an interview on Dec. 3 he wouldn't attempt to counter the dollar's slide. ``Markets can overshoot and undershoot, and they often do, but the virtue of markets is they're self correcting,'' he said.

Japan's economy grew at a 0.2 percent annual pace in the third quarter, less than the median forecast of 1.1 percent, the government said Dec. 7.

New UAL Flights to Vietnam Are First Since 1975: Doron Levin Bloomberg Columnist

New UAL Flights to Vietnam Are First Since 1975: Doron Levin

Dec. 9 (Bloomberg) -- San Francisco was one of the main departure cities for U.S. military personnel going to Vietnam. These days, tourists and business people, not soldiers, are visiting the Asian country.

So this morning United Airlines will inaugurate passenger service from San Francisco to the Asian nation with the first U.S. commercial flight since the fall of Saigon in 1975.

The daily flight, which will operate with a 347-seat 747- 400, stopping in Hong Kong, will land at Ho Chi Minh City, formerly known as Saigon and from where Pan Am made the last U.S. commercial flight.

UAL Corp., the parent of United Airlines and currently operating under bankruptcy protection, said the number of air passengers between the two countries totaled 300,000 last year and has been growing at 10 percent to 12 percent annually since 1997.

Those numbers are quite small, at least in the environment that United is used to operating. In 2003, for example, the airline carried 1.6 million passengers between its Chicago and Denver hubs.

Mark Schwab, a United vice president, told Bloomberg News on Nov. 16 that ``we are going to see continued double-digit growth between the U.S. and Vietnam for several years to come,'' probably in the teens.

Vietnam Airlines

Under the five-year air service agreement between the two countries, state-owned Vietnam Airlines intends to begin flights to the U.S. at the end of 2005, most likely to San Francisco.

Vietnam Airlines said yesterday that it had signed a contract, estimated to be worth $720 million, to buy 10 Airbus 321 aircraft, to be delivered between 2006 and 2009. The carrier flies to about 25 overseas destinations and is talking with Boeing Co. about buying four next-generation 7E7 Dreamliners starting in 2008.

Vietnamese consular officials told the U.S. that more than 100,000 people traveled to Vietnam from the U.S. this year to celebrate Tet, the country's lunar New Year.

Until 1994 when the U.S. and Vietnam normalized relations, Vietnamese officials often were vocal in their resentment against the U.S. for the war. The passage of time, the need for economic development and a desire for tourist dollars have all played a role in changing that attitude, at least publicly.

Yet signs of the war remain visible throughout the country, with Vietnam proud to show tourists government-preserved tunnels once used by the Vietcong and North Vietnamese soldiers to hide from U.S. soldiers and a War Remnants Museum, with displays such as a burned-out U.S. tank.

Meanwhile, Vietnam is taking a page from the West's tourism playbook. The country had no golf courses, for example, a decade ago and now has 10, with nine under construction and another eight in the planning stage, according to the Ministry of Planning and Investment.

United's Problems

Who would have dreamed in the early 1970s that the triumphant Communist government of North Vietnam would one day be building golf courses in an effort to turn Vietnam into a fast- growing tourist mecca? Or that mighty United Airlines one day would be fighting to stave off liquidation?

United announced last week it will lay off 575 bag handlers and customer service agents as it flies fewer planes to reduce costs. The airline, which employs 61,800, said it's trying to cut $2 billion of costs through pay cuts, termination of pension plans and operational changes.

A week earlier, the financially strapped airline won a temporary court order blocking a group of creditors from repossessing 14 of its Boeing 767 and 737 aircraft. The issue may be resolved in bankruptcy court.

Watching Costs

United faces a treacherous road to recovery, as low-cost airlines continuously erode the pricing of passenger tickets throughout the U.S., as well as eat away at the airline's customer base. One of the healthiest segments of United's business remains its overseas routes, which contend with competitors but haven't yet suffered substantial encroachment by low-cost carriers.

The most difficult aspect of recovery may be the one facing United's employees, who have had to give up substantial pay and benefits in an unsuccessful attempt to restore profitability and undoubtedly will have to give up more. United has asked the bankruptcy court to allow it to break labor contracts with its six unions if it can't reach new concessionary agreements by mid- January.

Vietnam's economic planners, as well as Vietnam Airline's management, should keep a close eye on United and take notes. The world of international business competition is a rough one, and quite unforgiving of enterprises, especially fledgling ones, that can't keep costs in line.

To contact the writer of this column:

Doron Levin in Southfield, Michigan at dlevin5@bloomberg.net.

Businessworld: Peso falls by 12.5 centavos

Peso falls by 12.5 centavos

By IRA P. PEDRASA, Reporter

The peso yesterday plunged by 12.5 centavos against the dollar following what traders said was a big correction for the greenback's value versus most regional currencies.

It went to as low as PhP56.40 in early trade, wiping out gains in the last few days. It settled at PhP56.335 against the dollar.

"The sentiment is still for a weak dollar but it was already due for some correction. Besides, central banks in other countries have been saying that their currencies should not appreciate too much. Intervention talk abounds," a trader at a local bank said.

A strong local currency makes export products less competitive in the global market, thus stunting the growth of export-oriented businesses, analysts said.

The Japanese yen, after hitting multimonth highs at ¥102, traded at ¥105.15 at the last count. Talks abound that the Japanese central bank was looking at a ¥105.5 resistance to even-off the strength of the dollar.

"[Locally], the banks also continued covering their short-dollar positions, taking profit at trading after previous days of continuous selling," the trader added.

Oil and other manufacturing companies also came in to purchase dollars as they anticipated a bigger correction for the dollar. Total volume of transacted dollars increased to $291.3 million against $287.3 million previously.

Seeing that the PhP56.40 resistance can't be breached, banks that already took some profits tried to unload their dollars until the peso settled at PhP56.335.

"I think a lot of banks were also hit by their stop-loss requirements. There are limits within banks by which one can only loose a certain amount for a day. So whatever the current value, they'll just have to trade there," the trader added.

At the Philippine Dealing System, the country's electronic currencies exchange, the peso averaged weaker by more than 17 centavos to PhP56.335 from PhP56.164. It opened at its intraday high of PhP56.25.

Against the previous day's close of PhP56.21, it indicated that the peso was bound to depreciate for the day.

"It was an expectation, that was why a lot of trades came in today," the trader added.

Prudent Investor: Explaining Gold's Decline

Explaining Gold's Decline

In last week’s newsletter your prudent investor analyst said,

“The US dollar has fallen to a record low against to Euro (1.345!!!) while its trade weighted dollar index is similarly below the 81 level or at 80.92 for the first time since May of 1995 and this should entail for a big bounce considering the rather steep and prolonged fall.

“In sum, over the short term the US dollar has been greatly oversold and is over due for a big rebound against the free floating currencies as the Euro, Sterling, Francs, while against the managed floats as most Asian currencies, and for a possible remimbi adjustment this may indicate for continued upward movements for the Asian currencies.”

Since there were no signs of a dollar crash it is quite evident that after a frothy run by free floating currencies as the Euro, and the precious metals as Gold, the US dollar was poised for a big rebound as Timesonline’s commentator Anatole Kaletsky aptly describes as, “the characteristics of a financial speculation reaching its climax.”

The US dollar finally made its long awaited counter reaction after being pummeled for ELEVENTH consecutive week against the Euro reversing in a dramatic fashion to gain .8% in a single day as reflected by its trade weighted index. The US dollar index was down 8.4% as of last Friday’s close from the week ending Sept 24th

While the Euro plummeted by.9%

Quoting Aaron Pressman, Senior columnist of thestreet.com, “The dollar was helped by a confluence of macro developments including a weak GDP report from Japan that depressed the yen, plus renewed comments by European bankers threatening to intervene and drive down the euro. Central banks in Canada and Australia also declined to hike their rates, a move that would have made their currencies more attractive relative to the dollar. The Treasury's surprisingly successful $15 billion auction of five-year notes also helped.”

US Treasury yields fell as Central banks bought into the US dollar, dispelling recent rumors of currency diversification

Naturally Gold and its sibling precious metals, which has been moving in consonance with ex-dollar currencies followed the anti-dollar sentiment and plunged 2.9% alongside silver (crumbled by 9.5%) and copper (dropped by 2.7%).

In TECHNICAL lingo as seen in the charts above, the EURO and GOLD are notably overbought while the US dollar index depicts an extremely oversold position, ergo, the natural CORRECTION phase as anticipated. Although fundamentally and on the long term outlook, the bearish case of the US dollar and the bullish proposition for the metals remain.

It was quite a surprise to see that local investors reacted strongly to the Gold and its sibling’s recent price movements as the Philippine Mining Index dropped by a stunning 6.8% the largest among its peers in a generally mixed bearishly inclined sentiment.

In the past, price movements of the metals relative to the local mining issues were largely uncorrelated, meaning that even as the precious metals prices surged, these were hardly reflected in the mining issues stock prices. Does this mean that local investors have now come to their senses to see that the underlying prices of these metals are the fundamental drivers of the mining companies’ share prices?

Finally, it is important to note that since the Mining Act of 1985 have been rendered constitutional by the Supreme Court, there has been a notable stream of portfolio money flows into the industry. Today’s activities registered P 11.986 million worth of inflows reflecting 20.2% of cumulative turnover mostly to Index component Lepanto Mining in spite of the carnage. If the recent foreign money flows were to be a gauge of the efficacy of recently ratified law, then the intended benefactors appears to manifest on the direction as anticipated. Hence, these corrections pose as propitious opportunities to accumulate, instead of the knee jerk consternation brought about the recent decline of its underlying fundamentals.

TimesOnline's Anatole Kaletsky: Why the buck will rebound

Why the buck will rebound
Anatole Kaletsky
TimesOnline

The dollar's collapse has all the characteristics of a financial speculation reaching its climax

IN THE past week, the value of the pound has risen to almost $2, the first time that sterling has been anywhere near this level since just before Black Wednesday in September 1992. The euro has been hitting record highs against the dollar almost daily. And everyone from Alan Greenspan, the Chairman of the Federal Reserve Board, to the humblest foreign exchange clerk, seems convinced that the dollar is bound to keep falling.

Does this mean that British businesses and investors should prepare themselves for a pound worth more than $2, a level never breached since 1981? Or is this a once-in-a-lifetime opportunity for British savers to buy dollars at a bargain price?

Economists who want to protect their academic reputations are usually careful to avoid financial predictions. This is especially true of currency movements, which are considered impossible to forecast. Fortunately, journalists do not have reputations to protect and need not be bound by this convention. Thus, the cover story of this week’s Economist magazine has the headline “The Disappearing Dollar”. It bravely predicts that devaluation of the dollar from its present level is “inevitable” and suggests the possibility of a further 30 per cent fall. I take the opposite view. In my opinion, the dollar has now reached a level from which it can only rise, at least against the euro and pound.

Anyone who buys dollars at the present exchange rate may suffer some sleepless nights in the short term, since pure momentum could continue to drive the dollar downwards for another month or two. But looking slightly further ahead (and don’t ask me to be too specific about the timing), it will seem incredible that £1 could be worth $2, just as it is now incredible that companies such as AOL, Amazon and Yahoo! were once worth the hundreds of millions of dollars which investors paid for them in late 1999.

The rise of the pound to almost $2 has been driven entirely by bearish views on the dollar, rather than any particular enthusiasm for sterling. British currency investors should focus on the relationship between the dollar and the euro, rather than the virtues or otherwise of the pound, for once the dollar recovers against the euro, it will also rise against sterling.

In the past few weeks, the dollar’s collapse against the euro has acquired all the characteristics of a financial speculation reaching its climax. That so many experts are so completely convinced of the market’s direction is a classic sign of this. At some point, the policy mistakes and economic imbalances which have driven the dollar downwards will start to be corrected — and that point is probably not far off. The most important of these imbalances is not the US trade deficit or budget deficit, but the weakness of consumption and employment in the eurozone.

A falling currency can be dangerous and unpleasant for a country that is threatened by inflation, but because of intense competition and plenty of surplus labour, America is unlikely to face any serious inflation, at least for the next year or two. Thus the US has no reason to worry about the declining dollar, still less to change its policies.

But America’s trading partners, especially Europe, face a very different prospect. The falling dollar makes American goods cheaper in world markets. It helps to boost US export industries at the expense of industries in Europe, Britain, Japan and the rest of the world. But Europe suffers far more than other exporting economies for two reasons.

First, Europe, and especially Germany, are currently much weaker and more dependent on exports than other economies such as Britain. Secondly, most exporting countries outside Europe link their currencies either formally or unofficially to the dollar. Asian countries are prepared to intervene forcefully in the markets to stop their currencies from getting too uncompetitive — and they have done this to the tune of almost $1,000 billion during the past three years.

The Europeans, by contrast, have followed a dogmatically free-market approach to currency management — bizarrely so, given that the weaknesses of the European economies are mainly due to the rejection of free-market policies in domestic economic management. Thus when the dollar goes down against the euro, so do the Chinese renmimbi, the Korean won and the Japanese yen.

The declining dollar therefore exposes Europe to a devastating pincer movement. At the top end of the market — technology, high-end services, luxury goods and so on — European exporters lose global markets to American and Japanese competitors. At the bottom end, ever cheaper Chinese and Korean exports destroy the low-cost, labour-intensive industries which still provide millions of Europeans with jobs.

If the dollar continues to fall against the euro or even remains near its present level for more than a few weeks, the European Central Bank will face intense pressure to reduce interest rates. If it does so, Europe will have its first serious chance of economic recovery since 1999. And a European recovery would reduce the US trade deficit, underpin the dollar and allow an orderly decline of the euro to a reasonable, competitive rate.

But what if Europe’s central bankers refuse to respond to the dollar’s weakness by easing monetary policy? The market will then do the job for them. This process has already begun. By pushing the euro even higher against the dollar, currency speculators will extinguish all remaining hope of a European economic recovery. As Europe slides into recession, the ECB will be forced to cut interest rates for purely internal reasons. This easing may come too late to revive the European economy, but it will certainly trigger a euro collapse. Either way, the euro will fall, the dollar will recover and, in the process, the pound’s value against the dollar will move back to more reasonable levels. The days of the two-dollar pound are numbered.

Buttonwood of the Economist: The case for Asia

The case for Asia
Dec 7th 2004 From The Economist Global Agenda
Foreign investors have been pouring money into Asian shares. For once, their bets may pay off

TO THE probable surprise of those who think of this column merely as a font of scepticism, there are indeed a few markets for which Buttonwood holds a warm affection. Take Asian stockmarkets. To the surprise of almost everyone (including your columnist), most of them have actually gone up lately. True, Japan has wobbled a bit in recent months, but the Nikkei aside, Asian markets have generally recovered strongly since the sell-off in April and, according to a widely watched index from Morgan Stanley, this week reached a four-year high. A few of the more exotic destinations—Karachi is one—have never been higher.

The region has been a magnet for foreign money, especially American money, attracted by cheap stocks and heady growth—since 2000, emerging economies have grown two and a half times faster than rich ones—and deterred from investing at home by meagre bond yields and over-generous share valuations. Flows into American mutual funds specialising in international equities have jumped, according to EmergingPortfolio.com. So far this year, some $67 billion more has been invested in these funds. And an increasing proportion of it has been popped into emerging markets. Flows into both international funds and dedicated emerging-market funds jumped sharply in November.

The Institute of International Finance expects Asia to attract almost half of all private capital going to emerging markets this year, though it expects its share to be below last year’s. Although portfolio flows fell sharply in April, when many investors fled, they have picked up smartly in recent weeks. Money invested in Japan funds has risen by 57% so far this year and, until recently at least, international investors were mostly bullish on the prospects for Japanese shares.

The contrarian in Buttonwood would take this as reason to sell. But just because investors are wading into Asia does not necessarily make it wrong. The problems of the American economy, and by extension its stockmarket, are all too well known. Clearly, investors are underwhelmed by such arguments, for the American stockmarket still accounts for just over half of the world’s stockmarket capitalisation. In contrast, Japan accounts for 9%, and the rest of Asia just 3.5%. But even if you think that Japan is long past its sell-by date, the region includes the fastest-growing economies on the planet, and the most populous: Asia, after all, is home to 3.8 billion people.

About 1.3 billion of these are, of course, in China, which also happens directly to have accounted for about a quarter of world growth over the past three years, measured in terms of purchasing-power parity, and a good deal more indirectly, given how much Chinese imports have fuelled activity elsewhere in Asia. Japanese exports to China are growing by anything up to 40% a year; its exports to America, in contrast, are shrinking. Intra-Asian trade is growing by leaps and bounds.

This raises four big questions. The first is: to what extent is Asia’s growth rigged by exports subsidised by cheap currencies? Quite a lot, is the short answer. As Bank Credit Analyst, a research firm, points out, since 1992 emerging Asia's exports have grown 80% faster than consumption. Lack of consumption, lots of savings and currencies quasi-pegged to the dollar—in China’s case, fixed—have resulted in huge current-account surpluses and rapidly mounting foreign-exchange reserves. Asia’s central banks have been recycling these into US Treasury bonds.

Of late, many of these countries, with the exception of China, have let their currencies rise against the dollar, perhaps for fear of an altogether sharper and more unpleasant adjustment down the road. The yen has risen especially fast. Of course, rising currencies raise questions about whether heady growth rates will be sustainable; shares in exporters have suffered somewhat. It is hard to say how much further Asian currencies will rise, how much it will affect exports, or how long it will take for consumption to take up the slack.

Which brings up the second big question: how much will Asian growth benefit investors? A big reason why emerging economies have not emerged is that property rights are generally someone else’s. And this is doubly true if you are a foreign investor. Just ask any investor in China, which continues to account for the bulk of foreign direct investment in Asia. Still, domestic plays, though risky, are not without reward. Banks in Japan, a country where outside investors are treated shoddily, are, in essence, a purely domestic play. Although there was a sharp sell-off in April, shares in Japanese banks are some three times higher than at their low in the spring of 2003, and the rise has picked up pace in recent weeks.

The third question concerns the sustainability of Chinese growth. The country’s investment boom was hugely helpful in pulling the rest of Asia out of its slump in 2001. Were it to falter, so the rest of Asia would stumble; and, for all its size, Japan would not be immune to such a shock. Still, though investors were fearful earlier in the year that giddy growth would lead to a hard landing, the signs are that, while China is slowing somewhat, it is not headed for a fall. Inflation shows signs of dropping, and the central bank may need to do little more than it has already done to cool the economy.

The final question is about American markets. Were these to tumble, appetite for risk would fall sharply, and Asian markets would suffer as much as those anywhere—probably more so, given their illiquidity and the extent to which they have been propelled upwards by foreign money.

Still, that would seem to be as good a chance as any to buy. And at least investors are somewhat protected by valuations. For all their recent rise, Asian shares are still almost 40% below their 1994 peak. The cheapest market in the region, South Korea, trades on a price-earnings ratio of seven, less than half that of American shares. At the height of its stockmarket bubble, Japan accounted for the same proportion of the world’s stockmarket capitalisation as America does today. Now you can buy the whole of Asia for a quarter of that.

Stuff.co.nz/Reuters: Papua New Guinea chasing world commodities boom

Papua New Guinea chasing world commodities boom
TUESDAY , 07 DECEMBER 2004

SYDNEY: Impoverished Papua New Guinea is racing to overhaul its foreign investment laws to cash in on a world boom in commodities prices, a senior PNG minister said yesterday.

Gold, oil, copper and other mineral commodities found in abundance in the South Pacific nation are selling for the highest prices in decades on world markets, setting in motion a global exploration boom.

The country may miss a "window of opportunity" due to political instability and a lack of much-needed public and private sector reforms that were keeping foreign investment away, PNG's minister for mines, Moi Avei, told a gathering of miners and investors.

"PNG has a real opportunity to capitalise on the boom in commodities," said Avei, who gave the address, filling in for PNG Prime Minister Michael Somare who was ill.

"However, there is lingering doubt in the marketplace (about its ability). Avei said. "It's been going on for years."

Plans to lay a 3000-km pipeline under the Coral Sea to connect eastern Australia with the remote gasfields of the PNG Highlands and inject up to $US285 million a year into the domestic economy are still under review by ExxonMobil Corp, more than two years after Somare made the project a national priority.

The last big gold discovery was nearly a quarter-century ago on Lihir Island. More recently, the world's biggest mining company, BHP Billiton Ltd, relinquished its stake in the OK Tedi copper mine on environmental grounds.

Mining accounts for about a third of PNG's gross domestic product (GDP), though this contribution is more than washed out by national debt, which this year will account for 55 per cent of GDP, down from 75 per cent of GDP last year.

Hoping to rope in more investment in mining, PNG is abolishing a 2 per cent levy on imported goods – most mining equipment is shipped in as PNG has little domestic manufacturing – and extending foreigners' work visas to 10 years from two.

"The minerals and energy sector is certainly our lifeline," Avei said.

But even if PNG becomes more friendly to the mining industry, other problems persist.

For years, successive governments have failed to combat growing HIV infections, street crime and poverty. More than 200 Australian police have been dispatched to help an understaffed local force patrol PNG's most crime-plagued ditricts.

"Inefficiency in the public sector has become entrenched," Avei said.

PNG's Treasuer Bart Philemon told the conference the government was completing its 2005 budget amid signs the country's coffers were improving.

The national currency, the kina, was stablising, inflation was going down and economic growth was nearing 3 per cent, he said.

PNG is made up of 600 islands, where 85 per cent of its 5.3 million people live subsistence lives in villages clinging to jungle-clad mountains. It is divided by 850 languages, where tribal allegiances dominate and tribes engage in bloody wars.