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Subject: Re: Price protest! by Unitech Students

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Date Posted: Sat, Sep 20 2008, 09:59:54am
In reply to: tony 's message, "Price protest! by Unitech Students" on Sat, Sep 06 2008, 08:02:17am

Peles economist,

(1)The Kina Facility Rate is 7% for September 2008. The Passbook Accounts Deposit interest rate for a 6-12 months term is about 0.75% per annum for amount less than K50,000 for March 2008 for commercial banks. The weighted average interest rate on performing loans is about 9.4% for commercial bank.(2)The headline inflation is 3.1% for March 2008 by central bank. (a)The real interest rate of 3.1% depicts economic viability for saving and investment in domestic economy. (b)The deposit rate is low due to big savings by government in commercial banks and thus is not better but the general population would still save in commercial banks at 0.75% per annum.

Generally, the real interest rate depicts that there is potential for saving and investment in the domestic economy.

(3)The capacity factor to the saving-investment gap could be examined in two ways. (a)Inflation-Real income scenario: The minimum wage rate is K37.20 per week for the country. Given the inflation rate, the real minimum wage rate be about K36.05 per week generally. The real disposable minimum wage rate would be net of the government payroll tax rate.(aii)The real disposable minimum wage rate looks better for some personal saving if unproductive spending is cut by all income earners. (b)Labour employment-Population-Saving: Formal labour employment is quite small relative to human population hence presenting a very small population-saving scenario for a small economy compared to other economies. (bii)However, inclusion of the very active informal sector in scenarios would improve the population-saving factor but still smaller but enough for a small economy.

(4)Saving-investment-structural issues.The predominate issue that present a relatively small economy with high living cost is structural. In earlier notes I outlined brief elaboration of these structural issues that hinder economic development and thus present an economy with high living cost with reckless spending human population.(a)if some of these structural issues are fixed, the economy will grow and thus, the cost of living will be lowered. I note that the government putting more resources to eradicate these structural impediments. However, its programmes need rigor and strictness its approach.(aii)current government advisors should be more active and target-oriented. (aiii)The general human population of the country should assist the government implement some of its structural programmes than challenging economic developments with very selfish and reckless mentality.

(5)I would'nt present a comparative analysis between png economy and the economic transactions of the developed economies. Rather, would study the economic transition eras of these developed economies for economic development for the domestic economy. (a) It is more better to look at historic economic transition processes of those developed economies that present similar cultural and social norms.(b)Japan-USA relation. I have not yet read a paper on Unites State's federal budget been financed by Japan. However, I know that US is operating a deficit fiscal budget to fight international terrorism. The international financial credit crunch is somewhat related to the US deficit fiscal budget.

(6)Interest rates-capital outflows: Capital ouflows is caused by some factors and thus discuss three points.(a)Real interest rate differentials. Comparatively, when the real interest rate is another country is higher than in the domestic economy, liquid assets can be injected to the other economy. If such investment is lucrative, the investors would also convert physical capital assets to increase profit margin. (aii) Careful investors are risk aversive and thus, an holistic approach is always considered for such movements in capital stock. Thus, more investors now consider international investment opportunities. (b)Negative real interest rate. As presented above, the real interest rate is still positive for png economy. When the real interest rate is negative, capital outflows be evident. (c)Other factors such as social factors due influence capital outflows. For example, a tribal fight would caused investors to change asset structures and thus move assets out of the domestic economy.(7)capital outflows would reduce foreign currencies and thus cause a downward pressure on the exchange rate.(a)png's excahnge rate is quite not full flexible. The central bank has been influencing the exchange rate for many positive considerations. It is supported.(8)Saving:POSF-Nasfund: These two institutions represent the domestic economy's saving mainly and thus, the total asset values of them has much to be talked about. I note that both have foreign investments but are very minimal due to institutions restrictive provisions. It is evident that these two instituions are now buying into any commercial assets but have to be very careful because a slight wrong factor could affect png economy.

Above all, it is recommendable that the government approach to eradicating structural impediements in the country be revitalized and re-prioritized. Huge support be demonstrated by bothe the government and the general human population.

Thankyou for the discussion.
*data source:http://www.bankpng.gov.pg/

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