Financial World

Nepal Rastra Bank

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Wednesday, December 23, 2009

The Nepal Rastra Bank (NRB) has initiated process for appointing new chief executive officers for both the Nepal Bank Limited (NBL) and Rastriya Bajinya Bank (RBB). "We will place advertisements in a day or two," said a source at the NRB. The two banks with majority shares of the government are currently under the Financial Sector Reform Project.NRB staffs have been handling the management of NBL for the last two years while the term of the current management of the RBB is expiring in mid-January. The management of the two banks was at the hands of a foreign company for five years before it was handed over to Nepali management two years ago.At present, a team led by Janardan Acharya is handling RBB management and NRB director Binod Atreya is the chief executive of NBL. About a year ago, NRB had sought proposals from the bankers for the top post of the NBL, however it failed to find one.Although Anil Shah, outgoing CEO of Nabil Bank and Janak Shah, former CEO of Agriculture Development Bank Limited had sent their proposals to the NRB expressing readiness to handle the country's oldest bank, the central bank board recently disapproved them.NRB is preparing to appoint CEOs for NBL and RBB on the basis of resume without seeking any initial proposal and the World Bank, which has been supporting the financial reform project, also has given a nod. The bankers selected on the basis of their resume then will be asked to produce a financial proposal. "If the cost is higher than what the central bank has fixed for the person selected as first choice, the CEO will be appointed from among those who are in the second or third place in the ranking," said the source.The financial reform project was initiated seven years ago with a loan support of Rs. 7 billion from the World Bank and United Kingdom's Department for International Development (DfID). NBL has failed to get an independent CEO. However, its bad debt significantly decreased to 5.65 percent from above 50 percent. Likewise, Non-performing loan (NPL) of RBB has also decreased to 15.42 percent from above 50 percent. The capital fund of both banks is negative by 36 percent in case of RBB and 22.83 percent in case of NBL, though they have succeeded in reducing NPL.

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Asian markets rise on stronger

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BEIJING (AP) -- Asian stock markets were mostly higher Wednesday after a jump in U.S. housing starts suggested the world's biggest economy is picking up speed. Shanghai, Seoul and Sydney all rose after major U.S. indexes gained Tuesday on news that November home resales jumped 7.4 percent, above a forecast 2.5 percent. The housing figures, which came after upbeat earnings and forecasts from technology companies and more corporate dealmaking, countered gloom about third quarter economic growth being revised lower. "It's being driven by sentiment out of the U.S. and the fact that U.S. markets continue to hold up in the face of rather mixed data," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. China's benchmark Shanghai Composite Index rose 12.70 points, or 0.5 percent, to 3,064.29, while Sydney's S&P/ASX added 0.6 percent to 4,731.8. Tokyo was closed for a holiday after the benchmark Nikkei 225 added 1.91 percent on Tuesday. Hong Kong bucked the regional trend, with its Hang Seng Composite Index shedding 10.21, or 0.1 percent, to 21,081.83. Investors were closely watching U.S. markets in the absence of major Asian developments. "The market realizes that as long as China remains strong, Asia is going to benefit, and as long as the U.S. doesn't hit a major bump in the road, Asia will remain stable," Daley said. However, he said that after recent strong gains, "I don't think there will be a significant push higher." China's government is forecasting full-year 2009 growth of 8.3 percent following a rebound driven by Beijing's 4 trillion yuan ($586 billion) stimulus. Private sector economists expect growth of up 9.4 percent. The Shenzhen Composite Index for China's smaller second exchange added 11.10 points, or 1 percent, to 1,120.53. Elsewhere, Seoul's Kospi was up 0.2 percent at 1,658.3, while Singapore added 0.5 percent and Taiwan's Taiex gained 0.6 percent.Tuesday on Wall Street, the Dow Jones industrial average rose 50.79, or 0.5 percent, to 10,464.93 following the housing report by the National Association of Realtors. The Standard & Poor's 500 index rose 3.97, or 0.4 percent, to 1,118.02, while the Nasdaq composite index rose 15.01, or 0.7 percent, to 2,252.67. Both the S&P 500 and the Nasdaq are at their highest levels since last October.That came despite a government report revising down U.S. third-quarter gross domestic product growth. The Commerce Department's new reading showed a growth rate of 2.2 percent, down from the previous estimate of 2.8 percent. The growth, while smaller than originally believed, still managed to break a record four straight quarters of decline. Oil fell 4 cents to $74.36 in electronic trading on the New York Mercantile Exchange. In currencies, the dollar rose 0.1 percent to 91.69 yen. The euro was down slightly at $1.4248.

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Financial Regulation

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This Regulation, which replaces the 1977 Financial Regulation, satisfies a need for rigour and a simpler legislative and administrative set-up in the management of the Community's finances. The scope of the new Financial Regulation is confined to stating the broad principles and basic rules governing the Community budget. The detailed technical arrangements are laid down in the rules for the implementation of the Financial Regulation, adopted by the Commission.
Besides the basic precepts of budgetary and financial management, the new Financial Regulation also lays down rules on the keeping and presentation of accounts, public procurement and the award of grants. It also establishes the rules governing the liability of authorising officers, accounting officers and internal auditors and sets out the arrangements for external control and the discharge procedure. Finally, the Regulation lays down special provisions applicable to the EAGGF Guarantee Section, the Structural Funds, research and external action.
BUDGETARY PRINCIPLES
The Financial Regulation reasserts the budgetary principles enshrined in the EC Treaty and keeps exceptions to a strict minimum subject to strict conditions.
Principles of unity and of budget accuracy
These principles mean that all Community revenue and expenditure, and that of the Union, when this is charged to the budget, are entered in the budget. This covers the revenue and expenditure of the European Community and the European Atomic Energy Community (Euratom) and the operational expenditure on implementing the provisions of the EU Treaty relating to the common foreign and security policy and police and judicial cooperation in criminal matters, where this is charged to the budget.
Principle of annuality
This principle means that expenditure entered in the budget is authorised for one financial year only, which runs from 1 January to 31 December. However, this rule is relaxed by the distinction that is still made between differentiated appropriations and non-differentiated appropriations. The concept of differentiated appropriations, which, unlike non-differentiated appropriations, consist of commitment appropriations and payment appropriations, needs to be applied because some measures have to be spread over a number of years. Commitment appropriations cover, for the current financial year, the total cost of the legal commitments entered into for actions extending over more than one financial year. Payment appropriations cover payments made to honour these commitments in the current financial year and/or earlier financial years.
In principle, appropriations which have not been used at the end of the financial year for which they were entered are cancelled. It is, however, possible for such appropriations to be carried over to the next financial year, subject to conditions and limits laid down by the Regulation. This applies to appropriations for commitment of differentiated appropriations and non-differentiated appropriations not yet committed at the close of the financial year for which most of the preparatory stages of the commitment procedure have been completed by 31 December or where the relevant basic act was adopted in the final quarter of the financial year. Payment appropriations may also be carried over to cover existing commitments or commitments linked to commitment appropriations carried over. Non-differentiated appropriations corresponding to obligations duly contracted at the close of the financial year are carried over automatically to the following financial year only.
If the budget has not been finally adopted at the beginning of the financial year, i.e. 1 January, the Regulation provides for the application of a "provisional twelfths system". In this case expenditure may be incurred monthly per chapter up to a maximum of one twelfth of the existing appropriations in the budget of the preceding financial year.
Principle of equilibrium
This means that budget revenue and payment appropriations must be in balance, as the Communities are not authorised to raise loans in order to cover their expenditure. The balance from each financial year is entered in the budget for the following financial year as revenue in the case of a surplus or as a payment appropriation in the case of a deficit.
Principle of unit of account
In principle, the euro is the unit of account for drawing up and implementing the Community budget and presenting the accounts. However, certain operations may be carried out in national currencies subject to conditions laid down in the rules for the implementation of the Financial Regulation.
Principle of universality
The principle of universality means that total budget revenue covers total budget expenditure. This gives rise to two important rules: no assignment of revenue and no offsetting.
The no-assignment rule precludes the use of specific revenue to finance specific expenditure. The Financial Regulation allows exceptions to this principle, for example the Member States' financial contributions to certain research programmes and contributions from third countries to the Community's activities in the framework of the European Economic Area.
The no-offsetting rule means that revenue and expenditure cannot be adjusted against each other, thereby ensuring a comprehensive and exhaustive presentation of the budget. The total amounts of revenue and expenditure are therefore entered in the budget, the only exceptions being those specifically authorised by the Financial Regulation or its Implementing Rules.
Principle of specification
To avoid any confusion between the different types of appropriations, each appropriation must be earmarked for a specific purpose and assigned to a specific item of expenditure. The budget is divided into sections, titles, chapters, articles and items. However, since the institutions require a certain flexibility of management, the Financial Regulation lays down rules on the transfer of appropriations. An institution may be allowed to carry out a transfer autonomously or it may first have to submit it to the budgetary authority (the Council and Parliament) for information purposes or for a decision.
Principle of sound financial management
This principle is defined by reference to the principles of economy, efficiency and effectiveness. In operational terms this entails defining verifiable objectives which are monitored using measurable performance indicators in order to make the transition from resource-based management to results-oriented management. The institutions must carry out ex ante and ex post evaluations in accordance with guidelines laid down by the Commission.
Principle of transparency
The aim here is to ensure transparency in drawing up and implementing the budget and in presenting the accounts. One of the ways of practising transparency is to publish the budget and amending budgets in the Official Journal of the European Union. This is done two months after the budget is declared finally adopted by the European Parliament.
ESTABLISHMENT AND STRUCTURE OF THE BUDGET
Drawing up the budget
The institutions must draw up their estimates of expenditure and revenue and send them to the Commission by 1 July each year. These estimates are also sent to the budgetary authority for information.
The Commission places a preliminary draft budget before the Council by 1 September each year at the latest. The preliminary draft contains all the institutions' estimates and presents a general summary of the expenditure and revenue of the Communities. A letter of amendment to the preliminary draft budget may be laid before the Council.
The Council establishes the draft budget in accordance with the procedure laid down in Article 272(3) of the EC Treaty and places it before Parliament by 5 October of the year preceding that in which the budget is to be implemented. If the Council departs from the preliminary draft, it must attach an explanatory memorandum stating its reasons.
The President of the Parliament declares the budget finally adopted. From the date of this declaration, the Member States are liable for the sums they must pay as determined by the system of own resources.
The Financial Regulation allows for amending budgets to be drawn up in certain exceptional circumstances. The distinction between supplementary budgets and amending budgets has been abolished.
Structure and presentation of the budget
The budget consists of:
a summary statement of revenue and expenditure;
separate sections subdivided into statements of revenue and expenditure for each institution.
Commission revenue and the revenue and expenditure of the other institutions is classified, according to their type or the use to which they are assigned, under titles, chapters, articles and items. The statement of expenditure for the Commission section is classified according to purpose. A title corresponds to a policy area and a chapter corresponds to an activity. The Regulation therefore introduces an "activity-based budgeting" method. The budget may not contain negative revenue.
The Commission section of the budget may include a "negative reserve" limited to a maximum amount of EUR 200 million, which may comprise commitment appropriations and payment appropriations.
The Commission section contains two reserves:
one for emergency aid for third countries;
one for Community loans and loan guarantees to third countries.
The summary statement of revenue and expenditure in the budget shows:
the estimated revenue for the financial year in question;
the estimated revenue for the preceding financial year and the revenue for year n-2;
the commitment and payment appropriations for the financial year in question and the preceding financial year;
the expenditure committed and the expenditure paid in year n - 2,
a summary statement of the schedule of payments due in subsequent financial years;
appropriate remarks on each subdivision.
The budget also contains an establishment plan for each section of the budget and shows borrowing and lending operations.
IMPLEMENTATION OF THE BUDGET
The Commission implements the revenue and expenditure of the budget, on its own responsibility and within the limits of the appropriations authorised. A basic act of secondary legislation must first be adopted before the appropriations entered in the budget for any Community action may be used. However, the following may be implemented without a basic act:
appropriations for pilot schemes of an experimental nature designed to test the feasibility of an action and its usefulness;
appropriations for preparatory actions, designed to prepare proposals with a view to the adoption of future actions;
appropriations for one-off actions, or even actions for an indefinite duration, carried out by the Commission by virtue of tasks resulting from its prerogatives at institutional level pursuant to the EC and Euratom Treaties, other than its right of legislative initiative and under specific powers conferred on it by the Treaties;
appropriations for the operation of each institution under its administrative autonomy.
Methods of implementation
The Commission implements the budget:
on a centralised basis:implementation tasks are performed either directly by its departments or indirectly by executive agencies created by the Commission, bodies set up by the Communities - provided that this is compatible with the tasks set out in the basic act - and, subject to certain conditions, national public-sector bodies or bodies governed by private law with a public-service mission;
on a shared or decentralised basis:implementation tasks are delegated to the Member States (shared management) or third countries (decentralised management); the Commission applies clearance-of-accounts procedures or financial correction mechanisms enabling it to assume final responsibility for the implementation of the budget;
by joint management with international organisations:certain implementation tasks are entrusted to international organisations.
As the Commission is responsible for implementation of the budget, it may not delegate any tasks of public authority involving the use of discretionary powers implying political choices. So bodies governed by private law, other than those with a public-service mission, may provide only technical expertise services and perform preparatory or ancillary tasks.
Financial players
The Regulation lays down a principle of segregation of duties. The duties of authorising officer and accounting officer are therefore segregated and mutually incompatible.
The authorising officer is responsible for implementing revenue and expenditure in accordance with the principles of sound financial management and for ensuring that the requirements of legality and regularity are complied with. These duties are performed by the institution itself. It lays down in its internal administrative rules the staff of an appropriate level to whom it delegates this task (authorising officers by delegation). The authorising officer by delegation puts in place the organisational structure and the internal management and control procedures suited to the performance of his/her duties.
Each institution appoints an accounting officer who is responsible for:
proper implementation of payments, collection of revenue and recovery of amounts established as being receivable;
preparing and presenting the accounts;
keeping the accounts;
laying down the accounting rules and methods and the chart of accounts;
laying down and validating the accounting systems and, where appropriate, validating systems laid down by the authorising officer to supply or justify accounting information;
treasury management.
Liability of the financial players
Without prejudice to any disciplinary action, any authorising officer, accounting officer or imprest administrator may at any time be suspended temporarily or definitively from their duties. All authorising officers and imprest administrators are liable to disciplinary action and payment of compensation, as laid down in the Staff Regulations. Each institution must set up a specialised financial irregularities panel which will determine whether a financial irregularity has occurred and what the consequences, if any, should be.
Revenue operations
An estimate of revenue constituted by own resources is entered in the budget in euros. It is made available in accordance with a specific Regulation.
An estimate of the amount receivable is first made by the authorising officer responsible in respect of any measure or situation which may give rise to or modify an amount owing to the Communities. By way of derogation, no estimate of the amount receivable is made before Member States make available own resources at fixed intervals. The authorising officer responsible issues a recovery order in respect of these amounts.
The authorising officer establishes the amount receivable by:
verifying that the debt exists;
determining or verifying the reality and the amount of the debt;
verifying the conditions in which the debt is due.
The authorisation of recovery is the act whereby the authorising officer responsible instructs the accounting officer, by issuing a recovery order, to recover an amount receivable which he/she has established.
The accounting officer acts on recovery orders for amounts receivable duly established by the authorising officer responsible Where a debtor has a claim on the Communities that is certain, of a fixed amount and due the accounting officer can recover the Communities' claims by offsetting them against equivalent amounts that the Communities owe. Where the responsible authorising officer by delegation is planning to waive recovery of an established amount receivable, he/she must ensure that the waiver is in order and complies with the principle of sound financial management and proportionality.
Expenditure operations
Every item of expenditure is committed, validated, authorised and paid. Except in the case of appropriations which can be implemented without a basic act, the commitment of the expenditure is preceded by a financing decision adopted by the institution or the authorities to which powers have been delegated by the institution.
The budgetary commitment is the operation reserving the appropriation necessary to cover subsequent payments to honour a legal commitment. The legal commitment is the act whereby the authorising officer enters into or establishes an obligation which results in a charge. The budgetary commitment and the legal commitment are adopted by the same authorising officer, save in duly substantiated cases as provided for in the Implementing Rules.
Validation of expenditure is the act whereby the authorising officer responsible:
verifies the existence of the creditor's entitlement;
determines or verifies the reality and the amount of the claim;
verifies the conditions in which payment is due.
Authorisation of expenditure is the act whereby the authorising officer responsible, having verified that the appropriations are available and by issuing a payment order, instructs the accounting officer to pay an amount of expenditure that he/she has validated.
Payment is made on production of proof that the relevant action is in accordance with the provisions of the basic act or the contract and covers one or more of the following operations:
payment of the entire amount due;
payment of the amount due in any of the following ways: pre-financing, which may be divided into a number of payments; one or more interim payments; payment of the balance of the amounts due.
The time limits for expenditure operations are laid down in the implementing rules, which also specify the circumstances in which creditors paid late are entitled to receive default interest charged to the line from which the principal was paid.
Internal auditor
Each institution must establish an internal auditing function which must be performed in compliance with the relevant international standards. The internal auditor may not be either authorising officer or accounting officer. The internal auditor appointed by the institution is answerable to the latter for verifying the proper operation of budgetary implementation systems and procedures. He/she does not have the role of exercising control over these operations ahead of the decisions by the authorising officers; the latter now assume full responsibility for such decisions.
The internal auditor advises his/her institution on dealing with risks, by issuing independent opinions on the quality of management and control systems and by issuing recommendations for improving the conditions of implementation of operations and promoting sound financial management.
PROCUREMENT
The Regulation sets out the scope of and the basic principles governing public procurement. It lays down advertising obligations and the procedures for procurement. All contracts must be in writing and concluded by a contracting authority, i.e. either by a Community institution acting on its own account or for a third-party beneficiary, or by that beneficiary or a third party acting on its behalf, in the external action field.
For the sake of transparency, the Commission is required to inform all applicants and tenderers of its choice. Persons supplying false or fraudulent information or caught by a conflict of interests can now be excluded from procurement. Details of such persons are entered in a database which is also accessible to the other European institutions.
GRANTS
The Regulation sets out the scope of grants, the procedure for awarding them and the arrangements for payment and controls. Grants are direct financial contributions, by way of donation, from the budget in order to finance:
either an action intended to help achieve an objective forming part of an EU policy;
or the functioning of a body which pursues an aim of general European interest or has an objective forming part of an EU policy.
Grants are awarded subject to the principles of transparency and equal treatment. They may not be cumulative or awarded retrospectively and they must involve co-financing. Nor may the grant have the purpose or effect of producing a profit for the beneficiary. All grants awarded must be published annually with due observance of the requirements of confidentiality and security.
PRESENTATION OF THE ACCOUNTS AND ACCOUNTING
The Community accounts comprise:
the financial statements of the institutions;
the consolidated financial statements, which present in aggregated form the financial information contained in the financial statements of the institutions;
the reports on implementation of the budget of the institutions and the budgets of the bodies set up by the Communities;
the consolidated reports on implementation of the budget.
By 15 June at the latest the Court of Auditors makes its observations on the provisional accounts of each institution and each body. Each institution and each body draws up its final accounts, on its own responsibility, and sends them to the Commission's accounting officer and the Court of Auditors by 1 July of the following year at the latest with a view to drawing up the final consolidated accounts.
After approving the final consolidated accounts, the Commission sends them to the European Parliament, the Council and the Court of Auditors before 31 July of the following financial year. The final consolidated accounts are published in the Official Journal of the European Union together with the statement of assurance given by the Court of Auditors by 31 October of the following financial year. The Commission regularly sends Parliament and the Council information on the implementation of the budget.
The institution's accounting system is the system serving to organise the budgetary and financial information in such a way that figures can be input, filed and registered. The accounts consist of general accounts and budgetary accounts. These accounts are kept in euros on the basis of the calendar year.
After consulting the accounting officers of the other institutions and bodies set up by the Communities, the Commission's accounting officer adopts the accounting rules and methods and the harmonised chart of accounts to be applied by all the institutions, offices and Community bodies. When adopting these rules and methods, the Commission's accounting officer is guided by the internationally accepted accounting standards for the public sector but may depart from them where justified by the specific nature of the Communities' activities.
EXTERNAL AUDIT AND DISCHARGE
As the Court of Auditors is responsible for external audit, Parliament, the Council and the Commission inform it as soon as possible of decisions and acts adopted in respect of financial matters. It examines whether all revenue has been received and all expenditure incurred in a lawful and proper manner with regard to the provisions of the Treaties, the budget, the Financial Regulation, the Implementing Rules and all other acts adopted pursuant to the Treaties.
The Commission, the other institutions, the bodies administering revenue or expenditure on the Communities' behalf and the final beneficiaries of payments from the budget provide the Court of Auditors with:
all documents concerning the award and performance of contracts financed by the Community budget and all accounts of cash or materials;
all accounting records or supporting documents, and also administrative documents relating thereto;
all documents relating to revenue and expenditure of the Communities;
all inventories and all organisation charts of departments that the Court of Auditors considers necessary for auditing the budgetary and financial outturn report on the basis of records or on the spot;
all documents and data created or stored on a magnetic medium.
Following a dialogue with the other institutions, the Court of Auditors produces an annual report then a special report containing an assessment of financial management.
On a recommendation from the Council acting by a qualified majority, the European Parliament gives a discharge to the Commission in respect of the implementation of the budget for year n before 30 April of year n + 2. The discharge decision covers the accounts of all the Communities' revenue and expenditure, the resulting balance and the assets and liabilities of the Communities shown in the balance sheet.
SPECIAL PROVISIONS
The Regulation provides for a number of derogations applicable to the financial management of:
the European Agricultural Guidance and Guarantee Fund (EAGGF), Guarantee Section;
the Structural Funds;
research and technological development activities;
external action financed by the budget;
the European offices (administrative structures set up by one or more institutions to perform specific cross-cutting tasks);
administrative appropriations.
FINAL PROVISIONS
The final provisions state among other things that:
the Commission will adopt rules for implementing the Financial Regulation;
every three years, or whenever it proves necessary to do so, the Financial Regulation will be the subject of a review, after recourse to the conciliation procedure, if the European Parliament so requests.
the Commission will adopt a framework financial regulation for the bodies set up by the Communities and having legal personality which actually receive grants charged to the budget
AMENDMENTS IN 2006
The amendments to the Financial Regulation made in December 2006, applicable with effect from 1 May 2007, are aimed at simplifying the financial rules in order to reduce administrative procedures. This simplifies access to financing for the 2007-2013 financial framework. The changes mainly concern grants and public procurement. Greater flexibility in the management of funds makes it possible to react immediately to humanitarian or crisis situations at the end of the year. The amending Regulation also contains provisions to improve public control, for example:
the names of the beneficiaries of the Structural Funds, external aid programmes and appropriations from the agricultural funds must be made public;
in order to prevent fraud and corruption, a database has been set up (shared with the other European institutions and the national authorities) of the organisations excluded from EU financing;
the Member States' reports on the three-quarters of the EU budget that they manage will be improved thanks to the establishment of internal control systems.

REFERENCES
Act
Entry into force - Date of expiry
Deadline for transposition in the Member States
Official Journal
Council Regulation (EC, Euratom) No 1605/2002
01.01.2003
-
Official Journal L 248 of 16.09.2002

Amending act(s)
Entry into force
Deadline for transposition in the Member States
Official Journal
Council Regulation (EC, Euratom) No 1995/2006
19.1.2007
-
Official Journal L 390 of 30.12.2006
Regulation (EC) No 1525/2007
27.12.2007
-
OJ L 343 of 27.12.2007

RELATED ACTS
Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities, [Official Journal L 357, 31.12.2002]. The purpose of this Regulation is to follow up the new Financial Regulation and transpose its principles and definitions into practical rules. So it is here that the real rules of financial management are laid down, the new Financial Regulation having been simplified compared with its 1977 predecessor, with all detailed provisions being transferred to the Implementing Rules.

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Gold Hits Record High

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Monday 9 November 2009 09.31 GMT

This morning, as the weakening US dollar prompted investors to increase their bullion holdings.
The dollar came under pressure after Friday's worse-than-expected US jobless data and the G20 meeting at the weekend reinforced expectations that American interest rates will not rise any time soon.
This pushed the spot price of gold, seen as a safer investment, to a new record of $1,108.05 an ounce – and extended last week's gains of almost 5%.
Sterling also rose, hitting a three-month high against the dollar today of $1.6800. Other precious metals such as silver, platinum and palladium also firmed, while crude oil rose nearly 2% in early trade.
Despite these record prices, there is no shortage of buyers for gold. Last week India's central bank bought 200 metric tonnes of gold from the International Monetary Fund for $6.7bn, triggering speculation that other countries would follow suit.
"The long-term positive argument [for gold] is still in place and mainly centres on weakness in the dollar, a lack of faith in US intention to support it, and hedge fund buying," said analysts at MF Global.
Gold has increased by 5.5% in the past month while the dollar has lost 1.5% against a basket of six major currencies. Yesterday China, which holds more US treasury bonds than any other country, urged America to exercise its fiscal responsibilities.
"I hope that as the largest economy in the world and an issuing country of a major reserve currency the United States will effectively discharge its responsibilities," Chinese premier Wen Jiabao told a press conference in Egypt.this morning, as the weakening US dollar prompted investors to increase their bullion holdings.
The dollar came under pressure after Friday's worse-than-expected US jobless data and the G20 meeting at the weekend reinforced expectations that American interest rates will not rise any time soon.
This pushed the spot price of gold, seen as a safer investment, to a new record of $1,108.05 an ounce – and extended last week's gains of almost 5%.
Sterling also rose, hitting a three-month high against the dollar today of $1.6800. Other precious metals such as silver, platinum and palladium also firmed, while crude oil rose nearly 2% in early trade.
Despite these record prices, there is no shortage of buyers for gold. Last week India's central bank bought 200 metric tonnes of gold from the International Monetary Fund for $6.7bn, triggering speculation that other countries would follow suit.
"The long-term positive argument [for gold] is still in place and mainly centres on weakness in the dollar, a lack of faith in US intention to support it, and hedge fund buying," said analysts at MF Global.
Gold has increased by 5.5% in the past month while the dollar has lost 1.5% against a basket of six major currencies. Yesterday China, which holds more US treasury bonds than any other country, urged America to exercise its fiscal responsibilities.
"I hope that as the largest economy in the world and an issuing country of a major reserve currency the United States will effectively discharge its responsibilities," Chinese premier Wen Jiabao told a press conference in Egypt.

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Australia Hikes Interest Rates

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October 6, 2009: 5:31 AM

SYDNEY (Reuters) -- Australia's central bank raised its key cash rate by 25 basis points to 3.25% on Tuesday and heralded more to come, saying it was safe to row-back on stimulus now that the worst danger for the economy had passed.
The Australian dollar jumped to a 14-month high and interbank futures slid as investors rushed to price in at least one more hike by Christmas, and rates above 4% in a year.
Markets elsewhere in Asia also moved to factor in expectations for more hawkish central banks.
The Reserve Bank of Australia's (RBA) decision made it the first of the Group of 20 central banks to hike as the global financial crisis eases and came as a surprise to many analysts.
Markets, however, had been abuzz with speculation about a move given the strength of recent economic data.
"The RBA had widely advertised it was near to edging up rates from their extraordinary lows, and now it's done so," said Rory Robertson, interest rate strategist at Macquarie.
"It will be a gradual move from an emergency rate of 3% to a still-easy 4%," he added. "If everything goes well over time, then we could get back to a more normal 5% in the next year or two."
It was the RBA's first increase since March 2008, but only takes back a little of the 425 basis-points of easing delivered when the global credit crisis was in full swing.
Indeed, by any historical measure, policy is still very accommodative in Australia, something noted by RBA Governor Glenn Stevens in his post-meeting statement.
"With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the board's view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy," wrote Stevens.
First among equals
The move by the RBA puts it far ahead of most major developed nations, which show little if any inclination to tighten. Rates in the United States, the euro zone, Britain, Canada and Japan are all at or under 1%.
But investors took a different view in some Asian markets. Korean bond futures tumbled, Indian swap rates and yields rose and in Singapore, which has a twice-yearly policy review on Monday, interbank rates fell in preparation for more hawkish leanings from monetary policy makers after the RBA decision.
"This is a surprise move, evidently, and raises the chance that other central banks will follow suit perhaps sooner than anticipated," HSBC economist Frederic Neumann said in a research note.
"First on the list is Korea and we see a greater chance now of a hike this quarter rather than the next, with Taiwan, perhaps surprisingly, coming next in Asia."
The RBA's pre-emptive policy largely reflects the strengths of Australia's economy, which boasts a sound banking system and strong demand from China for its commodity exports. Australia was the only developed nation to grow in the first half of this year.
That helped Treasurer Wayne Swan sound sanguine on what was be an unpopular move in a country obsessed with home ownership.
"The Australian economy is outperforming other advanced economies and I guess many economists will see the decision today as a consequence of economic recovery," he told reporters.
So successful has policy been that the RBA had begun to worry about over-stimulating the economy, particularly house prices which have climbed to record highs in recent months.
"We think the tightening has been brought forward as the RBA wishes to lean against potential asset bubbles," said Annette Beacher, a senior strategist at TD Securities in Singapore.
"House price data will be closely watched by the markets for hints of the pace of further RBA tightening," she added.
For now, investors were pricing in around a 75% chance of a further rise to 3.5% in November, and a reasonable probability of rates at 3.75% in December.
Overnight indexed swap rates were implying rates of 4.21% in one year, up from 4.14% before the RBA announcement and 3% just a few months ago.
"We've got what looks like a gradual tightening process in train, probably by another 25 basis points next month, and then another couple of times early next year," said Warren Hogan, chief economist at ANZ.
"They will probably get rates up to 4 to 4.25, and then they will pause," he added. "You may not see rates back to the 5 to 6% level until well into 2011."

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Health Insurance Is Not A Tax Increase

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WASHINGTON (CNN) -- President Obama insists that requiring Americans to get health insurance does not amount to a tax increase.

In a testy exchange on ABC's "This Week," broadcast Sunday, Obama rejected the assertion that forcing people to obtain coverage would violate his campaign pledge against raising taxes on middle-class Americans.

"For us to say you have to take responsibility to get health insurance is absolutely not a tax increase," Obama said in response to persistent questioning, later adding: "Nobody considers that a tax increase."

A proposal going before the Senate Finance Committee this week includes the mandate for health coverage. Obama has praised the plan in general, and indicated in the interview conducted Friday that he could back the coverage mandate.

He noted that consumers currently pay higher health insurance premiums due to the costs run up by hospitals and other facilities providing care to uninsured people.

Those unable to afford health insurance should get government help, Obama said, but others who can afford coverage but choose not to get it should face coverage requirements similar to those for auto insurance.

"What it's saying is ... that we're not going to have other people carrying your burdens for you any more than the fact that right now everybody in America, just about, has to get auto insurance," he said. "Nobody considers that a tax increase. People say to themselves, that is a fair way to make sure that, if you hit my car, that I'm not covering all the costs."

Asked again about critics calling the requirement to pay for health insurance a tax increase, Obama said: "My critics say everything is a tax increase." Watch Obama strategy in health care battle »

On another aspect of his desired health care reform, Obama said cutting billions of dollars in government subsidies for Medicare Advantage would not reduce essential coverage for senior citizens in that program.

The government cites the proposed subsidy cut for Medicare Advantage -- an enhanced program within Medicare -- as an example of how it can reduce health care spending while expanding coverage to millions of uninsured Americans.

Republican opponents say cutting Medicare costs will reduce benefits for senior citizens, a claim Obama has denied as misinformation.

When pressed on that issue in the interview, Obama said Medicare Advantage provided essentially the same level of medical care as regular Medicare while costing the government much more due to the subsidies.

Insurance companies were "overcharging" for the service, Obama said, insisting that the change would mean senior citizens will get the same level of coverage at a lower cost to the government.

"Now, they package these things in ways that, in some cases, may make it more convenient for some consumers, but they're overcharging massively for it," Obama said. "There's no competitive bidding under the process." Watch Obama talk health care and more with CNN »

He said people currently signed up for Medicare Advantage would still get regular Medicare coverage "and the same level of benefits, but they may not be having their insurer get a 14 percent premium."

"And will the insurers squawk? You bet," Obama said, rejecting claims that those enrolled in Medicare Advantage would be left with substandard benefits. "These folks are going to be able to get Medicare that is just as good, provides the same benefits, but we're not subsidizing them for $18 billion a year."

Republican response to Obama on Sunday called the president's promises of expanded health coverage at lower costs too good to be true. Watch top Republican talk about health care reform »

"It's just not believable," said Michael Steele, the Republican National Committee chairman, on the CBS program "Face the Nation." No matter what Obama says, Steele added, "Taxes are going to go up for the middle class because they have to."

Sen. Lindsey Graham, R-South Carolina, said on the NBC program "Meet the Press" that Obama "is selling something that people quite frankly are not buying."

"This is not about tone -- this is about policy," Graham said.

Also appearing on the show, House Minority Leader John Boehner, R-Ohio, said health care reform as proposed by Obama and the Democrats was dead in Congress.

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How to make your money last.

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By Walter Updegrave, Money Magazine senior editor

September 21, 2009: 4:33 AM ET

(Money Magazine) -- Once you have your Social Security strategy down, there's just one little retirement question left to consider: How can you make the money that you've so diligently saved provide the life you want for as long as you live? Oh. That.

Figuring out how to draw secure retirement income from a portfolio is a challenge in the best of times; today it's made more complicated by fear. Having seen the worst-case scenario unfold in the past year, you've probably gone into loss-avoidance mode. But deflecting market risk leaves you vulnerable to inflation risk -- and the risk that you'll outlive your money. So hiding in cash won't save you.

"No one investment can protect you from every risk you'll face," says John Ameriks, head of Vanguard Investment Counseling & Research. What you need, rather, is a basket of investments that provides:

1. Stable income you're not likely to outlive.

2. The potential for that income to grow to beat inflation.

3. The ability to access cash to meet unexpected needs.

4. Adequate protection from market downturns.

Here are three smart strategies to achieve those goals. The second offers the best chance of making your money last; however, you'll lose access to a big chunk of your savings. The others give you more control, but less certainty. There's no free lunch in retirement -- but the menu that follows presents some interesting options.

Strategy 1: The traditional stock-and-bond portfolio

YOU'RE A CANDIDATE IF ...

You have enough income from Social Security and pensions to cover most of your basic expenses (so you could weather a market storm) and/or you're confident in your ability to manage your portfolio.

THE PREMISE: You invest in a diversified portfolio of stocks, bonds, and cash that has the potential to generate current income and capital gains. You pull out money as needed, starting off with a 4% annual withdrawal -- $40,000 on a $1 million portfolio -- then increasing the dollar amount by the inflation rate each year.

Done correctly, this gives you a 77% shot of your money lasting 30 years, says Ibbotson Associates. The higher the withdrawal rate, the lower your odds. So this strategy may not work if you need more income than 4% would provide.

THE DRAWBACKS: A sizable loss early in retirement could undo you. If your portfolio loses 20% the first year, the chances of your savings lasting 30 years could drop to roughly 50%. Alternatively, if the market does well over the long run, you could be left with a huge sum late in life, so you would have lived more frugally than you had to.

HOW TO PULL IT OFF: Allocation is key. Going 100% into bonds might protect you from a market meltdown, but such cataclysms are rare. And you'd lose out on inflation protection. Loading up on stocks gives you a better shot at increasing your income, yet you may get mauled by a bear market. So aim for the middle ground: For someone just entering retirement, a broadly diversified fifty-fifty stock-to-bond blend like the one in the chart above, right is a reasonable starting point.

You also have to be flexible with withdrawals. In a declining market you may have to skip the inflation boost or scale back the amount you draw down. Conversely, if the markets go on a run, you may be able to take more. Check yearly at T. Rowe Price's Retirement Income Calculator.

Finally, be strategic in the way you tap assets. Start with taxable accounts; then tax-deferred (401(k)s and traditional IRAs); then tax-free Roths. That way the latter accounts compound longer without the drag of taxes, so you can build bigger balances and draw more income over time.

Strategy 2: Stocks, bonds - and an immediate annuity

YOU'RE A CANDIDATE IF ...

You need more income for basic expenses than you'll get from Social Security and pensions. Or you'd like to avoid subjecting all your savings to market volatility.

THE PREMISE: Invest a portion of your savings in a lifetime immediate annuity, an insurance product that will send you fixed monthly checks for as long as you and/or your spouse live. You'll manage the rest of your portfolio as in Strategy 1. The payoff: You'll have another layer of guaranteed income and still have funds to tap.

This strategy provides longer income security than the first because the payout from an immediate annuity can't be easily matched by another sure-bet investment. Recently immediate annuities paid out roughly 8% for a 65-year-old man, or about $40,000 a year on $500,000. You'd have to invest significantly more to get the same assured lifetime income from long-term Treasuries. The reason immediate annuities pay so well? Investors' money is pooled, allowing insurers to essentially transfer funds from early croakers to those who hang on past life expectancy.

THE DRAWBACKS: Once you hand over, say, a few hundred grand for an immediate annuity, you typically give up access to the money. You can't use it for a new roof or a vacation in France, or pass it down to your kids. Plus, if you're hit by a bus early in retirement, the annuity will have paid out less than you put in. For those reasons, many people perceive immediate annuities as potentially wasted money.

Another concern: Annuity payments are usually fixed, meaning they'll be worth less over time because of inflation. A few insurers offer inflation-adjusted immediate annuities, but the payouts start considerably lower.

Finally, while annuities eliminate market and longevity risk, they introduce another risk: Your income security is based on the financial health of the insurer.

HOW TO PULL IT OFF: In reality, money in an annuity is no more "wasted" than the premiums you pay to insure your house. So try to get over that psychological hurdle, since this strategy presents your best chance of maintaining income.

To make it work, you want to devote enough to the annuity so that the income, along with Social Security and pensions, covers your basic expenses. But you don't want to go overboard, as you'll lose too much liquidity. Plus, you'll need to use what's left to try to beat inflation, since your annuity payments won't.

There's no one "right" mix. Splitting savings fifty-fifty between an immediate annuity and a diversified portfolio can provide the same 4% inflation-adjusted income as in Strategy 1 -- but with a 99% chance of lasting 30 years. If you can live with less certainty, you can boost your income to, say, 4.5% by drawing more from your portfolio. Or, you could invest less in the annuity.

Consider buying in stages. That prevents you from over-committing and from investing all your money when interest rates -- which drive payouts -- are lowest. To mitigate the risk of insurer failure, stick to companies highly rated by Standard & Poor's and A.M. Best, then spread your money among two or three companies. Check at nolhga.com that the amount you'll invest with each company is covered by your state's insurance guaranty association.

Strategy 3: All of the above, plus a variable annuity

YOU'RE A CANDIDATE IF ...

You need more income than Social Security and pensions will provide, but you want access to more of your savings than Strategy 2 allows.

THE PREMISE: While maintaining a stock/bond portfolio, you'll also invest a portion of savings in an immediate annuity and a portion in a variable annuity with a guaranteed lifetime withdrawal benefit (a.k.a. VA with GLWB), an investment account promising a minimum withdrawal for the rest of your life.

In a VA with GLWB, you choose the investments, within limits. You can dip into the account as needed. And you can typically leave the greater of (a) the account balance or (b) your original investment minus withdrawals to your heirs. So it's more flexible than an immediate annuity.

The other advertised benefit: Your income has the potential to grow if your investments appreciate. Say you invest $250,000 and are guaranteed 5%, or $12,500 a year. If, on your contract anniversary date, a rising market has pushed your balance to $300,000 after fees, your 5% will be applied to that amount, boosting your income to $15,000.

Even if a market crash later knocks your account to $200,000, you're still guaranteed 15 grand (though if you want to cash out, you're limited to the actual account value).

THE DRAWBACKS: Flexibility comes at a price. First, variable annuities pay significantly less than immediate annuities, only about 5% for a 65-year-old. Second, the plans come with such high fees, often 3% or more a year, that it's difficult for your account value to grow at all, let alone keep pace with inflation. Third, though you can draw more than your guaranteed amount from the account, doing so will reduce your income for future years. Last, you face the same insurer risks as in Strategy 2.

HOW TO PULL IT OFF: The high fees and low payout of the VA explain why you need an immediate annuity in the mix: Without it, the odds of maintaining your target income are slightly lower than with a stock/bond portfolio alone.

Together you want the payouts, along with Social Security and pensions, to cover your basic expenses. So how much in each? The more you put in the variable annuity vs. the immediate, the more of your assets you'll have access to.

In exchange, you'll settle for a lower guaranteed payout. A reasonable mix: Put 25% of savings into an immediate annuity, put 25% in a VA, and invest the other 50%. That gives you a 92% chance of getting the income you want for 30 years. You'll end up giving away more of your savings to fees than with the other strategies, but, alas, you have to pay for security one way or another.

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