Global recession deepens, spreads

The global economic crisis is deepening and spreading to all the nooks and corners of the world. The crisis has hit cinnamon, tea, rubber and apparel industry in Sri Lanka and last week, one of the largest garment factories, Sinotex Lanka at Katunayake Industrial zone closed down and 3,000 employees lost their jobs.

Industry sources said that there are five factories on the verge of closing down in the very near future and one of them, a garment factory.

The trade unions allege that over 10,000 employees have lost their jobs in the Katunayake FTZ and some of the companies have granted leave to their employees and had paid 70% of salaries. Meanwhile, government offered relief packages for cinnamon and the rubber industries to face the crisis. In the international arena the deepening economic crisis has ignited anti government protests in many countries. In Iceland the protesters surrounded Prime Minister, Geir Haarde’s office and the police had to rescue him. The people were furious over the way the government had handled the financial crisis.

Iceland’s financial system had collapsed in October, owing foreign creditors billions of dollars. Unemployment, once at zero, was expected to rise as the nation with the world’s fifth highest per capita income in 2007 sought a bail-out from the International Monetary Fund.

Even its Euro 4 billion ($8.5 billion) loan will not prevent an economic contraction of 9.6 per cent this year, media reports said.

Following media reports highlighted some developments last week: Japanese exports plunged 35% in December, marking a third straight month of decline, the Finance Ministry said, underscoring the drop in global demand for automobiles, electronics spare parts and other products. Japan’s trade deficit stood at 320.7 Yen billion ($6.8 billion) in December, staying in the red for the third straight month.

The Irish government said that it would seize control of Anglo Irish Bank following a scandal that forced the resignations of its chief executive and chairman.

Three days later, Brian Goggin, CEO of Bank of Ireland, said he will retire a year early following a bailout announced in December that also included Allied Irish Banks.

“Nobody can stop what’s happening,” said Ken Murray, CEO of Blue Planet Investment Management in Edinburgh.

“It’s going to carry on, and governments [will] have to come up with the capital because the market doesn’t have it.”

- Bloomberg

*Investors withdrew a record US$152 billion ($231 billion) from the stricken hedge fund industry during the final three months of last year as the worst investment performance on record left speculators scrambling for safety.

The extraordinary level of redemptions marked the culmination of a period of unprecedented turbulence. Dozens of funds, including Tudor Investments, Citadel, Highbridge and Drake Capital, were forced to restructure, suspend redemptions or negotiate lock-in deals with investors.

The rush to redeem was fuelled by the collapse in September of Lehman Brothers, the Wall Street bank, as well as a round of multi-billion-dollar banking bailouts and the Bernard Madoff scandal, which continues to reverberate. Dozens of hedge fund “feeder funds” that channelled money into Madoff Investment Securities have been frozen in the wake of the alleged fraud. Ken Heinz, president of Hedge Fund Research, based in Chicago, said: “It is almost understating it to say that there were record outflows from the industry. We have never seen anything like it since we started.”

- Times

The British pound slumped to a seven-and-a-half year low against the dollar last week amid fears that Britain’s credit rating could be downgraded if the Government has to take over ailing banks.

By mid-morning London time, the pound was 3.3 per cent lower at US$1.3972, having earlier fallen to US$1.3936, its lowest since July 2001. As recently as July last year the pound was trading as high as US$2 before concerns about the banking system and the wider economy as a whole prompted a sharp reverse. One of the world’s leading investors voiced the markets’ concerns. Jim Rogers, of the Singapore-based Rogers Holdings and co-founder of the Quantum fund with George Soros, told Bloomberg Television: “I would urge you to sell any sterling you might have.

- AP