December 22, 2011
While its economy has been easy to ignore for the last several decades, North Korea still holds sway in Asia. And although the region's markets are currently strong enough to take a few knocks in stride, the death of North Korea's leader Kim Jong Il this week could potentially bring a lasting new layer of risk to the area.
Asia has been a bright spot through the global recession and the underwhelming recovery, but it remains far from immune to danger. Stock markets in the region fell sharply on the news that Kim had died, none more notably than the Korea Composite Stock Price (KOSPI) Index, which fell 4.2%. "The Korean stock market has reflected the sign of public concern and fear as to national insecurity," said Kyle Choi, Esq. of Bluestone Law, Ltd. "Furthermore, the value of the Korean currency has, at least temporarily, depreciated right after the news."
While these indicators are expected to recover quickly, and some of them already have, the question mark in the area now becomes Kim's son and successor, Kim Jong Un.
The younger Kim remains untested and inexperienced, and could face considerable difficulty in his attempts to take the same level of control that his father once wielded over nearly every aspect of the country. These difficulties could exacerbate the tortured relationship North Korea has with the world, and with its own people, creating bigger problems in terms of chronic food shortages, political challenges and military security for the entire region.
"It all depends on the new North Korean leadership's position," said Choi. "If the new leadership decides to maintain the hostile attitude toward South Korea that the previous regime did, it can very much affect the economy adversely, either in the short term or in the long run."
Much of the younger Kim's development will be determined by China, the North's chief ally and trading partner, and according to NACM Economist Chris Kuehl, PhD, Beijing will most likely want to keep things status quo. "The development of a new North Korea will be resisted by the powers that could conceivably motivate some change in the new regime," he said. "China does not want turmoil on its border and simply wants to maintain a cooperative client state in North Korea. Given that the military leaders in Pyongyang depend on the Chinese military, they will not risk alienating Beijing."
In some respects, Kuehl said, the region may even be somewhat safer, as the Chinese become more involved with the country's fledgling new leadership and seek to influence him to the local economy's benefit. "The danger from the Chinese perspective is that North Korean leaders will want to assert their own nationalist independence in some manner," he cautioned, "even if it annoys the Chinese."
Jacob Barron, CICP, NACM staff writer
Do You Know Someone Worthy of Recognition?
It's time to nominate your distinguished CBA, CBF and CCE colleagues, your favorite instructor or mentor, among others, whose professional life displays unquestioned integrity, outstanding and meritorious service in the field, and ongoing dedication to the highest standards of the credit management profession.
Find out more on NACM's Honors and Awards Program web page. Deadline for nominations is January 20, 2012.
Read the profile of a 2011 award recipient in the November/December issue of Business Credit, which features the first O.D. Glaus Credit Executive of Distinction. As an NACM member, you can also login to view the online version of this article and the entire November/December issue now!
There has been no shortage of negative economic news throughout 2011, which is why the results of a couple of late-year surveys were more than a little surprising: Business owners and chief financial officers actually appear increasingly confident that sales and business spending will increase noticeably next year.
This month, the National Federation of Independent Business' (NFIB's) index tracking small-business optimism experienced a 1.8% increase for November, with noted improvements in predictions for real 2012 sales levels, credit conditions and the overall health of the economy. NFIB Chief Economist Bill Dunkelberg noted that the recent optimism "made it feel like spring again" compared to what had been a negative stretch of months starting this summer.
Meanwhile, TD Bank's most recent survey of CFOs at middle-market business illustrates a more bullish outlook on the economy and an apparent willingness on the part of mid-sized businesses to spend its cash reserves on capital expenditures. Some 75% expect improved sales conditions in 2012, with one-third of that group predicting a double-digit surge. Also, those planning notable capital expenditures cracked 50%, up significantly from last year's 39%, for the first time in several years on areas such as technological and physical facilities improvements.
Walter Owens, head of corporate and specialty banking at TD Bank, told NACM that he was slightly surprised at the uptick in optimism given the ongoing euro crisis and potential partisan political inertia going into an election year. And while Owens believes CFOs may be underestimating the impact of the euro crisis and its collateral damage, he believes debtor/customer relationships with credit-granting businesses and banks alike should not shift in dramatic fashion in the coming months.
"It could be something to look into this year, but I have not seen that [change in reliance on trade or bank credit]," Owens said. "Business and bankers have the same lending dynamic right now. The headline is: it's never been a better time to be a borrower that's in good credit standing. If you have decent credit, you're going to have a lot of options. So, liquidity for business is not an issue for me, whatsoever, even with the possibility of a European recession."
A reason for Owens' cautious optimism, despite downside threats, is in the opinion that U.S. businesses have been and will continue to be resilient, and the government, despite its general portrayal, has been much quicker to begin a dialogue on debt problems than many European nations now struggling to avoid default. Those points should feed into the potential to stave off the effects of another global economic storm, should it worsen.
"That's a pretty optimistic and resilient group," Owens told NACM, referring to the CFO study. "When you have that level of optimism, people will find a way to work through it."
Brian Shappell, NACM staff writer
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The Export-Import Bank of the United States' (Ex-Im's) annual report unveiled this week supports its claims that the bank financed more projects in 2011 than in any previous year.
Ex-Im financed $32 billion in projects through the calendar year, marking the third consecutive campaign in which it broke a previous record. In addition, Ex-Im noted small business financing surged again in 2011 and is up by more than 70% over the last three years. Ex-Im's activity in 2011 was highest in Mexico and India, which is gaining ground quickly thanks in part to massive needs in the energy sector, said Ex-Im sources.
The organization, an independent federal agency pairing U.S. companies and product manufacturers with companies abroad, also pushed into newer markets with vigor in 2011. Among them were several sub-Saharan African nations, where credit professionals naturally have had significant concerns over the years due to abysmal payment history, and Colombia, Ex-Im's biggest gainer in 2011, where business-friendly improvements have advanced and the former drug-trade culture has been largely eliminated. Other nations offering what Ex-Im considers high-opportunity going forward include Turkey, Vietnam, Indonesia, Brazil, Nigeria and South Africa.
During an NACM interview with Ex-Im President and Chairman Fred Hochberg in September, he said, "If you're not exporting to places like these, you need to get in that game...there's not a company that exports [properly] that isn't doing well."
Ex-Im Vice President for Public Affairs Phil Cogan told NACM a key reason for opportunities for U.S.-based companies in those locations is infrastructure needs. "Roads, bridges, airports and electrical generation are at the center of their needs—and their needs are enormous," Cogan noted. "American companies are among the leaders in the world with providing infrastructure services and equipment."
Brian Shappell, NACM staff writer
Industry Credit Groups
Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.
Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:
- Provide unparalleled networking opportunities
- Assist in the exchange of credit information on common customers
- Facilitate the receipt and analysis of information to make unilateral credit decisions
- Provide a forum to discuss the latest developments on credit department procedures,
equipment and other credit management functions
- Support the discussion of account information and delinquent account reports
- Adhere to federal antitrust guidelines
Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.
The World Trade Organization (WTO) hosted its 8th ministerial conference last week, generating many reasons for optimism among trade-focused officials and policymakers.
Perhaps the most notable development to come out of the conference was the WTO's decision to approve the terms of accession for Russia, and officially issuing an invitation to the country to join the trade body. In order to join the WTO, Russia has agreed to lower tariffs on a wide range of goods, open its services markets and align its trade regime with WTO rules. The nation will officially become a WTO member once its parliament ratifies the accession package.
"The expansion of the WTO to include new members strengthens the global trading system and opens new and more secure markets to American exporters," said U.S. Commerce Secretary John Bryson. "Russia's membership will give American companies greater and more predictable access to an important and growing market, which will spur new opportunities for U.S. exporters and create jobs for American workers."
Speaking more broadly, officials expressed their hopes to put an end to "business as usual," in the words of U.S. Trade Representative Ron Kirk, specifically when it comes to trade negotiations. "Ministers have emphasized that 'business as usual' has not worked, and will not work going forward," said Kirk. "Now is the time to craft credible, innovative approaches to the WTO's work as an institution that liberalizes trade and creates and applies meaningful trade rules."
Kirk's sentiments were echoed in the House of Representatives, where leading lawmakers hoped to ride the rush of trade developments in 2011 into an even more productive 2012. "The WTO Ministerial confirmed the need to find a new path forward to unlock the job-creating benefits of more open and free trade," said Ways and Means Committee Chairman Dave Camp (R-MI). "For too long our multilateral trade agenda has been held hostage by China, India and Brazil. Passage of the trade agreements with Colombia, Panama and South Korea this summer created good momentum on trade, and we must build on that success."
"I welcome the important progress and decisions made at the WTO Ministerial, including Russia's invitation to join the WTO," said Trade Subcommittee Chairman Kevin Brady (R-TX). "Russia's accession is an important development and will significantly improve the ability for America's business, technology and agricultural entrepreneurs to gain access to Russia's growing market."
"2012 is the year for us to move forward and develop new initiatives to open markets and expand trade, which will increase U.S. exports," he added.
FCIB will host a "Doing Business in Russia" webinar this coming March. For more information, visit FCIB's website.
Jacob Barron, CICP, NACM staff writer
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