South Korea’s birth rate, already the lowest in the
developed world, has fallen to a new low on factors such as the high cost of
private education despite various government initiatives to prop it up, raising
concerns about the country’s bleak demographic outlook.
The country’s fertility rate — the number of expected
babies per woman — fell to 0.98 in 2018, according to the latest government
data released on Wednesday. It was already the lowest at 1.05 in 2017 among
members of the OECD, far lower than Israel, which was the highest in the
organization with 3.11 expected babies in 2017, the US at 1.77 and Japan’s
1.43.
The replacement level — the total fertility rate for
developed countries needed to keep the population constant — is 2.1.
Policymakers are also concerned about the country’s
falling potential growth rate due to ageing, with South Korea now having more
economically active people aged over 60 than in their twenties.
Despite growing concerns about the looming labor
shortages, South Korea maintains a strict immigration policy, not allowing
foreign workers to migrate with their families or apply for South Korean
citizenship in most cases.
…An estimated 270m migrants around the world who will
send a combined $689bn back home this year, the World Bank estimates. That
figure marks a landmark moment: this year remittances will overtake foreign
direct investment as the biggest inflow of foreign capital to
developing countries.
Remittances were once viewed by many economists
as a secondary issue for developing economies behind FDI and equity
investments. Yet because of their sheer volume and consistent and
resilient nature, these flows are now “the most important game in town when it
comes to financing development”, says Dilip Ratha, head of the World
Bank’s global knowledge partnership on migration and development.
The number of people in the world who live outside
the country of their birth has risen from 153m in 1990 to 270m last year
according to the World Bank, swelling global remittance payments from a trickle
to a flood. As migration has increased, these financial snail-trails have
become one of the defining trends of the past quarter-century of globalization
– the private, informal, personal face of global capital flows.
For many developing economies, it is a lifeline.
“In times of economic downturn, natural disaster or
political crisis, private capital tends to leave and even official aid is hard
to administer,” says Mr Ratha. “Remittances are the first form of help to
arrive, and they keep rising.”
Remittance inflows help boost countries’ balance of
payments and therefore their credit ratings, lowering the borrowing costs
of governments, companies and households. In the Philippines, for example, this
year’s remittances inflows of $34bn will help reduce what would otherwise be a
current account deficit of more than 10% of gross domestic product to a deficit
of just 1.5% of GDP.
But remittances have economic downsides too. By
helping to subsidize low incomes at home they provide a cushion against the
impact of slow growth, which eases pressure on governments to reform their
policies.
And, by channeling capital into consumer spending,
remittances boost imports – which, some economists say, holds back the
development of domestic manufacturing.
Remittances are also one of the key transmission
mechanisms of global economic stress. People move in search of opportunities,
so emigration rises when an economy is doing badly. When their host country is
doing well and migrants prosper, they send more money home – a counter-cyclical
boost to the struggling economy at home.
But when host countries hit hard times, the shock is
transmitted back to migrants’ families in the form of lower remittances. This
can export the slowdown to the recipient country, fueling economic instability
on a global scale.
One example is the recent fall in oil prices. It was
a blow not only to oil producing countries but also to families across
south-east Asia and elsewhere who have breadwinners working in the Gulf.
It proved to be a structural shock for Lebanon, a
small economy in which families and the banking system are heavily dependent on
inflows from the diaspora.
“We’ve been watching Lebanon closely because
remittances have really declined in the past decade, by almost 12% of GDP,”
says Frank Gill of S&P Global, one of the big three rating agencies. “This
is a key source of funding for the public sector and it’s a major worry for a
rating agency, for obvious reasons.”
In May S&P lowered its outlook for Lebanon’s
sovereign rating to negative, citing slowing inflows from non-residents as a
threat to the country’s fiscal stability.
Although remittances have become one of the chief
characteristics of the current era of globalization, political shifts including
the rise of populism raise the question of whether their economic importance
will prove short-lived.
The backlash against globalization is growing
and anti-immigration sentiment is rising in many developed countries.
So it is possible that both migration and the capital flows that it drives
could begin to ebb.
But the World Bank expects 550m people to join the
work forces of low and middle-income countries between now and 2030. And the
gaping income disparity between developed and low-income countries – $43,000 a
year per capita in the former, and $800 a year in the latter – is set to
persist.
That means job opportunities abroad will continue to
look attractive.
And the push from poor countries will be met by a
pull from rich ones.
“The western world is ageing, and it’s going to be
increasingly reliant on imported labor,” says S&P’s Mr Gill. “I don’t see
why that isn’t going to continue.”
Student debt is soaring—it is now nearly $1.5
trillion—and defaults are at a record. That has been fertile ground for
companies that promise to help stretched borrowers by navigating the maze of
federal programs that can reduce or forgive debts for those who
qualify, such as public-service workers or people on low incomes.
Some companies operate legally, although there is nothing they offer
that borrowers can’t get free,
regulators say. Other firms are outright scams, or make promises to
borrowers that are illegal, regulators and consumer advocates warn.
A record $89.2 billion of student loans was in
default at the end of June, New York Federal Reserve data show. Of the $1.48
trillion outstanding, 11%, or $160 billion, was at least 90 days behind on
repayments—and the true rate is likely double that, because only half the loans
are currently in repayment.
“We’ll do the work for you,” Financial Preparation
Services says on its website. “No more drowning in a sea of confusing paperwork
and processing!” Its fee: $1,195 for document preparation, then $40 a month for
almost 20 years—a total of $10,555—according to a 2018 client agreement
reviewed by the Journal.
Many of the FTC cases allege that the companies
charged upfront fees for debt relief, which is illegal, or engaged in other
prohibited practices such as masquerading as being government-approved, or
faking information on applications for federal relief.
Red Flags for a Student Loan Debt-Relief Scam
The Federal Trade Commission says borrowers should
beware of companies that:
Charge
upfront fees. It is illegal for companies to make you pay before they help
you.
Promise
fast loan forgiveness. Scammers may pretend to offer an easy way to wipe
out loans—it doesn’t exist.
Pretend to
have official endorsements, such as using Department of Education logos.
The government doesn’t approve any debt relief companies: it advises if
you have federal loans to go direct to https://studentaid.ed.gov/sa/
Try to rush
you into signing up. Companies may say you have to act fast to qualify for
programs: Check them out before you commit to anything.
Demands
your student loan ID, or asks you to sign a power of attorney, to deal
with the government on your behalf. You can lose control of your finances,
and be cut off from information on what’s happening to your loans.
Investors yanked $8.4 billion in July, bringing net
outflows this year to $55.9 billion, according to an eVestment report on
Thursday. That’s up from $37.2 billion for all of last year.
Investors’ frustration with hedge funds continues to
mount, driving down management and performance fees to well below the
“two and 20” fee model once considered standard, according to Eurekahedge. More
hedge funds have shut than started in each of the last three years,
and those that do launch are far smaller than they were before the financial
crisis.
The pain for hedge funds isn’t spread evenly, with
37% of funds posting net inflows this year. So-called event-driven funds have
fared the best, with inflows of $10.3 billion through July, eVestment data
show. These funds try to cash in when events such as mergers, takeovers and
bankruptcies lead to a temporary mispricing of a company’s shares.
Long/short equity funds are having the hardest time,
with net outflows this year of $25.5 billion, according to the report.
This week, the People’s Bank of China revealed
a long-anticipated change to how commercial bank interest rates will
be calculated. Revealingly, PBOC officials were at pains to stress that while
the move might lower interest rates for corporate lending, mortgage interest
rates wouldn’t fall.
Eighteen banks now have to show the PBOC the best
interest rates they offer to their clients, based on rates set by the central
bank’s medium-term lending facility, a source of credit for the banks
themselves.
The change has two objectives. One is to lower rates,
at least for some loans.
The other is to improve the transmission mechanism
for monetary policy: The PBOC wants banks to do a better job of passing changes
in policy on to their customers.
The most interesting aspect of the new approach is
the deliberate exclusion of real estate. This is likely because Chinese
households went on a borrowing spree after the PBOC’s 2015 round of
benchmark rate cuts. In 2016, household debt rose by 6.2 trillion yuan ($878.11
billion)—compared with an increase of around 3 trillion yuan a year on average
for the previous five years—and only accelerated subsequently.
Beijing is wisely wary of the decade-long boom in
China’s housing market, the consequent build-up in borrowing and what it means
for the country’s development model. But in the data there is no sign of a
crackdown.
Last week, in its annual Article IV assessment of the
Chinese economy, the International Monetary Fund raised its forecasts for
Chinese household debt by several percentage points. The IMF expects household
debt to rise to 56.2% of GDP this year, and as high as 67.9% of GDP in 2024.
The latter figure would be well above current levels in Japan and the eurozone.
In the past 12 months, developers have booked a
record 11.7 trillion yuan ($1.66 trillion) in pre-sales—sales of homes due to
be completed in the years ahead. Assuming that buyers put down a deposit of
around 30%, that is north of 8 trillion yuan in mortgage debt not yet fully on
the shoulders of the household sector.
In comparison, Chinese household debt rose by 7.3
trillion yuan between the end of 2017 and the end of 2018, according to data
from the Bank for International Settlements.
The government has good reasons to want to stop the
buildup. Many emerging markets have struggled to regain high levels
of growth after generating considerable property-related debt, particularly in
Asia.
But there is no sign that household debt is even
plateauing, let alone declining. Beijing’s stated preference is for an end to
speculative household borrowing, but it is proving to be a difficult habit to
kick.
“Six to eight million people are living in a state of
undernourishment,” said Susana Raffalli, a veteran Venezuelan humanitarian
adviser who has worked across the world with the Red Cross and Unicef, the UN
agency for children.
In a recent report on global food security, the FAO
estimates that between 2016 and 2018, about 21.2% of the Venezuelan population
was undernourished. When Mr Maduro came to power in 2013 the figure was 6.4%,
it says.
In a June report, Unicef estimated that 3.2m children
in Venezuela were “in need of assistance”.
Mr Maduro (President Nicolas Maduro) blames a
US-orchestrated economic war for the problems with food supplies. The US has
imposed an increasing array of sanctions on Venezuela in an effort to force the
president from office.
The White House and Venezuelan opposition say the
principal culprit is an economy ruined by years of mismanagement whose collapse
began years before the first significant US sanctions in 2017. In a statement,
the US state department described Venezuela as “one of the worst man-made
humanitarian disasters in the modern world”.
Mr Maduro has repeatedly denied there is widespread
hunger in his country. He told the BBC earlier this year: “Venezuela has the
highest levels of nutrients, has extremely high levels of access to food, and
that stereotype, that stigma [of hunger] that they have tried to put on us, has
only one objective: to present a humanitarian crisis that does not exist.”
But hunger is one of the main reasons for the mass
exodus from the country in recent years, according to diplomats and aid
workers. More than 4m Venezuelans have fled abroad, and for those who
remain, the food situation is increasingly perilous.
Venezuela will face long-term consequences from
chronic undernourishment, especially of children, humanitarian organizations
warn. NGO data seen by the FT show the weight and height of Venezuelan children
have fallen significantly below the average for comparable populations.
Around half a billion bees died in four of Brazil’s
southern states in the year’s first months. The die-off highlighted questions
about the ocean of pesticides used in the country’s agriculture and whether
chemicals are washing through the human food supply — even as the government
considers permitting more. Most dead bees showed traces of Fipronil, an
insecticide proscribed in the European Union and classified as a possible human
carcinogen by the U.S. Environmental Protection Agency.
Since President Jair Bolsonaro took office in
January, Brazil has permitted sales of a record 290 pesticides, up 27% over the
same period last year, and a bill in Congress would relax standards even
further.
The fertile nation is awash in chemicals. Brazil’s
pesticide use increased 770% from 1990 to 2016, according to the Food and
Agriculture Organization of the United Nations.
Still, in its latest food-safety report, Brazil’s
health watchdog Anvisa found that 20% of samples contained pesticide residues
above permitted levels or contained unauthorized pesticides. It didn’t even
test for glyphosate, Brazil’s best-selling pesticide, which is banned in most
countries.
Two decades ago, well over half of the global bond
market boasted yields of at least 5%, according to ICE Data Indices. The
post-crisis splurge of central bank bond buying and rate cuts lowered this to
under 16% a decade ago, but investors could still find plenty of higher
yielding debt. Today, a mere 3% of the global bond market yields more than 5% —
the lowest share on record.
Indeed, truly high-yielding debt is now almost an
endangered species. Bonds with yields of more than 10% amount to just 0.4% of
the global fixed income universe, according to ICE.
Negative interest rates in Japan and the eurozone,
and mounting expectations that the US Federal Reserve will follow last month’s
rate cut with several more this year, have expanded the pool of bonds with
sub-zero yields to more than $16tn — or around 27% of the global bond market.
This is primarily a European phenomenon. While US bonds account for just under half the $55tn global investment-grade bond market, they pay out 88% of all yield, according to Bank of America.
There are, broadly speaking, two main ways for
investors to counteract the global yield drought: buying longer maturity or
riskier debt. But hunger for long-term bonds from investors such as pension
funds and insurers means that the yield pick-up one would normally expect to
receive through buying bonds maturing decades into the future, has
also fallen sharply.
That leaves many investors pushed towards the only
other option: venturing into the riskier corners of the bond market, such as
fragile countries, heavily indebted companies and exotic, financially
engineered instruments.
Traditionally, these swung low when oil prices were
very high, in anticipation of an inevitable cyclical downswing, and
rose when prices fell, pricing in the next recovery. In this latest cycle,
however, that relationship has changed. When oil prices fell sharply in 2015
and 2016, valuation multiples soared (and equity issuance spiked). But
when oil dropped in late 2018 and this summer, multiples fell alongside it.
The higher risks around energy earnings and damaged
trust means investors demand more to buy into them – meaning a higher
cost of capital expressed in lower valuations.
When patients in need of medicines in America go to
fill their prescription the price they have to pay can vary wildly. For generic
off-patent drugs prices are usually low for the uninsured and free for those
with insurance. But for newer patent-protected therapies prices can be as high
as several thousand dollars per month. Those without insurance might end up
facing these lofty list prices. Even those with coverage will often have to
fork out some of the cost, called a co-payment, while their insurance covers
the rest.
These co-payments, which for the most expensive drugs
can themselves be prohibitively high, can act as a deterrent to filling a
prescription. Into this gap a new type of charity has emerged: one that offers
to pay co-payments for patients. There are two main types of such charities.
There are independent ones, like the Bill and Melinda Gates foundation,
America’s largest charity, which spent $3.4bn on co-payments in 2014.
There are also co-pay charities owned by drug makers
themselves. According to public tax filings for 2016, the last year for which
data are available, total spending across 13 of the largest pharmaceutical
companies operating in America was $7.4bn. The co-pay charity run by AbbVie, a
drug maker that manufactures humira, a widely taken immunosuppressant, is the
third largest charity in America. Its competitors are not far behind.
Bristol-Myers Squibb, which makes cancer drugs, runs the fourth largest. Johnson
and Johnson, an American health conglomerate, runs the fifth largest. Half of
America’s top 20 largest charities are co-pay charities owned by pharmaceutical
companies.
The impact of these charities is large and growing.
Most of them are less than 20 years old. In 2001 just five drug makers operated
co-pay charities, spending a total of $370m. That had risen 20-fold to $7.4bn
by 2016. According to Ronny Gal, an analyst at Bernstein, a research firm, the
co-payment on the price of a drug is usually just 10% of the cost the
pharmaceutical company ultimately charges to the insurance provider. This would
mean that $7.4bn spent on copayments could earn drug makers $74bn in revenues,
which would account for nearly a quarter of total drug spending in America. Add
in spending by the Gates Foundation and this share rises to a third.
Pharmaceutical companies will often claim that
helping patients with their co-payments is one way of making expensive drugs
more accessible. But it has the fortunate consequence of making their customers
price insensitive, because insurance companies will often use high co-payments
to nudge their customers into opting for generics over costlier branded drugs:
no co-pay, no incentive to save money.
Using co-pay charities to support high prices is good for
business, but charitable contributions foster healthy profits in another way
too: they are tax deductible. The corporate tax codes of most countries allow
companies to deduct the cost of any charitable giving from pre-tax profits. But
in America the system is more generous, says Jason Factor, a tax lawyer at
Cleary Gottlieb Steen and Hamilton. Companies that give products for the
benefit of the “needy or ill” can deduct up to twice the cost of gifted goods.
