Credit Managers' Index for August Sees Large Improvement


The latest Credit Managers' Index (CMI) – set to be unveiled Thursday afternoon at www.nacm.org – is one that carries much for which to be pleased. At the top of that list, is overall the CMI reading itself.

Statistics released later today will show the CMI reversing the downward trend of the last four months and potentially challenging the year’s best month results. Within the numbers, categories expected to have performed particularly well include the index of unfavorable factors. Therein, the biggest expected improvements are likely to be in accounts placed for collection, disputes and filings for bankruptcies

“It is far too early to declare that there has been a dramatic turnaround in the economy,” said NACM Economist Chris Kuehl, PhD. “The best that can be said about the current CMI number is that a declining pattern was thoroughly broken, and there is some reason to believe that this could be start of a much more positive trend than has been seen through most of the summer.”

-NACM Staff

(Note: The complete CMI report for August 2012 contains the full commentary, complete with tables and graphs and is available on the NACM web site. Credit and finance professionals who want to take the next survey will find it open September 17-21! Simply go to http://web.nacm.org/cmi/cmi.asp at any point during these dates. You also can sign up here to be reminded to take the survey on a monthly basis).

Fed Beige Book Economic Roundup Finds Moderate Expansion But Soft Manufacturing in July/Aug


(Federal Reserve)  Reports from the12 Federal Reserve districts suggest economic activity continued to expand gradually in July and early August across most regions and sectors. Six Districts indicated the local economy continued to expand at a modest pace, and another three cited moderate growth. Among the latter, Chicago noted that the pace of growth had slowed from the prior period. The Philadelphia and Richmond districts reported slow growth in most sectors and declines in manufacturing, while Boston cited mixed reports from business contacts and some slowdown since the previous report.



Most districts indicated that retail activity, including auto sales, had increased since the last Beige Book report, although Cleveland, Chicago, St. Louis, Dallas, and San Francisco noted the retail improvements were small. Atlanta said that retail growth had slowed, while Philadelphia indicated growth in retail sales was somewhat faster than in the previous report. Boston, New York, Richmond, Atlanta, Minneapolis, and San Francisco recorded strong performance in tourism. Many districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales, output, or orders; among those with declining shipments and orders, Philadelphia noted that the rate of decline was tempering.



Bankers in New York, Philadelphia, Cleveland, Atlanta, Chicago, and Kansas City saw increases in demand for most loan types in recent months. By contrast, St. Louis, Dallas, and San Francisco indicated that loan demand was mixed, softening, or slightly weaker.



Real estate markets were generally said to be improving. Reports on commercial real estate markets were generally positive.



The Midwest drought has reduced actual and expected farm output, especially cotton, soybean, and/or corn crops in the Chicago, Kansas City, and St. Louis districts. Several districts noted concerns about rising agricultural commodity prices.



Hiring was said to be modest across the Districts, and wage pressures were characterized as contained.

-Source: Federal Reserve

China Showing Signs of Economic Concern


China officially and uncharacteristically appears to be showing concern over slowing growth rates. While, it is laughable on the surface to call 7% or 8% growth a problem, China actually needs to add millions upon millions of jobs every year to keep up with population needs. While inflation and fast-rising food prices are a concern, the Chinese Ministry of Commerce noted significant price increases in recent weeks for staple products like eggs, cabbage and vegetables. Chinese Premier Wen Jiabao and others are eyeing export levels as a way to keep the economic machine in check and growing. To wit, Jiabao called the third-quarter a “crucial period” of 2012 for Chinese growth.

Jiabao is laying out a full-court press, so to speak, to exporters with announced visits to exporting districts intended to boost confidence and measures being put in place such as expedited export tax rebates and reduced fees for companies sending products elsewhere.

Typically a proverbial stone-faced nation that has enjoyed a lengthy string of economic prominence, the mood has shifted a few times throughout 2012. Still the leader of the emerging economies, Chinese officials tried to slow growth early in the year to try to reduce inflation and rampant overheating in the economy. Much to their chagrin, getting growth moving at hot levels again nearly instantaneously has proven to be more difficult then they may have planned. economy-driving growth levels.

- Brian Shappell, CBA, NACM staff writer
 

Perceived Asian Up-and-Comer Getting Knocked Down a Peg?


The economic travails that have affected the rest of Asia and the world are starting to hit Vietnam very hard. The investments that were expected to propel the country into the Asian elite have faltered, and this has emboldened those who were never all that comfortable with the emergence of the market reforms in the first place.

The nation as a whole has become deeply resentful of those who have amassed fortunes and, now, the government is going after these tycoons with assertions that they have been playing fast and loose with public funds. The reality is that Vietnamese officials have always been corrupt, and that was the normal means of conducting business. The difference now is that those who have not become rich are bent on bringing those who profited down to earth.

Analysis: The growth rate has stalled, and the banks are saddled with debt that is equal to 10% of their assets. This has all but halted the whole privatization process, leaving the country in a kind of limbo between market and state management. It is ironic that Burma now is starting to reach out to the world and the lures of the market system of the Vietnamese seem to be in retreat. It may be only a matter of a few years before these nations trade places.

-Chris Kuehl, PhD, NACM Economist

High Time to "Challenge How People Are Thinking" About Credit Departments


Angela Bradbury, ICCE, group credit manager at UK-based Innospec, Inc., and moderator of the first of five upcoming FCIB roundtable events focused on “The Credit Department as a Profit Centre” noted that there are two kinds of credit managers out there right now: “There are those with flair who are getting involved in the business [and big decisions] and the others who are operating in a very restrictive space.

Getting more involved in the company, getting your voice heard and advancing the role of today's credit professional are becoming not just wish-list type items for today's credit manager but, rather necessities.

"It’s not about going in the CFO’s office shouting and screaming, it’s about showing you’re an indispensible service," Bradbury said. "It’s not about making life difficult or easier, it’s about being a bigger part of the business’ bottom line.” Bradbury, like 2012 NACM Mentor of the Year Larry O’Brien, CCE, ICCE and a growing group of others, added that too many credit managers don’t push the agenda and confirm that his/her outlook and goals are still in line with those of upper management, the finance people or even sales.

The FCIB roundtable events, to begin on Sept. 13 at the Clerkenwell London with Bradbury, are designed to get credit people talking about how to sell the credit department’s value to others in a company, the “P.R.” it takes for this to work and how to assess the credit and risk assessment expectations that exist at your company (and how to react to them), among other topics. Subsequent events this fall in the FCIB series will be held in Amsterdam, Brussels, Zurich and Dusseldorf.

-Brian Shappell, CBA, NACM staff writer

For more information or to register for the first roundtable event in London, visit http://www.fcibglobal.com/events/event-calendar/details/125-the-credit-department-as-a-profit-centre-your-value-in-the-supply-chain-uk-london.html.


One CAL Chapter 9 Going the Way of Central Falls after Court Settlement?


A bit of compromise can apparently go a long way in Chapter 9 bankruptcy proceedings. After California’s mandated negotiations period designed to force creditors and municipalities to work things out previously yielded little in results, one city’s Chapter 9 proceedings just got quite a bit easier.



Mammoth Lakes, CA officials confirmed that it has reached a tentative agreement on a settlement of the $43 million court judgment that was won in court by a land developer, a court ruling that almost single-handedly forced the community into insolvency, unlike other U.S. cities that are dealing with problems like pension and health care costs.



“The settlement agreement, including any and all terms, will remain confidential until it is fully documented and executed,” said a release on the Mammoth Lakes, CA web site. “While steps are taken to document and seek approval of the settlement, all discovery and litigation among the parties will be put on hold… the town will provide additional information to the public as soon as the settlement documentation is finalized and filed for court approval, which is expected within weeks.”



The release did not outline the extent to which the municipal bankruptcy case will be affected. Mammoth Lakes filed for Chapter 9 protection just before the Independence Day holiday.



It’s the second time in as many years that parties negotiated a settlement after a Chapter 9 filing was made. Concessions with creditors in an out-of-court settlement between Central Falls, RI and its retired workers following that municipality's 2011 Chapter 9 filing, one of the first and most publicized of the 2011/2012 wave of cases. The filing essentially forced the negotiations.



-Brian Shappell, CBA, NACM staff writer

EX-IM Continues Opening Regional Export Offices


(Press Release) Pacific Northwest small-and-medium sized business owners will have more opportunities to boost sales through exports because of increased presence by the Export-Import Bank of the United States (Ex-Im Bank). Today, at a Global Access for Small Business forum, Ex-Im Bank Chairman Fred P. Hochberg and Senator Maria Cantwell (D-WA) announced the opening of a new Ex-Im Bank office in Seattle, Washington.

This is the third opening of four new regional export finance centers this year by Ex-Im Bank in its effort to assist local businesses in improving their export sales. The center will provide enhanced access to the Bank's products and services, and it will assist local businesses in obtaining export financing to grow foreign sales.

"The Export-Import Bank supports more than 83,000 jobs at more than 100 businesses in Washington state," said U.S. Senator Maria Cantwell. "We know that when we become exporters we increase jobs in Washington state. This new office is a tool for Washington businesses to increase exports and sell Washington products around the world."

John Brislin will serve as the Bank's Seattle regional director, and the new office will be located in the U.S. Export Finance Assistance Center at 2001 6th Avenue, Suite 2600 in Seattle, Washington. Potential exporters may call (206) 728-2264 for more information. This year, Ex-Im Bank has opened regional centers in Minneapolis, Atlanta, and Seattle and is scheduled to open an office in Detroit this fall.



Source: Ex-Im

Credit Profile Study Warns of Doing Business in Places Like NV, GA, FL


CardRatings.com’s newly released analysis of the credit profiles based on both business and consumer factors in all 50 U.S. states found many states struggling with problems such as low credit scores, reeling real estate issues and high unemployment. Several in the top five-----Nevada, Georgia, Florida, Arizona and, unsurprisingly, California-----also have problems with public worker health care and pension costs alluded to in previous NACM stories, including eNews’ lead article this week (available Thursday). By comparison, North Dakota, Vermont, South Dakota, Montana and Iowa lead the charge with the best ratings in the CardRatings.com study; though it’s worth noting that NACM Economist Chris Kuehl, PhD often jokes about several of these that “no one lives there.”



CardRatings.com Founder Curtis Arnold noted that the stark difference in practices between the upper tier and lower tier should be noted and “should be food for thought for anyone considering a move or business venture.”



-Brian Shappell, CBA, NACM staff writer

Municipal Bankruptcy Seen as Rising Problem by NY-Fed, Moody's


For the better part of a year NACM and contributors like Lowenstein Sandler PC’s Bruce Nathan, Esq., have been warning of the potential acceleration of municipal (Chapter 9) bankruptcy as an option for debt-hobbled communities and the potential downstream affects such filings could pose. Within the last week, two notable outfits chimed in on the topic – either directly or indirectly – of municipal defaults, both thinly veiling concern for municipal bondholders.

A new report from the Federal Reserve Bank of New York reveals its analysts found “municipal defaults are far more common than frequently cited statistics suggest.” While some analysts have attacked the assertions of the report as misleading, it has certainly laid the foundation to rile the municipal bond market, thought to be a virtual safe haven in the past.

The row comes on the heels of a Moody’s Investors Services release in which the ratings agency noted it would be reviewing, with additional depth, nearly 100  municipalities for potential downgrades in a state that already has seen three official filings this year. Moody’s also questioned whether a 2011 California law that mandates a 60-day medication between communities and creditors before a Chapter 9 filing can legally go through actually "normalizes" or “condones” partial and/or late-payments to bondholders.  

-Brian Shappell, CBA, NACM staff writer

(Note: More on this story in this week's eNews, available Thursday afternoon at www.nacm.org. NACM presents an Oct. 22 teleconference with Nathan on Chapter 9 bankruptcy. For more information or to register, visit www.nacm.org/calendar/details/435-teleconference-chapter-9.html).

Economist: Drought A Short-Term Issue...For Now


As the headlines blare about the ravages of the drought, there is a tendency to get caught up in the frenzy and assume that life in the farm belt will be altered forever. The fact is that farmers are accustomed to the vagaries of Mother Nature, and they adjust.

Last year was the year that floods were going to destroy the farm, and this year it is drought. The corn crop is a loss this year, and soybeans may be next. However, the bean crop is perking up in those areas where there has been some rain. The next big question is whether there will be continued drought in the winter months. That is much more threatening than a summer drought as, in many respects, the drought this year was triggered by the lack of snowpack from last year. Right now this is a bad year, but it came top of several good years, meaning many farmers are prepared to survive it. Another year or two of this, and the situation worsens drastically.

Analysis: The long-term response has yet to set in. The prices paid for cropland have continued to escalate. There is confidence that this land will return to productivity, and nobody doubts that there will be demand for that output. There will be winners this year due to the drought. Those with irrigated fields will reap a substantial reward despite the additional costs of water. The companies that put in these systems have never had so much work. Those who have planted crops that are drought resistant are happy with their decisions. There also are the countries that can expect to ship far more to the US than in the past. All eyes are now on the winter forecasts, which are mixed thus far. At this point the East Coast is expected to be snowy and colder, while the South is expected to be wetter. The really bad news is that the Midwest if forecast to experience drought conditions continuing and/or worsening -- That would set the table for a miserable 2013.

-Chris Kuehl, PhD, NACM economist

Europe Still Has Some Bright Spots


While there have been well-documented and well-founded areas with problems, namely Greece and Spain, as well as an impact on trading partners throughout the globe, there are some European nations still doing well or at least better than before.

Statistics indicate the German economy is back in a growth pattern, albeit at a lackluster 0.3%, after a few signs of weakness. There also are several EU members and nearby neighbors who have managed the crisis well enough to avoid recession and deserve note, NACM Economist Chris Kuehl, PhD, noted.

“The Swedes are also displaying significant economic progress based on solid export activity and a domestic economic surge that stems from the lowered tax burden. Poland continues to prosper with its own burgeoning internal economy and continues to benefit from being the buffer between the Russians and those that want to do business there without getting too close. Even the Irish are starting to make some progress on their own financial mess and now appear to have returned to being just poor, not poor and in distress.”

- Brian Shappell, CBA, NACM staff writer

(Note: More including the downside and reliance on Germany in this week's eNews, available Thursday afternoon at www.nacm.org).

NY Fed Study Find Small Businesses Struggling to Garner Credit


A poll of small business owners finds that the perception on the street is that it is unlikely they’ll be approved for the credit they ask for – whether via a partial amount granted or full-on denial – so many have simply stopped applying. But there does seem to be some optimism out there for the next year, whether based on tangible signs or blind hope. Meanwhile, interviews from the poll seem to tangentially promote an idea near and dear to NACM: workers need to advance and expand the roles of their positions to boost their stability.

The Federal Reserve Bank of New York unveiled its Small Business Borrowers Poll, which included results that indicated microloans are at a peak demand right now yet remain highly difficult to garner, especially among start-ups. This often is the case even for new businesses run by a proprietor with a sterling credit history. Poll results based on N.Y. Fed polling also found that nearly 50% of those small business that did not apply for credit/bank loans, opted not to do so out of belief and/or fear of rejection. Perhaps that is with good reason as only 13% of those who did apply in recent months and participated in the poll received the full amount requested. Just more than one-third received a portion of the requested amount, according to the N.Y. Fed.

Additionally, interviews included in the Fed’s report shined a light on the widely held believe that small business owners do not see smooth sailing for most of the remainder of 2012, even if they are upbeat about things being better at this time next year. But, in the meantime, business owners are preparing as if credit isn’t going to come their way, and want employees, from sales to credit, to realize the importance of stepping out of the traditional box of their job descriptions to provide more value and, thus, boost the prospects for the business and their job security alike.

“Whatever you think cash-flow-wise you will need for your worst, worst scenario, like the one you think is never going to happen, double it,” said Allison O’Neill, a New York clothing store proprietor interviewed by the Fed. “Everyone who works here wears many hats…Everyone who's here is a sales associate and a social media manager, and a marketing manager, and an inventory specialist…”

-Brian Shappell, CBA, NACM staff writer

(Note: To view the full report, visit http://www.newyorkfed.org/smallbusiness/2012/).
 

June Exports Top All-Time High


The U.S. exported $185 billion in goods and services in June, according to data released by the Commerce Department, marking an all-time monthly high. The previous record, set just three months prior in March 2012, was $184.4 billion.

"This is the highest value ever recorded for the export of U.S. goods and services," said Export-Import (Ex-Im) Bank Chairman and President Fred Hochberg. "Exporting is paying off for American workers at home, and it is essential we continue to cultivate business overseas to support the U.S. economy."

Over the last 12 months, U.S. exports of goods and services have totaled $2.165 trillion, which is 37.1% above the 2009 total. Since then, U.S. exports have been growing at an annualized rate of 13.5%. Major export markets with the largest annualized increases in purchases of U.S. were Panama (38.1%), Turkey (29.5%), Argentina (29.1%), Hong Kong (28.3%), Chile (28.1%), Russia (26.4%), Honduras (26.1%), Peru (25.5%), Brazil (22.7%) and Ecuador (22.1%).

Despite the reliable positivity of exports over the last several quarters, NACM Economist Chris Kuehl, PhD noted that a number of rare factors helped boost June's figures, and that this type of growth might soon be coming to an end. "The one-off developments include a dramatic burst of activity in a couple of traditionally volatile areas—pharmaceuticals and gems. Together these sectors accounted for half the consumer goods gain," said Kuehl. "If one looks at these motivators for the good month, it is pretty obvious that this is not all that sustainable."

Placing U.S. export figures in greater risk is the fact that other major export countries have seen drastic declines. "If there are export declines in Germany, Japan, Korea, China and Brazil," asked Kuehl, "can the U.S. continue to be the outlier that is seeing expansion?"

- Jacob Barron, CICP, NACM staff writer

To learn more about how to use exports to grow your company, visit FCIB's website at www.fcibglobal.com. For more information on Ex-Im Bank's export support programs, be sure to tune into FCIB's upcoming webinar, "Financial Tools for Export Success," led by Sharyn Koenig, director of Ex-Im's southeast regional export finance center and minority and women-owned business outreach.
 

US Crop Issues to Have Domino Effect, Ethanol Debate Likely to Accelerate


The critics of U.S. ethanol production have been coming from all directions these days, and news of the most disappointing corn crop yields in decades, some 25% below normal, should only push the conversation forward. And it doesn’t help that the predicted output reduction by the U.S. Dept. of Agriculture was even worse than market-watchers anticipated thanks largely to the relentless drought conditions in Central and Midwestern regions of the country.  

In a daily business news roundup prepared daily by NACM Economist Chris Kuehl, he penned the following:  
This sector has always been controversial, and there are more than a few in the U.S. who would love to see that industry fade away. There are also many supporters who still believe that the U.S. needs the alternative fuel it helps generate as a means to cope with issues like energy dependence and global warming. The crux of the issue now is that corn is in very short supply worldwide and a major food crisis looms. Not only has the U.S. corn crop been wiped out by drought, but the Brazilians are not going to get the yields they had expected either because of too much rain there. As corn prices reach $10 a bushel (and there already in striking distance), the threat of famine grows, and it doesn’t seem like a good idea to be subsidizing an industry that consumes 25% of the corn produced in the U.S. annually.

Analysis: The price of corn is so high that no ethanol plant can remain profitable without direct help from the government and, thus far, that is still being provided or even expanded. The United Nations has joined with U.S. livestock producers to call for an end to these breaks and essentially an end to production of corn-based ethanol. The long-term goal was to produce ethanol with something else—switch grass, sugar cane, algae—anything but the food that cows eat. The impetus to make that change may be more intense in the months and years ahead.
 

Debt Problems, Leadership Finally Hitting French Economy


Even with mounting debt problems in mostly southern members of the European Union, just one year ago many would have scoffed at predictions of a French recession. After all, other than Germany, it was considered a proverbial alpha dog in the EU. Fast-forward to present day and the word recession has become less of a prediction and more of a foregone conclusion.

The Bank of France noted this week that the nation is all but assured to slip into recession within the next quarter. To blame, from the central bank’s perspective, is the lack of demand for French-made products out of its trade partners, notably the key duo of Spain and Italy, whose economic struggles are well documented. Still, French prognosticators are saying it should only be a slight recessesion in what carries a similar tone to widespread predictions of the United States having a “soft landing” at the end of the last economic boom circa 2008 (That, obviously, didn’t work out so positively.)

In any case, the implications are pretty significant given new leadership’s pledge to reduce the budget deficit by 4.5% of GDP this year.

“With an economy in recession there is no way to meet that target without another series of deep cuts in spending or big tax hikes. The unions are threatening a nationwide shutdown if more cuts are proposed and that leaves taxes. And industrial production is at levels not seen since the depths of the 2009 decline,” said Chris Kuehl, NAMC economist. “The fact is that France is in real economic distress and there are not many options available at this point.”

France’s difficult situation was bandied about quite a bit during NACM’s Credit Congress event in Texas nearly two months ago. One French-born attendee noted that, like many U.S. voters with partisan politics there, French citizens came to be quite cynical of the incoming or outgoing leaderships’ promises amid weakening conditions in virtually all the nations nearby that are linked by the common currency.

“A lot of it is rhetoric and has nothing to do with reality,” the Credit Congress delegate and FCIB member noted. “Most people voted against someone, not for someone or something.”

-Brian Shappell, CBA, NACM staff writer
 

Fall FCIB Keynote: Some Asian Markets Relatively Untapped


A U.S. Chamber of Commerce official just announced as a headliner of FCIB’s 23 Annual Global Conference in November, has not been shy in urging the federal government to widen its approach to expanding its exporting activity as the best, perhaps, only hope of growing jobs significantly in the short- or medium-term.

Myron Brilliant, senior vice president of international affairs with the Chamber of Commerce, has noted through appearances, like one earlier this year on CNBC, the importance of continuing to pursue new free trade agreements (FTA’S) like the trio that were passed in the last year (Panama, South Korea, Columbia). Brilliant, who will keynote FCIB’s conference in Philadelphia (Nov. 11-13), argues that, basically: FTA’s increase exporting activity and, in turn, exports create jobs. Brilliant also advocates for pursing additional means to expand market access for U.S. businesses in growing economies like Vietnam and Malaysia, where access is considered far from open. Moreover, working out such deals could help the U.S. set terms on issues such as dealings with state-owned businesses and intellectual property rights.

Brilliant almost certainly will hit on those topics during his trade-and-investment-themed address in Philadelphia as well as offer insight into future opportunities, risks and barriers facing the major trading nations.

-Brian Shappell, CBA, NACM staff writer



(Note: For more information on FCIB’s Annual Global Conference, visit www.fcibglobal.com).
 

5 U.S. Economic Trends for Summer 2012


The summer months present all kinds of interesting economic challenges and they often take on a disproportionate importance as analysts try to puzzle out what happens next. Here are five particularly interesting summer developments to consider:

Impact of summer on employment -- It has been a weaker year for part-time employment than in past years though the numbers of summer jobs was up over last year or 2010. The main problem is that most of the summer jobs that usually go to the younger workers never materialized. By some measures, these opportunities were reduced by 20% from those of 2008.

Factory Layoffs -- These are the months that factories, especially in the auto industry, often idle as they gear up for another season. The laying off of assembly line workers for a few months is so common that those who gather labor statistics figure in these temporary layoffs to keep the data smooth. This year the sector did not start dismissing workers until later in the season and, in many cases, they did not lay anybody off at all. Was this a one-year phenomenon based on demand for cars this year, or has the re‐tooling been streamlined to the point that layoffs will not be necessary in the future?

Family Vacation as Tradition -- In the last several years, there have been some dramatic shifts underway as the consumer reacted to high gas prices, high rates of joblessness and general angst about the state of their financial position. It was anticipated that this would be another down year, as most of these factors remained in place. The good news was that gas prices fell, and that might have been enough to convince some people to hit the road.

Heat and Drought -- This has been a brutal summer for the farm sector as well as for the general population. Record setting heat and the almost total lack of rain created an unexpected crisis. The crop losses have been devastating, and now the question is whether this is the beginning of a hot and dry cycle or a one‐off year. The impact on the consumer will be felt more next year than this one. Commodity prices are only about 15% of the price of food, but there is a cascading impact that will drive overall food inflation up by roughly 5% next year.

Back‐to‐school shopping -- Thus far, it is starting off in decent shape. The next two weeks will be the key period, as this will show the mood of the consumer going towards the most intense retail period of the year. If volume is up in apparel and electronics from last year, that will be a very positive sign. If the shopping is more focused on the essentials, that will not bode all that well for the months to come.

-Chris Kuehl, PhD, NACM Economist

Congress Adjourns without Approving PNTR with Russia


Congress adjourned for its annual August recess last Friday without passing a bill to approve permanent normal trade relations (PNTR) with Russia.

This means that Russia will officially join the World Trade Organization (WTO) on August 22, and be well within its rights to increase tariffs on U.S. goods entering the country. Since Congress won't return to work until September 10, the failure to pass a bill before leaving Capitol Hill puts U.S. exporters at a competitive disadvantage in Russia, the world's ninth largest economy, at least until PNTR can be approved.

Immediate passage after the conclusion of the August recess isn't exactly a guarantee either, as Congress is expected to be preoccupied with looming defense cuts and the sequestration details of last year's debt ceiling agreement.

In the final week before the recess, neither chamber of Congress even tried to schedule a vote on two bills that would've approved PNTR with Russia by repealing the Jackson-Vanik amendment, a Cold War regulation that made U.S. preferential tariff rates for Russia products conditional on the country allowing Jews and other minorities to emigrate freely. The amendment is regularly suspended with little fanfare, but its presence on U.S. books allows Russia, under WTO rules, to discriminate against U.S. products until the regulation is eliminated.

Each version of the PNTR bill has been coupled with a version of the Magnitsky Act, named for anti-corruption lawyer Sergei Magnitsky who died in 2009 under mysterious circumstances after serving a year in Russian prison. The House's version would deny visas and freeze the assets suspected of involvement in Magnitsky's death, while the Senate's version would take a much broader approach, allowing the law to be applied to human rights violators outside of Russia and beyond the scope of the Magnitsky case.

Some iteration of the Magnitsky legislation was considered a prerequisite for any bill approving PNTR, as lawmakers were wary of being perceived as having given Russia a free pass on trade without any penalties related to the country's human rights record, especially in an election year. Analysts have noted, however, that PNTR has a time limit, while either version of the Magnitsky Act does not. Congress could easily have approved PNTR ahead of Russia's accession to the WTO and addressed the Magnitsky legislation at a later date.

- Jacob Barron, CICP, NACM staff writer
 

Russia May Have Grounds to Increase Tariffs on Foreign Exports Soon


The two chambers of the U.S. Congress have until the end of the week to smooth out the wrinkles in two competing plans to establish permanent normal trade relations (PNTR) with Russia. Failure to do so could put billions of dollars worth of American exports at risk when Russia joins the World Trade Organization (WTO) later this month, on August 22.

Congress adjourns for its five-week August recess after the close August 3, meaning that a bill has to be enacted by then if the United States is to have any hope of taking full advantage of Russia's WTO membership right from the jump. Under WTO rules, should the U.S. not have established PNTR with Russia by the time they officially join the global trade body, Russia can increase tariffs on U.S. goods entering the country, ultimately giving goods from other countries going into Russia a competitive advantage over their American counterparts.

Standing in the way of PNTR is the Jackson-Vanik amendment, a Cold War regulation that is regularly suspended as a matter of course. But its presence on U.S. books gives Russia the right to deny U.S. companies access to the markets it will open as part of its WTO accession agreement.

- Jacob Barron, CICP, NACM staff writer

(Note: More in this week's edition of eNews, available late Thursday afternoons at www.nacm.org).

San Bernardino Officials Requests Chapter 9 Protection


Just three weeks after lawmakers in San Bernardino, CA voted to begin preparing a potential municipal bankruptcy filing, like two other state municipalities did before it, city officials have official requested Chapter 9 protection. It came several weeks ahead of expectations, largely on thinly veiled threats of lawsuits from creditors.



San Bernardino, like many U.S. cities struggling with debt,  is be tied to a lot of contracts with current and retired public workers, especially for pension and health care costs, that are zapping its budget. A previous news release noted “systemic” financial problems that would carry throughout 2012 and beyond and that “clearly, reductions to the expenditures side of the budget are not going to product the level of savings that will be needed to balance the budget.” The budget shortfall was estimated at $46 million.



California had implemented a state law requiring a 90-day mediation period designed to bring municipalities and their creditors to the negotiating table before struggling cities can file. While it has likely slowed the pace of filings, as intended, votes and discussions to pursue the eventually bankruptcy option have continued throughout the state.

-Brian Shappell, CBA, NACM staff writer