Chile's Unidad de Fomento Index to express Real State prices

Chile’s Unidad de Fomento
The Unidad de Fomento (UF) was introduced in Chile in January 1967 by the
Suprintendencia de Bancos e Instituciones Financieras, a government regulatory agency.
As far as I have been able to determine, the UF is the world’s first successful indexed unit
of account. That is, it is the first time that indexation was achieved by quoting prices in a
money-like unit, rather than relying on an indexation formula.
Chile had issued an earlier unit of account in 1960, the Unidad Reajustable or UR,
which was based both on price and wage indices, but it was not very successful. The UF
was and is an amount of currency related to the Indice de Precios al Consumidor (IPC), the
consumer price index for Chile. Originally, the UF was calculated three times a year, and
was calculated monthly between 1975 and 1977, but daily adjustments in the UF have been
made since 1977. The UF is now a lagged daily interpolation of the monthly consumer price
index. The formula for computation of the UF on day t is:
        UFt = UFt–1 x (1+y)1/d      1/d (means exponential days)

where y is the inflation rate for the calendar month preceding the calendar month in which
t falls if t is between day ten and the last day of the month (and d is the number of days in
the calendar month in which t falls), and is the inflation rate for the second calendar month
before the calendar month in which t falls if t is between day one and day nine of the month
(and d is the number of days in the calendar month before the calendar month in which t
falls). Since the inflation rate for a calendar month is computed using the consumer price
index for that month and for the preceding month, the UFs within a given calendar month
will depend on the consumer price index for each of the three preceding months (e.g., the
April UFs will depend before April ten on the consumer price index for January and
February, and starting with April ten on the consumer price index for February and March).
The use of the UFs by the public did not become habitual until the early 1980s, about
fifteen years after their introduction, though only a few years after the values were produced
on a daily basis (Levin, 1995). Now, the UF is widely used in Chile.
Most bank deposits in Chile are 30-day nonindexed deposits or 90-day indexed deposits
whose rates are expressed in terms of the UFs. Interest rates on the indexed deposits are
expressed as a premium over the UFs. On maturity, the deposits are converted back to pesos
at the current UF rate. Because indexed and unindexed bank deposits coexist, one might say
that the Chilean banking system is partially indexed using the UFs. Deposits denominated
in US dollars are also permitted for maturities over 30 days. The UF is used in Chile for
nearly all mortgages, car loans, and long-term government securities. All taxes are
expressed in UFs. Pension payments are automatically tied to the UF. Executive stock
options sometimes have strike prices denominated in UFs. The UF is widely used for rent
payments. Alimony and child support payments are often denominated in UFs. Office
properties for sale are usually quoted in UFs. Houses for sale are often quoted in UFs,
though pesos are also used. However, the UF is not so commonly used for selling prices of
automobiles, nor is it used commonly directly as way of setting salaries. Wages and salaries
are denominated in pesos and only indirectly influenced by the UF, in that the change in the
peso value of the UF is taken into account in wage and salary deliberations.
An indexed unit of account, such as the Unidad de Fomento (UF) in Chile, is a money
analogue that can be used to price items for sale or to specify amounts to be repaid in the
future. While it is in a sense a sort of money, it is not true money since it is not a medium
of exchange, and has no physical embodiment like coins, notes, or reserve balances. An
exchange rate between the unit and the true money or legal tender, in Chile the peso, is
defined using an index number (such as the consumer price index), and payments are
executed in money. Thus, the indexed units of account facilitate payments that are tied to
the index number, without being a means of payment.

Indexed Units of Account:
Theory and Assessment of Historical Experience

by Robert J. Shiller

Japan will cut oil demand by 9% in 2014

Japanese oil refiners will cut their capacity to the lowest in four decades next year to meet a government deadline, slashing the country's Middle East imports and tightening regional fuel supplies.

Imports of crude by the world's No. 3 oil consumer could fall by up to 320,000 barrels per day (bpd) -- down nearly 9 percent on last year -- with Saudi Arabia, the United Arab Emirates, Kuwait and Qatar bearing the brunt of the cuts.The contraction in one of the world's biggest oil markets adds to falling demand from the United States as shale oil output booms, and from the ailing European economy. As import demand elsewhere falls, top oil exporters are competing more intensely for the biggest growth market -- China.
The combination of a declining, ageing population and improved efficiency have cut deeply into Japan's fuel consumption. The decline in 2014 demand is almost as much as the 380,000 bpd by which China's appetite for oil is expected to grow next year.
By March 2014, Japan's total refining capacity will fall to its lowest level since 1970 or just below 4 million bpd, dropping about 1 million bpd -- or 20 percent -- from 2010, when Tokyo issued a mandate to slim down the bloated sector with falling domestic demand.

Japan's refiners will benefit by increasing throughput at remaining facilities, but less spare capacity could lead to a growing dependence on imports of oil products such as kerosene and gas oil to meet peak seasonal demand.

Source: Reuters

Japan planning to cut tariffs on about 80% items in TPP free trade talks

Japanese government officials are planning to propose cutting tariffs on about 80 percent of items in the coming Trans-Pacific Partnership free trade talks.

The officials are drawing up a list from around 9,000 agricultural and industrial products, ahead of the new round of TPP talks starting on August 22 in Brunei.The negotiators are also planning to say that Japan is "undecided" on whether to agree to abolish tariffs on 5 key farm products, including rice and wheat.

News on japan

China: Uneven home price rise in July

Prices of both new and existing homes continued to rise in most Chinese cities in July, according to official data released on Sunday.

According to the bureau, 57 cities reported month-on-month price gains in existing and second-hand homes in July compared to 55 in June, lower than the 64 rises in May.

On a year-on-year basis, new home prices rose in 69 cities last month, the same as the June figure, while 67 reported higher year-on-year prices for existing homes in July, down from 68.

For existing home prices, 25 cities had a lower month-on-month growth rate in July and only one city reported month-on-month growth rate above 1 percent, as opposed to two in June.

The data covers the nation's large and medium-sized cities, including Beijing and Shanghai, provincial capitals, and other municipal cities.

Source: Xinhua

Overcharge taxes by local governments reflects financial pressure

Unwelcome taxes recently exposed all across China are symptomatic of the financial burden that local governments are forced to shoulder against the backdrop of a slowing economy and spiraling debt.

A recent audit from eastern coastal province of Shandong showed that 40 enterprises from 11 counties had been overcharged 573 million yuan (92 millon U.S. dollars) land utilization and value added taxes by the end of 2012.

Six other enterprises had been prematurely levied taxes worth 144 million yuan.

Companies in northern Hebei Province and southern Guangdong complained that they had been levied taxes that they should not have paid or were supposed to be paid in the next fiscal year.

Statistics from the China Iron and Steel Association showed that 80 of its members were supposed to pay 89 billion yuan taxes in 2012, but actually paid 98.4 billion yuan.

"Many local governments have aggressively pursued fiscal revenues and demanded increments in tax income, so the tax authorities have done whatever they could (to levy taxes)," Liu said.

China's economy has shown signs of slowdown since last year, bringing local governments under pressure to reduce their expenses.

Figures released by the Ministry of Finance show China's tax revenue totalled 6.94 trillion yuan in the first seven months this year, up 8.5 percent year-on-year. However, the growth is 0.5 percentage point lower from the same period last year.

In such circumstances, local government debt has become a grave concern in China.

In early June this year, the NAO said a follow-up audit found total debt of 3.85 trillion yuan owned by 36 local governments by the end of 2012, up 12.9 percent from 2010.

Illegitimate taxes can temporarily increase fiscal revenues of local governments but, in the long term, they harm enterprises and inhibit the establishment of a healthy tax system.

Source: Xinhua

China's Merchants Bank H1 net profit higher 12.39% YoY

China Merchants Bank said on Saturday that its net profit climbed 12.39 percent from one year earlier to 26.27 billion yuan (4.24 billion U.S. dollars) in the first half of the year.

The growth was sharply lower than that posted in the same period of last year as the country's financial institutions felt the pinch of a slowing economy.

The bank attributed the increase in profit to net interest income gains and higher commission fees, which grew 8.71 percent and 45.54 percent year on year, respectively.

The value of the bank's total assets amounted to 3.81 trillion yuan as of the end of June, up 11.81 percent from one year earlier.

Its non-performing loans ratio went up 0.1 percentage point from the beginning of the year to hit 0.71 percent at the end of June.

US Investment Banks positive over China´s economy in H2

Foreign-funded institutions are optimistic about China's economic development arguing the country will face less risk of a severe slowdown, the China Securities Journal reported Friday.

JP Morgan Chase & Co. said three factors will support China's future economic recovery. These include robust investment in infrastructure and stable private input in the real estate sector, improving global economic circumstances in the second half of 2013, and the lagged effect of credit growth in the last quarter of 2012 and the first three months of this year.

JP Morgan maintained the forecast of China's yearly economic growth as 7.6 percent in 2013, with a steady and mild recovery in the next several quarters, according to the article.

Credit rating agency Moody's said the worst situation has already passed as July statistics showed that China's economy was returning to normal status, but recovery will be at a slow pace.

Goldman Sachs Group said that the Chinese central government is striving to stabilize the market and sustain economic growth before the approaching third plenary session of the 18th CPC Central Committee, according to the report.

Source:  Xinhua