Mineral Commodity Summaries 2003 - Mineral Resources Program ...

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in some cases, were ascribable to fiscal problems that
were allowed to become monetary problems because
currencies were manipulated to manage debt. Africa
continued to provide the world with a variety of mineral
resources while suffering revolutions, coups, land grabs,
and the danger of starvation. Russia continued its
transition to a market economy and tried to increase
startup industry and output.
The common problem for much of the world seemed
to be a lack of committed investment capital to spark the
confidence that would rebuild productivity worldwide.
Compounding the overall economic problem was the
spectre of a war with Iraq. Major world economies and
some minor economies that have been unable to create
economic growth based on demand from their own
enterprises and consumers have been relying on the
U.S. consumer to sustain a demand for imports. The
U.S. consumer has been willing thus far, but a certain
proportion of the load has been charged to credit cards
and other small-loan sources, neither of which are
unlimited. Thus the strength of the U.S. economy has
diminished and now relies to a greater extent on the
collective purchasing power of its citizens. There were a
few brighter spots. China enjoyed solid growth in its
gross domestic product (GDP) during the previous year
and provided increasing demands for exports, which
included mineral commodities, from other Asian
countries. The Republic of Korea expanded its capital
markets to attract foreign portfolio investment.
Thailand’s recovery and growth was led by consumer
demand. Overall direction of the world economy
concerning growth or recession was unclear.
Review of National or Regional Economies
The decline of equities markets reduced the effect of
the United States as the source of economic strength
that the world had come to accept. “Irrational
exuberance,” particularly in the technological stocks,
was gradually replaced by uncertainty and caution. The
situation was not helped by a string of revelations of
financial irregularities at the highest levels of several
major corporations. This exacerbated the weakening of
confidence in the equities markets, which resulted in a
reduction or collapse of asset values throughout the
national economy. By generating a diminished
proportion of demand growth of the world economy, the
United States no longer provided unlimited time for other
countries to restructure their fiscal systems, to reduce
interest rates, and to adjust their trade arrangements to
participate in a global expansion. With the economy
already weakened by a recession, newly established
U.S. tariffs on a variety of steel products, which included
rolled steel and steel wire, were met by threats of
retaliation by the European Union (EU) and other
countries.
Because Japan has shown little progress in
confronting the problems that resulted from the collapse
of domestic real estate values more than a decade ago,
the domestic debt structure has been affected to the
point that banks have become overwhelmed by
nonperforming loans. Consequently, calling the loans
would result in a plethora of prominent bankruptcies with
consequent effects on labor, credit, and investment. Not
calling the loans, however, could put the separate
banks, if not the entire banking system, in jeopardy.
Fixing the banks would be important for several reasons
(Dvorak, 2002). Because bank lending is about equal to
total economic output, banks are the main funnel of cash
to Japanese business, a funnel that many believe is
jammed. So long as banks keep nonperforming
“deadbeat” corporate borrowers in business, other
healthier companies will not get the funding they need to
grow. The size of Japan’s loan-default problem is
thought to be so large that the banks are not able to
handle the losses on their own. Taking bad loans off
banks’ books will not solve the problem. Failing
borrowers must be liquidated or restructured and their
depreciated assets sold at market prices. Resistance to
doing this is based at least partly on the intricacies of
Japanese politics. Devaluing the yen might stimulate
exports and improve cash flow, but other Asian countries
would lose market share that they need to support their
own economic recoveries. As with the United States,
Japan needs consumer demand to help keep its
economy afloat, but much potential consumer
purchasing power is going into savings. The weakness
of the Japanese banking system could have an
important effect on the supply of minerals because
Japanese companies have been avid investors in
natural resources projects throughout the world for
several decades. The continuation of such investments
will be important to a world in which the development of
countries with large populations, most notably China and
India, will significantly increase the demand for minerals.
As the largest economy in the EU, Germany’s
economic strength or weakness is reflected by
fluctuations in the value of the euro versus that of other
currencies. After the decline of the U.S. equities
markets and investment shifting to EU countries, the
value of the euro climbed closer to the value of the
dollar, but Germany’s economy is being severely tested
by domestic fiscal and labor policies as well as natural
disasters. In August, a catastrophic flood inundated
much of the eastern provinces. In Saxony, for example,
180 bridges, 20% of the rail network, and 480 miles of
roads were destroyed or made unusable; Dresden, the
capital, was severely damaged. Physical rebuilding will
cost roughly $20 billion, with social costs more difficult to
reckon, and all at a time of stagnation of the German
economy (Kielinger, 2002). To repair the flood damage,
an anticipated tax cut was postponed, and corporate
taxes were increased. Germany has 10%
unemployment, and layoffs are at record highs for skilled
and unskilled workers. As in Japan, consumer savings
are up sharply. Perhaps least tractable is the burden of
labor and social entitlement costs that militate against
new hiring. The European Central Bank has seen no
urgency to cut its lending rates to stimulate investment.
In the meantime, European productivity loses ground.
Progress is being made, however, in adopting a uniform
set of financial standards for the EU, starting with a
single accounting standard for all listed companies in the
EU.
Late in 2001, the EU announced a significant
expansion; it has agreed to welcome 10 new
members—Bulgaria, Cyprus, Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Malta, Poland, Romania,
Slovakia, and Slovenia—by 2004. EU firms have
invested in the cement industries of Eastern European