Finance & Business World

Japan’s public pension fund, the world’s largest with about 120 trillion yen ($1.2 trillion) in reserves, said it may sell Japanese government bonds this year to cover payments to retirees.

The Government Pension Investment Fund, the biggest buyer of the nation’s government bonds, won’t receive more money from the state after it was made independent in 2006, President Takahiro Kawase said.

“The big change this year for us is that there is zero new money to invest, so we may need to be a seller in the market to meet the pension benefits,” Kawase, 67, said in an interview in Tokyo yesterday. “Our bond allocations are overweight, so we may need to reduce those a bit to raise cash.”

Sales by the fund could compound weakness in Japanese bonds, which declined during the last four weeks, the longest stretch of losses in a year, on speculation rising supply will deter investors from buying the securities. Selling into a falling market makes it more difficult for the fund to boost returns after posting a 5.7 trillion yen loss on investments for the three months ended Dec. 31.

Kawase declined to estimate the amount of bonds the fund, also known as GPIF, may sell.

Declining returns come as GPIF needs to improve its performance to cope with the world’s most rapidly aging population. The government estimates that a quarter of the nation may be drawing pensions by 2025.

The fund had 76 percent of its investments in domestic bonds, 9.5 percent in domestic equities, 7.8 percent in overseas bonds and 6 emergency cash loans.7 percent in international stocks as of the end of December, according to the latest figures released in February.

Yields Climb

Yields on 10-year Japanese government bonds last week climbed to the highest level since October on concern that Prime Minister Taro Aso will increase public spending to secure votes at an election he must call by Sept. 10.

Demand for debt also waned on signs the world’s second- largest economy is recovering after the Cabinet Office said the economy shrank last quarter by less than originally reported.

The yield of the benchmark 10-year bond fell 1.5 basis points to 1.485 percent at 11:05 a.m. in Tokyo today.

By contrast, the Nikkei 225 Stock Average closed above 10,000 points on June 12 for the first time in eight months. The benchmark has gained about 30 percent in the past three months.

Under former prime minister Junichiro Koizumi, the fund, then part of the Ministry of Health, Labor and Welfare, became an independent institution in April 2006.

Although formally independent, the government still dictates that GPIF follow a portfolio model set by state until the end of the current fiscal year through March 31. Domestic bonds must account for 67 percent of investments, local stocks 11 percent, foreign debt 8 percent and overseas shares 9 percent.

Kawase said this is close to previous allocations and a future model to be developed by GPIF is likely to be similar.

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U.K. homebuyers are clinching smaller discounts on property prices as the housing market stabilizes, the Royal Institution of Chartered Surveyors said.

Around 60 percent of surveyors questioned in May said that the gap between asking prices and selling prices narrowed, while it widened in a survey last August, London-based RICS said today. Homes are now selling at an average of 11 percent below the asking price.

The report adds to evidence that the British housing market has endured the worst of the crash in the biggest recession for a generation. RICS said last week the market may be “stabilizing” and mortgage lenders Halifax and Nationwide Building Society said house prices jumped in May.

Improved sentiment “is reflected in a narrowing in the gap between asking prices and selling prices,” Brigid O’Leary, an economist at RICS, said in an e-mailed statement classic car insurance. “The housing market will still be challenged by an uncertain economic backdrop, the threat or rising unemployment and continued restrictions on mortgage finance.”

U.K. home sellers raised asking prices in May by the most in more than a year, according to Rightmove Plc, the operator of Britain’s biggest property Web site.

RICS based the report on the responses to questions it occasionally adds to its monthly house-price survey that was last published on June 9.

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Federal Reserve Chairman Ben S. Bernanke’s success in stabilizing the financial system through unprecedented use of the central bank’s powers may come at the cost of Congress limiting some of that authority in the future.

As the credit crisis ebbs, U.S. lawmakers are increasingly questioning the actions the Fed took to counter the turmoil. Representatives Edolphus Towns of New York and Darrell Issa of California said yesterday they will call Bernanke to Capitol Hill to testify on his role in pushing through Bank of America Corp.’s purchase of Merrill Lynch & Co. last year.

Even House Financial Services Committee Chairman Barney Frank, who has praised Bernanke in the past, is rethinking proposals to make the Fed the sole overseer of risk in the financial system.

“Members of Congress are finally coming to terms with what the Fed can do,” said Dino Kos, a managing director at Portales Partners LLC in New York and former executive vice president at the New York Fed. “Central banks are able to make far-reaching decisions quickly without congressional approval.”

The result: The Fed may find itself subject to more congressional scrutiny than in the past and might even have some of its powers to intervene in the financial markets and the economy clipped. The fresh questions about the Fed’s steps may also affect Bernanke’s chances of securing a second term as Fed chief when his current four-year stint expires in January.

The White House, for its part, yesterday reiterated its backing for Bernanke as lawmakers queried Bank of America Chief Executive Officer Kenneth Lewis about the Merrill takeover.

Wielding Power

Over the past year, Bernanke has used emergency authority not deployed since the Great Depression to avert a collapse of the financial system.

He employed the Fed’s balance sheet to purchase more than $20 billion in risky assets from Bear Stearns Cos. to facilitate the firm’s merger with JPMorgan Chase & Co. He committed $83 billion to stabilize insurer American International Group Inc., and billions more in loss insurance against the portfolios of Citigroup Inc. and Bank of America.

The moves have won plaudits in the financial markets for the Fed and Bernanke. Only seven of 58 economists who responded to an e-mail survey this week by Bloomberg News said the 55- year-old chairman shouldn’t be reappointed.

“He’s done a very good job,” said Laurence Meyer, a former Fed governor who is now vice chairman of St. Louis-based Macroeconomic Advisers. “He’s responded aggressively and creatively to the financial crisis.”

Pressure on Lewis

Now, as financial markets stabilize, it’s that assertiveness and ingenuity that is being called into question on Capitol Hill.

The latest controversy is over the pressure that Bernanke and then-Treasury Secretary Henry Paulson put on Lewis to close the Merrill deal at the end of last year. Lewis, 62, told Congress yesterday he decided to proceed with the takeover after regulators said they might remove management.

“There was a whole lot of back-room dealing,” Towns, the Democratic chairman of the House Oversight Committee that heard Lewis’s testimony, said in a Bloomberg Television interview yesterday personal loans. “We plan to get to the bottom of that.”

Issa, the senior Republican on the committee, said in a separate interview that he hasn’t decided yet whether he thinks Bernanke should keep his job as a result of his actions.

“Bernanke will be hurt by the disclosure that he arm- twisted Lewis,” predicted David Jones, president of Denver- based DMJ Advisors and author of four books on the Fed.

Greater Oversight

Many lawmakers are already pushing for greater oversight of the central bank through broader audits of its operations by the Government Accountability Office. A bill that would remove limits on GAO audits of the Fed and direct the agency to issue a report by the end of next year was introduced by Representative Ron Paul, a Texas Republican, and has 208 cosponsors.

House Republicans on the Financial Services Committee, led by ranking member Spencer Bachus of Alabama, have also proposed stripping the Fed of its supervisory powers and limiting its emergency authority to give bailout loans.

Support for the Fed in Congress to become the leading systemic-risk regulator has also faded. The Treasury will propose that role for the Fed when the administration rolls out its proposals for financial-regulatory reform, people familiar with the matter said.

No Single Agency

“I don’t think one single agency like the FSA (Financial Services Authority) in England is the best way to go,” Frank, a Massachusetts Democrat, said yesterday in an interview.

Richard Shelby of Alabama, the ranking Republican on the Senate Banking Committee, said last month he has “great skepticism” over expanding the central bank’s authority.

The Fed has already responded to the congressional criticism by providing more information about its credit facilities. For the first time, the central bank on June 10 announced details on the number of borrowers and the ratings of securities pledged as collateral for loans. The data came in a new report to be released monthly.

Bernanke has also sought to portray the Fed’s expansive use of its powers to prop up the financial system as necessary for the good of the economy.

Main Street Man

“I come from Main Street,” he told CBS News’s “60 Minutes” television program in March, while standing in his hometown of Dillon, South Carolina. “I care about Wall Street for one reason and one reason only, because what happens on Wall Street matters to Main Street.”

After the show, Bernanke received a phone call from the White House. “I called him right after the 60 minutes interview to tell him I thought he did a great job,” Rahm Emanuel, President Barack Obama’s chief of staff, said in an interview.

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Chrysler and Italian automaker Fiat on Wednesday officially signed a strategic alliance brokered by the U.S. government, one day after the Supreme Court cleared the path for the deal.

Fiat will initially take a 20% stake in the company; its share can go up to 35% if it reaches certain fuel-efficiency goals.

"This is a very significant day … for the global automotive industry as a whole," said Sergio Marchionne, Fiat’s chief executive who was named the CEO of Chrysler on Wednesday. "From the very beginning, we have been adamant that this alliance must be a constructive and important step towards solving the problems impacting our industry."

Fiat spokesman Gualberto Ranieri said Marchionne will retain the title of CEO of both Chrysler and Fiat. Former Vice Chairman Jim Press was promoted to deputy CEO and special advisor; he will be the point man for Chrysler’s restructuring.

The new Chrysler: The deal established a new company, called Chrysler Group LLC, after the former Chrysler LLC sold nearly all of its assets to the new firm.

Chrysler Group is 55% owned by the United Auto Workers union. The U.S. government holds an 8% stake and Canada a 2% share. Fiat will not be allowed to take a majority stake until the new Chrysler pays back the $22.1 billion lent to it from the Treasury Department, including Wednesday’s $6.6 billion wire transfer.

Chrysler’s new board will consist of three Fiat directors, four representing the U.S. government, one from the UAW and one from the Canadian government. The company said it expects to name former Borden Chemical and Duracell chief executive as its chairman.

Marchionne said the Chrysler plants that had been shuttered as a result of the company’s bankruptcy process will be back up and running "soon," and the company will focus on developing fuel-efficient vehicles that will "become Chrysler’s hallmark going forward free credit report.com."

Jeremy Anwyl, CEO of Edmunds.com, said it will take 18 months to two years for Chrysler to begin unveiling smaller cars that have helped Fiat grow in Europe. Even after the Fiat integration is complete, Chrysler’s future path is uncertain.

"Much of Chrysler’s future success will depend on fuel prices and Americans’ appetite for small cars," said Anwyl. "But Chrysler has an opportunity to look for niches that have been under-explored, as they did in the past with the PT Cruiser and minivan market."

Not out of bankruptcy yet: Chrysler filed for bankruptcy on April 30, and the Obama administration hoped the process would take less than 60 days to complete. Though Chrysler sold its assets to Chrysler Group LLC, the old Chrysler will likely remain in bankruptcy for quite some time as it resolves its debts and liabilities.

"This is by no means the end of Chrysler’s bankruptcy case," said Ed Neiger, founder of Neiger LLP, a creditors’ rights and bankruptcy law firm. "So many issues still need to be resolved, which may take months or even years."

The U.S. Supreme Court on Tuesday cleared the way for the deal after delaying the sale pending review of a case brought by Indiana state pension funds challenging Chrysler’s bankruptcy. Those funds argued that they and other lenders deserved better treatment by the bankruptcy court.

Has the recession actually helped you? From lower debt payments to cheaper home prices, many people have benefited from the current downturn. If you’ve made out financially and want to share your story, please email steve.hargreaves@turner.com. 

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The dollar’s status as the world economy’s sole reserve currency may deteriorate, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.

“We may see complementary reserve currencies,” Roubini said at a conference today in Athens. While it’s “not going to happen overnight,” the development “will diminish the role of the dollar over time.”

The dollar’s status has come into question as leaders of Brazil, Russia, India and China discuss substituting other assets for their dollar holdings amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. China alone owns about $744 billion of U.S. Treasury bonds among its $2 trillion of foreign-exchange reserves.

Russian President Dmitry Medvedev last week renewed his call for consideration of a supranational currency to challenge the dollar. Chinese Central Bank Governor Zhou Xiaochuan said in March that the International Monetary Fund should create a “super-sovereign reserve currency.”

For the U.S., a change in the role of the dollar would risk increasing its financing costs and undermining its preeminent place in the world economy. The yield on the 10-year Treasury bond jumped to 3.9 percent this week from a low of 2.2 percent in January.

The dollar today weakened against the euro, falling 0.3 percent to $1.4019 per euro as of 10:37 a.m. in London. The currency has dropped 10 percent against the euro in the past three years.

Reassurance

Treasury Secretary Timothy Geithner sought to reassure investors last week during a trip to China, saying June 2 that Chinese officials expressed “justifiable confidence in the strength and resilience and dynamism of the American economy best payday advance.” Demand for record sales of U.S. debt will be sufficient to meet supply, he said.

The U.S. and China will hold economic talks in Washington in the week starting July 27. Premier Wen Jiabao in March called for the U.S. “to guarantee the safety of China’s assets.”

Roubini, 51, also said today that the U.S. can’t count on a strong economic recovery to restore its finances. The world economy will remain weak for the next two years, he said, predicting growth of 1 percent in the U.S. in 2010 and stagnation in Japan and Europe.

Weakness

“Recovery will be weak, anemic, subpar,” he said. Optimists are “getting ahead of the curve” and “advanced economies are going to grow at a very slow rate” after the recession is over, he added.

Larger emerging economies such as Russia and Brazil are also seeking more clout in the international financial system by pouring their reserves into IMF bonds, economists say.

Russia and Brazil have announced plans to buy $20 billion of bonds from the IMF and diversify foreign-currency reserves. China will purchase $50 billion and India may announce similar funding, Brazil’s Finance Minister Guido Mantega said.

Even so, those countries may struggle to elbow aside the dollar as long as they keep buying U.S. paper to hold down their own exchange rates and maintain trade surpluses.

The so-called BRICs countries increased foreign exchange reserves by $60 billion in May and accumulated dollars at the fastest pace since before the credit markets froze last September.

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Apple on Monday unveiled a new, faster iPhone, lowered the price on its existing model to $99, and released details of its revamped operating system.

But Apple (AAPL, Fortune 500) CEO Steve Jobs did not appear at the company’s World Wide Developers Conference in San Francisco, where the company presented its products.

Instead, Philip Schiller, the company’s senior vice president of worldwide product marketing, demonstrated the new iPhone 3G S, which can perform tasks up to 3.6 times faster than the previous second-generation iPhone, the iPhone 3G.

Apple shares, which were down as much as $5.24 earlier, were $2.07 lower at $142.60 after the presentation. They ended the day down 82 cents, at $143.85.

The iPhone will come in three sizes and prices. The new phone will have a 16-gigabyte model for $199 and a 32-gigibyte version for $299. Apple will continue to sell a second-generation iPhone 3G with 8 gigabytes of memory for $99 — the cheapest price yet for the device.

The prices are subsidized by AT&T (T, Fortune 500), the exclusive wireless carrier for the phone, for customers signing new contracts.

The new phone also comes with a 3-megapixel camera with video capturing and editing capabilities, improved battery life with up to 12 hours of talk time and 30 hours of audio, voice-command control by holding down the home button, and a built-in digital compass.

IPhone OS: Apple also demonstrated its new operating system for the iPhone, days after after competitor Palm (PALM) launched its much-ballyhooed Pre phone.

The new iPhone OS 3.0, which was first unveiled in March, will have cut, copy and paste capabilities for all applications, which iPhone users have long demanded. The operating system will also feature an undo gesture, which will undo the last action by shaking the phone.

"Apple’s in a different environment now than when they launched the iPhone, because there are multiple dealers with better offerings," said Edward Zabitzky, Apple analyst with ACI Research. "Apple really didn’t change the platform very much, but the net result is that they made themselves more competitive."

Fully integrated search, multimedia text messages and auto-fill for passwords have also been added to the iPhone, though the multimedia text messaging will not be available on AT&T (T, Fortune 500) until later in the summer health insurance plans.

The new OS will allow users to rent and purchase movies right from their phones using iTunes, and it will have parental control functionality.

Snow Leopard: Apple said its new operating system, Snow Leopard, will be available in September and can perform some tasks up to 90% faster than the current Leopard OS. Apple said Snow Leopard is more crash resistant than its predecessor and is 6GB smaller.

Rival Microsoft (MSFT, Fortune 500) has said its new Windows 7 operating system will be unveiled in October.

Snow Leopard will cost $29 to upgrade from Leopard, which is $100 less than Apple’s previous upgrade price.

Apple also unveiled a new, faster Safari Web browser. Safari 4 can track changes in many of the most frequently visited Web sites, and uses the iTunes "cover flow" interaction to scan through browser history.

The company redesigned its Quicktime video viewer and editor, giving users the ability to share video on YouTube, MobileMe or iTunes, which enables playback on the iPhone.

New MacBooks: The new 13-inch and 15-inch MacBook Pros will both showcase a 3.06 GHz Intel Core Duo processor, the fastest processor Apple has ever used.

Like the larger 17-inch MacBook Pro, the 15-inch will also feature a new lithium battery that gets up to seven hours of battery life and three times the recharges of most laptops.

The company announced the MacBook air will cost $1,499, a $700 price cut. A 13-inch MacBook Pro will cost $100 less at $1,199, and the the 15-inch and 17-inch MacBook Pros will be $300 less expensive at $1,699 and $2,499, respectively.

The company did not offer a low-priced netbook, as some had expected, but analysts cheered the move.

"They shouldn’t compete in the netbook world, because it would diminish the value of their brand," said Zabitzky. "It would be very foolish for Apple to go after short-term gains for long-term pain."

Jobs, who has been on leave because of illness, is expected to return to work at the end of the month.

– Fortune’s Philip Elmer-DeWitt contributed to this story 

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Indiana pension funds and consumer groups asked the U.S. Supreme Court Sunday to stop the sale of bankrupt automaker Chrysler LLC to a group led by Italian carmaker Fiat SpA while they challenge the deal.

The separate requests, which moved the legal battle to the nation’s highest court, were filed after a U.S. appeals court in New York approved Chrysler’s sale to a group led by Fiat, a union-aligned trust and the U.S. and Canadian governments.

The Chrysler case could set a precedent for General Motors Corp (GMGMQ), which is using a similar quick sale strategy in its bankruptcy in New York.

The appeals court late Friday stayed the closing of the sale until Monday afternoon, giving the pension funds and other opponents time over the weekend to ask the Supreme Court to block the sale while they appeal.

The three state pension funds, which hold about $42 million of Chrysler’s $6.9 billion in secured loans, argued the sale unlawfully rewarded unsecured creditors such as the union ahead of secured lenders.

"The need for the court to review the profound issues presented by Chrysler’s novel bankruptcy sale far outweighs the cost of delaying" a sale, lawyers for the pension funds and the Indiana attorney general said in seeking an immediate stay.

The pension and construction funds also argued the U.S. government, which kept Chrysler afloat with emergency loans before the automaker’s bankruptcy and financed its Chapter 11 filing, overstepped its legal authority by using bailout funds Congress intended for banks.

"The public is watching and needs to see that, particularly, when the system is under stress, the rule of law will be honored and an independent judiciary will properly scrutinize the actions of the massively powerful executive branch," the lawyers said online payday loan.

"The issues presented by this case are of immediate and enduring national significance," they said.

Without a stay from the Supreme Court, the sale will close on Monday, the lawyers said.

The pension funds and the consumer groups seeks to delay the sale so the Supreme Court can hear and then decide their challenges to the deal. The consumer organizations said they planned to file their appeal with the high court by Tuesday.

A federal bankruptcy judge in New York and the three-judge panel of the appeals court rejected the challenges in approving the sale.

Attorneys for Chrysler, the U.S. government and Fiat all have argued the sale should be allowed to go forward. Fiat can walk away from the deal if it does not close by June 15.

The requests to stay the deal were filed with Supreme Court Justice Ruth Bader Ginsburg, who has responsibility for such emergency matters from the New York-based appeals court.

Ginsburg could act on her own or could refer the matter to the full court. A stay from the full court would require the votes of five of the nine Supreme Court members. 

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Vietnam should phase out subsidies to bank lending as “rapid” credit growth threatens to stoke inflation, the World Bank said.

The central bank will probably bear at least 17 trillion dong ($956 million) in costs from subsidizing loans as part of the government’s stimulus measures, the World Bank said today in a report. Total lending under the program has reached 332 trillion dong, the State Bank of Vietnam said June 5.

“The interest-rate subsidy scheme, which played an important role in the initial phase of the stimulus policy, has lost its justification,” the World Bank said in a report written by economists led by Dinh Tuan Viet and Martin Rama. “Credit is growing rapidly again.”

Sharp credit growth, as well as increases in commodity prices, may drive up inflation, according to the agency. Economic growth probably bottomed in the first quarter, when gross domestic product expanded 3.1 percent, the World Bank said.

Total outstanding banking loans increased 15 percent through mid-May from December, Deputy Prime Minister Nguyen Sinh Hung told the National Assembly last month. Lower interest rates have helped revive the construction industry and domestic consumption, the Washington-based World Bank said.

“Once the figures for the first half of 2009 become available, it might be good to pause and reflect on whether sustaining economic activity should remain the single priority,” Viet and Rama wrote in the report, released at a conference in the Central Highlands city of Buon Ma Thuot.

Inflation Threat

The extra stimulus spending is “likely to have enduring macroeconomic effects in terms of greater inflation levels, increased budget deficits and increased pressure on the current- account and exchange rate,” said a separate report by the United Nations Development Program business cards design.

Inflation slowed in May to an annual rate of 5.6 percent, the lowest since 2004 and down from 28.3 percent in August.

“There are constraints on how much domestic finance can be raised, as shown by the recent experience with bond issuances,” the World Bank said. “There are also indications that upward price pressures are resurfacing.”

Vietnam’s State Treasury last week failed to sell 1 trillion dong of bonds. The lending subsidies are stifling appetite for Vietnamese bonds, HSBC Holdings Plc said last month.

The World Bank recommended Vietnam set a target for loan growth that would avoid quickening inflation. The government should also watch for an increase in bad debt, the agency said.

The bulk of the loans channeled under the program are from state-owned banks, the International Monetary Fund said in April.

“Policy lending is vulnerable to favoritism, may result in an inefficient allocation of resources and could eventually affect the quality of bank portfolios,” the World Bank said. “There are already some indications of an increase in the share of non-performing loans.”

Moody’s Investors Service last month said it was reviewing four Vietnamese banks, including the second-biggest by assets, for a downgrade, citing lower interest rates and the probability of a higher default rate.

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Sri Lanka may sell its currency should it gain too much as foreign aid and investments flow into the country after the end of a 26-year civil war, central bank governor Nivard Cabraal said.

“The currency could appreciate when large amounts of money come in,” Cabraal said in an interview in Colombo yesterday. “But we learnt some good lessons in 2005 post-tsunami that we shouldn’t allow these conditions to drive the economy by itself and there has to be some kind of intervention.”

Cabraal said excessive gains in the rupee could damage exports, which make up a third of the $32 billion economy and employ more than 2 million people in the island’s tea plantations and textile factories. Millions of dollars of aid after a tsunami hit Sri Lanka on Dec. 26, 2004, increased demand for the rupee, strengthening the currency by 5.4 percent the following month and halving export growth from a year earlier.

“The near-term pressure appears to be toward appreciation of the rupee,” said Anushka Shah, an economist at Citigroup Plc. in Mumbai. Buying dollars will also help “build foreign- exchange reserves.”

The Lankan rupee has gained 2.5 percent to 114.85 against the U.S. dollar since May 16, when President Mahinda Rajapaksa declared victory over the Liberation Tigers of Tamil Eelam, who have been fighting for a separate homeland for ethnic Tamils since 1983.

‘Very Comforting’

Sri Lanka’s benchmark stock index, the Colombo All-Share Index, has climbed 16 percent since the Tamil Tigers were defeated, taking its gains this year to 47 percent.

Cabraal said foreign-exchange reserves increased by about $120 million in the past two weeks as overseas investors snapped up local shares on optimism of political stability returning to the Indian Ocean island nation.

“That has been very comforting to the foreign exchange situation,” Cabraal said.

The nation’s reserves more than halved in the six months from September to $1.4 billion as the global recession hurt export earnings, prompting Sri Lanka to start talks with the International Monetary Fund in March for a $1.9 billion bailout.

Sri Lanka’s overseas sales dropped 7.8 percent in March from a year earlier, falling for the fourth straight month. That’s the longest period of declines since 2002.

Standard & Poor’s said May 21 the timing and implementation of the IMF loan was “uncertain” and cut the island’s rating outlook to negative from stable Guaranteed payday loans. S&P rates the nation’s long- term foreign currency debt at ‘B’, five levels below the investment grade.

IMF Loan

The IMF on May 21 said it is near an agreement to lend the money to Sri Lanka, clarifying its position a week after U.S. Secretary of State Hillary Clinton said the U.S. was reluctant to support an IMF loan to Sri Lanka given the escalation in the country’s civil war.

“The IMF loan has been delayed because some countries have expressed concerns which are of a non-economic nature,” Cabraal said. “The IMF charter doesn’t allow for such issues to be raised in the provision of structural loans - this will set a bad precedent.”

Now that the war is over, foreign direct investments into Sri Lanka could quadruple to as much as $4 billion a year by 2012, according to Dhammika Perera, chairman of the Board of Investment of Sri Lanka.

The last time Sri Lanka faced a huge inflow of foreign cash was when the tsunami struck the nation and killed more than 30,000 people.

Civil War

The challenges the inflows may pose this time include higher inflationary pressures, Cabraal said.

“For the moment, inflation is benign and we expect it to touch zero percent by June,” Cabraal said, adding that such a scenario would give him room to keep interest rates low and support economic expansion. He said the 3.3 percent increase in consumer prices in May from a year earlier, after a 2.9 percent gain in April, was a “blip.”

Cabraal said the central bank will this month revise the nation’s growth forecast for 2009, and may almost double it to 5 percent because of the increase in business confidence and as the liberation of rebel-occupied land boosts farm production.

“For a long time, every time someone spoke about Sri Lanka’s economy, the response was if only not for this war,” Cabraal said. “Today that has been removed and we have a tremendous new scope for economic development.”

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Inside General Motors’ iconic Detroit headquarters, scores of retail tenants are waiting to find out what happens to their own businesses in the wake of their landlord’s bankruptcy.

"When people aren’t sure of the company’s status, it puts you not in the best of moods," said Frank Taylor, president and CEO of Seldom Blues restaurant in the Renaissance Center.

The Ren Cen, which sits on the Detroit River, houses 4,300 General Motors (GM, Fortune 500) employees, the Detroit Marriott hotel, various professional offices and several dozen small businesses that serve the tenants. GM moved its global headquarters into the Renaissance Center in 1996 and spent $500 million to revamp the 5.5-million square foot complex, which began construction in 1973.

Taylor said GM’s troubles have made some people within the Ren Cen skittish about spending money for a meal at his sit-down restaurant, which features American cuisine and jazz music. "I’ve never had to work so hard in my life to fight for customers," said Taylor, who employs 65 workers at Seldom Blues.

Seldom Blues opened in 2004 and had no trouble attracting customers in its early years, Taylor says. Last year, it did $4 million in sales. But business has become more difficult as GM lurched toward bankruptcy.

"It’s not like I saw it when we first moved in," Taylor said of GM’s mounting woes. "We had a lot more people coming in for lunch on a daily basis. The mood has taken a total turnaround here."

To combat the downturn, Seldom Blues began offering "Southern Selections" specials last month to attract diners who are skittish about splurging for a meal. The specials, featuring $10 lunches and $19 dinners, have been popular, Taylor said.

GM’s struggles also have also cut into business at Ashley’s Flowers. Owner Ashley Alexander said sales at her floral shop are down about 30% from last year.

"The nature of our business puts us in proximity to people’s personal lives," said Alexander, who has six employees at her two downtown stores. "People are nervous. They don’t know what’s about to happen to their jobs."

Alexander is waiting to see what GM does next before deciding on the future of Ashley’s Flowers in the Renaissance Center. Everything is up in the air: While GM employees nervous about their jobs clamp down on their consumer spending in the Ren Center, GM CEO Fritz Henderson hasn’t ruled out the possibility that GM could leave its sprawling headquarters payday loan for bad credit.

"I think we have to wait to hear their decisions, and see the fallout from their decisions," Alexander said.

Not all small businesses at the Ren Cen are hurting. Pure Detroit, a clothing store that features Detroit-centric and GM-licensed products, has seen a 50% increase in sales since moving to a new site within the building a year ago.

Pure Detroit’s new location is just down the hall from its previous spot, which opened in 2004. But co-owner Kevin Borsay said the new store has the benefit of being near escalators and the Marriott hotel, which has boosted foot traffic for the retailer.

"I think the move and the revamping of the store overcame the negatives of the economic climate," said Borsay, who has two employees at his Renaissance Center store.

Borsay said he’s noticed that shoppers — about 80% of them are GM workers, GM visitors or Marriott (MAR, Fortune 500) guests — are buying lower-priced items. Still, the Renaissance Center continues to be the best performing store of Pure Detroit’s three shops in the city.

"There’s a lot of good points about doing retail in the Ren Cen," Borsay said.

Tony Bahu, president and owner of BonBons Candy and Godiva Chocolatier, agrees. Though he declined to discuss sales, he said last year was a record year for BonBons, and he expects to sales to grow in 2009 as well.

He attributes the store’s growth to the crowds that come for festivals and outdoor events at GM Plaza & Promenade, a gathering place on Detroit’s riverfront that sits across the street from BonBons’ store. Business has been good enough at the Ren Cen that Bahu said he hopes to extend his lease.

Bahu believes GM will become a stronger company through its restructuring, and said many of his customers are also bullish about GM’s future.

"It seems like there’s still people who believe highly in GM and believe that, no matter what happens, they’re going to pull through," Bahu said.

Each of the businesses said they believe GM is doing the best it can to survive, and so are they — no matter what GM’s fate at the Renaissance Center.

"We’re hopeful," Alexander said. "The world doesn’t revolve around GM." 

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