U.S. health cost growth slowed in 2011 but with signs of pickup

WASHINGTON (Reuters) - U.S. healthcare spending rose at a historically low rate of 3.9 percent for the third consecutive year in 2011, but showed underlying signs of acceleration as the economy recovered from recession, the Obama administration said on Monday.
The report, released by the U.S. Centers for Medicare and Medicaid Services and published in the journal Health Affairs, said the sprawling national healthcare system totaled $2.7 trillion, or $8,680 per person. It accounted for 17.9 percent of gross domestic product, a level that has been steady since 2009.
The findings showed a rebound in personal healthcare spending that benefited physicians, clinics and drugmakers. Rising job and income growth helped stabilize the private insurance market after years of enrollment losses.
Hospital spending growth slowed. The growth of the Medicaid program for the poor dropped by more than half to 2.5 percent, as job growth slowed the rate of enrollment and cash-strapped states moved to contain costs by reducing benefits and provider payments, tightening eligibility and increasing costs to beneficiaries.
Medicare, the widely used program for the elderly and disabled, grew 6.2 percent with a rise in doctor visits and a one-time change in payment rates for skilled nursing facilities. Overall, the federal government's share of healthcare spending swelled to 28 percent in 2011, from 23 percent in 2010.
The figures provide an official snapshot of the scale and pace of healthcare spending as the U.S. government prepares for a dramatic expansion in health coverage under President Barack Obama's healthcare reform law, which is expected to boost spending and costs beginning in 2014 as more than 30 million uninsured Americans enter the system.
Rising healthcare costs are blamed by some for undercutting U.S. economic competitiveness as well as job and wage growth, and have begun to attract new attention from the administration and outside experts. The 3.9 percent advance in 2011 healthcare spending outstripped the 2.1 percent GDP inflation rate, a broad measure that takes in price changes across the economy.
2011 is the most recent year for which figures are available.
THE FUTURE IS NOT THE PAST
"The more coverage you have, the more services you use ... when you get as many as 30 million more people with coverage, you would expect them to use many more services and you would expect a higher cost," said Richard Foster, chief actuary at CMS, part of the U.S. Department of Health and Human Services.
"There is a growing amount of evidence that healthcare providers are getting it - getting that the future can't be the same way as the past," he added.
According to official administration projections, healthcare spending will surge by 7.4 percent to represent 18.2 percent of GDP in 2014, as millions of people acquire coverage through new subsidized online marketplaces and an expansion of Medicaid under the Patient Protection and Affordable Care Act.
But CMS analysts also say the law is expected to put downward pressure on spending later in the decade.
The results for 2011 were generally in line with forecasts issued last year. But the authors of Monday's report cast a question mark over future expectations, noting that economic, income and job growth in 2011 were less than might have been expected during an economic recovery.
"This fact raises questions about whether the near future will hold the type of rebound in healthcare spending typically seen a few years after a downturn," they wrote.
Monday's report showed Obama's reform law having a minimal effect on healthcare spending in 2011, although a new rule allowing adult children to remain on their parents' insurance plans until they turn 26 helped the private insurance market rebound by adding 2.7 million new beneficiaries to the rolls.
The law, known to Republican critics as "Obamacare" - a nickname the White House has also come to embrace - slowed the rate of growth in prescription drug prices for Medicare and Medicaid beneficiaries through extended rebates, discounts for senior citizens.
Spending growth for physician and clinical services climbed to 4.3 percent to $541.4 billion, and hospital spending growth dipped to the same rate for a total of $850.6 billion.
Prescription drug spending in retail outlets climbed 2.9 percent to $263 billion, versus a historically low growth rate of 0.4 percent in 2010.
Private insurers saw premiums increase 3.8 percent, partly as a result of the spread of low-premium, high-deductible insurance plans.
Out-of-pocket spending for consumers climbed 2.8 percent, accelerating from 2.1 percent in 2010.

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UK stores suffer lacklustre Christmas sales - BRC

LONDON (Reuters) - British retailers suffered from lacklustre sales last month, as a tough economy limited consumer spending in the run-up to Christmas when many stores make most of their profits, a leading trade body said on Tuesday.
The British Retail Consortium said the total value of goods sold was up just 1.5 percent from December 2011, while on a like-for-like basis which excludes new floorspace sales were only 0.3 percent higher.
With annual consumer price inflation currently running at 2.7 percent, this suggests that stores sold less in real terms, increasing the chance that Britain's economy slipped back into contraction in the last three months of 2012.
"This rather underwhelming result brings a year of minimal sales growth to a close," said Helen Dickinson, the BRC's new director general.
So far, 2013 has showed few signs of being any better than 2012, and a greater number of stores were at risk of closure, she added.
"Retailers will be hoping that a continuing boost from post-Christmas sales events strengthens January's figures, but unfortunately there are few signs that their sense of 'running fast to stand still' is likely to ease off any time soon."
The BRC figures contrast with a more upbeat survey from the British Chambers of Commerce for the economy as a whole, also released on Tuesday, which showed a broad rise in sentiment across businesses in the last three months of 2012.
According to the BRC, online sales put in the strongest performance, showing annual growth of almost 18 percent, as one of the wettest Decembers on record kept shoppers at home.
Overall, December's figures marked a slowdown both from November, when sales grew 1.8 percent in total and 0.4 on a like-for-like basis, and from December 2011, when there was 4.1 percent total sales growth.
The rise in December 2011 in part represented a rebound from December 2010, when heavy snow depressed sales.
British retailers themselves have reported mixed fortunes so far, with upmarket department stores John Lewis and House of Fraser posting solid sales growth, while supermarket chain Wm Morrison - which lacks an online operation - reported a fall in underlying sales.

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Asia stocks down ahead of US corporate earnings

 Asian stock markets headed lower Tuesday as investors turned cautious before U.S. earnings season kicks off this week.
Investors will get a feel for corporate America's outlook as earnings reports start coming. Aluminum producer Alcoa Inc. will launch the reporting season for the fourth quarter of 2012 on Tuesday after U.S. markets close. Events during the quarter such as Superstorm Sandy, the presidential election, and worries about the narrowly avoided "fiscal cliff" could lead to some unexpected results.
Japan's Nikkei 225 index fell 0.5 percent to 10,548.56 as the yen crept upward against the U.S. dollar. The rebound in the yen led to some investors to sell export shares that had surged as the currency weakened in recent weeks. Isuzu Motors Co. fell 3 percent while Mazda Motor Corp. lost 3.9 percent.
Hong Kong's Hang Seng fell 0.4 percent to 23,239.64. South Korea's Kospi lost 0.4 percent to 2,003.35 and Australia's S&P/ASX 200 shed 0.1 percent to 4,712.70. Benchmarks in Singapore, Taiwan and Thailand fell, while Indonesia and the Philippines rose. Mainland Chinese shares were mixed.
Major indexes surged last week after U.S. lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the fiscal cliff. The deal, however, remains incomplete. Politicians will face another deadline in two months to agree on more spending cuts.
"The looming budget battle in the US has also prompted some hesitancy to buy risk assets," said analysts at Credit Agricole CIB in Hong Kong.
Benchmark crude oil contract for February delivery was up 9 cents to $93.27 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 10 cents to close at $93.19 a barrel on the Nymex on Monday.
In currencies, the euro rose to $1.3129 from $1.3112 in New York late Monday. The dollar fell to 87.65 yen from 87.84 yen.

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AP Interview: Palestinian PM warns of cash crisis

The Palestinian self-rule government is in "extreme jeopardy" because of an unprecedented financial crisis, largely because Arab countries have failed to send hundreds of millions of dollars in promised aid, the Palestinian prime minister said Sunday.
The cash crunch has gradually worsened in recent years, and the Palestinian Authority now has reached the point of not being able to pay the salaries of about 150,000 government employees, Salam Fayyad told The Associated Press. The number of Palestinian poor is bound to quickly double to 50 percent of the population of roughly 4 million if the crisis continues, he said.
"The status quo is not sustainable," Fayyad said in an interview at his West Bank office.
The Palestinian Authority, set up two decades ago as part of interim peace deals with Israel, is on the "verge of being completely incapacitated," Fayyad warned. Only a year ago, he said he expected to make great strides in weaning his people off foreign aid.
The self-rule government was meant to be temporary and replaced by a state of Palestine, which was to be established through negotiations with Israel. However, those talks repeatedly broke down, and for the past four years the two sides have been unable to agree on the terms of renewing the negotiations.
In late November, Palestinian President Mahmoud Abbas won U.N. recognition of a state of Palestine in the West Bank, Gaza and east Jerusalem, overriding Israeli objections to the largely symbolic step. On Sunday, Abbas asked his West Bank-based government to prepare for replacing the words "Palestinian Authority" with "State of Palestine" in all public documents, including ID cards, driving licenses and passports.
Israeli officials declined comment, including on whether Israel would prevent Palestinians with new ID cards and passports from crossing borders and checkpoints.
The U.N. bid gave the Palestinians new diplomatic leverage by affirming the borders of a future state of Palestine in lands Israel captured in 1967, but changed little in the day-to-day lives of Palestinians.
In an apparent response to the U.N. move, Israel in December halted its monthly transfer of about $100 million in tax rebates it collects on behalf of the Palestinians. That sum amounts to about one-third of the monthly operating costs of the Palestinian Authority. Fayyad said he now only takes in about $50 million a month in revenues.
Israel has said it used the withheld money to settle Palestinian Authority debt to Israeli companies, and it's not clear whether the transfers will resume. In the meantime, the 22-nation Arab League has not kept a promise to make up for the funds Israel withholds, Fayyad said.
The head of the League has written to member states, urging them to pay the $100 million, Mohammed Sobeih, a league official, said Sunday.
Fayyad pinned most of the blame for the Palestinian Authority's financial troubles on delinquent Arab donors, saying they are "not fulfilling their pledge of support in accordance with Arab League resolutions."
European countries kept their aid commitments, he said.
Some $200 million in U.S. aid were held up by Congress last year, a sum the Obama administration hopes to deliver to the Palestinians this year, along with an additional $250 million in aid. "We have made it clear that we think the money should go forward," State Department spokeswoman Victoria Nuland said last week.
The Palestinian Authority has relied heavily on foreign aid since the outbreak of the second Palestinian uprising in 2000. It has received hundreds of millions of dollars each year since then, but has struggled to wean itself off foreign support, in part because harsh Israeli restrictions on Palestinian trade and movement have hurt economic growth.
Only a year ago, Fayyad said he hoped to increase local revenues, including through spending cuts and higher taxes for wealthier Palestinians. He even set 2013 as a target for financing the government's day-to-day operations with local revenues. However, his tax plan was met by widespread protests and modest economic growth slowed.
Now he's not even sure how he will cover the government payroll, his heftiest monthly budget item.
The Palestinian Authority employs some 150,000 people, including civil servants and members of the security forces. About 60,000 live in Gaza and served under Abbas before the Hamas takeover, but continue to draw salaries even though they've since been replaced by Hamas loyalists.
In recent months, the government has paid salaries in installments.
Fayyad said he managed to pay half the November salaries by getting another bank loan, using as collateral Arab League promises of future support. He said he can't pay the rest of the November salaries, let alone start thinking about December wages.
The Palestinian Authority already owes local banks more than $1.3 billion and can't get more loans. It also owes hundreds of millions of dollars to private businesses, including suppliers to hospitals, some of whom have stopped doing business with the government.
The crisis "has put us in extreme jeopardy," Fayyad said.
The malaise has sparked growing protests. Civil servants have held warning strikes. On Sunday, their union called for four days of strikes over the next two weeks.
Walid Abu Muhsin, a government employee who makes 4,000 shekels ($1,000) a month, said he received only $500 in November, and his bank deducted 50 percent of that for car and home loans, leaving the father of three with $250 to live on.
"I am spending from the few savings I have," he said.
Fayyad said he's thought about quitting, but won't leave during a crisis. He was appointed by Abbas in 2007, after the Islamic militant Hamas seized Gaza by force. Hamas has received money from Iran, while Qatar last year pledged some $400 million for housing projects in Gaza.
Repeated attempts to heal the Palestinian rift have failed. Meanwhile, recent surveys suggest support for Hamas is on the rise, in part because it extracted what were perceived as Israeli concessions after a round of heavy cross-border fighting late last year.
The failure of the Palestinian Authority to deliver on many of its promises, Fayyad said, "has produced a reality of a doctrinal win" for Hamas.
He said the international community must decide whether it wants the Palestinian Authority, once seen as key to any Mideast peace deal, to survive.
"A weak Palestinian Authority cannot be an effective player if you are all the time preoccupied with making ends meet," he said.

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Defiant Assad pledges to continue fighting

A defiant Syrian President Bashar Assad rallied a chanting and cheering crowd Sunday to fight the uprising against his authoritarian rule, dismissing any chance of dialogue with "murderous criminals" that he blames for nearly two years of violence that has left 60,000 dead.
In his first public speech in six months, Assad laid out terms for a peace plan that keeps himself in power, ignoring international demands to step down and pledging to continue the battle "as long as there is one terrorist left" in Syria.
"What we started will not stop," he said, standing at a lectern on stage at the regal Opera House in central Damascus — a sign by the besieged leader that he sees no need to hide or compromise even with the violent civil war closing in on his seat of power in the capital.
The theater was packed with his supporters who interrupted the speech with applause, cheers and occasional fist-waving chants, including "God, Bashar and Syria!"
The overtures that Assad offered — a national reconciliation conference, elections and a new constitution — were reminiscent of symbolic changes and concessions offered previously in the uprising that began in March 2011. Those were rejected at the time as too little, too late.
The government last year adopted a constitution that theoretically allows political parties to compete with Assad's ruling Baath Party. It carried out parliamentary elections that were boycotted by his opponents.
Assad demanded that regional and Western countries must stop funding and arming the rebels trying to overthrow him.
"We never rejected a political solution ... but with whom should we talk? With those who have an extremist ideology, who only understand the language of terrorism? "Or should we with negotiate puppets whom the West brought?" he asked.
"We negotiate with the master, not with the slave," he answered.
As in previous speeches and interviews, he clung to the view that the crisis was a foreign-backed plot and not an uprising against him and his family's decades-long rule.
"Is this a revolution and are these revolutionaries? By God, I say they are a bunch of criminals," he said.
He stressed the presence of religious extremists among those fighting in Syria, calling them "terrorists who carry the ideology of al-Qaida" and "servants who know nothing but the language of slaughter."
He said the fighters sought to transform the country into a "jihad land."
Although he put up a defiant front, Assad laid out the grim reality of the violence, and he spoke in front of a collage of photos of what appeared to be Syrians killed in the fighting.
"We are now in a state of war in every sense of the word," Assad said, "a war that targets Syria using a handful of Syrians and many foreigners. It is a war to defend the nation."
He said Syria will take advice but not dictates from anyone — a reference to outside powers calling on him to step down.
The speech, which was denounced by the West, including the U.S. and Britain, came amid stepped-up international efforts for a peaceful way out of the Syrian conflict. Previous efforts have failed to stem the bloodshed.
U.N.-Arab League envoy Lakhdar Brahimi met Assad last month to push for a peace plan for Syria based on a plan first presented in June at an international conference in Geneva. The proposal calls for an open-ended cease-fire and the formation of a transitional government until new elections can be held and a new constitution drafted.
The opposition swiftly rejected Assad's proposals. Those fighting to topple the regime have repeatedly said they will accept nothing less than his departure, dismissing any kind of settlement that leaves him in the picture.
"It is an excellent initiative that is only missing one crucial thing: His resignation," said Kamal Labwani, a veteran dissident and member of the opposition's Syrian National Coalition umbrella group.
"All what he is proposing will happen automatically, but only after he steps down," Labwani told The Associated Press by telephone from Sweden.
Haitham Maleh, an opposition figure in Turkey, said Assad was offering the initiative because he feels increasingly besieged by advancing rebels.
"How could he expect us to converse with a criminal, a killer, a man who does not abide by the law?" he asked.
Assad has spoken only on rare occasions since the uprising began, and Sunday's speech was his first since June. His last public comments came in an interview in November to Russian TV in which he vowed to "live and die" in Syria.
On Sunday, he seemed equally confident in the ability of his troops to crush the rebellion despite the recent fighting in Damascus.
"He did not come across as a leader under siege, nor as a leader whose regime is on the verge of collapse," said Fawaz A. Gerges, head of the Middle East Center at the London School of Economics.
"He seemed determined that any political settlement must come on his terms, linking those terms with the Syrian national interest as if they are inseparable," he said.
U.S. State Department spokeswoman Victoria Nuland said in a statement that Assad's speech was "yet another attempt by the regime to cling to power and does nothing to advance the Syrian people's goal of a political transition."
British Foreign Secretary William Hague called Assad's speech "beyond hypocritical." In a message posted on his official Twitter feed, Hague said "empty promises of reform fool no one."
European Union foreign policy chief Catherine Ashton's office said in a statement that the bloc will "look carefully if there is anything new in the speech, but we maintain our position that Assad has to step aside and allow for a political transition."
Foreign Minister Ahmet Davutoglu of Turkey said the speech was filled with "empty promises" and repetitive pledges of reform by a leader out of touch with the Syrian people.
"It seems (Assad) has shut himself in his room, and for months has read intelligence reports that are presented to him by those trying to win his favor," Davutoglu told reporters in the Aegean port city of Izmir on Sunday.
Turkey is a former ally of Damascus, and while Ankara first backed Assad after the uprising erupted, it turned against the regime after its violent crackdown on dissent.
Observers said the speech signaled the violence would continue indefinitely as long as both sides lacked the ability to score a victory on the battlefield.
Randa Slim, a research fellow at the New America Foundation in Washington, said Assad's made clear he has no intention of making way for a political transition.
"He sees himself rather as an orchestrator and arbiter of a process to be organized under his control," she said.
The Internet was cut in many parts of Damascus ahead of the address, apparently for security reasons, and some streets were closed.
At the end of his speech, loyalists shouted: "With our blood and souls we redeem you, Bashar!"
As he was leaving the hall, supporters pushed forward and swarmed around him to try to talk to him. Nervous security guards tried to push them away.
Many shouted "Shabiha forever!" — referring to the armed regime loyalists whom rebels have blamed for sectarian killings.
Amid the melee, Assad quickly shook hands with some of them and blew kisses to others.

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Analysis: Air assaults raise doubts about Myanmar's reformist rulers

BANGKOK (Reuters) - Unprecedented aerial attacks on ethnic Kachin rebels by Myanmar's military have raised doubts about whether the retired generals in a government hailed for its reforms have really changed their harsh old ways.
Assurances by the quasi-civilian government that it wants a peace deal with the Kachin Independence Army (KIA) and that the military is exercising "maximum restraint" are starting to ring hollow as jets and helicopter gunships take to the air.
The 18-month conflict is back under the spotlight, with U.N. Secretary-General Ban Ki-moon voicing concern last week about reports of air strikes in Kachin State. The U.S. State Department said they were "extremely troubling".
Western countries that suspended most sanctions as a reward for political, social and economic reforms after the new government took power in March 2011 are now in a tricky spot.
Questions have been raised about the sincerity, or authority, of the former soldiers who had convinced them of their "irreversible" course of liberalization when they ended nearly half a century of military rule.
"Skeptics had warned the international community not to get too caught up in all the excitement of the changes going on," said Christopher Roberts, a Myanmar expert at the Australia National University.
"This escalation is enough to spark a debate on whether sanctions were removed too soon."
The United Nations has repeatedly demanded humanitarian access to an estimated 70,000 people displaced by fighting that resurfaced in June 2011, ending a 17-year truce agreed after decades of bloody battles. The number of casualties is unknown, but they are estimated to be high on both sides.
The KIA says it is under attack in seven areas and that the military wants to seize its headquarters in Laiza, close to the Chinese border. It says the military has been using air strikes since December 24 to try to weaken the rebels and force them to the negotiating table -- claims the government strenuously denies.
Despite 11 rounds of peace talks, the KIA is the only ethnic minority army that has not agreed to a ceasefire with the government and won't stand down until it is offered a political deal. It says the current, army-drafted constitution won't guarantee their rights and wants it changed first.
BITTER HISTORY
State peace negotiators have a three-stage plan starting with a truce before any political dialogue, followed by a parliamentary congress in which permanent deals offering unspecified guarantees and concessions are signed.
The two sides have a bitter history and deep distrust. Political leaders are determined to ensure their people are treated fairly and get a share of the vast mineral resources they have long accused the military of looting.
"It's difficult to cease fighting while not knowing what will happen after," said KIA vice commander-in-chief, Major-General Gun Maw. "What should we do after a ceasefire? That's the answer we're looking for," he told the 7-Day News journal.
The decision to use air power against ethnic militias, a tactic unheard of even under military rule, runs counter to reformist President Thein Sein's assurances that troops were acting only in self defense.
Official Myanmar newspapers have said air support was used on December 30 to thwart KIA fighters who had occupied a hill and were attacking logistics units of the Tatmadaw, as Myanmar's military is known.
The former junta heavyweight has twice publicly ordered the military chief, a protégé of reviled former dictator Than Shwe, to ensure troops don't launch any offensives. The recent escalation has raised questions about him that are almost impossible to answer in a country where the inner workings of the leadership in Naypyitaw remain highly secretive.
Zaw Htay, a president's office spokesman, said on Friday troops were responding defensively to KIA aggression and destruction of transport and power infrastructure and the army was committed to protecting the civilian population.
Nobel laureate Aung San Suu Kyi, now a lawmaker, has always urged a cautious approach to the changes. While lauding Thein Sein for his leadership, she has repeatedly said the role the military plays in Myanmar will dictate the country's future.
Thein Sein and his loyalists appear to be driving the reforms but the extent to which he controls the Tatmadaw remains unclear. Diplomats and analysts say either he is insincere about peace or the military is acting independently.
"He's just Mr. Nice Guy, the human face to the world and he has no authority to tell the army what to do," said Bertil Lintner, a journalist, author and expert on Myanmar's ethnic conflicts, who recently visited Kachin State
"Fundamentally, nothing has changed, it's the same people in power, they're just much more clever at managing things."
A more aggressive approach to the conflict could be embarrassing for the United States, which welcomed Thein Sein to Washington in September and has offered support to try to reform Myanmar's military, including an invitation to observe the annual U.S.-led Cobra Gold exercises in Thailand.
DOMINANT MILITARY
Any indication the military was pulling rank over the civilian government might concern foreign firms planning to invest in a country with a power structure dominated by retired or serving soldiers and plagued by vested interests.
The military remains a major player in many industries through its Myanma Economic Holdings Ltd and the Myanma Economic Corporation, both blacklisted by the U.S. Treasury Department. Those firms, or their close business allies, might not take kindly to competition.
The international community has been guarded in its criticism, wary not to upset Myanmar's notoriously thin-skinned rulers and drive them back into China's orbit. China was Myanmar's lifeline when sanctions were in place and once backed the KIA.
An alliance of Kachin groups issued an open letter on Friday urging the International Crisis Group to reconsider presenting Thein Sein with its highest peace award, accusing his office of a "duplicitous strategy" and "outright lies" that have undermined his credibility.
Experts say it's too soon to tell how Western powers would respond in the coming months, but confidence in Thein Sein could start to slow if the military follows its hard line against the KIA and risks killing off the peace process altogether.
"It doesn't look good for Thein Sein now and this (escalation) may not have been his intention," said Roberts.
"It's unlikely to threaten the broader reforms going on, but could damage the momentum and it'll certainly dampen the enthusiasm about progress.

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Egypt's Mursi to meet IMF aide on $4.8bln loan request: newspaper

CAIRO (Reuters) - A senior official in the International Monetary Fund (IMF) will meet Egyptian President and other top officials on Monday to discuss Cairo's request for a $4.8 billion loan, a major state-run Egyptian newspaper reported on Saturday.
The IMF loan is seen as crucial to easing Egypt's budget deficit and an economic slump caused by the turmoil that followed the popular uprising that ousted autocratic president Hosni Mubarak in February 2011.
"Egyptian President Mohamed Mursi will receive on the day after tomorrow Masood Ahmed, the IMF director for the Middle East and Central Asia... and it is expected that the meeting will include talks about the IMF's loan to Egypt," the Akhbar Al-Youm daily reported.
It said Masood would also meet Prime Minister Hisham Kandil, some ministers and the central bank governor. Officials from the cabinet, presidency and IMF were not immediately available to comment on the report.
Egypt's currency has lost about 10 percent against the dollar since the start of 2011. But about a third of that plunge has come in the last week alone, since the central bank began auctioning $75 million a day out of its reserves on December 30.
The pound slid further on Thursday at the central bank's fourth auction of foreign currency, with $74.9 million sold to banks at a cut-off price of 6.386 pounds, weaker than Wednesday's 6.351 to the dollar.
The cabinet spokesman said on Thursday that an IMF mission would visit in January to discuss the loan deal, which was postponed last month at Cairo's behest because of violent anti-Mursi protests raging at the time.
The IMF said last week that it welcomed steps Egypt had taken to stop a drain on its international reserves, which had driven the Egyptian pound down to record lows.
Egypt's budget deficit in the year to end-June 2013 could widen by 50 percent from the original forecast made in July, according to a figure released by the planning minister last Monday.

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Merkel highlights economy in German election year

BERLIN (AP) — Chancellor Angela Merkel highlighted Germany's economic strength as she kicked off campaigning Saturday for an important state vote that comes months before national elections, and she brushed aside worries about the weakness of her party's coalition partner.
Merkel's center-right party faces a tough battle to extend its 10-year hold on Lower Saxony state, a northwestern region of 8 million people, in the Jan. 20 election there. Polls suggest the center-left opposition has a good chance of winning, which would give it a significant boost ahead of September national elections in which Merkel will seek a third term.
Merkel made clear that her Christian Democrats will make "economic competence, together with jobs — and jobs that are well-qualified and fairly paid," along with economic strength, a keystone of this year's campaigns. She identified opposition plans for tax increases as one battleground.
"We believe that we do, of course, need income for the state, so we are not talking about tax cuts at this point," Merkel said at a televised news conference after her party's leadership met in Wilhelmshaven, a port city in Lower Saxony.
"But we believe that tax increases ... are not good for current economic developments, for medium-sized companies in particular but also for big companies," she added.
The number of Germans out of work averaged just under 2.9 million last year, the lowest since 1991. Germany's jobless rate of less than 7 percent contrasts with figures well over 20 percent in troubled eurozone partners Greece and Spain.
The strong German economy, and Merkel's hard-nosed management of Europe's debt crisis, have helped keep her popularity high and her party ahead in polls.
But the weakness of the pro-market Free Democratic Party, her junior coalition partner, means that her center-right alliance lacks a majority in surveys. The party, which campaigned at Germany's last election for tax cuts that it failed to obtain, has taken much of the blame for frequent coalition squabbling.
In Lower Saxony, polls show the FDP short of the 5 percent support needed to stay in the state legislature, which endangers popular conservative governor David McAllister's chances of keeping his job.
However, Merkel said she is "very optimistic that the (Free Democrats) will, on their own strength, with their ideas and their share in the success of the work of both the Lower Saxony state government and the federal government, be able to convince people."
The Lower Saxony election follows a rough start for Merkel's center-left challenger in the national elections, former Finance Minister Peer Steinbrueck.
He drew criticism this week for saying the chancellor earns too little and that Merkel has an advantage because she's a woman — adding to earlier controversy over his high earnings from public speaking. Merkel coolly dismissed a question about her challenger's performance.
"To be honest, I take care of my own performance and I'm very satisfied with that," she said. "The rest is for others to comment on.

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Obama says U.S. can't afford more showdowns over debt, deficits

HONOLULU (Reuters) - Fresh from the long legislative fight to prevent a "fiscal cliff" of tax hikes and spending cuts, President Barack Obama warned on Saturday that the United States could not afford further budget showdowns this year or in the future.
Obama, who returned to Hawaii for a family vacation shortly after the House of Representatives passed a compromise bill on Tuesday, said in his weekly radio and Internet address that the new law was just one step toward fixing the country's fiscal and economic problems.
"We still need to do more to put Americans back to work while also putting this country on a path to pay down its debt, and our economy can't afford more protracted showdowns or manufactured crises along the way," he said in the address, broadcast on Saturday.
"Because even as our businesses created 2 million new jobs last year - including 168,000 new jobs last month - the messy brinkmanship in Congress made business owners more uncertain and consumers less confident."
Government data released on Friday showed the U.S. unemployment rate remained at 7.8 percent in December.
Lawmakers in the Senate and the House passed legislation this week that raised tax rates for the wealthiest Americans while making Bush-era tax cuts for the middle class permanent.
It was a victory for Obama, who campaigned for re-election largely on a promise to achieve that goal.
Republicans have indicated that they are ready for another fight over the U.S. debt ceiling. Representative Dave Camp, delivering his party's weekly address, warned, at least indirectly, that they would expect spending cuts in return for raising the ceiling again.
"Many of our Democrat colleagues just don't seem to get it. Throughout the fiscal cliff discussions, the president and the Democrats who control Washington repeatedly refused to take any meaningful steps to make Washington live within its means," Camp said.
"As we turn our attention toward future discussions on the debt limit and the budget, we must identify responsible ways to tackle Washington's wasteful spending."
Obama repeated that he would not negotiate on the debt ceiling, hoping to avoid the 2011 conflict that led to a credit rating downgrade and pushed the country close to default.
"If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic," he said. "Our families and our businesses cannot afford that dangerous game again."
Obama said he was willing to do more on deficit reduction and suggested that the hike in tax rates for wealthy Americans was not the last tax change he expected to make.
"Spending cuts must be balanced with more reforms to our tax code," he said. "The wealthiest individuals and the biggest corporations shouldn't be able to take advantage of loopholes and deductions that aren't available to most Americans.

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Selling flak jackets in the cyberwars

SAN FRANCISCO (Reuters) - When the Israeli army and Hamas trade virtual blows in cyberspace, or when hacker groups like Anonymous rise from the digital ether, or when WikiLeaks dumps a trove of classified documents, some see a lawless Internet.
But Matthew Prince, chief executive at CloudFlare, a little-known Internet start-up that serves some of the Web's most controversial characters, sees a business opportunity.
Founded in 2010, CloudFlare markets itself as an Internet intermediary that shields websites from distributed denial-of-service, or DDoS, attacks, the crude but effective weapon that hackers use to bludgeon websites until they go dark. The 40-person company claims to route up to 5 percent of all Internet traffic through its global network.
Prince calls his company the "Switzerland" of cyberspace - assiduously neutral and open to all comers. But just as companies like Twitter, YouTube and Facebook have faced profound questions about the balance between free speech and openness on the Internet and national security and law enforcement concerns, CloudFlare's business has posed another thorny question: what kinds of services, if any, should an American company be allowed to offer designated terrorists and cyber criminals?
CloudFlare's unusual position at the heart of this debate came to the fore last month, when the Israel Defense Forces sought help from CloudFlare after its website was struck by attackers based in Gaza. The IDF was turning to the same company that provides those services to Hamas and the al-Quds Brigades, according to publicly searchable domain information. Both Hamas and al-Quds, the military wing of the Palestinian Islamic Jihad, are designated by the United States as terrorist groups.
Under the USA Patriot Act, U.S. firms are forbidden from providing "material support" to groups deemed foreign terrorist organizations. But what constitutes material support - like many other facets of the law itself - has been subject to intense debate.
CloudFlare's dealings have attracted heated criticism in the blogosphere from both Israelis and Palestinians, but Prince defended his company as a champion of free speech.
"Both sides have an absolute right to tell their story," said Prince, a 38-year old former lawyer. "We're not providing material support for anybody. We're not sending money, or helping people arm themselves."
Prince noted that his company only provides defensive capabilities that enable websites to stay online.
"We can't be sitting in a role where we decide what is good or what is bad based on our own personal biases," he said. "That's a huge slippery slope."
Many U.S. agencies are customers, but so is WikiLeaks, the whistle-blowing organization. CloudFlare has consulted for many Wall Street institutions, yet also protects Anonymous, the "hacktivist" group associated with the Occupy movement.
Prince's stance could be tested at a time when some lawmakers in the United States and Europe, armed with evidence that militant groups rely on the Web for critical operations and recruitment purposes, have pressured Internet companies to censor content or cut off customers.
Last month, conservative political lobbies, as well as seven lawmakers led by Ted Poe, a Republican from Texas, urged the FBI to shut down the Hamas Twitter account. The account remains active; Twitter declined to comment.
MATERIAL SUPPORT
Although it has never prosecuted an Internet company under the Patriot Act, the government's use of the material support argument has steadily risen since 2006. Since September 11, 2001, more than 260 cases have been charged under the provision, according to Fordham Law School's Terrorism Trends database.
Catherine Lotrionte, the director of Georgetown University's Institute for Law, Science and Global Security and a former Central Intelligence Agency lawyer, argued that Internet companies should be more closely regulated.
"Material support includes web services," Lotrionte said. "Denying them services makes it more costly for the terrorists. You're cornering them."
But others have warned that an aggressive government approach would have a chilling effect on free speech.
"We're resurrecting the kind of broad-brush approaches we used in the McCarthy era," said David Cole, who represented the Humanitarian Law Project, a non-profit organization that was charged by the Justice Department for teaching law to the Kurdistan Workers' Party, which is designated by the United States as a terrorist group. The group took its case to the Supreme Court but lost in 2010.
The material support law is vague and ill-crafted, to the point where basic telecom providers, for instance, could be found guilty by association if a terrorist logs onto the Web to plot an attack, Cole said.
In that case, he asked, "Do we really think that AT&T or Google should be held accountable?"
CloudFlare said it has not been contacted about its services by the U.S. government. Spokespeople for Hamas and the Palestinian Islamic Jihad, told Reuters they contracted a cyber-security company in Gaza that out-sources work to foreign companies, but declined to comment further. The IDF confirmed it had hired CloudFlare, but declined to discuss "internal security" matters.
CloudFlare offers many of its services for free, but the company says websites seeking advanced protection and features can see their bill rise to more than $3,000 a month. Prince declined to discuss the business arrangements with specific customers.
While not yet profitable, CloudFlare has more than doubled its revenue in the past four months, according to Prince, and is picking up 3,000 new customers a day. The company has raked in more than $22 million from venture capital firms including New Enterprise Associates, Venrock and Pelion Venture Partners.
Prince, a Midwestern native with mussed brown hair who holds a law degree from the University of Chicago, said he has a track record of working on the right side of the law.
A decade ago, Prince provided free legal aid to Spamhaus, an international group that tracked email spammers and identity thieves. He went on to create Project Honey Pot, an open source spam-tracking endeavor that turned over findings to police.
Prince's latest company, CloudFlare, has been hailed by groups such as the Committee to Protect Journalists for protecting speech. Another client, the World Economic Forum, named CloudFlare among its 2012 "technology pioneers" for its work. But it also owes its profile to its most controversial customers.
CloudFlare has served 4Chan, the online messaging community that spawned Anonymous. LulzSec, the hacker group best known for targeting Sony Corp, is another customer. And since last May, the company has propped up WikiLeaks after a vigilante hacker group crashed the document repository.
Last year, members of the hacker collective UgNazi, whose exploits include pilfering user account information from eBay and crashing the CIA.gov website, broke into Prince's cell phone and email accounts.
"It was a personal affront," Prince said. "But we never kicked them off either."
Prince said CloudFlare would comply with a valid court order to remove a customer, but that the Federal Bureau of Investigation has never requested a takedown. The company has agreed to turn over information to authorities on "exceedingly rare" occasions, he acknowledged, declining to elaborate.
"Any company that doesn't do that won't be in business long," Prince said. But in an email, he added: "We have a deep and abiding respect for our users' privacy, disclose to our users whenever possible if we are ordered to turn over information and would fight an order that we believed was not proper."
Juliannne Sohn, an FBI spokeswoman, declined to comment.
Michael Sussmann, a former Justice Department lawyer who prosecuted computer crimes, said U.S. law enforcement agencies may in fact prefer that the Web's most wanted are parked behind CloudFlare rather than a foreign service over which they have no jurisdiction.
Federal investigators "want to gather information from as many sources as they can, and they're happy to get it," Sussmann said.
In an era of rampant cyber warfare, Prince acknowledged he is something of a war profiteer, but with a wrinkle.

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