Category Archives: Globalization

China Saved Brazilian Economy, Says Brazilian Economist

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From the Brunei Times:

“In Latin America, IMF economists said the crisis is affecting countries differently depending on whether, like Mexico, they are more closely tied to the US or, like Brazil, they have more links with China.

“If it was not for China we wouldn’t have seen positive growth in the second quarter in Brazil,” Ilan Goldfajn, chief economist at Brazilian bank Itau Unibanco, said at an IMF-organised conference in Istanbul. He said the world would now start to “rebalance towards Asia”.

India’s Man at the IMF: Arvind Virmani

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The global crisis has had the effect of making over the IMF and giving it renewed power.

Until recently, the Fund had lost its international reputation for  what was seen as mishandling of the debt crises in Argentina, Asia, and Russia in the 1990s.

Now, however, with a universal cry of “do something” going up, it’s the IMF to the rescue. The Fund has had its monies tripled, and is at the center of a new global regulatory regime, ostensibly working with the G20 (the Group of Twenty, a forum that includes the twenty countries with the greatest GDPs).

The idea is that the G20, which has room for countries like Argentina, Brazil, China, India, and Indonesia, among others, will be more inclusive than forums limited to the developed nations. To check if this is actually the case, I’ve been looking at the structure and organization of the IMF and its affiliated groups, and will be posting what I find as I go along.

Exhibit A is India’s representative to the IMF. That’s Arvind Virmani, Chief Economic Advisor in the Ministry of Finance. Virmani, according to this article in the Indian Express, was educated at Harvard (PhD in Economics), was the Principal Adviser to the Planning Commission, and was also a contender for Vice President of the Reserve Bank of India. Before joining the government, he was a Senior Economist at the World Bank research department.

It’s always the case. The people who end up representing countries like India are all trained in the elite schools in the West, where the faculties are drawn from the US government, as well as the very corporations and international institutions that the representatives will interact with, and often be responsible for monitoring or regulating.

How independent can they be? And even if they’re personally ethical people, how easy will it be for them to even think outside the parameters set by the institutions in which they’ve trained and operated all their lives? Not easy at all. In fact, impossible.

Let’s see if we can trace some of the connections:

Virmani is an alum of Harvard.

It so happens that Larry Summers, current head economic adviser of President Obama, was the 27th President of Harvard (2001-2006).

Summers is said to have been behind Harvard’s investment in interest rate swaps that eventually lost the university over a billion dollars.

Before that, Summers was Chief Economist of the World Bank (1991-1993) – where Virmani worked before 1987- and then Undersecretary and Deputy Secretary of the US Treasury, before becoming Secretary in 1999..

Summers’ long-time mentor is Robert Rubin, whom he succeeded at Treasury Secretary.

In the 1990s Summers was a leading advocate of the Washington consensus–the proposition that free financial markets, “free” trade and fiscal discipline would bring prosperity to the world.

I put “free” in quotes because what it really amounted to was managed trade, manipulated by the US government with carrots and sticks of sorts…from nuclear weaponry to aid to penalties to sabre rattling  

While Summers was pushing the Washington Consensus, his mentor Robert Rubin, a former Goldman co-chair, was US Treasury Secretary, where he was instrumental in blocking legislation to regulative the derivative market.

Rubin also pushed through the repeal of the 1933 Glass-Steagall Act (keeping apart merchant banking and commercial banking), which enabled the consolidation of the banking industry.

Then, Rubin became the  director of Citigroup, one of the banks whose consolidation was made possible by that repeal. Citi shareholders have filed a lawsuit against Citi executives including Rubin charging that they sold shares at inflated prices, hiding the risks. Shareholders are said to have suffered losses over 70% since Rubin joined Citi.

Meanwhile, Rubin also has a Harvard connection, being a member of the executive governing board of the university, a position he landed a year after getting an honorary doctorate from Harvard.

Importantly, Virmani also shares his Harvard ties with current World Bank president, Robert Zoellick. Zoellick is also an alum of Goldman Sachs, a former US State and Treasury official, a Presidential assistant and US Trade Representative, and a double graduate of Harvard (JD and MPP).

Finally, the IMF position is known to be a sinecure for retiring Indian government economists, who can earn some hard currency for their retirement. 

Question: Even if Virmani were scrupulously honest himself (and he might be), how easy would it be for him to be able to stand up to policies carrying the imprimatur of some one like Rubin or Summers or Zoellick? Not easy at all. In fact, impossible…

China’s Gold Rush..

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From Adrian Ash at Bullion Vault, via goldseek:

“The International Monetary Fund confirmed on Friday that it will sell 403 tonnes from its hoard to finance development projects in poorer countries, offering gold to central banks before considering steady, pre-announced open-market sales.
“China has no need at all to Buy Gold from the international markets,” counters Lila Lu, chief precious metals trader at Minsheng Bank Corp. in Beijing, speaking to Reuters.
“Because China is a large gold producer, it can source gold directly from its domestic makers, most of which are state-run enterprises.”
Off-market purchases direct from domestic Gold Mining firms enabled South Africa – then the world’s No.1 producer – to double its gold reserves during the late 1960s.
“Why should we use US Dollars to Buy Gold?” Lu added today. “We can use Yuan instead to purchase gold from domestic producers.”
Early Tuesday the state-owned China Investment Corp. announced taking a 15% stake in Singapore-listed commodities trading house Noble Group at a cost of $850 million.
Physical gold demand from private Chinese households rose 9% in the first half of this year, trade marketing-group the World Gold Council said today, announcing an “unprecedented” sales push across rural China.”

My Comment

There are several terribly important things going on in the capital markets and in international politics.

I’ll start with what most investors are probably watching anxiously – the teetering of the dollar at the lower end of the long term band of support (76-80), below which it plunged only a year ago. After showing some strength yesterday, the dollar is down again and gold is back up strongly over 1010. The reason seems to be the whispering in the markets that China will be buying IMF gold to supplement what are said to be meager reserves.

Rumors like these could be seen as a threat by the Chinese, for they expose China’s weakness in relation to other countries, especially those that possess better gold reserves. I suspect the comments by Lu are intended to diffuse that threat.

Another reason for dollar weakness is that the relative strengths of currencies are on the table at the G20 meeting, which is scheduled to take place in Thursday in Pittburgh, Pennsylvania and trade deficits are going to be considered – which is likely to be dollar negative.

The IMF sales are pretty interesting, although it’s hard to tell exactly what’s involved. It seems the gold will be sold to central banks (which ones?) and the proceeds will go to supplement and improve the financing now available to low-income countries (how?).

Question: Why should these professed good intentions be taken at face value, given all we know about the IMF?

At present, the IMF also allocates SDRs (or Special Drawing Rights) to each member country based on its contribution to the IMF (this is supposed to be a way to improve members’ liquidity in the international markets).

The SDR’s are based on a basket of currencies – currently, the US dollar, the euro, the sterling, and the yen – that can be traded for other currencies or used directly.

The IMF will use the gold sale proceeds to invest in other things. The interest from those investments will then benefit low-income countries. At least, that’s what I took away from my reading.

It all sounds suspiciously convoluted and opaque. My fear is that this is all an elaborate charade to leave some countries/institutions holding the “paper” bag, while real value is siphoned off by other countries/institutions.

I’ll leave you to decide who the winners and the losers will be….

Meanwhile, this is only my suspicion. I’ll need to go and do some more digging. But I’m putting my suspicions out here to fuel some leg work in the blogosphere.

Here’s a link to some relevant information on gold market manipulation at the website of the Gold Anti-Trust Action Committee (GATA), the leading activist group on gold price manipulation.

Especially read through the events surrounding the sale of Britain’s gold by then Chancellor of the Exchequer, Gordon Brown. Unlike other countries, UK gold sales are under the authority of the politicians. Brown sold British gold at a price lower than the market price at the time. The timing was extremely suspicious and followed on Robert Rubin’s unsuccessful attempts to get the IMF to sell its gold. The ostensible reason was to “help poor countries” – the same reason being given now. But the actual reason was a simpler one and one I’ve discussed a number of times. It was to keep the gold price low to support the dollar, disguise the rate of monetary debasement, and pump up the stock market. That in turn helped the derivative market, which Rubin and Greenspan had also helped to keep out of regulation. This was in the late 1990s….

Now, a decade later, the IMF hasn’t been weakened by the revelations of its sins. Instead, it’s been strengthened. And now, again, the IMF is selling gold – and again, the excuse is “helping the poor.”

Vulture Funds Prey on Third World Debt..

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Johann Hari has a critical piece on “vulture funds” at The Independent that is sure to be polarising:

“Would you ever march up to a destitute African who is shivering with Aids and demand he “pay back” tens of thousands of pounds he didn’t borrow – with interest? I only ask because this is in effect happening, here, in British and American courts, time after time. Some of the richest people in the world are making profit margins of 500 per cent by shaking money out of the poorest people in the world – for debt they did not incur.

Here’s how it works. In the mid-1990s, a Republican businessman called Paul Singer invented a new type of hedge fund, quickly dubbed a “vulture fund.” They buy debts racked up years ago by the poorest countries on earth, almost always when they were run by kleptocratic dictators, before most of the current population was born. They buy it for small sums – as little as 10 per cent of its paper value – from the original holder and then take the poor country to court in Britain or the US to demand 100 per cent of the debt is repaid immediately, plus interest built up over years, and court costs.”

My Comment

I’ve been interested in these lucrative public-private philanthropic ventures for some time. “Doing good” has become the avenue for “doing well.” This is touted by some people as the “markets working for people.” But the markets work for…and against..people all on their own. They don’t need the bells and whistles of public philanthropy added.

And when philanthropy been added, as my earlier post on Jeffrey Levitt indicates, it’s usually been added for an ulterior motive. Thus Hari’s activism against vulture funds.

Having made that point, I have a few problems of my own with Hari’s post that I’ll come back later.

First, here’s a response from the object of Hari’s criticism –  one Michael Sheehan, the founder of Debt Advisory International (DAI) (which manages several vulture funds) and a Republican donor to George Bush’s campaigns.  Sheehan’s letter is cited by Felix Salmon at his Reuter’s blog. The crux is at the end:

“At the end of the day, then, the anti-vulture legislation will accomplish exactly the opposite of what it set out to do. It will have increased the debt burden of all HIPC countries, increased the cost of credit for all HIPC countries, increased the barriers to foreign direct investment for all HIPC countries and increased the amount that will be demanded from the OECD countries in support of aid budgets for all HIPC countries. There won’t be any savings. The costs will be in the billions and will be annual costs you won’t get rid of.
You will, of course, in the process have increased the power and leverage of the development set, but then that was the intention all along, wasn’t it.”

There’s more on Sheehan and the creator of the concept – Paul Singer – in this piece, which also sheds some light on just how influential vulture funds are:

“Debt Advisory International are very generous to their lobbyists in Washington. They have been paying $240,000 a year to the lobby firm Greenberg Traurig – although recently they jumped ship to another firm after Greenberg Traurig’s top lobbyist was put in jail.

Paul Singer has more direct political connections. He was the biggest donor to George Bush and the Republican cause in New York City – giving $1.7m since Bush started his first presidential campaign.”

Many of the debt purchases are also corrupt, as this BBC piece indicates:

“The Zambian deal with Donegal for instance involved an official in former President Frederick Chiluba’s administration who was later found – along with the president – to have stolen £23m from Zambia.”

From Third World Traveler come further details:

“The debt, originally owed to Romania for agricultural machinery and services, was accrued during the cold war. The amount claimed by Donegal was far more than Zambia is due to receive this year in debt relief – as agreed at the G8 meeting in Gleneagles in 2005. It is equivalent to more than six months of Zambia’s health budget.

Since qualifying for debt relief, Zambia has introduced free primary rural healthcare and announced plans to employ 4,500 teachers and hundreds of nurses. But one in three children in Zambia still does not go to primary school, nearly 80% do not receive secondary education and the average income is barely $1 a day. Donegal International’s claim threatens to undermine Zambia’s plans for poverty reduction.”

My Comment:

The vulture funds are, of course, behaving unconscionably. But moral outrage after the fact is less effective in stopping such things as not providing the incentives that entice unscrupulous people in the first place.

And these incentives are usually put in place by the state…in this case, by the global financial organizations, the IMF and World Bank, which were behind the economic policies that turned the once relatively prosperous country of Zambia into a basket-case, where half the population is malnourished.

So yes, the vulture funds are predators – but their predation is secondary and far smaller than the predation of the scavengers of the first order – the global managers whose “aid” has a strange way of devastating its recipients...

Central America Musings…

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A number of people have written me and asked my opinion about different parts of the Americas as possible destinations.  So here’s a brief precis of some of my thinking on the subject:

Before I came down here, I went through a lot of research on the different Central American countries and on Mexico too.

Mexico was my prefered expat location, because I’m deeply interested in the Mayans. I love Mexican food, the architecture, the people, the crafts, and the weather. It was always my first choice. But the drug wars and the accompanying violence scared me off. Then too, land is not cheap in Mexico, except in the Yucatan, and the Yucatan has problems. Some areas look like they might have water problems, and other areas are targets for hurricanes. Then there’s the weather – humid and very hot. But the primary problem for me was corruption. I hear everyone has to be paid off and that police can be untrustworthy. Crime is said to be high.  And then the Mexican economy is very tied up with the US economy. So, reluctantly, I looked elsewhere.

In Central America, the only country I really thought long about was Panama. But there again, there were problems. The weather is very humid and hot. Panama City is overcrowded and expensive – more expensive than many parts of the US. I liked the mixed culture, the entrepreneurial energy and the fact that it’s become a hub of financial services and banking. But that has its draw backs too. It’s also attracting attention from the US authorities who are concerned about off-shore havens. Also, land isn’t cheap and what there is of it is attracting the developer crowd – which I tend to avoid. Nothing turns me off more than condo complexes going up, Starbucks everywhere you look. For that, you can go to Miami. It’s probably cheaper now. So no to Panama.

The Honduras struck me as too poor a country. Extremes of wealth, especially in a small country, are a bad sign.  How long will the place go without a revolution of some kind, I asked myself. And how long before US business or government interests start fiddling around. And sure enough, there’s been a coup.

The rain forests of Guatemala sounded..and looked..beautiful. But clearing rain forest isn’t exactly the easiest or the wisest thing to do. Guatemala also has a reputation for corrupt and cruel police. Real estate prices in the capital city were high. I nixed it too.

Nicaragua was cheaper. But also poor and unstable. No foreigner would  make it a permanent base, unless they liked living dangerously. It’s the kind of place where a certain sort of person from Norte America hides out…keeps a low profile.. or swindles the next fool who comes along..none of which interests me. And it’s too close to other hot spots for comfort.

And so it’s turned out….the Honduras coup seems to be spilling over into Nicaragua (see below).

Belize has its problems with hurricanes and it’s not cheap, except in the more remote areas. It also doesn’t have much to offer in the way of infrastructure and business.  But again, the main problem, as for the other Central American countries, was that it looked like the back yard of the US, vulnerable to interference, to a spill over of the drug wars, and to increased surveillance.

That’s why I decided to go further south, despite the expense, and despite the feeling that overwhelms you every so often in a foreign country – what the heck am I doing here? But I was asking that in the US anyway…

And in the US, I understand everything’s that being said….which tends to upset me, as you can guess from my fiery boycott-the-US post (it’s preceded by the word “IF”).

Here, I don’t understand most of what’s said. Ergo – peace of mind…

Some news on the spill over from the Honduras:

 “Mónica Zalaquett, director of the Center for Prevention of Violence, says the problem in Honduras has become a “political instrument” in Nicaragua, used by both the Sandinistas and the opposition to promote their own agendas..

….On Aug. 4, a group of four Nicaraguan opposition lawmakers who tried to travel to the Honduran border to express their discomfort with what they called Zelaya’s two-week “occupation” of northern Nicaragua were turned back 12 miles before the town of Ocotal. Sandinista and Zelaya supporters blocked their caravan on the highway and attacked their vehicles with sticks and rocks…”

 I feel vindicated in my research…I usually do. My problem isn’t sound investment decisions. I make good choices. My problem is I’m too cautious and tend to wait a bit too long.  I don’t lose, but I sometimes miss out – which some people would say is the same thing.

I don’t see it like that though, because you have to take into account your risk appetite and tolerance for stress. If you live your life pretty much on your own terms, answer to no one, can walk away from unpleasant people and things, and spend all your time in your own company and not in the company of annoying people, you are way ahead of 99% of the world.

And the other 1% is probably broke.

Which means that if you’re not broke, then you are better off than practically everyone. 

I’m not broke.

 

The Ghost Ships of Singapore

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“Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a ‘crisis of historic dimensions‘. Last month the company reported its first half-year loss in its 105-year history.

Martin Stopford, managing director of Clarksons, London’s biggest ship broker, says container shipping has been hit particularly hard: ‘In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.

‘Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything – and it’s come out of nowhere.’

These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas.

Read more: http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html#ixzz0RB7WbWSO

via  Lew Rockwell.

Argentina and Uruguay Fight Over Polluted Water at the Hague

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The Pentagon, among others, has made the point that riparian disputes are going to be at the top of the agenda in global politics in the coming years. Water is essential to survival and central to border disputes between China and India, Pakistan and India, and even in Latin America, where water is abundant.

In this case, Uruguay’s construction of two paper mills on the River Uruguay has set off a dispute with Argentina, which claims the construction is in violation of a long-standing treaty and is polluting the river as well as the Argentina tourist town on the other side of the border. The two countries have taken the dispute to the  Hague, which is now hearing the case.

What’s my interest in this?

Uruguay remains comparatively unpolluted next to its neighbors, but the paper mills, which will boost Uruguay’s exports by 15% are symptomatic of increased development that could very well change that picture shortly. Uruguay’s attraction as a farming country is the relatively cheap cost of good quality soil, abundant water, and a history of organic use . But with multinationals and governments gobbling up land all over the world, you wonder how long that will continue.

The area around the middle of the border with Argentina, especially at the lower end, near Colonia (the Soriano area), has the highest quality soil and is intensively cultivated. Argentines often buy there because of the proximity to Buenos Aires, via the ferry at Colonia. The farming tends to horticulture, with potato farming and dairy well represented. I haven’t looked in that region because of the high prices – a hectare can run to over $8000, and I’ve seen prices as high as $20,000 and more, depending on the improvements and the location of the land.

In the middle of the border area, in the department of Paysandu, land usage runs to cattle farms and wheat.

Further north, in Salto, a pretty university town, citrus farming takes precedence, as the soil isn’t as high in fertility.

All these areas are well watered by rivers, like the Uruguay and the Rio Negro, which cut through the relatively flat, unspectacular land. But these are also the areas where land prices have shot up the most recently because of the influx of Argentines, looking for a safer place for their money and freedom from increasingly onerous agricultural laws….

China Files WTO Complaint Over US Tire Tariffs…

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In the news:

“Beijing filed a World Trade Organization complaint Monday over new U.S. tariffs on Chinese tires, stepping up pressure on Washington in the latest in a series of trade disputes.

The conflict is a potential irritant as Washington and Beijing prepare for a summit of the Group of 20 leading economies in Pittsburgh on Sept. 24-25 to discuss efforts to end the worst global downturn since the 1930s.”

More here at AP.
My Comment:

Begin the trade wars..or rather, so continue the trade wars.
America dumps subsidized farm products in China, China levies penalties on exporters who don’t use 40% Chinese parts in their products….it’s all part of the effort to shore up exports to prevent the economy of either country from sliding further into depression…

World Bank’s IFC Suspends Investment in Agrofuels in Indonesia

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From The Third World Institute’s Choike program, here’s a recent report that World Bank and International Finance Corporation (IFC) head Robert Zoellick has agreed to suspend World Bank/IFC financing of the agrofuel sector (oil palm, in this case) in Indonesia, in response to activists’ concerns about environmental degradation and social troubles:

“In response to an appeal by a global coalition of NGOs, IFC / World Bank President Robert Zoellick has agreed to suspend IFC funding of the oil palm sector pending the development of a revised strategy for dealing with the troubled sector.

The response follows a highly critical audit by the IFC’s independent ‘complaints advisory ombudsman’ which had shown that, as claimed by the NGOs, IFC funding of the Wilmar Group had violated the IFC’s own procedures, and commercial concerns had been allowed to override the IFC’s environmental and social standards.”

My Comment:

The IFC is an arm of the World Bank group and is based in Washington, DC. It differs from the World Bank in being entirely private and for-profit and in not being backed by sovereign (i.e. government) guarantees. It’s focus is on investment in the private sector in emerging markets.

This will be a big blow to top agro-fuels producer Singapore-based Wilmar International, whose business activities in Sumatra and Kalimantan have provoked complaints from some 19 environmental groups, plantation small holders, and indigenous people’s organizations:

“IFC’s ombudsman had conducted an audit following the NGO complaints and found that IFC funding of Wilmar International, listed on the Singapore Stock Exchange, had violated IFC’s procedures and commercial concerns had been allowed to override IFC environmental and social standards.

The ombudsman’s report was released earlier this month and focused on four financing arrangements made by the IFC between 2003 and 2008 in favor of Wilmar International, which runs more than 200,000 hectares of palm oil plantations in Indonesia and Malaysia.

IFC had earlier agreed to provide the company with US$33.3 million in investment guarantees and $17.5 million in loans over five year.” (Jakarta Post, Sept 14, 09)

Wilmar is also the supplier of cheap palm kernel that’s used to feed cows by New Zealand dairy giant Fonterra. Fonterra uses 1/4 of the world’s palm kernel – a trade that has drawn fire from NZ environmental groups, which  call it a national scandal that a company in a country known for its environmental quality should be doing business with a corporation they describe as destroying Malaysian and Indonesia rain-forest at unsustainable rates.

UN Recommends New Global Currency

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In the news, on September 7, Bloomberg reports that the UN wants a new global currency, ostensibly to protect emerging markets:

“UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability. “

My Comment
(coming up)