Category Archives: Uncategorized

India’s Man at the IMF: Arvind Virmani

Posted on by

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…

Government to Introduce Biometric ID in India

Posted on by

“While Brits are longing for less surveillance in their electronic snoop state, the government in India seems to want to take Bharat Mata farther down that road. Nandan Nilekani, co-chairman of India’s tech giant, Infosys, and now the head of the Government’s Unique ID project, is proposing an
Indian biometric ID.

What’s incredible is he thinks it’s feasible to extend this to the whole population. Apart from the logistics, the level of technology, and the cost (1.5 lakh crores – a number I’ll translate later), there’s the vulnerability to abuse, considerations which deterred Britain from going ahead with its own biometric ID scheme.

They don’t seem to bother Nikelani – one of “Flat Earth” globalist Tom Friedman’s favorite people. He discussed the objections in an interview with CNN-IBN’s Karan Thapar, published in the Hindu.

Here’s a short excerpt:

“Karan Thapar: You said a moment ago that you would create checks and balances. I put it to you that you can never create sufficient and the reason say is this — In the UK, in the US and in Australia, because the authorities couldn’t respond to public concerns about misuse, they have effectively put on the backburner consideration of similar schemes for those countries. Now if developed countries cannot tackle the problem of misuse, then how can India, where 35 per cent of the people are illiterate and 22 per cent live below the poverty line? How can India claim that we can tackle these problems?

Nandan Nilekani: What these developed countries have put on hold is giving national ID cards to people. But both the countries, US and UK have a number. For example in the US, you have the social security number, in the UK there is the national insurance number. They already have a numbering system, which is what we are going to propose.

Karan Thapar: Except for the fact that is is nowhere near as extensive or as complete in terms of the biometeric details as what you are proposing in India. The national insurance in Britain has been around and developing slowly but it doesn’t have any details that could lead to an invasion of privacy. It doesn’t have any details that can be misused for profiling. Yours could have both?

Nandan Nilekani: As I said, these are legitimate concerns and I think we have to address them in the public as well as in the laws and so on. But notwithstanding these concerns, the social benefit, the inclusivity that this project will provide for the 700 million people in this country who are outside the system is immense enough to justify doing this project…”

My Comment

Notice, once more, that’s it’s “social uplift” that’s the excuse for the expansion of the state, the same reasoning given for the sale of IMF gold. And as suspect in this case as it is in that. It seems as if public officials hardly get a wink of sleep cooking up schemes to help the poor.

Consider that the British biometric scheme was put on the backburner because it cost too much. The London School of Economics calculated that it would cost between 10 and 20 billion pounds, and Britian is about 1/20 the size of India. Now figure how mind-boggling the Indian scheme is likely to be be…..in every respect.

Vulture Funds Prey on Third World Debt..

Posted on by

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...

Sun-Life Financial Review of “Mobs”

Posted on by

Kevin Press has a short (but sweet) review of “Mobs, Messiahs, and Markets” at his Today’s Economy blog at Sun-Life Financial, where he gives the book a thumbs up for prescience, a slight tut-tut for being a wee bit too contrarian, and another thumbs up for a lot of sound advice on investment. You can see it here.


Mobs, Messiahs and Markets
September 21, 2009

Talk about timing the market. When William Bonner and Lila Rajiva decided to collaborate on a book about the behaviour of crowds in politics and economics, they did so with the understanding that Malcolm Gladwell’s The Tipping Point had generated a level of interest in the subject that they could capitalize on. What they didn’t know, even as the book went to press in 2007, was that the real estate bubble they were watching with such great interest was about to pop.

The best-selling result of their timely partnership, Mobs, Messiahs and Markets, was released in paperback last month.

“We look at the biological evidence behind human behaviour,” Rajiva told me. “People are basically driven by fear and libido. We want to consume. Why do we want to consume? Because we want status. Why do we want status? Because we want to mate well, we want to propagate.”

Behaviour, of course, isn’t all just fun and games. “People do make sacrifices,” said Rajiva. “They’re generous and kind, and they want to help each other. There’s no one explanation for crowd behaviour, at the biological level at any rate.”

The book is far from a Gladwell knock-off. Rajiva is a well-regarded political journalist. Bonner is a successful publisher of financial newsletters and a website called The Daily Reckoning.

To say they are contrarian is to put it mildly. Despite its light-hearted style, there is a strong anti-establishment tenor to the book. Too much so in my judgment, but there is good advice here.

A couple of examples:

* “[T]he less you know for sure, the more important it is to have rules and principles you can follow. So, as we become more ignorant about what is actually going on, we become more stubborn in our opinions about what should be.”
* “A real investor buys a stock as though it were a can of tuna fish. He knows what it is worth to him and buys it when it is a bargain. But how do you know what a business is worth? How do you know when the perfect market has slipped up? Traditionally and sensibly, the investment value of a business is measured by how much money it will return to the investor. This seems only self-evident, but few investors actually figure it out and invest accordingly.”
* “The more someone wants to sell you an investment, the more you don’t want to buy it … The owner of an investment usually knows the asset better than the buyer does. If it were such a good business, why would the owner want to sell it to complete strangers? If it could earn a decent return on equity, why share it?”

Argentine Economy Shrinks for First Time in 8 Years

Posted on by

From Reuters:

“Capital flight climbed during the second quarter, with net outflows of $4.279 billion from the non-financial private sector.
 
INDEC also reported that the August trade surplus narrowed by 48 percent from the same month a year ago to $1.16 billion, below market expectations [nN18267672].

 Six analysts polled by Reuters gave a median forecast for a surplus of $1.53 billion with estimates ranging from $1.2 billion to $1.90 billion.

Imports fell by 37 percent during the month of August to $3.25 billion, while exports dropped by an even bigger 40 percent to $4.40 billion due to lower prices and reduced volumes — particularly by the drought-hit farming industry.”

My Comment:

Mind you, even these figures are considered “upwardly mobile” (that is, massaged upward) by private analysts. The government has been habitually manipulating economic data (over at least the last two years), exaggerating growth and understating inflation, in order to pay lower interest rates on bonds. Previous figures for the current account surplus (from Q2 2008) have been revised three times, which gives you an idea about the unreliability of official statistics.

Meanwhile, according to a report in the Wall Street Journal real estate transactions in Buenos Aires in July were down almost 40% from a year ago, and down nearly 2% from June, 2009. Those are government figures too, so it’s likely that sales have slowed even more.

Adding to the hit in global trade (especially the decline in commodity prices) was a lengthy drought, the worst in 50 years, that devastated the farming sector, spilling over also into parts of Uruguay and Paraguay.

Here’s a NY Times piece from earlier in the year (February) on some of the fall-out:

“A separate problem is that the country’s supply of dollars is falling as demands increase and capital flight continues, said Daniel Kerner, an analyst at Eurasia Group, a risk consulting firm. That could add pressure on the government to tap Central Bank reserves or to severely devalue its exchange rate. Last year, Argentines pulled out about $25 billion from the country, Mr. Kerner said.

Though most economists say they believe the government can squeak by and avoid another crippling default on its debts, sidestepping a major devaluation of the currency, the peso, will be a more delicate dance.

For now, the Kirchner government appears committed to gradually devaluing the peso to avoid stoking a widespread panic.

With the cash that the government seized from private pension funds and other instruments, it can shave down a $10 billion financing gap this year to a more manageable $2 billion, said Esteban Medrano, an economic adviser at LatinSource, a consulting firm. .”

Apparently, one farmer lost 106 cattles in three hours, the investment and work of five years.

Not what I would call a confidence-builder..

Liberty, License, or Rudeness

Posted on by

” Wow. In China, the “moral outrage” police aren’t in charge, at least not as they are in most of America. This article is about how a woman was NOT reprimanded, let alone arrested, for her toplessness on a beach because there were no laws banning it…”

A blog post from Lew Rockwell, about a Belgian-Chinese teacher who went topless, but wasn’t hassled by the police because there was no law against toplessness.

(I’ll get the links up a little later – in a rush)

If the blog post confined itself to admiring the fact that officials didn’t trot her off because there was no law against toplessness, I’d be in agreement. It does say something positive about China that the officials wanted to stick with the law. But it doesn’t say nearly as much as the article’s author seems to think. I’m more inclined to think it tells us how foreigners (half or full) can get away with things locals can’t.

But if we’re meant to admire the story as a kind of libertarian fable, I’m a bit baffled. I doubt if local Chinese people liked the display – despite the gawkers and photographers – and thumbing your nose at every kind of social convention doesn’t strike me as the actions of a free spirit so much as the rudeness of the very selfish. If I turned up at Christmas mass in the US in a loin cloth (as many swamis in India might attend a religious ceremony), is that to be applauded or does it show my utter lack of respect for how other people might feel?

The latter, in my opinion. I might not want a law against rudeness, but as a libertarian, I would support censure and disapprobation for it.

[Substitute a man pulling down his shorts on a beach, and see if you think that should fly too].

Unfortunately this inability to discriminate between contexts seems to be pervasive in political discourse today. If people would consider context, you’d see this has nothing to do with the moral police. It has everything to do with courtesy, respect for others, and cultural sensitivity.

Don’t insist on wearing your entire native paraphernalia complete with feathers and train on a public bus in France; don’t wear daisy dukes to a corporate office in Manhattan, and don’t take your top off where it’s not done. It’s uncouth.

We needn’t have laws against it. But we should have public opinion against it.

Public opinion that applauds uncouthness and uncivility doesn’t encourage libertarianism. It encourages license. Which in turn invites an expansion of the state.

Argentina and Uruguay Fight Over Polluted Water at the Hague

Posted on by

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….

Sarkozy Advocates “Bruni Index” to Measure Economic Progress

Posted on by

Well, he didn’t call it exactly that…but Sarko has joined former World Bank economist-turned-critic-of-globalization Joseph Stiglitz to co-author a report demanding that governments measure economic progress in broader terms than GDP, including such things as health care availability, leisure.

Developmental economist Amartya Sen has been at the forefront of that approach.

“French President Nicolas Sarkozy asked world leaders to join a “revolution” in the measurement of economic progress by dropping their obsession with gross domestic product to account for factors such as health-care availability and leisure time….”

More here

My Comment:

While applauding the sentiment, this must win some kind of medal for fuzzy thinking. The point of a measure of economic productivity is that it measures, well, economic productivity.

Now, the productivity (or the production ) of morality, pleasure, good health or anything else, isn’t outside the realm of economic activity or of government statisticians, but if you think economic activity is hard to quantify, as we’re increasingly realizing, how much more difficult would it be to quantify such subjective factors?


The problem is only trained economists would ever have been silly enough to confuse the GDP of a country with its economic progress, or with its state of civilization, in the first place. No one else does. Then having made this elementary error, the experts now want to compound it by confusing production with consumption, economics with sociology and medicine, and work with leisure. It was the dismal science. Now it’s the dumbbell science. Or, as I suspect, this is the start of another propaganda effort of some kind..