Lamborghini Aventador, US-Subsidized Supercar

♠ Posted by Emmanuel in ,, at 1/31/2012 07:43:00 AM
Now for one of my occasional Robb Report impersonations--albeit with an IPE twist. (We've got style, baby.) In 1998, Lamborghini became a wholly-owned subsidiary of Audi AG, which in turn is a luxury brand of the almighty Volkswagen Group--the real largest automaker in the world. What if the Germans overran not the world's territory but the global automobile industry? I'd venture that it would look a lot like the present-day VW Group: (British) Bentley, (French) Bugatti, (Italian) Lamborghini, (Spanish) SEAT, (Czech) Skoda and the father brands (they're from the Fatherland, right?) Audi, Porsche and Volkswagen. Being made to point out this fact because of Obama's disingenuous SOTU address jogged my memory of this post which I planned to write sometime ago. Many blogging ideas; too little time.

The debate over whether Volkswagen or General Motors is the world's largest automaker obscures a number of things we should also consider in which firm outdoes the other. First, VW has never, ever needed any bailout from the state of Lower Saxony (which owns part of it) or Germany itself. This is partly down to the astute management of Ferdinand Piech--a real automotive genius who is none other than the grandson of Ferdinand Porsche (of the eponymous marque and the designer of the VW Beetle). Piech has proven himself to those in the motor trade by, among other things, designing the Le Mans-winning Porsche 917 in his early days. Second, VW's profitability is secured by owning a lot of luxury brands that can command higher margins on the market. The cachet of Audi, Bentley, Porsche and so on is unmatched by anything Goverment Motors offers.

Recently, I've succumbed to an admittedly unproductive diversion I've had growing up which should be familiar to males the world over: reading car magazines. Having not read these darned things in a while despite watching Top Gear fairly regularly, I like many was struck by today's supercar du jour, the Lamborghini Aventador. Just watch that mighty beast in action. To achieve truly astounding performance feats alike accelerating from 0 to 60 MPH in 2.9 seconds, this "Italian" supercar embodies among the most advanced technologies you can find in a production car.

Thus the third point that underscores just how far the once-mighty GM has fallen is the advancement of VW Group designs over their American counterparts. In particular, the carbon frame pictured above of the megabuck Lamborghini Aventador is impressive, combining very low weight with very high strength. The most galling thing for USA #1 cheerleaders--and there are too many out there in the part of the blogosphere I come across--is that this technology comes from the American commercial jetliner maker Boeing. In turn, Boeing gained this technological edge via subsidies from the US government. Don't believe me? Fine. How about a WTO ruling which suggests just that?
Boeing received at least $5.3 billion in improper subsidies from the United States government to develop its 787 Dreamliner and other jet models, giving it an unfair advantage against its European rival, Airbus, the World Trade Organization confirmed...

In an 850-page report, the Geneva-based trade body accepted a claim by the European Union that research and development grants provided by United States space programs contributed substantially to the technologies used in building the 787, Boeing’s latest flagship aircraft.
Trade watchers will want to scrutinize the nitty-gritty details of DS 353 - Measures Affecting Trade in Large Civil Aircraft which are available on the WTO website. As for the rest of us, just keep in mind that the Lamborghini Aventador shares the carbon fibre space frame technology found on the 787 Dreamliner. Notably, the Aventador has not only starred in a car show but also an advanced materials show:
Whoever said “beauty is only skin deep” apparently never watched a Lamborghini get built. Thanks to the Italian automaker, those shallow types can head over to the Paris 2011 JEC composite show, and see their latest supercar, sans skin.

Built with a reinforced carbon fiber composite that was developed in conjunction with Boeing, the Aventador LP700-4’s naked chassis looks right at home in the showcase of materials and technology. And since composites also comprise many of the car’s other components, including wheels, frame and seats, there’s a little more to look at than just a carbon tub.
And here's the Lambo press blurb:
Automobili Lamborghini's participation in the 2011 edition of the JEC Composite Show in Paris - one of the world's most important exhibitions of composite materials - is intended to emphasize the company's leadership in this highly specialized sector, not only in applying these materials in mass production (as shown by the new Aventador LP 700-4), but also in the investigation and development of new manufacturing technologies and the resulting product spin-offs.

The use of composite materials reinforced with carbon fiber is becoming increasingly widespread in the automotive sector, as revealed by a study by Lucintel that foresees a growth of 65% over the next 5 years. Many manufacturers are working on developing and applying these technologies so they can build lighter vehicles that make an important contribution to reducing fuel consumption and air pollution, through improvements that include increasing the strength of the vehicle's structures.
The overall point is that the main beneficiary of Boeing's advancements in carbon fibre technology which are partly down to DoD and NASA inputs are not fellow US companies but a German-Italian concern. In other words, what's best for Boeing is not what's best for GM. With their superb application in road cars as exemplified by the Lamborghini Aventador, this knowledge gap between automakers will only become larger. There is a "trickle down" of technologies here, but for the benefit of non-Americans' bottom line. While you can of course argue that GM cannot sell such a premium vehicle, it calls into question why its marketing prowess does not extend to luxury cars. Remembering GM's Saab fiasco gives me shivers.

Bailouts aside, the world has moved on. Isn't it great that all those US government subsidies that funded Boeing are helping...a German-Italian automaker? VW is rolling on the tarmac laughing all the way to the bank. American industrial policy (whatever that is) is so inept and uncoordinated that they can't even tilt the playing field in the favour of their own companies consistently.

NOTE: Making these carbon fibre thingamajigs is a costly, proprietary process as demonstrated by the even more exclusive (if not higher performance) Lexus LF-A.
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2012: Year of the Dragon, Year of the Renminbi!

♠ Posted by Emmanuel in , at 1/30/2012 03:37:00 AM
A week ago today, the Chinese and their vast diaspora celebrated Chinese New Year. As it so happens, it also ushered in the Year of the Dragon. Famously the most auspicious of characters, this too may be the year that the PRC powers-that-be become serious about internationalizing the RMB with the long-term goal of reforming the international monetary system in mind. Just as red envelopes like those above are used to give gifts in cash, 2012 may be the year the Chinese give the gift of renminbi internationalization to the world in a meaningful way. I've mentioned recent efforts to make RMB use more widespread worldwide, but I forgot to mention these two that point towards the same trend.

First, Chinese authorities are improving RMB payment handling systems' integration with the international standard SWIFT (Society for Worldwide Interbank Financial Telecommunication):
The People's Bank of China, the country's central bank, is in the process of upgrading what is known as China's National Advanced Payment System, or Cnaps [I pronounce it as 'Schnapps' ;-)], to better facilitate cross-border trade denominated in yuan, according to government officials and executives at Chinese banks. The processing of yuan payments isn't at the same level of efficiency as a cross-border payment in other major currencies like U.S. dollars, with a hands-on system that often leads to high transaction costs, some observers said.

"The processing cost of yuan payments must come down, so that when corporations do start to put significant yuan volumes through, banks can handle them smoothly and efficiently," said Patrick de Courcy, head of markets in the Asian-Pacific region for Swift, which operates a world-wide financial-messaging network between banks and other financial institutions.

Mr. de Courcy said China's central bank has agreed to use messaging standards adopted by Swift to support electronic payments into its system. A central-bank official confirmed the bank is upgrading the yuan-payment system. The bank declined to comment further.
Next, aside from payment handling, another obvious avenue for making the yuan more widely used is establishing a benchmark interbank lending rate alike LIBOR (London Interbank Offered Rate) and its various offshoots. This process has begun (where else?) in the Hong Kong offshore lending market:
Hong Kong's banking association this week began widely disseminating yuan-lending rates offered by three of the city's biggest banks to their peers, marking an important step toward the development of benchmark rates that could spur growth in the market for offshore yuan loans.

The Treasury Markets Association's daily interbank reference rates from HSBC Holdings PLC, Standard Chartered PLC and BOC Hong Kong (Holdings) Ltd. involve loans ranging from overnight to one year. The association has said it aims to increase the number of banks contributing rates, in a bid to set benchmark yuan-lending rates.

Setting benchmark levels for yuan loans similar to the London interbank offered rate, or Libor—the most common global benchmark for short-term borrowing costs—is necessary so that banks can better price loan risks and measure borrowing costs, bankers and analysts say.
Elsewhere, currency-watching stalwart Jeffrey Frankel handicaps prospects that the RMB will overtaker the dollar in short order based on historical precedents. Also note how African nations are gearing up in a similar fashion to handle RMB. Regardless, all I can say is that Chinese authorities are committing substantial efforts in making the RMB an international currency. Indeed 2012 may be remembered as the year the currency broke ground on the world stage in a major way.
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Long Time Coming: Int'l Derivatives Court, Now Live

♠ Posted by Emmanuel in , at 1/29/2012 04:02:00 PM
Here's something that I found in the LSE employee newsletter, of all places. Given the often legalistic culture of Western economies, it is no surprise that they prefer the settlement of economic disputes in formal fora. The WTO's dispute settlement mechanism exemplifies that for trade. Meanwhile, the likes of the International Court for the Settlement of Investment Disputes (ICSID) and the International Chamber of Commerce (ICC) Court of Arbitration do the same for disputes involving foreign investors and governments. Think of Hugo Chavez's latest fulminations against international energy companies.

Whatever you think of derivatives or financial instruments that derive their underlying value from that of another instrument, there is no denying their proliferation. Trade volumes have simply exploded, with notional amounts of existing contracts now amounting to the hundreds of trillions of dollars. Some even implicate them in both the US subprime crisis and the European debt crisis. Warren Buffett famously called them "financial weapons of financial destruction"--before taking out some derivatives of his own and losing money on them in the process. Ah well, I guess that it underscores their ubiquity.

But, along with their ubiquity comes the realization that these are not often technically straightforward contracts to interpret--especially the more esoteric derivatives. Hence, the lack of many nation's courts of the necessary technical understanding means that there is much scope for interpretation, especially when things go awry. From the press blurb:
A tribunal devoted to settling the world's most complex and contentious financial cases opened for business today in The Hague. Comprised of a group of judges and other international legal and market experts with more than 2,000 years of relevant collective experience, the P.R.I.M.E. Finance Disputes Centre will take on cases which are too specialised for many national or local courts.

It also aims to create an internationally-agreed body of law in areas where different countries often hand down conflicting rulings. It was the brainchild of Professor Jeffrey Golden of LSE's Law Department and he is chairman of its management board. The tribunal expects to handle multi-billion-dollar cases in fields such as derivatives and structured financial transactions. Its role is all the more urgent, argue its founders, because of the uncertainty created by world financial crisis.

P.R.I.M.E. Finance (the Panel of Recognised International Market Experts in Finance) is backed by the Dutch government and will hear cases at the Peace Palace in The Hague, where it will be formally opened by Jan Kees De Jager, Finance Minister of the Netherlands. Its advisory board is chaired by Lord Woolf, former Lord Chief Justice of England and Wales.
Our Professor Golden [great name, that, for what he does] explains the rationale for P.R.I.M.E. in terms of there being a need to reconcile often conflicting opinions passed down in national bodies:
Professor Golden said: "This project emerged against a backdrop of financial market crisis and legal uncertainty. The amounts at stake are staggering, the legal and contractual issues are complicated and the volume of complex cases is increasing.

"To date, national courts and ad hoc arbitration have been unable to produce a settled and authoritative body of law. Decisions are unpredictable, too decentralised, often taken too slowly and not always enforceable in other jurisdictions. The global marketplace needs a more innovative method of settling disputes and we believe this tribunal is the answer."
P.R.I.M.E. sounds too close to S.U.B.P.R.I.M.E. to my tastes. All this finance makes me want to cry U.N.C.L.E., but there is definitely a niche market to be found here. Even a necessary one insofar as there has been no great climbdown in the use of these instruments.

Lastly, do note that P.R.I.M.E. is not a free-floating body but one which aims to institute the arbitration rules set forth by the UN Commission on International Trade Law (UNCITRAL).
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Yay! Our LSE IDEAS, World's 4th Best Uni Thinktank

♠ Posted by Emmanuel in at 1/27/2012 07:27:00 AM
Well here's a nice bit of news concerning LSE IDEAS, the research centre I am associated with. The good folks at the University of Pennsylvania Think Tank and Civil Societies Program recently came out with the 2011 edition of their authoritative report on the world's leading thinktanks. To my personal surprise considering that LSE IDEAS only started in 2008, we are now considered the world's fourth most influential university thinktank alongside our colleagues from the Public Policy Group. Launched at the United Nations no less, the UPenn report is not a trifling one. Here is the relevant table with the 30 top-ranked university thinktanks:

Those who come ahead of us are obvious given their advantages in being longer-established and better-funded. However, consider as well those we've bested that I would not have suspected to have surpassed at all. Being a blogosphere minnow myself, I was bemused to see that the Mercatus Center of Marginal Revolution and Koch Industries-funding of the Tea Party variety fame came in 8th. Or, consider that we bested the mega-famous Jeffrey Sachs' very own Earth Institute at Columbia. The same sort of surprise comes from outranking the likes of the Institute of Development Studies at Sussex, the Weatherhead Center for International Affairs at Harvard, and the Center for the Study of Globalization at Yale. (On another note, I am chuffed by the emergence of so many influential think tanks from outside the West. There are more folks in developing countries who also can benefit from considering policy advice, right?)

Perhaps one of the sources of strength of LSE IDEAS is its unity in having a diversity of opinions. Whether you like libertarian thought or not, the Mercatus Center is certainly consistent in its advocacy and vantage point. For us, though, our co-directors don't even agree on such basic things as a power shift from the West to the East occurring in the world economy. The same holds true with our visiting fellows and their ideological perspectives. On one hand we've hosted Niall Ferguson who styles himself as a "punk Tory." On the other hand we've also had Martin Jacques of "When China Rules the World" fame--a former editor of Marxism Today and a columnist for The Guardian.

While the IPE Zone is for now an orbiting offshoot of LSE IDEAS, note that there too is an official LSE IDEAS blog (to which I contribute to sometimes in, er, more sedate fashion).

Recalling early last year, attempts to tar us with the Libyan involvement at LSE may have actually done us good by bringing attention to our unique work alike inviting Chinese foreign ministry officials to come and share with us "What China Wants" instead of embarking on the umpteenth rehash of "Why America is So Great and You Stupid Coloured People Should Fall In Line" and its corresponding whitebread echo chamber. While some pitiably misinformed tabloid linked the presence of many top British diplomats here to being "useful idiots" of Moammar, the Woolf Report found no links between us and the the previous Libyan leadership. Sorry, there are no Moammar outfits in our closet.

Ah, but enough of that. I must salute the powers-that-be at LSE IDEAS for I did not really appreciate the comprehensiveness of their vision. It has come a long way from its humble start as the Cold War Studies programme--understanding the collapse of the Soviet bloc is the key to understanding contemporary globalization, they kept telling me--to its current recognition as one of the world's finest academic thinktanks.
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Fact-Checking Obama: GM World's #1 Automaker?

♠ Posted by Emmanuel in , at 1/25/2012 07:29:00 AM
Obama's 2012 State of the Union address was your typical flag-waving, USA #1 cheerleading exercise. It's to be expected with these kinds of events, to be fair. Particularly notable on the trade end though was Obama declaring the creation of a "Trade Enforcement Unit that will be charged with investigating unfair trade practices in countries like China"--your official China-bashing unit. Those trade evildoers must be punished, eh?

Together with the formation of this odious agency, however, we too have an egregious misstatement of fact concerning the bailout of various troubled American automakers in the aftermath of the (self-inflicted) 2008/09 subprime crisis. To quote from Obama:
On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world’s number one automaker [my emphasis].
GM's claim to being the world's top automaker is iffy. Germany's Volkswagen Group has a better claim to the title. Since dodgy accounting and America are practically synonymous, we must look into the GM claim. It says that it sold 9.03 million vehicles in 2011. But, this total was achieved with the sleight of hand of including the output of a Chinese subsidiary that it has interests in but does not own:
GM's rivals also point out that the big U.S. auto maker's numbers are boosted by ownership stakes in China's SAIC Motor Corp. and Liuzhou Wuling Motors Co. While SAIC builds GM cars in China, Wuling's 1.2 million vehicles last year are mostly cheap commercial vehicles used only in China.

Some analysts prefer not to count the Wuling vehicles in GM's global total because GM doesn't have a controlling stake in its partner [my emphasis]. "We have to draw the line somewhere and this at least gives us some consistency around the globe," said Jeff Schuster, an analyst with forecasting firm LMC Automotive.
The VW Group previously reported that it sold 8.16 million vehicles in 2011. Unlike GM, it did not count the numbers of its commercial vehicle subsidiaries MAN SE and Scania AB (formerly of Saab-Scania for you trivia buffs). Attention GM: it helps with the bragging rights that VW actually owns these concerns. Adding both in boosts VW figures by about 200,000. So, subtract the 1.2 million Wuling vehicles gives you legitimate GM sales of 7.83 million vehicles. The once and future king of all things automotive however is the maker of the people's car with [8.16 + 0.20 =] 8.36 million in vehicle sales.

Bottom line: American automakers AND politicians are economical with the truth if not necessarily with taking away the well-being of future generations. Yanquis attempting to pull an (amateurish) fast one; what a surprise. Germans have a reputation for being plainspoken; certain others for being emptily boastful. I would also love to hear the response of unionized and protectionist crowds Obama is pandering to when they find out that GM's (bogus) claim largely boils down to Chinese production. "Made in America?" Not quite.

Why doesn't this glib assessment of US bailouts for all and sundry money losers not discuss, say, mortgage lenders Fannie Mae and Freddie Mac? How about the airline industry? Yesterday was a more appropriate moment to call Obama out on this untruth.

As a parting shot and returning to the notion of a level playing field (whatever that is to these folks), given Obama's thumbs-up to massive government intervention, he compounds untruth with hypocrisy in the SOTU with special reference to China:
It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidised.
Having claimed to have "saved" the US auto industry, I guess that logic legitimizes the PRC slapping tariffs on large automobiles imported from the US, doesn't it? Revisit the good book and what it says about casting the first stone.
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Goin' Down: Those Crappy US Airlines, Cruise Lines

♠ Posted by Emmanuel in ,, at 1/24/2012 09:13:00 AM
For those of you who remember your high school literature, Charon in Dante Alighieri's Inferno was the ferryman of Hades who transported the souls of the dead across the river Styx on a journey to farther reaches of the underworld. In today's international political economy, you can argue that American travel services now perform similar functions. Perhaps ol' Charon has hung up his oars for good and struck a deal with Satan himself to outsource these devilish duties. At any rate, modern American travel services epitomize America itself circa 2012: an economically unviable entity that should be put out to pasture ASAP if our contemporary era of subprime globalization had any sense (which it doesn't).

For a country that pioneered the concept of services marketing, its cutting-edge research, and its application to real-world business, it remains astounding how poor the United States' travel services are. Truly subprime, in fact. Let us begin with the most egregious violator of economic logic, the US airline industry. Given how flying into and around the US presents America's face to the world at large, this industry drags the USA's tarnished reputation further into the mud. We all know the maths of it: In no small part due to American warmongering in Iraq and perhaps Iran in the near future via the Bushite doctrine of pre-emptive strike, oil prices have shot through the roof and caused American carriers already on shaky ground post-9/11 to cease being businesses in the commonly understood sense. In the decade since, these airlines have lost over $50 billion. Especially if you're of the "deficits don't matter" persuasion, you can of course argue that this amount pales in comparison with the US federal deficit. But, the larger point is that the constant need to subsidize this money loser and keep interstate/international air travel is but another leech on the decaying body politic of America.

At the end of last year, we received news that American Airlines entered bankruptcy proceedings. This action completed the cycle of every single major US carrier (save for Southwest, but some would say it doesn't count as a discount carrier) declaring insolvency at least once. Hilariously, it was not long before that when American Airlines proudly proclaimed that it made the largest order in airline history with Airbus and Boeing. Again it's symptomatic of America nowadays: speaking loudly, carrying no stick. The truth is more straightforward: US carriers have among the oldest fleets, poorest customer ratings, surliest and highly unionized flight crew, lousiest on-time performance, a chequered history with lost baggage...the list goes on and on. Let's just say you won't be hearing "Relax" playing in the background with this lot. That they run old jets exacerbates their status as perennial money losers given that older designs are less fuel-efficient than modern ones. America and its airlines: misery loves companies.

* * *

We also received truly appalling news of the Costa Concordia sinking in Italy. My first reaction was, "That's impossible! European cruise lines aren't into PR fiascoes." Its online advertising states "Experience the Costa Concordia cruise ship for a cruise vacation you will never forget." Quite so. Ever-so-slightly more investigation reveals that the parent company of the doomed liner is none other than the former Carnival Cruise Lines. Having a long memory--sometimes a blessing, often a curse--I recall the good ol' days of its operation when the worst sort of maltreatment passengers encountered on Carnival was chronic food poisoning [1. 2, 3]. Apparently unsatisfied with such offences to passenger health, they hired some nutter to run a $600 million vessel into something.

You can argue that Carnival improved somewhat by linking up with a British cruise line. You can further argue that it has done reasonably well compared to its airline counterparts. All I can say is wait till the lawyers are done with Carnival. There may have been a smidgen of improvement via the British involvement, but traditional American hallmarks of harming the customer never really go away in these sorts of services. How about giving a 30% discount to survivors of the ill-fated Costa Concordia on future Carnival trips to add insult to injury? Let's say the PR geniuses at Carnival will never get over that blunder. US airlines may be terrible, but outright termination is admittedly seldom on the cards. It's even pulled much advertising out of sheer shame.

And don't get me started on how US airports have suffered from neglect alike the rest of America's rotting infrastructure. With New York's JFK Airport ranked worst in the world, America's shame is only increased. Got that, America #1 cheerleaders? Instead of telling us how great your nation is and how stupid us primitives are, why not address your thoroughly rotten transportation services that reveals the joke is on you?

Certainly Obama's drive to double exports in five years should benefit from services people actually can, ah, stomach using? That such matters appear like a pipe dream in modern America tells you how far it's fallen. Hellbound, in fact--go ask Charon.
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R.I.P. Japanese Trade Surplus, 1981-2010

♠ Posted by Emmanuel in , at 1/24/2012 08:26:00 AM
There's grim news care of Reuters in anticipation of Japan's release of trade figures tomorrow. The country is expected to have run a trade deficit for the first time in nearly 30 years in 2011. Worse, prospects are for it continuing to do so in the near future despite the (hopefully) one-time catastrophes of 2011:
Japan probably produced its first trade deficit last year in more than three decades as energy imports surged to cover for the loss of nuclear power following the Fukushima disaster, a major blow to an economy built on its exports prowess... Official trade figures due for release on Wednesday are expected to show that Japan swung to a deficit for the first time since 1980, as utilities purchased fossil fuels for power stations to make up for the loss of nuclear power.

Economists say Japan's trade will be in deficit for the next few years as it copes with the Fukushima catastrophe that released radiation into the atmosphere and forced most nuclear power stations to shut in the face of a public outcry over safety. Trade will then return to a surplus, but long-term trends suggest the surplus will weaken anyhow. A rise in the yen to a record last year of fewer than 77 per dollar from more than 250 in 1980 is making Japanese exports increasingly uncompetitive and so encouraging manufacturers to move overseas.
Such a situation will cast int doubt the ability of the nation to finance its ballooning national debt with external surpluses:
The argument that Japan can rely on surpluses from its international trade to offset a large public debt could also look less convincing and lead some investors to bet that a funding crisis will come sooner than originally expected.
In reality, the student (South Korea) may have already surpassed the master (Japan) in the exporting prowess realm
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Allah & Moolah: Muslim Brotherhood Meets IMF

♠ Posted by Emmanuel in , at 1/23/2012 06:38:00 AM
Elected with a convincing majority, Muslim Brotherhood-linked legislators under the Freedom and Justice Party umbrella are now the forces to be reckoned with in Egypt. It will be fun to see how Yanqui hypocrites of the "elections are great...except when you elect Hamas" variety will respond if and when more elements of sharia law are enshrined there. While it's certainly debatable whether hardline Islamism is a marked improvement over despotism in the freedom department, one thing is for certain: the economic situation in Egypt is deteriorating. Foreign investment has fled. So have the tourists.

You certainly can make the argument that Egypt now has the worst of both worlds: a worsening climate for freedom in the very shallow American understanding of being able to do whatever you want and a free-falling economy. What an improvement. Isn't all this progress wrought by the "Arab Spring" grand? Recently, the Egyptians cried uncle and asked the IMF for help to the tune of $3.2B:
Foreign financial investors have given Egypt a wide berth since street protests erupted a year ago, forcing the government to rely on local banks for funds, a situation that has forced up yields on treasury bills and bonds to levels that some economists say are unsustainable. The new negotiations take place as the ruling military council tries to fend off criticism of its temporary rule from pro-democracy groups and grapple with social tension caused by poverty and rising prices.
What? You mean those stupid foreigners haven't been impressed with all this US-inspired "Internet freedom"? Such a surprise. Returning to the worst of both worlds POV, we now have deleterious effects from attempting to combine Mubarak's multifarious subsidies and expectations of more (currently non-existent) economic opportunities:
The new cabinet nominated in November needs to cut spending but risks further angering a population that depends on state subsidies and whose hopes for an improvement in living standards were raised by the uprising that ousted President Hosni Mubarak...[T]he projected budget deficit [in 2012] was now 144 billion Egyptian pounds ($23.85 billion), or 8.7 percent of estimated gross domestic product. That compares to an official estimate for the previous year of 9.5 percent.
Now to the interesting Allah and moolah part. Even the incoming Muslim Brotherhood leadership that is replacing the military "caretaker" government recognizes that Egypt is in very bad financial straits. However, it appears that they may need a hefty dose of divine intervention since they believe the IMF will provide conditionality-free loans:
Egypt's Muslim Brotherhood would consider supporting a deal to obtain emergency aid from the IMF, providing there are no conditions attached and alternatives are explored first, a senior official in the Brotherhood said..."There is no objection to borrowing. But it must be without conditions. And it should be in accordance with national priorities," Ashraf Badr El-Din, the head of the Islamist movement's economic policy committee, told Reuters in an interview on Thursday.
Admittedly, there's a lot of amateurishness in their understanding of what the IMF requires of borrowers after being marginalized all these years under Mubarak:
IMF aid is sensitive in Egypt because of national pride and because the Fund is expected to ask the government for assurances on curbing state spending — an explosive issue in a country where frustration over poverty has been causing unrest...The Brotherhood's ambivalent position on IMF aid reflects both its inexperience in handling economic policy — its activities were severely restricted under Mubarak — and the fact that it is not clear how much it will be able to shape policy in the next government.
Indeed, the IMF mission which recently visited Egypt met with the incoming Muslim Brotherhood leadership:
But there is also anger over the IMF negotiations with an unelected, non-civilian government that has failed to articulate a comprehensive economic vision and presided over a repressive transition to democratic rule.

To its credit, the IMF delegation sent to Egypt - and which departed yesterday - met with leaders of the Muslim Brotherhood's Freedom and Justice Party, whose candidates just won a near majority in parliament, to discuss assistance and economic policy. Some saw it as a sign that the IMF preferred not to negotiate with the generals, instead ensuring the assistance had broad and legitimate political support.
The wording of the IMF official statement is obtuse on this point but confirms that the Muslim Brotherhood - IMF meetings did take place. I must meet with the writers of such statements at the IMF who have to deal with such euphemisms day in, day out. I am sure they have a side-splittingly good sense of humour to write such things...
The program developed by the Egyptian authorities and its key policies are currently being discussed with emerging political parties to ensure broad political support. This should help reduce uncertainty and boost confidence in the program’s successful implementation. During our visit, we also had the opportunity to meet with the economic committee of the Freedom and Justice Party and members of other parties...
Recent Egyptian history is marked by protests aplenty--now including against the IMF--but progress? Not much at all. Still, the possibilities are endless for this Muslim Brotherhood and IMF, religious 'n' market fundamentalists brew. Just think: If matters go sour, will somebody declare a fatwa on IMF officials? You hope otherwise but these are mostly bad possibilities despite being incongruously entertaining in the Benjamin Barber sense.

Can you say "fiscal austerity"? How about "tranche"?
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Axis of Upheaval: Iran-Russia Trade in Own Monies

♠ Posted by Emmanuel in ,, at 1/20/2012 12:40:00 PM
Mahmoud Ahmadinejad: They get our oil and give us a worthless piece of paper.

Vladimir Putin: They are living like parasites off the global economy and their monopoly of the dollar.

Factually speaking, the ongoing long-term devaluation trend of the dollar is not in dispute. However, America #1 cheerleaders don't like hearing it from the likes of the folks mentioned above with their particular put-downs (however appropriate). The common refrain of "well, what are you gonna do about it?" referring to dollar hegemony is an important one. How do you escape being ripped off in advance by Uncle Sam? Already Japan is buying more RMB-denominated sovereign bonds.

In such a vein, I suppose this example is as straightforward an example of the principle of "the enemy of my enemy is my friend" as you can get. You see, the axis of upheaval of Iran and Russia--two countries currently in the Western doghouse over alleged nuclear weapons programmes and vote-rigging respectively are joining forces to defeat the need to use dollars in their trade activities with one another. The particular reason cited for this move is the imminent imposition of sundry Western sanctions on Iran designed to curtail its trade with the rest of the world:
Iran and Russia have started using their domestic rial and rouble currencies in bilateral trade instead of the U.S. dollar, Iran's envoy to Moscow said on Friday, after the United States imposed new sanctions on the Middle East state.

"(Trade) is based on our national currencies," said Iranian ambassador to Russia Seyed Sajjadi...We started this work long ago. Iranian businessmen are buying products in Russia and are using the rouble as (payment) currency ... The U.S. dollar has no (economic) support base," he said speaking at a news conference.

Iran is seeking to boost trade after the United States imposed additional sanctions in late December in a response to Teheran's refusal to abandon uranium enrichment. The European Union is expected to finalise the ban on imports of Iranian oil at a meeting next week.

Russia, opposing oil sanctions against Iran, has long promoted the rouble as an international currency which could be used in bilateral settlements. In 2010 Moscow began offering to exchange roubles for Chinese yuan as the two nations look to boost bilateral transactions in their own currencies and reduce their reliance on the dollar. China accounts for 10.1 percent of Russia's foreign trade and is its second-largest trading partner after the European Union, while Iran's share in Russia's trade in 2011 stood at 0.5 percent.
While I neither think the ruble is an ideal vehicle currency [!] nor view the rial as a viable currency at all given how I mostly used other denominations when I visited Iran, there may be something going on here worth emulating. As you probably expect, I will have more to say about Iran's persecution in the coming days. Stay tuned.
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Indonesia Got It Right: A Post-Crisis Success Story

♠ Posted by Emmanuel in , at 1/19/2012 02:10:00 AM
To say that I didn't rate Indonesia's prospects highly after the Asian financial crisis of 1997/98 would be an understatement. It was going from one transitory leader to another after Suharto's ouster. Its economy contracted hugely. All the while, various secessionist movements were tearing the country apart. That was a nasty, nasty time.

It is remarkable how in the relatively short space of little over a decade how Indonesia has reconstituted itself. I guess adversity brings out the best survival instincts in some (while bringing about even more gorging on debts 'n' fats in others). Regaining its investment grade credit rating from Moody's is but the latest manifestation of the country being back in the high life again. Whereas nearly all of the West is having trouble dealing with debt loads hovering around the 100% of GDP mark, Indonesia has over the years whittled down its sovereign debt to 25% of GDP. 25%! All the while it has created a lively and participative political sphere where previously there was none. Enter its singing president and all that. PIGS, eat your hearts out...
The country is already seeing some of the dividends of its improving global reputation as international investors have started flocking to its bonds. Last week, Indonesia achieved a record-low yield on the largest-ever long-dated bond sold in Asia, when it sold 30-year bonds at a yield of 5.375%. That's less than some European countries have to pay to raise money. Italian 30-year debt yields, for example, are around 7% and Spain's around 6%.

The ratings moves also cap an extraordinary run of triumphs for Indonesia, which has nursed itself back to financial health following the Asian financial crisis in the late 1990s, when it became a poster child for emerging economies run amok with a massive debt load and unstable leadership. More recently it has benefited from several years of political stability under President Susilo Bambang Yudhoyono, conservative fiscal management and deep reserves of natural resources such as coal and natural gas that have fueled strong economic growth, even in the worst days of the most recent global financial crisis.
There may be nothing like a full-blown crisis to concentrate the mind, indeed:
Indonesia's relative health today as other countries struggle with ratings downgrades is a direct result of its efforts to deal with its own financial troubles in the late 1990s. Few countries have suffered through a debt implosion like the one Indonesia felt in the Asian financial crisis, when investors fled the country and the country's government effectively collapsed. Since then, the Southeast Asian nation's ratio of public debt to gross domestic product has plunged from more than 90% in 2000 to a modest 25% today, as the painful rebuilding process has made it more cautious about spending and debt.
As I asked recently, do financial markets nowadays really distinguish between developed and developing? Those labels may have been rendered meaningless in that sphere. Many of the Southeast Asians look to be in better shape overall with far lower debt loads and far higher growth prospects. Once more some learned from their crises; others did not. To the former goes the Pacific Century and the latter the New Normal.
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Islamization: Libyan Rebels' Price for Qatari Support

♠ Posted by Emmanuel in at 1/18/2012 10:18:00 AM
It may have been a self-serving argument, but hardline leaders in the Middle East who successfully beggared the West on the premiss that even more fundamentalist forces would take over in their stead were not really being disingenuous. Witness Egypt. While wet-behind-the-ears white kids with a penchant for digital exceptionalism (today's cyber-equivalent of American exceptionalism possessing similar pitfalls) were working themselves into a frenzy about the "Arab Spring," less excitable commentators looked on warily. And so it has come to pass that far more extreme figures have emerged on Egypt's political scene, while the destabilizing effects of all this tomfoolery has been yet another round of IMF beggary. Yippee, what a success story, this cyber freedom 'n' growth shtick. [NOTE: This post was not written on an iPad, Blackberry or any sort of fanboy device.]

As with all sob stories, however, it gets even worse. The Libyan revolution has been of particular interest to me given our university's imbroglio with the clan Gathafi (more on this later; see an eariler post for now). So the previous leader may not have been a Western lackey claiming to protect his country from even more extreme influences, but it doesn't really matter. Unable to gain enough material aid from the West, Libyan revolutionaries were in no small part funded by the Qataris of Harrods, al-Jazeera and World Cup 2022 fame. No matter; despite the overtly liberal tones of their own investments, it seems the Qataris are keen to extract a fairly hefty dose of strict Islamization from the new Libyan leadership as quid pro quo for funding de-Moammarization.

Let us begin with what Qatar has provided:
Qatar did much more than finance weapons purchases and provide battlefield training. With no access to money and facing legal difficulties in selling oil, the rebels' political body — known as the National Transitional Council (NTC) — could not pay Libyan salaries and fund the wide-ranging subsidies on everything from bread to gas, which grease the economy. Qatar stepped in by offering to market 1 million barrels of oil for the NTC, which brought in about $100 million. Later, the small but immensely rich country delivered four consignments of refined petroleum products, such as diesel and gasoline. When international oil firms refused to offload oil shipments in Benghazi's port until the NTC paid for them, Qatar intervened and pledged to do so if the Libyan council could not.
And what Qatar appears to want in return is a rollback of secularization:
But with Gaddafi dead and his regime a distant memory, many Libyans are now complaining that Qatari aid has come at a price. They say Qatar provided a narrow clique of Islamists with arms and money, giving them great leverage over the political process. "I think what they have done is basically support the Muslim Brotherhood," says former NTC Deputy Prime Minister Ali Tarhouni, referring to the Islamist organization that has won elections in Egypt and Tunisia. "They have brought armaments and they have given them to people that we don't know." Some Qatari officials have indeed exerted influence in Libyan politics. During deliberations to choose a new Cabinet in September, a senior Qatari official was seen huddled with the outgoing Defense Minister, allegedly trying to guide appointments to sensitive security positions.

NTC members complain that actions like these are undermining the fragile transition to democracy the NTC has promised. "Qatar is weakening Libya," says an NTC member who requested anonymity because he was speaking about a sensitive topic. "In funding the Islamists, they are upsetting the balance of politics and making it difficult for us to move forward. They need to stop their meddling." Senior military officials sidelined by Qatar's cronies are just as blunt. "If aid comes through the front door, we like Qatar," says General Khalifa Hiftar. "But if it comes through the window to certain people [and] bypassing official channels, we don't want Qatar."
You do hope things get better in these countries in the long run even if they may undergo painful changes in the meantime. Still, you cannot rule out that more and more will increasingly remember the "bad old days" under Ben Ali, Mubarak, Gathafi as the "good old days." Meanwhile, those Qataris appear to be quite a crafty bunch even if many may disapprove: avoiding protest at home by adapting neoliberal affectations while actually applying pressure elsewhere to adopt the hardline.
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More "Internet Freedom" Hypocrisy c/o the Yanks

♠ Posted by Emmanuel in at 1/18/2012 08:15:00 AM
This post will be brief: I have identified the several contradictions of Hillary Clinton's hoary notion of "Internet Freedom" in a previous co-authored essay. Mind you, that bit of writing even preceded the WikiLeaks dustup which permanently consigned that bit of digital exceptionalism to the scrap heap of computer history.

More recently, American lawmakers have forwarded bits of legislation in the House and Senate designed to protect intellectual property rights by strongly obliging Internet service providers (ISPs) to monitor their customers for piracy. It seems even American tech firms recognize this sort of inconsistency regarding Uncle Sam's treatment of the Internet when it comes to addressing the rights of commercial rights holders (not predominantly theirs, mind you) vis-a-vis those of regular folks without such commercial clout. Certainly the likes of Wikimedia Foundation and Google of "Enabling Trade in the Era of Information Technologies: Breaking Down Barriers to the Free Flow of Information" fame are up in arms against this latest intrusion. Wikipedia is even blacked out today.

Why should being unable to pirate the latest episode of Gossip Girl be a more important global priority than, say, respecting other nations' rights to non-interference and non-intervention and hence keep the interstate system--in reasonably decent operation since 1648--intact? Not only do some folks have unworkable ideas but also a highly distorted set of priorities.

UPDATE: And don't forget this bit of proposed American legislation is but the tip of the iceberg. Actually, the Obama administration is very much behind the Anti-Counterfeiting Trade Act (ACTA)--a nasty piece of work masquerading as a trade agreement with provisions not unlike those of PIPA and SOPA with farther-reaching potential.
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Apple & Samsung: Who's Got Whom by the Balls?

♠ Posted by Emmanuel in ,,,, at 1/17/2012 01:08:00 PM
[NOTE: For those who don't get the title, play this AC/DC song.] There are two broad debates going on regarding the current dominance of Samsung in the consumer electronics space. First we have the perennial question about the role of industrial policy for its success. Widely lauded for being a source of South Korea's competitive advantage during its rise to "Asian tiger" status, industrial policy was subsequently derided as a mechanism for harmful corruption during the Asian financial crisis. Surely there are those who criticize the continued state favoritism shown towards chaebol and its effective stifling of the emergence of smaller, nimbler Korean startups.
Me? I say the results speak for themselves.

Second and more interesting to me at the moment is the ongoing legal battle being waged by Apple against Samsung. At the same time that the Korean firm manufactures a number of the components used in the Apple iPhone, it makes its own line of smartphones. Samsung has been very successful in this regard, overhauling Apple as the world's largest seller of such devices in Q3 2011. Samsung's explanation for this strategy is that being a parts maker and a branded seller helps achieve economies of scale which it otherwise would not have had if it did not spread development costs to other customers. On the other hand, Apple is very much in line with the modern vision of an American "knowledge economy" firm that does not concentrate on manufacturing (the gritty stuff whose value-added tends to fall over time) but on branding and design (the glamorous stuff whose value-added tends not to fall). That is, who wants to be stuck with plant, property & equipment when they eventually become obsolete--isn't it worth a lot more "up there" in your head?

In many ways it's a next-generation debate between those who see the "knowledge economy" or a broader shift towards services as a source of comparative advantage (especially Americans) and those who perceive that industrial policy is still viable in the 21st century with tweaks here and there (especially Asians). Yet to paraphrase an ad slogan from long ago, Korea no longer practices its grandfather's reverse engineering but one wherein it sets the pace in new industries ahead of its Western competitors. It has certainly done well in this regard during the 21st century with bets that have paid off:
In 2000 Samsung started making batteries for digital gadgets. Ten years later it sold more of them than any other company in the world. In 2001 it threw resources into flat-panel televisions. Within four years it was the market leader. In 2002 the firm bet heavily on “flash” memory. The technology it delivered made the iPhone and iPad a reality, and made Samsung Apple’s biggest supplier—and now its biggest hardware competitor.
Or so the Koreans would like to think. As you know, Apple has taken Samsung to court over, indeed, copying the look and feel of its products (imitation is the sincerest form of flattery and all that):
Competitors also balk at the way that Samsung scales up quickly to supply parts to other firms as well as to price its own gadgets keenly. Supplying the rest of industry drives down Samsung’s costs yet further, with its rivals in effect financing its success. This strategy can create problems. Samsung is Apple’s most important supplier in the smartphone and tablet-computer markets. Samsung components, which include all the product’s application processors, account for 16% of the value of an iPhone. It is also Apple’s greatest competitor in those markets. Apple is now suing the socks off the company for copying the look and feel of its products. At the same time it is urgently seeking new ways to diversify its supply chain.
There may thus be limits to the symbiosis said to be going on between these firms. Apple may want to broaden its component supplier base in case Samsung tries to get back at it for legal contretemps. Meanwhile, Samsung may want to devote more attention to the software side as the hardware side of the consumer electronics equation. That is, an amount of overlap in expertise is perhaps inevitable for each to maintain competitiveness vis-a-vis each other. While the Economist views this relationship as rather unique, B-school professors Brandenburger and Nalebuff already noticed how widespread the phenomenon of "co-opetition" was back in 1997 when Steve Jobs had yet to sell a single iProduct (having just rejoined Apple). Been there, done that, saw the movie, bought the T-shirt.

Returning to the post's title, who has whom by the balls? In the short term it's to an extent mutually assured electro-destruction if either backs out in a significant way. In the long term it's probably not a question we will be asking as Apple seeks to broaden its supplier base and Samsung does what it's done many times before and moves on to other industries it deems more promising--which are not necessarily those in the consumer electronics space. Remember, Samsung was not originally a consumer electronics company. Tis but a momentary convergence of interests.

That said, the broader debate on the prospects for the "knowledge economy" which America has in large part bet its economic future on compared to those for the reworked conception of industrial policy which Asian nations have staked a claim to should be interesting to watch. Who says both cannot work--and purchase stocks of both firms to diversify one's portfolio? More importantly from a political economy perspective, which specific strategy will be most beneficial to their home nations? I've already criticized the Apple model for not doing much that is good for America, for instance.
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What Threat Does Europe Pose to Asian Growth?

♠ Posted by Emmanuel in at 1/16/2012 12:03:00 AM
Not much according to the Asian Development Bank (ADB). Despite the ongoing--how should I describe them--gyrations in the Eurozone, the Asia-Pacific is expected to do well. Actually, the ADB has already downgraded its prediction for Asian growth in light of the various Western foibles--from 7.5% to 7.2% [yawn]. As I said, there is not much of a threat predicted. The worst case scenario is of simultaneous US/EU combustion. Here is the press blurb:
Economic growth in emerging East Asia will continue to moderate into 2012 as growing sovereign debt problems in Europe and an anaemic US economy raise the spectre of a deep global economic downturn, says the Asian Development Bank’s latest Asia Economic Monitor [you can download the whole report here].

In the event that both the eurozone and the US economies contract sharply, the impact on emerging East Asia would be serious yet manageable, the report says. “The turmoil emanating from Europe poses a growing danger to trade and finance within emerging East Asia; so the region’s policymakers must be prepared to act promptly, decisively, and collectively to counter what could be an extended global economic slowdown,” said Iwan J. Azis, Head of ADB’s Office of Regional Economic Integration, which produced the report.
The pertinent part of the report is this one regarding the tricky business of forecasting:
ADB cut its forecast for the region's growth in 2012 to 7.2% from the 7.5% forecast in the September Asian Development Outlook 2011 Update. Growth is still forecast at 7.5% for this year.

In a special section—-Can East Asia Weather Another Global Economic Crisis?—-the report describes the events that could lead to a recession in the eurozone and a new economic downturn in the US. It examines how a new global economic crisis would affect the region under differing scenarios. East Asia comprises emerging East Asia plus Japan.

In the worst case scenario—with the eurozone and US contracting as much as they did in 2009—-emerging East Asia would grow by 5.4% next year. That would be 1.8 percentage points below the current forecast but not as severe as the impact of the 2008/09 global crisis. This is due in part to diversification of the region’s export markets and increased domestic demand as a source of growth.
This decoupling is down to Asian exporters developing markets within Asia as opposed to relying on Western ones that are no longer in such good shape. Not putting all of a nation or region's bets on a few export categories (i.e., diversification) has helped, too.

For a counterpoint to the optimistic scenario for Asia, see Roubini. To paraphrase Rummy, though, Asians should care progressively less about the "old West" as it has in all likelihood seen its better days and insulate themselves accordingly from blowback.
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Sinking US Exports? Obama Says Merge Agencies

♠ Posted by Emmanuel in , at 1/13/2012 03:57:00 PM
Ho hum, hot off the presses is yet another lacklustre just-released American trade report for the month of November. With imports on the rise (mostly due to energy) and exports on the wane, let's just say US trade performance is not going to be contributing as positively to their GDP figures in Q4 2011 as hoped. You may recall back in 2010 when Obama set a target to double US exports by 2015? Let's just say they're not moving towards that goal with any alacrity as evidenced by the latest trade figures or with the figures to date.

What to do? It's probably just rearranging deck chairs on the US Titanic, but just in is word that Obama intends to (finally) merge various government agencies handling trade. Moreover, the move is calculated to receive Republican support by reducing a sprawling network of agencies:
The Commerce Department would cease to exist after the consolidation of trade agencies that President Barack Obama is seeking, a White House budget official said on Friday. It would create a new yet-to-be-named department focused on exports, said Jeffrey Zients of the Office of Management and Budget.

Parts of the Commerce Department that are unrelated to trade and businesses, like the National Oceanic and Atmospheric Administration, would be moved to other government agencies, he told reporters. The U.S. Trade Representative would remain a cabinet-level position and the head of the Small Business Administration would also be made a cabinet post, Zients said. White House spokesman Jay Carney said the overhaul proposal would save money and should get bipartisan support in Congress.
That said, Obama mooted doing so in March of last year to no avail. Busybody activity aplenty perhaps, but to what end?

UPDATE: The WSJ adds more details, including some lawmakers on either side of the aisle reluctant who are reluctant if it involves dismembering the USTR:
"Taking USTR, one of the most efficient agencies that is a model of how government can and should work, and making it just another corner of a new bureaucratic behemoth would hurt American exports and hinder American job creation," House Ways and Means Chairman Dave Camp (R., Mich.) and Senate Finance Committee Chairman Max Baucus (D., Mont.) said in a joint written statement.
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Watch al-Jazeera To Get Smart, Not BBC or CNN

♠ Posted by Emmanuel in , at 1/13/2012 11:51:00 AM
There's a feature in a recent issue of Newsweek that reiterates something many probably already acknowledge: al-Jazeera is now the international news channel to be reckoned with. Sure its lapses now and again into bashing the West may be grating to occidental audiences, but hey, that may be a good thing. The logic here is that persons think through their beliefs more when challenged, stimulating their intellect in the process. Hence, the worldviews which underlie much of al-Jazeera coverage may prompt those with more whitebread notions about the white man's burden in civilizing us primitives to rethink such ideas.

And so the fourth best way to get smart in 2012 according to Newsweek is...
Don’t shut yourself out from new ideas. A 2009 study found that viewers of Al Jazeera English were more open-minded than people who got their news from CNN International and BBC World.
If even the hopelessly Amerocentric Hillary "Internet Freedom" Clinton cites al-Jazeera for its breadth and depth of coverage compared to its Western counterparts, isn't it time for you to do the same?
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Revealed: Secrets of Korean Economic Policy

♠ Posted by Emmanuel in at 1/12/2012 12:05:00 PM
Well OK, the title of this post is an exaggeration. Still, I believe that I've come across something quite significant for scholars of development. My e-mail inbox tends to get clogged with not only the usual things--manhood enhancement products, cheap vacations and whatnot but also their academic equivalents--invitations to obscure conferences (which you must pay for), invitations to review for obscure journals (which you've never heard of) and so on. Unfortunately, lost among this pile of stuff folks send me to read are a number of very helpful publications.

So, it is with no small pleasure that I've rescued the Korea Development Institute's recent publication From Despair to Hope: Economic Policymaking in Korea: 1945-1979 from the chaos that is my electronic mail account. (A PDF copy is available from the Duke University servers.) Given the prominent role many Western commentators give to the South Korean state in promoting national development, it's only fitting that the author Kim Chung-yum is a longtime public servant--first for the central bank and then later on in the Ministry of Commerce and Industry at the time of the nation's much vaunted take-off.

While there are any number of secondhand accounts of Korea's success story, this one is obviously a firsthand one that is proving to be quite informative the more I read it. Certainly South Korea has gone in and out of fashion. From being lauded as an Asian tiger during the Eighties it was subsequently disparaged in the aftermath of the Asian financial crisis as it was eventually forced to take out an IMF bailout. The important thing though is that its highly competent civil service has been quite instrumental in helping right the international prospects for Korean products when called for. Hence Samsung for instance being a "model company" in today's world economy.

Especially for policymakers involved in development, I hope there are nuggets to be gleaned here for you. Yes the Korean case is not universally applicable, but there are certainly practices which may be transferable and beneficial from all those years ago.
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The Agony of Wolfgang Munchau, Euro Hater

♠ Posted by Emmanuel in ,,, at 1/11/2012 10:46:00 AM
Brother will kill brother; spill blood across the land
Killing for religion is something I don't understand...

Do Financial Times columnists listen to Megadeth? I admittedly do--and proudly so. One of my trademark posts in the run-up to the global financial crisis concerned "The Subprime Wisdom of Megadeth" which was true then as it is now. However, it seems that the FT's Wolfgang Munchau wants to do me one better by implying that Europe is not only combating financial crisis but is also engaged in "Holy Wars...The Punishment Due" [padarumph...padarumph...padarumph (I can hear air guitars riffing the intro already)].

To avoid possible conflicts of interest, let me disclose that the FT once gave me a fairly lucrative prize a few years ago. While I still regard it as being at the pinnacle of financial reporting alongside the Wall Street Journal sans the latter's op-ed section, I'm beginning to wonder if the standards of the FT in the column writing department are now approaching WSJ neocon territory. Which, of course, is not quite good unless you're a firm believer in bombing Iran ASAP, reducing taxes to single digit rates and other wingnut causes that render you politically radioactive.

Which brings me to Wolfgang Munchau. In the past, I have found him to be a trenchant if pessimistic commentator on the European Union. The British famously produce many Eurosceptics whose dislike for "being enslaved" by Brussels borders on the fanatic. But while you may expect such writing from the worst lot of the Eurosceptic British press, you expect the FT to have higher standards. So it was a big surprise to me in late November when Munchau formed his own Euro-doomsday movement by stating that the Eurozone would expire on 7 December. I suppose that such prophecies not coming true would have quieted him somewhat alike other end-of-the-worlders who've found the world existing past its putative sell-by date, but I guess not. It makes me think that he may be a British Eurosceptic in disguise. After all, he has subsequently disparaged assertions that the French defenders of the euro will fare worse than the British with their neoliberal policies favouring financial services industries.

But that's not all. He now suggests that what we have with Europe's financial woes is nothing less than a rehash of the Thirty Years' War between Catholic and Protestant religions. In his scheme of things Catholic Italy, Portugal and Spain are engaged in a conflict with Germany:
But what remains unchanged from those times are the underlying cultural conflicts between Protestants and Catholics, north and south, Britain versus the Continent. The many decades of European integration have not ended this fundamental mistrust. This is also one the reasons why the Europeans have created such an irrationally unbalanced monetary union. Its rules were not the result of a rational economic argument, but designed to allay very old German suspicions.
While working in London, something striking is that I always had Catholic flatmates for some reason--French and Italians among others. Yet I was the only one who bothered with going to mass on Sunday. It is a fairly well-known observation that Europe is becoming increasingly secular. Many Europeans never bother to attend services, and this phenomenon cuts across Catholic-Protestant divides. Nor is there much stigma in out-of-wedlock births across Europe as evidenced by soaring rates of illegitimacy. Gay marriage in Spain raised nary an eyebrow elsewhere despite vehement opposition from the Catholic church. In other words to quote Munchau, something which truly unites Protestants and Catholics, north and south, Britain and the Continent is a pronounced increase in secularism. That is a cultural unity, not an underlying cultural conflict. The numbers back me up, not Munchau.

It is also odd that Munchau does not mention his bete noire France in this context given that it lies at the heart of the EU-2 Franco-German "Merkozy" leadership complex. Isn't it (nominally) Catholic as well--like thrice-married Nicolas Sarkozy? Again, it is very odd to compare today's goings-on with those of holy wars of so long ago when today's putative combatants are largely indifferent to religious culture. What's more the last I checked, Germany not only is about evenly divided between Protestants and Catholics but is also the proud homeland of the current Pope, Benedict XVI, and an admirable one to boot.

Bottom line: this comparison is ludicrous. While drawing (far-fetched) analogies is par for the course from economic commentators, this one goes far beyond imperial overstretch by invoking religion where it explains next to nothing. What's next, Turkish EU accession will be a re-run of the Battle of Gallipoli?
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Stephen Roach: It's Still Bet On China, Not India

♠ Posted by Emmanuel in , at 1/09/2012 02:51:00 PM
Rumours of China's imminent demise are much exaggerated (see Roubini on the overinvestment thesis, for instance)--or so says Stephen Roach (inveterate PRC fan). In a new al-Jazeera op-ed, he addresses the alleged seeds of China's downfall alike excess real estate investment (the PRC's subprime moment?) and excessive lending of state banks by official diktat to marginal projects:
[I]t is a serious exaggeration to claim, as many do today, that the Chinese economy is one massive real-estate bubble. Yes, total fixed investment is approaching an unprecedented 50 per cent of GDP, but residential and non-residential real estate, combined, accounts for only 15-20 per cent of that - no more than 10 per cent of the overall economy. In terms of floor space, residential construction accounts for half of China's real-estate investment. Identifying the share of residential real estate that goes to private developers in the dozen or so first-tier cities (which account for most of the Chinese property market's fizz) suggests that less than 1 per cent of GDP would be at risk in the event of a housing-market collapse - not exactly a recipe for a hard landing.

As for Chinese banks, the main problem appears to be exposure to ballooning local-government debt, which, according to the government, totalled $1.7tn (roughly 30 per cent of GDP) at the end of 2010. Approximately half of this debt was on their books prior to the crisis.

Some of the new debt that resulted from the stimulus could well end up being impaired, but ongoing urbanisation - around 15-20 million people per year move to cities - provides enormous support on the demand side for investment in infrastructure development and residential and commercial construction. That tempers the risks to credit quality and, along with relatively low loan-to-deposit ratios of around 65 per cent, should cushion the Chinese banking system.
Contrast China to India, which (yawn) Roach again emphasizes has a more serious structural bias towards an external deficit (alongside its still-marginal infrastructure):
India is more problematic. As the only economy in Asia with a current-account deficit, its external funding problems can hardly be taken lightly. Like China, India's economic-growth momentum is ebbing. But unlike China, the downshift is more pronounced - GDP growth fell through the 7 per cent threshold in the third calendar-year quarter of 2011, and annual industrial output actually fell by 5.1 per cent in October.

But the real problem is that, in contrast to China, Indian authorities have far less policy leeway. For starters, the rupee is in near free-fall. That means that the Reserve Bank of India - which has hiked its benchmark policy rate 13 times since the start of 2010 to deal with a still-serious inflation problem - can ill afford to ease monetary policy. Moreover, an outsize consolidated government budget deficit of around 9 per cent of GDP limits India’s fiscal-policy discretion.
Still, it will take a pretty serious external shock to knock either one of these off-track in a significant way in 2012:
While China is in better shape than India, neither economy is likely to implode on its own. It would take another shock to trigger a hard landing in Asia.

One obvious possibility today would be a disruptive break-up of the European Monetary Union. In that case, both China and India, like most of the world's economies, could find themselves in serious difficulty - with an outright contraction of Chinese exports, as in late 2008 and early 2009, and heightened external funding pressures for India.
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Hugo Away: Chavez Ignores World Bank on Exxon

♠ Posted by Emmanuel in ,,, at 1/09/2012 10:31:00 AM
File this under: pre-emptive strike. It appears that the indefatigable Hugo Chavez is back on the warpath against all things American. A few days ago he publicly suspected the United States of unleashing cancer on fellow left-leaning Latin American leaders. In less improbable news, however, we now understand that his Venezuela will not abide by subsequent rulings that find the country liable for nationalizing ExxonMobil oil fields in the Orinoco Belt. At the end of last year, forum shopping ExxonMobil received a favourable $746.9 million verdict against state oil company PDVSA at the International Chamber of Commerce (ICC) Court of Arbitration over the expropriation. While a victory nonetheless, ExxonMobil believes that this sum amounts to less than a tenth of its original investment.

Now, as most of you know, the International Court for the Settlement of Investment Disputes (ICSID) is a World Bank body that does what it says on the label. That is, it addresses legal conflicts over the handling of international investment--most often cases of expropriation alike what Venezuela is said to have done to ExxonMobil. ICSID is currently set to pass judgement on ExxonMobil's investment in Venezuela alike many others who've similarly complained about expropriation at Chavez's hands.

Anticipating a more negative ruling, Chavez is already signalling that Venezuela will not honour the decision of the Washington-based institution:
Venezuela won’t accept any verdict from the World Bank’s International Centre for Settlement of Investment Disputes, including Exxon Mobil Corp.’s claim for its nationalized Cerro Negro project, President Hugo Chavez said. The Washington-based court is considering Exxon’s claim in one of about 20 suits filed there against the Venezuelan government. Chavez, a self-professed socialist revolutionary, has taken over assets in the energy, metals, cement and telecommunications industries.

“We won’t recognize any decisions from the ICSID,” Chavez said on state television yesterday during his first Sunday program since announcing he had cancer last year. The company is “seeking the impossible, that we pay what we will never pay.” Exxon, the world’s largest oil company by market value, was the first to abandon Venezuela after Chavez expropriated industry assets in the Orinoco heavy crude belt in 2007. The president forced foreign oil producers into joint ventures as minority partners that year and is also in arbitration with ConocoPhillips, which rejected the terms...
Despite being a buffoon in many respects, Chavez logically assumes that the World Bank's ICSID and its usual American influences will result in a less favourable outcome. Here's a thought for you, though: What if the ICSID awards ExxonMobil an even smaller amount than the ICC's International Court of Arbitration or even finds in favour of PDVSA? The willingness of PDVSA to compensate ExxonMobil for what the ICC adjudged means it believes that it's as good as it gets:
In a separate case, the New York-based International Chamber of Commerce, an arbitration court, ruled last month that state oil company Petroleos de Venezuela SA must pay a net $746.9 million for the nationalization. Venezuela will compensate Exxon for the Cerro Negro project as ordered by that court, Chavez said yesterday.

“If Exxon gets an award in the ICSID, the enforcement mechanisms are strong,” Michael Nolan, a partner in the Washington office of Milbank, Tweed, Hadley & McCloy who has represented clients in arbitration with Venezuela, said in a telephone interview last week. “There’s a treaty.” Exxon in 2010 reduced its claim to $7 billion from $12 billion, according to PDVSA, as the Caracas-based company is known. The Venezuelan company said Jan. 2 that it would pay $255 million in cash for the International Chamber of Commerce judgment, after accounting for about $300 million in a frozen New York bank account and $191 million of Exxon debt that it will cancel.
Perhaps unsurprisingly, ExxonMobil is again forum shopping for the best result. Having been disappointed by the ICC ruling, it now awaits that of the ICSID which is supposedly considering a more strictly enforceable bilateral investment treaty (BIT) as evidence as opposed to a contract between just ExxonMobil and Venezuela. On the other hand, PDVSA is also looking for the best deal to get ExxonMobil off its back for now which it believes can be done by promptly (or at least by Venezuelan standards) paying at least part of the $746.9 million. I leave you to (enjoy?) more Hugo-isms:
“It’s insane!” Chávez said. “It’s such an insane position taken by this company than the decision [of the court] recognizes less than 10 percent of what they were asking for. How much must these companies have robbed in the last hundred years? They stole from us; they had to pay us back for damages made in the last hundred years; the capital they have wouldn’t be enough,” Chávez said.
Even Hugo knows a good deal when he sees one (perhaps). Still, I would be gobsmacked if the average Venezuelan knows what the ICSID is when most persons don't. Moreover, permanently blowing off those with the actual know-how to extract extra-heavy sour crude may not be the best course of action insofar as PDVSA does not necessarily have this expertise on its own.
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