Posts of March 2014

Tourism, Where China's Trade Deficit Grows

♠ Posted by Emmanuel in China,Europe,Travel at 3/31/2014 09:48:00 AM

I remain surprised that tourism is not very well-studied in IPE considering that it is one of if not the world's largest industry. It's certainly big money on a global basis, providing much employment to people in developed and developing nations alike and reportedly accounting for 9% of global GDP. So, let use consider the fate of China and its particular industry. As it opens up to the world, the exchange of travelers has quickened. There's interesting stuff in the Nikkei Asian Review--fast becoming one of my go-to sites for Asia-related news--on Chinese tourism. To be sure, tourism to China is big business since it the...

IMF Bails Out Ukraine...and Franklin Templeton?

♠ Posted by Emmanuel in Casino Capitalism,Europe,IMF at 3/30/2014 11:02:00 AM

With some foreign currency savings in the bank, I have been in the market for a better return than a time deposit. I was thus offered some mutual funds that are becoming quite popular with retail clients looking for a boost in their returns. Being a conservative investor, I am interested more in fixed income than equity funds. As you probably know, Franklin Templeton is one of the United States' largest asset managers, with holdings nearing an astronomical trillion. For one reason or another, I was offered the Franklin Templeton Global Return Fund co-managed by the fellow above who explains when to invest after an emerging markets selloff, Michael Hasenstab. Just as sports fans talk about star athletes, investors apparently talk about star managers like him. Indeed, on the surface, this fund appears to be attractive: it is rated by Morningstar as a five-star fund. This means that for its risk category, the fund has been in the top tier in terms of returns. Doubtlessly, many...

IMF Masochism: Another Ukraine Rescue Package

♠ Posted by Emmanuel in Europe,IMF at 3/27/2014 10:56:00 AM

Ho-hum, here we go again: Ukraine has inked yet another deal with the IMF as one of the IFI's most hard-up of repeat customers. In a press release dated 3/27/2014: The mission has reached a staff-level agreement with the authorities of Ukraine on an economic reform program that can be supported by a two-year Stand-By Arrangement (SBA) with the IMF. The financial support from the broader international community that the program will unlock amounts to US$27 billion over the next two years. Of this, assistance from the IMF will range between US$14-18 billion, with the precise amount to be determined once all bilateral and multilateral support is accounted for. That the situation there is in the Venezuela/Zimbabwe league is obvious: Ukraine’s macroeconomic imbalances became unsustainable over the past year. The (until recently) pegged and overvalued exchange rate drove the current account deficit to over 9 percent of GDP, and a lack of competitiveness led to the...

First! London Offers RMB Clearing Outside Asia

♠ Posted by Emmanuel in China,Currencies,Europe at 3/26/2014 04:12:00 PM

Well, the deed is finally done: the UK is the first location outside Asia to offer clearing services denominated (demoninated?) in RMB. First there were Hong Kong and Macau (which don't really count in my book as special administrative regions of China). Then came Taiwan and Singapore. And now here comes a country which is not really part of the main Chinese diaspora in the UK: Britain and China will sign an agreement next week to set up the first clearing service for renminbi trading outside Asia, putting London in a prime position to offer yuan trade business in Europe. China has been a key focus of finance minister George Osborne's efforts to boost exports of financial services from Britain, which was the first Group of Seven country to agree a renminbi swap line with the People's Bank of China last year. Britain's finance ministry said on Wednesday that the Bank of England and PBOC would sign an agreement on renminbi clearing and settlement next Monday, setting out how...

Meeting the Moneybags: Argentina Faces Paris Club

♠ Posted by Emmanuel in Latin America,Paris Club at 3/26/2014 11:19:00 AM

It won't be easy--you'll think it strange--when Argentina tries to explain how it needs to rejoin international credit markets after all that it's done. You won't believe it; all you will see is a serial defaulter you once knew. However, it is indeed trying to, ah, the sixes and sevens with you. Over the past week or so, Argentinian President Cristina Fernandez has been in Paris trying to arrange a meeting with the group of rich government lenders--the so-called "Paris Club." Her objective has been to pay off its rather substantial remaining debts so it will have more than limited access to international credit markets....

South-South Trade: LDCs Doin' It for Themselves

♠ Posted by Emmanuel in Development at 3/25/2014 08:07:00 AM

Dependency theorists will have a more difficult time explaining how poor countries are increasingly trading with each other via South-South trade. How can they "exploit" each other when they are at similar levels of (under)development? About 25% of all trade is now of this form. The chart below comes from the 2014 World Economic Situation and Prospects. What's particularly notable is that the largest declines come from North-North trade, indicating once more how the developing world is largely picking up the slack. What's more, proportions of the classic forms of dependency theory--North South and South-North trade--are little...

Belgium, America's Third Largest Creditor [Sort Of]

♠ Posted by Emmanuel in Casino Capitalism,Europe at 3/23/2014 06:00:00 AM

While researching the previous post, I came across a seemingly astounding finding: Unbeknownst to most, a European country has somehow gained a podium place in the international suckers' competition known as "Major Foreign Holders of [US] Treasury Securities." Topping these hosers was China with a GDP of $8.358 trillion, followed by Japan ($5.96 trillion) and, er, Belgium (483.7 billion)[?!]. $310.3B worth of Treasuries is nothing to sneeze at. The usual suspicion with high-placing Treasury holders without much reason for being there is that others course their transactions through them to disguise their motives and, consequently, their holdings. In past years, the United Kingdom has served this purpose as a lightly regulated money center. Reports would indicate massive UK holdings, which were eventually heavily revised downwards during following months. At present, Caribbean offshore entities still perform this function, ranking a combined fourth overall among Treasury holders. So,...

Bailout Fatigue: Republicans, Ukraine and IMF Funding

♠ Posted by Emmanuel in Americana,Europe,IMF at 3/22/2014 01:38:00 PM

During the European financial crisis, the term "bailout fatigue" was coined to mean Germans getting tired of bailing out undisciplined EU members. Now, the term is being bandied about as the Obama administration eyes increasing US contributions to the IMF in light of the events in Ukraine. Unfortunately for Obama, while Republicans have been the more belligerent of the two American political parties, they haven't exactly put their (peoples') money where their mouths are at. Republicans generally agree with the John Bolton (remember him?) line that massively increased military spending is necessary in order to combat the Russian menace and all manner of threats against freedom, justice, mom, apple pie, and the American way of life. It thus seems odd that only when it comes to upping contributions to the IMF--subservient panderer to Western interests that it is in funneling emergency lending to various destitute but geopolitically important countries like Ukraine--that...

Can Israel's 'Silicon Wadi' Solve California's Drought?

♠ Posted by Emmanuel in Middle East,Technology at 3/20/2014 09:23:00 AM

I almost forgot about this one. A few weeks ago, Israeli PM Binyamin Netanyahu was in California promoting his nation's high-technology industries. Those in the know of global high-technology industries should be well aware of the country's burgeoning tech sector known as "Silicon Wadi" [1, 2] as a pun on California's Silicon Valley. Yes, its progress has been hampered by blowback from its nation's political stances, but its younger entrepreneurs are trying to depoliticize their activities by distancing themselves from the industry's military roots. At any rate, one of the things the "copycat" Israeli effort may outdo the original in is water management. Having declared an emergency this year, California is in dire straits. Is there any way of solving this problem short of depopulating California? Unfortunately, Silicon Valley has been minimally interested in addressing the water shortage plaguing their home state. However, Israelis have long been at the forefront of addressing...

Loonie Left: Air Canada Ditches Venezuela

♠ Posted by Emmanuel in Latin America,Travel at 3/19/2014 01:33:00 PM

When it comes to idiotic conspiracy theories, Venzuela's President Nicolas Maduro is pretty hard to beat. Almost everything he finds disagreeable is part of an American conspiracy to overthrow him. The latest case in point is Air Canada canceling its three weekly round-trip flights to Caracas. Due to currency controls, Venezuela makes airlines sell tickets domestically in bolivars, after which they will be converted into US dollars. Or so the government's jibba-jabba goes. Actually, it has accumulated over $3 billion in arrears to various carriers who are unable to receive promised foreign exchange. How bad is the situation? Even TAME, the airline of neo-Marxist Ecuador has stopped flying there due to unpaid accounts. So much for socialist solidarity. So, it was inevitable others would follow suit. On top of long overdue payments, Air Canada cites violence as a reason not to go to Venezuela: Air Canada has suspended flights to and from Venezuela, citing concerns over security....

Payback Time: Does US Use WTO to Kick Russia?

♠ Posted by Emmanuel in Russia,Trade at 3/17/2014 01:57:00 PM

In the absence of substantial US-Russia trade ties, the question American officials are asking themselves right about now is "How do we 'punish' Russia?" Sure the capital, foreign exchange and stock markets are naturally doing their part in hurting Russia, but how can the US throw its weight around directly? The UN is obviously out since Russia can veto everything from here till kingdom come as a permanent Security Council member. I almost missed this relatively arcane one: WTO accession involves meeting so-called sanitary and phyto-sanitary standards (SPS). Basically, this involves meeting safety standards for trade in animals and plants--especially food. Yes, Russia finally joined the WTO at the end of 2011--some are now saying that was a mistake to let it in--but it has nonetheless been helping its allies get into the trade club. Witness Kazakhstan which is one of the few non-failed states still outside the organization. To get in, it needs guidance on SPS, for which it is...

Putting Alitalia & Qantas Out of Their Misery

♠ Posted by Emmanuel in Travel at 3/16/2014 11:19:00 AM

Who's next to join Swissair in the Great Hangar in the Sky? IPE Zone readers of a certain age remember a time when having a flag carrier was a de rigueur symbol of nationhood. In the decades since, we've learned a lot about the management chops of different nations and their favored commercial interests. Even the mighty have fallen: Swissair used to be regarded as the "flying bank" due to its sterling safety record and financial solidity. By 2005 it was sold to Germany's Lufthansa. Today, let us consider some more cash-hemorrhaging airlines. As a general rule, airlines do not make much if any money in this day and age...

The Semi-Unfixables: Cyprus, Tunisia

♠ Posted by Emmanuel in Africa,Europe,IMF,World Bank at 3/14/2014 08:41:00 AM

Oh, the western world's woes: it has now taken on the incredible financial basket case that is Ukraine while not exactly "fixing" the situations of its other chronic deadbeats. Today, consider the plight of Cyprus and Tunisia, Europe's nearby ne'er-do-wells that are, er, not doing well despite Western tutelage and all that jazz. First, consider Cyprus. Despite all the protestations that this is not your grandfather's IMF with all sorts of harsh conditionalities [1, 2], the truth is that Cyprus has been put under the gun of privatization--or else. Last month, their parliament voted down privatization measures demanded by the EU/IMF, thus endangering its bailout package. This month, it reversed course and supported these privatization demands calling for an immediate sell-off of SOEs: The Cypriot parliament has approved a roadmap for privatisations, averting a showdown with international lenders insisting on state sell-offs as part of a $13.77bn bailout package. In a show...

Chumpions League: Gazprom, Putin & Schalke 04

♠ Posted by Emmanuel in Russia,Sports at 3/12/2014 01:25:00 PM

They, ah, invade others' territory quite well When it comes to the worst shirt sponsor of all time in world football, AIG in 2009 comes first. Despite falling into massive disgrace, Manchester United was forced to keep it until the 2009-2010 season to fulfill its contract. You could have hardly done worse if you had Bear Stearns on your shirt. However, the highly interesting world of football on one hand and money and politics on the other will always result in dubious sponsorship. Remember the saying: the best way to make a small fortune in football is to start with a large one. While watching Bayern Munich host Arsenal...

PRC Landmark: Interest Rate Liberalization by 2016

♠ Posted by Emmanuel in China at 3/11/2014 10:11:00 AM

There is an ugly term economists have for deposit rates being lower than the rate of inflation: financial repression. The other term, negative real interest rates, is marginally better. For a long time, China's extremely investment-heavy growth has been conditioned on giving depositors poor returns on their savings, while lending money to (usually state-affiliated) enterprises at concessional rates. With many investments not bearing fruit and polluting the Chinese environment besides, there has been a large rethink of this duality. With CCP bigwigs currently setting economic policy in Beijing for the next few years, one of the most notable changes promised is full-liberalization of interest rates in two years' time. That is, banks will be able to offer depositors higher rates, which in turn will mean borrowers will have to grow accustomed to a semblance of risk-based pricing of loans. From China Daily, still our favorite official publication after all these years: China is...

Crappier Than the West's: PRC Credit Rating Agencies

♠ Posted by Emmanuel at 3/10/2014 11:30:00 AM

You have to be pretty bad to outdo Western credit rating agencies in terms of honestly rating securities free from conflicts of interest. However, it is unfortunately possible. In the wake of the first mainland China bond default, investors are beginning to question the assumption that the state will rescue these firms and that their ratings can be relied upon: “China’s rating system has problems similar to those in the U.S. in 2008,” Guan Jianzhong, the Beijing-based chairman of Dagong, said in a phone interview yesterday. “There’s cut-throat competition and it’s not about who accurately evaluates the risks, but comes down to prices and ratings.” The U.S. Financial Crisis Inquiry Commission said in 2011 that inflated credit grades were partly to blame for the worst downturn since the Great Depression, as rating companies lowered standards to win business amid a housing boom that fueled issuance of mortgage-backed bonds. China ended in 2012 a four-year ban on sales of asset-backed...

Are Stolen Passports Really That Common?

♠ Posted by Emmanuel in Southeast Asia,Travel,Underground Economy at 3/09/2014 09:34:00 AM

[On a personal note, dear readers, rest assured that our thoughts and prayers are with those affected by the lost Malaysia Airlines flight. Alike the missing Boeing 777, the airline has a sterling safety record, making things all the more mysterious.] One of the more notable bits of news in surrounding the mysterious disappearance of MH370 is the absence of two European passengers who were supposed to be on board the flight but were actually not since their passports had been stolen: [A]fter the airline released a manifest, Austria denied that one of its citizens was aboard the flight. The Austrian citizen was safe and sound, and his passport had been stolen two years ago, Austrian Foreign Ministry spokesman Martin Weiss said. Similarly, Italy's foreign ministry confirmed none of its citizens were on Flight 370, even though an Italian was listed on the manifest. On Saturday, Italian police visited the home of the parents of Luigi Maraldi, the man whose name appeared...

PRC 'Bear Stearns Moment': 1st Local Bond Default

♠ Posted by Emmanuel in China,Energy at 3/07/2014 08:35:00 AM

They built 'em; buyers didn't come Chinese businesses have acquired a reputation for being protected by the national or local government in the absence of true "market discipline." That is, they may even be chronic money losers, but they are continually fed cash infusions in the hope that they will eventually turn the corner. However, with new PRC policies coming in spelling the end to subsidized credit, energy and so forth, Beijing has decided to make Chinese firms face the rigors of domestic and international competition. Hence its first impending domestic commercial bond default. It will come as a surprise to no one...

If Chinese Cars Can't Sell at Home...

♠ Posted by Emmanuel in China,Marketing at 3/05/2014 09:36:00 AM

The Qoros 3 looks quite handsome, but... ...what more abroad? There has been a certain fear factor--especially from less competitive European mass manufacturers alike Citroen/Peugeot, Fiat, Ford, Opel and Renault--that Chinese would be the next to undercut their already-dwindling sales with cheap products after the Japanese and South Koreans of the not-so-distant past. Moreover, it has been widely assumed that they would be at the forefront of China's forthcoming march into PRC-branded goods. Actually, no. Or at least not yet. In reality, Chinese cars are taking a beating at home from foreign automakers viewed as having...

What's Worse, Russian Ruble or Ukranian Hryvnia?

♠ Posted by Emmanuel in Currencies,IMF,Russia at 3/04/2014 11:04:00 AM

As you can see, it's Ukraine by a country mile which is worse off, but that's not saying much for Russia's economic prospects. In Latin America, the two junk currencies and economies du jour are the Venezuelan bolivar and the Argentinian peso. In Eastern Europe, the two notably horrible performers are of course the Russian ruble and Ukranian hryvnia. Almost everyday we read about how these currencies have hit all-time lows. Ukraine's currency recently fell 30-plus percent y-o-y before recovering to "only" a 20% depreciation. With its economy already in dire straits, Ukraine is headed for a default unless someone to stupid...

Double or Nothing: Can Malaysians Revive Las Vegas?

♠ Posted by Emmanuel in Americana,Casino Capitalism,Southeast Asia at 3/03/2014 10:58:00 AM

Can Malaysians complete Echelon, Las Vegas' boulevard of broken dreams? A few days ago, Bloomberg TV aired "The Player: Secrets of a Vegas Whale" on how Don Johnson--the gambler, not the Armani-wearing, Ferrari-driving 80s Miami Vice star--magnified the US casino industry's losses post-subprime crisis by "beating the house" through honing his blackjack strategy with the help of math PhDs. Along the way, the documentary recounts the fate of the American casino industry overall. Suffice to say, it has not been particularly lucrative in recent times. After besting Las Vegas in 2006, Macau has long since left the US gaming...

If I Were the West, I'd Let Russia 'Have' Ukraine

♠ Posted by Emmanuel in IMF,Russia at 3/02/2014 08:57:00 AM

Gazprom-sponsored German star offers opinion on an EU rescue of Ukraine? Ukraine is a poisoned chalice insofar as it resembles Russia: corrupt and inefficient. Yes, there are geopolitical advantages in being Ukraine's ally. Yet, the list of advantages Russia retains from keeping it within its sphere far exceed those of the West taking it. For Russia: Russia, which straddles Europe and Asia, has sought a role in the rest of Europe since the reign of Peter the Great in the early 18th century. An alliance with Ukraine preserves that. “Without Ukraine, Russia ceases to be a Eurasian empire,” the American political...