BRICs On the Brink of a Quarrel Over Chinese RMB

♠ Posted by Emmanuel in ,, at 4/21/2010 12:02:00 AM
A few days ago, Brazil, Russia, India, and China conducted a summit in Brazil's capital, Brasilia. What is interesting is that the originally envisioned BRICs grouping by Goldman Sachs' Chief Economist Jim O'Neill has become a grouping in its own right. (Football fans, here's some trivia: one of the Red Knights seeking to rescue Manchester United from the vile Glazers is none other than longtime fan Jim O'Neill.) Aside from all being members of the G-20, they seem to have interest as well in third world solidarity--that only goes so far, though. While China has become Brazil's largest trade partner, there is apparently anxiety as well on the part of Brazil over the value of the RMB. During the recent BRICs gathering that was cut short by Hu Jintao's need to return home because of the earthquake in the Tibetan region, currencies were kept off the table due to the issue's emerging contentiousness:
Hu and Brazilian President Luiz Inacio Lula da Silva signed a five-year "action plan" aimed at boosting trade and energy cooperation. The two nations have grown closer amid a surge in commerce -- in 2009 China became Brazil's top trade partner...

Brazil and the other BRICs were not expected to risk fraying ties with China by pressuring it to allow the yuan to strengthen, despite concerns about the effect of cheap Chinese exports on their economies...They are not expected to push for a new international reserve currency to rival the dollar, an idea they discussed last year. As the largest holder of U.S. Treasury bonds, China is not keen to see the value of its investments diminish.
Although the meeting was meant to help establish a common position of the upcoming G-20 finance minister's gathering, it appears the Brazilians are unable to keep themselves from prattling about--you guessed it--China's currency practices among themselves. Although current central bank governor Henrique Meirelles obviously won't be heading to the Washington meeting from 22 to 23 April, he is vocal nonetheless:
A stronger Chinese currency is "critical" for the good of the global economy, Brazil's central bank chief Henrique Meirelles said on Tuesday, joining a chorus of critics of China's foreign exchange policy. Speculation that China may soon revalue its currency and unveil a long-awaited shift in its exchange rate has intensified in recent weeks, and the yuan is likely to figure in discussions at this week's Group of 20 meeting of finance officials in Washington.

"I think it's absolutely critical for the equilibrium of the world economy," Meirelles said when asked by a senator what the impact would be if China revalued its currency. Meirelles was speaking to the Senate's economic affairs committee before traveling to Washington where the spring meetings of the International Monetary Fund and the World Bank will also be held. "There are some distortions in world markets, one of them is a lack of growth and another is China," Meirelles said. "China's exchange rate is the result of the country's big savings ... this generates distortions for China itself..."

This month, Brazil's Finance Minister Guido Mantega waded into the debate when he said that a flexible currency policy in China "would be very good" for the global economy.

Last week, Brazilian President Luiz Inacio Lula da Silva met with his Chinese counterpart Hu Jintao in Brasilia at a summit of the so-called BRIC group of major emerging markets, which also includes Russia and India. But Lula did not mention the yuan, preferring to avoid fraying ties with Beijing over the issue. In a closed-door speech at that summit, Hu reiterated Beijing's long-standing official description of its yuan policy, saying that China remains on course to gradually put in place a managed floating exchange rate system.
Can Chinese gradualism meet with Brazilian approval? Wait and see.
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Gordon's Armada Cometh: Rescuing Stranded Brits

♠ Posted by Emmanuel in , at 4/20/2010 01:45:00 PM
I am sailing, I am sailing
Home again 'cross the sea
I am sailing, stormy waters
To be near you, to be free

As a certain band will tell you, British Sea Power was the foundational pillar of the British Empire. And, as the great, great Rod Stewart will tell you, nautical themes still have deep resonance in the British psyche even if its days as a naval power are long gone. The touching song excerpted above, Sailing, is regarded by many as an alternative national anthem of the United Kingdom.

I am 100% certain that you've heard of the now-infamous flight cancellations across much of Europe due to Icelandic volcanic explosions. That event in itself is an interesting commentary on how Mother Nature can disrupt commerce as already unprofitable carriers lose money hand over fist due to flight cancellations. There is even talk of American-style bailouts to help them recover from this situation which may continue indefinitely depending on the cooperation of certain Icelandic volcanoes. At the same time, the British nation wants to get home after doing business or holidaying on the Continent.

And so Prime Minister Gordon Brown has sent not just the HMS Albion previously en route to repatriate British troops from Afghanistan but two more vessels to help with rescue efforts. The flagship vessel HMS Ark Royal has been despatched, as has the largest warship, HMS Ocean. It may not be sending the troops off to show the foreigners who's boss in the Falklands, but it draws on the same sentiment of, well, sailing home (eventually) to evoke strong political imagery. Whoever said jingoism is dead?

Or maybe not. the Times of London reports on bellyaching, particularly from ferry companies, that this gesture was more token than effective:
It was dubbed “Gordon’s Armada” but the two Royal Navy warships ordered by the Prime Minister to evacuate holidaymakers from northern France ran into controversy last night. Thousands of stranded airline passengers began making their way to the Channel ports after Gordon Brown announced that HMS Ark Royal and HMS Ocean were being sent to rescue them. But last night the ships had still not docked as ferry companies condemned the operation as a “gesture” and insisted that there was no need for the Navy to get involved. The British Ambassador to Paris, Sir Peter Westmacott, described the plan as simply an “option” and said that those who reached Calais were sure of a ferry crossing after a short wait.

Ferry companies said that the warships would be better deployed to Spain, which is to be the hub of the effort to repatriate British tourists from around the world. HMS Albion was expected to arrive in Santander, northern Spain, this morning to collect about 300 servicemen and women who have been in Afghanistan. It might also carry some civilians.

Admiral Lord West of Spithead, the Security Minister, first suggested the Navy’s involvement after an emergency meeting at Downing Street on Sunday. Details were announced by the Prime Minister yesterday morning after a meeting of the Cobra emergency planning committee.

Mr Brown said the aircraft carrier Ark Royal and the helicopter carrier Ocean would operate from the Channel ports. “I expect Ocean to be in the Channel today. I expect the Ark Royal to be moving towards the Channel later,” he said. Experts estimated that the Ark Royal could carry about 1,000 civilian passengers on each sailing and Ocean up to 2,000. With crossings taking approximately three hours and a further hour each end for boarding and disembarking, the ships could manage three crossings a day. This would equate to 9,000 of the 150,000 passengers being rescued daily.

Ministry of Defence commanders and civilian staff yesterday struggled to organise the first big civilian evacuation since Lebanon in 2006. South Coast ports, including the cruise ship terminal at Southampton, were asked if they could handle the warships.

Tim Fish, a maritime analyst at Jane’s Information Group, questioned the wisdom of using the warships. He said: “They are very large platforms but it does sound odd to use them as ferries. They are not comfortable by any means. They are not ferries so they will take longer to load and unload in port but they have a large enough capacity to get thousands of people on board for a quick trip across the Channel.”

Cross-Channel ferry companies also said they were coping with the additional passengers and had “plenty of spaces” to get holidaymakers home. William Gibbons, director of the Passenger Shipping Association, said: “I don’t think there is any shortage of capacity. I don’t think the navy ships will be of any use at the French Channel ports. This all seems to have been done rather hastily. We were not consulted. The Channel ports are no busier than on a typical summer’s day.”

Chris Jones, spokesman for Brittany Ferries, said: “We have plenty of spaces.” P&O Ferries said it had seen more than ten times as many daily bookings as are usual for this time of year. But the company has accommodated everyone wanting to travel from Calais to Dover. A spokesman said: “It might sound attractive to get in an aircraft carrier to take 1,000 people at a time, but we can carry five times that capacity. “The lion’s share of the repatriation will be done by professional ferry companies working all along the French coast, not by a well-meaning gesture from the Royal Navy.”
In the meantime, my boss Professor Michael Cox is stranded in Paris. As he's baulked at being bilked by Eurostar charging exorbitant prices for a return trip, he's decided to stay there for now. Don't worry boss, the Queen's Navee will soon be upon yonder shores. Whether a trip on board an aircraft carrier suits you, I don't know! To be with you; to be free.
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Cleggmania! IPE Zone Endorses Liberal Democrats

♠ Posted by Emmanuel in , at 4/20/2010 12:04:00 AM
An advantage of being a one-man blogging show is that I can say the IPE Zone endorses so-and-so. However, an unfortunate consequence of being a migrant worker here in Britain is that I obviously can't vote--except during council elections. At any rate, it will be no surprise to anyone that I have voted solidly for the Liberal Democrats during council elections. Being both pro-Europe and pro-migration, they tick the right boxes for yours truly. With just a little more than two weeks to go, however, the far more important general elections are nearly upon us.

Last Thursday, I tuned in to the first televised debate in British history featuring leaders of the the two major parties--Labour and the Conservatives--alongside that of perpetual also-rans the Liberal Democrats. In one sense these debates mean little since you can't directly vote for party leaders in the Westminster system. At any rate, there was Gordon "British Jobs for British Workers" Brown and David "Are You Thinking What We're Thinking?" Cameron (see here) alongside the still-obscure-to-the-public-at-large guy Nick Clegg. I generally thought that Nick Clegg came across best in the debate, but that was just my bias, perhaps. What I didn't expect was that so many others agreed as well. The UK's most widely-read tabloid was quick to pour cold water on a poll it had commissioned indicating that the Liberal Democrats had taken the lead: 33% to the Conservatives' 32% and Labour bringing up the rear with 28%. Remember, owner of The Sun Rupert Murdoch famously switched allegiances from New Labour to Cameron.

What riles both Conservatives and The Sun is that scare tactics on their favourite topics--Europe and migration--fail to dent Clegg. There was Tory Shadow Foreign Secretary William Hague saying that a vote for Clegg was a vote for a the "European super-state." More power to Clegg and here is my take on why Liberal Democrats matter for international relations:

1. Liberal Democrats are pro-Europe, not Atlanticist: the death of the odious notion of a UK-US "special relationship" was long overdue. Like most of the rest of the world, even Britons are getting sick of America and the increasingly bankrupt way of life it represents. The Brits tried being just like America and see where it got them. Precisely nowhere--just like America. Still, Labour cannot adequately distance itself from Blair's fawning and Brown's refusal to disown the party's poodling era. The Conservatives would undoubtedly be worse in this respect given its Atlanticist leanings.

And so the Liberal Democrats are the real alternative. Nick Clegg is a solid Europhile. He even met his wife while serving as a Minister of European Parliament. While he is realistic in not wanting to put the matter of euro adoption up for immediate referendum, it definitely should be a long-term aspiration as he states:
We must look not only within Britain for new ideas, but to our neighbours in Europe. And that means keeping an open mind about whether Britain would be better off in the long run as a member of the single currency...We have to be open to ideas that might help, including a move into the eurozone. I am not suggesting we could or should join the euro today. It is neither possible nor desirable in the teeth of an escalating crisis...

And then there is public perception. I have no illusion regarding how unpopular the euro is. The euro should never be introduced in Britain without public consent confirmed in a referendum. But its unpopularity is heavily based on a perception of its inferiority. It was easy to dismiss the fledgling euro as a "toilet currency" before we realised our own economic growth was built on sand. Of course, the euro is no panacea to all our problems. The eurozone will be hit hard by this crisis too, and some of the smaller, weaker eurozone countries are especially vulnerable.

But given the gravity of the economic crisis in Britain, and our unique exposure to international financial markets, silence about the euro must end. The future has never been more uncertain. People are increasingly desperate for stability in our economic affairs. We must be ready to think anew.
2. Liberal Democrats are pro-diversity: the Conservatives are increasingly unrepresentative of modern Britain with their nearly lily-white leadership. They have only one black MP. Unlike Labour and the Conservatives, Lib Dems are not prone to making racially-charged slogans.

3. Liberal Democrats abhor Anglo-Saxonomics: before last Thursday's debate, Nick Clegg was always the question mark while Shadow Chancellor Vince Cable was the well-respected and established face of the Liberal Democrats. At the height of New Labour's American-style financial folly, Vince Cable questioned then-Chancellor Gordon Brown's highly leveraged claim to success. His book, The Storm, lays things bare:
It was November 2003 and Gordon Brown was in his pomp. Alone among the major developed nations, Britain had sailed on through the global downturn that followed the collapse of the late 1990s dotcom bubble. The chancellor liked to boast of the strength of the public finances and of how he had abolished boom and bust. He was certainly in no mood to take any lip from Vince Cable, the Treasury spokesman for the Liberal Democrats, when he had the temerity to suggest in parliament that the only reason Britain appeared to be doing so well was that consumers were taking advantage of rising house prices to borrow as if there were no tomorrow.

The response from Brown was an object lesson in complacency and hubris: "The honourable gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the British economy."
There are 17 days (cue Prince and the Revolution) now left. I am positively giddy as it's as if I've entered an alternate universe with the political equivalent of Aston Villa fighting for the premiership alongside megamoney teams. Go figure; maybe this really is the storm that Vince Cable wrote about that can bring the Lib Dems at least into a coalition government as it is increasingly unlikely for a majority to emerge. Labour leadership is already paving the way for one. How I love to be proven wrong! A hung parliament would certainly be worth it if Cable can become chancellor in a coalition government. At any rate, a new folk hero is emerging as Clegg is approaching Winston Churchill-like popularity. Even Howard Dean is claiming partial credit for this turn of events.

Sometimes, the nice guys don't finish last. Euroscepticism, Atlanticism, and xenophobia are the products of fear and ignorance. Let the Liberal Democrats show us another way.
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Kick Out the Yankee Bums II: FC Liverpool Edition

♠ Posted by Emmanuel in at 4/20/2010 12:01:00 AM
What would Bill Shankly (above) have made of the poor quality ownership at Liverpool FC? There isn't much for me to add here as it's largely the same story as the one concerning Manchester United: Yankee "owners" who have put in little of their own equity but a lot of debt into "their" respective clubs are much-reviled by local fans and the British public in general. The difference here, however, is that the owners of Liverpool FC are now seeking a way out of the debt-laden morass they've sunken that venerable club into as soon as possible. Really, it's so predictably late American gothic, a tale of debt and destruction. Call it the Goldman Sachsonization of football. Rod Liddle of the London Times has these Yankee bums figured out:
Would you buy Liverpool Football Club for £500m, if you had the money (or indeed, as per the usual process in the Premier League, if you certainly didn’t)? That’s the price put upon the club by the right-wing Yankee leveraged buyout monkeys and turkey stranglers Tom Hicks and George Gillett, who seem to loathe each other even more than the Scouse fans loathe them. That’s almost double what the pair “paid” for the club just three years ago, so one assumes that the Hicks-Gillett partnership is adopting the stance of a stallholder in a Marrakesh souk and one should immediately divide the starting price by 10.

Hicks and Gillett — who claim, hilariously, to have “grown” the club — will leave Liverpool with pretty catastrophic debts, and if anyone is stupid enough to accept their asking price, with an enormous profit for themselves — loads of money to plough back into their Nascar, baseball or turkey strangling interests.

The Liverpool of today is more burdened with debt — to the tune of £237m — and less successful, on the pitch, than the Liverpool of 2007. I wonder who will step up to the plate with the vague promise of finance? The sale is being overseen by Martin Broughton, the chairman of British Airways, and a season ticket holder at, um, Chelsea. They never really quite got Liverpool, did they, Hicks and Gillett? Just bought what they read was the world’s fourth most lucrative football club, ignored the fans and piled up the debts as a consequence.
The uprising here also involves a grassroots uprising of fans and the granddaughter of revered Liverpool coach Bill Shankly:
I wonder what effect the fans had; my suspicion is that it was rather more than the two American gentlemen are letting on. They might say that it is coincidence that the sale was announced shortly after Bill Shankly’s grand-daughter, Karen Gill, waded in wearing a pair of Bill’s steel-capped football boots and said: “During the three years, time and again, Tom Hicks and George Gillett have shown that they are not fit and proper custodians of the club that my grandfather loved and devoted 15 years of his life to...”

Karen Gill was brought gently into the fray by the excellent Spirit of Shankly campaign, which boasts 5,000 paid-up members and tens of thousands more offering less committed support from internet sites. And it is within here that might lie a glimmering of hope for football fans who feel estranged from the baroque economics of Premier League football and as a consequence alienated from clubs into which they have poured, over the years, rather more money than Hicks and Gillett poured into Liverpool.
I wonder if the mulled legislation limiting debt-fuelled buyouts of British concerns by foreigners (read: American debt fetishists) can be extended to football clubs. Clearly, there is market failure here. Like everyone else, American owners putting their own money into clubs and respecting their traditions are welcome. Think of Aston Villa's Randy Lerner who is well-respected by us Aston Villa fans. But Man U's Glazers or Liverpool's Tom Hicks and George Gillett? I think the UK should pass.
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'Actually, Yuan Revaluation Will Kill Jobs in USA'

♠ Posted by Emmanuel in , at 4/19/2010 12:06:00 AM
Now Main Street's whitewashed windows and vacant stores
Seems like there ain't nobody wants to come down here no more
They're closing down the textile mill across the railroad tracks
Foreman says these jobs are going boys and they ain't coming back
To your hometown...

For obvious reasons, I generally like Bruce Springsteen's poignant vignettes about shattered American dreams. So realistic he is, The Boss. As far back as 1984 when his Born in the USA album came out, he sussed out what many economists refuse to believe in 2010--these jobs are going boys and they ain't coming back. It is something of a truism that manufacturing tends to hold romantic notions for lefties in a post-industrial age [affecting grandpaw's drawl]: "Back in my day, we didn't have no steenkin' LBOs, CDOs, SIVs an' HIVs. We actually made stuff and sold it to the furriners." But I digress.

Recently, a collection of research papers from Simon Evenett of the Centre for Economic Policy Research (CEPR) on The US-Sino Currency Dispute: New Insights from Economics, Politics, and Law caught my attention via this Reuters article:
Extensive outsourcing by U.S. industry means that a revaluation of the Chinese yuan sought by many U.S. politicians would destroy U.S. jobs, a study by independent economists and other experts said on Thursday. The CEPR study, comprising 28 analyses of the issue, concludes that a yuan revaluation of only 5 percent would eliminate China's trade surplus with the world. But it would only cut the U.S. trade deficit with China by $61 billion, according to the study, edited by trade economist Simon Evenett. A 10 percent revaluation of the yuan would improve the U.S. deficit by $111.5 billion -- not enough to eliminate the U.S. shortfall with China [of -$226.8B in 2009].

Because so many U.S. exporters buy parts and components from China, the revaluation would raise their costs, resulting in a hit to U.S. exports that would cost 424,000 U.S. jobs, it said. If the U.S. imposed a 10 percent tariff across the board on Chinese imports and China responded in kind with a similar 10 percent duty on U.S. exports, 947,000 U.S. jobs would be lost. "Recent U.S. proposals remind me of the adage: 'Be careful what you wish for'," Evenett said.
Trade Diversion points us in the direction of the entire downloadable version from VoxEU. The work was released on 15 April to coincide with the US Treasury's biannual report on the currency practices of American trade partners. While that report's release has been delayed, we have the following to chew on. Evenett summarizes the findings of Joseph Francois mentioned by Reuters here:

Interesting stuff. I wonder what Krugman makes of it. In the meantime, I'll read Francois' contribution a bit more closely. These computable general equilibrium (CGE) models' results can change greatly depending on the parameters used.
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Hugo Fragrances: Venezuela's Bid to Join Mercosur

♠ Posted by Emmanuel in at 4/19/2010 12:01:00 AM
In all the hurly-burly of following so many other regional economic integration projects, I somehow overlooked the one that sets the pace in South America--Mercado Comun del Sur or MERCOSUR. You can make the argument that, alongside the Gulf Cooperation Council or GCC, MERCOSUR represents the second deepest integration project after the European Union in having a customs union and hence a common external tariff (CET). That is, all nations within apply similar tariffs to goods entering the customs union. Following Bela Balassa, there are said to be gradations of integration from a free-trade area, a customs union, a common market, an economic union, to complete economic integration.

Since inking a membership agreement in March 2006 with MERCOSUR, Venezuela has been trying to join Argentina, Brazil, Paraguay, and Uruguay who formed the grouping in 1991. Unlike the European Union whose erstwhile conditionality for membership is via the stability and growth pact (SGP), MERCOSUR's is mostly political in the form of requiring ratification for membership among all existing members. It is no surprise that the Peronists in Argentina signed on early, as did Uruguay's left-leaning leader Tabare Vazquez. Given his flair for the melodramatic, Chavez made a show of it in July of 2007, saying that he would pull his bid to join MERCOSUR if Brazil and Paraguay didn't ratify Venezuela's entry in short order.

In any event, Chavez didn't leave, and things rambled on until late last year. Given that Lula's party does not command solid majorities in Brazil's legislature, Chavez made matters difficult for himself by calling Brazil "a puppet of Washington." A loose cannon doesn't necessarily have diplomatic chops, eh? However, conservative opposition was sufficiently softened in the months to come to allow a still-close 35-27 vote on 15 December 2009. From Bloomberg:
Brazil’s congress approved Venezuela’s admission to Mercosur, South America’s biggest trade bloc, as the Senate turned aside arguments that President Hugo Chavez had made his country ineligible by smothering democracy. The 81-lawmaker chamber voted 35-27 with President Luiz Inacio Lula da Silva, who had pushed to admit the biggest oil exporter in the Americas to the group that Brazil, Argentina, Paraguay and Uruguay formed in 1991. Approval by Paraguay is the last hurdle Venezuela needs to clear for full membership.

“To have Venezuela in Mercosur is important in every aspect, not only commercially,” said the leader of the government coalition in the Senate, Romero Juca. “Isolating the country doesn’t solve the democracy problem in Latin America, on the contrary, we must promote integration in the region”.

Opposition lawmakers had argued that under Chavez, Venezuela had lost its democratic character with regards to the press, courts and legislature, disqualifying the country from membership under Mercosur’s charter. The bloc’s leaders had agreed to admit Venezuela in 2006 and took the recommendation back to their respective congresses for ratification.
This leaves Paraguay. Alike Brazil, it is led by a left-centre leader, Fernando Lugo, who nonetheless does not have a solid domestic legislative majority to automatically push through the ratification of Venezuelan membership in MERCOSUR. Oxford Analytica describes the political challenges for Lugo in supporting Hugo:
Approval from Paraguay now remains the final hurdle. However, there is considerable opposition to such a move among the deeply conservative Paraguayan Congress. This opposition spans the political spectrum and includes virtually the totality of the various factions inside the two main parties (Colorado [the previous conservative ruling party] and Partido Liberal Radical Autentico, PLRA [the largest bloc in Lugo's coalition]) as well as Patria Querida.

Only a handful of representatives belonging to smaller left-wing parties are in favor of Venezuelan entry, in addition to a few opposition members who, while critical of President Hugo Chavez, see Venezuela as an important counter-balance to Brazilian hegemony in the regional bloc.

Within elite circles there is also hostility to Venezuelan entry. Ever since President Fernando Lugo came to power in August 2009, Paraguay's leading daily paper, ABC Color, has carried out a relentless media campaign denouncing Lugo's alleged objective of introducing "21st century socialism" into Paraguay under Chavez's auspices. In August 2009 Lugo was forced to withdraw a bill in Congress seeking approval of Venezuelan entry to Mercosur when it became clear that he could not muster the majority needed.

Brazil is likely to exercise considerable pressure now on Lugo to approve Venezuela's entry to Mercosur. Yet, this could prove a hard task for Lugo. Although the Paraguayan Congress has a reputation for venality, and the sale of votes remains commonplace, such a strategy would be anathema to the Brazilian Foreign Ministry. The cost of any such attempt would be beyond the government's financial resources.
For all the show, I would be surprised if Paruguay held off indefinitely as a major energy source like Venezuela would be a welcome member for any regional grouping.
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Brazilian Megadam: US Celeb Activists 1, Gov't 1

♠ Posted by Emmanuel in ,,,, at 4/16/2010 12:16:00 AM
The construction of megadams has long been controversial and has served as constant fodder for those interested in IPE, development, and/or the environment. In the seventies and eighties, the World Bank was constantly criticized for promoting the construction of megadams from voices in civil society. The arguments against these megadams are well-rehearsed: (1) they are costly and not particularly efficient means of generating energy; (2) they disrupt indigenous peoples' lives by removing their sources of livelihood (like fishing) or forcing relocation; and (3) they cause significant ecological damage by disrupting river flows, industrializing irreplaceable rainforests, and so on. Civil society has played a role in drawing attention to the ecological consequences of these megadams. In particular, the World Bank has since soft-pedalled their construction and reduced funding for them accordingly. If you're interested, Susan Deakin had a neat article a couple of years back in the Journal of International Relations and Development on how this change of heart came into being that I much recommend.

An important thing to keep in mind, however, is that at the tail end of the megadam era, two came on to the drawing board. The first was China's Three Gorges Dam that I have covered in some detail in the past [1, 2]. The other is the main topic of today's post, Brazil's proposed Belo Monte Dam. FYI, Three Gorges Dam is by far world's largest dam; when it is fully operational it will produce 22,500 megawatts. The second is an earlier Brazilian project that is still very massive, Itaipu Dam, which puts out 14,000 MW. My cultured readers and classical music snobs (they aren't always the same ;-) are aware that composer Philip Glass was suitably awed by the scale of Itaipu as to compose excellent music about it. If constructed, the estimated output of Belo Monte will be 11,233 MW, making it the world's third largest dam in terms of output.

While it has proven to be effective to pressure the World Bank for funding these projects--it eventually decided against funding Three Gorges Dam as well as Belo Monte Dam--the governments of these countries have continued with plans to bring them to fruition. China's Communist Party being essentially immune to criticism, Three Gorges is there despite flooding historically rich areas and the rest of it. However, a drama is still playing out in Brazil over Belo Monte. The indigenous peoples have long been against this project as they are the ones who will be worst affected. In the 1990s, Belo Monte also became something of a cause celebre as none other than Gordon "I'll Be Watching You" Sumner (aka Sting) brought it to the world's attention [see this footage]. He's even made an analogy that if some banks are too big to fail, what more the rainforest? What is interesting now, of course, is that Brazil is now led by a former labour activist, President Lula, who one would expect to be more sympathetic to the voices of the poor.

Yet fast forward a decade and we have debates falling under similar divides. In early February, the Brazilian government's environmental analysis concluded that the project could go ahead and set the stage for bidding among construction firms. Yes, they have inserted all sorts of environmental qualifiers and other guidelines that must be followed, but at the end of the day, the government declared that the show must go on.

Enter our new batch of celebrity activists James Cameron (director of Titanic and Avatar) and Sigourney Weaver (the heroine of his Alien franchise). Not having seen the former two movies, I gather that Avatar deals with indigenous peoples being subject to the questionable mores of "development." There's even footage of Cameron visiting the site of the planned dam, the Xingu River. Now we have more recent news of yet another monkey wrench being thrown into this long-running saga as the judicial branch seems to have issues with Brasilia. From Reuters:
Brazilian judicial authorities have delayed an April 20 auction for the construction of the massive Belo Monte hydroelectric dam in northern Brazil, an official statement said late on Wednesday. The auction was put on hold by a federal judge in the state of Para where the dam is to be built, in order to examine petitions submitted by the public prosecutor which claim provisions for environmental protection at the site are inadequate.

The 11,000 megawatt project is expected to cost around 20 billion reais ($11.44 billion) but interest by the private sector has waned. Two major Brazilian firms said they no longer intended to bid as it was not financially attractive. The government is likely to appeal against the decision at a federal tribunal in the country's capital, Brasilia.

The injunction was issued after the first of two petitions submitted to judges was accepted as valid for consideration. "The (prosecutor's office) argues specifically that the construction of the (dam) will violate various provisions of environmental legislation, including lack of conclusive scientific data," the statement on a justice ministry website said. If the decision is upheld, Brazil's environmental agency Ibama will also be required to issue a new license for the project whose first phase is expected to be completed by 2015.
For now it's a draw. Having opened the project to bidding, the government has been stymied by concerned parties. And who will bid on this project now? More importantly, will the builder be able to stand up the civil society and environmental scrutiny this project will invariably bring? We'll see. In the meantime, Amazon Watch has a lot of information of use for those mulling where they stand on this important debate.
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A Milestone: World Bank Lending Hits $100 Billion

♠ Posted by Emmanuel in , at 4/16/2010 12:12:00 AM
Egadzooks, I don't know how I've managed to miss this (apologies; even if practically everyone else has too) but World Bank lending has hit a milestone in reaching $100 billion worth of outstanding projects. While the institution has been elbowed out of the limelight by a newly active IMF during a global financial crisis--besides not having leadership prone to lurid affairs [1, 2] before that--rest assured that it hasn't been sleeping on the job.

Yes, it's one thing to shovel lots of money out the door and another to have results to show for doing so. In the past, World Bank leadership has been criticized for having precisely that kind of mentality of just turning over donor cash. At any rate, here's the blurb from the World Bank making much about establishing social safety nets in the wake of the aforementioned crisis:
World Bank Group financial commitments since July 2008, just before the full fury of the financial crisis hit, reached US$ 100 billion today as the institution helped countries respond to and recover from the global downturn. This support is an all-time high for the global development Bank and includes safety nets for the poor, infrastructure to create jobs and build a foundation for recovery, agriculture to support small farmers, and microfinance to help small and micro enterprises.

After the worst crisis in 50 years, the world economy faces an uncertain and uneven recovery with new risks to jobs and growth. The World Bank Group is playing a historically large role in protecting the poor and laying the foundation of recovery.

The speed and scale of the Bank’s response since July 2008 is unprecedented. World Bank (IBRD and IDA) lending to health and social services increased significantly from $1.6 billion in FY08 to $6.3 billion in FY 09 and to $5.1 billion in just the first nine months of FY 10. Bank commitments supporting social safety net programs for the poorest and most vulnerable citizens in the poorest countries increased exponentially from $253m in FY08 to $3.1 billion in FY09 and to $2.1 billion to date in FY10.

"I'm very pleased the World Bank Group has stepped up and delivered during the economic crisis. Our developing country partners know that we will assist them in their development needs," said World Bank Group President Robert B. Zoellick. "As the multi-speed recovery takes shape around the world, countries will face recurring and new challenges, and the World Bank will continue to provide support to overcome poverty and foster sustainable growth."

Since July 2008, the World Bank supported 497 projects to promote economic growth, fight poverty, and assist private businesses, including $28 billion in infrastructure financing, a critical sector to provide the foundation for rapid recovery from the crisis, job creation and future productivity and growth. As expected, Bank commitments to the financial sector also increased greatly compared to FY08 commitments, accounting for 15% of total commitments since FY09 (through April 6, 2010).
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Larry Summers: From Arch-Neoliberal to Regulator

♠ Posted by Emmanuel in , at 4/15/2010 12:10:00 AM
I do not need to rehash Larry Summers' chequered past: harbouring ideas about dumping toxic waste in Africa as World Bank chief, yelling at Japanese finance officials as a Treasury Undersecretary at the height of his Washington Consensus phase, and resigning before being nearly booted as Harvard president prior to a certain vote of no confidence from its faculty. However much his gaffes have become part of public folklore, it seems the world has yet to see the last of him as he is now the director of the White House's National Economic Council.

It is thus no surprise that when it comes to hypocrisy emanating from American officials, there is one who takes the cake--the highly controversial figure of Larry Summers. During the Clinton administration, Summers was of course one of the strongest proponents of banking deregulation as recounted by former US Treasury Secretary Robert Rubin:
Rubin declined to comment for this article, but provided excerpts from his book, "In an Uncertain World," in which he writes that his deputy, Larry Summers, "thought I was overly concerned with the risks of derivatives...Larry characterized my concern about derivatives as a preference for playing tennis with wooden racquets -- as opposed to the more powerful graphite and titanium ones used today."
Later on, we received news that Paul Volcker may have gotten the upper hand at the Obama White House when it comes to financial regulation. In a recent Financial Times interview, though, he seems to exhibit selective memory as he paints himself as being more in line with the Volcker camp. Here is Summers being interviewed by the FT's Martin Wolf -
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MW: Okay, my last question, financial sector reform, you mentioned confidence in that as another crucial thing, you’ve done I think a more successful job and most people would agree in putting together the financial sector back together than many thought more than a year ago, but many are also concerned that you have not yet remedied the underlying weaknesses that led to the meltdown and that’s why of course there’s legislation going through Congress at the moment.

LS: We’re the originators and proposers of that.

MW: Indeed. Are you reasonably confident that you will get legislation and that the legislation that you will get will basically lead to a fundamentally transformed, fundamentally sounder and more stable financial system going forward, and essentially the sort of catastrophe we’ve just seen will not be repeated in the at least for the foreseeable future?

LS: Well, we’re optimistic at this point that there’s been a very substantial gathering of support behind the president’s vision of a financial reform that protects consumers, that assures that all major institutions are supervised in a comprehensive way, that provides for the possibility of failure and so makes the system more safe through resolution authority, that regulates key markets like the derivatives markets as well as institutions and that rationalises regulation so as to make races to the bottom more difficult. And that eliminates some of the riskiest activities in which financial institutions engage.

We believe that there’s now quite widespread support for such legislation and those who oppose it across the board increasingly appear isolated in defence of a status quo that it proved itself manifestly irresponsible. We believe that the steps we’ve proposed, in conjunction with strong execution by regulators and strong execution’s absolutely important, whether it’s with respect to setting the actual levels of capital or carrying out the scrutiny that makes sure that capital is properly measured and risks are properly attended to, we believe this offers both the best potential and very substantial potential to minimise the risks of financial crises in the future. We’ll probably never eliminate financial crises but we can do vastly better than the run up to the last one where more generally the observation that after the 1987 Stock Market crash, the S&L debacle, the Mexican crisis, the Asian crisis, Russia, LTCM, NASDAQ, Enron, that we’ve been running in a way where we had a major financial crisis once every three or four years, for more than a generation now, and we can surely do much better than that. And we believe this legislation will enable us to.
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As usual with Summers, there's a certain slipperiness evident in suggesting that crises occur "every three or four years" to deflect blame. I wish Martin Wolf had put Summers on the spot by asking the question we all want answers to: does Summers believe he was culpable in being a principal architect of banking deregulation? This softball line of questioning won't result in him owning up like his then-counterpart Gordon Brown has to the rather harmful effects of unchecked bank deregulation.
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Gordon Brown Fesses to His Bank Deregulation

♠ Posted by Emmanuel in , at 4/15/2010 12:02:00 AM
Hundreds of billions of pounds and a currently quantitatively eased to the point of severely diminished value, we now have a semi-mea culpa from the UK's fearless leader Gordon Brown as he girds for UK general elections scheduled for 6 May 2010. You can get up to date information from our LSE elections blog if you're interested in tracking its progress. Potentially notable are his (a) admission of caving in to industry demands for less regulation--in which primary responsibility for the debacle still lies with the bankers; (b) acknowledgement that his own deregulation played a part in the British mess instead of it being an American blowback; and (c) idea that Britain should consider its regulations more independently of what other countries do.

Elections aside, does it really matter now that the damage has been done? From Auntie:
Gordon Brown: "I have been saying since the crisis started that we didn't have enough global regulation." Gordon Brown has admitted he made a mistake in not introducing tougher bank regulation when he was chancellor.

The PM, chancellor from 1997 to 2007, said that in the 1990s the banks had all been calling for less regulation. "And actually the truth is that globally and nationally we should have been regulating them more," he said in an interview on ITV1's Tonight.

The Conservatives said Mr Brown had made a "big mistake", while the Lib Dems said his words were "not enough". The prime minister said he should have put the "whole public interest" before the banks but had "learnt" from the experience.

Mr Brown said: "In the 1990s, the banks, they all came to us and said, 'Look, we don't want to be regulated, we want to be free of regulation'...All the complaints I was getting from people was, 'Look you're regulating them too much'. And actually the truth is that globally and nationally we should have been regulating them more," he added. "So I've learnt from that. So you don't listen to the industry when they say, 'This is good for us'. You've got to talk about the whole public interest."

Schools Secretary Ed Balls, who worked with Gordon Brown when he was chancellor, said both had previously admitted they should have done more to control the financial sector. At Labour's morning press conference he said: "In retrospect we should have been tougher with some of the investment banks which did not know the risks they were running. This was a problem for governments around the world."

Business Secretary Lord Mandelson added: "Regulation should have been more intrusive and the regulatory practice of the FSA [Financial Services Authority] should have kept pace with the fast-changing developments in the financial services sector."

BBC political correspondent Laura Kuenssberg said although the prime minister has previously said, in an interview with the BBC's Andrew Marr in September 2009, that regulation should have been tougher around the world - this time he has been more explicit about the role it should have taken in the UK.

Conservative leader David Cameron said: "This is a big moment because Gordon Brown told us two things: he said this all came from America and he said his judgment was right in every regard. "He is now saying that those two things are not true, that there were big mistakes made here in Britain in the regulatory system that he designed. And I'm glad that he's finally admitted that some of this was made in Britain, by him."

Lib Dem Treasury spokesman Vince Cable said: "It's not enough just to hold your hands up and say sorry without having a plan for making sure that the same thing doesn't happen again." Mr Brown also admitted, as he has done previously, that the decision to scrap the 10 pence rate of tax had been a mistake. He said: "I've learnt a lot from that, I learn all the time."
OTOH, I highly doubt whether the Conservatives would have slowed the pace of deregulation had they been in charge since 1997. More so than New Labour, Conservatives are quite Atlanticist. If you want someone who wouldn't have put up with this nonsense, the Liberal Democrats' Vince Cable stands out as a person of unquestioned integrity. Quoth he:
I don’t claim to have anticipated all aspects of this crisis but my colleagues and I were right on some essentials: campaigning against the disastrous demutualisation of building societies, a product of the Tory era of bank deregulation; taking up, from 2000, the warnings from the Cruickshank Report that banks should not be allowed simply to maximise profit when dependent on taxpayer guarantees; and warning, well over five years ago, about the dangerous build up in the property bubble and the massive mortgage borrowing which sustained it.
If I could turn back time; if I could find a way...
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