International Political Economy Zone

Fee for Westerners on the 'Jihadi Highway': $25

♠ Posted by Emmanuel in Middle East,Security at 9/09/2014 01:30:00 AM

Yonder lies adventure...for $25, whitefella jihadist.

Does god really care for your life in the suburbs? /
A dull little life full of dull little things /
Bring up the babies to be just like daddy /
And maybe you'll be there when he gives out the wings.

California-via-Blightly resident Richard Thompson's scathing indictment of the dreariness of modern life is partly shown by Americans and Britons dreaming of a more adventurous one that involves, er, killing fellow Americans and Britons as transplanted jihadists. To reach the Islamic State of Iraq and Syria (ISIS), however, these Western-hating Westerners must cross the border between Turkey and Syria. Apparently, there is now a roaring trade smuggling them into the latter's warzone.

More recently, the [Turkey-Syria] border has also become known as the jihadi highway, an easy way for non-Syrians from European countries such as the U.K., France and Belgium to join in Syria’s civil war. They often fight on the side of militant groups such as the Islamic State, which now controls large swathes of land south of Turkey’s border as well as significant parts of Iraq. And if the English-accented man shown in videos beheading two American journalists is identified as a British citizen, he may well have crossed the same border.

Actually, the market-clearing price has gone up due to marginally higher difficulty entering jihadi paradise. Not much higher, mind you, but still...

As international condemnation of the murders draws renewed attention to this porous crossing point for Western passport-holding fighters, Turkey has stepped up patrols, added highway checkpoints and erected new fencing. It hasn’t worked, according to interviews with refugees, injured fighters recuperating in Turkish hospitals and with the smugglers who have long operated a black market ferrying people back and forth. As late as this week, illegal trips that skirted the Turkish controls were both simple and numerous.

The price: $25, with assurances that large amounts of equipment could be taken across with zero chance of inspection, according to three men who offered their services as traffickers. That’s up from about $10 a person before Turkish authorities cracked down on border security.

Ah, the smell of commerce; the World Cup of Jihad has switched locations. It's all unfolding according to an infamous dead guy's script. The prominence and sheer number of Western jihadists eager to kill and maim their own raises questions Anglophone countries have failed to answer. There is no better way to undermine the usual racist excuse that "foreigners" are destroying Western cultures than to point out that Anglos are the most avid of jihadists. Why is it that women are among the most eager to join an inherently sexist cause?

Those are big questions, but in the meantime, there is no shortage of Anglos desperate to fork over their $25 at the border for a taste of adventure.

Zimbabwe Blues: Comrade Bob Mugabe, IMF & PRC

♠ Posted by Emmanuel in Africa,IMF at 9/08/2014 01:30:00 AM

For those who've run their country into the ground, we salute you.

If nothing else, you have to admire President Robert Mugabe's longevity. Once a pro-independence protagonist, he's turned into...someone else. At 90 he's still fit as a fiddle. That he's been up to no good for so long, however, deserves additional comment. Despite encountering international opprobrium for a very long time, there's always been China offering financial gestures of third world solidarity with Zimbabwe. To be sure, Comrade Bob has not changed Zimbabwe into a socialist republic by constitution. However, he's been able to draw on China in tight spots time and again. He is still on top at age 90, after all.

To make a long story short, Zimbabwe is an economic basket case. After Comrade Bob expropriated white farmers in in 2008, annualized inflation reached 500 billion percent. Ever the political survivor, he hangs on somehow. Being especially strapped for cash at the moment even by Zimbabwean standards, he is in the process of negotiating with the IMF for restored funding. His country has effectively been in default with the IMF for a number of years, but seeks to become "current":

The International Monetary Fund is appointing a resident representative in Zimbabwe for the first time in 10 years as the southern African country seeks to mend relations with the lender. Christian Beddies is the IMF’s first appointment in Zimbabwe since 2004 when the Washington-based lender closed its office in the country, two officials with knowledge of the situation said, declining to be identified because they aren’t authorized to speak to media on the matter. Beddies has arrived in the country, one of the people said.

The IMF is “finalizing the process for appointing a resident representative in Harare,” who should be in place in July, the IMF said, without identifying the appointees. Zimbabwe has been in default to the IMF since 1999, former Finance Minister Tendai Biti said last year. The government said in March it will make a “token payment” to the IMF as the country works on a program to reduce its debt.

As always, the IMF will demand politically unpopular concessions--conditionalities--that Comrade Bob would rather avoid. Aside from not getting IMF emergency funding, being in its doghouse usually means not being able to access international financial markets (which the country is at least a decade away from anyway). Hedging his bets, Comrade Bob recently made a trip to Beijing for his first meeting with new President Xi Jinping. Who wouldn't welcome large, no-strings-attached soft loans? He's received them before, you know. However, he was not able to wangle cold, hard cash this time around but only some token projects. What's more, it seems the Chinese are wising up to him as they have asked for and received all sorts of collateral in return:

In recent years, perceptions have grown in the west that China builds ties and reaps economic rewards in Africa and elsewhere in the developing world through no-strings-attached deals. But Beijing’s relatively hard-nosed reception of Mr Mugabe shows that its open-wallet policy has limits. Mr Mugabe, one of Africa’s longest-serving leaders, was hoping for a $10bn financial bailout package, with an initial tranche of $4bn as sanctions cut off his ability to tap western loans, according to Zimbabwean media.

Instead, he obtained a $2bn deal for the future construction of a coal mine, power station and dam. For this infrastructure deal, Chinese loan payments had to be secured against future Zimbabwean mining tax revenues.

On top of this, Zimbabwe received a token agreement to conduct feasibility studies for other telecoms and infrastructure projects, $8m in donated rice and a $24m grant to build schools and clinics. For the feasibility studies, it had to commit to set aside revenues from state-owned companies in order to obtain loans from China’s state-owned banks – a sign of the depth of Beijing’s unease over Zimbabwe’s economy.

Ideology aside, let's just say Comrade Bob's public financial management chops are, er, non-existent. Commie bonding has its limits. Namely, inability to manage public finances to any appreciable extent. Comrade Bob, the IMF still beckons.

'Sterlingization' of an Independent Scotland

♠ Posted by Emmanuel in Europe at 9/05/2014 01:30:00 AM

Independence makes no sense expressed in dollars and cents, pounds, shillings or pence.

For all the brouhaha, poll after poll indicates that the 18 September referendum on Scottish independence will clearly go in favor of remaining in Great Britain. This being the IPE Zone, I would like to point out that the largest source of political anxiety for would-be supporters of going it alone is good ol' economics: what happens to Scotland's economy? Proponents of independence claim that the North Sea oil fields still have a much longer lifespan than what British government estimates suggest, ensuring that royalties will continue to be healthy. OTOH, the question of what currency Scotland will have remains unanswered in most peoples' minds.

Pro-independence First Minister Alex Salmond has an answer to this: blackmail. If England boots Scotland out of the pound zone, Scotland will renounce its share of the UK's debt. So, he says, the English will allow Scotland to keep using the pound:

The pound has been a big issue throughout the battle for Scottish votes in the independence referendum, but increasingly it dominates the debate above all else. Why does it matter? The Scottish government - led by First Minister Alex Salmond - is certainly clear on its Plan A, which is that it intends to negotiate to continue to share the pound with the rest of the UK in a formal currency union.

One reason Mr Salmond feels confident that will happen is he and his colleagues have said they could refuse to take on a share of the national debt if the UK refused to share assets such as sterling. But the current UK government and the Better Together campaign, led by Labour's Alistair Darling, don't accept that analysis and insist there will be no deal.

So actually, the "jerk" approach favored by Salmond is doubtful. What else could be implemented currency-wise?

There are other options - the euro, a separate Scottish currency or Scotland goes ahead and uses the pound without formal agreement, which is known as sterlingisation. But the Scottish government has already said it does not favour the euro. Mr Salmond has often stated sterlingisation would only be a suitable "transitional" arrangement. And he's said those who would prefer Scotland to switch to "our own currency" would have to win support for that in an election.

Salmond then offers a menu of choices, none of which are necessarily palatable:

This time the first minister revealed there was not one Plan B but three. Mr Salmond told viewers: "We could have a Scottish currency. We could have a flexible currency like Sweden or Norway has. We could have a fixed rate Scottish pound attached to the pound sterling. That's what Denmark does with the euro and Hong Kong does with the dollar."

Asked to choose between these options, Mr Salmond stuck by his preferred Plan A, saying no-one could stop Scotland using the pound and no chancellor would let Scotland get away with escaping its share of the UK debt liabilities. "We don't need permission to use our own currency. The argument actually is that they will deny us the assets of the Bank of England. The reason that won't happen is that if you deny us the financial assets, then the UK will get stuck with all of the liabilities," he said.

However Mr Darling argued: "If your first message in the world is here we are, here is Scotland, and by the way we've just defaulted on our debt, what do you think that would do to people who are lending us money in the future? Nobody would lend us any money in the future."

Money changes everything, and I am in agreement that currency is the largest obstacle--among very many--to Scottish independence. It is a thoroughly bad idea.

Work Smart, Not Hard: Korea's OECD-Worst Productivity

♠ Posted by Emmanuel in South Korea at 9/04/2014 01:30:00 AM

Most office slaves would rather be elsewhere watching Girls Generation music videos.

The stereotype of Asians as colorless "worker bees" toiling away during hours and hours of white collar drudgery is, alas, not entirely made up. Actually, the system gears up young people to expect this kind of mindless effort, e.g., all-important examinations based on rote learning that determine access to higher education and hence future prospects. The workplace is not much better: consider the case of South Korea. Otherwise much lauded for its fearsome export industries and "cool" image, workers there are not particularly productive compared to their OECD peers. In fact, they are bottom of the barrel in productivity:

In 2012, each waged Korean employee worked for 2,092 hours, which was 420 hours more than the OECD average. The numbers were 1,765 for Japanese workers, and 1,334 for the Dutch. Meanwhile, the labor productivity per working hour was US$29.75 as of the end of 2011, whereas the OCED average was US$44.56. The Netherlands’ labor productivity per working hour amounted to US$59.73, in spite of the much shorter hours worked.

According to the Ministry of Employment and Labor’s survey carried out this year, 43.65 percent of employees in Korea worked overtime each day for at least one hour. Fully 25.8 percent of the respondents said that they worked overtime because it was considered natural, while 20.9 percent and 9.4 percent mentioned low work efficiency during working hours and pressure from their senior workers, respectively. Just 25 percent of the respondents answered that overtime work was helpful for their job performance.

Translation: Korean office workers often sit around doing not much of anything during regular work hours, and must also stick around afterwards it if they expect to stick around and be promoted. As a bona fide hater of Dilbert-style white collar office culture--which is generally insipid and unhealthy--I am reminded of the phrase "work smart, not hard" in this regard. If these senseless cultural expectations were dropped, these workers could (a) be more satisfied with their jobs, (b) have more time for their families, (c) use the time they do spend at the office more productively if the culture is oriented around actually doing something and (d) live more fulfilling lives.

Expat Richard Kocken even enumerates seven reasons for this low productivity. Some may strike Western readers as hilarious, but believe me, they are real:

Rigid structures and hierarchy - A byproduct of such rigid corporate structures is constant and unnecessary reporting to senior directors, as soldiers to a superior officer.
Communication issues - Despite an enforced culture of regular drinking and socializing, Korean companies suffer from a lack of direct, honest, and effective communication.
Mobile phones and online communication - A silent rule of Korean society is that talking in the office gives off the appearance of not working, and so workers are forced to send messages via the Internet, even if the person they want to talk to happens to be sitting right next to them.
Hungover workers taking excessive breaks - Korean companies encourage and pay for workers to enjoy after-hour dinners and drinks together on a regular basis, believing that it improves loyalty and interpersonal communication between workers.
Form rules over substance - During my time at a Korean company, one of the observations that I made was that co-workers would spend two to three days adding in an array of fancy-looking shapes, images, flow charts, and graphs to a PowerPoint presentation that contained roughly half a day of research.
Poorly-equipped, older graduates - Korean graduate employees, despite extreme competition for jobs, are under-prepared for the workplace, and come with poor research and reporting skills. This is a side effect of an education system based around testing and lack of practical applications.
The Art of Looking Busy - In business or social situations both, Koreans have a penchant for giving off the impression of being busy. Rarely will you meet a Korean that will say they have relaxed recently. Being busy is the desired state and worn as a badge of honor.

Death by overwork is probably not responsible for the Asian economic miracle, and it's high time that it be spent, well, more productively. Korea got ahead in spite of rather than because of this cultural blind spot. As Korea becomes more developed, I expect that it will come to have a more "European" work-life balance as slave-driving of this sort will no longer be suffered gladly--and for good reason.

Stimulus+: Give People, Not Banks, Wads of Cash

♠ Posted by Emmanuel in Credit Crisis at 9/03/2014 01:30:00 AM

Let them eat cash? Mark Blyth elaborates

Once more demonstrating how little understood us IPE scholars are, Yahoo! has an otherwise interesting feature on Scottish "economist" (shouldn't he go by "political economist"?) Mark Blyth talking about his ultimate stimulus plan. The gist of it goes like this: so the US has enacted unprecedented levels of monetary easing and stimulus spending to help the country recover. However, the financial system which intermediates in the process of cash reaching citizens' hands remains most unreliable. So, why not use stimulus more directly by giving it to them and not the unreliable, untrustworthy banks?

In the accompanying video, Mark Blyth, professor of International Political Economy at Brown University, talks about his idea. He says while quantitative easing -- or mass asset purchases -- have cost basically $2.8 trillion dollars so far, if you divide that by the taxpaying population it would come to about $56,000 per household. "Imagine if that had just been given to households," he asks.

"So why not just give them a fraction of that directly, rather than trying to force all of that money through the banking sector altering asset prices, causing asset bubbles and distortions, and hoping that some of it causes real growth," he adds.

What about the consequences, like inflation, as some critics argue would occur? Check out the video to see how he responds.

Unfortunately Yahoo! doesn't have an embed feature so you'll have to visit its site through the link above. (The full article is here.)

UK 'Hypocrisy': Not Punishing UK-Based Russian Oligarchs

♠ Posted by Emmanuel in Europe at 9/02/2014 01:30:00 AM

"Only plebs complain about Vlad, dahling!"

Oh, the times they are a-changing: The gossip among Londoners in the posh parts of town is how usually flamboyant, noveau riche Russian oligarchs are lying low (for now). A few dozen less bottle blondes mixing with the Sloane Rangers and the chatter kicks into overdrive. The vulgar displays of oligarchs, their wives, mistresses, and assorted hangers-on in London has even spawned a trashy TV reality show. For those who experienced it--I did at the tail end while working there for two years--it was quite a parade.

Even if Russians are lying low in London, however, there are still signs of disquiet about how they continue to travel to and fro and conduct business quite freely. All this has raised the ire of anti-Russian voices especially after the events in Ukraine. With new European sanctions on the way, why all this British hypocrisy that allows the likes of Putin crony Roman Abramovich to splurge as much as he wants on Chelsea FC and more?

“Mr Cameron appealed to European governments to freeze accounts of oligarchs close to [President Vladimir] Putin. He can do it himself, with Roman Abramovich,” said Andrei Piontkovsky, a political analyst at the Russian Academy of Sciences, referring to the England-based owner of Chelsea FC. “Abramovich is one of Putin’s closest associates, he is one of those who put Putin in his post in 1999,” Mr Piontkovsky said.

His comments highlighted an apparent contradiction in the UK’s position. Government officials said Britain supported EU sanctions against those Russians who had indirectly helped support Russia’s interference in Ukraine – but Russians in the UK would not, for now, be affected. On Tuesday, Labour MPs called for the Conservatives to return a £160,000 donation from the wife of a former Russian finance minister who won a party fundraising auction to play tennis with the prime minister and Boris Johnson, the London mayor. Lubov Chernukhin, the banker and wife of Vladimir Chernukhin, made the winning bid at this month’s Conservative summer party held at the Hurlingham private members’ club in Fulham, west London.

The role of Russian money in the UK – particularly London – is extensive. Russia’s oligarchs, business people and senior officials have become one of the largest national groups of buyers for London properties worth £10m or more. There are now 113 companies from Russia and the broader CIS region with shares quoted on the London Stock Exchange.

I'll have more soon on the ongoing debates about how Russian buyers are shaking up the market for prime real estate in central London. Meanwhile, the Tories have some explaining to do with this "kick the Russians...except 'our' Russians" behavior. Dahling.

UPDATE: Also see this earlier Foreign Affairs article on this issue.

Strange Times: al-Qaeda & US Against ISIS

♠ Posted by Emmanuel in Middle East at 9/01/2014 01:30:00 AM

There's an excellent article over at the WSJ on how "the enemy of my enemy is my friend" is turning up odd de facto if not de jure partnerships in the Middle East as the so-called Islamic State in Iraq and Syria makes inroads and holds territory there. Just because you don't admit working together doesn't mean you wouldn't welcome mutually desirable outcomes. The United States and Iran having a shared interest in propping up the Shia-dominated Iraqi government to prevent further incursions is novel enough. but try al-Qaeda and the United States fighting ISIS:

Islamic State even has had a falling out with al Qaeda, the group that spawned it. Al Qaeda's official Syrian branch, known as the Nusra Front, is outflanked and mocked by Islamic State. So Nusra has joined the fight against Islamic State, clashing violently on the battlefields of Syria. These countries and movements may be at odds over nearly everything else, but nothing focuses the mind like a mortal threat, say some analysts and former top security officials. Given not only Islamic State's savagery but its potential to overthrow regimes and spill over borders, they all seem to agree on only one thing: It needs to be stopped.

Cue America and al-Qaeda working towards similar ends in stopping ISIS:

"I can tell you who are not bedfellows: Iran and the Assad regime," says Ryan Crocker, former U.S. ambassador to both Iraq and Syria. Mr. Crocker, however, suggests an even more provocative possibility: a de facto alliance with the Nusra Front—the al Qaeda offshoot in Syria (and U.S.-designated terrorist outfit) that is one of the few groups directly battling Islamic State. Nusra already works openly with U.S.-backed rebel groups in Syria, and it maintains communication with U.S.-ally Qatar, which this week helped engineer the release of an American journalist being held by Nusra. Many took this as a signal that Nusra wants to work through the Qataris to be seen as player in any anti-Islamic State configuration.

Things would come to a head if the US decides to bomb Syrian territory where ISIS fighters are. Should it avoid hitting Nusra forces?

Nusra already works openly with U.S.-backed rebel groups in Syria, and it maintains communication with U.S.-ally Qatar, which this week helped engineer the release of an American journalist being held by Nusra. Many took this as a signal that Nusra wants to work through the Qataris to be seen as player in any anti-Islamic State configuration. If the U.S. chooses to launch airstrikes Mr. Obama is considering against Islamic State inside Syria, and Nusra fighters then make inroads battling them, the U.S. would confront "a very interesting decision" on whether to openly include Nusra as part of a larger group willing to help take on Islamic State, Mr. Crocker says.

Strange times, no? When al-Qaeda disowns ISIS for being too bloodthirsty, something really is going on. Some extremists are, er, more extreme than others.

Hong Kong, PRC, Democracy & the 'Sixth Column'

♠ Posted by Emmanuel in China at 8/31/2014 01:30:00 AM

Would you like to see Britannia rule again, my friend?

The worrying thing about Chinese President Xi Jinping is that unlike his modernizing predecessors, he appears not to give only lip service to Marxist-Leninist-Maoist rhetoric but may actually believe in that schtick. Once upon a time, before Xi Jinping, Hong Kong's integration was supposed to be based on "one country, two systems." These days, however, more militant residents are calling China on it while choosing who gets to stand during elections. To paraphrase Henry Ford, you can vote for anyone you like--as long as they've been vetted by the Communist Party.

During the Cold War, there was a pervasive fear that Beijing would use its legion of overseas Chinese as a "fifth column" for the infiltration of Communist ideology in freedom-loving lands (or whatever passed for them). Nowadays, Xi Jinping & Co. are inverting this logic: Hong Kong residents are being used by capitalist roaders to pollute the minds of the proletariat. Call it the "sixth column" -

Hong Kong is poised for a showdown with China when the Chinese parliament meets later on Sunday, with the largely rubber-stamp body likely to snuff out hopes for a democratic breakthrough in the regional financial hub at elections due in 2017. Political reform has been a constant source of friction between Hong Kong's pro-democracy movement and the mainland since the former British colony was handed back to Communist Party rulers in 1997...

However, Beijing will tightly curb nominations for the 2017 leadership poll to filter out any candidates it deems unacceptable, said a person with knowledge of the electoral framework. Only two or three "patriotic" candidates will be allowed on the ballot and open nominations will be ruled out. Instead, candidates must be backed by at least 50 percent of a 1,200-person "nominating committee".

Activists are once more intent on turning the financial district into a warzone:

That committee is meant to be "broadly representative" of Hong Kong interests, but will be similar in composition to an existing election committee stacked with pro-Beijing loyalists.

It's a formula that will rile Hong Kong's pro-democracy activists, who plan to blockade the city's Central business district in the coming weeks. On Saturday, Hong Kong's public broadcaster RTHK said 5,000 police will be deployed for the "Occupy Central" protest, heightening the sense of unease. The city's 28,000-strong police force is already on high alert. An initial protest planned for Sunday evening will be the start of what activists and lawmakers have described as a "full-scale, wave after wave" civil disobedience campaign.

To no one's surprise, Xi Jinping is implicated in all this. Gripping Hong Kong with a firmer hand, he hopes to squash pro-democracy irritants he's found more resilient than expected. At a counter-protest, it appears that Communist Party-friendly flunkies were bused in to show "support":

Consolidating his power after almost two years in office, President Xi Jinping has spoken of the need for a firmer hand with Hong Kong, partly out of concern that allowing greater democracy there might lead to demands for the same in other parts of China.

The regime has also been caught off-guard by the strength of the campaign for democracy known as Occupy Hong Kong, which showed its power with a huge march on July 1, the anniversary of the handover. A pro-China rally a few weeks later had a much smaller turnout, and reporters noted signs of Chinese-government organization: people arriving in fleets of buses, large numbers of Mandarin-speakers with mainland connections, and some evidence of participants being paid to attend.

On one hand, it would be nice for China to fulfill the "one country two systems" vow. On the other hand, us folks from rather poorer places on this earth aren't quite sure what the Hong Kong residents are complaining about when their standard of living is so much higher than ours. Go figure; some people complain when they have almost everything--except Western-style "freedom."

UPDATE: In today's no ^@#$ feature, the PRC has restated that all candidates standing for elections in 2017 must be pre-screened by Beijing.

IMF Conditionalities Don't Matter...If You're 'Ukraine'

♠ Posted by Emmanuel in IMF at 8/30/2014 01:30:00 AM

If we go by the Weberian definition of what a state is, "Ukraine" fails on the counts of territorial integrity and having a monopoly on the legitimate use of force. Into this muddled picture comes the IMF. The characterization of the IMF as a Western tool is well-founded and not subject to much debate, at least in IPE circles. Today's case in point is the "country" of Ukraine. While Ukraine as we know it has ceased to exist and so has its economy, the IMF is busy shoveling wads of cash in Kiev's direction and will do so for as long as it doesn't go over to the dark side (Russia). Being broke would hasten that process. If you enjoy Orwellian official-speak, get a load of this IMF press release:

In completing the review, the Executive Board approved waivers of nonobservance of performance criteria related to international reserve accumulation and the cash deficit of the general government on the basis of corrective actions taken. The Board also approved waivers of applicability of performance criteria related to the cash deficit of the general government, the cumulative change in net domestic assets of the central bank and publicly guaranteed debt. In addition, in light of the slight delay in completing the first review of the program, the Board approved the authorities’ request for merging the remaining two reviews scheduled for 2014, while keeping the total financing under the arrangement unchanged.

Reading between the lines--in plain English--let me restate that for you:

Ukraine has met few to no conditionalities because its Eastern half is embroiled in civil war. Its economy is expected to contract by 6% in 2014. The so-called "government" in Kiev has made half-hearted reform gestures that won't work anyway so we'll give them credit even though the country has ceased to exist. Part of it has already been dismembered (Crimea) and another may soon follow (Eastern Ukraine). Because it's a warzone where they shoot down commercial jetliners, IMF officials would rather not visit Ukraine for security reasons. We'll just fork over the money without going through the motions of sending officials to "approve" of Ukraine's actions (which are insufficient anyway but what the hell, keeping "Ukraine" on the West's side is a cost-no-object endeavor).

They're probably wishing they had Yanukovych back right about now. Christine Lagarde is marginally less obtuse:

The Ukrainian authorities have firmly implemented policies to stabilize the economy and revive growth. This strong policy record despite the much worse-than-expected environment is encouraging in light of the implementation problems that derailed previous programs and thus augurs well for the authorities’ ability to keep the program on track. However, the escalating conflict in the East and ongoing geopolitical tensions have weighed heavily on the economy and society, causing a deeper recession and deviations from program targets in the short term, in particular on the central bank’s net international reserves and the budget and Naftogaz deficits.

Elsewhere there's talk of "downside risks" and other euphemisms. The IPE Zone's refreshing candor on world politics: Don't leave home without it as an old advertising catchphrase used to say.

Morgan Stanley & the Making of Rosneft

♠ Posted by Emmanuel in Energy,Russia at 8/29/2014 01:30:00 AM

Morgan Stanley's John Mack chillin' with Putin back in the day.

The recent (re-)isolation of Russia after coming in from the cold after the end of the Cold War is having interesting repercussions for its Western financiers. From an IPE standpoint, the fate of the giant oil conglomerate Rosneft will be pivotal. Not only is it a gargantuan oil firm, but it is also a creation made possible through Western bankers providing the investment necessary to put it together.

Today's case in point is Morgan Stanley's involvement in the formation of modern-day Rosneft. It remains quite a reward for Igor Sechin's fealty to Vladimir Putin--the world's largest oil company by output is certainly nothing to sneeze at:

Putin and Sechin have a lot more to thank Morgan Stanley for. The American investment bank helped transform state-owned Rosneft from a business the Russian government failed to sell three times in 1998 into the world’s biggest publicly traded oil producer by output. Morgan Stanley played a key role in saving it from being acquired, and Rosneft hired three consecutive chief financial officers from the bank. In 2013, Putin approved Mack’s appointment to Rosneft’s board.

Since the Soviet Union broke up a quarter-century ago, Russia has become so closely entwined with the global economy that doing anything to unwind those ties -- or successfully impose sanctions for misbehavior -- is proving difficult for the U.S. and its allies, and awkward for western businesses that embraced Putin’s Russia. With Sechin and his oil company both under U.S. sanctions, a look at the courtship, marriage, and now separation between Morgan Stanley and Rosneft is a telling microcosm of this turnabout.

Indeed, while American trade relations with Russia are not especially large, chickens notwithstanding, investment is another matter as Western finance being limited to Rosneft and other state-owned firms closely aligned with Putin marks the end of an era:

Under the Putin regime, the line between business and government is often blurred, especially with state-controlled companies. As Rosneft expanded, in part by buying assets that Putin had forced an imprisoned political opponent’s company to sell, it became one of his favorite tools for extending Russian influence abroad.

“Rosneft was obviously not just an ordinary market participant,” said Daniel Treisman, a professor of political science at the University of California at Los Angeles and author of several books on Russia, most recently “The Return: Russia’s Journey from Gorbachev to Medvedev” in 2011.
“Sechin had been President Putin’s sidekick for years,” Treisman said. “This was a company with very good connections that was prepared to use them. I imagine the analysts at Morgan Stanley understood this.”

With the advent of a new Cold War, the U.S. barred Americans from doing business with Sechin in April, citing his “utter loyalty to Vladimir Putin -- a key component to his current standing.” Last month, the U.S. restricted companies from providing long-term debt financing to Rosneft, as Morgan Stanley and other western investment banks used to do.

The rest of the Bloomberg article delves into the nitty-gritty details of the Morgan Stanley-Rosneft relationship. Rest assured that Rosneft in its current form would not exist had it not been for Morgan Stanley providing the cash and legitimacy--both of which Rosneft has in rather short supply nowadays.