Daily Press Cuttings

Friday 2nd March 2001

Russia: Russia Deputy Finance Minister Tatyana Golikova said that the government will need to raise an additional 195 bn rubles this year if it is to pay foreign debts without cutting back on domestic spending. The prediction came amid debate swirling in Russian financial circles over the cost of debt payments and expected income from oil export this year, two figures with a heavy impact on the Russian budget. Despite the oil boom, in 2000 about a quarter of the population lived below the poverty level, meaning they earned less than 1,185 rubles a month, the State Statistics Committee reported last week.

Asia: Asia Pulp & Paper Co., one of the largest emerging-markets debtors, might consider a debt standstill as one of the options available to the company, say people familiar with the talks. Such an agreement would give the group, with $12bn in debt and obligations, more time to sort out its crippling debt burden. Under this arrangement, APP and its subsidiaries would seek to keep servicing their loans by paying interest, but would delay repayment of principal loan amounts.

Frankfurt: Germany’s state-owned bank, Kreditanstalt fuer Wiederaufbau, plans to refinance outstanding debt by issuing two long term, Euro 5 bn bond issue this year. After the issues, KfW’s long term debt obligation will be comparable to that of the Austrian government, making it the fourth largest holder of long-term debt in Europe, said Hans W. Reich, KfW chief executive.

EU: The EU said Thursday it was lifting quotas on billions of dollars of textile imports from Sri Lanka and Bosnia. In return, Sri Lanka has brought down a range of tariffs on its own imports of clothing.

UN/Aids: Frustrated by the sluggish pace of getting Aids drugs to the world’s poorest patients - now that the Indian generic drug makers Cipla Ltd offered to supply the much needed drugs - the UN is preparing to launch a new campaign to reduce drug prices and convince wealthy nations to stump up the cost for treating the disease. Ciplas’s price of roughly $600 per year per patient for the Aids therapy is about 40% less than the discounted price for a similar regimen offered by five pharmaceutical corporations last year.

Oil/UK: French oil and gas company TotalFinaElf SA will start natural gas production in mid-October from the first of the Nuggets fields in the North Sea, with production from the second and third fields to come onstream in mid-November.

Asia: In the early 1990s investment money flowed into emerging markets and share prices rocketed when the US economy was weak. However, this situation, says Sarah McBride, will probably not duplicate itself now that the US economy is beginning to weaken. Why? Because according to Ms McBride’s article, there is a different economic situation in Asia, investors have a more sophisticated attitude toward emerging markets and there is a better monetary and fiscal policy in the US than was in place ten years ago.

Pharmaceuticals: The US-based Malaria Vaccine Initiative, a non-profit organisation, will pay Glaxo SmithKline (GSK) $6.7m to speed up the development of a malaria vaccine candidate that has been in development since 1983. GSK said public-private partnerships were a means of overcoming "marketplace limitations".

An investigation by PwC, the professional services firm, has indicated that the UK government’s US-style tax credit for companies’ extra research and development spending might cost the government about £230m a year, of which more than £100m would go into the coffers of the pharmaceutical companies. Gordon Brown is expected to launch the credit in his Budget on Wednesday.

Debt: Eurotunnel sold £1.1bn of its debt to a vehicle set up by Dresdner Kleinwort Wasserstein and Merrill Lynch at a 27% discount to its face value. The debt purchase was financed by the issue of bonds. Eurotunnel said the deal provided protection against interest rate increases between 2004 and 2008 on £1.14bn of its junior debt.

Italy: Disappointment loomed when figures from Istat, the official statistics agency, came forward yesterday showing a deficit-to-GDP ratio of 0.3%, the lowest since 1961. It is this ratio, said Istat, that the EU would use to see if Italy was keeping to its Maastricht criteria.

Turkey: Stephen Fidler reports that the Bush administration is torn between its aversion to public intervention and financial bailouts - a position taken by Paul O’Neill, the US Treasury secretary - and the need to support its ally in Turkey - the position taken by Colin Powell, the US Secretary of State. The IMF enlarged its credit line to Ankara from $3.8bn in December to $11.4bn but Bulent Ecevit, the Turkish prime minister, is looking for closer to $25bn. According to Mr Fidler, Turkey is viewed from a national security standpoint as a lynch-pin for US strategic interests. "It is an important supporter of Israel, and its support has been critical to the US strategy of containment of Iraq. It is also viewed as a secular bulwark to the spread of radical Islam." However, questions are being asked whether Turkey is sufficiently powerful to anchor such a strategy if it is seen as a country in free-fall.

Indonesia: Indonesian president Abdurrahman Wahid’s hold on power grew increasingly tenuous yesterday after his vice-president, Megawatti Sukarnoputri, broke her silence to stress that she did not support him. Mr Wahid is under pressure to resign after parliament last month issue him with a formal warning over his alleged involvement in two financial scandals.

WTO: The WTO yesterday found that methods used by the EU to calculate dumping margins on imports of Indian bedlinen violated WTO rules. In an unrelated case, the US and New Zealand yesterday requested WTO authorisation for $70m and $35m apiece in annual trade sanctions against Canada for its alleged continuation of WTO-illegal dairy export subsidies. In its request for retaliation, the US says it will select food and other agricultural products from the $8bn of farm exports Canada sends to its southern neighbour.

UK: Whereas Gordon Brown believes it is financially sound to borrow in order to invest, provided borrowing is kept within strict guidelines, the IMF says public investment should be paid entirely from the revenue raise from taxation. However, Mark Atkinson points out in his article "Taxing his Critics", that Mr Brown’s golden rule permitting borrowing for investment is sensible if the benefit to society of that investment is greater than the extra interest costs incurred in borrowing. Both the Treasury and Mr Atkinson believe there is good reason for believing this is the case now after years of under-investment in public services. "With a huge backlog of investment to clear, it is unreasonable to expect the current generation to shoulder all of the costs. We think the IMF is being too fiscally conservative," says the Treasury.

Zimbabwe: President Chirac of France and Poul Nielson, the EU Development Commissioner, have agreed to meet Robert Mugabe despite the Zimbabwean president’s campaign of intimidation against his country’s judges, journalists, political opponents and white farmers. A spokesman for Mr Nielson said that "Sometimes there are situations where we have to continue a dialogue to try and play a positive role. The Commission’s overarching objective is the promotion of a stable, democratic political environment in Zimbabwe."

Russia: According to a government report issued Thursday, economic growth in Russia is expected to slow this year to 4% from the record pace of 7.7% in 2000 as lower world prices for oil and other exports cut companies’ earnings. Industrial output and investment are also set to decline. Growth over the past 2 years was fueled by high prices for oil, gas and metals – which make up half of exports- and the effects of the 1998 ruble devaluation which stimulated industry when imports became more costly.

Burma: Despite economic sanctions against Burma, exports of garments to the US more than doubled from $168m in 1999 to $403.7m last year placing Burma’s volume of exports to the US well above those from France and level with those from Israel. Burma’s military leaders, says the article, are benefiting financially from the shipments because most of the factories are joint ventures partly owned by the military government. Burma is an attractive site for textile manufacturers. Labour unions are prohibited in the country and workers reportedly receive $14 to $47 per month for a 48 hour week. Burma produces garments for leading American designers and retailers, including Kenneth Cole, Nautica, Jordache, Kmart Corp. and Wal-Mart Stores.

1 March

The Commission of the Argentine Congress in charge to establish the degree of responsibility in the money laundering scandal involving the president of the Central bank Pedro Pou , is going to recommend his destitution to the president of the republic, Fernando of the Rúa. The Argentine corruption is invisible, nonetheless is able to generate about $9,000 from drug trafficking money, sale of arms and briberies. The report of the Senate of the U.S.A. has exposed the link with the Argentinean Bank Republic, the Federal Bank located in the Bahamas, and Citibank in New York. Moneta, Menem’s banker, admitted to be the owner of the Argentinean Bank Republic but denied until yesterday to own shares of the Federal Bank.

Argentina together with Brazil, Chile, Paraguay and Uruguay even if they do not produce drugs they are used for the transit of drug and money laundering, according to the annual report on the fight against the drug trafficking by the US government. The report shows that Argentina has a "developed chemical industry able to produce all the necessary equipment to process cocaine…and a sophisticated financial sector that can be used for money laundering".

Thursday 1st March 2001

Turkey: Turkey’s embattle currency slid further against the dollar as the government moved to take over Ulusal Bank, a small retail bank, that was in danger, due to its significant government bond holdings, of becoming insolvent. Ulusal is the first banking casualty of the country’s financial crisis that has seen the lira devalued by more than 30% against the dollar after the country abandoned exchange-rate controls.

Globalisation: Nicholas Boys Smith contends that globalisation has not tamed governments’ ability, or will, to meddle in economic life. The only difference, he says, is that government macroeconomic planning has been replaced by microeconomic manipulation, tax-distortion (i.e. indirect taxation) and labour-market regulation. He cites the British government as a good example of using "less transparent methods" to achieve its ends. "By May 2001, the British government will have been able to impose a total additional cost of £40bn on British business, £13bn of which consists of new regulatory and welfare costs - for instance, the 1999 Employment Relations Act that requires firms with over 20 employees to recognise trade unions.

Russia: The opinion-editorial "Russia’s Image Abroad" says that if the past is any guide, Russia has no intention of repaying its full Paris Club debt, with or without an IMF agreement. "Russia’s decision to pay its bills this year is a matter of tactics, not principle. Russia owes a total of $40bn to the Paris Club. In 2003, payments will jump to $18bn from about $13bn this year and next. As prime minister, Mikhail Kasyanov, is quoted as saying, "if there is no answer [an IMF program] to this question this year, we will make our policy in such a direction so as to avoid the problem of 2003."

World Trade: Naomi Klein in her article "Fighting free trade laws" cites the case of Metalclad, a US waste management company that took over a toxic treatment facility in Guadalcazar, Mexico. The company, using the controversial Chapter 11 clause in the North American Free Trade Agreement (NAFTA), was awarded $16.5m after it successfully claimed that Mexico was "expropriating" its investment. The Mexican government had intervened to deny Metalclad a building permit when local residents feared continued groundwater contamination after failure by the company to clean up the waste of its previous owner. As Klein says, "the Metalclad case is a vivid illustration of what critics mean when they allege that free-trade deals amount to a bill of rights for multinational corporations. Metalclad has successfully played the victim, oppressed by what NAFTA calls "intervention" and what used to be called democracy." She puts forward the view that cities and towns need decision-making powers commensurate to their increased responsibilities, or they will simply be turned into passive dumping grounds for the toxic fallout of free trade.

Population: Rapid population growth and relatively high fertility levels in the world’s 48 least developed countries, and rising life expectancy everywhere, will help push the world’s population from 6.1bn to about 9.3bn by 2050, according to a UN report published yesterday. It estimates that the world’s population is growing by 1.2% annually, or 77m people and six countries account for half the increase: India, China, Pakistan, Nigeria, Bangladesh and Indonesia.

UK: Economic divisions between London and England’s northern cities have widened over the past four years and show little sign of narrowing, despite government plans to pump hundreds of millions of pounds into neighborhood renewal schemes, according to a study. Presenting a dismal picture of two nations, with the south motoring ahead at the expense of less-favoured conurbations and regions, it portrays English provincial cities as pale shadows of their European counterparts.

Democratic Republic of the Congo: Soldiers from the armies of Rwanda and Uganda were reported to have pulled back from their front line positions in the southeast and northeast of the country. The new moves were seen as possibly the most hopeful sign of progress since August 1999, when most of the combatants in the war signed a peace accord that they all then promptly ignored.

WTO: A WTO arbitrator yesterday ruled that the US must remove a controversial provision from its 1916 Anti-Dumping Act before 26 July. The act allows companies to launch lawsuits in US courts against importers and producers that have been found to sell their products in the US at unfairly low prices. The law had recently been used by several US steel companies. The US Congress has generally been reluctant to comply with WTO decisions and the case of this anti-dumping law may be no different given the influence wielded on Capitol Hill by the steel industry.

European Central Bank (ECB): The ECB received a double boost yesterday with the news that annual inflation in the euro-zone fell unexpectedly from 2.6% in December to 2.4% in January and money supply growth expanded at its slowest rate since the euro’s launch in 1999. Economists said both sets of data strengthened the case for the ECB to lower interest rates.

Zimbabwe: It has been suggested in the article "The dying throes of divide and rule" that recent events in the country signal the resurgence of a newly confident, all-powerful party that sees no comeback in stamping out opposition. Tanks, it is suggested, could soon easily be running down the streets of Harare. Meanwhile economists expect a fourth year of negative growth and GDP this year could contract by 6%.

Oil: BP Amoco came under fire from shareholders and Pirc, the corporate governance advisory body, last night after it emerged that the company had rejected 4 environmental and human rights resolutions due to be heard at its annual meeting next month. The four resolutions call on BP to divest its 2.2% stake in PetroChina, which plans to build a gas pipeline across Tibet; to provide a risk assessment on drilling in the Arctic National Wildlife Refuge; to publish a strategy for moving from fossil fuels to renewable energy; and to draw up human rights commitments to apply to strategic investments. BP said it had turned down the resolutions because they failed to meet legal requirements under the Companies Act and the company’s articles of association. It has asked for the resolutions to be filed again as special resolutions which require support from 75% of the vote rather than a simple majority. A similarly worded resolution brought by Greenpeace against drilling in the Arctic had been allowed last year gaining support from 13% of the company’s shareholders.

Japan: The bad news for Japan’s banks worsened considerably yesterday after the Nikkei 225 moved to its lowest intra-day level for 15 years, further decimating the value of their securities portfolios and reviving fears of another banking crisis. The country’s banks have huge shareholdings and have used paper gains to offset the pressure of writing off bad loans.

China: Lee Kuan Yew, Singapore’s founder and elder statesman, urged the US administration to consult its Asian allies before it adopts a tougher approach towards China that could risk unsettling the region. "I do not believe there is only one road to democracy, or only one kind of democracy," he said referring to China.

Japan: The Bank of Japan yesterday took the surprise decision to cut overnight and discount interest rates, citing the slowing pace of economic recovery and concern about the weak stock market. The central bank had recently resisted calls for a return to a zero interest policy it abandoned last year. But it relented under pressure from politicians to stimulate the economy, which is verging on a return to recession. The move attracted strong criticism from some economists for undermining the bank’s independence.

Letters/Debt: In response to Bob Geldof’s plea that the WB and IMF should drop the debt for poorer countries, Michael Walker in the Letters section says that while laudable, such debt relief savings that are not spent on arms are likely to end up in the offshore bank accounts of some of those very governments’ officials or their families or cronies. "As long as countries continue to turn a blind eye to such widespread practices [the flight of "swindled money"], the sad reality is that dropping the debt will hardly make a dent."

Argentina: Just 2 months after securing a $40bn international rescue package, Argentina’s economy is again beset by worries following a round of disappointing economic figures in the past week, Turkey’s currency devaluation and an ugly battle over the chief of the central bank. Such worries have pushed the country’s bonds down to their lowest value since the country secured the IMF aid package in December, with borrowing rising above 8% from around 6.5% in the weeks following the IMF support. According to IDEAglobal, a research company, "the economy is failing to show sustained signs of growth and that alone should be reason to be concerned."