Daily Press Cuttings

Monday 9th April 2001

India/Aids: The nonprofit International Aids Vaccine Initiative (IAVI) is negotiating a deal that would let an Indian drug company use patented vaccine-making technology developed by the small American biotechnology firm Therion Biologics Inc. If the talks succeed, Serum Institute of India Ltd. could end up manufacturing a vaccine developed by Therion. The technology transfer, according to both IAVI and Therion, could be free of charge. Although India has a weak drug-patent law, this law will have to be strengthened by 2005 under international trade rules, so copying patented vaccine components probably won’t be an option. Instead, Indian officials and vaccine manufacturers are hoping to convince foreign companies they can be trusted with use of patented technologies, as long as the uses are restricted. Under Therion’s arrangement with IAVI, for example, an Indian manufacturer would have the rights to sell the vaccine in India and surrounding nations only. Licenses for other parts of the world, from Africa to Europe, might be available for a fee, says Therion president Dennis Panicali.

Free Trade: This weekend, officials took the rare step of announcing plans to publish the entire "negotiating text" of the planned Free Trade Area of the America (FTAA) talks after US President George W Bush meets his counterparts at the summit in Quebec City on April 21. US officials want the Latin American countries to speed up tariff cuts on agriculture and to open other sensitive sectors to trade and investment. The US has also resisted attempts to put its onerous antidumping laws – laws that punish foreign companies for selling their products in the US at below cost – on the table for discussion. Some 10,000 protesters showed up at this weekend’s meeting in Buenos Aires to vent their ire at free-trade pacts in general, which, they complain, put corporate interests ahead of social concerns. Protesters say any trade pact should include stipulations protecting labour rights and the environment. They also say labour and environmental activists should be included in the negotiations. "Eighty percent of Chile’s exports are natural resources," said Sara Larrain, executive director of Chile Sustentable and a member of Chile’s Green Party. "If the FTAA goes forward, that number will increase."

FT

Debt: A report prepared for the governing boards of the World Bank and IMF suggests that some countries – including Malawi and Niger – may not achieve the target debt-to-export ratios which the initiative is intended to deliver. In other words, such poor countries as are receiving debt relief, risk building up unsustainable debt levels which could in turn threaten the credibility of the heavily indebted poor countries (HIPC) debt relief initiative. The problem has arisen as a result of falls in the terms of trade – the ratio of export to import – for these countries. Niger, for example, has been hit by rising oil import costs and recent falls in the world price of uranium, one of its main exports. The amount of debt relief on offer was calculated using debt-to-export ratios over the past three years, when Niger’s export earnings were temporarily boosted by a jump in uranium prices. The debt relief process is designed to reduce the net present value of each country’s external debt to 150% of exports – a level attacked by campaigners as arbitrary and inflexible. Critics argue that the amount on offer should be reassessed when the country qualifies for full relief, rather than being fixed when it enters the initial stage of the process. The Drop the Debt campaign has been pressing the bank and IMF to increase the debt relief on offer, saying it does not offer a permanent exit from indebtedness, low growth and poverty.

Peru: Exit polls in yesterday’s first round vote gave Alejandro Toledo about 40% support – 50% of the votes are needed to avoid a run-off – with the former president, Alan Garcia, appearing just ahead of Lourdes Flores, the centre-right candidate, for second place. Mixing pro-market and leftist rhetoric, Mr Toledo has promised 500,000 new jobs a year and to boost a feeble economy with tax cuts, sell-offs and higher exports. Amid lingering public cynicism surrounding politics, recent polls showed nearly a quarter of voters had yet to pick a candidate. A significant number were expected to leave ballot papers blank.

Asia: Finance ministers from Japan, China, South Korea and the 10 countries of the Association of South East Asian Nations (Asean) met in Malaysia at the weekend and agreed to link the network of currency swaps between Asean and the three north Asian governments to IMF conditions. The currency agreement allows any of the countries facing an attack on its currency to borrow quickly from the international reserves of participating countries in order to put up a strong defence. "The 1997 crisis might well have been averted by such an agreement, as east Asian countries were unable to defend their currencies from the pressure as investors withdrew from the region."

Indonesia: The IMF’s aim this week, according to the article "Cash-strapped Indonesia pins its hopes on IMF team resuming aid", will be to try to resume funding, suspended in December after differences with the government on a new central bank law. If this is successful, a decision on the next $400m installment in the country’s $5bn economic reform programme might come as early as next month. Since September, the rupiah has shed more than one quarter of its value, reaching nearly 11,000 against the US dollar last week. Benchmark interest rates on one-month central bank bills have increased from 11% to more than 15%. Inflation is climbing, reaching 10.62% year-on-year in March, while exports have continued to decline since September. Credit Suisse First Boston said in a report that it now expected GDP growth to slow to 3% in 2001 from nearly 5% last year.

Pharmaceuticals/Aids: Experts from international agencies, the pharmaceutical industry and health and development groups plan to use the meeting organised by the World Health Organisation (WHO) and WTO in Norway today to focus on differential pricing, backed by extra funding for delivery, to get drugs for those needing them. One third of the world has no access to essential drugs, according to the WHO. The practical problems of differential pricing are said to be threefold. First, lower prices may not improve access. Second, low-priced drugs must not "leak" back into rich countries to undercut higher prices there. Third, consumers in rich nations, especially in the US, somehow have to be persuaded to go on paying high prices for medicines that are sold far more cheaply elsewhere, in effect footing the bill for the world’s R&D. "Both the WHO and WTO want to make the practice more systematic and predictable, so governments will not need to invoke health safeguards such as compulsory licensing and parallel imports built into the WTO’s intellectual property accord."

Week end edition

Argentina: Yesterday, Domingo Cavallo, Argentina’s economy minister, said he was working out the final details of a £3.5bn bond placement with local banks, with a view to "covering any financing holes". Falling tax revenues and a ballooning fiscal deficit raised questions over whether the country would be able to keep servicing its foreign debt of $126bn following 33 months of recession. In December, the IMF helped assemble a $40bn aid package to rescue the economy. The announcement brought palpable relief to international investors, who have fretted about the potential for contagion from an Argentine default. The country’s bonds rebounded to three-week highs.

South Africa/Arms: Thabo Mbeki’s government is facing accusations of covering up corruption in the awarding of contracts from a highly controversial and unpopular arms deal worth £4bn. The European consortium EADS - owned by Daimler-Chrysler and the arms companies Aerospatiale Matra of France and Casa of Spain – is at the centre of an investigation into alleged influence-buying in South Africa and has admitted delivering luxury cars to 30 top government, defence and aviation officials while bidding for a multimillion pound arms contract. Critics have asked why a nation with many people sorely in need of better housing and medical services is spending so much on arms.

Bangladesh/Labour: Seumas Milne, in his article "British workers build solidarity with Bangladesh" says that building trade unionism in Bangladesh’s mushrooming garments industry – of the kind that has proved effective in countries such as Sri Lanka, Thailand and Indonesia – is proving an uphill struggle. There are now 2m mostly women workers making clothes for export – compared with around 275,000 in Britain – working for 3,300 employers, plus another couple of million producing in what can be even worse conditions for the domestic market. But unions are legally registered in only 127 factories and fewer than a dozen employers actually negotiate with them. Workers are regularly sacked or beaten up for being active in unions while an estimated 35% unemployment provides an army of willing substitutes ready to take their jobs. Faced with calls for better wages and conditions, Bangladeshi employers point to the demands for ever-lower prices by the western buyers. Lutfor Rahman, of the clothing exporters’ association, cites the profits of companies such as Wal-Mart. "They talk to us about ethics all the time, but will not share their profits. If they pay us more, we can also pay more." Bangladeshi manufacturers face the prospect of being undercut in turn by even lower-wage workforces in countries such as Vietnam, Burma, Cambodia and China.

UK: Marconi, the telecommunication group, will cut up to 1,500 jobs in the UK as it moves to reassure nervous investors that its exposure to slowing US markets is under control.

US: The budget that President George W. Bush will issue on Monday proposes a $688 million, or 7%, increase in Dept of Health and Human Services expenditures on Aids, putting emphasis on research to develop a vaccine and international efforts to combat the disease in the world’s poorest countries.

April 7th – 13th 2001

Current Account: Last year Kuwait piled up the biggest surplus with the rest of the world relative to its national income. The oil-rich country’s current account surplus was equivalent to 36% of its GDP. The next biggest surplus belonged to Singapore, at around 24% of GDP, followed by a slew of oil exporters headed by Qatar, Iran and Russia. Lebanon built up the biggest debt with the rest of the world, with a current account deficit of 13% of GDP. The deficits of Malawi and Portugal were nearly as large relative to GDP. Azerbaijan came closest to a balance of zero, with a current-account surplus of 0.1% of GDP.

Ecuador: When Ecuador dumped its debased currency in favour of the dollar last April, nobody expected the road ahead to be easy. Yet the economy, buoyed by high oil prices, has done better than expected. But now oil prices are falling, and the country can no longer avoid some tough decisions. On March 29th, Congress voted by a large majority to reject the government’s proposal for a three-point increase in VAT, to 15%. Without this increase, the fiscal deficit will rise to 3.9% of GDP this year, according to Jorge Gallardo, the finance minister. The government needs the money partly to pay debt. The government’s defeat has thrown doubt on Ecuador’s agreement with the IMF worth $1.7 billion in loans.