Daily Press Cuttings

Friday 23rd February 2001

Turkey: The Turkish lira yesterday plunged 28% against the dollar after Ankara was forced to float its currency and overhaul economic reforms backed by the IMF. The IMF team on its way to Turkey will decide what alterations are needed to the IMF’s $11.4bn lending programme. Turkey’s international creditors are wondering how yesterday’s devaluation of 28.4% would affect the country’s ability to service its external debt. "We think that the government will make external debt repayment a priority as a matter of honour and culture," said Mehmet Simsek, analyst at Merrill Lynch. Analysts estimate Turkey’s foreign debt at $110bn, of which they believe about 70% is commercial debt. At September 30 last year, German banks had £12.1bn of outstanding loans in Turkey; US commercial banks had $4.7bn; French banks $3.74bn; British banks $1.98bn.

The IMF, which helped design the Turkish exchange rate regime must be wondering if it can ever recommend anything similar again. Following the forced devaluations in Mexico in 1994, in East Asia in 1997-98 and Brazil in 1999, currency pegs appear to have been tested to destruction. As David Lubin, emerging market analyst at HSBC says: "It is remarkable that after Mexico, Asia, Russia and Brazil the IMF created another currency peg. It is now increasingly unlikely another exchange rate anchor of this type will make an appearance in an IMF programme again." Pegging a local currency to the dollar means domestic interest rates follow those of the US. IMF officials point to Poland, Chile and Israel as examples of countries that have successfully brought inflation down with currency pegs.

The problems arise when exiting from such pegs after they have done their disinflationary work, and from the perverse behaviour the regime can induce in investors and policymakers. Believing the peg would hold, Turkish banks borrowed dollars and bought lira-denominated government bills. Now the currency has plunged, the banks have been left with unhedged borrowings that may total $10bn. The IMF money that should have gone to boost Ankara’s foreign exchange reserves may now have to be used to rebuild the banking system.

The alternative to a floating regime is a currency board: a "hard-fix" system that requires central banks to back all their currency issuance with foreign currency denominated assets, usually dollars. Argentina, for example, will celebrate the 10th anniversary of its dollar currency board in April but has struggled as the strong dollar has priced its exporters out of world markets. The country has run up budget deficits, suffered price deflation and labours under a heavy debt burden. Argentina is undergoing a huge $39.7bn lending programme.

The ultimate step of adopting another currency was taken by Ecuador and it involves such a complete loss of sovereignty and flexibility that it is regarded as mainly suitable for countries in absolute crisis.

Unless a fresh round of emerging market currency crises causes another change of heart, it seems that floating rates will be the standard issue prescription for the next few years.

Nigeria: A visit to Nigeria by the heads of the IMF and WB highlights the contrasting political and economic pressures faced by the regional leaders, writes William Wallis. Despite more than $280bn in revenues from oil production over the past three decades, Nigeria ranks among the 25 poorest nations, according to the UN. Nigerian elected President Olusegun Obasanjo has been under political pressure -since the end of the military rule in 1999 - to demonstrate that his government can consolidate democratic reforms. IMF and WB officials fear that public expenditure could be above 50% of GDP, upsetting economic recovery and failing to stick to reform targets. Nigeria is also hoping for a rescheduling agreement with the Paris Club creditors in April of $23bn. However this rescheduling depends on the capacity of Nigeria to remain on track with the IMF reforms.

Turkey: Turks are dealing with the consequences of devaluation. "My debt has doubled," a pensioner said, "we are always indebted". A former school teacher said "They have made the public pay for their greed …the poor will be poorer, the middle class will be wiped out and the rich will be richer".

Poverty: Larry Elliott and Mark Atkinson in their article "Taking Charge of the Drive against Poverty" highlight a number of hurdles that must be overcome before a new campaign based on achieving the three key goals set at the UN’s social summit in Copenhagen in 1995 can be achieved. The goals were to halve the number of people living in absolute poverty, cut infant mortality by two-thirds and put every child in primary school. First, the unfinished business of debt relief for the world’s poorest countries must not be allowed to run into the sand. Another potential obstacle is the uncertain attitude of the Bush administration towards spending more US taxpayers’ money on poverty reduction. And thirdly, there will need to be participation by the private sector in any anti-poverty drive especially in tackling preventable diseases. Further, argue the aid agencies, governments should work harder to shape the global economy rather than leave it to market forces.

UK: New Labour has promised the UK will match the European Union average in health spending, expressed as a proportion of GDP, meaning a guaranteed 6.1% year on year increase which is 35% more by March 2005. The fear expressed in the article "The British Patient" was that if the great increase fails to deliver standards that match public expectations, many would turn to private practice, leaving the NHS as a poor service for poor people. So far the outcome is poor. New calculations by the King's Fund show the gap between the UK and the rest of Europe remains and may even grow.

Labour Rights: Following on from the critical report of labour conditions in Nike plants in Indonesia, labour leaders, Mr Hartono and Ms Mala accepted that conditions at factories used by Nike had improved in the last two years but said the company was not particularly proactive in its push to improve conditions. Mr Hartono said that "Factory owners are telling us that Nike is threatening to relocate most of its production out of Indonesia because there are now so many new regulations to protect workers’ rights. At present the current legal minimum wage is inadequate to cover workers needs although the cost of making a pair of shoes is only about 0.4% of what it is sold for in the shops.

Third World Disease: Gordon Brown and Clare Short will announce plans on Monday for a multibillion pound international fund to provide cheap vaccines against childhood diseases to developing countries. The plan is for the world’s richest countries, the IMF, the WB and Unicef to guarantee a market for drugs produced by the Pharmaceutical industry, and subsidise research costs. To demonstrate his commitment, Mr Brown plans to introduce a tax credit to subsidise vaccines research and development along with tax relief for overseas donations of existing drugs by pharmaceutical companies. At the moment, the big pharmaceutical companies devote just 10% of R & D to diseases effecting 90% of the global population.

Pharmaceuticals: Glaxo SmithKline announced plans yesterday to begin human trials of a vaccine against Aids by the end of the year. Jean-Pierre Garnier, Glaxo’s chief executive, also promised an earnings growth increase of 13% in 2001, rising to "mid-teens" in next year.

Aids: The surprise of two weeks ago by Cipla, the Indian manufacturer of generic drugs, to sell lower-priced AIDS drugs in Africa is generating controversy in the international health community largely because no major relief agency appears able to provide the medicines on a vast scale. The potential buyers of Cipla’s drugs say they are deeply frustrated by the complexity of buying and distributing the medicines where they are desperately needed. Mark Stirling, an advisor to Unicef, said the agency would need a sharp increase in funding to buy and distribute the drugs, even at the price offered by Cipla. In India, for instance, where some 3.7m people are infected with HIV, it is unlikely the government will be able to afford Cipla’s $350 per patient price.

AIDS: Merck & Co has started small human trials of a new experimental HIV vaccine that sparked hope among AIDS scientists. This vaccine is designed primarily to prevent uninfected people from contracting HIV, but Merck also want to test whether it can be used to treat people already infected with the AIDS virus.

Peru: Former Peruvian President Alberto Fujimori has been accused by the Congress of abandonment of office and breach of duties. Mr Fujimori has received a 10-year ban to exercise any public function. Fujimori left Peru in the middle of a corruption scandal which led to the discovery of millionaire Swiss accounts belonging to Vladimiro Montesino.

Thursday 22nd February 2001

Obituary: Alexander Wylie Logie, physician and husband of Dorothy Logie, died February 16 2001. He worked, together with his wife for a long time in African Aids hospitals, and had himself been infected with HIV from a needle stick injury in the hospital where he was working. In 1997 he was awarded honorary fellowship of the British Medical Association. He and Dorothy were early supporters of the Medical Campaign Against Nuclear Weapons, and later supported Medact and Jubilee 2000 in campaigning for the cancellation of the debt of the poorest countries. Talking about the spread of Aids in Africa, he argued that the only answer for the third world was prevention, increased openness about the illness, a reduction of stigma and an affordable vaccine. "There are signs that the World Bank is at last appreciating the gravity of the situation," he said "but prompt action by the major funding organizations is needed now." He also asked "It is too cynical and pessimistic a view that this may not happen until the pandemic starts to hurt the rich North?"

Pharmaceuticals: GlaxoSmithKline launched an initiative last year named Accelerated Access, under which Aids treatments were made available to African governments at $2 a day rather than the usual $16. Three countries - Senegal, Rwanda and Uganda - have agreed to buy drugs under the scheme with a further 31 governments expressing an interest. Glaxo, which sells 4 out of the world's 10 anti-Aids drugs, sold only £114m of such drugs to countries outside Europe and the US, out of total sales of £1.15bn. The group revealed that the merger of Glaxo Wellcome and SmithKline Beecham cost £121m alone in fees to bankers, lawyers and other advisers. Meanwhile, the group's share price has risen 85p to £19.20.

Bailouts: A study by academics and World Bank economists warns that "unconditional support for unsound intermediaries makes crises worse by facilitating looting and gambling for resurrection," but argues that "prompt public intervention in all distressed financial institutions limits the macroeconomic costs." The paper avoids offering de facto guarantees, arguing that liquidity support shouldn’t be used "to support insolvent institutions and delay the recognition of financial distress." But it stresses that "waiting to intervene until after the crisis has passed risks throwing good money after bad." The authors of the study advise letting exchange rates float freely. They also oppose the control measures some governments use to limit exposure to volatile inflows and outflows of capital. The study concludes that current account deficits must be contained so as to avoid the heavy and growing reliance, especially among Asian economies, of short-term borrowing which merely increases the chances of a currency crisis occurring.

Pharmaceuticals: GlaxoSmithKline PLC reported a 13% rise in pretax profits from £4.71bn a year earlier to £5.33bn in 2000. Including exceptional items of £702m, pretax profits actually rose to £6.03bn for 2000. The company, which already offers discounted AIDS drugs via a UN program, has pledged to offer its HIV/AIDS drugs to poorer countries at a 90% discount. AIDS drugs are big business for the company with sales last year having risen 14% to £1.15bn. However, Glaxo’s CEO, Jean-Pierre Garnier rebuffed a recent proposal made by Indian generic drug company, Cipla Ltd, to pay Glaxo and other drug makers 5% royalties in exchange for permission to sell knockoff versions of their AIDS drug in developing countries. Mr Garnier said Cipla’s proposal would appear to give the Indian company the freedom to sell the drug knockoffs even in the high-income US market.

Globalisation: Limited access to medical care, fondling of assembly-line workers by factory managers and forced overtime are widespread among Nike Inc’s Indonesian contract factories, according to a Nike funded report by Global Alliance. "It’s good that they added in compliance issues," commented Dara O’Rourke, a professor at MIT and one of Nike’s harshest critics. Last year, Global Alliance’s reports on Thai and Vietnamese workers in Nike contract factories came under fire from labour activists who criticised the group for focusing on soft issues like skills training instead of investigating compliance violations such as harassment and overtime abuses.

Banking: With financial services giant, Citgroup’s domestic corporate and consumer businesses expected to feel the pinch of a US slowdown, Citigroup is depending heavily on the 79 emerging countries to meet its corporate goal of doubling earnings every five years, says Paul Beckett in his article "Citgroup Targets Emerging Markets". Three months ago Citigroup acquired Poland’s Bank Handlowy W Warszawie SA for $1.1bn. Emerging-markets operations are booming. Profit last year rose 37% to $2.4 billion. Just in Asia, excluding Japan, profits rose a massive 50% to just over $1.1bn.

South Korea: The IMF said it expects economic growth in South Korea to halve this year to below 5%, as a slumping US economy is seen to sharply cutting demand for Korean computer chips and electronics. South Korea entered into a $58bn IMF-led bailout program in late 1997 after the country’s currency more than halved in value against the dollar and the country’s foreign reserves evaporated. The cause of the disaster was placed at the door of Korea’s state-banks who had imprudently lent to dozens of heavily indebted family-run conglomerates. The near collapse of the financial system has led to a call for a break with the strong ties between the state and big business in the country.

UK: The Bank of England’s Monetary Policy Committee voted to cut interest rates at its meeting earlier this month from 6% to 5.75% as a "prudent, precautionary step to shore up business and consumer confidence and guard against the impact of a slowdown in the US and world economies."

Mozambique: The Mozambican government has launched an appeal for $30m in aid to deal with flooding in the centre of the country. The floods this year have affected 389,000 people. At least 41 have died.

US: To many economists the notion of rising prices and high unemployment seems absurd during a period marked by a jobless rate near 4%, high productivity growth, and the decline in the price of powerful computers and microchips. However, a small group of economists worries that the economy has entered a period of rising inflation and slowing economic growth – which defines stagflation more broadly. Paul Kasriel, an economist with The Northern Trust in Chicago, doesn’t foresee 1970s-style stagflation, but he does predict that the inflation rate this year and next will exceed the economic growth rate. Some economists prefer to consider inflation with energy costs excluded. But energy prices have a very real cause: many American energy suppliers under-invested in refining, exploration and electricity-generation equipment during the 1990s. Add in production restraints from OPEC, and you have real supply shock, says Mr Kasriel. He also says that "If the economy’s ability to satisfy demand for increased goods and services is constricted because of energy, we are going to get less real economic growth and more inflation. We used to call that stagflation."

Turkey: Turkish financial markets endured another round of frantic trading yesterday as the threat of devaluation of the lira doomed and credit agencies warned that the country’s creditworthiness was in jeopardy. The IMF introduced a peg system which compelled Turkey to limit the depreciation of the currency. Yesterday interest rates soared to 4,000% and foreign exchange reserves were depleted by a further $3.1bn as investors fled from Turkish assets. Standard & Poor, the rating agency, warned that it may cut Turkeys’ sovereign rating, currently B+. Other agencies could follow, which would make it much more costly for the country to raise new debt abroad or renegotiate existing terms. German banks, among the most active in the European loan markets, had high exposure to Turkish companies. Paul O’Neill, the new Treasury Secretary, has warned countries facing financial crisis not to expect an automatic bailout. The IMF is backing an aid and reform package with the Turkish government following last November’s financial crisis. "I don’t think there will be any more money from the IMF now with [Mr] O’Neill’s position clear," said Timothy Ash, emerging markets economist at Bear Stearns. Instead, the threat now is of a devaluation of the Turkish lira as a means to control the crisis. Analysts said many Turkish banks had significant liabilities in US dollars. These would be magnified by a devaluation. But defending the currency with massively high interest rates was also likely to inflict pain on the banks by curtailing their funding. Turkey’s foreign debt is estimated at around $110bn, of which about 70% is commercial – out of which $54bn is from European private sector lenders.

Zambia: Ernesto Hernandez-Cata, Associate Director of the African Dept. of the IMF, writes in a letter to the FT that the IMF didn’t ignore the irregularities in Zambian cobalt sales. He writes that it was Zambia’s agreement to proceed with the audit that allowed the IMF loan and the subsequent debt reduction accord to go ahead.

Kenya: Father Angelo D’Agostino, founder of a Nairobi Aids hospital accepted an offer by Cipla, an Indian manufacturer of generic medicines, to supply cheap antiretroviral drugs, despite the threat of a confrontation with Kenyan patent law. The move comes amid growing pressure by organisations like Oxfam and Medecins sans Frontieres on an industry they argue is keeping prices too high, while many regions of Africa are being decimated socially and economically by Aids and other diseases.

Colombia: The World Bank was reported as saying yesterday that Colombia’s proposal for $1.3bn bond issue was being examined. The issue would complete Colombia’s international funding needs for 2001and it is backed by the World Bank. Backing from the World Bank would enhance the credit rating of Colombia’s issue and allow the country to target a wider range of investors. At the start of the week Standard & Poor’s affirmed Colombia’s foreign currency rating of BB, with a negative outlook.

Switzerland: The French parliament’s taskforce into money-laundering in Europe showed in its report that Switzerland’s 372 banks made only 313 reports of suspected money-laundering in the year 1999-2000. Switzerland has tightened up its anti-money laundering legislation in the wake of a number of high-profile cases where Swiss banks were used to shelter the fortunes of wealthy dictators such as the late President Marcos of the Philippines. Giovanni Colombo of the Finance Ministry noted that while Switzerland had only 303 suspected cased of money-laundering in 1999, compared with France 1,655, the number of cases that were handed over to the prosecutors was far higher in Switzerland.

Thailand: Somkid Jatusripitak, the new finance minister, said in an interview with the FT yesterday that he will discuss with his economic team the best way to establish a national asset management company to buy up bad loans from banks. Mr Somkid said that the banks might have to accept some losses. Thailand’s non-performing loans, which peaked at 47.7% of total lending in May 1999, dropped to 19.26% at the end of December. This drop had been largely because of a transfer of bad debts from banks’ books to individual asset management companies, and to the rescheduling of bad loans to buy time for defaulting borrowers. Proper restructuring has been hampered by the unwillingness of banks to accept losses that would further erode their capital base, while Thailand’s weak foreclosure laws mean defaulting borrowers have had little incentive to cut deals. Andrew Stotz, a banking analyst for S.G. Securities, said six private banks recorded an increase in non-performing loans in January, reflecting public expectations that defaulting borrowers will be given a break. "People may be thinking that they’re going to get bailed out by the government, so why pay now," he said.

Japan: Marubeni and its Indonesian partner have failed to agree a debt restructuring for Chandra Asri, the petro-chemicals plant majority-owned by the Indonesian Bank Restructuring Agency. The Japanese trading company, which has lent $724m to Chandra Asri and invested a further $250m, said yesterday that there were several obstacles to an agreement. These include an Indonesian proposal to lower the interest on loans to the London Interbank Offered Rate (Libor), rather than the current rate of 2.5% above Libor, and to extend repayment period by up to three years from the agreed 12 years.

South Africa: Trevor Manuel, South Africa’s finance minister, yesterday announced a budget designed to stimulate economic growth and promote investments while reaffirming the government’s commitment to privatisation. "For the first time the government can spend more without fear of debt" Rian le Roux, head of economic research of Old Mutual Asset Managers, said yesterday. "Cutting the budget deficit meant a lot of fiscal pain. Now it is payback time".

Japan: The good news from Japan, reports Anatole Kaletsky, is that some influential politicians and officials are starting to think about putting together a package of pro-growth tax and monetary policies to supplement a programme of British-style deregulation and bank restructuring. If the Government were to cut taxes to stimulate consumer demand, while the central bank promised to keep interest rates at zero for the foreseeable future, it would be much easier to accelerate deregulation and to restructure the Japanese banks with having to suffer Thatcherite levels of mass unemployment.

West Africa

Currencies: The gravity of depreciating national currencies on the continent was underscored when Chief Samuel Adegbite, the Vice Chairman of NBM Bank Ltd of Nigeria, called for the adoption of the dollar as the national currency of the country if the naira cannot stabilise. The question is whether or not the dollar as the national currency would automatically improve the country. With pegged exchange rate regimes completely gone, the floating rate regime, which allows a currency to find its own level based on pure economic forces, has left most African countries exposed. Most countries have no sound economic base that would allow a nation currency to strengthen. This debate should take center stage in any economic recovery programme because with strengthened purchasing power, the locals would be able to improve their living standards.

El Comercio (Peru)

Vatican: The nomination of Latin-American cardinals has increased to 27, forming a formidable group in the new enclave. The list of Latin-American cardinals nominated for Investiture on Wednesday, included two Argentinean, two Brazilian, one Bolivian, one Chilean, one Colombian, one Ecuadorian, one Honduran, one Peruvian and one Venezuelan. Among the new cardinals, the youngest one is the Hounduran Óscar Andrés Rodríguez Maradiaga, 58 years old, who is also the first Honduran cardinal. Observers think that Rodríguez Maradiaga has some chances to be the new bishop of Rome, one of the titles with which the Pope is known. "Only the Saint Spirit knows" he said in an interview, commenting this possibility. [Cardinal Rodríguez works very closely with Jubilee 2000 campaign]

Wednesday 21st February 2001

Japan: Japanese regulators, moving to restore crumbling international confidence in the country's financial system, say they will push banks to remove bad loans from their balance sheets rather than merely set aside reserves to cover losses. Hakuo Yanagisawa, Japan's financial affairs minister, says "We want (the banks) to complete the task by the end of March 2002". Since real-estate prices collapsed in the early 1990s, leaving lenders with a mountain of worthless property-related loans, banks have been postponing write-offs in the hopes that an upturn in the economy or in land prices will curb their losses. Shoji Mori, the head of Japan's top financial regulatory agency, told reporters that the country's big banks should place a priority on writing off bad loans, even if that meant posting losses. Japanese lenders still had 31.8 trillion yen (Euro 297.3 bn) in bad debt as of the end of September, despite 68 trillion yen in write-offs during the past 8 ½ years. ING Barings estimates the country's biggest banks have an additional 12 trillion yen in bad loan losses still not covered, above and beyond the government's estimate. Merrill Lynch's credit-analysis department estimates the figure could be as much as 50 trillion yen for the country's banking system as a whole.

Indonesia: The Indonesian economy grew 4.8% in 2000. Driving the economy is exports, which surged 16.1% in 2000, boosted by high oil prices and a weak currency. James Castle of the Castle Group, a Jakarta-based consulting company, sees growth in 2001 falling between 3% and 4%. John Dodsworth, a senior representative in Jakarta for the IMF says "We need to be aiming for 6% to 7% growth as soon as possible…but it will be difficult to achieve it" based on the current level of reform.

Russia: Russia paid $577 million to the Paris-Club of the $1.2bn due Tuesday. The prime minister supported a bill to release only enough funds to pay interest on the Soviet -era debt. The Duma has demanded that any surplus from high oil prices be evenly split between debt service and boosting spending on defence, pensions and wages.

US: A recent survey conducted for mutual-fund firm Strong Capital Management Inc. found that 59% of Americans don't expect to have to trim their spending after they retire. Yet more than half, or 56% of those surveyed, report that consumer debt has impaired their ability to save for retirement either "a great deal" or "somewhat".

Bonds: As the title to the article says "The High Yields of Risky APP Debt may be Tempting to Brave Investors". APP is the Indonesian company, Asia Pulp & Paper Co. whose bonds are yielding anywhere from 30% to nearly 90%. "These bonds are cheaper than debt from such basket-case countries as North Korea, Cuba and Iraq", as one emerging-markets fund manager put it, noting that debt from those countries trades at discounts of 85% or more to their par values.

Commodities: Consolidated Fruit has hired a restructuring specialist in financial advisors, Gordian Group LP to explore the potential of acquiring all or a portion of Chiquita Brands International Inc. Chiquita, which also markets produce other than bananas, said last month that it could no longer pay its debts and would probably need to seek protection from creditors under Chapter 11 of the US Bankruptcy Code. It said it would ask investors to agree to restructure $862 million in bond debt and said a proposed deal would involve a swap of debt for equity. The company has also filed a lawsuit alleging that the European Commission illegally restricted banana imports into the EU.

Steel: Workers from Belgian steel maker Cockerill-Sambre SA staged a one-day walkout Tuesday, protesting possible job cuts and plant closures as a result of the planned merger of its parent company, France's Usinor SA, with two other European steel firms.

Russia: The Duma is to debate a bill tomorrow amending the federal budget to help service foreign debts in full this year. The communist leader Gennady Zyuganov said the government was "not hearing the voice of the people" when it gave debt-servicing equal priority to social spending.

US: In a tight labour market, illegal immigrants filled holes in the US workforce. However there is the danger that those gaps will close as growth slows, There are approximately 6m illegal immigrants in the US, comprising 3.5% of the workforce. The net gain from immigration in the economy is now between $1bn and $10bn a year, according to the Washington DC-based National Academy of Sciences. Companies - especially those in the meat-packing, agriculture, hotel and restaurant industries - have been hiring illegal immigrants to plug the gaps, often at wage levels too low for most Americans. With a rising unemployment and redundancies occurring regularly, the position of illegal immigrants in the US is under threat.

Philippines: The International Finance Corporation (IFC), the private sector arm of the World Bank, plans to include corporate governance clauses in loan agreements, said Peter Woicke, IFC executive vice-president. Mr Woicke admitted that in recent years the roles of the IMF and WB had become "a little muddled" but that "clearer definitions" were now in place. Projects supported by the IFC have "to meet strict environmental and social requirements", Mr Woicke said, adding that there was now "tremendous pressure" from governments to add corporate governance to the list.

UK: Halifax and Nationwide Building Society, the first and fifth largest lenders, are both offering a permanently lower variable rate to existing borrowers. Mortgage lenders are both rewarding faithful customers and trying to damp down competition.

UK: Ian Plenderleith, who is one of the nine-strong members of the Bank of England's monetary policy committee (MPC) has told the Bath Chamber of Commerce that next week's decision by the committee on interest rates will be a tough call. "In the UK, the picture is of reasonably steady growth; in the US, the economy slowed rapidly in the final quarter of last year. The MPC has shifted. There has been a sensible shift in the balance of risks from the possibility that we might need to restrain the economy a bit more to the possibility that we are going to get a weaker performance than we would like." He also said that although it was not universal, for the first time he had heard people say that the exchange rate had ceased to be an issue for them. This was due not only to the fact that it had come back from its previous level but that firms had adjusted.

UN/Pharmaceuticals: The UN is preparing to challenge the multinational drug companies control over HIV and Aids treatments in developing countries by encouraging a far wider use of cheaper, generic drugs. In addition, Kofi Annan, the UN's secretary general, said that more needed to be done through other measures such as "tiered" pricing between rich and poor countries, subsidies, and "the effective use of health safeguards in trade agreements." The US, meanwhile, is preparing to challenge Brazil's national law in the WTO which allows it to override drug patents in cases of dire emergency.

UK: Gordon Brown, says the article "Brown's embarrassment of riches", may have a war chest of £40bn to spend but it's nonetheless caused him embarrassment. The promises New Labour made to renew Britain's crumbling public sector have not been met and his spending restraints "certainly haven't improved the mood among the underpaid army of teachers and nurses." As regards investment, with only two months of the fiscal year to go, the government has spent only $2.2bn renewing the public infrastructure - more than last year's miserly £1.4bn - but well short of Mr Brown's aim of £7bn. In three months of the financial year, the public sector disinvested, i.e. it spent less than the depreciation costs.

Environment/UK: According to the article "A Pale sort of Green", when the UK is assessed against other countries' efforts and taking into account the public's lust for burning fuel and turning on lights, Labour might win a prize in the every-little-bit-helps sweepstakes. However, when measured against indices of global warming, Labour barely twitched the dial and in the language of priorities, growth trumped environment every time.

Peru: Angel Paez wrote yesterday about Vladimiro Montesinos' "dirty war" against the opposition. Vladimiro Montesinos used to corrupt almost the whole press paying thousand of dollars to newspapers in order to criticise the opposition and support the third election of Alberto Fujimori. After the fall of the president Alberto Fujimori last November, some journalists and politicians denounced that his regime had bought the press in order to discredit the opposition. The evidence came with the videos disseminated by the Lima tribunal. Newspapers received $1.5 million per month - by contract. Also newspapers considered more serious than the sensationalist ones, like the Expreso, where corrupted. There is a video that shows Eduardo Calmell del Solar, owner of the newspaper Expreso, receiving $500million for the "rent" of the newspaper by the regime.

Latin America Information Agency

Argentina: Dafne Sabanes Plou writes about the murder of Mariano and Rosa Perel and its possible connection with a money laundering scandal. Mr Perel, a well-known Argentinian banker, worked for Ant Factory Latin America and used to collaborate with Citibank. The investigation on money laundering carried out by the US Senate revealed that Bank of America, Chase Manhattan and Citybank were among the banks involved in money laundering. Many fingers are pointed toward the president of the Central Bank Pedro Pou. When Fernando de la Rúa took office he didn't remove Mr Pou from office not to give "a bad sign to the markets".

Tuesday 20th February 2001

Turkey: Turkey's IMF-backed economic reform programme is hanging in the balance today as the government presses ahead with a issue of treasury bills, despite a market-shaking political row in Ankara. The trouble began when the President Ahmet Necdet Sezer accused Bulent Ecevit's government of impending investigations into corruption. As news of political row spread, bond yields shot up and the Istanbul stock exchange closed 14% down. The government needs the money from today's auction to help redeem $5.8bn in domestic debt that matures tomorrow. If it cannot raise the money from the markets, analysts said the government might have to print money in violation of its IMF disinflation programme. Last December, the IMF stepped in to offer Turkey a $10bn aid package after its programme was threatened by a financial crisis.

Argentina: Argentina's central bank chief, Pedro Pou, is fighting to keep his job after a report by a US Senate subcommittee raised questions about possible money laundering in the financial system he regulates. The two cases with Argentina connections involved Federal Bank and MA Bank. The central bank president is not a key figure in Argentina, mainly because under the country's fixed currency regime he does not have the power to set interest rates.

Letter: In his letter to the FT, Prof Jagdish Bhagwati writes about patent protection and says that there were no protests when these provisions were introduced - "thanks to our lobbies, over the objections of the developing countries " - into the Uruguay Round agreement at Marrakesh. Intellectual property protection became in 1995 the third leg of a tripod in the WTO, whose other two legs were the agreements on trade in goods (GATT) and in services (GATS). Prof Bhagwati writes that the WTO must be about mutually gainful trade. Intellectual property protection, on the other hand, is for most poor countries a simple tax on their use of such knowledge, constituting therefore an unrequited transfer to the rich, producing countries. We were turning the WTO into a royalty-collection agency, by pretending that the question was "trade-related". As far as medicines specially designed for the poor countries, Prog Bhagwati writes that the answer lies in using public money in the rich countries to create incentives for such innovation instead of relying foolishly on poor countries' indigent consumers and impoverished exchequers to produce the profits and hence the market incentives through patents to do the job.

South Korea: South Korean prosecutors yesterday indicted 34 Daewoo executives and accountants over inflation of the bankrupt group's assets by Won 41,000bn (£23bn) in one of the world's biggest accounting frauds. Prosecutors alleged that the group hid losses and persuaded banks to make new loans of nearly Won 10,000bn as Daewoo teetered on the brink of insolvency in 1997 and 1998.

Energy: Global consumption of oil, still the world's dominant fuel, is expected to rise from 77m barrels a day to 115m b/d by 2020. Industrialised countries want to avoid further reliance on the Middle East members of Opec, source of 66% of known global oil reserves. Discoveries such as the North Sea and Alaska are now levelling or tailing off. So the hunt is on for new sources, especially in central Asia, West Africa and Latin America. There is now ample evidence that oil can fuel corruption, foment political instability, and introduce a damaging boom-and-bust cycle. Mr Robin Aram, a Shell vice-president, says "We look for clear guidance from the international community, but we rarely get it…The US forbids investment in Iran; European governments permit it. The US disapproves of investment in Sudan, European governments condone it."

Geneva: Every region in the world will suffer the adverse effects of global warming, with poor countries and poor people bearing the brunt, according to an authoritative scientific assessment by the United Nations Intergovernmental Panel on Climate Change published yesterday. The IPCC said projected increases of 1.4-5.8 degrees centigrade in global temperatures over the coming century would damage ecosystems, lead to more devastating floods and droughts, increase the range of tropical diseases and cut food production in most of the developing world. The report said the impact of climate change and more frequent extreme weather conditions would fall disproportionately on the poor who have the least capacity to adapt.

UK: While Labour was out of office, 8m more people became poor while average incomes rose by 40% and a third of all UK children were born into poverty. Now with Labour in government, the distribution of income, let alone wealth is probably no more equitable - if anything the gap between top and bottom has widened. But the poorest households have benefited disproportionately from the government's changes in social benefits and taxes. Benefits like income support are up 72% for children, child benefit is up 25% and pensions are up 30% for the poorest.

Japan: The pressure on Japan's shaky financial system mounted Monday when a lavish government-backed vacation resort, Phoenix Resort Ltd., filed for bankruptcy protection with $2.35bn in debt and Tokyo stocks again flirting with 15 year lows on signs of rising political turmoil. The collapse of the resort, which was the site of last year's summit of industrialised nation finance ministers in Okinawa, highlighted the vast area of potential bad loans lurking in Japan's public sector.

WTO/China: Talks on China's much anticipated entry into the World Trade Organisation could be wrapped up by March, with its entry into the organisation expected by the middle of the year, said European Union Trade Commissioner Pascal Lamy. The delay has primarily been due to China's insistence that it be able to maintain its farming subsidies which the US opposes. Mr Lamy also said that the EU expects and hopes for "the simultaneous accession of [both] China and Taiwan to the WTO."

Oil: OPEC is moving toward agreement on another cut in its crude oil output next month even though crude prices are at relatively high levels and major consuming nations are cautioning the exporters' group against further supply reductions. Saudi Arabia said they will support a cut because they are of the view that current supply and demand forecasts show the need for it.

Cuba: Historical meeting between Castro and Rockefeller. The Banker David Rockefeller, held a meeting with President Fidel Castro in Havana yesterday. It was the first time since the revolution that US bankers have visited Havana. Mr Rockefeller was accompanied by bankers, entrepreneurs and ex US diplomats who support the lifting of the embargo that the US imposed on Cuba since 1959. The lifting of the embargo should allow US companies to invest in Cuba. However, after the demise of the Soviet Union, Castro has looked at the European Union for investments. Inside the US there are growing pressures especially from the agricultural sector to invest in the island.

The US group said that the embargo doesn't allow the US to have access to the little-exploited Cuban market. However, it was also said that US-Cuba relations are changing to ameliorate Cuba's economic situation

Monday 19th February 2001

Russia: A senior Russian government official told delegates from France, Italy and other countries that his government intends to repay its $38.7bn in foreign debt in full and on time. Russian Parliament's budget committee approved a plan to raise $3.5bn, part of which will be used to begin paying off debt this year. The revenue would come from additional privatisation, improved tax collection, and possibly loans from the Russian central bank.

Italy: At the G7 meeting in Palermo Gordon Brown secured backing from the world's richest nations to deliver universal primary education, cut infant mortality by two-thirds and halve the number of poor people by 2015. These are the UN's international development targets and for the first time finance ministers and central bank governors from the Group of Seven nations - the US, Japan, Germany, Britain, France, Italy and Canada - made a commitment to reach the goals set by the UN in 1995. A programme of work has begun which it is hoped will lead to the World Bank and IMF being required to spell out exactly how the UN targets will be achieved in the countries they lend to and supervise. Mr Brown and his G7 counterparts discussed progress of debt relief, noting that 22 of the 41 countries originally identified were receiving assistance under the enhanced, heavily indebted poor countries initiative and that many of the rest were prevented from doing so by armed conflicts. But they did not talk about a proposal from Drop the Debt, successor to the Jubilee 2000 campaign, to call in outside auditors to see whether the IMF and WB could afford to write off more debt. Jamie Drummond, spokesman from Drop the Debt, said: "The poorest countries cannot fight poverty when scarce cash, which could go to towards health care and education, is instead going on payments to the IMF and WB…the 2015 poverty alleviation targets will remain a pipe-dream until they agree to deeper debt cancellation and a new deal on debt for the Genoa summit.

Mr Brown had a bilateral meeting with Mr O'Neill before Saturday's G7 meeting. There was a "meeting of minds" on the need for Russia to meet its obligations on Soviet-era debt.

UK: Last week's figures showed that the underlying inflation rate had dropped to 1.8, its lowest level since 1976. A graph by Larry Elliott, shows that inflationary pressure in both the domestic and global economies has been falling for 20 years or more, with only the blip at the end of the 1980s interrupting the downward trend. Roger Bootle argued in his book, The Death of Inflation, that the real danger ahead could be deflation. The end of big government, globalisation, technological innovation, privatisation, the emasculation of the unions were all changing the economic climate, he argues. Japan has shown that coping with deflation can be just as problematic as coping with inflation. And what is interesting is how close the US and Britain are to deflation even after such long period of growth. A downturn of even moderate size could lead to the first generalised fall in prices since the Depression.

US: In the last few weeks, well-known US names such as Trans World Airlines, Bridge Information Systems have filed for bankruptcy protection. The filings are part of a wave of bankruptcies triggered by an economic slowdown which has exposed operational weaknesses and punished heavily indebted corporations. The number of bankruptcy filings by big companies last year was more than double that of any year since 1980, according to Lynn LoPucki, a law professor and bankruptcy expert at UCLA. In the US, companies usually have a choice of filing under Chapter 7 of the code or Chapter 11. Recent filings have turned the spotlight back on the practice of "pre-packaged" or "pre-negotiated" bankruptcies in which major creditors agree to a reorganisation, or even a take over, and only then go to the courts. Defenders of the fast-track filings say such double-bankruptcies, dubbed "Chapter 22," tend to happen if opportunist investors use the filing to push up the price of distressed debt before bailing out for short-term profit.

Comment: Commenting the visit by the head of the IMF and WB to Africa, the FT says that their mission will have zero impact on the lives of 300m Africans living on less than 65 cents a day. Much of the blame for Africa's plight lies squarely with its governments. Lack of rule of law, corruption and war never provide the conditions for the private sector to foster economic growth. But development has been hindered further by declining international interests: aid from rich countries has dropped by 40% in nominal terms in the 1990s. Trade barriers should be dismantled, particularly in agriculture and aid should not be tied to trade.

Zimbabwe: The IMF says that Zimbabwe dollar is more than 50% overvalued, inflation is 55% and rising. Since the new year the government has been forced by the country's escalating domestic debt to force down short-term interest rates to the point where they are some 40% below inflation. All this, says the FT, is justified by Mr Mugabe's ambition to be written up in the history books as the man who gave black Zimbabweans their land backs.

Credit where credit's due. The Lex Column notes that in the euo-zone, the percentage of bond issuers with AAA or AA ratings has slipped from 77% in 1998 to 58% last year, while A or BBB ratings have risen from 20% to 42%. But…finance directors and chief executives are starting to get comfortable with much lower credit ratings than in the past…..the fat capital base necessary to rpeserve such a rating was incompatible with the kind of returns demanded by equity investors…..Even AAA Nestle is facing a possible downgrade with sang froid, following its Ralston Purina deal. That, says Lex, is good news for equity investors…The starkest case of an industry migrating down the credit curve is the telecommunications sector.

FT (week end edition)

UK: Pharmaceutical companies will be granted extensive tax breaks for research and development on vaccines to combat killer diseases afflicting the developing world such as malaris, HIV, tubercolosis.

Pharmaceuticals: At the heart of public disquiet is the industry's monopoly status - the foundation of its wealth. The top 10 pharmaceuticals groups, among the biggest companies in the world, have a combined valuation of $1,200bn and sales of $150bn a year. Drug companies are encouraged to spend huge amounts of money on discovering new medicines. In return they are awarded a monopoly, know as a patent. While the patent lasts, for an average of about 10 years after a medicine is launched, no other company can produce cheap copies of the same drug. Oxfam says that pharmaceutical companies, defending their patents in poor countries, put the price of vital drugs beyond million of poor people. However, Joe Zammit-Lucia of Cambridge Pharma Consultancy asks "Why is it the responsibility of the pharmaceuticals industry to fund treatment of Aids in Africa?" Pharmaceutical companies are being challenge to do something more risky: to renounce their patent rights in certain markets

The Economist 17th - 23rd Feb

IMF/WB: The new Bush's administration hasn't revealed yet as or if it will reform the international financial architecture. The IMF and WB are under scrutiny. A chief concern of those who want to rein in the IMF is the issue of moral hazard. If governments know that pursuing reckless macroeconomic policies will lead them not to ruin, but to an IMF bail-out they would not be careful. The point applies with equal or greater force to western banks that lend to such governments. The chances are that the Bush team will be interested in the report of the Meltzer Commission, which recommended a dramatic scaling back of the activities of both the IMF and WB. The commission, sponsored by Congress but headed by Allan Meltzer, an economist at Carnegie Mellon University - and including experts like Harvard's Jeffrey Sachs, a leading thinker on development - wants to see the IMF concentrate mainly on short-term crises in emerging-market economies, providing funds only to solvent governments that meet pre-set conditions. The World Bank would change its name to World Development Agency, underlying a more tightly focused role in helping the very poorest countries. Often these two institutions have enabled America to protect its interests while sharing the burden of costs with others. Adam Posen, at the Institute for International Economics, argues that the real moral-hazard problem lies not with the Bank and the Fund but with American foreign policy itself.

EU: The 11 EU members of NATO have told the alliance that this year they plan to increase defence spending in order to create a EU defence force by 2003. Military spending will need to be sustained at a minimum of 2% of GDP a year over the next decade.

US: President Bush has promised an extra $5.7bn for military pay and comfort, and $2.6bn for research and development. Total spending for national security will be about £295bn this year and the annual average for the past ten years is £305bn (in 2001 dollars). That compares with $400 bn in the peak year of 1989. Mr Bush wishes to modernise the American defence system. The cost of new weapons is immense. The F-22 fighter would cost over $60bn. The more powerful Joint Strike Fighter would cost $23bn in research and development, and £200bn to produce.The Joint Chief of Staff say that they need $90bn each year over the next ten to buy all this new armoury. The Congressional Budget Office estimates the cost at a still jaw-dropping $50bn a year. People in the Pentagon privately argue that this is not all that much: if you merely increase defence spending from 3% of national income to 4% that would do nicely: an extra percentage point is worth $100bn.

Nigeria: President Olusegun Obasanjo claims that his government has no choice but to build the new stadium in Abuja. It inherited the decision to hold the 2003 All-Africa Games in Nigeria from the military regime that came before it. Nigeria has recently had to reschedule $23bn of foreign debt and now it will need $347million to build the stadium. This is roughly the amount the government had budgeted for recurrent spending on education this year, and twice what it plans to spend on health.

Zimbabwe: With hyperinflation looming, no one in Zimbabwe wants to hold the local currency. Business and rich individuals try to keep their foreign earnings off-shore or put their savings into tangible assets. A typical unskilled wage now buys a loaf of bread and a litre of milk a day, plus the bus fare to work.

Chile: Fresh fruit is Chile's third-biggest export industry after mining and forestry. According to Francisca Rodriguez of Anamuri, one of the few national organizations that represent temporary farm workers, sheer pressure of work often leads to the illegal use of stimulants, which are sometimes supplied by employers. Long hours, lack of formal contracts and absense of basic facilities, such as drinking water and lavatories, mean that even minimum safety standards are sometimes broken.

Government debt: In 1999 Greece's government was the biggest borroweer in the OECD relative to the size of its economy. Its total outstanding central-government debt was 108% of GDP. Japan was the second, with debts of 106% of GDP in 1999. New Zealand has been the most successful at reducing its debts, from 65% of GDP in 1993 to 31% in 1999.

Eastern Europe: The ex-communist countries of Eastern Europe are becoming increasingly twitchy about Russian economic influence in the region. Russian companies, especially in the energy industries, are awash with cash. The easiest targets for Russian investors are debt-ridden, badly run companies in poor, politically weak countries. "In basket-cases like Georgia, Moldova and Ukraine, the main tactic is to use energy debts. These run to hundreds of millions of dollars and are practically unpayable - so Russia swaps them for shares in installations such as pipe-lines and refineries". There are two possible dangers in all this. One is that Russia will be able to regain some influence in its former empire among cash-hungry politicians. Another is that it may be able to block efforts to diversify energy supplies.