Daily Press Cuttings

Friday 23rd March 2001

Japan: In the latest signs of stress on Japan's banking system, regulators said they would spend $583.6 million to bail out two more banks, while a government agency, disclosed that land prices fell for a 10th- straight year in 2000. The plunging prices hit Japanese banks with a double whammy. They pummel the construction companies and developers that were some of the banks' biggest borrowers, particularly during the asset bubble of the late 1980s. Many of the companies that invested heavily in real estate during that time went under or found themselves unable to pay back their loans, leaving banks with a bad-debt burden that totaled 31.8 trillion yen at the end of September, by official reckoning. More insidious, falling land prices are eating away at the value of the real estate Japanese banks traditionally have held as collateral against their loans, making those loans worth less and less every year. As long as the banks keep the nonperforming loans on their books, they end up setting aside more money to cover their losses every year. One solution now being championed by Financial Affair Minister Hakuo Yanagisawa is to push Japanese banks to unload the bad loans from their books and sell the underlying real-estate collateral.

Angola: Angola has secured a new $455 million oil-backed loan from a group of foreign banks which is likely to bring conflict with human rights organisations and the IMF. Angola pledged to limit borrowing to $269 million this year under the IMF monitoring programme and through Standard Chartered Bank, which arranged the latest loan, said part of it was not new borrowing, other banking officials said they expected overall borrowing this year exceed the agreed limit. A $500 million oil-backed loan last September, arranged by French banks, helped Angola breach IMF borrowing restrictions. Oil-backed loans have been of huge strategic importance to Angola, particularly after the collapse in 1992 and 1998 of two peace agreements when they were used to buy arms and reverse large advances by Jonas Savimbi's Unita rebels. "Only part of the oil-guaranteed debt and a small amount of bilateral debt falling due can be serviced in 2001," Angola's IMF agreement said. Much of the oil-backed debt is owed to Portugal, Brazil and Spain, and repayments to them could be renegotiated through political arrangements. Angola's external debt is estimated $11 billion.

Brazil: Loans are hard to find for smaller companies looking to expand, writes Raymond Colitt. Banks traditionally lent overwhelmingly to the government, which offered less risk and higher returns but crowded out most private sector borrowers and increased the cost of capital for them. As interest rates and government borrowing requirement fall, commercial banks are beginning to target second-tier companies and eventually "will be forced to reach out to smaller companies," says Roy Martelanc, Professor of business at the University of San Paulo. But loans by commercial banks to small companies still make up a fraction of their total loan portfolio. Small and micro-enterprises account for 60% of the country's workforce and 21% of its gross domestic product, according to Sebrae, a public private assistance network for smaller businesses.

Indonesia: Indonesia has warned Exxon Mobil, the US-based energy company, that if it does not resume pumping gas from its Aceh fields by July its operations in the strife-torn province will be taken over by state company Pertamina. Exxol Mobil Indonesia, the local unit of the Texan-based company, closed down its liquefied natural gas operations in North Aceh 10 days ago, saying that violence connected to a province-wide conflict between Indonesia soldiers and separatist groups, made it unsafe to continue its activities.

Argentina: In the article "Out comes the Cavallo knife" Mark Milner, Larry Elliot, Alex Bellos and Uki Goni write that the Economist Intelligence Unit yesterday warned of a possible downgrade to its rating for Argentina. Domingo Cavallo's first act will not be to announce a Keynesian reflation programme involving cheaper money and increases in spending. Instead, he will have to try to ram a $3 billion package of cuts through parliament. This because Argentina has been the beneficiary of a massive support package from the IMF, and the only way to keep the men from Washington on side is to stick to the tight exchange rate regime. If Mr Cavallo is unable to forge the political consensus necessary to get his painful measures through parliament, he has only three options: devaluation, dollarisation or default. None appeals. Devaluation might allow the domestic economy some breathing space but would make paying Argentina's debt more expensive and wreck Mr Cavallo's own credibility. Dollarisation would tie Argentina's policy to that of the US. In the last resort, default is preferable to a prolonged economic slump, but it would blow the country's credit rating out of the water and scare off foreign investors. The fear is that the country could become a new Thailand, where the rush to the exit by international investors in the summer 1997 precipitated the financial crisis across south-east Asia and beyond in 1997 and 1998.

UK: The government may need to rethink its plans for a further expansion of the number of people entering higher-education amid fears about funding and debt which could lead to new students failing to complete courses, a Labour-dominated committee of MPs warns today.

BT: British Telecom looks set to end its March financial year with debt exceeding its entire stock market capitalisation after another heavy fall in the battered stock.

March 24th - 30th 2001

Argentina: For much of the 1990s, Argentina was regarded as an emerging-market success story. And much of its success was attributed to its adoption in 1991 of a convertibility law, pegging the currency, the peso, to the American dollar: every peso in circulation had to be backed by a dollar in reserves. Argentina's descent into economic crisis is also a crisis for the prevailing orthodoxy about emerging-market exchange-rate policy. Now the country is tasting some of the drawbacks to a currency board, and it is fitting that the man drafted in as the government's new economic-policy chief is Domingo Cavallo, architect of the convertibility law. For Argentina, devaluation is a far more drastic option than it was even for Brazil, where the crisis surrounding the flotation of the real was bad enough. On the other hand, without a devaluation, Argentina's solvency looks dubious. The costs of its borrowing both at home and abroad have soared - not because of worries that the currency peg might be broken, but for fear that the country might default on its debts. Instead of an exchange-rate risk, investors see a worsening credit risk - and since Argentina bonds account for nearly a quarter of all tradable emerging market debt, this has wide repercussions elsewhere.

If Argentina heads for a unilateral debt default - in case of failure of its latest policies - it might increase the cost of credit in all emerging markets.

In many emerging markets, the apparent failure of an exchange-rate system also looks like the failure of the IMF, on whose authority the policy has been followed. But usually, and certainly in Argentina, as in Turkey last month, the real dangers are political. It is not so much the exchange-rate system that has crumbled, but more the faith of investors in the government's ability to deliver the policies needed to maintain it. In Argentina, Fernando de la Rua has become "a king who reigns but does not govern", says Ricardo Rouvier, a pollster.

Thursday 22nd March 2001

Russia: Russia’s legislature is expected to give preliminary approval today to a bill enabling the country to earn what proponents say could total $20 billion over 10 years by importing spent nuclear fuel, a measure environmentalist and liberal legislators say would turn the nation into a nuclear waste dump. The issue has raised questions about the compromise Russia is willing to make to earn badly needed money for its coffers.

EU: European banks will next week set out arguments against taxing foreign exchange transactions in response to calls from protestors against globalisation for the EU to bring in such a tax. The European Banking Federation said an "objective analysis" of the need of the so-called Tobin tax, named after American Nobel Prize winning economist James Tobin who first floated the idea in the 1970s, was overdue. Protestors plan to press their demand on the fringes of an EU summit in Stockholm on March 23-24.

China: The World Bank made a strong call yesterday for the adoption of a revised bankruptcy law in China. The more reform-minded among Chinese economists have argued for several years that the lack of an effective insolvency system – and therefore the relative scarcity of bankruptcies -–has created an industrial architecture founded on moral hazard. Companies, especially if they are state-owned, often continue to receive credit resources even if they are technically insolvent.

Nigeria: The Nigerian Labour Congress yesterday threatened to render Africa’s most populous nation ungovernable if President Olusegun Obasanjo went ahead with plans to phase in the deregulation of fuel supplies in an attempt to end chronic shortages. "We cannot pay world prices because we do not earn world incomes," said Adams Oshiomole, the leader of the Congress. Conservatives in the establishment said that eliminating the inefficiencies that exist in the current climate of subsidies and state monopolies will end their access to government patronage. Nigeria’s four refineries have the capacity to produce a third more than domestic requirements of 300,000 b/d. Yet last year 82% of these were imported.

WHO: The World Health Organisation yesterday launched a worldwide initiative to combat tuberculosis. The WHO is seeking funding of at least $50 million a year for the next five years. Twenty-two countries, mostly in Asia and Africa, account for 80% of TB cases. A large part of the increase is the result of the Aids pandemic, which weakens resistance to TB.

Zimbabwe: The IMF has refused Zimbabwe any new financial assistance, officials said yesterday at the end of a two-week mission in the country. In a statement the IMF expressed concerns at the deteriorating economic crisis, pointing to escalating inflation, build-up of external payment arrears of several hundred million dollars on foreign loans and shortage of fuel and other basic goods. If Zimbabwe fails to meet a scheduled $73.6 million payment later this year it could be suspended from the fund.

US: US bankruptcy laws take little account of intangible assets: in an age of high-technology that is an anachronism. Patti Waldmeir, in her article "The survival of the not-so-fit" writes that civilised societies institutionalised the concept of a second chance. In nature, those whose outgoings exceed their incomings get no second chance: they perish. In the civilised world, they file for bankruptcy. In the US, the House and Senate have just rewritten the rules that give American consumers a chance to escape from insolvency. Yet the legislator paid little attention to the rules governing the corporate second chance. This is particularly worrying for high-technology companies. They have neither the right kind of debt, nor the right kind of assets to hide beneath the shield of Chapter 11 of the US Bankruptcy Code. Dotcom assets are virtual – such things as domain names, technology licences, list of customer’s email addresses.

UK: The United Nations secretary general, Kofi Annan, says he is sorry that British troops in Sierra Leone are refusing to serve under the UN flag. He said "I do think is would be preferable if they were operating under the UN flag, given that Britain is a permanent member of the [security] council and Britain passed the resolution establishing the force in Sierra Leone". He has also questioned the value of Britain’s much-trumped training of the Sierra Leonean army "You can give these recruits some rudimentary training, some very basic training, but you cannot train soldiers in six weeks, and down the line they will have to be given further training," Mr Anna said.

UK: Two out of three people in the world will face water shortages by 2025, according to a report by the British-based development agency Tearfund to be issued Thursday. "Running on empty" made public to coincide with World Water Day, said the world’s water supply could not keep pace with demands being made on it. "The magnitude of the crisis is such that Tearfund says the world will increasingly witness a new phenomenon – ‘water refugee’ – millions of people being forced to leave their homes in search of clean water." The WHO said Wednesday that more than 1 billion people had no access to clean water and that 3.4 million people died every year from diseases that could be easily remedied by better supplies and sanitation.

Ghana: Last Tuesday the Minister-designate of Finance, Yaw Osafo-Maafo, announced the discovery of an internal debt of ¢6trillion which represents a whopping 20% of Ghana’s GDP and a worsening of the external debt by about $200million.

Minister of Trade and Industries-designate, Dr Kofi Apraku, called for assistance to address a problem that is not of its making; but merely inherited and called for the release of Japanese funds.He appealed to the Japanese Ambassador, Hiromu Nitta, who had called on President J.A. Kufuor, to release a planned $80m to assist in the process of economic recovery.

Wednesday 21st March 2001

US: The US Federal Reserve cut short-term interest rates by a half percentage point and suggested further cuts are likely. Investors clamoring for an even larger cut were disappointed that the Fed didn’t come to their aid. The Dow Jones Industrial Average fell 2.4% and the Nasdaq Composite Index fell 4.8%.

US: The US trade deficit widened a tad in January to $33.26 billion, denying the Bush administration any political benefit from the economic slowdown. Administration officials have been hoping that one side-effect of the slowing US economy would be shrinkage in the trade deficit, which would help quiet critics of the administration’s plans to expand its free trade agenda. The deficit with China amounts to $7.23 billion, with Japan $5.87 billion, with the EU $5.20 billion. The new increases in the trade gap are occurring at a time when the US economy has slowed sharply and unemployment has begun to rise, increasing concerns about a possible recession.

Lithuania: The Lithuanian parliament approved a bill to simplify bankruptcy procedures, seen as a key step toward reforming the country’s post-Soviet economy but one that will also boosts its record unemployment levels. Under the bill, bankruptcy procedures can start against a company when its liabilities exceed 50% of its assets. Some 400 companies currently face bankruptcy procedures, according to official estimates. The bill may double the figure this year, causing a loss of 15,000 to 20,000 jobs. The legislation was among the top requirements in a program agreed upon with the World Bank and will be a key step in unlocking a second $50 million tranche of a total $100 million structural loan expected in the second half of the year.

Mexico: Mexican President Fox appealed for a meeting with Zapatista rebel leaders who say they plan to leave Mexico City on Friday. Fox announced he would meet more conditions for talks, transforming three military bases into community centers and freeing more Zapatista prisoners.

UK: City3k launched Debt Exchange, an online marketplace for the global reinsurance industry to trade uncollected debt. Web-based Debt Exchange has already listed nearly 100 debts available to trade, said city3k, a UK reinsurance e-commerce venture. A recent report by Swiss Re estimated that there is $184 billion in liabilities in runoff, said city3k’s chief operating officer, Robin Merttens. Debt Exchange is the first of a planned suite of reinsurance-market technology solutions.

Paris: Observers of French debt hope to get more clues about Treasury issuance and buybacks today when the Debt Agency holds its first briefing since its creation in January. The Ministry of Finance created the agency as a means of bringing greater transparency to the process of issuing and managing debt, copying a similar strategy of Germany. Paris is hoping the market will reward its efforts by reducing the cost of its debt, which currently hovers some 15 basis points over Germany on the benchmark 10-year maturities. The agency is likely to confirm that the Treasury plans to issue Euro 78 billion of medium and long-term bonds in 2001, and that it will buy back Euro 2 billion of medium-term debt, despite the probable worse-than-expected receipts from the sale of third-generation mobile-phone licenses.

Argentina: Domingo Cavallo, who won his reputation for defeating hyperinflation in the 1990s, yesterday returned to an Argentine government in the midst of political crisis and fears of a debt default. Argentine bonds make up a quarter of traded emerging market debt. Mr Cavallo promises to increase the cuts from $2bn to $3bn. But his plans will have no effect on the education sector. Mr Cavallo said that he would retain the currency board that he introduced a decade ago. Because the country and its companies are heavily indebted in dollars, dropping the peg would trigger an economic catastrophe.

In his article "Argentina’s riches to rags tale" Martin Wolf writes that conceptually Argentina has just three options: to struggle on; to default; or to devaluate. Struggling on would work if a new package restored confidence to the market and growth to the economy. The second option is to default. The debt is unsustainable at current real interest rates and prospective growth rates, without implausible improvements in the fiscal and external balances. An orderly debt restructuring would then be preferable to chaos. The third option is devaluation. Most outsiders would consider a floating exchange rate preferable to this peg. But Argentina is so dollarised that it is hard to see how it could get from here to there without wrecking much of the private sector.

Guyana: Caribbean commodity exporters are to ask the European Union to review a plan to open its markets to imports of everything but arms from the world’s poorest countries. The region says that although it does not object to improved market access for poor countries, the EU proposal violates existing trade agreements. The region is particularly concerned about its markets in the EU for bananas, sugar and rice, and says that it will be unable to compete against more efficient producers in the poorer countries. Although these commodities initially are exempted from the agreement, they will eventually face competition. "This is in effect taking from poor countries to give to poorer countries," said Anthony Hylton, Jamaica’s foreign trade minister.

Asia: Standard & Poor’s is predicting the slower GDP and export growth in Asia this year will lead to more defaults across the region. The prediction comes hard on the heels of the default of the Chinese operation of Asia Pulp and Paper, the large Indonesian conglomerate. The rating agency said yesterday that it had a "negative outlook" or "credit watch with negative implications" rating on 22 of 84 industrial and infrastructure companies it covers in Asia apart from Japan

US: Xerox, the copier company that was one of the biggest victims of the technology shakeout, announced recovery plans yesterday and said it wanted to remain independent. Xerox has $16.4 bn in debts. It announced a $1bn cost-cutting plan last year, which is expected to lead to up 10,000 job cuts around the world.

Rice: Greenpeace calls "golden" rice fools’ gold but many scientists and nutritionists believe it could save millions of people’s lives. It is a type of rice into which genes for beta-carotene have been inserted – and it is being made to carry a crushing load of ideological baggage in the GM debate. More than 100 million children worldwide are affected by vitamin A deficiency. As a consequence, 2 million children die each year and 500,000 go permanently blind. They are from the poorest families in the developing countries, with little or no access to the balanced diets we enjoy in the industrialized world. There, poor families consume rice as a staple but the rice grain lacks beta-carotene, the precursor of vitamin A. The anti-GM activists say that this is a quick fix, and that we should be working instead on the causes of malnutrition.

South Africa: Government officials said on Tuesday that half a million more South Africans were infected with HIV in the year 2000. 25% of adults – one of every nine South Africans – are now living with HIV. If the epidemic continues to spread at its current pace, nearly half of the country’s 15 years-old will die of Aids-related illnesses in coming year, United Nations officials said.

Tuesday 20th March 2001

Ukraine: Ukraine's state debt shrank by about $1.2 billion last year to $14.15 billion, including $10.33 billion in foreign debt, the Finance Minister said. It attributed a decrease in the country's foreign debt to a mutual debt-cancellation agreement with Russia that was linked to an agreement on the Black Sea Fleet, the payment of gas debts to Turkmenistan and loan debts to the IMF and restructuring of debts connected to state bonds. However, internal debts grew by nearly $1.85 billion after parliament voted to reinstate the previously cancelled Finance Ministry debt to the National Bank.

Debt Defaults: Not only are more US companies defaulting on their debt, but bondholders are recovering far less after many of those companies go through the bankruptcy process, according to a new study by the rating agency Fitch. "It's really a different kind of company going through bankruptcy now, because of the lower underwriting standards over the last few years," said Robert J. Rosenberg, head of the restructuring practice at law firm Latham & Watkins in New York. "It's hardly surprising that the recoveries are a lot lower." The Fitch study found that, of companies that emerged from Chapter 11 bankruptcy protection from 1997 through 2000, recovery on subordinated bonds fell by more than half, to 17% of face value, compared with 39% in a previous Fitch study covering 1991 through 1996. Bank-loan recoveries also fell, though not nearly as much; recovery on senior secured bank loans fell to 73%, compared with 82% in the earlier period, Fitch said.

Commonwealth: Britain will press the Commonwealth foreign ministers meeting in London today to back a fact-finding mission to Zimbabwe, presently mired in an economic and political crisis. "Britain is interested in Zimbabwe only because of the white people there, and because Robin Cook [the former secretary] is afraid it will be an election issue," said one aide. The Commonwealth Ministerial Action Group is scheduled to consider progress towards democracy in five member states - Pakistan, Fiji, Gambia, Sierra Leone and the Solomon Islands.

South Africa: South Africa yesterday renewed its pledge to help solve Zimbabwe's deepening economic crisis "with co-operation, not criticism." Zimbabwe depends on its richest neighbour for most of its electricity and fuel. Simba Makoni, finance minister, said yesterday "We are in a crisis and our main problem is a shortage of foreign currency. But our millennium economic recovery plan is in place and it will yield results." Phumzile Mlambo-Ngcuka, South Africa's minister of mines and energy, dismissed accusations that the country's taxpayers were effectively subsidising Zimbabwe's disastrous economic policies.

Telecommunication: The European Commission wants European Union governments to consider deferring payments for third generation mobile phone licences or allow operators to share infrastructure because of its worries about high debt levels in the telecommunications sector. The European telecoms industry has already invested some £88bn in buying UMTS (universal mobile telephone systems) licences across the EU, pushing up debt to equity ratios at big operators such as BT, Deutsche Telekom and France Telecom close to 50%.

Brazil: Brazil, which boasts the world's largest commercial herd of cattle, is positioning itself to boost its beef exports to the EU, where an unprecedented outbreak of diseases is devastating the continent's livestock. Brazil has also intensified its calls on the EU for a speedy review of its import quotas and duties on Brazilian meat. Under the so-called Hilton quota, Brazil can export only 5,000 tonnes of beef to the EU annually at favourable import duties.

Japan: Japan's central bank, in a 180-degree reversal, set a higher target for commercial banks' reserves at the central bank, reverting to what effectively is a zero-interest-rate policy in an attempt to reinflate the economy. In February 1999, the Bank of Japan under Masaru Hayami started its zero-rate policy, meaning banks could get money effectively free. He vowed to step into the markets with plenty of cash if banks couldn't fund their operations. Confidence in banks solidified. And then, reform petered out. For Japan to move ahead, the banks must be revitalised, and therein lies the first ugly task: paying for the banking cleanup. As Japanese banks don't make enough money to cover write-offs with profits, they'll have to take losses in accounting for the damage, only two years after they publicly trumpeted that their bad-loan problems were over.

France: Roland Dumas, former French Foreign Minister and Supreme Court judge, was denounced by the prosecution in the Elf Aquitaine corruption case last night as a desperate liar whose place was in prison. M Dumas, 78, who presided over the French Supreme Court until last year, is among seven defendants facing a maximum of five years in prison and £240,000 fines for embezzlement. The others are Christine Deviers-Jonour, his former mistress, Loik Le Floch-Prigent, the former chairman of Elf, and four Elf executives, including Alfred Sirven, the former number two.

DRC: The two wars that have ravaged the Democratic Republic of Congo for four of the last five years have been founded by minerals, a substantial portion of which are siphoned off for leaders of the armies fighting them. In Congo's eastern section, home to some of the richest col-tan ore deposits in the world, in recent months the mineral achieved a prominence commensurate with its value, which spiked spectacularly in the closing months of 2000. Col-tan - short for columbite-tantalite, an ore rich in the element tantalum - is nothing less than the wonder mineral of the moment. In processed form, col-tan is vital to the manufacture of advance mobile phones, jet engines, air bags, fiber optics and, most of all, capacitors, the components that maintain an electric charge in the computer chip. "I mean, we are at war," said Adolphe Onusumba, president of the Rally for Congolese Democracy, or RCD, the rebel group sponsored by Rwanda, whose own war effort is also funded by col-tan. "We need to maintain the soldiers. We need to pay for services."

Argentina: Ricardo Lopez Murphy resigned last night as Minister of Finance after 16 days in office. President De la Rua announced this morning that Domingo Cavallo is the new minister of Finance. De la Rua said that he will maintain the convertibility of the Argentinian Peso and that " Argentina honors its commitments ". Mr Cavallo said that "the education budgets will not be touched, nor the budget for the provinces, (measures decided last Friday by the now ex-minister Murphy), on condition that the Congress supports a series of legislative changes proposed by the government.

Monday, 19th March 2001

Turkey: The IMF has welcomed Turkey's outline plan on dealing with its month-old financial crisis, raising hopes that a weekend of talks with Turkish officials might expedite funds to help the country over a $3 billion domestic-debt repayment hump on Wednesday. However, Kemal Dervis, Turkey's newly appointed economic czar, warned that new foreign lending will only go so far toward solving the underlying crisis that on Feb 22 derailed an existing three-year disinflation program backed by the IMF and the World Bank. He has already said that Turkey needs $13 billion to fix a short-term debt crisis in the state banks alone. Turkey has $110 billion in foreign debt and had domestic obligations valued at $65 billion before it was forced to abandon the old program's crawling devaluation of the Turkish lira on Feb 22.

Nederlands: The IMF warned the Dutch government in a report to keep spending under control since inflation was still a worry. Dutch economic growth is expected to slow to 3% this year. In February, inflation rose to its highest level in nine years to 4.5%.

Argentina: The Argentine economy has been in recession for 32 months, raising questions over whether the country will be able to service its $124bn foreign debt. To ally those fears, the IMF cobbled together a $40bn package of public and private sector financing in December. The political crisis erupted on Friday after Ricardo Lopez Murphy, the economy minister, announced an austerity package to bring the country's finances back into line with IMF targets. The cuts - nearly $2bn this year and nearly $2.5bn for 2002 - were badly received by left-leaning sectors and triggered the resignation of three cabinet ministers and six officials, from the junior party in government, the Freepaso party.

Argentina's IMF programme and estimated borrowing needs for this year are premised on a 2.5% expansion in GDP. But there are signs growth will be substantially less. The danger is that lower growth will depress tax revenues, make it more difficult to meet fiscal targets and increase the amount of money that Argentina needs to raise, either on international markets or from domestic institutions.

Thailand: Thailand's new government of prime minister Thaksin Shinawatra has won a cautious endorsement from the World Bank for its emphasis on corporate debt restructuring and its desire to tackle rural poverty amid a deteriorating global economic environment. Mr Thaksin, a telecommunication tycoon, won a landslide election victory in January after promising to suspend farmers debts for three years, providing $15,600 to every village for development, get credit flowing to small and medium enterprises, and help banks cope with bad debt problem.

Opec: When the oil markets open today, they are likely to be buoyed by Opec's announcement on Saturday of a further production cut of 1m barrels a day (b/d) from April 1. This follows a declared 1.5m b/d output reduction in January and means that, if only on paper, the cartel will soon have taken 9.3% of production off the market this year. Its aim is to bring the price of the basket of its severe crude oils, which had fallen to below $23 a barrel, back up to around $25.

Dollarisation: Dollarisation was mooted in Argentina as an alternative to devaluation should external pressures make it impossible to sustain the convertibility regime, under which the peso is pegged at a one-to-one rate against the US dollar. Early this year El Salvador followed the example of Ecuador and Panama, which adopted the dollar as long as 1903. Guatemala recently approved legislation to allow foreign currency-denominated salaries, bank accounts and monetary instruments. Eduardo Lizano, the president of Costa Rica's central bank, says: "In the medium term we ought to find ways to link ourselves to a strong currency and for geographical reasons it is the dollar." In Ecuador "dollarisation has helped to create an atmosphere of stability," said Jose Luis Ycaza, central bank president. But although dollarisation may be good for stability in the short-term it is by no means clear whether it will necessarily allow Ecuador to grow.

Week end edition

Guyana Bharrat Jagdeo hopes soon to have cast off an unflattering label pinned on him by his detractors. The cherubic 37-year-old Guyanese economist, described by opponents as the "accidental president", is confident of retaining office after Monday's election in the only English-speaking republic in South America.

Mr Jagdeo took office 18 months ago after Janet Jagan retired because of poor health. Ever since, Desmond Hoyte, a former president and leader of the main opposition party, the People's National Congress, has been reluctant to recognise Mr Jagdeo as the legitimate president, claiming that he had not been elected.

BT: British Telecommunications is coming under increased pressure to break its silence on a revised strategy for reducing its £300bn of debt. Investors want BT to update them on its plans in the next few weeks. The company is to hold a crucial meeting with Standard & Poor's, the credit rating agency, in April. The agency has threatened to downgrade BT's debt if it does not present credible plans. A credit downgrade would add £150m-£200m to the company's interest rate bill, according to analysts.

WHO: The World Health Organisation yesterday said it strongly supported the thrust of South African legislation giving the Health Ministry powers to override drug patents on public health grounds. "Essential drugs are not ordinary commodity," said Gro Harlem Brundtland, director-general of the WHO.

UK: The World Internet Forum, launched in 1999 in a blaze of publicity by Derek Wyatt, the MP for Sittingbourne and Sheppey in Kent, has collapsed with debts of more than £830,000. Anthony Supperstone, of BDO Stoy Havard, the liquidator, confirmed that he is looking into allegations that creditors were falsely assured that their bills would be paid.

WTO: Marginalisation rather than globalisation poses the greater threat to the economies of impoverished countries - or so the international development secretary Claire Short, and the head of the WTO, Mike Moore, will argue today. In an attempt to pave the way for a fresh round of trade liberalisation talks this autumn, they will tell a gathering of EU development ministers that opening new markets is crucial to hitting the targets set by the UN for reducing poverty by 2015. Ms Short will stress that debt relief alone will be insufficient to put the poorest countries on the road to sustained prosperity and that further trade liberalisation will help boost export growth and overall economic performance.

This weekend thousands of anti-globalisation protesters clashed with the police in Naples (Italy) over a meeting of the Global Forum - a conference of government and technology leaders being held in the city.

Comment: Gary Younge, in his article "Penalising the Poor", says that the west wants the free movement of capital, but not of labour. Last week the British government spearheaded a European Union proposal to send immigration officers to Bosnia and Croatia to teach them how to put a stop to the traffic of the world's "undeserving poor". "The Balkans' route is the single most important source of illegal immigration into Western Europe," said Jack Straw. "If we can close it or restrict it, we are on the way to winning the battle." Gary Younge writes that politics used to keep people in; now economics keeps them out. Even as the west encourages the former communist states to open up their markets to foreign investment, it is teaching them how to close their doors to foreign people. For what was once hailed as a human right is now opposed as an economic liability. Our governments are trapped in a morally warped and ideologically unsustainable paradigm. They applaud the free movement of capital; they abhor the free movement of labour.

Corruption: China, India, Indonesia, the Philippines, Thailand and Vietnam were perceived to be the most corrupt Asian nations, with Malaysia, South Korea and Taiwan falling just below the average, the Political and Economic Risk Consultancy said in its latest survey on corruption. Hong Kong, Japan and Singapore are the least corrupt economies in Asia, and Singapore's grade beat the score of United States and Australia. "One would hoped that the economic crisis that hit the Asian region in 1997 would have been a wake up call to the problem of corruption," the report said. "Unfortunately, our survey indicates that the problem, as those working in the countries of the region perceive it, has not really improved very much during the past four years."

Nigeria: The Niger River Delta, a fragile wetland of about 42,000 square miles that produces 2 million barrels of crude oil a day, is worked by five multinational companies. It is home to about 7 million Nigerians. Whether caused by carelessness, human error or sabotage, oil spills have dumped at least 2.5 million barrels of oil into the delta from 1986 to 1996, according to a recent unclassified study commissioned by the CIA. The CIA study found that while oil extraction has "generated immense profits, the delta's inhabitants have suffered increasing poverty and a general decline in the quality of their lives due, in part, to the environmental impact of oil extraction. Corruption and bureaucracy incompetence have led to an almost total absence of schools, good drinking water, electricity or medical care."

EU/MERCUSOR: The EU and the emerging Latin American common market, Mercusor, are advancing fast towards signing an association agreement next year intended substantially to increase trade, economic aid and political links. Mercusor includes Argentina, Brazil, Paraguay and Uruguay. A recent report by the European Parliament said it was essential to consider the proposed association agreement with Mercusor as a major political pact and not merely a free trade instrument. The report said the EU must start to address the problems facing Latin America producers, who are locked out of European markets while, at the same time, having to compete with subsidized EU surplus products on world markets. About78 million Latin Americans live below the poverty line, and nearly a quarter of children fail to reach the average rate of literacy in developing countries. Poverty is increasing despite the improvement of economic growth in Latin America. The EU and its member countries account for more than 42% of official development aid received by Latin America. And Europe is the biggest source of foreign investment: of the 25 largest foreign companies in Latin America, 14 are European and 11 are North America.

March 17th - 23rd 2001

Mongolia: In the winter now drawing to a close, over 1.3 million animals are already known to have died in Mongolia, says the Food and Agriculture Organization. Those cows, goats, sheep, horses and camels that survive will be feeble and of little use to their owners. Much more could have been done to prepare for this crisis. Food stocks have been declining for years in Mongolia as subsidies, state-run farms have been unable to get enough loans to buy seeds, fertiliser and machinery and to pay for vets. Wheat production has fallen by more than half, from roughly 700,000 tons a decade ago to under 300,000 now. At the same time, the withdrawal of Soviet aid led to an increase in unemployment and with it an increase in the number of people dependent on herding. Mongolia has also been hit by another scourge. Foot-and-mouth disease, which is doing the round in Africa, Europe and Asia, has not been confirmed in Mongolia as well.

Zambia: Frederick Chiluba became Zambia's president in 1991 and he wants to amend the country's constitution so that he can run for a third term in the presidential election that has to be held before November. He brought inflation down form over 100% to only 20% in 1999, although it has since crept back to 30%. Over the past decade, Zambia received foreign aid equivalent to about $900 a head. Yet, says the World Bank, GNP per head fell from $390 in 1991 to$330 in 1999. Much of the aid went to paying old debts.

Congo: When Joseph Kabila accepted to Congo's shaky throne after the murder of his father on January 16, outside observers thought they could see a window for peace. The optimism was based on Mr Kabila's apparent willingness to co-operate with the UN in implementing the peace agreement signed in Lusaka in 1999. The accord lays out a way for ending Congo's 30 month war, and securing the withdrawing of all foreign armies from the country. Mr Kabila lacks legitimacy and power. The motive for his father's killing appears to have been personal, which allowed the son to be slipped into the job without political power changing hands. He has yet to appoint a government. Nor, since his inauguration, has he appeared on television to explain his plans to the Congolese people. Like his father, Mr Kabila depends on the armies of Angola, Zimbabwe and Namibia. Speaking in London this week Mr Kabila appeared to reject the call for the withdrawal of all foreign forces. Congo is a sovereign country, he said, and had invited Zimbabwe, Angola and Namibia to send their troops to help defend it.

US: Thanks to three years of budget surpluses, the Treasury has paid down $363 billion of its $3.4 trillion publicly held debt since 1997, $223 billion last year alone. Alan Greenspan, the chairman of the Federal Reserve Board, has framed the terms of the debate through his assertion that paying down debt should take precedence over tax cuts or spending increases. Last month George Bush told Congress that his administration would pay off as much of the public debt as it could, which meant paying off just over £2 trillion over the next 10 years. The rest - the irreducible minimum - he said was $1.15 trillion. The figure is not zero because there are two categories of debt that cannot - or cannot easily -be retired. So-called "non-marketable" debts, such as savings bonds and bonds owned by foreign governments cannot be bought back. There are roughly £400 billion of these. Then there are $500 billion of debts that mature after 2011 which cannot be bought back before then without incurring "penalty premiums". Gary Gensler, Bill Clinton's under-secretary for domestic finance at the Treasury, argued that the irreducible debt was only $410 billion - 500 billion. If true, and if Mr Bush were to keep his word to pay off all the debt he could, either tax cuts would have to be less or the contingency reserve would be almost wiped out. Repaying the national debt is not like paying off your mortgage; the national debt forces on you a host of tricky policy questions. The size of the irreducible debt is one such. The others are: what happens to monetary policy and to the markets as government debt disappears? And what happens to the budget surplus after the debt is paid off?