Daily Press Cuttings

Wednesday 31st January 2001.

WB: Senior staff of the WB are in open revolt at attempts by its president James Wolfensohn, to impose Wall Street culture on the Washington-based bureaucracy, according to a leaked document seen by the Guardian. The memo highlights the weaknesses within the institution. These are: the president' s management and leadership style, a lack of clear direction, problems with senior management, inadequate resources and the high degree of negativity among staff. The memo says "We do not think the president receives honest feedback from his senior managers. He does not welcome criticism or tolerate dissent. Managers at all levels are under fear". Ideas have not been accompanied by adequate resources for implementation. Yet, coming from the President, these are treated like "mandates." These have contributed to the Bank losing its focus. There is no honest debate on the merit or priorities.

Mr Wolfensohn went to the WB in 1995, determined to reverse its reputation for arrogance and for dictating economic reforms to governments in developing countries as a condition for loans. He championed debt relief and declared that the Bank had to work in partnership with the development organizations and charities which were among its harshest critics, the journalist Larry Elliot reports. The Bank's work should focus on poverty reduction - a goal which the Bank seemed to have forgotten in the years when it appeared to be preoccupied with forcing developing countries to sort out their public finance. "What Wolfensohn has done is important. He has tried to focus on poverty reduction and greater equity" said Kevin Watkins of Oxfam. A WB spokeswoman said the memo reflected the views of a small group of staff from one region whose jobs where under threat.

Credit Cards: Ministers at the UK Treasury outlined proposals for minimum standards for credit cards designed to outlaw the annual fee paid by millions of cardholders and set limits on "small print" charges such as late payment fees and penalties for exceeding the credit limit. The Treasury also proposed capping the interest rate by insisting it stays no more than a fixed amount above the bank base rate.

Economic Leadership: Mark Milner and Larry Elliott in their article "Europe finds US mantle is no snug fit" assess whether Europe can take over the mantle of global powerhouse from the recession-stricken America. They state that while it has been proved that dynamism and Europe's social welfare model are not mutually exclusive, Europe would require growth rates well in excess of 2.5%-3% and that while economists have no doubt that Europe has sufficient resilience to weather the storm brewing on the other side of the Atlantic, there is considerable scepticism that it can provide the economic umbrella for the rest of the world.

Porto Alegre: Jose Bove said his arrest for his participation in the destruction of a GM soya crop on Monsanto premises near Porto Alegre was to bring attention to the plight of Brazil's poor, rural workers "who fight for land and are killed every day by the police and landowners."

Turkey: Turkey returned to the international bond market yesterday for the first time after its financial crisis late last year. The sovereign decided to start its annual funding round with a relatively small Euro500m three-year issue targeted at European retail investors.

Chile: President Ricardo Lagos announced a month ago that Chile would pursue the purchase of 12 F-16 fighters from Lockheed-Martin. The $600m sale would be the first to follow a 1997 decision by President Bill Clinton to lift a virtual 20-year embargo on arms sales to Latin America. According to sources in Washington, Chile has been talking to Israel, with which it has a close defence relationship, to obtain advanced missiles and to Lockheed-Martin about configuring the aircraft to carry them.

US: President Bush's nominee for US trade representative warned yesterday the US could lose "an unparalleled opportunity" to shape international trade rules if Congress did not quickly grant the administration new authority to negotiate trade agreements. Robert Zoellick, who is expected to win Senate confirmation easily, referred to efforts by the EU and Japan to revive talks on a global trade round. "They shouldn't be doing it", he said "We should be doing it". Mr Zoellick sketched out a broad strategic trade agenda in which the US would use its leverage to press other trading partners to move rapidly on liberalisation. Max Baucus, the committee's senior Democrat, warned he would oppose new fast-track authority unless "legitimate labour and environmental concerns are included." But Phil Gramm, a Texas Republican and close ally of President Bush, said the adding labour and environmental provisions to trade deals could threaten US sovereignty.

Nigeria: President Olusegun Obasanjo yesterday dropped 10 ministers from Nigeria's 49-member cabinet. His decision to order a reshuffle last week - when the entire cabinet to the presidency was sacked -had been widely expected.

Italy: Mr Rutelli, prime minister-candidate of an unstable centre-left coalition in Italy, was in London yesterday holding a pre-election talk with Tony Blair. Mr Rutelli will pledge to halve unemployment from 10 to 5%; reduce the tax burden by 0.5 to 0.6% of GDP annually for the next five years; and stimulate growth. Mr Rutelli is the underdog against the media magnate Silvio Berlusconi. Mr Rutelli assails the "unsustainable conflict of interest" between Mr Berlusconi's political ambitions and his business interests.

Colombia: The oil producing nation must first tackle guerrilla violence if it is to take advantage of foreign investments, write James Wilson and Eoin Callan. While Colombia confirmed its biggest oil find of the past decade -an estimated minimum 200m barrels at the Guando field, one of the worst bouts of guerrilla violence hit the country. Powerful rebels, opposing foreign intervention in Colombia's oil sector, stepped up a campaign of pipeline bombings, extortion and destruction of equipment. If the situation deteriorates further, companies could reconsider their investment plans and Colombia could find oil revenues - the country's most valuable export, accounting for about 30% of foreign earnings -are drying up as output shrinks.

Morocco: Breaking away from the country's corrupt, authoritarian past has proved difficult, writes James Drummond. Abdel Rahman Youssoufi, the Moroccon Prime Minister, has set up a judicial investigation into the apparent diversion of more than $1bn of state funds over the course of a decade to friends of the ancien regime through a state-owned real estate bank. Mohammad Darif, a professor of political science at Muhammedia University, says that "there are still dossiers which have not been made public. I do not believe that the big companies and the powerful individuals will be called to the inquiry".

India: India has "huge potential" to expand its trade with the EU an to increase its very small share of international foreign direct investment (FDI), Chris Patten, European Commissioner for external relations, has said. He found "surprising" that China gets 7% of world FDI, 20% more than India 0.35% share. Two-way trade doubled in value in the last decades, with the EU accounted for 25% of India's exports in 1998.

Philippines: Finance Secretary Alberto Romulo said that Philippines may tap the international debt markets this year to help support the budget with the bulk of bond sales likely to land on the domestic market. Last year the country raised $1.1bn from bond sales on the international capital market. It never reached its target to raise $1.5bn because of poor market conditions. But, since Joseph Estrada's ousting earlier this month, spreads on Philippines sovereign debt have narrowed markedly, and some bond analysts believe a new bond sale would be well received.

Russia: A Swiss Court has frozen as much as $846,000 in an account belonging to Oleg Deripaska, the chief executive of Russian Aluminum, pending resolution of a legal battle between Russia's biggest aluminum producer and disgruntled competitors. Two tycoons are involved. Mr Deripaska owns approximately half of Russian Aluminum, which controls 70% of Russia's aluminum output whilst Mikhail Zhivilo, who lost control of the Novokuznetsk Aluminum Plant in Siberia to Russian Aluminum when he was declared bankrupt in proceedings which critics say were rigged, is behind the metals-trading companies that brought the New York court case.

Peru: Following on the release of a trove of secretly made intelligence videotapes, an investigation into the links of Peru's political and business elite to ex-spy chief Vladimiro Montesinos has implicated 3 Supreme Court justices, a former cabinet member, a prominent mayor and the former head of Peru's election board, with more people expected to be drawn in.

Estonia: The Estonian government approved the foundations of a plan to promote exports and further integrate the country's trade with the European Union although no specifics were given on how the government will achieve such aims.

Davos: In stressing against complacency, Larry Summers, the Clinton Administration's Treasury Secretary, made a comparison between the US's predicament and the dilemma facing Japan whose credit driven cycle tipped the country's economy into a slump that remains mired today after a decade-long decline.

Tuesday 30^th January 2001

WB: Nick Stern, the chief economist of the World Bank, speaking to the FT in London yesterday said that he was optimistic about the prospects for a new trade round. With anger rising at the way rich countries block access to poor-countries exporters, Mr Stern sees an opportunity for the WB – which has no formal role in trade negotiations – to play a part. As he said, “the WB is the only organization with the depth of knowledge at the country level you need to discuss trade issues seriously”.

Davos: In Davos representatives of rich countries made no effort to defend themselves against bitter complaints from developing nations that trade barriers were an obstacle to lifting their economies off the floor. One example cited was Bolivia, which faces tariffs on all its goods entering the US of up to 22% while, under pressure from western financial institutions, it has cut its import tariffs to just 10%. Developing countries got the message that political and fiscal stability, rule of law and consistent investment and taxation policies were vital to engender growth and attract foreign investment. Paul Laudicina of A.T. Kearney said that “No corporation is going to take action to close the gap without major market opportunities”.

US: Amity Shlaes, FT columnist, notes that his week the Congressional Budget Office is set to forecast US federal surpluses even fatter than anyone had imagined. Alan Greenspan, “delivered the lowdown on the federal surplus. It is an evil”. In fact she asserts, “the abhorrence of surplus and the appreciation of debt have deep roots in the Anglo-American tradition”. There are at least three other anti-surplus arguments. The first is that great powers need to be debtors. Only then will they issue bonds that perform their necessary function of providing liquidity in financial markets. Mr Greenspan worried that without its bonds, a debt-free Washington would be forced to invest in private sector bonds making it “exceptionally difficult to insulate the government's investment decisions from political pressures”. The second argument against a surplus is that a business that spends too much money paying off debt forgoes the opportunity to invest in new ventures. The third argument “against a surplus – and in America's case, for tax cuts – is that it concentrates financial power in the hands of the government. A govt will always spend a surplus and such extra spending in the public sector is dangerous..Democrats are angry, because they feel Mr. Greenspan has betrayed them...his anti-deficit line provided economic and moral cover for their ....agenda. The deficit fighters of the 1990s cast themselves as moral heroes. Now the enemies of surpluses have just as much right to claim the high ground. ”.

US: Vulture funds, or funds that invest in distressed debt, are currently having a heyday. Martin Whitman, manager of the $1.7bn Third Avenue Value Fund, New York says that “We've been finding a lot of attractive opportunities out there. We are at a peak in distressed debt now that we haven't seen in five years”. Jeffrey Altman, co-manager of distressed investing for the $20bn Franklin Mutual Series Funds says that “This is a very interesting time for distressed debt and as the economy weakens, we will see more and more opportunities. We expect our distressed debt holdings to continue to grow.” Distressed-debt investors buy the debt of troubled companies at a fraction of its face value in hopes that the debt eventually will be higher in value.

Italy: Telecom Italia, the nation's former phone monopoly that is controlled by Olivetti, has sold Euro 2bn of bonds to refinance existing debt which tops Euro 19bn.

The Italian trade surplus with countries outside the EU has declined to 1.7trillion lire from 2.7 trillion lire in December last year.

Africa: An African proposal for a radical review of the West's way of dealing with the continent reflects Africans' frustration with foreign investment and Western aid. The proposal by South African President Thabo Mbeki and Nigerian Presiden Olusegun Obsanjo is an appeal to allow Africa a greater say in its economic dealings with the rest of the world. Its main aim is to shift the balance of dealings with multilateral agencies such as the WB and the IMF away from powerful American and European interests. The plan calls for massive investment on terms set by Africans. “If there are going to be conditions on any matter from debt to investment, then these conditions must come from Africa. However, there is a need for a partnership between Africa and the developed countries. This plan will make sure this partnership is realized”, said Mr Mbeki's economic adviser, Wiseman Nkuhlu.

AIDS: A new class of AIDS drugs –called T-20 and T-1249 - has been developed by Trimeris Inc. of Durham, North Carolina, and Hoffmann-La Roche, the US unit of Swiss-based Roche Group. These drugs, designed to rescue patients who develop resistance or intolerance to standard treatments, appear to work well.

Davos: According to Vivendi's Mr Messier, the digital divide has been spoken about at length but has not been acted upon. However, few of the Davos elite attempted to answer a Nigerian delegate who asked for less complex software that was better adapted for the needs of small businesses located in developing countries with access to computers.

Indonesia: Violence erupted yesterday when an estimated 7,000 protesters tried to storm parliament to vent their rage at President Abdurrahman Wahid. Mr Wahid has been implicated in two financial scandals, the theft of £2.75m from the state logistics agency and the disappearance of a £1.2 m gift from the Sultan of Brunei for social projects in Aceh province.

BT Debt: BT yesterday confirmed it is considering a sale of its directories' business, Yell, to help reduce its £30m debt and regain the confidence of investors, who have seen the company's share price slump.

Student Debt: According to Peter Knight, the vice-chancellor of the University of Central England, the universities face a serious problem of student debt, with increasing numbers of students dropping out of courses because they cannot pay the tuition fees.

Walker Digital: Walker Digital, the internet think tank set up by the billionaire entrepreneur Jay Walker, once hailed as the Thomas Edison of the Internet, is in negotiations to sell assets to pay off its heavy debt burden. Two of his businesses suffered closure last year along with the collapse of the share price of Priceline.com, the “name your price” ticketing group.

Davos/ US: George Soros, the financial speculator, broke the comfortable consensus at the World Economic Forum by suggesting that the US economic downturn had probably already tipped into recession and could fuel criticism of globalisation. Although the Federal Reserve has made deep cuts in US interest rates, countries in emerging markets could suffer capital flight as the world economy suffered knock-on effects from America.

US/Domestic: In what critics say is both an attempt to cut aid to the poor and a violation of the constitutional separation between Church and State, President Bush is seeking to funnel billions of dollars to religious groups to provide social services for the needy. Democrats, it is alleged, are hoping that a slowing economy will make welfare reform look so harsh that it will give them back control of at least one house of Congress in 2 years' time. Such reform, initiated by the Clinton administration, ended the federal guarantee of cash for the poorest, insisting that there be time limits on such aid and that recipients seek work.

Cammell Laird Group: John Stafford, the chief executive of Cammell Laird Group resigned yesterday as a further £26m of bad debt was disclosed by the Birkenhead shipyard.

West Africa

Nigeria: Zimbabwe's Econet Wireless Holdings, South Africa's Mobile Telephony Networks Holdings Ltd and Nigeria's Communications Investment Ltd won the three mobile phone licences at a prices of $285million each on the January 19 2001. The fourth licence was reserved for the state run Nigeria Telecommunications Limited (NITEL) mobile unit M-Tel. Nigeria, currently has 700,000 fixed lines of which an estimated 500,000 are functioning, and 40,000 cellular subscribers. This compares with South Africa where 15% of the population has a mobile phone. Nigeria also has 1,600 payphones to service 125 million people.

Monday 29^th January 2001.

Wall Street Journal:Emerging markets: Ecuador, which defaulted on $6bn in Brady bonds in 1999, is the top performer in emerging market debt in the year to date, posting a 12% return. Most observers thought they could write off Ecuador because of a debt restructuring last year and concern about its solvency in the medium term. However, investors find Ecuador's 2012 and 2030 global bonds, yielding around 17% - a good buy. “The appetite for riskier assets is high because interest rates will continue to (decline) for the first half of the year”, said Joyce Chang, co-head of emerging markets research at JP Morgan. While low interest rates reduce the borrowing expenses for emerging nations, the big draw to exotic debt is that it isn't tied to the US economic cycle, Ms Chang said.

US: The American debt bomb is ticking, financier George Soros says. The mountain of debt carried by individual Americans is a “potential time-bomb”. It is not imminent, in fact it's a bomb that may never explode. Mr Soros is concerned about bundles of debt, know as collateralized loan obligations, that “theoretically could unravel”.

Davos: As part of a WB and UN initiative to combat the spread of AIDS in Africa, Merck & Co. has started to deliver low priced drugs to Uganda and Senegal. The company is also in talks with other African countries to provide them too with steeply discounted AIDS drugs, said Chairman Raymond Gilmartin in an interview with Dow Jones Newswires. Industry critics contend that the steep discounts of offer are part of the companies' efforts to ward off competition from unlicensed generic products.

Mr Stanley Fischer, deputy managing director of the IMF said that the US is about to deal with the effects of the slowdown of its economy and to mitigate it. Alan Blinder, a professor of economics at Princeton university and former vice chairman of the Federal Reserve Board, estimated a reduction in inflow of capital into the US by half, from $450 bn annually to £200-$250bn. Jagdish Bhagwati, professor of economics at Columbia University said that “there is a sense of denial here”, offering one of the few dissenting voices at the forum. There is “a great danger” of a more prolonged slowdown, he said.

Brazil: Brazil received more than $50bn in foreign direct investment in 2000. Brazil relies on FDI to finance its large current-account deficit.

Peru: After nearly nine years in political exile, the former Peruvian president Alan Garcia, returned home at the weekend to launch a presidential campaign for the election in April in a country worn down by a year of corruption scandals and political crises. Many people remember him mainly for food shortages, power blackouts and hyperinflation which reached 7000%. The country became an international pariah when he tried to limit foreign debt payments to 10% of export earnings. Mr Garcia promised to lead a government of “bread and freedom for all Peruvians.” He promised cheap credit for farmers, railed against the excessive telephone and electricity bills ordinary people have to pay to the privatised utility companies, and called the tax authority, the Sunat, a “Nazi police”.

US: Two surveys conducted on behalf of the Washington Post and of the Palm Beach Post have confirmed that if the newly examined votes had been allowed to be included in the November election, Mr Gore would have won Florida's 21 electoral college vote and he would be the president.

Zimbabwe: Mugabe is blamed for the bombing of a newspaper, the Daily Press. Muchadeyi Masunda, chief executive of Associated Newspapers of Zimbabwe, which owns The Daily Press, has little doubt who was responsible. This year an operation has begun to crush every institution from the judiciary to the press that could damage the chances of Mr Mugabe winning the presidential election due next year.

UK: Tony Blair and his wife Cherie will have their first meeting with President Bush on February 22 2001.

Russia: Alexei Kudrin, Russia's finance minister, yesterday said this country would service its $48bn debt to the Paris Club of sovereign creditors. Mr Kudrin's comments, made at the Davos World Economic Forum, mark a change of policy by the Russian government which earlier this year failed to make payments to the Club, arguing it could not afford to service the debt in full. Mr Kurdin failed to provide a more specific timetable for debt repayments.

Liberia: In a resolution circulated at the UN Security Council, the US has called for an international ban on Liberian timber sales in addition of diamonds, arms, travel and flights. Monie Captan, Liberia's foreign minister, said timber accounted for 30% of the country's budget and sanctions against the industry would have a devastating effect on the people of Liberia.

WTO: The past three heads of the GATT and WTO called on governments at the week end to rally in support of the multilateral trade system, saying it was endangered by drift and the threat of renewed protectionism, writes Guy de Jonquieres. Arthur Dunkel, Peter Sutherland and Renato Ruggiero said that “the public undermining of the WTO and the notion of a rules-based trading system has gone too far” and accused governments of failing to stand up to critics of multilateral free trade. They rejected claims by anti-WTO groups that the organisation was undemocratic, unaccountable and “a conspiracy between large multinational firms and certain governments”. But backed demands for WTO operations to be more open to the public. They also acknowledge that many developing countries were not benefiting from world trade. But tproblems should be tackled through increased development assistance and should not be allowed to block new trade talks.

Davos: Kofi Annan warned business leaders yesterday “the unequal distribution of benefits and the imbalances in global rule-making, which characterize globalisation today, inevitably will produce backlash and protectionism”. Mr Mbeki, South African president, said that “when people say globalisation, what we see is a structural fault of poverty. On one side the powerful and wealthy – on the other side, the powerless and poor”.

At Davos Bill Gates Saturday announced that his charitable foundation was to give $100m to support the development of an Aids vaccine. The pharmaceutical industry has little market incentive to develop an Aids vaccine for use mainly in the world's poorest regions.

Brazil: Brazil hosts `alternative Davos'. Attended by 3000 delegates from 120 countries, the conference is part of an effort to act against the hegemony of neo-liberalism, says Bernard Cassens, director of Le Monde Diplomatique. In a dialogue with speakers from Davos, Mr Cassens called Davos “to start a petition in favour of the cancellation of poor-country external debt, the abolition of tax havens and a tax on international financial transactions”. The dominant themes of the conference are the taxation of capital flows, cancellation of poor-country debt, the role of trade in development, production by small farmers, and genetically modified food.

The Economist 27^th Jan – 2^nd Feb:

Japan's Banks: Concern continues over the performance of Japan's banks which remian burdened with bad debts, poor profitability and a lacklustre economy. At the root of the problem, says the article, lies poor lending decisions, with non-performing loans at the big banks barely falling whereas at the regional banks, such loans are actually increasing. Part of the problem, it is alleged, is that the banks are incorrectly classifying their loans. In addition, there is widespread fear that the banks have overestimated the value of the property backing many of their loans. The article suggests that in order to break the cycle, Japan should enforce stricter reporting and disclosure of bad loans, inject more money into the banking system so they can write off all their bad debts, replace its managerial sector, and commit to temporarily nationalising their ailing banks by declaring them insolvent or has having inadequate capital.

Russia: Vladimir Putin's chief economic adviser, Andrei Illarionov warns that Russia economy which had been delivered a “windfall” by exceptionally favourable international conditions over the past couple of years, faces a slump and renewed inflation. He has also criticised the authorities for pursuing a policy of “petty hooliganism” in their treatment of foreign creditors. Repaying the Paris Club of government creditors, he argues, would not only boost the country's image abroad but bring healthy economic benefits too by soaking up the inflationary cash sloshing around the system.

Bank of America: The combined Bank of America, which if measured by number of branches, is America's biggest bank, has now become widely regarded as a beached whale due to a growing portfolio of bad loans combined with a vision of building a big, nationwide bank that many have considered fundamentally flawed. It was customary during the bank's manifold acquisition of various local and regional banks for its chairman, Hugh McColl, to pay too much for too little and then to ruin what he had acquired by cutting costs aggressively in order to justify the ridiculous purchase price. Although Mr McColl's reputation and salary increased, shareholders suffered as a result, customers defected and the promised integration of NationsBank's superior technology never happened. In the past year, Bank of America has written off billions of dollars in bad loans to companies, and it is expected to be forced to write off billions more.