Running the world

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Running the world

The world today is neo-medieval, Mr Khanna believes. Power no longer lies in the bony hands of a few white Western bureaucrats and politicians. It has become geographically and politically fragmented. In the Middle Ages the church rivalled kings and emperors. Today the West shares influence with rising nations, like China and Brazil, with companies large and small, and with NGOs.

In a bit over 200 pages of breathless prose Mr Khanna applies his formula to everything from global warming to Middle East peace and solving world poverty. You can forgive Mr Khanna for failing to put the world to rights entirely—his solution for Israel and Palestine, for example, looks little different from today’s gridlock. And he has a point, though not a terribly original one, when he says that the modern world has so many new actors that Western power is circumscribed. Read more at www.economist.com

 

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South Africa looks to China

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South Africa looks to China

NEARLY everyone at Davos is talking about China. Finance ministers fret about the future of the yuan. Corporate titans feverishly swap tips on how to make things in Guangzhou or sell things in Zhejiang. Chinese academics engage cautiously with Western reporters about the possibility that some day Chinese people may be allowed to vote.

There is wide disagreement as to why China’s economy has grown so fast. Those who know the least about China often have the strongest views. Some see it the way Barack Obama once said American voters saw him: "as a blank screen on which people of vastly different political stripes project their own views."

Free-market types tend to argue that China has prospered because, since the late 1970s, it has abandoned or relaxed the state controls with which Mao Zedong once throttled it. By this argument, China is like a spring which was trodden down for decades and from which the boot has been removed, allowing it to bounce back to its natural shape.

Others take the opposite view. Dirigistes insist that the secret of China’s success is that its state is still highly interventionist. South Africa’s president, Jacob Zuma, inclines to this view. He and his circle are convinced that “market fundamentalism” was the cause of the global financial crisis, and have started looking to China for an alternative. Top members of the African National Congress (South Africa’s ruling party) have been making study trips to Beijing to observe how things work there.

Late last year, Mr Zuma’s government unveiled a plan called the “New Growth Path”. Some of its suggestions, such as a freeze on private-sector wages, sound impractical. And although the details of how it will be implemented are as clear as lumpy sorghum beer, the overall thrust alarms South African businessfolk. Mr Zuma wants a “developmental state”, with substantially more government intrusion in the economy.

Why, asks a South African businessman, did Mr Zuma not look to India for an example of how a poor country can grow fast? Culturally, South Africa has much more in common with India than with China. But the ANC rather likes the idea of extending its power over private business and the allocation of capital, he fears. And this will end in tears, he predicts, for a simple reason. China, for all its flaws, has a reasonably competent bureaucracy to implement the central government’s plans. South Africa conspicuously does not. Read more at www.economist.com

 

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Indonesia Scraps Import Duty on Rice, Soybeans, Wheat: Ministry

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Indonesia Scraps Import Duty on Rice, Soybeans, Wheat: Ministry

Indonesia will scrap import duty on rice until the end of March 2011 as part of the government efforts to ease food prices and fight inflation, the finance ministry said on Friday. Rice is currently subject to import duty of 450 rupiah per kg. The government will also scrap import duties on wheat and soybeans until the end of 2011 to stabilize prices, said Bambang Brodjonegoro, acting head of the fiscal policy office at the ministry. "Import duty for both soybean and wheat should return to normal levels of 5 percent each by January 2012," Brodjonegoro told reporters. AP

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Hungary Interest Rate Increase

Hungary Raises Interest Rate - WSJ.com

• Hungary Raises Interest Rate



• BUDAPEST—Hungary raised Monday its policy rate for the third time in three months, as expected by most analysts and market players, due to inflation worries.



• The move came before the ruling party-dominated parliament replaces in March most of the rate-setting Monetary Policy Council, which could risk a dovish monetary policy shift.



• The National Bank of Hungary's MPC raised the base rate on two-week bills for commercial banks by 0.25 percentage point, to 6.00% from 5.75%. The central bank projects inflation will exceed its 3% medium-term inflation target for the next two years



• While expectations have been scaled back lately for the rate increase due to the Hungarian forint's renewed strength and a sharp fall in government bond yields, 14 economists of the 20 polled by Dow Jones Newswires had forecast a rate increase.



• The move will deepen the rift between the central bank, which pursues its inflation goal, and the government, whose prime goal is to jump-start the economy.



• Hungarian monetary policy is in for a period of great excitement," SEB said in a note prior to the decision. January's was the last MPC meeting before the government announces in February its much-touted fiscal plans focused on spending cuts. Hopes are high on financial markets that the planned measures will be structural and permanent, making the budget sustainable in the long run.



• While an expenditure-cutting plan may be published in the second half of February, which could allay fears that the budget has been built on temporary taxation, negative event risk for the forint remains high," RBC warned, nevertheless. That is because February will also see the economic committee of parliament, in which the governing Fidesz party has a two-third majority, naming its appointees to the MPC



• Uncertainty will rise from March when four of the seven MPC members are replaced," said SEB. "There is a clear risk that the balance (within the MPC) shifts in favor of the doves and that recent rate hikes are, at least partially, reversed." That would run the risk of triggering credit rating downgrades to junk status, it added. All three major credit rating agencies downgraded Hungary to one notch above junk category last year on fiscal and debt sustainability worries.

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FT.com / Comment - Where have all the thinkers gone?

FT.com / Comment - Where have all the thinkers gone?

• Where have all the thinkers gone?



• A few weeks ago I was sitting in my office, reading Foreign Policy magazine, when I made a striking discovery. Sitting next door to me, separated only by a narrow partition, is one of the world’s leading thinkers. Every year, Foreign Policy lists the people it regards as the “Top 100 Global Thinkers”. And there, at number 37, was Martin Wolf.



• The list of intellectuals from 2010, he suggested, looked pretty feeble compared with a similar list that could have been drawn up in the mid 19th century.



• Even if, like Foreign Policy, you have a preference for politicians, the contrast between the giants of yesteryear and the relative pygmies of today is alarming. In 1861 the list would have included Lincoln, Gladstone, Bismarck and Garibaldi. Their modern equivalents would be Mr Obama, Nick Clegg, Angela Merkel and Silvio Berlusconi.



• A list of significant intellectuals alive in 1939 would have included Einstein, Keynes, T.S. Eliot, Picasso, Freud, Gandhi, Orwell, Churchill, Hayek, Sartre.



• A second possibility is that familiarity breeds contempt. Maybe we are surrounded by thinkers who are just as great as the giants of the past, but we cannot recognise the fact because they are still in our midst.



• In the modern world more people have access to knowledge and the ability to publish. The internet also makes collaboration much easier and modern universities promote specialisation. So it could be that the way that knowledge advances these days is through networks of specialists working together, across the globe – rather than through a single, towering intellect pulling together a great theory in the reading room of the British Museum. It is a less romantic idea – but, perhaps, it is more efficient.



• And then there is a final possibility. That, for all its wealth and its gadgets, our generation is not quite as smart as it thinks it is.

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Global Prices Fears

Global Price Fears Mount - WSJ.com

• Global Price Fears Mount



• As Food, Raw Materials Soar, Europe's Central Bank Head Warns on Inflation



• Inflation fears—fueled by spiraling food, oil and raw material prices—are mounting around the globe, prompting the head of the European Central Bank to signal that it could raise interest rates in the future even though some countries have been weakened by the Continent's debt crisis.



• Jean-Claude Trichet warned that inflation pressures in the euro zone must be watched closely, and urged central bankers everywhere to ensure that higher energy and food prices don't gain a foothold in the global economy.



• Fast-growing emerging markets such as China and Brazil are seeing rising inflation at home, and their demand for globally traded commodities is pushing prices higher elsewhere.



• annual inflation in China is almost 5%—and a sizzling 9.8% economic growth rate in the fourth quarter triggered fears of more price pressures ahead. Inflation in Brazil is even higher.



• With the global recovery still in its early stages, those moves could accelerate. Higher raw material prices, especially coal and iron ore, are pushing up steel prices across the globe.



• All central banks, in periods like this where you have inflationary threats that are coming from commodities, have to…be very careful that there are no second-round effects" on domestic prices, said Mr. Trichet in his office overlooking Frankfurt's financial district



• Global inflation isn't just coming from volatile commodities that track the ups and downs of the world economy. Fast-growing emerging nations are taking increasingly aggressive actions to beat back rising food prices as they grow more worried about threats to stability



• Last month, inflation unexpectedly jumped to 2.2% in the euro zone from 1.9%, the first time in more than two years it has exceeded the ECB's target of just below 2%. Some economists say it will rise above 2.5% in the next two months.



• Many economists worry that higher interest rates would do further damage in such countries, where the interest burdens on high private-sector debts are closely linked to the ECB's policy rates. Mr. Trichet rejected calls to take special heed of stragglers on the euro zone's fringe.



• Mr. Trichet argues that budget discipline would help growth in Europe more than renewed stimulus, and called on the euro zone's 17 member countries to strengthen "surveillance" of each other's fiscal policies. In Europe, budget discipline benefits growth and job creation by "improving confidence of households, enterprises, investors and savers," said the 68-year-old Frenchman.



• Mr. Trichet's inflation warnings signal a symbolic shift from the crisis mentality that has dominated ECB policy for much of the past three years back to its traditional role—keeping prices stable



• "I do not buy the very simple reasoning that would suggest that pursuing sounder fiscal policy would hamper growth," Mr. Trichet said.

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Surprise Increase in Expectations Lifts German Ifo Business-Climate Index to New Record in January

The fact that the renewed worsening of the Eurozone debt crisis since November 2010 has not prevented survey participants from becoming more optimistic about the future is encouraging. Notwithstanding the current shift towards domestic sources of growth, exports remain robust too.

Underlying growth momentum will stay well above 2%, and thus potential, in 2011. The supportive background environment of unusually low interest rates and a relatively subdued euro level due to the sovereign debt crisis will stay in place for some time to come.

IHS Global Insight's January interim forecast has predicted that average German economic growth will only moderate from 3.6% in 2010 to 2.7% in 2011 (in calendar-adjusted terms), thus ensuring that the steep drop of -4.7% in 2009 will have unwound by mid-2011.

The Ifo business-climate index continues to go from strength to strength. In January, it increased from 109.8 to 110.3–another all-time high in the history of German post-reunification data (since 1991). The data corroborates the message given by the December purchasing managers’ index (PMI) release, which had shown a significant, orders-led extension of the rebound observed since October. Strikingly, the Ifo sub-index reflecting six-month expectations was the driving force, increasing from 106.8 to 107.8, its highest level since the start of post-unification records. The current conditions sub-index slipped marginally from 112.9 to 112.8, its first slight setback since February 2010 and only its second monthly decline during the last 19 months. Current conditions, therefore, remain moderately below series highs (115.5 in the boom of 2006–07 and 116.5 in January 1991) for now.

Germany's increasing domestic strength is being boosted by interest rates that are much too low for its own economic conditions, and exports are remaining robust, supported by the moderate level of the euro. Assuming global growth momentum does not collapse due to authorities (specifically in China) slamming on the brakes in order to keep inflation in check, German economic growth will stay very robust during 2011.

Domestic demand will increasingly contribute to GDP growth, but exports will continue to provide a solid contribution too, based on the current competitiveness of Germany's manufacturing firms. In January, wholesale and retail trade as recent drivers of economic growth suffered corrective setbacks (chiefly via current conditions in these sectors, rather than expectations). However, a sizeable increase was posted for the manufacturing-sector climate—based on both expectations and current conditions—with a huge, expectation-driven surge posted for construction.

The Ifo institute has commented that capacity utilisation in the manufacturing sector is now above its long-term average and that firms want to increase employment.

The December spike in the retailer climate was unwound in January, as the buoyancy of pre-festive-period sales in 2010 gave way to more normal conditions. The index declined from December’s cyclical high of 24.1 to 14.0, broadly returning to November’s level of 13.3. This matches the topping out of the GfK consumer climate index for January. Expectations unwound part of recent gains, and current conditions shed most of December’s increase. Nevertheless, the underlying trend for the retail sector still points upwards, underpinned by the ongoing improvement in labour-market conditions, and the boost is providing for consumer confidence about job security and the potential for future wage increases.

Fiscal tightening is not a major risk for a setback to Germany's recovery, and this is compensated in any case by ECB monetary policy continuing to be too soft for German economic conditions for quite some time. Germany's recovering labour market will increasingly lend impetus to private consumption, reducing the dependence on exports. At the same time, German exports will remain quite robust for reasons of competitiveness and because of relatively subdued euro levels, the latter being linked to the Eurozone debt crisis. This indirectly boosts Germany’s trade with the non-Eurozone world. Read more at professional.wsj.com

 

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German Ifo Business Climate Index Rose To 110.3 In January

The German January Ifo business climate index rose to 110.3 in January, the Munich-based Ifo Institute reported Friday, news reports said. The index had been forecast to rise to 110.0 from a revised reading of 109.8 last month.

he Ifo Business Climate Index for German industry and trade rose further in January. The business climate has thus continued the positive development of the past year. The firms are just as satisfied with their current business as they were in December, and they have given more favourable assessments of their business prospects for the coming half year. The German economy has started the year with great vigour.

the business climate has clearly improved, having clouded over somewhat in the previous month. The manufacturing firms report an improved business situation and once again have given more favourable appraisals of their business outlook. Especially in exports, the survey participants see much greater opportunities. The firms have further increased the utilisation of their machines and equipment, and now capacity utilisation in manufacturing is above average. They also plan to increase the number of their staff.

The business climate in retailing and wholesaling has cooled off somewhat, following a significant improvement in both distributive sectors in December. Both retailers and wholesalers no longer assess their current business situation quite as favourably as in the past month. With regard to the six-month business outlook, their optimism has also weakened somewhat. Read more at www.indiainfoline.com

 

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Ireland's Leader Quits Party But Stays Prime Minister

Ireland's Prime Minister Brian Cowen bowed to pressure from members of Fianna Fail on Saturday and resigned as the party's leader, but said he would continue to serve as premier until a March 11 election.

Cowen's decision to split the role of party leader and prime minister is highly unusual and crowns a week of political drama that had Irish people shaking their heads in anger.

Many blame Cowen for mishandling the economic crisis and allowing a disastrous property bubble to develop during a previous stint as finance minister.

The meltdown that ensued forced the country to accept an 85 billion euro ($115 billion) bailout from the EU and IMF late last year.

"He should have gone months ago to preserve some kind of dignity for himself and for the office," said Tony Moore, a vegetable delivery man in central Dublin. "Just look at the country's standing abroad, we're a laughing stock."

Under pressure from his party for weeks, Cowen called a vote of confidence in his leadership at the start of the week. He won that but squandered the victory a few days later when an ill-judged attempt to reshuffle his cabinet nearly brought down his administration.

"This is the right thing to do for the party," Cowen said at a hastily arranged address to the media at a Dublin hotel. "We will manage the situation and people need to be assured of that. The government will discharge its duties properly and appropriately. It doesn't in any way affect government business."

Enda Kenny, the leader of the main opposition party, Fine Gael, slammed Cowen's move and said he would table a motion of no-confidence in the prime minister on Tuesday unless he called an immediate election. Read more at www.cnbc.com

 

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Vatican Expresses Worry Over Berlusconi Scandal

VATICAN CITY—A top Vatican official on Thursday waded into a scandal that has embroiled Italian Prime Minister Silvio Berlusconi, expressing concern over an investigation into whether the billionaire media mogul gave gifts and cash to an underage woman in exchange for sexual favors.

"The Holy See is watching these Italian matters with attention and, in particular, worry," Vatican Secretary of State Cardinal Tarcisio Bertone, the Vatican's No. 2 official, told reporters when asked about the allegations against Mr. Berlusconi.

The comments marked a rare, if subtle, rebuke of Mr. Berlusconi whose center-right government has long supported the Catholic Church's conservative teachings. The Vatican has traditionally eschewed any overt criticism of Mr. Berlusconi's penchant for late-night parties with young women, a practice that has been public for nearly two years.

The remarks are therefore a measure of how Mr. Berlusconi faces mounting pressure from across the political and social spectrum as he defends himself against allegations by prosecutors that he had sexual relations with Karima El Mahroug when she was 17 years old. Prosecutors also allege the premier abused his powers in an attempt to cover up the relationship.

Mr. Berlusconi has vigorously denied having sex with Ms. El Mahroug or seeking to cover up his alleged relations with her. He has also lashed out at Italy's judiciary, accusing prosecutors of violating Italy's constitution in a campaign to persecute him.

The Vatican's views carry particular weigh in Italy, a Catholic stronghold where church officials still command a large swath of votes. The Vatican also holds some sway over the Union of Christian Democrats party, which Mr. Berlusconi recently courted in an effort to shore up his narrow majority in Parliament.

"The Church calls for everyone, especially those who have public duties in politics, governance and the judiciary, to bear the burden of robust morality, of a sense of law and justice," Cardinal Bertone said. Read more at professional.wsj.com

 

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Vatican Expresses Worry Over Berlusconi Scandal

VATICAN CITY—A top Vatican official on Thursday waded into a scandal that has embroiled Italian Prime Minister Silvio Berlusconi, expressing concern over an investigation into whether the billionaire media mogul gave gifts and cash to an underage woman in exchange for sexual favors.

"The Holy See is watching these Italian matters with attention and, in particular, worry," Vatican Secretary of State Cardinal Tarcisio Bertone, the Vatican's No. 2 official, told reporters when asked about the allegations against Mr. Berlusconi.

The comments marked a rare, if subtle, rebuke of Mr. Berlusconi whose center-right government has long supported the Catholic Church's conservative teachings. The Vatican has traditionally eschewed any overt criticism of Mr. Berlusconi's penchant for late-night parties with young women, a practice that has been public for nearly two years.

The remarks are therefore a measure of how Mr. Berlusconi faces mounting pressure from across the political and social spectrum as he defends himself against allegations by prosecutors that he had sexual relations with Karima El Mahroug when she was 17 years old. Prosecutors also allege the premier abused his powers in an attempt to cover up the relationship.

Mr. Berlusconi has vigorously denied having sex with Ms. El Mahroug or seeking to cover up his alleged relations with her. He has also lashed out at Italy's judiciary, accusing prosecutors of violating Italy's constitution in a campaign to persecute him.

The Vatican's views carry particular weigh in Italy, a Catholic stronghold where church officials still command a large swath of votes. The Vatican also holds some sway over the Union of Christian Democrats party, which Mr. Berlusconi recently courted in an effort to shore up his narrow majority in Parliament.

"The Church calls for everyone, especially those who have public duties in politics, governance and the judiciary, to bear the burden of robust morality, of a sense of law and justice," Cardinal Bertone said. Read more at professional.wsj.com

 

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Vatican Expresses Worry Over Berlusconi Scandal

VATICAN CITY—A top Vatican official on Thursday waded into a scandal that has embroiled Italian Prime Minister Silvio Berlusconi, expressing concern over an investigation into whether the billionaire media mogul gave gifts and cash to an underage woman in exchange for sexual favors.

"The Holy See is watching these Italian matters with attention and, in particular, worry," Vatican Secretary of State Cardinal Tarcisio Bertone, the Vatican's No. 2 official, told reporters when asked about the allegations against Mr. Berlusconi.

The comments marked a rare, if subtle, rebuke of Mr. Berlusconi whose center-right government has long supported the Catholic Church's conservative teachings. The Vatican has traditionally eschewed any overt criticism of Mr. Berlusconi's penchant for late-night parties with young women, a practice that has been public for nearly two years.

The remarks are therefore a measure of how Mr. Berlusconi faces mounting pressure from across the political and social spectrum as he defends himself against allegations by prosecutors that he had sexual relations with Karima El Mahroug when she was 17 years old. Prosecutors also allege the premier abused his powers in an attempt to cover up the relationship.

Mr. Berlusconi has vigorously denied having sex with Ms. El Mahroug or seeking to cover up his alleged relations with her. He has also lashed out at Italy's judiciary, accusing prosecutors of violating Italy's constitution in a campaign to persecute him.

The Vatican's views carry particular weigh in Italy, a Catholic stronghold where church officials still command a large swath of votes. The Vatican also holds some sway over the Union of Christian Democrats party, which Mr. Berlusconi recently courted in an effort to shore up his narrow majority in Parliament.

"The Church calls for everyone, especially those who have public duties in politics, governance and the judiciary, to bear the burden of robust morality, of a sense of law and justice," Cardinal Bertone said. Read more at professional.wsj.com

 

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Top investors raise alarm on inflation

Some of the world’s leading investors have turned increasingly bearish on government bonds from developed countries as they warn of the growing danger of inflation.

Data this week showing the UK consumer price index hit 3.7 per cent in December fuelled concern and sent benchmark British borrowing costs to an eight-month high of 3.72 per cent.

In Europe, inflation has risen above the European Central Bank’s target for the first time in more than two years, leading investors to bet on interest rate rises in the eurozone and UK this year.

“Why would you want to be a bondholder with bond yields so low and that sort of inflationary trend,” Bill Gross, who runs the world’s largest bond fund at Pimco, told the Financial Times. “If CPI continues above 3 per cent in the UK and 2 per cent in the US, then we are accepting negative real interest rates and that is not an attractive investment.”

Jim Rogers, the veteran investor based in Singapore, said western governments were concealing the extent of inflation, leading him to avoid bonds and continue his long-held preference for commodities. “There has been inflation but the US and UK governments lie about it ... Money all around the world is becoming more and more debased so you need to own real assets.” Read more at www.ft.com

 

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Inflation Rise in UK beats Analysts Expectations

Price rise pressure on Bank of England

Investors betting on summer rates increase

Consumer index lift higher than expected

By Daniel Pimlott and Chris Giles in London

Investors are betting that the Bank of England will start raising interest rates in early summer after soaring fuel and food prices pushed inflation higher than expected in December.

The UK consumer price index rose 3.7 per cent in the year to December, with inflation up from 3.3 per cent in November. The latest nasty surprise on prices led some economists to predict that inflation will reach 5 per cent, more than double the Bank’s 2 per cent target.

The spike in inflation squeezes household and corporate incomes, putting a further brake on the recovery at the same time as austerity begins to bite. It also threatens to become ingrained in people’s expectations, making it more difficult to eradicate.

Investors are now betting that the Bank’s monetary policy committee will soon feel the need to show it is serious about beating inflation and will raise interest rates from their current low of 0.5 per cent.

The high level of inflation – reflecting the 25 per cent fall in sterling since 2007 – gives the Bank an even worse dilemma than European Central Bank, which put down a marker against price rises last week after inflation in the eurozone rose to 2.2 per cent.

In Britain, the Bank is coming under fire, partly for failing to foresee the rise in inflation. As recently as February, it forecast that inflation would be only 1.5 per cent in the fourth quarter of 2010 and thought that the chances of the 3.4 per cent outcome were negligible.

Ben Broadbent, an economist at Goldman Sachs, calculated that after adjusting for the unexpected value added tax cut of 2009, “the MPC has under-predicted inflation in every year since the CPI target was introduced in 2004”.

Michael Saunders, an economist at Citi, who has repeatedly warned of the Bank’s overoptimism on inflation, said the MPC faced a crisis of inflation forecasting and credibility.

“The MPC needs to show . . . that it takes the inflation target seriously, which means tough rhetoric near term and then probably also higher policy rates in coming months,” he added.

The Bank argues that such price increases are temporary. It suggests that inflation is going to fall next year once the rise in VAT falls out of the annual comparison and spare capacity in manufacturing and services discourages companies from raising prices.

“We have to look through those short-term things, despite whatever unpopularity comes our way,” Paul Fisher, head of markets at the Bank and a member of the MPC, said in an interview with a regional newspaper.

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China’s lending hits new heights

China has lent more money to other developing countries over the past two years than the World Bank, a stark indication of the scale of Beijing’s economic reach and its drive to secure natural resources.

China Development Bank and China Export-Import Bank signed loans of at least $110bn (£70bn) to other developing country governments and companies in 2009 and 2010, according to Financial Times research. The equivalent arms of the World Bank made loan commitments of $100.3bn from mid-2008 to mid-2010, itself a record amount of lending in response to the financial crisis.

The volume of overseas loans by the two banks indicates how Beijing is forging new patterns of China-led globalisation, as part of a broader push to scale back its economic dependency on western export markets.

The financial crisis allowed Beijing to push the commercial interests of its energy companies by offering loans to producer countries at a time when financing was hard to come by.

The agreements include large loan-for-oil deals with Russia, Venezuela and Brazil, as well as loans for an Indian company to buy power equipment and for infrastructure projects in Ghana and railways in Argentina.

The World Bank has been trying to find ways to co-operate with Beijing to avoid escalating competition over loan deals. China itself has been one of the biggest recipients of World Bank loans in the past.“One of the topics I have been discussing with the Chinese authorities is how we can work with them to share our mutual experience to support other developing countries, whether in south-east Asia or Africa,” Robert Zoellick, World Bank president, said on a visit to China last year.

CDB and EximBank provide more preferential terms than the World Bank and other lenders for certain deals that are strongly supported by Beijing, but offer terms that are closer to international standards for less politically sensitive deals. They also tend to impose less onerous transparency conditions.

The flurry of Chinese lending to oil producers has already caused some anxiety in the US about energy security. According to Erica Downs, a China expert at the Brookings Institution, the impact on US interests is mixed. “CDB’s [energy] loans indicate that Chinese lenders are likely to be more concerned about good economic policymaking in recipient countries and they are not reducing the amount of oil available to the US,” she said. “On the other hand, CDB’s loans are empowering anti-American regimes in Latin America.” Read more at www.ft.com

 

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Tunisia Revolution ....

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Watching and waiting

THE mood on the streets of Tunis remains uncertain. A day after the president, Zine el-Abedine Ben Ali, fled the country (he is now said to be in Saudi Arabia), Tunisia’s future hangs in the balance. With a sense that the revolution is far from over, people have been stocking up on food and any other available supplies.

Foued Mebazaa, the speaker of parliament, has now taken over as interim president. Mohammed Ghannouchi, the prime minister, had initially said that he would take charge of the country but the constitution put Mr Mebazaa in control. He says he has now asked Mr Ghannouchi to form a national unity government.

The question now is how far the Jasmine Revolution will go. Apart from Lebanon’s Cedar Revolution in 2005, it is the only successful Arab revolution since the end of the colonial era. For now, power is still very much in the hands of the ancien regime but Tunisians are hoping that their revolution will not stop with the ousting of Mr Ben Ali and the crumbling of his 23-year oppressive reign. They are demanding big changes for Tunisia. But their demands—sorting out unemployment, providing freedom of speech and human rights, bringing real democracy to Tunisia—are tough ones. It is not clear what kind of government will take over from Mr Ben Ali’s nor whether it will be able, or want, to fulfil them.

Abd al-Rahman al-Rashid, a leading Saudi columnist for al-Sharq al-Awsat, a pan-Arab daily owned by a member of the Saudi royal family, has been worrying (in Arabic) about whether this could lead to a domino effect, shaking even relatively calm Arab states. Perhaps most disconcerting for Arab leaders is that most people would have counted Tunisia among that group until a few weeks ago.

Most importantly, this combination has undermined authoritarian regimes' ability to control the flow of information to their citizens. As Arabs throughout the Middle East watch scenes of protests in Tunisia on their computers and their televisions, it is increasingly difficult for their governments to intervene.

In Jordan too, thousands of protesters took to the streets in protest over rising food and commodity prices, unemployment and poverty.  The Muslim Brotherhood has warned that the proposed price hikes will spark protests similar to Tunisia’s in Jordan. So far, most of the anger seems to be directed at Samir Rifai, the Jordanian prime minister, and there has no violence or arrests. Read more at www.economist.com

 

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Spain seeks to show it is not another Ireland

As the Spanish prime minister reveals plans for an overhaul of the country’s network of debt-soaked savings banks, he will be hoping to reassure anxious investors that Spain is not heading for an Irish-style banking meltdown.

Since the financial crisis began, Spanish officials and bankers have boasted of the relative strength of their banking system compared with those of the UK, the US and Germany. But the parallels between the troubles that have afflicted Spain’s regional savings banks – or cajas – and those that brought down Ireland’s banks are hard to overlook.

The problems stem from an aggressive expansion into commercial property and construction when the market was booming – and the severe losses triggered when those loans went bad.

Like the Irish banks, many cajas lent heavily to property developers, builders and homebuyers in the pre-crash years. Some of the most aggressive cajas doubled or even tripled their balance sheets during the boom years.

Since then, property prices have collapsed, debtors have fallen into bankruptcy, and bad loans have shot up, leaving many cajas in dire need of fresh capital.

“The system is sitting on probably 1.5m homes that need to be sold – that’s the glut,” says David Stix, a Madrid-based stockbroker and property expert. “Some of these banks have been forced to repossess these homes and have them on the balance sheet.”

According to the Bank of Spain, the “potential troubled exposure” to construction and real estate amounted to €180.8bn ($241bn) in mid-2010, with banks prepared for losses on only a third of that sum.

But the cajas’ woes are seen as less of a threat to Spain than the Irish banks’ troubles were to Ireland, largely due to the comparative size of the economies.

Analysts point out that the amount needed to bail out the cajas, which could be up to €90bn in a stressed scenario, would represent less than 10 per cent of GDP, while that needed in Ireland was about 30 per cent of GDP. Read more at www.ft.com

 

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Back in the Old Euro Denial Routine

The euro zone is ratcheting up the pressure on Portugal to seek an aid package, but in a manner that makes it possible for government leaders to deny they are doing so, and maintain the appearance of national sovereignty.

The finance ministries of Germany and France have both denied that they have tried to persuade the Portuguese government to follow Greece and Ireland in seeking a bailout from the European Union and the International Monetary Fund.

As with Greece and Ireland before, "sources" from other euro-zone governments worry about Portugal's ability to borrow from the international bond markets.

Inevitably, come Monday morning, investors reacted to the weekend speculation about Portugal by selling its government's bonds. That move was later reversed, thanks to purchases of Portuguese bonds by the European Central Bank.

It could be that euro-zone policy makers are just very bad at communication and have very little understanding of how bond markets work.

It is certainly the case that throughout the fiscal crisis, the size and complexity of the euro zone's policy-making apparatus has made it difficult to craft a single message and stick with it for very long.

But there is also a consistency and regularity to the way euro-zone policy makers have behaved in the run-up to each bailout. Officially, they insist that it is up to the individual government to request help, and that nobody is being put under pressure to choose that option.

This tactic saves the appearance of a euro zone that still comprises independent nations free to exercise their sovereignty, while in fact giving preference to the needs of the euro zone as an entity.

Governments that are reluctant to admit failure because of the domestic political consequences are forced to take action that is considered necessary for the good of the currency area as a whole, and prevent contagion.

But at least one government minister has broken ranks. Shortly after the Irish government agreed to take €67.5 billion ($87.4 billion) in loans from the EU and the IMF, Minister for Justice Dermot Ahern gave his version of what had just happened.

"There were people from outside this country who were trying to bounce us ...into making an application-throwing in the towel before we had even considered it as a government," Mr. Ahern told state broadcaster RTE Radio in late November.

"If you notice they are doing the same with Portugal now because they fear that Portugal will now cause contagion," he added.

Except that, thus far, the euro zone's preference for "bouncing" members into taking help hasn't prevented contagion. Already economists are calculating how much it will cost to rescue Spain, which is seen as next on the list for help.

"Given the fact that the existing funding facilities will not be large enough to provide full three-year funding to Spain, we regard a significant extension of the facilities as necessary in order to calm markets," economists at Citigroup wrote in a note Monday.

"Portugal will not need a bailout," Spanish Minister of Finance Elena Salgado said in a radio interview Monday.

So the most plausible way to read the official leakage on Portugal is this: there is an effort under way to force the Portuguese government to accept aid by forcing its cost of borrowing up to levels that make it impossible to refinance its debt and cut its budget deficit.

This tactic appears designed to preserve the appearance of national sovereignty within the euro zone, while ensuring that members ask for help sooner rather than later in an effort to stop the rot.

But it may be the last time we see it. Euro-zone policy makers have long regarded Spain as the battle that has to be won. Given the scale of the funds needed to aid the fourth largest economy in the currency area, euro-zone policy makers are unlikely to suggest that it can't survive without outside help, unless they really don't know what they are doing. Read more at professional.wsj.com

 

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Trade war looming, warns Brazil

Brazil has warned that the world is on course for a full-blown “trade war” as it stepped up its rhetoric against exchange rate manipulation.

Guido Mantega, finance minister, told the Financial Times that Brazil was preparing new measures to prevent further appreciation of its currency, the real, and would raise the issue of exchange-rate manipulation at the World Trade Organisation and other global bodies. He said the US and China were among the worst offenders.

“This is a currency war that is turning into a trade war,” Mr Mantega said in his first exclusive interview since Dilma Rousseff, Brazil’s new president, took office on January 1. His comments follow interventions in currency markets by Brazil, Chile and Peru last week and recent sharp rises in the Australian dollar, the Swiss franc and other currencies amid an exodus of investment from the sluggish economies of the US and Europe.

Mr Mantega, finance minister since 2006, coined the term “currency war” in September before launching controls on foreign portfolio investments in Brazil aimed at stemming an increase of 39 per cent in the real against the dollar over the past two years. He said that most of Brazil’s measures last year were directed at the spot market but the focus had switched to the futures markets, which he said were now behind the upward pressure on the currency.

On Thursday, Brazil’s central bank launched a surprise measure to curb short selling of the dollar against the real by onshore banks. “You can expect more measures on the futures market,” he said.

He said currency manipulation would be on the G20 agenda this year. Brazil would also lobby to have the WTO define exchange-rate manipulation as a form of veiled export subsidy.

Mr Mantega said that Brazil’s trade with the US had slipped from an annual surplus of about $15bn (£9.6bn) in Brazil’s favour to a deficit of $6bn since the US began trying to reflate its economy through loose monetary policy.

He said China’s overvalued currency was also distorting world trade. “We have excellent trade relations with China ... But there are some problems ... Of course we would like to see a revaluation of the renminbi.” Read more at www.ft.com

 

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Agri forum urges greater efforts to contain escalating food prices

JEDDAH: An agricultural forum was opened here Sunday calling for joint efforts to boost supply applying modern technology to contain escalating food prices in the Kingdom and elsewhere in the world.

Ahmed Al-Balla, CEO of National Prawn Company (NPC), said the forum was held at a time when the world is experiencing a dire shortage of agricultural products that fail to meet growing global demand.

“This situation has resulted in shooting up prices to historical levels,” Al-Balla told the forum, which was opened by Jeddah Gov. Prince Mishaal bin Majed.

Food prices will continue to go up for the next 10 years, he said quoting a report of the Food and Agriculture Organization of the United Nations.

Al-Balla said increasing worldwide demand on foodstuffs was putting pressure on agriculture. He called for the application of new technology to increase agricultural production.

Agriculture Minister Fahd Balghoneim said the forum would contribute to strengthening the sector. There are about 38,000 agricultural farms in the Makkah province, which produces 66,000 tons of dates, he said.

The forum will focus on water, agricultural, environmental and animal resources and rural development, the minister said, adding that it would also discuss matters relating to industrialization and marketing. “There will be discussions on individual and collective experiments and productive families,” Balghoneim said.

“We have decided to hold these forums in different provinces of the Kingdom to expand participation,” the minister said.  Previous forums were held in Riyadh and Dammam. He underscored the Makkah province’s contribution to the agricultural sector. There are about 70 poultry farms in the region, he pointed out. Read more at arabnews.com

 

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