Why Germany Wants to See its US Gold

Bundesbank President Jens Weidmann wanted to personally convince Peter Gauweiler that the German gold was still where it should be. Early this summer, the head of the Germany’s central bank took the obstinate politician from the conservative Christian Social Union (CSU), a party that is a member of the government coalition in Berlin, and a number of his colleagues into Bundesbank’s inner sanctum: the gold vault. There, 6.000 gold bars are stacked on industrial-strength shelves in a purpose-built building in Frankfurt. Additional 76.000 bars of bullion are stored in four safe boxes, in sealed containers. But even this personal inspection wasn’t enough to reassure the visiting member of the parliament, on the contrary: “The Bundesbank monitors its domestic gold in an exemplary fashion,” Gauweiler says, “this makes it all the more incomprehensible that the bank doesn’t look after its reserves abroad.” For quite some time now, Gauweiler has been pestering government and Bundesbank with questions concerning where and how the country’s reserves are stored, and how often they are checked. He has submitted requests and commissioned reports on topic. Last week, Gauweiler celebrated his greatest triumph to date in his gold campaign, which has been a source of some amusement for many fellow German politicians: A secret report by Federal Audit Office had been made public, and it contained stern criticism of the German central bank in Frankfurt. Bonn-based auditors urged a better inventory system, including quality checks. This demand, which even the bank’s inspectors saw as nothing more than routine, alarmed the Berlin political establishment. Indeed, the partially blacked-out report read like the prologue to an espionage thriller in which stunned central bankers could end up standing in front of empty vaults in the USA. For decades, German central bankers have contented themselves with written affirmations from their American colleagues that the gold still remains where it is said to be stored. According to the report, the bar list from New York stems from “1979/1980.” The report also noted that the Federal Reserve Bank of New York refuses to allow the gold’s owners to view their own reserves. Not surprisingly, this prompted strong reactions in Berlin: relevant Bundesbank board member Carl-Ludwig Thiele was summoned to Berlin to provide a full explanation to the parliamentary budget committee. Heinz-Peter Haustein of the business-friendly Free Democratic Party (FDP) was even quoted by Germany’s mass-circulation Bild newspaper as saying “all the gold has to be shipped back.” The Bundesbank’s otherwise reserved Thiele said he found at least “part of the debate” to be “rather grotesque.” His financial institution currently has more pressing problems. Bundesbank head Weidmann, for example, is desperately fighting European Central Bank decision to buy unlimited quantities of the sovereign bonds from crisis-ridden countries as a way of lowering their borrowing costs. In addition, Bundesbank has already pumped as nearly €700 billion into primarily southern European countries as part of euro-zone central bank transfers known as Target II. Germany’s gold reserves are currently worth some €144 billion and are not stored “with dubious business partners”, but rather with “highly respected central bankers” (…..)

Link:  http://www.spiegel.de/international/germany/german-politicians-demand-to-see-gold-in-us-federal-reserve-a-864068.html

Field Trip: http://tribecacitizen.com/2011/08/29/field-trip-federal-reserve-bank-of-new-york/

Brazilians dare to hope crackdown on corruption is real

Normally, live coverage of events in Brazil is reserved for football matches. But in the recent weeks, the law professors at the Getulio Vargas Foundation (FGV), a Brazilian educational institution, have been running live commentary on something entirely different, the Mensalão (or big monthly allowance) case in the Supreme Court. So unprecedented is the case, in which court, in televised hearings, has convicted senior members of Brazil’s former Workers’ Party, the PT, of corruption, that the professors have set up an on-campus “situation room” to provide live commentary to the media. With the judges now moving to sentencing, interest in the trial is picking up. “This case is a result of the strengthening of rule of law in Brazil,” said Oscar Vilhena Vieira, director of law at the FGV. (source: Joe Leahy – Financial Times / The Washington Post – 31/10/2012)

Some Brazilians, jaded by decades of scandals in Brasília in which perpetrators seemed to act with impunity, are suddenly daring to hope old ways of doing business may finally be changing in the vast emerging-market. Those convicted in Mensalão include former top lieutenants of former president Luiz Inácio Lula da Silva, such as former chief of staff José Dirceu, who were found guilty of using the public money to pay secret monthly stipends to opposition politicians in the National Congress in return for their support. Scores of people have been found guilty. The few sentences handed out so far have been tough. “Brazil is taking this seriously because they see it as part of their role as an emerging power”, said Alejandro Salas, regional director for the Americas at the organization Transparency International, which ranks Brazil at 3.8 out of 10 in its corruption perceptions index (10 being regarded as “very clean”). This compares with fellow members of the big BRIC emerging markets: Russia at 2.4, India at 3.1, China at 3.6. “They will differentiate themselves with other emerging economies by doing this, improving governance”. One only needs to look at past cases, such as that of Ronaldo Cunha Lima, to understand the excitement in Brazil over Mensalão. Cunha Lima, a former governor of northern state of Paraíba as well as a former senator, deputy of the lower house of Congress and a municipal council member, shot and wounded a colleague in a restaurant in 1993. He died of cancer this year after having spent only 3 days in detention for the crime. When his case finally came before a local court, he escaped judgment by becoming a senator in 2003. In Brazil, only Supreme Court can handle criminal cases against federal politicians. When Supreme Court finally found time to hear case in 2007, Cunha Lima resigned from the Senate, returning the matter to square one in inefficient local court system. “This man has maneuvered and used tricks to escape trial for 14 years,” Joaquim Barbosa, Supreme Court justice who is leading the Mensalão case, was quoted as saying at the time. Yet the case was only one of many: from that of Fernando Collor, former president, who is today a senator despite being impeached when he was in office for corruption, to that of his father, Arnon Mello, senator who shot dead a colleague in the Senate in 1963 but never faced trial. Indeed, in past 30 years, 72 politicians have been murdered in Brazil, according to list compiled by Carta Capital magazine. Corruption+political violence remain entrenched. The Mensalão case points to a wider changes taking place in Brazil, according to Transparency International’s Salas.

Brazil is managing to couple institutional improvements with a more robust enforcement. Traditionally, Latin American countries have struggled to do both in tandem. Among the institutional reforms, Brazil has introduced the ficha limpa, “clean slate” law, which prevents people convicted of crimes from running for public office. A law also prevented the Supreme Court from trying federal politicians without prior approval from Congress has been revoked. On the enforcement side, the role of Supreme Court and independent public prosecutors, envisaged in Brazil’s 1988 post-dictatorship constitution as a check and balance on executive, is beginning to take effect. “It`s early to celebrate, but at least the process has started,” says Salas. Others caution the optimism should not be overdone. Campaign finance, a source of much corruption, remains murky, as are public contracts for jobs such as construction works and bus lines. They also point to growing size of government spending in Brazil. “Government is becoming interventionist, so you have more opportunities for corruption,” says Luciano Dias, a political consultant in Brasília. Still, Mensalão is leading some people, especially the young, to dare to take an interest in politics again, says Oliver Stuenkel, assistant professor of international relations at the FGV. “It’s amazing to see optimism without cynicism,” he says. 

Emerging Voices: Richard Dowden on World Bank and IMF Involvement in Africa

I feel sorry for the World Bank and the International Monetary Fund. In the 1990s they were masters of the world. The end of the Cold War proved that free market capitalism had won out over state-controlled socialism, and the Bank and the Fund were given the role of liberalizing the world’s markets and ushering in an era of prosperity and peace. Traveling to the capitals of Africa in that period I met bright young World Bank men (the era of equality had not yet broken), missionaries of monetarism bearing the bible of free market prosperity. Many, like all zealots, believed that the greater the pain, greater the gain. Hundreds of thousands of state employees were thrown out of work when government spending was slashed and life savings were wiped out when currencies sank like stones after being “floated”. The men from the Bank, however, dismissed these as inevitable side effects of an essential change. (source: Richard Dowden – CFR – 29/10/2012)

The rulers of these formerly one-party states, of course, had access to hard currency so they bought up the privatized state companies and state land. Many used their wealth to form new political parties and hold onto power. They became owners of their countries as well as rulers. But this was politics, not in the brief of the Bank or the Fund. When Western countries pushed for political liberalization including multiparty elections, some dictators lost power but many were able to use their wealth, position, to win votes. Hardly surprisingly, with little to lose, discontents found weapons and started rebellions. By the end of the 1990s, twenty-six of Africa’s fifty-two countries had suffered civil wars. Nor did the Washington Consensus, as the policy of the Bank and the Fund was called at that time, deliver prosperity in Africa. When Africa’s growth rates did begin to change dramatically around 2000 the main driver was not Western policy but the engagement of the East. China’s need for raw materials took its companies to Africa where Chinese state made secret deals with presidents to obtain the minerals they needed. In parts of Africa where Europeans+Americans now feared to tread, the Chinese involvement gave African economies a huge boost. From about 2000, along with mobile technology, the Chinese engagement made African economies start to grow again. African presidents liked Chinese because they did not lecture them about human rights and free speech as Western governments did. And Chinese delivered highly visible infrastructure projects: airports, roads, parliament buildings, and the occasional presidential palace. At last African governments had an alternative partner and could use the Chinese, later India, Brazil, Russia, and other countries, to push back against Western political pressure, including dictates of the Bank and the Fund. Even the most pro-Western governments now had wiggle room. The smartest rulers maintained good relations with West and East. Yoweri Museveni in Uganda, Paul Kagame in Rwanda, Meles Zenawi in Ethiopia encouraged Chinese engagement but bought into West’s agenda just enough to make themselves strategically indispensable. They got themselves into position where Washington and London and Paris needed them as much as they needed Western support.

Around this time Western development fashion changed. Big infrastructure project gave way to the human development approach. Instead of funding the glossy new roads and massive dams, the Bank funded less visible programs in health and education. The money was channeled through governments, which of course claimed credit for themselves. It may be that economic historians will demonstrate the Bank and the Fund did help lay the foundations of Africa’s economic revival. But in the minds of most people it was China. At the same time China was also making goods such as radios, watches, shoes, and clothes that Africans could afford. So most Africans see China, not the Bank and the Fund, as the catalyst of their prosperity. The Bank and the Fund are still associated in the minds of most people with the bad times of the 1990s. And now there are alternative sources of funding and investment, so Bretton Woods Institutions no longer have a monopoly on economic ideology or control. Yet they still have huge resources and influence. Recent spurt of economic growth in Africa may not have done much for the poor, so the question institutions face now is how to develop a new policy to help those left behind.

Link: http://blogs.cfr.org/development-channel/2012/10/29/emerging-voices-richard-dowden-on-world-bank-and-imf-involvement-in-africa/

This Time Might Indeed Be Different For World Trade

Since World War II, successive rounds of the GATT/WTO negotiations have contributed to freer trade and prosperity globally, but the WTO has become too large and unwieldy to proceed, as shown by the impasse after 11 years of the Doha round of negotiations. A key trend in international trade during the last decades has been regionalization. However, several bold proposals with respect to a further liberalization of the global trade have surfaced recently. If implemented, these have potential to significantly improve the medium term global economic outlook. (source: Andris Strazds & Thomas Grennes – Roubini Global Economics – 29/10/2012)

An EU-US High Level Working Group is expected in December to issue report recommending the negotiation of a comprehensive transatlantic trade and investment agreement. At the same time negotiations of a Free Trade Agreement between the EU and Japan will likely be launched in the coming months following joint scoping exercises concluded earlier this year. Yukio Hatoyama, a former prime minister of Japan, has already called for it to be turned into a more comprehensive Economic Integration Agreement by covering areas such as regulatory convergence and approximation of legislation. Agreement among EU, US and Japan would have potential to significantly contribute to economic growth at a time when expressions such as “new normal” or “lost decade” are increasingly used to describe medium term economic outlook. European Commission estimates that medium term growth rates could be raised by as much as 2% and over 2 million jobs could be created by EU pursuing an ambitious trade agenda. Similar benefits could accrue to US and Japan. Freer trade would also allow the benefits from innovation to spread faster. Even non-participating countries can be expected to receive some benefits from faster economic growth and higher incomes in the three. In the future geographical scope could certainly be expanded with countries such as Canada or South Korea being logical candidates to join. If broader Asia-Pacific Economic Cooperation group (APEC) participated in such a union, resulting unit would include a very high percentage of world trade. It would be easy to dismiss the idea as unrealistic, but prior to Treaty of Rome in 1957, many skeptics denounced idea as unrealistic. In spite of current problems with Euro, the single market features of EU have benefitted members for more than half a century.

Despite enormous potential and initial momentum, the obstacles faced by the proposals would certainly also be huge. While benefits would significantly exceed costs, the former are likely to be more dispersed and latter more concentrated, in particular, because some of the benefits would also accrue to customers rather than businesses. This means that pressure against the liberalization from interest groups in some industries will be significant. Tradeoffs between the scope covered and speed with which the negotiations can move ahead will have to be made. For example, already before the start of negotiations it appears to be clear the highly sensitive agricultural sector or at least large parts of it will have to be excluded from agreements. In the past, the economic crises such as the Great Depression of 1930s have often resulted in retrenchment and increased protectionism that included infamous Smoot-Hawley tariff. The result was lose-lose outcomes. The current bold proposals show that some policymakers today realize that more trade, not less, is needed to improve economic outlook. The obstacles faced will be significant, but the potential benefits are much larger. Successful implementation of the above proposals could be the difference between a lost decade and one where economic growth is reignited. The benefits of innovation could be difused more widely and more productive jobs could be created by increasing trade and economic integration.

Rosneft deal casts a cloud over Russia’s economy

The mega-buyout in Russian oil announced the last week will transform state-dominated Rosneft into largest oil company in the world in terms of the production, bigger than ExxonMobil. Rosneft is acquiring another profitable Russian oil major, TNK-BP, from three oligarchs and BP. Once the $56 billion deal is done, Rosneft will control 40 percent of Russia’s oil output, a significant consolidation of the economic clout for the Kremlin. Rosneft is headed by Igor Sechin, a longtime pal of President Vladimir Putin. The buyout also marks a serious retreat from an idea born in the West that held immense promise when the Soviet Union imploded two decades ago. That idea was that capitalism based on private ownership would do a far better job managing the vast archipelago of industrial and natural-resource assets than had creaky state-run socialism. In the 1990s, Russia carried out the largest privatization of state property ever attempted in the expectation that decisions made by new owners would lead to modernization, efficiency and a competitive capitalism. The oil industry sell-offs were slow, but in the first decade a dozen or so privatized companies emerged, often delivered into hands of Russia’s rapacious oligarchs. Lofty ideals of privatization were sorely tested, the results not pretty. Still, the private ownership + capitalism produced results: Russia this year has hit new post-Soviet highs in crude oil production, more than 10.3 million barrels day. Rosneft once ranked eighth among Russian oil companies and was not privatized. In 1998, the year of a currency collapse and debt default, the government tried to sell off 75 percent of Rosneft for as little as $1.6 billion. There were no takers. But the little company gained a valuable ally. After taking office in 2000, Mr. Putin decided to push back the pesky oligarchs. He threw tycoon Mikhail Khodorkovsky in prison and crushed his oil major Yukos, the assets of which were scooped up by Rosneft. Today, Rosneft has a market capitalization of some $75 billion. What is happening here? Putin is building state capitalism, model in which winners and losers are not so much determined by market competition as by the state. Certainly, a national champion like Rosneft may be suited to confront the severe challenges of the Arctic exploration and production, though it probably will need capital and technological expertise from Western partners. But does it have to be controlled by the Kremlin? Economic history suggests ownership matters and private owners beat bureaucrats. In Russia, state control has often meant profits diverted or stolen, expenses bloated and modernization neglected. We don’t think that Mr. Putin wants to bring back the ineptitude and inefficiency of the Soviet system. But he has a fear of competition in politics and in economy, and competition is the oxygen of democracy and markets. Consolidation of oil and power in hands of the Kremlin casts a shadow over once-bright prospects of Russian economy. There’s little reason to hope that state ownership will work better for Russia than it did last time around. (source: Editorial Board – The Washington Post – 30/10/2012)

Ideas para el futuro de Europa después de la crisis

La crisis económica y estructural de Europa sigue agravando la situación de millones de ciudadanos. Cifras de paro en los países más afectados por los problemas de refinanciación de deuda pública y privada superan marcas históricas. Entre las diferentes propuestas para salir de la crisis se ha impuesto la receta alemana del recorte y la austeridad. Alemania es el principal contribuyente europeo a los rescates y a los mecanismos multimillonarios de estabilidad, como el MEDE, y a las medidas extraordinarias con las que el BCE quiere evitar desenlace catastrófico de los problemas de liquidez de países como España. A cambio de estas aportaciones, el Gobierno alemán ha ido acumulando influencia en la agenda europea. Ha tenido que capear las críticas internas y el escepticismo político, financiero y ciudadano a los rescates. Según Scott Malcomson, Instituto de Gobernanza Nicolas Berggruen (NBI) eligió por eso la ciudad de Berlín para celebrar una reunión sobre el futuro de Europa después de la crisis. Cuenta Malcomson, ex-asesor Departamento de Estado EEUU, que el primer ministro italiano, Mario Monti, propuso celebrar un evento que alcance al público alemán, “cuya opinión es fundamental para el proyecto europeo”. Monti es miembro del Consejo para el Futuro de Europa, presidido por Nicolas Berggruen y del que forman parte el ex-jefe Gobierno español Felipe González, el ex-canciller alemán Gerhard Schröder, el ex-presidente Comisión Europea Jacques Delors o el presidente de EL PAÍS, Juan Luis Cebrián. Durante dos días hablarán en Berlín de cómo será la Europa que cabe esperar en los años posteriores a la crisis. El director de EL PAÍS, Javier Moreno, participará este lunes en mesa redonda con otros directores de diarios destacados de Europa, después de un debate entre Tony Blair (ex primer ministro de Reino Unido), Schröder, Romano Prodi (ex primer ministro Italia), Felipe González y Peter Sutherland, del banco de inversión Goldman Sachs. El ministro Hacienda alemán, Wolfgang Schäuble, hablará este martes sobre “cómo alcanzar la unión política”. Debatirá sobre ello con el director de la OMC, Pascal Lamy, y el ministro Hacienda francés, Pierre Moscovici. Seguirá un encuentro entre el parlamentario democristiano alemán Philipp Missfelder y cuatro líderes políticos que contribuyeron a la Europa que conocemos hoy: el ex-ministro alemán de Exteriores Joschka Fischer, Felipe González, el ex-primer ministro de Grecia Yorgos Papandreu y el ex-primer ministro belga Guy Verhofstadt. Después hablará el famoso inversor y filántropo George Soros. Por la tarde se debatirá el papel de Europa en el mundo globalizado después de la crisis. Helmut Schmidt conversará con el ex-presidente BCE Jean-Claude Trichet. Moderará el encuentro Berggruen. Después se hablará de empleo, con voces como las de la ministra de Trabajo alemana, Ursula von der Leyen, y el líder socialdemócrata, Peer Steinbrück. Grupo de empresarios internacionales, entre ellos el directivo de Google Eric Schmidt, expondrá cómo se ve Europa desde fuera. Como colofón, Schröder departirá sobre “reformas para una Europa moderna”. (El Pais.com – 29/10/2012) 

Empresas argentinas viajan a Vietnam en una misión comercial multisectorial

Más de 200 empresas argentinas participarán, hoy y hasta mañana martes 30, de una misión comercial multisectorial a Vietnam, con el objetivo de presentar ante contrapartes locales los productos y servicios innovadores de diversos sectores de la economía de nuestro país. La misión, que se desarrollará en la Ciudad Ho Chi Minh, es organizada por las Secretarías Comercio Interior y Exterior del Ministerio Economía y Finanzas Públicas y por Cancillería argentina, a través Secretaría Relaciones Económicas Internacionales y la Embajada argentina en Vietnam, con el apoyo de la Cámara de Industria y Comercio de ese país. Además de los empresarios argentinos, formarán parte de la delegación las autoridades de las Secretarías de Comercio Interior y de Comercio Exterior del Ministerio de Economía y Finanzas Públicas, Subsecretaría Desarrollo Inversiones y Promoción Comercial de la Cancillería y de Secretaría Integración Nacional. Los funcionarios argentinos mantendrán reuniones con representantes sector público y privado vietnamita. En este marco, empresarios argentinos presentarán a sus contrapartes vietnamitas productos y servicios en una amplia gama de sectores, incluyen alimentos y bebidas, químicos y laboratorios, equipamiento médico, maquinaria e industria, manufacturas, textiles y calzados, construcción, y software y servicios de tecnologías de la información. Relación comercial bilateral entre Vietnam y Argentina se encuentra en pleno crecimiento: en 2004, comercio entre ambas naciones era de 157,9 millones de dólares, cifra que en 2011 había alcanzado los 859,2 millones de dólares, lo que significa una suba del 444,13%. El comercio bilateral presenta excelentes oportunidades para ambos, la misión comercial multisectorial busca capitalizar con la profundización de los vínculos empresariales. La misión multisectorial a Vietnam es parte de una estrategia nacional activa que busca la expansión de las exportaciones argentinas y el establecimiento de vínculos con socios estratégicos en mercados emergentes y dinámicos, a fin de contribuir al proceso de crecimiento con creación empleo calidad que está en marcha desde 2003. (Cancillería, Argentina – 29/10/2012)