Renminbi weakness tests US patience

It is interesting to note how much leverage the US has if the Treasury
were to find that the renminbi was 'misaligned' and that this was
damaging the US economy. First, there would be 180 days move toward a
resolution, then sanctions including US veto to block any increasing
in voting rights at the IMF, disapproval of international financing,
preventing the issue of trade insurance and guarantees for trade under
the Overseas Private Investment Corporation, and less favorable status
under the US anti-dumping laws.

This information was gathered from the FT article, Renminbi weakness
tests US patience and was found on page 4 of the print edition,
3/29/06.

Well, it is pretty obvious that the U.S. found the RMB to be quite mis-aligned. In fact, the purchasing power parity of the two currencies adapt to about 2:1. That means that the average value of the farm worker in construction is 4x the value of him getting paid. Hella concrete buildings going up. I wonder if more than the ignorance of Kim Jung Il is running that country. Single party! Not that two is much better . . .

MH 2007 06 01

Expanded WB and IMF roles

Put reserves to work

One man, the former US Treasury Secretary Lawrence Summers, suggests that the volume of money in developing countries’ banks that is needed to guard against FX crisis is much lower than the actual volume of the money they contain. This bulk of cash is typically in the form of short term US Treasury bills with very low RORs. The suggested fix is that the IMF and WB should open an asset management arm so that the extra cash (in excess of $1,500 billion) could be put to a more profitable use.

Whether the money is used to invest in high-return imports (such as life-saving drugs or capital goods for infrastructure projects) or private sector development (like China and to some extent, India).

The IMF and WB would be in a good position to do this because of their existing infrastructure of coaching and technical support. They could, in conjunction with the developing country, evaluate the level of liquid cash that is needed and how to best deploy the remaining cash. The article goes on to state the potential pitfalls; corruption, mismanagement and the ‘squandering of reserve assets by spendthrift governments’.

 

US Nationalism

US seeks to end dispute with UK on fighter jets

Looks like the US got caught in its protectionist habits with this one. The article also indicated that in the past the US shared computer technology with the Brits therefore they were wondering why the protest now. The program is $2 billion and supportive of a lot of US jobs.

Nuclear suppliers raise doubts on US-India deal

Remember last month, President Bush went to India. There, he signed a bi-lateral agreement (with the support of UK, France and Russia) that allowed India to keep its nuclear weapons in trade for US contracts on 8 civilian nuclear energy sources. The argument is that this will promote global efforts to prevent the spread of nuclear weapons (!!!). Does this not go against the Nuclear Non-Proliferation Treaty that N. Korea pulled out of in 2003, continuing tensions in Iran on the same subject and Pakistani black market sales?

Seems like the US is banking a lot on nationalism, be it US jobs in the jet fighter industry or nuclear reactor industry.

World Bank Events

The World Bank is fighting for clean air ($20bn proposal to cut emissions). Maybe this is in response to the Independent Evaluation Group saying that their focus has been too narrow, but clean air isn’t the issue. During the 80s and 90s, the World Bank lent with the reciprocation of trade reform without considering wealth distribution or bureaucratic streamlining.

Since 2001, the services of the World Bank has shifted to offering advice and analysis besides loans and grants. The voice of the WB has become public offering debate on the poverty/agriculture/rich nation topics at the Doha round.

Youth riots in France

From the articles in the FT I can hardly tell what is going on in France. The youth seem to be protesting a ‘bill’ in the legislation that would allow private companies to terminate the employment of people aged 26 and younger in the first two years of working due to non-performance. What is the problem with that? When I get a non-performing intern I let my company know; I believe that work ethics are formed well before the professional working age.

Global Savings Glut

From a speech of the new Fed chairman low long term interest rates reflected low levels of investment in the global economy relative to savings. Additionally there is a low level of desire for US exports and slow growth outside the US.

 

The beige book released yesterday stated that home prices weren’t increasing as rapidly as before; the economy was increasing at a 3-3.5% rate and on 3/28 the interest rate would raise to 4.75.

 

Although not said in the FT, I heard from a source that oil would be over $100 by the end of the year.

Outcome of Banana Wars...

The FT reports (http://news.ft.com/reports/mauritius2006) on Mauritius, an ACP country off the eastern coast of Africa. Google earth wouldn’t even focus to the street level it is so ‘out there’. Apparently they are filling 38% of EU’s quota on Sugar from their primary cash crop, sugar cane. The EU is reducing the cost of sugar with the ending of the Multi-Fiber Arrangement, which guaranteed Mauritius and other countries access to the European market.

 

Accenture and Infosys have setup shop and they are encouraging more technical development; off shore universities are being encouraged to have a campus on the island. Therefore there are alternatives to European support of these places, but I wonder if this is an exception.

 

Anti-protectionist vs. a fear of exposure

There is an economic summit next week in Brussels in which European leaders will discuss opening their borders to the multinational service industry. Mr. Schussel, Austrian Chancellor, primed the members during a ski weekend at a resort near the meeting site. The stage is set between Britian, the Netherlands, and the Nordic Countries vs. France, Poland and Spain. Even if all countries outlined a couple of key points that Mr. Schussel urged them to do next week; installing this plan in real life and planning this plan are two very different things. Not just that, but these nations that contain protectionist flares in the matter are reluctant to expose their plans for fear of EU criticism.

 

FT: http://news.ft.com/world/brussels

 

Where should we buy gas?

The Movement for the Emancipation of the Niger Delta (Mend) is a group of militants who are fighting for the rights of the largest tribe in the area, the Ijaw. One way that this group moves into power is to have its leaders be awarded state positions due to negotiations with kidnappers.

 

Perhaps we should buy gas from Angola, where Global Witness, a London based NGO estimates that in 4 years preceding 2001 over $8 billion of public money is unaccounted for.  The US imports 4% of its oil from Angola, yet output per capita is among the lowest in the world.

 

Something can be said for the ‘other side’. The tribes on the Nigerian delta live among oil slicks and gas flares. Cabinda, the provience where ChevronTexaco, Sonangol (the Angolan state oil company), and ENI-Agip have Block Zero, a place where a majority of Angola’ crude is pumped out is located took a payment (payoff) for their impedance.