Tag Archives: nationalization

Five Stories You Might Have Missed

The G20 meeting in Pittsburg this week resulted in agreement on several important principles, with the group agreeing in principle to establish guidelines for bankers’ pay, developing a timetable for reforming financial regulations, and establishing a new framework for economic growth. The G20 also agreed to transfer five percent of the shares in the International Monetary Fund and three percent of the shares in the World Bank to emerging countries. The organizations have long been criticized for voting structures which over-represent the developed world at the expense of the developing world.

In other news from the previous week:

1. There were several important developments in Iran this week. On Sunday, Iran test fired a short-range missile as part of ongoing war games in the country. The missile, a Shahab-3, has range sufficient to reach Israel and U.S. bases in the Persian Gulf. The launch comes just days after the United States announced it had discovered Iran possessed a second, secret uranium enrichment facility. France and the United Kingdom joined the United States in condemning Iran for misleading the international community. The discovery and announcement put pressure on Tehran, which maintains that the facility is used for peaceful purposes. The most recent announcement produced new signals from Russia, which had historically opposed sanctions against Iran. But after being briefed on the new facilities by the Obama administration, Russian President Dmitry Medvedev indicated that the Russian government may be willing to consider sanctions as a way of addressing the Iranian nuclear situation.

2. Germany is headed to the polls today, with most analysts calling the election too close to call and many speculating about what kind of coalition will take control of the world’s fourth largest economy. Although Angela Merkel’s ruling Christian Democrats have been leading throughout the campaign, her support has been slipping over the past week. With low turnout forecast, observers believe that the election could still be close. Further, a quirk in the German voting system could result in Merkel’s CDU winning a plurality of seats in the Bundestag despite winning a smaller percentage of the popular vote than her rivals. Her rival, the Social Democrats, have lagged in the polls throughout the campaign but managed a late-campaign surge. No matter what the margins, negotiations around a forming a new coalition in Germany will likely be the central focus of German politics in coming days.

3. Two car bombings believed to the work of the Taliban in Pakistan killed 27 people on Saturday. The attacks targeted Pakistan’s military and police forces, coming just days after the country’s President, Asif Ali Zardari, appealed to the G20 for assistance in fighting terrorism in Pakistan. The attacks demonstrate the resilience of the Taliban in Pakistan, which has been engaged in a protracted war with the national military. Last month, the Pakistani military killed Baitullah Mehsud, the Taliban’s main leader in Pakistan, and earlier this year, the military killed more than 3,000 Taliban militants in operations in the Swat valley region. Despite these losses, however, the Taliban remains a central threat to the stability of the Pakistani regime. 

4. The government of Guinea is moving forward with its efforts to overturn some of the contracts signed with foreign companies under the military dictatorship of Lansana Conté, whose 24 year-rule ended with his death in December. The new government has already forced Rio Tinto to return a portion of its iron ore concessions and convinced the South African gold company, AngloGold Ashanti, to establish a $10 million fund to pay for environmental damages caused by their operations in the country. On Tuesday, the government ordered the Russian aluminum company Rusal to quit the country, claiming that it owed more than$750 million in taxes, royalties, and other duties owed since 2002. With a GDP per capita of $442, Guinea remains one of the poorest and least developed countries in the world.

5. Deposed President Manuel Zelaya returned to Honduras last week, sneaking into the country and hiding in the Brazilian embassy in Tegucigalpa. Honduran security forces used water cannons and tear gas to dispurse crowds which had gathered outside the embassy in support of Zelaya. The Brazilian government has called on the international community to do more to support Zelaya’s return. Most of the international community has refused to recognize the new government and international assistance from the World Bank and the International Monetary Fund has been suspended. Speaking before the United Nations General Assembly on Wednesday, Brazlian President Luiz Inácio Lula da Silva said, “The international community demands that Mr Zelaya return immediately to the presidency of his country and must be alert to ensure the inviolability of Brazil’s diplomatic mission in the capital of Honduras.”

Five Stories You Might Have Missed

It’s been a week of surprises by the Obama administration. On Saturday, President Barack Obama nominated Jon Huntsman to be the next U.S. ambassador to China. Huntsman was a surprising pick. With his experience as U.S. ambassador to Singapore, his previous tenure as deputy U.S. trade representative and as deputy assistant secretary of commerce, and his fluency in Mandarin, Huntsman appears to be a solid pick. However, Huntsman is a Republican currently serving as governor of Utah, and has widely been viewed as a potential Republican candidate for the presidency in 2012. Obama last week also reversed his previous position in two controversial areas. First, on Friday, Obama announced the U.S. government would revive the military tribunals created by the Bush administration but suspended by Obama in January to try some 20 prisoners currently held at Guantánamo Bay.  Obama also changed position on the release of hundreds of photograps showing U.S. soldiers abusing detainees. Obama had previously promised to release such photos, but on Wednesday said that their release would “not add any additional benefit to our understanding of what was carried out in the past by a small number of individuals” but would further enflame anti-American opinion and…put our troops in further danger.” The reversal was criticized by the American left, and even managed to draw a response from Jon Stewart’s Daily Show.  
 
In other news from the last week:

1. The Congress Party won a decisive victory over its rival Bharatiya Janata Party (BJP) in India’s nation-wide elections Saturday. According to most observers, the election gives the Congress-led United Progressive Alliance, a coalition of center-left parties, a mandate to push ahead with a series of economic reform. Because most Pakistianis view Congress as less hawkish than the Hindu nationalist BJP, the election could also provide an opportunity to improve relations with Pakistan, which have been strained since the terrorist attacks on the Indian city of Mumbai six months ago.

2. Parliamentary elections in Kuwait were also completed on Saturday. The country has been paralyzed by a standoff between conservative Islamists in the parliament and the government which wants to move forward with economic reforms. Kuwaiti elections are unusual insofar as there are no political parties; candidates run as individuals without formal political affiliations. Historically, the parliament has been dominated by religious figures and tribal authorities who oppose the power of the central government. Kuwait formally extended the right to vote to women in 2005, and analysts had hoped that the expansion of the franchise might moderate the parliament. But while women were elected to the national parliament for the first time in the country’s history—some sixteen of the 210 candidates for the 50 seat-assembly were women; and two women were actually elected into the parliament—the overall composition of the parliament changed little. Analysts now fear that the standoff between the government and the parliament will continue into the next legislative term.

3. A political scandal rocked Gordon Brown’s ruling Labour Party in the United Kingdom last week. On Saturday, Labour suspended MP David Chaytor after it was revealed that he claimed £13,000 of taxpayers’ money for a mortgage he had already paid off. Chaytor was the second Labour MP suspended due to allegations of misuse of taxpayer funds. The scandal has also claimed one junior minister, Shahid Malik, who is being investigated by the parliamentary oversight committee for accusations that he violated the ministerial code. David Cameron, leader of the opposition Conservative Party, has tried to seize the initiative, accusing the government of failing to provide sufficient oversight. But with members of his own party also accused of wrongdoing, some analysts believe the only real winners in the scandal are likely to be left-wing Liberal Democrats and the far-right British National Party, neither of which have been implicated in the scandal. With local and euro-elections scheduled for June 4, voters will not have long to wait to express their frustrations.

4. The fuel shortage in Nigeria—one of the world’s leading oil exporters—appears to be drawing to a close. A standoff between Nigeria’s president, Umaru Yar’Adua, and a group of powerful Nigerian business interests had led fuel importers to cut off supplies to the country. Fuel importers receive extensive subsidies from the Nigerian government to keep domestic fuel prices artificially low. However, as the subsidies have become increasingly expensive, the government sought to reduce their levels, sparking a confrontation with fuel importers, who receive approximately $5.5 billion per year from the subsidies. The Nigerian oil industry is the primary source of foreign exchange for the country, but has also been a source of considerable controversy.

5. After announcing plans to seize more than 60 oil-servicing companies last week, Venezuelan President Hugo Chávez continued his efforts to nationalize the country’s food industry last week. On Thursday, Chávez announced that the government would seize control of a pasta factory owned by the U.S. food producer Cargill. In March, the government seized a rice mill owned by Cargill, a Coca-Cola plant, and several other food factories. The government accused the companies of violating price controls aimed at controlling inflation and maintaining a sufficient national food supply. Cargill owns another 22 plants around the country, and the Chávez government warned the country that it could see further nationalizations within 90 days if it continued its “marked non-compliance with the law.” Venezuela currently suffers inflation of almost 30 percent and shortages of key staple foods are becoming increasingly common.

And in a bonus follow-up story this week:

6. Concerns over the H1N1 (swine flu) epidemic appear to be waning, but several important stories nevertheless emerged last week in the wake of the crisis. First, the Mexican tourism industry is trying to encourage visitors to return to Mexico. Concerns over visiting Mexico, the epicenter of the outbreak, had led to a collapse of tourism in the country. The resort destination of Cancún, for example, is losing an estimated $6 million per day as a result of the downturn. To counter the decline, some Mexican resort destinations are now offering flu-free guarantees to lure back visitors.

And even more importantly, the H1N1 outbreak has also rekindled debates over the tradeoffs between intellectual property rights and the right to access essential medicines. The pharmaceutical giant Roche, manufacturer of the Tamiflu antiviral flu drug, has agreed to increase production. Roche currently sells Tamiflu for €12 ($16.30) per treatment for developing countries and€15 in developed countries. However, developing countries have been pushing the World Health Organization (WHO) to classify Tamiflu as an essential medicine, a move which would bypass Roche’s intellectual property claims and allow generic production to address public health concerns in the global South. Roche maintains that it can provide sufficient stockpiles of the drug to make such a move unnecessary. While the WHO has not yet issued its opinion, a leading Indian pharmaceutical company is nevertheless planning on moving forward with its plans to produce a cheap generic version of the patented Tamiflu drug, which its says it can sell for less than half the cost of the patented brand.

Five Stories You Might Have Missed

It was mostly bad news for the U.S. economy again last week, as official figures show an increase in the unemployment rate to 8.9 percent—the highest level in more than 25 years. Attempting to put a relatively positive spin on the news, President Barack Obama noted that the number of job losses declined in April, marking the smallest monthly loss in almost six months. During that period, a total of 3.94 million jobs have been lost, the largest total on record, exceeding even the number lost during demobilization after the second world war. In the finance sector, stress tests performed by U.S. banking regulators concluded that ten of the country’s largest banks were undercapitalized and require an infusion of at least $75 billion to survive an economic downturn.

In news from outside the United States last week:

1. In Venezuela, President Hugo Chávez initiated a new round of nationalization in the oil industry, seizing 60 oil service companies, at least a dozen oil rigs, 30 oil terminals, and 300 boats. Chávez announced the move during a visit to the country’s main oil producing region, stating, “To God what is God’s, and to Caesar what is Caesar’s. Today we also say: to the people what is the people’s.” Venezuela is home to the world’s second largest oil reserves, with 172 billion barrels of proven reserves. But PDVSA, the state-owned oil company, has suffered serious losses in recent years as a result of declining oil prices and a shortage of hard currency. Analysts expect global oil prices to increase next week on the news.

2. Jacob Zuma was sworn in as the third president of post-apartheid South Africa last week, following the ANC’s victory in nation-wide elections late last month. After taking formal control of the government on Saturday, Zuma announced a cabinet reshuffle intended to placate weary business interests. South African businesses had feared that Zuma’s election might result in a political shift to the populist left. But in promoting former finance minister and key Mbeki ally Trevor Manuel to the powerful position overseeing central planning, Zuma seems to be demonstrating his interest in maintaining a positive relationship with the center-right wing of the African National Congress.

3. Experts are warning that the German welfare state could collapse this year as a result of the continuing economic crisis and poor economic measures by the government. In a move criticized by economists last week, Chancellor Angela Merkel de-linked increases in pension payments with the prevailing national wage rate. Legislation passed by the ruling party and signed into law by Merkel last week prohibits future cuts to pension rates. Economists have criticized the move as an attempt to appease retired voters ahead of a general election scheduled for September. Germany is in the midst of the worst economic crisis in decades, raising concerns about political stability and economic growth.

4. Next month’s presidential elections in Iran will be contested by four candidates. In addition to Mahmoud Ahmadi-Nejad, who is seeking re-election, the Guardian Council is expected to approve three other candidates as meeting the qualifications to stand for office: a strong educational and political background and a proven commitment to the Islamic regime and supreme leader Ayatollah Ali Khamenei. The three other candidates will be: Mir-Hossein Moussavi, a leftist and former prime minister of Iran, Mehdi Karroubi, a noted reformer and former speaker of parliament, and Mohsen Rezaei, former commander of the revolutionary guard and noted hardliner.

5. Pakistan’s offensive against Taliban militants in the northern part of the country continued last week. The offensive focused on the Swat valley region, where the government had made a number of concessions to militants last month, including permission to introduce sharia law into the region. Full-scale operations began on Thursday, but the government eased a curfew on the region to permit civilians to flee on Sunday.

Five Stories You Might Have Missed

Poor economic news continues to flow out of most of the world. In the United States, new jobless figures released last week show unemployment up to 8.1 percent, the highest rate in 25 years. Malaysian exports have collapsed, placing pressure on the government to find a solution to the ongoing crisis. And the banking sector in South Africa, Canada, and Mexico (among others) continues to face problems, and the International Monetary Fund is urging greater coordination to address the crisis. 

But the Chinese government is asserting that things are improving there already, forecasting 8 percent growth this year and denying the economy is in a downturn. If they’re correct, perhaps we’re starting to see the beginning of the end of the global economic crisis. I, however, remain cautious.

Here’s important five stories from the previous week:

1. Hillary Clinton continued her charm offensive in Europe last week. After shifting to a more diplomatic strategy with Syria, the new Obama administration has announced its intention to conclude a new arms control agreement with Russia by the end of the year. The effort to improve diplomatic relations with both Syria and Russia are seen as part of a wider effort by the Obama administration to distance itself from the hardline policies of the previous president.

2. A suicide bomb attack against Baghdad’s main police academy killed 28 people on Sunday. Although the number of attacks has declined since the height of the sectarian violence in 2003, the attack nevertheless illustrates the challenges that Iraq continues to face.  On Thursday, a car bomb attack in Babil province—a region that has enjoyed relative peace for months—killed 12 people and injured 40. 

3.  Palestinian Prime Minister Salam Fayyad on Saturday announced his intention to resign. Fayyad was appointed by Palestinian President Mahmoud Abbas after Hamas took control of Gaza in 2007. But Fayyad was a controversial figure, and Hamas regularly criticized Fayyad for being too closely aligned with the United States and Israel. Fayyad’s resignation is seen as an important step towards the development of a unity government for Palestine, which itself is viewed as an important first step in the Middle East peace process.

4. The Good Friday peace accord in Northern Ireland faces its most serious challenge since it was signed in 1998, after two British soldiers were killed Saturday night in an attack by Irish nationalist groups opposed to the agreement. Though no group has yet claimed responsibility, several groups, including the Real IRA, the Continuity IRA, and the Irish National Liberation Army, oppose Sinn Fein’s effort to develop a powersharing agreement and peace deal for Northern Ireland.

5. Last week, President Hugo Chávez stepped up his effort to nationalize foreign agricultural producers in Venezuela. After last month’s referendum, which granted Chávez the right to remain in office indefinitely, Chávez announced his intention to move forward with the nationalization of key industries, including oil, steel, and cement. Chávez accuses foreign agricultural producers of exacerbating the country’s economic problems.

And in a bonus story for this week:

6. Zimbabwe’s Prime Minister Morgan Tsvangirai was injured in a car accident on Saturday, and Susan Tsvangirai, his wife of 31 years, was killed. According to witnesses, a truck swerved from the oncoming lane and struck his car, the middle in a convoy of three cars, head on. Some within Tsvangirai’s Movement for Democratic Change have accused Zimbabwe’s President, Robert Mugabe, of masterminding the attack in an effort to eliminate his political rival. Although Tsvangirai has since said he did not believe the accident was part of a broader plot by Mugabe to eliminate him, Tsvangirai did accept an offer from Botswana’s President to recouperate across the border, fueling speculation about the nature of the accident. Zimbabwe’s national unity government remains an unstable coalition of rival groups, and the government has been unable to effectively address the ongoing economic crisis there.

Five Stories You Might Have Missed

Perhaps the most shocking news from the previous week came in a series of stories and rumors that the U.S. government may move to nationalize some banks in an attempt to address the ongoing global economic crisis.  In an interview on Tuesday, former Federal Reserve Chairman (and ardent free marketeer) commented that, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” In the same story, Republican Senator Lindsey Graham concurred, noting, “If nationalization is what works, then we should do it.” Speculation that Citibank and Bank of America may be the first banks to be nationalized drove their stock values down and led to both dramatic selloffs on Wall Street and a sharp increase in the price of gold, normally used to hedge against uncertainty. The events forced the Obama administration to attempt to reassure global markets, as White House Press Secretary Robert Ribbs said, “This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government. That’s been our belief for quite some time, and we continue to believe that.” Remember when the Democrats were the ones who wanted greater government control over the economy, and Republicans opposed such intervention? Seems the global financial crisis makes the conventional wisdom less and less relevant.

Here are five stories from the previous week you might have missed if you’ve been trying to keep the players in the nationalization debate straight:

1. On Friday, the government of Mexico confirmed the country was following the general trend in much of the rest of the world, heading into recession. In the final quarter of 2008, the Mexican economy contracted by 1.6 percent. In an attempt to stimulate the economy, the government cut interest rates. But close ties to the ailing U.S. economy have acted as a drag on the Mexican economy, undermining the ability of the Mexican government to develop an effective stimulus program.

2. The United Nations-backed naval taskforce in the Gulf of Aden appears to have been generally successful in addressing the problem of piracy in the region. A number of U.S. and E.U. naval vessels, as well as ships from several other navies, have been operating off the coast of Somalia in an attempt to curtail the piracy which had become endemic to the region. The government of Somalia remains unable to assert control over its territorial waters, and piracy was one of the few ways in which Somalis were able to earn a living.

3. The government of Pakistan and Taliban fighters in the northwestern part of the country agreed to a “permanent ceasefire” on Saturday.  In exchange for agreeing to the ceasefire, the Pakistani government has offered to reinstate Islamic sharia law in the region. Many observers are concerned that the ceasefire may create a safe haven in Pakistan for Taliban and al Qaeda fighters could regroup.

4. Latvia’s Prime Minister, Ivars Godmanis, became the second victim of the global financial crisis on Friday, as he was forced to resign from office amid widespread popular protest. Like the government of Iceland before it, the Latvian government had been forced by the global economic downturn to launch a series of austerity measures imposed by the International Monetary Fund. A number of other countries in Central and Eastern Europe, including Hungary and Ukraine, have already implemented structural adjustment programs. Several others, including Serbia, Romania, Lithuania, and Estonia, are also seen as vulnerable.

5. The conflict in Sri Lanka continues. After the government had made significant advances into rebel territory over the past several weeks, Tamil Tiger rebels responded on Friday night with a surprise air raid on the Sri Lankan capital, Colombo. Initial reports indicated that at least 42 people were injured in the attack. An estimated 70,000 people have been killed since the civil war began in 1983.

The New Face of Capitalism: Are We All Socialists Now?

Less than a month ago—in what now seems like a lifetime ago and another world—I was engaged in a discussion with a colleague from the economics department down the hall.  He was arguing that—at least in policy circles—the neoclassical paradigm was the only model really under consideration.  We had reached the “end of history” as Fukuyama would have it. “There is [was] no alternative,” to quote Margaret Thatcher.

Less than a month later, we now seem to be living in a different world.  With world credit markets seizing up, financial markets in meltdown, and the Dow Jones in apparent freefall, governments are increasingly intervening in an attempt to prevent the expansion of the global financial crisis.  The U.S. Congress passed a $700 billion rescue package.  The British government took an even more dramatic step, partially nationalizing several major banks on Wednesday.  The U.S. government is now considering a similar measure.  The Federal Reserve has described the new policy as a “regime change,” stressing that the current economic environment is such that radical policy changes may be necessary, even going so far as to suspend traditional neoclassical principles of noninterference in the free market.  This represents a dramatic shift from March 2007, when, during a visit to Shanghai to meet with Chinese officials, U.S. Treasury Secretary Henry Paulson argued that “an open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention.”

The policy reversal has led the conservative Daily Telegraph to conclude that “we’re all socialists now.” Perhaps a bit of dramatic license.  But it does highlight the dramatic changes taking place in the world today.  Communism it is not.  But perhaps return to the Keynesian system of regulated domestic and international markets.  Time will tell.