Lots of opportunities in new ‘pilot reform cities’, reports CHUANG PECK MING
JUST as it did 10 years ago in the coastal cities, the fast rising urban centres and affluence in western China are throwing up opportunities for Singapore companies in township development and the resort and hospitality business, according to International Enterprise Singapore.
‘The announcement of the ‘new pilot reform city’ resulted in a spurt in land acquisitions by real estate developers,’ notes Tham Poh Cheong, director for infrastructure services & environmental services, Corporate Group, at IE Singapore.
He is referring to the Chengdu-Chongqing Economic Zone in the region. Chengdu and Chongqing have just been conferred the status of ‘third pilot reform cities’, which gives them the freedom to experiment with new policies and greater scope for investment.
‘With Chengdu and Chongqing as the centre, the economic zone consists of 14 major cities in Sichuan Province, including Chengdu and Mianyang and Chongqing’s 23 districts and counties,’ Mr Tham says.
That covers 155,000 square kilometres and a population of over 80 million people.
‘There will be a doubling of urban dwellers - one of the key objectives of the new initiative is to reduce the rural-urban gap by converting more farmers into city dwellers,’ Mr Tham says. ‘Chongqing plans to increase its urban population from 11 million to 21 million.’
In the next 10-20 years, some 10 million farmers will shift to urban areas and second-tier cities like Wanzhou, Fulin and Changshou. This will result in new demand for 200 million sq m of housing.
‘As the macroeconomic and living environment of inland cities improves, many migrants (also) are beginning to choose to move to provincial urban centres rather than to coastal cities,’ Mr Tham says.
More jobs and higher wages that come with the spurt of foreign direct investment (FDI) and growth of domestic industries have led to a rise in the standard of living and spending in inland cities in western China.
Since the start of the ‘Go West’ strategy in 2000, which shifted the country’s development effort to western China, the region has posted an average economic growth rate of 10.6 per cent six years in a row.
The combined gross domestic product of the western region hit 3.33 trillion yuan (S$655 billion) in 2005, up from 1.66 trillion yuan in 2000. Net income rose by an average 10 per cent for urban residents and 6.8 per cent for rural residents.
‘Most of this economic growth is concentrated in the region’s key urban centres, including Chengdu, Chongqing and Xi’an, which have developed into regional economic and industrial centres driven by the FDI brought in by MNCs seeking more cost-effective locations for production, and other investors encouraged by the political will to support the development of western China,’ Mr Tham says.
Still, Chengdu, Chongqing and Xi’an are in the early stages of economic expansion. But some Singapore companies like Surbana Corporation, Keppel Land and Tian Lee have already identified the potential demand for township developments.
Surbana, Keppel and Tian Lee have successfully launched in Chengdu the first three phases of The Botanica, a 65-hectare township project. And leveraging on its experience in Chengdu, Surbana is developing more projects in western China.
The company and Hong Kong-based Henderson Land are pumping $345 million into Xi’an to develop a residential township.
It will be one of the largest investments by a Singapore company in the region. When completed, the 136 ha project will house 30,000 apartments and include schools, kindergartens, a hospital, and commercial, social and recreational facilities.
Singapore companies have also tapped the growing affluence in western China, which has led to demand for an ever greater variety of retail, leisure and entertainment facilities.
CapitaLand has tied up with Shenzhen International Trust & Investment, one of China’s largest investment trusts, to build a shopping mall in Chengdu. It has also secured a prime commercial spot for $173.94 million in Chengdu. CapitaLand plans to build a Raffles City complex there.
Meanwhile, Mapletree Investments has gone into a joint venture with Seastar Science-Tech Investment Holding Group to build a $179 million residential-retail complex in Xi’an.
Mr Tham says western China also offers opportunities for those in the hospitality business, especially in serviced apartments, and hotels and resorts.
Singapore-based Frasers Hospitality has inked an agreement with Yanlord Investment (Chengdu) to run the gold-standard Fraser Suites Chengdu. Due to open its doors in 2010, it is likely to be Chengdu’s first internationally- branded serviced residence.
Banyan Tree has tapped the region’s immense potential for nature and cultural tourism to build two getaway luxury spa resorts in Yunnan Province.
Still another area for Singapore to boost its value proposition in western China is in playing a role in China’s effort to safeguard the country’s natural environment and promote sustainable development.
‘Singapore has long been known for its green and clean image as well as capabilities in environmental management,’ Mr Tham says. ‘Gradually, buildings designed with eco-friendly features for energy conservation could be the way forward for projects developed by Singapore companies in China. In this aspect, Singapore companies, including the architectural and consultancy companies which have a proven track record and expertise in delivering sustainable development concepts, from water to energy efficiency to facade coating, would be in greater demand in the years ahead.’
Vast territory, abundant natural resources, labour
By CHUANG PECK MING
SINCE Deng Xiaopeng launched China’s economic reforms in 1979, the country’s fast growth and development in the first two decades have been concentrated on the eastern coastal regions. But with the launching of the Great Western Investment Strategy in January 2000, the focus has shifted to the western half of China.
Mapped out under the leadership of then-premier Zhu Rongji, the thrusts of the ‘Go West’ initiative are focused on speeding up infrastructure development; building regional industries; and making the environment friendly to science, technology and education.
There are also plans for stepped-up efforts on ecological protection and retaining talent in the western provinces.
Western China is well equipped to take these steps. It’s a vast territory with abundant natural resources, lower labour cost than the coastal region in eastern China, and a huge market potential.
The region covers six provinces (Gansu, Guizhou, Qinghai, Shaanxi, Sichuan and Yunnan), five autonomous regions (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang) and one municipality (Chongqing). It is home to a third of China’s administrative provinces and autonomous regions.
Combined, western China is 5.4 million square kilometres in area - over half (56 per cent) the country’s land. Much of it remains undeveloped, which will provide space for further industrial development and economic expansion.
The region is rich in natural resources which will provide the raw materials for industrial production. Among the 160 major mineral resources found in China, big chunks of them are found in the southwest and northeast regions. They include coal (38.6 per cent of the country’s deposits), petroleum (41 per cent) and energy resources (82.3 per cent).
Western China is home to about 300 million Chinese, or 23 per cent of the country’s population. It offers a large pool of low-cost workers for labour-intensive industries like electronics and general manufacturing.
Technology development has a ready launching pad in this region, especially in Chongqing and Xi’an, the old industrial bases built in the military construction period for national defence enterprises and science and research institutes. They are urban centres today whose military technology and human resources can be tapped for developing new technologies.
Furthermore, western China boasts impressive scenery and a historic heritage that includes Jiuzhaigou in Sichuan and the renowned Qin terracotta warriors near Xi’an in Shaanxi province. The region has always been a big draw for both foreign and domestic tourists.
Washington seen eyeing super-FTA with Tokyo to gain strong toehold in the region
By ANTHONY ROWLEY TOKYO CORRESPONDENT
IS THE United States in danger of being ‘frozen out’ of Asia as the region progresses (in somewhat haphazard fashion) towards greater economic and perhaps political integration?
Some influential Americans believe it is, and they think that the best way to prevent this happening is for the US to throw in its lot with Japan and extend the existing ‘special relationship’ between the two countries; a fusing of their two economic and regulatory systems.
There is talk among the business communities on both sides of the Pacific of a new kind of ‘super’ free trade agreement or economic partnership arrangement being forged between the two.
Unlike the myriad free trade agreements (FTAs) or economic partnership agreements (EPAs) that the US and Japan have signed with many other countries, this is referred to as an EIA (Economic Integration Agreement) to denote its special nature.
The EIA is far more than about reducing or removing tariffs between the world’s first and second largest economies (a relatively minor barrier to trade nowadays, except in the area of agricultural produce).
The focus is a pact that harmonises everything from investment rules and capital and currency market development to commercial laws, industrial standards and distribution systems, with perhaps energy and environmental policy thrown in.
It is easy to see why this idea would appeal to the US economic community, both within the US and Japan. Japan would become an extension of the US for the purpose of doing business.
However, that would not necessarily sell the idea to Japan. What might, some US officials and business leaders believe, is the pitch that by aligning its economic, commercial and legal systems more closely with those of the US, Japan could take a ‘leadership’ role in Asia.
Japan, by extending its special relationship with the US well beyond the sphere of military security, could avoid the kind of ‘Japan-passing’ that some US presidents have indulged in on occasions when they have wished to cultivate China or others.
There are compelling arguments on both sides and the idea of a Japan-US EIA is beginning to ‘gain traction’, as one US official put it, in Washington and Tokyo.
Certainly, Japan’s Ministry of Economy, Trade and Industry (METI) likes the idea and is trying to put together a ‘study group’ from Japanese business circles to weigh the merits of an EIA, EPA or FTA - call it what you will.
Recently, one senior METI official even suggested that the EIA could be a lever to prise open and liberalise Japan’s highly restricted agricultural sector - a bold idea, given the sensitivity of the subject.
In a business white paper published recently, the American Chamber of Commerce in Japan called for a new Ministerial Economic Forum to forge a broad US-Japan economic relationship covering macro-economic policy coordination, financial systems, health care, energy, environment, human resources, physical infrastructure and transport as well as IT, legal systems and corporate governance, competition policy, consumer products and so on.
A plan for a Japan-US FTA was put forward two years ago by the US-Japan Business Council in the US and its counterpart in Japan, the Japan-US Business Council. They issued a joint statement last year, claiming that the accord would be ‘the most effective and enduring way to strengthen bilateral economic relations at a time when US and Japanese economic ties with Asian countries are expanding much more rapidly than with each other’.
This is certainly true. Washington has already concluded a (more conventional) type of FTA with South Korea (yet to be ratified by both sides) and negotiations are ongoing with Panama and Colombia, not to mention the many FTAs, including Nafta, that the US has sewn up in the past.
Japanese Prime Minister Yasuo Fukuda and South Korean President Lee Myung Bak only agreed this week to get talks back on track for a bilateral FTA, and Japan meanwhile continues to sign other bilateral accords throughout and beyond Asia.
But some argue that Asian countries’ signing of trade, investment and other accords with one another is in the interests of regional integration, and that a Japan-US FTA would drive a wedge into this process at a time when policymakers are already divided on what type of integration to pursue.
There is already Apec (Asia Pacific Economic Cooperation), through which the US can promote its agenda for reforming Asia’s way of doing business, they add.
And what of the ‘missing link’ in the evolution of Asian economic integration - a Japan-China FTA (or a Korea-China or Korea-China-Japan FTA for that matter)? Japan, China and Korea are discussing an investment agreement but this is far from being a full blown FTA or EPA. Proponents of a bilateral Japan-US accord argue that both Japan and South Korea would be in a better position to approach China as a result of such an agreement - on everything from intellectual property abuses to food safety.
Even so, an effective fusing of the economic and business systems of Japan and the US is likely to be seen in some quarters as a Trojan Horse, with which the US could secure a strong toehold within an integrating Asian economy.
US opposition felled the idea of an East Asian Economic Grouping (or ‘caucus’ as it was later termed) some 20 years ago, and US opposition also aborted moves towards an Asian Monetary Fund 10 years ago.
Now, the US seems to be adopting the approach that if you can’t beat ‘em, join ‘em.
In 2005, a Nobel prize-winning economist began the painstaking process of calculating the true cost of the Iraq war. In his new book, he reveals how short-sighted budget decisions, cover-ups and a war fought in bad faith will affect us all for decades to come. Aida Edemariam meets Joseph Stiglitz
Aida Edemariam The Guardian, Thursday February 28 2008
Fitful spring sunshine is warming the neo-gothic limestone of the Houses of Parliament, and the knots of tourists wandering round them, but in a basement cafe on Millbank it is dark, and quiet, and Joseph Stiglitz is looking as though he hasn't had quite enough sleep. For two days non-stop he has been talking - at the LSE, at Chatham House, to television crews - and then he is flying to Washington to testify before Congress on the subject of his new book. Whatever their reservations - and there will be a few - representatives will have to listen, because not many authors with the authority of Stiglitz, a Nobel prize-winner in economics, an academic tempered by four years on Bill Clinton's Council of Economic Advisers and another three as chief economist at the World Bank (during which time he developed an influential critique of globalisation), will have written a book that so urgently redefines the terms in which to view an ongoing conflict. The Three Trillion Dollar War reveals the extent to which its effects have been, and will be, felt by everyone, from Wall Street to the British high street, from Iraqi civilians to African small traders, for years to come.
Some time in 2005, Stiglitz and Linda Bilmes, who also served as an economic adviser under Clinton, noted that the official Congressional Budget Office estimate for the cost of the war so far was of the order of $500bn. The figure was so low, they didn't believe it, and decided to investigate. The paper they wrote together, and published in January 2006, revised the figure sharply upwards, to between $1 and $2 trillion. Even that, Stiglitz says now, was deliberately conservative: "We didn't want to sound outlandish."
So what did the Republicans say? "They had two reactions," Stiglitz says wearily. "One was Bush saying, 'We don't go to war on the calculations of green eye-shaded accountants or economists.' And our response was, 'No, you don't decide to fight a response to Pearl Harbour on the basis of that, but when there's a war of choice, you at least use it to make sure your timing is right, that you've done the preparation. And you really ought to do the calculations to see if there are alternative ways that are more effective at getting your objectives. The second criticism - which we admit - was that we only look at the costs, not the benefits. Now, we couldn't see any benefits. From our point of view we weren't sure what those were."
Appetites whetted, Stiglitz and Bilmes dug deeper, and what they have discovered, after months of chasing often deliberately obscured accounts, is that in fact Bush's Iraqi adventure will cost America - just America - a conservatively estimated $3 trillion. The rest of the world, including Britain, will probably account for about the same amount again. And in doing so they have achieved something much greater than arriving at an unimaginable figure: by describing the process, by detailing individual costs, by soberly listing the consequences of short-sighted budget decisions, they have produced a picture of comprehensive obfuscation and bad faith whose power comes from its roots in bald fact. Some of their discoveries we have heard before, others we may have had a hunch about, but others are completely new - and together, placed in context, their impact is staggering. There will be few who do not think that whatever the reasons for going to war, its progression has been morally disquieting; following the money turns out to be a brilliant way of getting at exactly why that is.
Next month America will have been in Iraq for five years - longer than it spent in either world war. Daily military operations (not counting, for example, future care of wounded) have already cost more than 12 years in Vietnam, and twice as much as the Korean war. America is spending $16bn a month on running costs alone (ie on top of the regular expenses of the Department of Defence) in Iraq and Afghanistan; that is the entire annual budget of the UN. Large amounts of cash go missing - the well-publicised $8.8bn Development Fund for Iraq under the Coalition Provisional Authority, for example; and the less-publicised millions that fall between the cracks at the Department of Defence, which has failed every official audit of the past 10 years. The defence department's finances, based on an accounting system inaccurate for anything larger than a grocery store, are so inadequate, in fact, that often it is impossible to know exactly how much is being spent, or on what.
This is on top of misleading information: in January 2007 the administration estimated that the much-vaunted surge would cost $5.6bn. But this was only for combat troops, for four months - they didn't mention the 15,000-28,000 support troops who would also have to be paid for. Neither do official numbers count the cost of death payments, or caring for the wounded - even though the current ratio of wounded to dead, seven to one, is the highest in US history. Again, the Department of Defence is being secretive and misleading: official casualty records list only those wounded in combat. There is, note Stiglitz and Bilmes in their book, "a separate, hard-to-find tally of troops wounded during 'non-combat' operations" - helicopter crashes, training accidents, anyone who succumbs to disease (two-thirds of medical evacuees are victims of disease); those who aren't airlifted, ie are treated on the battlefield, simply aren't included. Stiglitz and Bilmes found this partial list accidentally; veterans' organisations had to use the Freedom of Information Act in order to get full figures (at which point the ratio of injuries to fatalities rises to 15 to one). The Department of Veterans Affairs, responsible for caring for these wounded, was operating, for the first few years of the war, on prewar budgets, and is ruinously overstretched; it is still clearing a backlog of claims from the Vietnam war. Many veterans have been forced to look for private care; even when the government pays for treatment and benefits, the burden of proof for eligibility is on the soldier, not on the government. The figure of $3 trillion includes what it will cost to pay death benefits, and to care for some of the worst-injured soldiers that army surgeons have ever seen, for the next 50 years.
By way of context, Stiglitz and Bilmes list what even one of these trillions could have paid for: 8 million housing units, or 15 million public school teachers, or healthcare for 530 million children for a year, or scholarships to university for 43 million students. Three trillion could have fixed America's social security problem for half a century. America, says Stiglitz, is currently spending $5bn a year in Africa, and worrying about being outflanked by China there: "Five billion is roughly 10 days' fighting, so you get a new metric of thinking about everything."
I ask what discoveries Stiglitz found the most disturbing. He laughs, somewhat mirthlessly. "There were actually so many things - some of it we suspected, but there were a few things I couldn't believe." The fact that a contractor working as a security guard gets about $400,000 a year, for example, as opposed to a soldier, who might get about $40,000. That there is a discrepancy we might have guessed - but not its sheer scale, or the fact that, because it is so hard to get insurance for working in Iraq, the government pays the premiums; or the fact that, if these contractors are injured or killed, the government pays both death and injury benefits on top. Understandably, this has forced a rise in sign-up bonuses (as has the fact that the army is so desperate for recruits that it is signing up convicted felons). "So we create a competition for ourselves. Nobody in their right mind would have done that. The Bush administration did that ... that I couldn't believe. And that's not included in the cost the government talks about."
Then there was the discovery that sign-up bonuses come with conditions: a soldier injured in the first month, for example, has to pay it back. Or the fact that "the troops, for understandable reasons, are made responsible for their equipment. You lose your helmet, you have to pay. If you get blown up and you lose your helmet, they still bill you." One soldier was sued for $12,000 even though he had suffered massive brain damage. Some families have had to buy their children body armour, saving the government costs in the short term; those too poor to afford it sustain injuries that the government then has to pay for. Then there's the fact that it was not until 2006, when Robert Gates replaced Donald Rumsfeld as secretary of defence, that the DOD agreed to replace Humvees with mine-resistant ambush-protected (MRAP) armoured vehicles, which are much more able to repel roadside bombs; until that time, IEDs killed 1,500 Americans. "This kind of penny-wise, pound-poor behaviour was just unbelievable."
Yet on another level, Stiglitz is unsurprised, because such decisions are of a piece with the thoroughgoing intellectual inconsistency of the Bush administration. The general approach, he says, has been a "pastiche of corporate bail-outs, corporate welfare, and free-market economics that is not based on any consistent set of ideas. And this particular kind of pastiche actually contributed to the failures in Iraq." There are the well-rehearsed reasons: ignoring international democratic processes while advocating democracy; pushing forward liberalisation before Iraq was ready. Stiglitz's twist on this was the emails he was receiving from the United States Agency for International Development, complaining about the Treasury being obstructive. "They were saying, 'Can you help us? Because we're trying to get businesses to work, but the US Treasury is trying to tighten credit, so there's no money in this country.' "
Then, of course, there is the administration's insistence on "sole-source bidding" - awarding vast, multi-year contracts to Halliburton, for example, instead of putting them out to tender. "An academic might say, 'How can you be a free market, yet demand single-source contracting?'" asks Stiglitz now, mildly - but this is not the way the current administration operates. We know quite a lot now about contractors' excesses, but it is their economic effect that Stiglitz and Bilmes are interested in, and this seems often to have been malign. Free market ideals had, of course, to apply to Iraq, if not to Halliburton (which received at least $19.3bn in single-source contracts), so Paul Bremer, head of the Coalition Provisional Authority, abolished many tariffs on imports, and capped corporate and income tax. Predictably, this led to general asset-stripping, and exposed Iraqi firms to free competition - meaning that many closed down, putting yet more people out of work. ("The benefits of privatisation and free markets in transition economies are debatable, of course," write Stiglitz and Bilmes in their book; a model of understatement, given that Stiglitz is famous for spelling out the harm sustained by poor countries in his book Globalisation and its Discontents (2002), and lost his job at the World Bank for outspokenly making the argument in the first place.) Many reconstruction jobs, in alignment with US procurement law, went to expensive American firms rather than cheaper Iraqi ones - a further waste of resources (one painting job, for example, cost $25m instead of $5m); these American firms, looking to keep their own costs down and profit margins high, imported cheap labour from such countries as Nepal - even though, at this point, one in two Iraqi men was out of work.
This is not, then, pure neocon ideology at work, says Stiglitz: "Ideology of convenience is a better description." It is an ideology illustrated even more clearly in another fact that Stiglitz can't believe - that Bush put through tax cuts while going to war. In Stiglitz and Bilmes's reading, this was downright underhand. Raising taxes, and resorting to the rhetoric of shared sacrifice used in the world wars, for example, would have made Americans more aware of exactly what the war was costing them, and would have provoked opposition sooner. The solution was to borrow the money, at interest of couple of hundred billion dollars a year, which, by 2017, will add up to another trillion dollars or so. This government will be gone in nine months; subsequent administrations, and generations, will have to pay it off.
At the same time, Stiglitz and Bilmes argue, the Federal Reserve colluded in this obfuscation, because it "kept interest rates lower than they otherwise might have been, and looked the other way as lending standards were lowered, thereby encouraging households to borrow more - and spend more." Alan Greenspan, by this account, encouraged people to take on variable-rate mortgages, even as household savings rates went negative for the first time since the Depression. Individuals were taking on unprecedented debt at the same time as a long housing bubble made them feel wealthy (and less concerned with derring-do abroad) - a scenario echoed on this side of the Atlantic.
As we now know, this couldn't continue - in part because of yet another effect of the war. Whatever the much argued reasons for bombing Baghdad, cheap oil has not been the result. In fact, the price of oil has climbed from $25 a barrel to $100 in the past five years - great for oil companies, and oil-producing countries, who, along with the contractors, are the only beneficiaries of this war, but not for anyone else. After calculations based on futures markets, Stiglitz and Bilmes conclude that a significant proportion of this rise is directly due to the disruptions and instabilities caused by Iraq. This price rise alone has cost the US, which imports about 5bn barrels a year, an extra $25bn per year; projecting to 2015 brings that number to an extra $1.6 trillion on oil alone (against which the recent $125bn stimulus package is simply, as Stiglitz puts it, "a drop in the bucket").
Higher oil prices have a direct effect on family, city and state budgets; they also led to a drop in GDP for the US. When interest rates finally rose in response, hundreds of thousands of home owners found that they were unable to keep up payments, triggering the toxic tsunami of defaulted mortgages that has put the US on the brink of recession and brought down Northern Rock - with all the ramifications for British home owners and banks that that has in turn entailed.
Thus, any idea that war is good for the economy, Stiglitz and Bilmes argue, is a myth. A persuasive myth, of course, and in specific cases, such as world war two, one that has seemed to be true - but in 1939, America and Europe were in a depression; there was all sorts of possible supply in the market, but people didn't have the cash to buy anything. Making armaments meant jobs, more people with more disposable income, and so on - but peacetime western economies these days operate near full employment. As Stiglitz and Bilmes put it, "Money spent on armaments is money poured down the drain"; far better to invest in education, infrastructure, research, health, and reap the rewards in the long term. But any idea that war can be divorced from the economy is also naive. "A lot of people didn't expect the economy to take over the war as the major issue [in the American election]," says Stiglitz, "because people did not expect the economy to be as weak as it is. I sort of did. So one of the points of this book is that we don't have two issues in this campaign - we have one issue. Or at least, the two are very, very closely linked together."
And it is the world economy that is at stake, not just America's. The trillions the rest of the world has shouldered include, of course, the smashed Iraqi economy, the tens of thousands of Iraqi dead, the price, to neighbouring countries, of absorbing thousands of refugees, the coalition dead and wounded (before the war Gordon Brown set aside £1bn; as of late 2007, direct operating costs in Iraq and Afghanistan were £7bn and rising). But the rising price of oil has also meant, accoring to Stiglitz and Bilmes, that the cost to oil-importing industrial countries in Europe and the Far East is now about $1.1 trillion. And to developing countries it has been devastating: they note a study by the International Energy Agency that looked at a sample of 13 African countries and found that rising oil prices have "had the effect of lowering the average income by 3% - more than offsetting all of the increase in foreign aid that they had received in recent years, and setting the stage for another crisis in these countries". Stiglitz made his name by, among other things, criticising America's use of globalisation as a bully pulpit; now he says flatly, "Yes, that's part of being in a global economy. You make a mistake of this order, and it affects people all over the world."
And the borrowed trillions have to come from somewhere. Because "the saving rate [in America] is zero," says Stiglitz, "that means that you have to finance [the war] by borrowing abroad. So China is financing America's war." The US is now operating at such a deficit, in fact, that it doesn't have the money to bail out its own banks. "When Merrill Lynch and Citibank had a problem, it was sovereign funds from abroad that bailed them out. And we had to give up a lot of shares of our ownership. So the largest shareowners in Citibank now are in the Middle East. It should be called the MidEast bank, not the Citibank." This creates a precedent of dependence, "and whether we become dependent on Middle East oil money, or Chinese reserves - it's that dependency that people ought to worry about. That is a big change. The amount of borrowing in the last eight years, on top of the borrowing that began with Reagan - that has all changed the US's economic position in the world."
So quite apart from the war, does he think a particular kind of unfettered market has had its day? "Yes. I think that anybody who believes that the banks know what they're doing has to have their head examined. Clearly, unfettered markets have led us to this economic downturn, and to enormous social problems." Combined with the war, whoever inherits the White House faces a crisis of epic proportions. Where do they go from here? "The way that shapes the debate," says Stiglitz, "is that Americans have to say, 'Even if we stay for another two years, just two years, and we're spending $12bn a month up front in Iraq, and it's costing us another 50% in healthcare, disability, bringing it up to $18bn a month in Iraq, and you look at that in another 24 months, we're talking about half a trillion dollars more for two years - forgetting about the economic cost, the ancillary costs, the social costs - just looking at the budgetary cost - not including the interest - you have to say, is this the way we want to spend a half a trillion dollars? Will it make America stronger? Will it make the Middle East safer? Is this the way we want to spend it?"
Far better, he suggests, to leave rapidly and in a dignified manner, and to spend some of it on helping Iraqis reconstruct their own country - and the rest on investing in and strengthening the American economy, so that it can retain its independence, and have the wherewithal, at least, to play a responsible role in the world. The book ends with a list of 18 specific reforms arising from Stiglitz and Bilmes's discoveries, focusing on exactly how to fund and run a war from now on (depend not on emergency funds and borrowing but on surtaxes, for example, so that voters know exactly what it is they are paying for, and can vote accordingly). He has been approached by Barack Obama as a possible adviser should he reach the White House, although he says, "I've gone beyond the age where I would want to be in Washington full time. I would be interested in trying to help shape the bigger picture issues, and in particular the issues associated with America positioning itself in the new global world, and re-establishing the bonds with other countries that have been so damaged by the Bush administration."
I suggest, as devil's advocate, that to count costs in the way he has, and to advise retrenchment, might be seen as encouraging America to return to isolationism. "No. I think that's fundamentally wrong. The problem with Iraq was that it was the wrong war, and the wrong set of issues. Obama was very good about this. He said, 'I'm not against war - I'm just against stupid wars.' And I feel very much the same way. While we were worried about WMD that did not exist in Iraq, WMD did occur in North Korea. To use an American expression, we took our eye off the ball. And while we were fighting in Iraq, Afghanistan got worse, Pakistan got worse. So because we were fighting battles that we couldn't win, we lost battles that we could have." To discover that those lost battles included better healthcare for millions of Americans, a robust world economy, a healthier and more independent Africa, and a more stable Middle East, seems worth a bit of green-eye-shaded number crunching.
In figures
$16bn The amount the US spends on the monthly running costs of the wars in Iraq and Afghanistan - on top of regular defence spending
$138 The amount paid by every US household every month towards the current operating costs of the war
$19.3bn The amount Halliburton has received in single-source contracts for work in Iraq
$25bn The annual cost to the US of the rising price of oil, itself a consequence of the war
$3 trillion A conservative estimate of the true cost - to America alone - of Bush's Iraq adventure. The rest of the world, including Britain, will shoulder about the same amount again
$5bn Cost of 10 days' fighting in Iraq
$1 trillion The interest America will have paid by 2017 on the money borrowed to finance the war
3% The average drop in income of 13 African countries - a direct result of the rise in oil prices. This drop has more than offset the recent increase in foreign aid to Africa
· The Three Trillion Dollar War, by Joseph Stiglitz and Linda Bilmes, is published by Allen Lane, price £20. To order a copy for £18 with free UK p&p, go to guardian.co.uk/bookshop or call 0870 836 0875.
Credit crisis spreads to new areas in US and Europe
By MARTIN KHOR February 25, 2008
The debate goes on whether the United States will fall into recession, but on the ground the bad news is that the credit crisis is spreading to new areas, threatening more losses and a reduction in credit to consumers and companies.
THERE have been so many reports about the recession in the United States, so it was surprising to read last Saturday that only 45% of business economists in the US believe a recession will take place this year.
The median forecast of these business economists (who work in companies) is that the US would have slow economic growth of 0.4% in the first quarter, which would then pick up to 1% in the second quarter and 2.8% in the third and fourth quarters of this year.
If this happens, it would be good news. A couple of quarters of slow growth would actually be a relief, given the recent more gloomy forecasts.
On the other hand, the past week has also brought worrying reports showing that the financial crisis is spreading to other areas.
The crisis began in the “sub-prime” house mortgage sector in the US. It then spread to many banks in the US and Europe which had invested in financial instruments linked to the value of these sub-prime mortgages.
Some of the world’s biggest banks – like Citigroup, Merrill Lynch, UBS, Morgan Stanley and HSBC – lost many billions of dollars and some had to restore their balance sheets through massive injections of equity, mainly by sovereign funds from the Middle-East and Asia.
Then the crisis spread to firms in other areas. Two weeks ago came the news that a big company that insures bonds had got into serious trouble.
The Financial Guaranty Insurance Company (FGIC) lost its triple-A credit rating, due to guarantees it had made on structured securities, and this raised serious questions about whether it could meet obligations on US$220bil (RM708bil) of municipal bonds that it had also guaranteed.
Regulators in New York have been trying to prevent a municipal bond crisis that would increase the funding costs for municipal borrowers in the US. Many banks that bought insurance from FGIC on mortgage-backed securities and collateralised debt obligations are likely to take on more losses.
Last week, the New York Times (NYT) and the Wall Street Journal (WSJ) reported on another potential crisis in the huge market in securities that insure against defaults on companies’ credit, which are known as “credit default swaps”.
The NYT of Feb 17 explained how this market works. The swaps are a set of new financial instruments that are supposed to cover losses to banks and bondholders when companies default on their debts.
The markets for these securities have grown huge, from US$900bil (RM2.9 trillion) in 2000 to over US$45 trillion (RM145 trillion) today, or twice the size of the US stock market.
In a credit default insurance, a corporate-bond investor seeks protection (buys insurance) against default of an asset he owns, or a speculator (who is not an owner of the asset) uses the swap to bet on the company’s health.
The seller of the insurance is a bank or insurance firm or hedge fund which receives premiums from the insurance buyer and promises to pay him if he defaults on his debt.
But this seller in turn assigns the insurance contract to another party which in turn can assign it to other parties and so on. The problem is that if a default happens, the buyer of the insurance may have difficulties tracking down who now holds the contract and is thus responsible to pay up.
The article concludes that as defaults kick in and events unfold, it will be shown who has managed well and who has not.
The credit-default swap problem is further explained by the WSJ of Feb 22, which said that “the global financial squeeze is spreading to investments linked to the corporate-debt market, slamming the value of contracts that provide insurance against defaults, and marking one of the first times that the debt of major companies has been affected by the turmoil.”
It added that investors in credit-default swaps have grown increasingly gloomy because of worries about the global economy and the possibility of problems in the market.
The losses are tracked by several indexes, which keep tabs on the cost of buying insurance on bonds issued by 125 big companies. Two of the indexes have doubled since the start of the year, meaning investors who sold this insurance suffered losses.
“The indexes’ moves could prove to be self-fulfilling prophecies, causing heavy losses for investors and making it even harder for people and companies to borrow money,” said the WSJ article.
“Adding to the anxiety, analysts can only guess at the volume of investments tied to the indexes, who is holding them, and what it would take to trigger a full-scale sell-off.”
As of Feb 21, the annual cost of five years of insurance against default on US$10mil (RM32mil) in bonds on the CDX index (which tracks North America companies) had risen to US$152,000 (RM489,029) from US$80,970 (RM260,504) at the start of the year.
The cost of 10 million euro (RM48mil) of insurance on the iTraxx index (which tracks the cost of insuring 125 debt issues by European companies) had risen to 123,750 euro (RM590,582) from 51,320 euro (RM244,918) at the beginning of the year.
A rise in the cost of insurance means a loss for investors who sold insurance, because the only way to get out of these investments is to buy another insurance policy to replace the policy they sold in the first place.
“Even in the absence of greater defaults, the moves in the indexes can cause a great deal of havoc, triggering a downward spiral in which the forced unravelling of complex investment products drives ever-larger losses for investors and rises in the cost of insurance, which in turn could ultimately drive up borrowing costs for companies all over the world,” said the WSJ article.
With this kind of extra financial crisis looming in the wings, it may be overly optimistic for the business economists to predict “no recession” this year in the US.
KUALA LUMPUR: Singapore-listed BreadTalk Group Ltd plans to open a second Food Republic outlet in Malaysia by the third quarter and at least five BreadTalk bakery and Toast Box outlets this year to strengthen its foothold in the local food and beverage industry.
Founder and chairman George Quek said the time was right to introduce the Food Republic chain's food atrium dining concept to Malaysia due to the growing appreciation for food in the country.
“As part of our brand's expansion in Malaysia, the second Food Republic atrium would be set up in Klang Valley with an investment of at least RM5mil,” he told StarBiz after the launch of the company's first Foxod Republic outlet in Malaysia on Tuesday.
Quek said the company had identified a location for its second food atrium, which would be slightly smaller than the 30,518 sq ft outlet at Pavilion Kuala Lumpur, but did not elaborate.
The company expects its first outlet in Malaysia to replicate the success of the chain in the region once the outlet's promotion programmes begin.
“The food atrium business at Pavilion KL has been brisk since it was opened in November last year,” Quek said, adding that the company had invested RM6mil in the outlet.
All the stalls at the atrium had been certified halal to meet the needs of the Malaysian market, he said.
“To further expand our bakery business in Malaysia, we are targeting to open more outlets in Penang, Johor and Malacca,” Quek said, adding that currently the company had three outlets each of BreadTalk and Toast Box in Kuala Lumpur and an outlet each in Johor.
Currently, BreadTalk Group owns and operates a total of 25 food atria in Singapore, China, Hong Kong and Malaysia.
It also operates regional food and beverage chains, including boutique bakery BreadTalk, Toast Box, Restaurant Din Tai Fung, The Station Kitchen and the J-Co Donuts and Coffee franchise.
Today, BreadTalk Group has 73 boutique bakeries in Singapore, Malaysia, Hong Kong, Thailand and China as well as 97 franchised bakery outlets in Asia and Middle East.
“We aim to have 100 food atria and 1,000 bakeries worldwide in the next five years,” Quek said.
Look at me You may think you see who I really am But you'll never know me Every day It's as if I play a part Now I see If I wear a mask I can fool the world But I cannot fool my heart
Who is that girl I see Staring straight back at me When will my reflection show Who I am inside
I am now In a world where I have to hide my heart And what I believe in But somehow I will show the world what's inside my heart And be loved for who I am
Who is that girl I see Staring straight back at me Why is my reflection someone I don't know Must I pretend that I'm someone else for all time When will my reflection show who I am inside There's a heart that must be free to fly That burns with a need to know the reason why Why must we all conceal What we think how we feel Must there be a secret me I'm forced to hide I won't pretend that I'm someone else for all time When will my reflection show who I am inside When will my reflection show who I am inside
Private equity turns to sovereign funds By Martin Arnold in Munich
Published: February 27 2008 19:21 | Last updated: February 28 2008 01:06
Private equity firms are now approaching sovereign wealth funds for loans for big leveraged acquisitions, filling the gap left by investment banks struggling with the credit squeeze, leading buy-out bosses said on Wednesday.
Guy Hands, head of Terra Firma, and David Rubenstein, head of the Carlyle Group, told the Super Return conference in Munich that private-equity firms were already talking to wealthy state-backed funds in the Middle East and Asia about raising debt.
The moves show that leveraged buy-out firms are realising the credit squeeze may last longer than first expected. The $200bn of impaired LBO debt that banks are still trying to sell may mean they cut back on new private equity loans for 18-24 months, buy-out executives now forecast.
“Effectively you will just intermediate Wall Street and the City of London out of the picture,” said Mr Hands. “It is already happening.” He said the Abu Dhabi Investment Authority (ADIA), the world’s biggest SWF, “will effectively replace Wall Street”.
Mr Rubenstein said: “One thing you can say about business is that whenever there is a vacuum, people go in to fill it.”
He said there were four main sources of alternative debt financing: SWFs, public pension funds, hedge funds and mutual funds. “I expect you will see some more of this,” he said.
While no buy-outs have raised debt directly from SWFs, some have been part-funded by hedge funds and mutual funds, such as Hellman & Friedman’s purchase of Goodman Global, the US manufacturing group, in October.
However, the Carlyle boss said the vacuum was unlikely to be filled by alternative debt investors for long. “I don’t think you’ll see them in this for the long term, as the returns are not attractive enough,” he said, predicting that once banks had recovered from the credit squeeze they would edge out the newcomers again with cheap debt.
David Bonderman, head of TPG Capital, said: “Banks have become a much less important provider of debt, less so in Europe, but notably in the US.” He presented a graph showing that less than 20 per cent of US LBO debt was held by banks.
In another encouraging sign for private equity amid the credit gloom, Vitruvian Partners, a new mid-market private-equity firm founded by former executives from Apax Partners, Bridgepoint and BC Partners, said on Wednesday it had raised €925m ($1.4bn) in the biggest maiden fund for European buy-outs.
Tony James, president of Blackstone Group, told the conference his firm was already in contact with hedge funds and mutual funds to raise debt in the absence of sufficient appetite from banks. Blackstone recently acquired GSO to expand its hedge fund and credit businesses.
Some SWFs have recently stepped up their direct investment activity, prompting some to present them as a rival to private equity. However, Mr Rubenstein said the two could form a “productive partnership”. Mubadala Development, an arm of the Abu Dhabi government, in September agreed to buy a 7.5 per cent stake in Carlyle.
Mr Hands said the shift to alternative suppliers of debt was being supported by investment banks with bigger advisory arms than fixed income lending businesses, such as Goldman Sachs and Morgan Stanley, and opposed by others. The Terra Firma boss predicted Middle Eastern or Asian investors could each provide £1bn-£2bn ($2-$4bn) of debt for an LBO, unlike banks which he said were refusing to provide more than £500m each.
Eurozone evades credit crunch By Ralph Atkins in Frankfurt
Published: February 28 2008 02:00 | Last updated: February 28 2008 02:00
Eurozone borrowing by business grew at a record rate last month in the clearest indication yet that the 15-country region has avoided a credit crunch, despite global financial turmoil.
Lending to non-financial corporations increased at an annual rate of 14.6 per cent in January - the fastest since the launch of the euro in 1999, according to European Central Bank figures. In December, lending had increased by 14.5 per cent.
The data, indicating companies remained upbeat about the economic outlook, strengthened the ECB's argument that eurozone economic fundamentals remain "sound".
After a surprise rise in German business confidence this week, that will increase the ECB's reluctance to cut interest rates in the near future - whatever the steps taken by the US Federal Reserve - especially with eurozone inflation at a 14-year high of 3.2 per cent.
Axel Weber, Germany's Bundesbank president, yesterday became the latest ECB governing council member to signal that the central bank's inflation forecasts would be revised up next month, including for 2009 when the ECB had seen a good chance of inflation back within its target of "below but close" to 2 per cent. Food prices appear a particular concern.
Signs that eurozone economic activity remains relatively robust will make the ECB less concerned about the euro's rise for the first time above $1.50 yesterday as a stronger currency could reduce inflation pressures.
Eurozone growth shows clear signs of slowing from last year's peaks, and the ECB is also expected to reduce its growth forecasts. But this week Lucas Papademos, its vice-president, argued that the economic impact of financial market turmoil "is not likely to be sizeable".
Mr Papademos added that there was "no sign of a credit crunch", while tighter credit standards applied by banks had "taken place from a very 'loose' level and had not significantly constrained the availability of credit".
The strength of eurozone lending to businesses since the start of the global financial market crisis last August has surprised analysts. One explanation is that companies that would previously have raised funds from capital markets were relying more on traditional bank lending.
But Gilles Moec at Bank of America argued that it was a good sign that banks were prepared to respond to such demand for "vanilla" lending. The fact that companies were sticking to investment and expansion plans was "one of the most reassuring features that we see at the moment" and marked a clear difference to conditions ahead of the 2001 economic downturn.
Another explanation is that banks' difficulties in selling-on loans and removing them from their balance sheets could have exaggerated the rate of loan growth. But in its monthly bulletin this month the ECB said the fact that strong growth was seen in lending to the nonfinancial sector and at long maturities suggested "business as usual by borrowers".
* The International Monetary Fund yesterday welcomed "the marked strengthening of Germany's economic performance" in the past few years, but said it expected growth in Europe's largest economy to slow from 2.5 per cent last year to 1.5 per cent in 2008.
A slowing US economy and weaker world trade would act as brakes on growth.
Consumers don't spend - how the bloody hell can the economy recover?
Americans Plan to Save, Not Spend, Tax-Rebate Checks, Poll Says
By Matthew Benjamin
Feb. 28 (Bloomberg) -- The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.
Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.
``People in Washington assume that about 40 percent of the money will be spent,'' said Douglas Elmendorf, a senior fellow at the Brookings Institution, a Washington-based research organization. ``Much less would be disappointing.''
Respondents are increasingly gloomy about the economy's course. A majority said the U.S. is already in a recession and that President George W. Bush hasn't done enough to tackle the home-mortgage crisis.
``It's time to circle the wagons and pay down debt,'' said Chris Danvers, 50, of Sacramento. He said he's noticed that business is slowing in the upscale steak house where he works as a waiter, so he will pay off the debt he recently incurred buying a refrigerator and a couch.
Bush and congressional leaders agreed on a $168 billion stimulus plan that has as its centerpiece tax rebates for most households. Taxpayers are expected to start receiving checks in May, ranging from $300 to more than $1,200 for some families.
Different This Time
About $36 billion in rebates were sent out as part of a stimulus package during the 2001 recession, and consumers spent roughly 40 percent of the money. That provided a boost to economic growth in the second half of that year and helped end the slump. The results may be different this time.
``We've got enough stuff,'' said Deane Bogardus, 60, a former college-admissions director in Hollywood, South Carolina, who plans to save his windfall. ``We could easily blow it on something, but we're semi-retired so we don't need that much.''
Plans to spend the rebate were consistent across income groups: About two in 10 respondents in households with less than $40,000 annual income as well as those making more than $100,000 said they'll spend the money. A plurality of respondents in the lower-income group said they'll pay off debt, while saving the money was the most popular plan among the wealthier group.
Spending Spurs Growth
``The more they spend, the more economic growth we're going to have later this year,'' said Lawrence Mishel, president of the Economic Policy Institute, a Washington-based research group.
Consumers' lack of confidence in the economy may be affecting their spending plans. About seven in 10 of those surveyed said the economy is doing badly, the highest percentage in more than a decade. Almost four in 10 said the economy is doing very badly, up from 31 percent who felt that way in a January poll. Thirty-six percent of white respondents called the economy very bad and a majority of blacks -- 55 percent -- agreed.
Those surveyed were almost as pessimistic about the general direction of the nation, saying by a margin of 63 percent to 26 percent that the U.S. is seriously on the wrong track.
The Feb. 21-25 poll of 1,408 adults nationwide had a margin of sampling error of plus or minus 3 percentage points.
`It's a Depression'
About six in 10 respondents said the nation is already suffering from a recession, versus 32 percent who disagreed. Forty-five percent said there is currently a moderate or mild recession, and 16 percent said it is serious.
``For me it's not a recession, it's a depression, because I just lost my job,'' said Gail Pool, an unemployed accountant in Richland, Washington. Pool, 62, said several of her relatives and friends have also been laid off.
Pool, like most other Americans, doesn't see relief in the short term. Six months from now, the economy will be in about the same condition it's in now, half the survey participants said, while almost three in 10 said it will be worse. Just 18 percent said things will improve by then.
Vote for Democrats
By a margin of 44 percent to 33 percent, Americans said the Democratic Party would do a better job than the Republicans at restarting economic growth. Among self-described independent voters, the margin was 37 percent to 28 percent.
Survey respondents were split on the need for a second stimulus package with additional unemployment insurance benefits and infrastructure spending that congressional Democrats have called for.
A majority -- 57 percent -- said Bush hasn't taken sufficient steps to aid the housing industry and help holders of subprime mortgages, a growing number of whom face foreclosure because of rising monthly payments. Among households with annual incomes below $40,000, almost seven in 10 said the president hasn't done enough.
NEW YORK (AP) — Wheat futures vaulted above $12 a bushel for the first time Tuesday as investors bet that a shortage of high-quality milling wheat will keep prices high for the grain used in bread, pasta and other foods.
Other commodities traded mostly higher, with crude oil surpassing $100 a barrel and silver hitting its highest level since 1980.
Wheat prices have surged 34 percent since the start of year, pushed higher by growing world demand, tight supplies and bad weather that has pummeled crops in Canada, Argentina and India. U.S. exporters are selling wheat a record pace to meet demand, rapidly depleting stockpiles. The Department of Agriculture expects U.S. wheat inventories will total 272 million bushels by the end of May — the lowest level in more than five decades.
"Everybody is coming to the realization that the shortage of wheat is not going away," said Elaine Kub, a commodities market analyst at DTN. "There's no relief coming from anywhere in the world until June," when the U.S. wheat harvest begins.
Wheat for May delivery jumped the 90-cent daily trading limit to settle at $12.145 a bushel on the Chicago Board of Trade, the highest ever.
Other agriculture futures traded mixed. Soybeans for May delivery added 15 cents to settle at $14.8425 a bushel on the CBOT, while March corn declined 2.75 cents to settle at $5.305 a bushel.
Unprecedented demand for agricultural products from fast-growing countries including China and India has exacerbated the supply crunch for wheat, which has more than doubled in price since last year.
The higher wheat prices may not immediately affect U.S. consumers since big food companies like Kellogg Co., General Mills Inc., and Kraft Foods Inc. typically protect themselves from price volatility with long-term supply contracts. But analysts say some consumers are already feeling the pinch — from smaller cereal boxes to having to ask for bread at restaurants — and should expect higher prices to eventually work their way into the grocery aisle.
Also affecting the cost of food is the high price of crude, which surged back above $100 Tuesday as investors ignored reports of more U.S. economic turmoil and bet that oil will extend its advance.
Prices had eased overnight as traders anticipated a government report due out Wednesday that is expected to show U.S. crude stocks rose for the seventh week in a row. But oil has risen over the past week amid an increase in speculative buying fed by expectations of a spike in demand.
Light, sweet crude for April delivery jumped $1.65 to settle at $100.88 a barrel on the New York Mercantile Exchange. Earlier, crude hit a new trading record of $101.15 a barrel.
Other energy futures also rose. March gasoline futures inched 0.86 cent higher to settle at $2.5505 a gallon on the Nymex, while March heating oil gained 2.97 cents to settle at $2.8150 a gallon.
Meanwhile, precious metals prices advanced broadly Tuesday, with silver hitting a 28-year high after the dollar weakened against the euro. Silver for March delivery added 63.5 cents to settle at $18.720 an ounce on the Nymex. In aftermarket trading, the metal later hit a new record of $18.865 an ounce.
Other metals also rose. Gold for April delivery gained $8.40 to settle at $948.90 an ounce on the Nymex, while March copper added 3.95 cents to settle at $3.7790 a pound.
Gold Futures Soar to Record on Weak Dollar, Inflation Fears
NEW YORK (AP) -- Gold futures surged to their highest level ever Wednesday after the dollar plunged to a record low and crude oil spiked above $102 -- inflationary signs that fed buying of precious metals as alternative investments.
Silver continued its record-setting rally and copper also hit a fresh high. Other commodities traded mixed, with wheat extending recent gains and soybeans falling.
Speaking to Congress, Federal Reserve Chairman Ben Bernanke suggested the central bank will again lower interest rates to right the shaky U.S. economy, which has been buffeted by the subprime mortgage crisis and a protracted credit crunch. Bernanke's comments helped send the dollar on a slide versus the euro, which hit an all-time high of $1.5143.
"The dollar keeps falling and crude oil has gone above $102, so you've got a lot of inflation worries and this is helping gold prices," said Carlos Sanchez, a precious metals analyst at CPM Group in New York. "The Fed is trying to help with these issues but they've been reacting since August and it hasn't helped as much as many would have liked."
A weak dollar encourages U.S. investors to turn to gold because the metal is known for holding its value. It also encourages foreign investors to buy the dollar-denominated metal, because the cost is not as high for those with stronger currencies.
Gold for April delivery jumped to a new all-time record of $967.70 an ounce on the New York Mercantile Exchange, before pulling back to settle at $961, still up $12.10.
At these levels there's bound to be some profit-taking," Sanchez said. "I wouldn't be surprised to see gold pull back to $900 in March but still be in an upward trend."
Gold gained nearly 32 percent in 2007 and is up 12 percent so far this year. Still, when adjusted for inflation, gold remains well below its record high. An ounce of gold at $900 in 1980 would be worth about $2,300 today.
Other precious metals also rose Tuesday. Silver for March delivery added 49 cents to settle at $19.210 an ounce on the Nymex, after earlier hitting $19.490 -- its highest level since 1980.
Copper for March delivery advanced 5.95 cents to settle at $3.8465 a pound after earlier rising to a record $3.8625.
The rally in precious metals has been aided by the sharp rise in crude prices, which broke above $102 on Tuesday. Prices later retreated after the government said stockpiles of crude oil and gasoline rose far more than expected last week.
Light, sweet crude for April delivery fell $1.24 to settle at $99.64 on the Nymex, after surging as high as $102.08 a barrel in electronic trading earlier. On Tuesday, the contract jumped $1.65 to settle at a record $100.88 a barrel.
Other energy futures fell. March heating oil futures fell 4.39 cents to settle at $2.7711, while March gasoline futures fell 7.28 cents to settle at $2.4777.
In agricultural futures, wheat topped $13 a bushel for the first as investors bet on higher prices amid dwindling stockpiles and growing demand.
Wheat for May delivery jumped to an all-time high of $13.495 a bushel on the Chicago Board of Trade before settling at $12.50 a bushel, up 35.5 cents. The contract earlier traded as low as $10.90 a bushel.
Other agriculture futures fell. Soybeans for May delivery shed 9 cents to settle at $14.7525 a bushel on the CBOT, while March corn lost 5.5 cents to settle at $5.25 a bushel.
Crude hits new high of $102.64; natural gas surges
Oil up on Nigeria, weak dollar; natural-gas inventories down for 14th week
By Moming Zhou & Polya Lesova Feb. 28, 2008
SAN FRANCISCO (MarketWatch) -- Crude-oil futures rose 3% Thursday afternoon to a new record high of $102.64 a barrel as production was partially shut down in Nigeria after military attacks and as the dollar fell further against the euro.
Natural-gas futures surged nearly 3% to the highest level in more than two years after data showed U.S. inventories fell for a 14th week.
Crude oil for April delivery gained $3, or 3%, to $102.64 a barrel on the New York Mercantile Exchange in mid-afternoon trading, a new record high for a front-month contract. April natural-gas futures rallied 30.3 cents, or 3.3%, to $9.363 per million British thermal units.
In Nigeria, crude-oil production from Eni SpA's Brass River terminal was cut by around 50,000 barrels a day as a result of an attack by a militia group, Dow Jones Newswires reported on Thursday, citing West African traders. Nigeria is Africa's largest oil producer and the U.S.'s fifth-largest crude supplier.
The military attacks in Nigeria "was apparently enough to put prices up over $100 again," said Michael Fitzpatrick, an analyst at MF Global, a futures brokerage.
On Wednesday, crude closed below $100 a barrel after surging to a high of $102.08, coming under pressure after data showed the nation's crude inventories grew by more than expected in the week ended Feb. 22.
Traders attributed Wednesday's earlier surge to the sliding dollar. A weaker greenback tends to push up prices for dollar-denominated commodities, such as oil, as those commodities become less expensive for buyers holding other currencies.
The dollar continued its fall against the euro on Thursday, with the euro trading at $1.5194, an all-time high. The trade-weighted dollar index, which measures the greenback against a basket of six major currencies, fell 0.5% to 74.17.
Natural gas surges
U.S. natural-gas inventories fell 151 billion cubic feet in the week ended Feb. 22, Energy Information Administration reported on Thursday. Inventories have been falling since mid-November and have dropped nearly 2,000 billion cubic feet, EIA data showed.
At 1,619 billion cubic feet, U.S. natural gas stockpiles were 133 billion cubic feet less than last year at this time, EIA said in the report. After the data, natural gas surged to the highest level since February 2006.
EIA reported Wednesday that U.S. crude inventories gained for a seventh week, up 3.2 million barrels to 308.5 million barrels in the week ended Feb. 22.
"Seven consecutive weekly builds have made the market's internal fundamentals less supportive," said Fitzpatrick.
Thursday's economic news was also not supportive. The Commerce Department reported Thursday that the U.S. economy grew at an unrevised 0.6% annual rate for the fourth quarter.
Also Thursday, the Labor Department reported that first-time claims for state unemployment benefits rose 19,000 last week, reaching the highest level since late January.
Rounding out the early action in energy, March reformulated gasoline gained slightly to $2.481 a gallon, and March heating oil rose 5.21 cents to stand at $2.8232 a gallon. Both contracts are due to expire on Friday.
15 comments:
West China beckons
Lots of opportunities in new ‘pilot reform cities’, reports CHUANG PECK MING
JUST as it did 10 years ago in the coastal cities, the fast rising urban centres and affluence in western China are throwing up opportunities for Singapore companies in township development and the resort and hospitality business, according to International Enterprise Singapore.
‘The announcement of the ‘new pilot reform city’ resulted in a spurt in land acquisitions by real estate developers,’ notes Tham Poh Cheong, director for infrastructure services & environmental services, Corporate Group, at IE Singapore.
He is referring to the Chengdu-Chongqing Economic Zone in the region.
Chengdu and Chongqing have just been conferred the status of ‘third pilot reform cities’, which gives them the freedom to experiment with new policies and greater scope for investment.
‘With Chengdu and Chongqing as the centre, the economic zone consists of 14 major cities in Sichuan Province, including Chengdu and Mianyang and Chongqing’s 23 districts and counties,’ Mr Tham says.
That covers 155,000 square kilometres and a population of over 80 million people.
‘There will be a doubling of urban dwellers - one of the key objectives of the new initiative is to reduce the rural-urban gap by converting more farmers into city dwellers,’ Mr Tham says. ‘Chongqing plans to increase its urban population from 11 million to 21 million.’
In the next 10-20 years, some 10 million farmers will shift to urban areas and second-tier cities like Wanzhou, Fulin and Changshou. This will result in new demand for 200 million sq m of housing.
‘As the macroeconomic and living environment of inland cities improves, many migrants (also) are beginning to choose to move to provincial urban centres rather than to coastal cities,’ Mr Tham says.
More jobs and higher wages that come with the spurt of foreign direct investment (FDI) and growth of domestic industries have led to a rise in the standard of living and spending in inland cities in western China.
Since the start of the ‘Go West’ strategy in 2000, which shifted the country’s development effort to western China, the region has posted an average economic growth rate of 10.6 per cent six years in a row.
The combined gross domestic product of the western region hit 3.33 trillion yuan (S$655 billion) in 2005, up from 1.66 trillion yuan in 2000. Net income rose by an average 10 per cent for urban residents and 6.8 per cent for rural residents.
‘Most of this economic growth is concentrated in the region’s key urban centres, including Chengdu, Chongqing and Xi’an, which have developed into regional economic and industrial centres driven by the FDI brought in by MNCs seeking more cost-effective locations for production, and other investors encouraged by the political will to support the development of western China,’ Mr Tham says.
Still, Chengdu, Chongqing and Xi’an are in the early stages of economic expansion. But some Singapore companies like Surbana Corporation, Keppel Land and Tian Lee have already identified the potential demand for township developments.
Surbana, Keppel and Tian Lee have successfully launched in Chengdu the first three phases of The Botanica, a 65-hectare township project. And leveraging on its experience in Chengdu, Surbana is developing more projects in western China.
The company and Hong Kong-based Henderson Land are pumping $345 million into Xi’an to develop a residential township.
It will be one of the largest investments by a Singapore company in the region. When completed, the 136 ha project will house 30,000 apartments and include schools, kindergartens, a hospital, and commercial, social and recreational facilities.
Singapore companies have also tapped the growing affluence in western China, which has led to demand for an ever greater variety of retail, leisure and entertainment facilities.
CapitaLand has tied up with Shenzhen International Trust & Investment, one of China’s largest investment trusts, to build a shopping mall in Chengdu. It has also secured a prime commercial spot for $173.94 million in Chengdu. CapitaLand plans to build a Raffles City complex there.
Meanwhile, Mapletree Investments has gone into a joint venture with Seastar Science-Tech Investment Holding Group to build a $179 million residential-retail complex in Xi’an.
Mr Tham says western China also offers opportunities for those in the hospitality business, especially in serviced apartments, and hotels and resorts.
Singapore-based Frasers Hospitality has inked an agreement with Yanlord Investment (Chengdu) to run the gold-standard Fraser Suites Chengdu. Due to open its doors in 2010, it is likely to be Chengdu’s first internationally- branded serviced residence.
Banyan Tree has tapped the region’s immense potential for nature and cultural tourism to build two getaway luxury spa resorts in Yunnan Province.
Still another area for Singapore to boost its value proposition in western China is in playing a role in China’s effort to safeguard the country’s natural environment and promote sustainable development.
‘Singapore has long been known for its green and clean image as well as capabilities in environmental management,’ Mr Tham says. ‘Gradually, buildings designed with eco-friendly features for energy conservation could be the way forward for projects developed by Singapore companies in China. In this aspect, Singapore companies, including the architectural and consultancy companies which have a proven track record and expertise in delivering sustainable development concepts, from water to energy efficiency to facade coating, would be in greater demand in the years ahead.’
Vast territory, abundant natural resources, labour
By CHUANG PECK MING
SINCE Deng Xiaopeng launched China’s economic reforms in 1979, the country’s fast growth and development in the first two decades have been concentrated on the eastern coastal regions. But with the launching of the Great Western Investment Strategy in January 2000, the focus has shifted to the western half of China.
Mapped out under the leadership of then-premier Zhu Rongji, the thrusts of the ‘Go West’ initiative are focused on speeding up infrastructure development; building regional industries; and making the environment friendly to science, technology and education.
There are also plans for stepped-up efforts on ecological protection and retaining talent in the western provinces.
Western China is well equipped to take these steps. It’s a vast territory with abundant natural resources, lower labour cost than the coastal region in eastern China, and a huge market potential.
The region covers six provinces (Gansu, Guizhou, Qinghai, Shaanxi, Sichuan and Yunnan), five autonomous regions (Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang) and one municipality (Chongqing). It is home to a third of China’s administrative provinces and autonomous regions.
Combined, western China is 5.4 million square kilometres in area - over half (56 per cent) the country’s land. Much of it remains undeveloped, which will provide space for further industrial development and economic expansion.
The region is rich in natural resources which will provide the raw materials for industrial production. Among the 160 major mineral resources found in China, big chunks of them are found in the southwest and northeast regions. They include coal (38.6 per cent of the country’s deposits), petroleum (41 per cent) and energy resources (82.3 per cent).
Western China is home to about 300 million Chinese, or 23 per cent of the country’s population. It offers a large pool of low-cost workers for labour-intensive industries like electronics and general manufacturing.
Technology development has a ready launching pad in this region, especially in Chongqing and Xi’an, the old industrial bases built in the military construction period for national defence enterprises and science and research institutes. They are urban centres today whose military technology and human resources can be tapped for developing new technologies.
Furthermore, western China boasts impressive scenery and a historic heritage that includes Jiuzhaigou in Sichuan and the renowned Qin terracotta warriors near Xi’an in Shaanxi province. The region has always been a big draw for both foreign and domestic tourists.
A US Trojan Horse in an integrating Asia?
Washington seen eyeing super-FTA with Tokyo to gain strong toehold in the region
By ANTHONY ROWLEY
TOKYO CORRESPONDENT
IS THE United States in danger of being ‘frozen out’ of Asia as the region progresses (in somewhat haphazard fashion) towards greater economic and perhaps political integration?
Some influential Americans believe it is, and they think that the best way to prevent this happening is for the US to throw in its lot with Japan and extend the existing ‘special relationship’ between the two countries; a fusing of their two economic and regulatory systems.
There is talk among the business communities on both sides of the Pacific of a new kind of ‘super’ free trade agreement or economic partnership arrangement being forged between the two.
Unlike the myriad free trade agreements (FTAs) or economic partnership agreements (EPAs) that the US and Japan have signed with many other countries, this is referred to as an EIA (Economic Integration Agreement) to denote its special nature.
The EIA is far more than about reducing or removing tariffs between the world’s first and second largest economies (a relatively minor barrier to trade nowadays, except in the area of agricultural produce).
The focus is a pact that harmonises everything from investment rules and capital and currency market development to commercial laws, industrial standards and distribution systems, with perhaps energy and environmental policy thrown in.
It is easy to see why this idea would appeal to the US economic community, both within the US and Japan. Japan would become an extension of the US for the purpose of doing business.
However, that would not necessarily sell the idea to Japan. What might, some US officials and business leaders believe, is the pitch that by aligning its economic, commercial and legal systems more closely with those of the US, Japan could take a ‘leadership’ role in Asia.
Japan, by extending its special relationship with the US well beyond the sphere of military security, could avoid the kind of ‘Japan-passing’ that some US presidents have indulged in on occasions when they have wished to cultivate China or others.
There are compelling arguments on both sides and the idea of a Japan-US EIA is beginning to ‘gain traction’, as one US official put it, in Washington and Tokyo.
Certainly, Japan’s Ministry of Economy, Trade and Industry (METI) likes the idea and is trying to put together a ‘study group’ from Japanese business circles to weigh the merits of an EIA, EPA or FTA - call it what you will.
Recently, one senior METI official even suggested that the EIA could be a lever to prise open and liberalise Japan’s highly restricted agricultural sector - a bold idea, given the sensitivity of the subject.
In a business white paper published recently, the American Chamber of Commerce in Japan called for a new Ministerial Economic Forum to forge a broad US-Japan economic relationship covering macro-economic policy coordination, financial systems, health care, energy, environment, human resources, physical infrastructure and transport as well as IT, legal systems and corporate governance, competition policy, consumer products and so on.
A plan for a Japan-US FTA was put forward two years ago by the US-Japan Business Council in the US and its counterpart in Japan, the Japan-US Business Council. They issued a joint statement last year, claiming that the accord would be ‘the most effective and enduring way to strengthen bilateral economic relations at a time when US and Japanese economic ties with Asian countries are expanding much more rapidly than with each other’.
This is certainly true. Washington has already concluded a (more conventional) type of FTA with South Korea (yet to be ratified by both sides) and negotiations are ongoing with Panama and Colombia, not to mention the many FTAs, including Nafta, that the US has sewn up in the past.
Japanese Prime Minister Yasuo Fukuda and South Korean President Lee Myung Bak only agreed this week to get talks back on track for a bilateral FTA, and Japan meanwhile continues to sign other bilateral accords throughout and beyond Asia.
But some argue that Asian countries’ signing of trade, investment and other accords with one another is in the interests of regional integration, and that a Japan-US FTA would drive a wedge into this process at a time when policymakers are already divided on what type of integration to pursue.
There is already Apec (Asia Pacific Economic Cooperation), through which the US can promote its agenda for reforming Asia’s way of doing business, they add.
And what of the ‘missing link’ in
the evolution of Asian economic integration - a Japan-China FTA (or a Korea-China or Korea-China-Japan FTA for that matter)?
Japan, China and Korea are discussing an investment agreement but this is far from being a full blown FTA or EPA. Proponents of a bilateral Japan-US accord argue that both Japan and South Korea would be in a better position to approach China as a result of such an agreement - on everything from intellectual property abuses to food safety.
Even so, an effective fusing of the economic and business systems of Japan and the US is likely to be seen in some quarters as a Trojan Horse, with which the US could secure a strong toehold within an integrating Asian economy.
US opposition felled the idea of an East Asian Economic Grouping (or ‘caucus’ as it was later termed) some 20 years ago, and US opposition also aborted moves towards an Asian Monetary Fund 10 years ago.
Now, the US seems to be adopting the approach that if you can’t beat ‘em, join ‘em.
新航称收购东航提议仍然有效
2008年02月28日 来源：中国证券报
在东方航空(600115)昨日（27日）公告拒绝中国航空(集团)有限公司入股建议后，新加坡航空发言人Stephen Forshaw向道琼斯通讯社表示，公司对东方航空每股3.80港元的收购提议仍然有效，与2007年9月份宣布的以及2008年1月份提交给东航股东大会的提议完全一致，目前并未发出新的收购提议。
新航仍受青睐
Forshaw进一步表示，新航和淡马锡联合提出的收购提议是公平合理的，并将帮助东方航空迅速重组，满足中国航空业的竞争需求。
东方航空昨日公告中附上了申银万国出具的财务顾问建议，建议称“新航作为全球利润最高、亚洲客户满意度最高的航空公司，在航空公司经营管理、品牌运营、产品设计、服务流程管理、航线规划、收益管理等方面具有显著优势。东航与新航的合作，在航线互补、成本控制、协同效应等方面，均将优于东航与中航有限的合作，更有利于东航增强核心竞争能力，参与国际航空市场的竞争。因此从引进战略投资者的根本目的出发，中航有限不能给东航带来东航所希望获得的帮助。”
公告表示，东方航空引进战略投资者的根本目的在于引进国际先进的管理经验、提高经营管理、运营效率和盈利能力，并维护全体股东的长期利益。
不难看出，东航对“东新合作”依然充满期待。瑞银证券昨日的分析报告指出，东航将重新关注与新航的合作，并指国内三大航整合的可能性大大降低。海通证券的分析报告认为，东航公告拒绝中航的入股建议，显示出国资委没有出于三大航整合的考虑而对东航施压。
东航H股刺穿中航入股价
有业内人士指出，在全球金融风暴影响下，萎靡不振的港股走势使得事态朝着有利于新航的方向发展。
经过持续5个交易日下跌之后，东方航空的H股价格已接近年线位置，2月26日盘中更是跌至4.98港元，刺穿中航有限的入股提议价格。虽然昨日内地和港股市场双双走高，东航H股收于5.17港元，比上一交易日上涨了2.58%，但这一价格离1月8日召开股东大会时6.66港元的价格已相去甚远。
该人士认为，新航和淡马锡希望东航H股价格能够跌至他们提议的收购价格附近，这将促使东航的股东重新考虑新航的收购建议。此外，持续下跌的东航H股价格也将使中航方面对于竞购东航的决定更将审慎。
不过，贝尔斯登证券则认为，东航拒绝中航的入股建议对东航不利。他们认为即使东航股价回落至新航的出价水平，新航的计划重新提交，监管机构也未必支持该交易。
此外，中航方面不会轻易放弃入股东航，中航有限有权提请召开东航临时股东大会，跳过东航董事会，将收购建议直接提交东航股东大会审议。东航H股价格越是下跌，中航有限的收购提议就越有吸引力，更能获得东航股东的支持。
王冠一: 視 若 無 睹 後 知 後 覺
28-2-2008
2001 年 諾 貝 爾 經 濟 學 得 獎 者 、 美 國 哥 倫 比 亞 大 學 授 史 特 拉 茲 （ Joseph Stiglitz, 1945 ） ， 日 前 在 倫 敦 接 受 《 彭 博 》 訪 問 時 不 諱 言 指 ， 聯 儲 局 主 席 伯 南 克 後 知 後 覺 ─ ─ 對 已 是 搖 搖 欲 墜 甚 或 已 開 始 下 陷 的 樓 市 全 無 危 機 意 識 ， 遂 導 致 次 按 信 貸 泡 沫 爆 破 ， 引 起 信 貸 危 機 ， 令 金 融 市 場 一 片 混 亂 ， 由 於 減 息 過 遲 ， 美 經 濟 將 面 臨 重 大 考 驗 。
格 老 一 手 促 成 樓 市 泡 沫
此 外 ， 史 特 拉 茲 亦 批 評 前 任 聯 儲 局 主 席 格 林 斯 潘 ， 指 他 對 自 己 一 手 製 造 的 樓 市 或 信 貸 泡 沫 視 若 無 睹 。 大 授 說 格 老 揚 言 這 次 下 陷 是 25 年 來 最 差 的 狀 況 ， 是 大 有 可 能 的 事 情 ， 不 過 他 （ 格 林 斯 潘 ） 所 負 上 的 責 任 最 大 （ largely to blame ） !
筆 者 認 為 ， 世 事 又 何 來 對 錯 ， 有 時 是 天 要 下 雨 、 娘 要 嫁 人 ， 此 乃 環 境 逼 成 ， 此 話 怎 說 ？ 列 根 和 老 布 殊 兩 位 總 統 用 上 12 年 的 時 間 ， 將 美 國 經 濟 由 水 深 火 熱 中 救 回 來 ， 期 間 經 歷 無 數 凶 險 之 波 浪 ， 總 算 熬 了 過 去 。 直 至 克 林 頓 當 總 統 ， 不 無 坐 享 其 成 ， 只 有 1998 年 的 長 期 資 本 對 基 金 倒 閉 ， 以 及 面 對 二 千 年 之 所 謂 千 年 蟲 問 題 ， 聯 儲 局 又 那 有 不 放 水 救 亡 之 理 ？
可 是 喬 治 布 殊 上 場 後 ， 接 二 連 三 發 生 事 故 ─ ─ 科 網 股 泡 沫 爆 破 、 「 911 」 事 件 、 企 業 醜 聞 等 ， 格 老 還 來 不 及 收 傘 ， 便 要 繼 續 放 水 ， 不 然 美 國 經 濟 肯 定 大 鑊 ， 故 此 冠 一 還 堅 持 認 為 ， 美 國 入 侵 伊 拉 克 ， 有 部 份 理 由 是 要 國 會 批 多 點 銀 來 造 就 「 乘 數 理 論 」 （ Multiply Effect ） 以 刺 激 經 濟 。 唯 一 值 得 商 榷 之 處 ， 是 格 老 何 不 在 經 濟 見 好 轉 時 趕 快 加 息 ， 滋 油 淡 定 ， 逐 0.25 厘 加 ， 還 給 予 眉 精 眼 企 班 華 爾 街 大 帝 有 機 可 乘 ？ 問 題 是 ， 主 子 要 連 任 喎 ！ 手 鬆 點 ， 營 造 點 歡 樂 氣 氛 得 嘛 ？ 汝 道 是 否 身 不 由 己 ？
The true cost of war
In 2005, a Nobel prize-winning economist began the painstaking process of calculating the true cost of the Iraq war. In his new book, he reveals how short-sighted budget decisions, cover-ups and a war fought in bad faith will affect us all for decades to come. Aida Edemariam meets Joseph Stiglitz
Aida Edemariam
The Guardian, Thursday February 28 2008
Fitful spring sunshine is warming the neo-gothic limestone of the Houses of Parliament, and the knots of tourists wandering round them, but in a basement cafe on Millbank it is dark, and quiet, and Joseph Stiglitz is looking as though he hasn't had quite enough sleep. For two days non-stop he has been talking - at the LSE, at Chatham House, to television crews - and then he is flying to Washington to testify before Congress on the subject of his new book. Whatever their reservations - and there will be a few - representatives will have to listen, because not many authors with the authority of Stiglitz, a Nobel prize-winner in economics, an academic tempered by four years on Bill Clinton's Council of Economic Advisers and another three as chief economist at the World Bank (during which time he developed an influential critique of globalisation), will have written a book that so urgently redefines the terms in which to view an ongoing conflict. The Three Trillion Dollar War reveals the extent to which its effects have been, and will be, felt by everyone, from Wall Street to the British high street, from Iraqi civilians to African small traders, for years to come.
Some time in 2005, Stiglitz and Linda Bilmes, who also served as an economic adviser under Clinton, noted that the official Congressional Budget Office estimate for the cost of the war so far was of the order of $500bn. The figure was so low, they didn't believe it, and decided to investigate. The paper they wrote together, and published in January 2006, revised the figure sharply upwards, to between $1 and $2 trillion. Even that, Stiglitz says now, was deliberately conservative: "We didn't want to sound outlandish."
So what did the Republicans say? "They had two reactions," Stiglitz says wearily. "One was Bush saying, 'We don't go to war on the calculations of green eye-shaded accountants or economists.' And our response was, 'No, you don't decide to fight a response to Pearl Harbour on the basis of that, but when there's a war of choice, you at least use it to make sure your timing is right, that you've done the preparation. And you really ought to do the calculations to see if there are alternative ways that are more effective at getting your objectives. The second criticism - which we admit - was that we only look at the costs, not the benefits. Now, we couldn't see any benefits. From our point of view we weren't sure what those were."
Appetites whetted, Stiglitz and Bilmes dug deeper, and what they have discovered, after months of chasing often deliberately obscured accounts, is that in fact Bush's Iraqi adventure will cost America - just America - a conservatively estimated $3 trillion. The rest of the world, including Britain, will probably account for about the same amount again. And in doing so they have achieved something much greater than arriving at an unimaginable figure: by describing the process, by detailing individual costs, by soberly listing the consequences of short-sighted budget decisions, they have produced a picture of comprehensive obfuscation and bad faith whose power comes from its roots in bald fact. Some of their discoveries we have heard before, others we may have had a hunch about, but others are completely new - and together, placed in context, their impact is staggering. There will be few who do not think that whatever the reasons for going to war, its progression has been morally disquieting; following the money turns out to be a brilliant way of getting at exactly why that is.
Next month America will have been in Iraq for five years - longer than it spent in either world war. Daily military operations (not counting, for example, future care of wounded) have already cost more than 12 years in Vietnam, and twice as much as the Korean war. America is spending $16bn a month on running costs alone (ie on top of the regular expenses of the Department of Defence) in Iraq and Afghanistan; that is the entire annual budget of the UN. Large amounts of cash go missing - the well-publicised $8.8bn Development Fund for Iraq under the Coalition Provisional Authority, for example; and the less-publicised millions that fall between the cracks at the Department of Defence, which has failed every official audit of the past 10 years. The defence department's finances, based on an accounting system inaccurate for anything larger than a grocery store, are so inadequate, in fact, that often it is impossible to know exactly how much is being spent, or on what.
This is on top of misleading information: in January 2007 the administration estimated that the much-vaunted surge would cost $5.6bn. But this was only for combat troops, for four months - they didn't mention the 15,000-28,000 support troops who would also have to be paid for. Neither do official numbers count the cost of death payments, or caring for the wounded - even though the current ratio of wounded to dead, seven to one, is the highest in US history. Again, the Department of Defence is being secretive and misleading: official casualty records list only those wounded in combat. There is, note Stiglitz and Bilmes in their book, "a separate, hard-to-find tally of troops wounded during 'non-combat' operations" - helicopter crashes, training accidents, anyone who succumbs to disease (two-thirds of medical evacuees are victims of disease); those who aren't airlifted, ie are treated on the battlefield, simply aren't included. Stiglitz and Bilmes found this partial list accidentally; veterans' organisations had to use the Freedom of Information Act in order to get full figures (at which point the ratio of injuries to fatalities rises to 15 to one). The Department of Veterans Affairs, responsible for caring for these wounded, was operating, for the first few years of the war, on prewar budgets, and is ruinously overstretched; it is still clearing a backlog of claims from the Vietnam war. Many veterans have been forced to look for private care; even when the government pays for treatment and benefits, the burden of proof for eligibility is on the soldier, not on the government. The figure of $3 trillion includes what it will cost to pay death benefits, and to care for some of the worst-injured soldiers that army surgeons have ever seen, for the next 50 years.
By way of context, Stiglitz and Bilmes list what even one of these trillions could have paid for: 8 million housing units, or 15 million public school teachers, or healthcare for 530 million children for a year, or scholarships to university for 43 million students. Three trillion could have fixed America's social security problem for half a century. America, says Stiglitz, is currently spending $5bn a year in Africa, and worrying about being outflanked by China there: "Five billion is roughly 10 days' fighting, so you get a new metric of thinking about everything."
I ask what discoveries Stiglitz found the most disturbing. He laughs, somewhat mirthlessly. "There were actually so many things - some of it we suspected, but there were a few things I couldn't believe." The fact that a contractor working as a security guard gets about $400,000 a year, for example, as opposed to a soldier, who might get about $40,000. That there is a discrepancy we might have guessed - but not its sheer scale, or the fact that, because it is so hard to get insurance for working in Iraq, the government pays the premiums; or the fact that, if these contractors are injured or killed, the government pays both death and injury benefits on top. Understandably, this has forced a rise in sign-up bonuses (as has the fact that the army is so desperate for recruits that it is signing up convicted felons). "So we create a competition for ourselves. Nobody in their right mind would have done that. The Bush administration did that ... that I couldn't believe. And that's not included in the cost the government talks about."
Then there was the discovery that sign-up bonuses come with conditions: a soldier injured in the first month, for example, has to pay it back. Or the fact that "the troops, for understandable reasons, are made responsible for their equipment. You lose your helmet, you have to pay. If you get blown up and you lose your helmet, they still bill you." One soldier was sued for $12,000 even though he had suffered massive brain damage. Some families have had to buy their children body armour, saving the government costs in the short term; those too poor to afford it sustain injuries that the government then has to pay for. Then there's the fact that it was not until 2006, when Robert Gates replaced Donald Rumsfeld as secretary of defence, that the DOD agreed to replace Humvees with mine-resistant ambush-protected (MRAP) armoured vehicles, which are much more able to repel roadside bombs; until that time, IEDs killed 1,500 Americans. "This kind of penny-wise, pound-poor behaviour was just unbelievable."
Yet on another level, Stiglitz is unsurprised, because such decisions are of a piece with the thoroughgoing intellectual inconsistency of the Bush administration. The general approach, he says, has been a "pastiche of corporate bail-outs, corporate welfare, and free-market economics that is not based on any consistent set of ideas. And this particular kind of pastiche actually contributed to the failures in Iraq." There are the well-rehearsed reasons: ignoring international democratic processes while advocating democracy; pushing forward liberalisation before Iraq was ready. Stiglitz's twist on this was the emails he was receiving from the United States Agency for International Development, complaining about the Treasury being obstructive. "They were saying, 'Can you help us? Because we're trying to get businesses to work, but the US Treasury is trying to tighten credit, so there's no money in this country.' "
Then, of course, there is the administration's insistence on "sole-source bidding" - awarding vast, multi-year contracts to Halliburton, for example, instead of putting them out to tender. "An academic might say, 'How can you be a free market, yet demand single-source contracting?'" asks Stiglitz now, mildly - but this is not the way the current administration operates. We know quite a lot now about contractors' excesses, but it is their economic effect that Stiglitz and Bilmes are interested in, and this seems often to have been malign. Free market ideals had, of course, to apply to Iraq, if not to Halliburton (which received at least $19.3bn in single-source contracts), so Paul Bremer, head of the Coalition Provisional Authority, abolished many tariffs on imports, and capped corporate and income tax. Predictably, this led to general asset-stripping, and exposed Iraqi firms to free competition - meaning that many closed down, putting yet more people out of work. ("The benefits of privatisation and free markets in transition economies are debatable, of course," write Stiglitz and Bilmes in their book; a model of understatement, given that Stiglitz is famous for spelling out the harm sustained by poor countries in his book Globalisation and its Discontents (2002), and lost his job at the World Bank for outspokenly making the argument in the first place.) Many reconstruction jobs, in alignment with US procurement law, went to expensive American firms rather than cheaper Iraqi ones - a further waste of resources (one painting job, for example, cost $25m instead of $5m); these American firms, looking to keep their own costs down and profit margins high, imported cheap labour from such countries as Nepal - even though, at this point, one in two Iraqi men was out of work.
This is not, then, pure neocon ideology at work, says Stiglitz: "Ideology of convenience is a better description." It is an ideology illustrated even more clearly in another fact that Stiglitz can't believe - that Bush put through tax cuts while going to war. In Stiglitz and Bilmes's reading, this was downright underhand. Raising taxes, and resorting to the rhetoric of shared sacrifice used in the world wars, for example, would have made Americans more aware of exactly what the war was costing them, and would have provoked opposition sooner. The solution was to borrow the money, at interest of couple of hundred billion dollars a year, which, by 2017, will add up to another trillion dollars or so. This government will be gone in nine months; subsequent administrations, and generations, will have to pay it off.
At the same time, Stiglitz and Bilmes argue, the Federal Reserve colluded in this obfuscation, because it "kept interest rates lower than they otherwise might have been, and looked the other way as lending standards were lowered, thereby encouraging households to borrow more - and spend more." Alan Greenspan, by this account, encouraged people to take on variable-rate mortgages, even as household savings rates went negative for the first time since the Depression. Individuals were taking on unprecedented debt at the same time as a long housing bubble made them feel wealthy (and less concerned with derring-do abroad) - a scenario echoed on this side of the Atlantic.
As we now know, this couldn't continue - in part because of yet another effect of the war. Whatever the much argued reasons for bombing Baghdad, cheap oil has not been the result. In fact, the price of oil has climbed from $25 a barrel to $100 in the past five years - great for oil companies, and oil-producing countries, who, along with the contractors, are the only beneficiaries of this war, but not for anyone else. After calculations based on futures markets, Stiglitz and Bilmes conclude that a significant proportion of this rise is directly due to the disruptions and instabilities caused by Iraq. This price rise alone has cost the US, which imports about 5bn barrels a year, an extra $25bn per year; projecting to 2015 brings that number to an extra $1.6 trillion on oil alone (against which the recent $125bn stimulus package is simply, as Stiglitz puts it, "a drop in the bucket").
Higher oil prices have a direct effect on family, city and state budgets; they also led to a drop in GDP for the US. When interest rates finally rose in response, hundreds of thousands of home owners found that they were unable to keep up payments, triggering the toxic tsunami of defaulted mortgages that has put the US on the brink of recession and brought down Northern Rock - with all the ramifications for British home owners and banks that that has in turn entailed.
Thus, any idea that war is good for the economy, Stiglitz and Bilmes argue, is a myth. A persuasive myth, of course, and in specific cases, such as world war two, one that has seemed to be true - but in 1939, America and Europe were in a depression; there was all sorts of possible supply in the market, but people didn't have the cash to buy anything. Making armaments meant jobs, more people with more disposable income, and so on - but peacetime western economies these days operate near full employment. As Stiglitz and Bilmes put it, "Money spent on armaments is money poured down the drain"; far better to invest in education, infrastructure, research, health, and reap the rewards in the long term. But any idea that war can be divorced from the economy is also naive. "A lot of people didn't expect the economy to take over the war as the major issue [in the American election]," says Stiglitz, "because people did not expect the economy to be as weak as it is. I sort of did. So one of the points of this book is that we don't have two issues in this campaign - we have one issue. Or at least, the two are very, very closely linked together."
And it is the world economy that is at stake, not just America's. The trillions the rest of the world has shouldered include, of course, the smashed Iraqi economy, the tens of thousands of Iraqi dead, the price, to neighbouring countries, of absorbing thousands of refugees, the coalition dead and wounded (before the war Gordon Brown set aside £1bn; as of late 2007, direct operating costs in Iraq and Afghanistan were £7bn and rising). But the rising price of oil has also meant, accoring to Stiglitz and Bilmes, that the cost to oil-importing industrial countries in Europe and the Far East is now about $1.1 trillion. And to developing countries it has been devastating: they note a study by the International Energy Agency that looked at a sample of 13 African countries and found that rising oil prices have "had the effect of lowering the average income by 3% - more than offsetting all of the increase in foreign aid that they had received in recent years, and setting the stage for another crisis in these countries". Stiglitz made his name by, among other things, criticising America's use of globalisation as a bully pulpit; now he says flatly, "Yes, that's part of being in a global economy. You make a mistake of this order, and it affects people all over the world."
And the borrowed trillions have to come from somewhere. Because "the saving rate [in America] is zero," says Stiglitz, "that means that you have to finance [the war] by borrowing abroad. So China is financing America's war." The US is now operating at such a deficit, in fact, that it doesn't have the money to bail out its own banks. "When Merrill Lynch and Citibank had a problem, it was sovereign funds from abroad that bailed them out. And we had to give up a lot of shares of our ownership. So the largest shareowners in Citibank now are in the Middle East. It should be called the MidEast bank, not the Citibank." This creates a precedent of dependence, "and whether we become dependent on Middle East oil money, or Chinese reserves - it's that dependency that people ought to worry about. That is a big change. The amount of borrowing in the last eight years, on top of the borrowing that began with Reagan - that has all changed the US's economic position in the world."
So quite apart from the war, does he think a particular kind of unfettered market has had its day? "Yes. I think that anybody who believes that the banks know what they're doing has to have their head examined. Clearly, unfettered markets have led us to this economic downturn, and to enormous social problems." Combined with the war, whoever inherits the White House faces a crisis of epic proportions. Where do they go from here? "The way that shapes the debate," says Stiglitz, "is that Americans have to say, 'Even if we stay for another two years, just two years, and we're spending $12bn a month up front in Iraq, and it's costing us another 50% in healthcare, disability, bringing it up to $18bn a month in Iraq, and you look at that in another 24 months, we're talking about half a trillion dollars more for two years - forgetting about the economic cost, the ancillary costs, the social costs - just looking at the budgetary cost - not including the interest - you have to say, is this the way we want to spend a half a trillion dollars? Will it make America stronger? Will it make the Middle East safer? Is this the way we want to spend it?"
Far better, he suggests, to leave rapidly and in a dignified manner, and to spend some of it on helping Iraqis reconstruct their own country - and the rest on investing in and strengthening the American economy, so that it can retain its independence, and have the wherewithal, at least, to play a responsible role in the world. The book ends with a list of 18 specific reforms arising from Stiglitz and Bilmes's discoveries, focusing on exactly how to fund and run a war from now on (depend not on emergency funds and borrowing but on surtaxes, for example, so that voters know exactly what it is they are paying for, and can vote accordingly). He has been approached by Barack Obama as a possible adviser should he reach the White House, although he says, "I've gone beyond the age where I would want to be in Washington full time. I would be interested in trying to help shape the bigger picture issues, and in particular the issues associated with America positioning itself in the new global world, and re-establishing the bonds with other countries that have been so damaged by the Bush administration."
I suggest, as devil's advocate, that to count costs in the way he has, and to advise retrenchment, might be seen as encouraging America to return to isolationism. "No. I think that's fundamentally wrong. The problem with Iraq was that it was the wrong war, and the wrong set of issues. Obama was very good about this. He said, 'I'm not against war - I'm just against stupid wars.' And I feel very much the same way. While we were worried about WMD that did not exist in Iraq, WMD did occur in North Korea. To use an American expression, we took our eye off the ball. And while we were fighting in Iraq, Afghanistan got worse, Pakistan got worse. So because we were fighting battles that we couldn't win, we lost battles that we could have." To discover that those lost battles included better healthcare for millions of Americans, a robust world economy, a healthier and more independent Africa, and a more stable Middle East, seems worth a bit of green-eye-shaded number crunching.
In figures
$16bn
The amount the US spends on the monthly running costs of the wars in Iraq and Afghanistan - on top of regular defence spending
$138
The amount paid by every US household every month towards the current operating costs of the war
$19.3bn
The amount Halliburton has received in single-source contracts for work in Iraq
$25bn
The annual cost to the US of the rising price of oil, itself a consequence of the war
$3 trillion
A conservative estimate of the true cost - to America alone - of Bush's Iraq adventure. The rest of the world, including Britain, will shoulder about the same amount again
$5bn
Cost of 10 days' fighting in Iraq
$1 trillion
The interest America will have paid by 2017 on the money borrowed to finance the war
3%
The average drop in income of 13 African countries - a direct result of the rise in oil prices. This drop has more than offset the recent increase in foreign aid to Africa
· The Three Trillion Dollar War, by Joseph Stiglitz and Linda Bilmes, is published by Allen Lane, price £20. To order a copy for £18 with free UK p&p, go to guardian.co.uk/bookshop or call 0870 836 0875.
Credit crisis spreads to new areas in US and Europe
By MARTIN KHOR
February 25, 2008
The debate goes on whether the United States will fall into recession, but on the ground the bad news is that the credit crisis is spreading to new areas, threatening more losses and a reduction in credit to consumers and companies.
THERE have been so many reports about the recession in the United States, so it was surprising to read last Saturday that only 45% of business economists in the US believe a recession will take place this year.
The median forecast of these business economists (who work in companies) is that the US would have slow economic growth of 0.4% in the first quarter, which would then pick up to 1% in the second quarter and 2.8% in the third and fourth quarters of this year.
If this happens, it would be good news. A couple of quarters of slow growth would actually be a relief, given the recent more gloomy forecasts.
On the other hand, the past week has also brought worrying reports showing that the financial crisis is spreading to other areas.
The crisis began in the “sub-prime” house mortgage sector in the US. It then spread to many banks in the US and Europe which had invested in financial instruments linked to the value of these sub-prime mortgages.
Some of the world’s biggest banks – like Citigroup, Merrill Lynch, UBS, Morgan Stanley and HSBC – lost many billions of dollars and some had to restore their balance sheets through massive injections of equity, mainly by sovereign funds from the Middle-East and Asia.
Then the crisis spread to firms in other areas. Two weeks ago came the news that a big company that insures bonds had got into serious trouble.
The Financial Guaranty Insurance Company (FGIC) lost its triple-A credit rating, due to guarantees it had made on structured securities, and this raised serious questions about whether it could meet obligations on US$220bil (RM708bil) of municipal bonds that it had also guaranteed.
Regulators in New York have been trying to prevent a municipal bond crisis that would increase the funding costs for municipal borrowers in the US. Many banks that bought insurance from FGIC on mortgage-backed securities and collateralised debt obligations are likely to take on more losses.
Last week, the New York Times (NYT) and the Wall Street Journal (WSJ) reported on another potential crisis in the huge market in securities that insure against defaults on companies’ credit, which are known as “credit default swaps”.
The NYT of Feb 17 explained how this market works. The swaps are a set of new financial instruments that are supposed to cover losses to banks and bondholders when companies default on their debts.
The markets for these securities have grown huge, from US$900bil (RM2.9 trillion) in 2000 to over US$45 trillion (RM145 trillion) today, or twice the size of the US stock market.
In a credit default insurance, a corporate-bond investor seeks protection (buys insurance) against default of an asset he owns, or a speculator (who is not an owner of the asset) uses the swap to bet on the company’s health.
The seller of the insurance is a bank or insurance firm or hedge fund which receives premiums from the insurance buyer and promises to pay him if he defaults on his debt.
But this seller in turn assigns the insurance contract to another party which in turn can assign it to other parties and so on. The problem is that if a default happens, the buyer of the insurance may have difficulties tracking down who now holds the contract and is thus responsible to pay up.
The article concludes that as defaults kick in and events unfold, it will be shown who has managed well and who has not.
The credit-default swap problem is further explained by the WSJ of Feb 22, which said that “the global financial squeeze is spreading to investments linked to the corporate-debt market, slamming the value of contracts that provide insurance against defaults, and marking one of the first times that the debt of major companies has been affected by the turmoil.”
It added that investors in credit-default swaps have grown increasingly gloomy because of worries about the global economy and the possibility of problems in the market.
The losses are tracked by several indexes, which keep tabs on the cost of buying insurance on bonds issued by 125 big companies. Two of the indexes have doubled since the start of the year, meaning investors who sold this insurance suffered losses.
“The indexes’ moves could prove to be self-fulfilling prophecies, causing heavy losses for investors and making it even harder for people and companies to borrow money,” said the WSJ article.
“Adding to the anxiety, analysts can only guess at the volume of investments tied to the indexes, who is holding them, and what it would take to trigger a full-scale sell-off.”
As of Feb 21, the annual cost of five years of insurance against default on US$10mil (RM32mil) in bonds on the CDX index (which tracks North America companies) had risen to US$152,000 (RM489,029) from US$80,970 (RM260,504) at the start of the year.
The cost of 10 million euro (RM48mil) of insurance on the iTraxx index (which tracks the cost of insuring 125 debt issues by European companies) had risen to 123,750 euro (RM590,582) from 51,320 euro (RM244,918) at the beginning of the year.
A rise in the cost of insurance means a loss for investors who sold insurance, because the only way to get out of these investments is to buy another insurance policy to replace the policy they sold in the first place.
“Even in the absence of greater defaults, the moves in the indexes can cause a great deal of havoc, triggering a downward spiral in which the forced unravelling of complex investment products drives ever-larger losses for investors and rises in the cost of insurance, which in turn could ultimately drive up borrowing costs for companies all over the world,” said the WSJ article.
With this kind of extra financial crisis looming in the wings, it may be overly optimistic for the business economists to predict “no recession” this year in the US.
BreadTalk group expanding
By RACHAEL KAM
February 28, 2008
KUALA LUMPUR: Singapore-listed BreadTalk Group Ltd plans to open a second Food Republic outlet in Malaysia by the third quarter and at least five BreadTalk bakery and Toast Box outlets this year to strengthen its foothold in the local food and beverage industry.
Founder and chairman George Quek said the time was right to introduce the Food Republic chain's food atrium dining concept to Malaysia due to the growing appreciation for food in the country.
“As part of our brand's expansion in Malaysia, the second Food Republic atrium would be set up in Klang Valley with an investment of at least RM5mil,” he told StarBiz after the launch of the company's first Foxod Republic outlet in Malaysia on Tuesday.
Quek said the company had identified a location for its second food atrium, which would be slightly smaller than the 30,518 sq ft outlet at Pavilion Kuala Lumpur, but did not elaborate.
The company expects its first outlet in Malaysia to replicate the success of the chain in the region once the outlet's promotion programmes begin.
“The food atrium business at Pavilion KL has been brisk since it was opened in November last year,” Quek said, adding that the company had invested RM6mil in the outlet.
All the stalls at the atrium had been certified halal to meet the needs of the Malaysian market, he said.
“To further expand our bakery business in Malaysia, we are targeting to open more outlets in Penang, Johor and Malacca,” Quek said, adding that currently the company had three outlets each of BreadTalk and Toast Box in Kuala Lumpur and an outlet each in Johor.
Currently, BreadTalk Group owns and operates a total of 25 food atria in Singapore, China, Hong Kong and Malaysia.
It also operates regional food and beverage chains, including boutique bakery BreadTalk, Toast Box, Restaurant Din Tai Fung, The Station Kitchen and the J-Co Donuts and Coffee franchise.
Today, BreadTalk Group has 73 boutique bakeries in Singapore, Malaysia, Hong Kong, Thailand and China as well as 97 franchised bakery outlets in Asia and Middle East.
“We aim to have 100 food atria and 1,000 bakeries worldwide in the next five years,” Quek said.
Reflection - Christina Aguilera
Look at me
You may think you see who I really am
But you'll never know me
Every day
It's as if I play a part
Now I see
If I wear a mask I can fool the world
But I cannot fool my heart
Who is that girl I see
Staring straight back at me
When will my reflection show
Who I am inside
I am now
In a world where I have to hide my heart
And what I believe in
But somehow
I will show the world what's inside my heart
And be loved for who I am
Who is that girl I see
Staring straight back at me
Why is my reflection someone I don't know
Must I pretend that I'm someone else for all time
When will my reflection show who I am inside
There's a heart that must be free to fly
That burns with a need to know the reason why
Why must we all conceal
What we think how we feel
Must there be a secret me I'm forced to hide
I won't pretend that I'm someone else for all time
When will my reflection show who I am inside
When will my reflection show who I am inside
Private equity turns to sovereign funds
By Martin Arnold in Munich
Published: February 27 2008 19:21 | Last updated: February 28 2008 01:06
Private equity firms are now approaching sovereign wealth funds for loans for big leveraged acquisitions, filling the gap left by investment banks struggling with the credit squeeze, leading buy-out bosses said on Wednesday.
Guy Hands, head of Terra Firma, and David Rubenstein, head of the Carlyle Group, told the Super Return conference in Munich that private-equity firms were already talking to wealthy state-backed funds in the Middle East and Asia about raising debt.
The moves show that leveraged buy-out firms are realising the credit squeeze may last longer than first expected. The $200bn of impaired LBO debt that banks are still trying to sell may mean they cut back on new private equity loans for 18-24 months, buy-out executives now forecast.
“Effectively you will just intermediate Wall Street and the City of London out of the picture,” said Mr Hands. “It is already happening.” He said the Abu Dhabi Investment Authority (ADIA), the world’s biggest SWF, “will effectively replace Wall Street”.
Mr Rubenstein said: “One thing you can say about business is that whenever there is a vacuum, people go in to fill it.”
He said there were four main sources of alternative debt financing: SWFs, public pension funds, hedge funds and mutual funds. “I expect you will see some more of this,” he said.
While no buy-outs have raised debt directly from SWFs, some have been part-funded by hedge funds and mutual funds, such as Hellman & Friedman’s purchase of Goodman Global, the US manufacturing group, in October.
However, the Carlyle boss said the vacuum was unlikely to be filled by alternative debt investors for long. “I don’t think you’ll see them in this for the long term, as the returns are not attractive enough,” he said, predicting that once banks had recovered from the credit squeeze they would edge out the newcomers again with cheap debt.
David Bonderman, head of TPG Capital, said: “Banks have become a much less important provider of debt, less so in Europe, but notably in the US.” He presented a graph showing that less than 20 per cent of US LBO debt was held by banks.
In another encouraging sign for private equity amid the credit gloom, Vitruvian Partners, a new mid-market private-equity firm founded by former executives from Apax Partners, Bridgepoint and BC Partners, said on Wednesday it had raised €925m ($1.4bn) in the biggest maiden fund for European buy-outs.
Tony James, president of Blackstone Group, told the conference his firm was already in contact with hedge funds and mutual funds to raise debt in the absence of sufficient appetite from banks. Blackstone recently acquired GSO to expand its hedge fund and credit businesses.
Some SWFs have recently stepped up their direct investment activity, prompting some to present them as a rival to private equity. However, Mr Rubenstein said the two could form a “productive partnership”. Mubadala Development, an arm of the Abu Dhabi government, in September agreed to buy a 7.5 per cent stake in Carlyle.
Mr Hands said the shift to alternative suppliers of debt was being supported by investment banks with bigger advisory arms than fixed income lending businesses, such as Goldman Sachs and Morgan Stanley, and opposed by others. The Terra Firma boss predicted Middle Eastern or Asian investors could each provide £1bn-£2bn ($2-$4bn) of debt for an LBO, unlike banks which he said were refusing to provide more than £500m each.
Copyright The Financial Times Limited 2008
Eurozone evades credit crunch
By Ralph Atkins in Frankfurt
Published: February 28 2008 02:00 | Last updated: February 28 2008 02:00
Eurozone borrowing by business grew at a record rate last month in the clearest indication yet that the 15-country region has avoided a credit crunch, despite global financial turmoil.
Lending to non-financial corporations increased at an annual rate of 14.6 per cent in January - the fastest since the launch of the euro in 1999, according to European Central Bank figures. In December, lending had increased by 14.5 per cent.
The data, indicating companies remained upbeat about the economic outlook, strengthened the ECB's argument that eurozone economic fundamentals remain "sound".
After a surprise rise in German business confidence this week, that will increase the ECB's reluctance to cut interest rates in the near future - whatever the steps taken by the US Federal Reserve - especially with eurozone inflation at a 14-year high of 3.2 per cent.
Axel Weber, Germany's Bundesbank president, yesterday became the latest ECB governing council member to signal that the central bank's inflation forecasts would be revised up next month, including for 2009 when the ECB had seen a good chance of inflation back within its target of "below but close" to 2 per cent. Food prices appear a particular concern.
Signs that eurozone economic activity remains relatively robust will make the ECB less concerned about the euro's rise for the first time above $1.50 yesterday as a stronger currency could reduce inflation pressures.
Eurozone growth shows clear signs of slowing from last year's peaks, and the ECB is also expected to reduce its growth forecasts. But this week Lucas Papademos, its vice-president, argued that the economic impact of financial market turmoil "is not likely to be sizeable".
Mr Papademos added that there was "no sign of a credit crunch", while tighter credit standards applied by banks had "taken place from a very 'loose' level and had not significantly constrained the availability of credit".
The strength of eurozone lending to businesses since the start of the global financial market crisis last August has surprised analysts. One explanation is that companies that would previously have raised funds from capital markets were relying more on traditional bank lending.
But Gilles Moec at Bank of America argued that it was a good sign that banks were prepared to respond to such demand for "vanilla" lending. The fact that companies were sticking to investment and expansion plans was "one of the most reassuring features that we see at the moment" and marked a clear difference to conditions ahead of the 2001 economic downturn.
Another explanation is that banks' difficulties in selling-on loans and removing them from their balance sheets could have exaggerated the rate of loan growth. But in its monthly bulletin this month the ECB said the fact that strong growth was seen in lending to the nonfinancial sector and at long maturities suggested "business as usual by borrowers".
* The International Monetary Fund yesterday welcomed "the marked strengthening of Germany's economic performance" in the past few years, but said it expected growth in Europe's largest economy to slow from 2.5 per cent last year to 1.5 per cent in 2008.
A slowing US economy and weaker world trade would act as brakes on growth.
Copyright The Financial Times Limited 2008
Consumers don't spend - how the bloody hell can the economy recover?
Americans Plan to Save, Not Spend, Tax-Rebate Checks, Poll Says
By Matthew Benjamin
Feb. 28 (Bloomberg) -- The stimulus plan Congress approved this month may provide less of a jolt to the U.S. economy than intended, as most Americans plan to save rather than spend their tax rebates, a Bloomberg/Los Angeles Times survey shows.
Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.
``People in Washington assume that about 40 percent of the money will be spent,'' said Douglas Elmendorf, a senior fellow at the Brookings Institution, a Washington-based research organization. ``Much less would be disappointing.''
Respondents are increasingly gloomy about the economy's course. A majority said the U.S. is already in a recession and that President George W. Bush hasn't done enough to tackle the home-mortgage crisis.
``It's time to circle the wagons and pay down debt,'' said Chris Danvers, 50, of Sacramento. He said he's noticed that business is slowing in the upscale steak house where he works as a waiter, so he will pay off the debt he recently incurred buying a refrigerator and a couch.
Bush and congressional leaders agreed on a $168 billion stimulus plan that has as its centerpiece tax rebates for most households. Taxpayers are expected to start receiving checks in May, ranging from $300 to more than $1,200 for some families.
Different This Time
About $36 billion in rebates were sent out as part of a stimulus package during the 2001 recession, and consumers spent roughly 40 percent of the money. That provided a boost to economic growth in the second half of that year and helped end the slump. The results may be different this time.
``We've got enough stuff,'' said Deane Bogardus, 60, a former college-admissions director in Hollywood, South Carolina, who plans to save his windfall. ``We could easily blow it on something, but we're semi-retired so we don't need that much.''
Plans to spend the rebate were consistent across income groups: About two in 10 respondents in households with less than $40,000 annual income as well as those making more than $100,000 said they'll spend the money. A plurality of respondents in the lower-income group said they'll pay off debt, while saving the money was the most popular plan among the wealthier group.
Spending Spurs Growth
``The more they spend, the more economic growth we're going to have later this year,'' said Lawrence Mishel, president of the Economic Policy Institute, a Washington-based research group.
Consumers' lack of confidence in the economy may be affecting their spending plans. About seven in 10 of those surveyed said the economy is doing badly, the highest percentage in more than a decade. Almost four in 10 said the economy is doing very badly, up from 31 percent who felt that way in a January poll. Thirty-six percent of white respondents called the economy very bad and a majority of blacks -- 55 percent -- agreed.
Those surveyed were almost as pessimistic about the general direction of the nation, saying by a margin of 63 percent to 26 percent that the U.S. is seriously on the wrong track.
The Feb. 21-25 poll of 1,408 adults nationwide had a margin of sampling error of plus or minus 3 percentage points.
`It's a Depression'
About six in 10 respondents said the nation is already suffering from a recession, versus 32 percent who disagreed. Forty-five percent said there is currently a moderate or mild recession, and 16 percent said it is serious.
``For me it's not a recession, it's a depression, because I just lost my job,'' said Gail Pool, an unemployed accountant in Richland, Washington. Pool, 62, said several of her relatives and friends have also been laid off.
Pool, like most other Americans, doesn't see relief in the short term. Six months from now, the economy will be in about the same condition it's in now, half the survey participants said, while almost three in 10 said it will be worse. Just 18 percent said things will improve by then.
Vote for Democrats
By a margin of 44 percent to 33 percent, Americans said the Democratic Party would do a better job than the Republicans at restarting economic growth. Among self-described independent voters, the margin was 37 percent to 28 percent.
Survey respondents were split on the need for a second stimulus package with additional unemployment insurance benefits and infrastructure spending that congressional Democrats have called for.
A majority -- 57 percent -- said Bush hasn't taken sufficient steps to aid the housing industry and help holders of subprime mortgages, a growing number of whom face foreclosure because of rising monthly payments. Among households with annual incomes below $40,000, almost seven in 10 said the president hasn't done enough.
Wheat Tops $12 a Bushel for First Time
By STEVENSON JACOBS
27 February 2008
NEW YORK (AP) — Wheat futures vaulted above $12 a bushel for the first time Tuesday as investors bet that a shortage of high-quality milling wheat will keep prices high for the grain used in bread, pasta and other foods.
Other commodities traded mostly higher, with crude oil surpassing $100 a barrel and silver hitting its highest level since 1980.
Wheat prices have surged 34 percent since the start of year, pushed higher by growing world demand, tight supplies and bad weather that has pummeled crops in Canada, Argentina and India. U.S. exporters are selling wheat a record pace to meet demand, rapidly depleting stockpiles. The Department of Agriculture expects U.S. wheat inventories will total 272 million bushels by the end of May — the lowest level in more than five decades.
"Everybody is coming to the realization that the shortage of wheat is not going away," said Elaine Kub, a commodities market analyst at DTN. "There's no relief coming from anywhere in the world until June," when the U.S. wheat harvest begins.
Wheat for May delivery jumped the 90-cent daily trading limit to settle at $12.145 a bushel on the Chicago Board of Trade, the highest ever.
Other agriculture futures traded mixed. Soybeans for May delivery added 15 cents to settle at $14.8425 a bushel on the CBOT, while March corn declined 2.75 cents to settle at $5.305 a bushel.
Unprecedented demand for agricultural products from fast-growing countries including China and India has exacerbated the supply crunch for wheat, which has more than doubled in price since last year.
The higher wheat prices may not immediately affect U.S. consumers since big food companies like Kellogg Co., General Mills Inc., and Kraft Foods Inc. typically protect themselves from price volatility with long-term supply contracts. But analysts say some consumers are already feeling the pinch — from smaller cereal boxes to having to ask for bread at restaurants — and should expect higher prices to eventually work their way into the grocery aisle.
Also affecting the cost of food is the high price of crude, which surged back above $100 Tuesday as investors ignored reports of more U.S. economic turmoil and bet that oil will extend its advance.
Prices had eased overnight as traders anticipated a government report due out Wednesday that is expected to show U.S. crude stocks rose for the seventh week in a row. But oil has risen over the past week amid an increase in speculative buying fed by expectations of a spike in demand.
Light, sweet crude for April delivery jumped $1.65 to settle at $100.88 a barrel on the New York Mercantile Exchange. Earlier, crude hit a new trading record of $101.15 a barrel.
Other energy futures also rose. March gasoline futures inched 0.86 cent higher to settle at $2.5505 a gallon on the Nymex, while March heating oil gained 2.97 cents to settle at $2.8150 a gallon.
Meanwhile, precious metals prices advanced broadly Tuesday, with silver hitting a 28-year high after the dollar weakened against the euro. Silver for March delivery added 63.5 cents to settle at $18.720 an ounce on the Nymex. In aftermarket trading, the metal later hit a new record of $18.865 an ounce.
Other metals also rose. Gold for April delivery gained $8.40 to settle at $948.90 an ounce on the Nymex, while March copper added 3.95 cents to settle at $3.7790 a pound.
Gold Rises to Record on Weak Dollar
By Stevenson Jacobs
27 February 2008
Gold Futures Soar to Record on Weak Dollar, Inflation Fears
NEW YORK (AP) -- Gold futures surged to their highest level ever Wednesday after the dollar plunged to a record low and crude oil spiked above $102 -- inflationary signs that fed buying of precious metals as alternative investments.
Silver continued its record-setting rally and copper also hit a fresh high. Other commodities traded mixed, with wheat extending recent gains and soybeans falling.
Speaking to Congress, Federal Reserve Chairman Ben Bernanke suggested the central bank will again lower interest rates to right the shaky U.S. economy, which has been buffeted by the subprime mortgage crisis and a protracted credit crunch. Bernanke's comments helped send the dollar on a slide versus the euro, which hit an all-time high of $1.5143.
"The dollar keeps falling and crude oil has gone above $102, so you've got a lot of inflation worries and this is helping gold prices," said Carlos Sanchez, a precious metals analyst at CPM Group in New York. "The Fed is trying to help with these issues but they've been reacting since August and it hasn't helped as much as many would have liked."
A weak dollar encourages U.S. investors to turn to gold because the metal is known for holding its value. It also encourages foreign investors to buy the dollar-denominated metal, because the cost is not as high for those with stronger currencies.
Gold for April delivery jumped to a new all-time record of $967.70 an ounce on the New York Mercantile Exchange, before pulling back to settle at $961, still up $12.10.
At these levels there's bound to be some profit-taking," Sanchez said. "I wouldn't be surprised to see gold pull back to $900 in March but still be in an upward trend."
Gold gained nearly 32 percent in 2007 and is up 12 percent so far this year. Still, when adjusted for inflation, gold remains well below its record high. An ounce of gold at $900 in 1980 would be worth about $2,300 today.
Other precious metals also rose Tuesday. Silver for March delivery added 49 cents to settle at $19.210 an ounce on the Nymex, after earlier hitting $19.490 -- its highest level since 1980.
Copper for March delivery advanced 5.95 cents to settle at $3.8465 a pound after earlier rising to a record $3.8625.
The rally in precious metals has been aided by the sharp rise in crude prices, which broke above $102 on Tuesday. Prices later retreated after the government said stockpiles of crude oil and gasoline rose far more than expected last week.
Light, sweet crude for April delivery fell $1.24 to settle at $99.64 on the Nymex, after surging as high as $102.08 a barrel in electronic trading earlier. On Tuesday, the contract jumped $1.65 to settle at a record $100.88 a barrel.
Other energy futures fell. March heating oil futures fell 4.39 cents to settle at $2.7711, while March gasoline futures fell 7.28 cents to settle at $2.4777.
In agricultural futures, wheat topped $13 a bushel for the first as investors bet on higher prices amid dwindling stockpiles and growing demand.
Wheat for May delivery jumped to an all-time high of $13.495 a bushel on the Chicago Board of Trade before settling at $12.50 a bushel, up 35.5 cents. The contract earlier traded as low as $10.90 a bushel.
Other agriculture futures fell. Soybeans for May delivery shed 9 cents to settle at $14.7525 a bushel on the CBOT, while March corn lost 5.5 cents to settle at $5.25 a bushel.
Crude hits new high of $102.64; natural gas surges
Oil up on Nigeria, weak dollar; natural-gas inventories down for 14th week
By Moming Zhou & Polya Lesova
Feb. 28, 2008
SAN FRANCISCO (MarketWatch) -- Crude-oil futures rose 3% Thursday afternoon to a new record high of $102.64 a barrel as production was partially shut down in Nigeria after military attacks and as the dollar fell further against the euro.
Natural-gas futures surged nearly 3% to the highest level in more than two years after data showed U.S. inventories fell for a 14th week.
Crude oil for April delivery gained $3, or 3%, to $102.64 a barrel on the New York Mercantile Exchange in mid-afternoon trading, a new record high for a front-month contract. April natural-gas futures rallied 30.3 cents, or 3.3%, to $9.363 per million British thermal units.
In Nigeria, crude-oil production from Eni SpA's Brass River terminal was cut by around 50,000 barrels a day as a result of an attack by a militia group, Dow Jones Newswires reported on Thursday, citing West African traders. Nigeria is Africa's largest oil producer and the U.S.'s fifth-largest crude supplier.
The military attacks in Nigeria "was apparently enough to put prices up over $100 again," said Michael Fitzpatrick, an analyst at MF Global, a futures brokerage.
On Wednesday, crude closed below $100 a barrel after surging to a high of $102.08, coming under pressure after data showed the nation's crude inventories grew by more than expected in the week ended Feb. 22.
Traders attributed Wednesday's earlier surge to the sliding dollar. A weaker greenback tends to push up prices for dollar-denominated commodities, such as oil, as those commodities become less expensive for buyers holding other currencies.
The dollar continued its fall against the euro on Thursday, with the euro trading at $1.5194, an all-time high. The trade-weighted dollar index, which measures the greenback against a basket of six major currencies, fell 0.5% to 74.17.
Natural gas surges
U.S. natural-gas inventories fell 151 billion cubic feet in the week ended Feb. 22, Energy Information Administration reported on Thursday. Inventories have been falling since mid-November and have dropped nearly 2,000 billion cubic feet, EIA data showed.
At 1,619 billion cubic feet, U.S. natural gas stockpiles were 133 billion cubic feet less than last year at this time, EIA said in the report. After the data, natural gas surged to the highest level since February 2006.
EIA reported Wednesday that U.S. crude inventories gained for a seventh week, up 3.2 million barrels to 308.5 million barrels in the week ended Feb. 22.
"Seven consecutive weekly builds have made the market's internal fundamentals less supportive," said Fitzpatrick.
Thursday's economic news was also not supportive. The Commerce Department reported Thursday that the U.S. economy grew at an unrevised 0.6% annual rate for the fourth quarter.
Also Thursday, the Labor Department reported that first-time claims for state unemployment benefits rose 19,000 last week, reaching the highest level since late January.
Rounding out the early action in energy, March reformulated gasoline gained slightly to $2.481 a gallon, and March heating oil rose 5.21 cents to stand at $2.8232 a gallon. Both contracts are due to expire on Friday.
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