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A bad deal for Greece, a bad deal for China

Abid Ali — Tue, 01 Nov 2011 11:54:15 +0000

We had a deal of sorts from the eurozone leaders - but it was a terrible deal for Greece. Now it seems the Greek Prime Minister George Papandreou has flown back to Athens, and in the cold light of the day, realised he and his people had been sold down the river. Hence a referendum.

You see German Chancellor Angela Merkel wants to keep kicking the can down the road. There is no legal framework to stop eurozone nations spending beyond their means. And the German nation doesn’t want to bailout anyone - by coming forward with an incomplete deal the pressure is on Italy, Spain and France to find more austerity measures. It’s the German way of keeping the house it built in check, let the markets (bond investors) demand more interest of new bonds sold.

Merkel and French President Nicholas Sarkozy may not want to read this: but can you believe the world’s biggest and richest trading block is begging China for money?

Can you believe Greece - a nation that represents less than 2 percent of the euro zone economy, that has less than half the assets Lehman Brothers had when it collapsed - has the ability to trigger a global financial and economic crisis?

This is a containable problem.

Yet it would appear that Germany, one of the world' s richest nations, hasn’t the political will to say: we want the euro to succeed.

Germany as a nation has benefited from the euro - its economy would have been dragged into recession if it still had the Deutschemark. It would have felt more pain than Switzerland and Japan are experiencing right now - both nations have seen their currencies hit record highs against the dollar, both are seen as safe havens in these turbulent times.

Germany spent 1.3 trillion euros on reunification. And now it can’t find 150 billion euros to aid Greece, while Berlin is willing to guarantee 220 billion euros in the eurozone bailout funds.

Merkel is willing to standby as Greece faces rising suicide rates, hundreds of thousands losing their jobs, pensioners are being pushed into poverty, and rising homelessness.

Meanwhile, countless jobs are on the hook in Switzerland and Japan as their currencies come under pressure. Millions of jobs in Asia could be lost as the global economy slows.

All the while we’re being spun more tales as to why this simple problem can’t be resolved. Bottomline - extraordinary times call for extraordinary measures.

Sarkozy was right - Greece should never have been allowed into the eurozone. Maybe the eurozone should sue Goldman Sachs - which helped hide the nations debts - for the cost of the bailout.

The eurozone should stop perpetuating the idea that this is a global crisis. Sovereign debt is a North Atlantic problem. At least when Dubai realized it had a problem it put its hands up, sat down with its creditors and came up with a solution. It’s economy is still in the process of throwing of the froth but the economy hasn’t missed a beat.

But Western economies have made a mountain out of a mole hill. The US debt-ceiling was a manufactured crisis. The eurozone is aping that.

The eurozone has dragged in the banks to take 50 per cent of losses. Astonishing as this barely cuts 50 billion euros of Greece’s 350 billion euro debt. Greece will be in recession for the rest of this decade, and officials at the eurozone believe Athens debt-to-GDP ratio will hit 120 per cent by 2020!

Not likely, more like 160 per cent - Athen will default. It has no choice.

It can only get better for some - the International Monetary Fund and the European Central Bank won’t take losses on their Greek debt. But some institutions are more equal than others.

Eurozone leaders didn’t present a solution - instead they sent an uncompromising message to China and other emerging markets: pay for our troubles of else we’ll bring the global economy to its knees.

You want a solution. Berlin takes on 150 billion euros of Geek debt. Italy’s cost of borrowing will fall as it tackles it debt, since Rome’s finances are in a better position than most. France won’t lose its AAA rating if it needs to bailout its banks. And no need for Europe to depend on China to fix its economic mess.

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I'm not defending OPEC but...

Abid Ali — Thu, 23 Jun 2011 21:19:08 +0000

The "West" is quick to point the finger at OPEC whenever oil prices are on the rise. All manner of statistics are produced to blame OPEC nations for their economic troubles.

Take for example that the cartel's members would earn $1 trillion dollars this year as crude trades above $100 a barrel. It may be so.

But let’s not forget that almost $600bn leaves these oil producing nations in remittances (western immigrants benefit as well), company profits (Western oil companies, included) and through the import of consumer goods. In effect, these nations are keeping the global economy ticking.

Let’s be clear, OPEC nations produce 40 per cent of the world’s oil. That means there are nations that produce the other 60 per cent.

Maybe the United States, Canada and UK should really find time to criticise their independent oil companies for not producing enough oil to meet their demands or reinvest in new oil finds, renewable energy.

Always easy to criticise foreigners.

And the politicians have reason to blame OPEC, it enables them to deflect criticism of their own tax policies.

It’s an absurd situation when almost 60 per cent of the gas price at the pump is taken by governments in tax.

The timing of the release close to the 2012 US presidental election can not be dismissed. The Republicans are right in thier criticism.

Inflation is a concern in many developing, growth nations right now. Let’s be clear, artificial subsidies on oil and currency manipulation are a bigger factor.

And the absurdity does not end there, for decades there have been calls to find alternative, renewable sources of oil.

What we have in the West is a total lack of leadership, either because the big oil producers are big contributors to election campaigns or the short-sighted nature of politics.

No one wants to put their head above the parapet and make the tough unpopular decisions.

It's the West that is the cause of green house gasses and failure in leadership in cutting harmful emissions.

The likes of India have every right to say: you’ve enjoyed your economic prosperity and now its our turn and we’ll climb the league table of growth how we like.

The International Energy Agency's (IEA) decision to act like a central bank and release oil is a dangerous precedent.

They can mask it by saying we’re doing this because of Libyan disruption.

But Saudi Arabia made it clear that despite OPEC’s objection it would fill any voids and has done so. And let’s not forget that the world is adequately supplied.

And it wasn’t the 2008 oil price shock that caused the global financial crisis or recession for that matter.

Here’s a few words from the IEA itself:

The market is currently aware that emergency stocks can and will be used during any severe supply disruption. This in itself helps to limit the price exuberance that can result in large spikes when there are physical disruptions. But, a policy of releasing oil to counteract high prices would add an additional source for speculation.

We are often asked: if emergency stocks can be used for domestic supply disruptions, why not use stocks to bring prices down when they spike? We think that to use the reserves for price management is dangerous territory and would fail.

This is not a defence of OPEC's position, but just like the European Union it does a poor job of promoting itself.

The Wall Street Journal says that OPEC could release more oil if there is a glut. It also points out that Saudi Arabia needs an oil price of $95 a barrel to pay for the $129bn its spending on economic reforms.

Despite the IEA and Washington's best efforts, there is only one way oil prices are going: UP. Get used to it.

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Prime minister, did you lie to me?

Kamahl Santamaria — Thu, 07 Apr 2011 17:32:42 +0000

I feel cheated. Big time. And by the leader of a Western European nation no less!

A few months ago, Jose Socrates, the prime minister of Portugal, was in Doha and made an appearance on Al Jazeera's business programme Counting the Cost, which is fronted by yours truly.

Obviously I wanted to talk about Portugal's precarious debt situation, and all the talk from markets and analysts that the country's visit to the EU and IMF for a financial bailout was a foregone conclusion.

There's a link to that specific programme and interview here.

Watch it, if you've got 10-15 minutes spare, and tell me if you think Mr Socrates was being genuine when he told me "we don't need any kind of help but confidence". And when he assured me that a financial bailout wouldn't be necessary.

Because two weeks ago he was forced out as prime minister. Predictably so, I have to say, because garnering support for more austerity measures was always going to be politically difficult.

But now, in what's amounting to a parting shot, he's ended up going to the EU and IMF for the very bailout which he told me he didn't need!

Now I'm trying to figure out, Mr Socrates... (if you're reading this)... did you lie to me, or did you just not know how bad the situation really was?

Did you deceive, or were you delusional? Or were you just putting a brave face for the TV cameras?

See, now I'm confused as well as feeling cheated! Argh!!

Okay, I'll dispense with the personal dramatics now and get to the point.

Europe is still in bad economic shape. No one can deny that. So would a leader like Mr Socrates have been better served coming clean earlier?

Perhaps he didn't have to fully admit during that interview back in January that Portugal would definitely need a bailout... but maybe he could have acknowledged the market's concerns, and conceded that he would in fact go to the EU and IMF if the situation warranted, and if it was in Portugal's best interests.

Wouldn't the market and analysts and investors have liked that better?

Yes there'd have been some immediate bad press, but in the long run I wonder if it would have served people better?
And by people, I mean politicians AND the public.

It is the eternal conundrum of business and economics. Say nothing, and risk the destructive power of rumour. Tell all, and risk people not liking the truth of the situation.

But if there's even a chance of that 'awful truth' emerging later on down the road, isn't it better throwing up a few signposts ahead of time, so it's not such a shock when it does happen?

I'm not a politician or an economist. I'm a journalist who observes and questions such people and their actions.

I can't put myself in Mr Socrates' shoes - leading a country and having to make decisions which affect so many millions of people.

Frankly I think it takes an extraordinary type of person to even want to do that.

But while I'm pretty confident he did what he thought was best for Portugal at the time, and in going to the EU and IMF now is doing the very same... I also wonder if Mr Socrates himself were to watch that interview again, would he still think he said the right thing on that January afternoon in Doha?

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China's stealth fighter

Abid Ali — Fri, 07 Jan 2011 10:47:57 +0000

Is this YouTube video proof that China has developed a stealth fighter jet? The origin of the video is unclear but the fact that Chinese censors allowed it to be posted on domestic websites indicates that it may have been leaked with the approval of the authorities.

The J-20 stealth bomber could challenge the US air force's F-22 Raptor. India and Russia recently signed an agreement to develop their own stealth fighter. China's advances could change the dynamic in the seas around China and comes just ahead of US Defence Secretary Robert Gates visit to mend ties with Beijing.

The aircraft is seen taxiing around the airport at the Chengdu Aircraft Institute.

Last month, The Wall Street Journal published a fascinating article about China cloning Russian Su-27 fighter jets. While China has been quick to reverse engineer some of Russia’s technology, it appears that it may not be able to do the same with the engines.

And that may be the key reason for Beijing’s willingness to bailout debt-ridden euro zone nations.

China’s leader in waiting Li Keqiang is in Europe visiting Madrid, Berlin and London. In an editorial in Spanish newspaper El Pais, Li gives the official reason:

"China is a responsible, long-term investor in the European financial market and particularly in Spain, and we have confidence in the Spanish financial market, which has meant the acquisition of its public debt, something which we will continue to do in the future."

But as Ian Bremmer, president of risk analysts Eurasia Group, told Aljazeera’s Counting the Cost:

"Their leaders are going over saying 'we are here for you'. But you know this is much more about the Chinese wanting to show they are part of the solution and being helpful so that they can get the European arms embargo lifted off China."

Stratfor Global Intelligence, in a note published earlier this week, goes on to says some in Europe would like to see the embargo lifted:

"This is something that a number of European countries have wanted to see ended for while; the French of course stand to gain considerably from potential arms sales to China.

"However, the likelihood of anything really moving the Europeans in that direction is very low. The US pressure on its allies within the European Union — such as the United Kingdom, but also other NATO member states — would be extreme, and therefore it is quite unlikely that the Europeans will be able to get the unanimity necessary to overturn the embargo."

There is little evidence of how much debt China has bought from a distressed euro zone, but there is little doubt that China is making advances in reshaping its neighbourhood.

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Where should Germany draw the line?

Abid Ali — Thu, 25 Nov 2010 06:47:26 +0000

Would you give money to someone in debt?

Tough question I guess. You would ask yourself what is the possibility of them paying you back.

How would you feel if the money you give was guaranteed?

I think you would step up.

Now here’s the problem. Bond holders to the troubled economies of Greece, Ireland, Portugal and Spain have been offered unwritten guarantees. They have been banking on Germany stepping in to help bailout Europe’s laggards.

The lady who triggered the latest crisis that has Ireland taking its begging bowl to the European Union and International Monetary Fund is at it again. And she’s right.

German Chancellor Angela Merkel said:

Have politicians got the courage to make those who earn money share in the risk as well? Or is dealing in government debt the only business in the world economy that involves no risk? … This is about the primacy of politics, this is about the limits of the markets.

That sent the borrowing cost for most eurozone countries to record highs.

The question is: Can Merkel say enough is enough and bankers need to take a serious haircut (losses)?

Let’s just take a look at what German banks and financial institutions are owed by these countries and thier banks, businesses and residents.

Germany’s exposure to Greece is $51bn; to Ireland $205.8bn; to Portugal $46.6bn; and to Spain $217.9bn. That’s according to figures published by the Bank of International Settlement.

In total Germany is on the hook to the tune of $521.3bn.

The world’s exposure to above nations actually rose 4.3 percent to $2.6tn.

My final question: Will Merkel stand back and let German banks take huge losses?

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Middlesbrough: The tale of a broken city

Laurence Lee — Tue, 16 Nov 2010 16:33:48 +0000

Middlesbrough, a large town in the northeast of England, has some of the nicest people you'll find anywhere, and that's particularly surprising given what they've been through over the last few decades.

Other than the container port, the two main drivers of employment here were steel (first British Steel, then Corus, then Tata, now nothing), and Imperial Chemical Industries (ICI), which also got sold off in packets to conglomerates from the Middle East, Indonesia and elsewhere. Those people who say globalisation works should take a look here - it's failed people utterly.

People say that every one of the 50,000 or so who worked in steel or petrochemicals kept another seven people in work in feeder industries - suppliers and the like - so the fact that steel's now gone and petrochemicals employs just 3,000 means ... well, you work it out.

So Middlesbrough is on its knees. A tour of the estates reveals boarded up houses which the local council, now being disembowelled by public sector cuts, has no money to fix. You can see the kids on bikes selling drugs to passing trade.

Those politicians in London who say people without a job for a year or two will have to work for nothing or lose their benefits should perhaps come here and try it themselves.

If you look back over a timeline you see quite easily where it all went wrong. Here's how you destroy peoples' hopes in three easy moves:

1. Conservative government in the 1980s lets industry decline.

2. Labour government in the 1990s declines to rebuild it, and spends huge amounts on jobs in the public sector - leading to a massive deficit which can't survive the crash.

3. Conservative government in 2010 gets rid of deficit by cutting services and jobs.

So a question to British leaders on behalf of the people of Middlesbrough: if you don't want to rebuild industry, and state sector jobs are now going - any bright ideas about what to offer people instead?

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Dubai's next black hole?

Dan Nolan — Tue, 19 Oct 2010 13:22:35 +0000

The United Arab Emirates' new crackdown on business with Iran will no doubt draw applause in Washington but alarm in Dubai.

New regulations preventing transactions with Iranian banks means trade between the two nations has all but come to a standstill in recent weeks, according to those affected.

In 2009 total trade was worth an estimated $12bn, making the oil-rich Arab nation Iran's top trading partner.

But the reality is that only one of the seven emirates that make up the UAE federation has been responsible for the bulk of Iranian trade and is thus regarded as Tehran's backdoor to the West – Dubai.

For years, Dubai has been seen by the West as dragging its feet on rigorous enforcement of UN sanctions - an accusation it always denies.

But Dubai's much publicised debt problems, which required a $20bn lifeline from the emirate of Abu Dhabi next door, has changed the power balance in the UAE.

Abu Dhabi has limited trade with its Persian neighbours across the Gulf and is highly concerned at the prospect of them becoming nuclear-armed. Abu Dhabi is desperate to show the US that it is an ally that can be relied upon.

When the UAE Central Bank (based in Abu Dhabi) moved in June to freeze 41 bank accounts and businesses believed to be linked to Iran's Revolutionary Guard, there were few complaints from Dubai.

Nobody made the case that any of those banned were innocent legitimate companies but the new restrictions don't seem to distinguish between the intended targets of sanctions and those earning an honest living.

So just how much damage will this cause to Dubai's already strained balance sheets? Quite a bit, according to Robin Amlot, managing editor at CPI Financial.

"We're now saying total trade could halve. That's obviously got to hurt, if you knock $6bn in terms of money coming through the emirate off, that's got to cause significant issues for the Dubai economy," Amlot said.

"Over the course of the past couple of years Iran's been steady business and that steady business is now going to go away but it's been the one constant that has carried on throughout the course of the financial crisis."

The hardest hit will be Iranian businesses in Dubai; some have been operating here for decades in what they say is purely legitimate trade.

Over the past six months, I've spoken regularly to Morteza Massoumzadeh from the Iranian Business Council about the changing dynamic he's facing.

His usual positive outlook was clearly waning when I visited him this week. He's hoping for a "miracle" that things might change but warns the economic impact is going to be severe.

"There is no doubt if these circumstances continue for the next six months, hundreds of companies here will close down. Those companies are not necessarily Iranian-owned, they can be of any nationality who established their businesses in this country aiming to supply goods to Iran," Massoumzadeh said.

An ominous cloud on the horizon for anyone hoping Dubai had already weathered the worst of its economic storm.

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Who do you think you're kidding Mr Geithner?

Abid Ali — Tue, 19 Oct 2010 08:48:07 +0000

There’s a race going on right now. A "war" if you take the words of Brazil’s finance minister, Guido Mantega, to devalue currency. The reason is simple: by keeping your currency low against your competitor you will export more.

Timothy Geithner, the US treasury secretary, says his country is not involved in currency manipulation. On the other hand, the US accuses China of being a currency manipulator and has delayed publishing a report to this effect.

"It is not going to happen in this country." Geithner said.

It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to (be) competitive. It is not a viable, feasible strategy and we will not engage in it.

Really? The dollar has plummeted by more than a quarter against the yen since August 2008. That as the US started to slash rates to almost zero and started pumping trillions into saving the economy.

And the Federal Reserve is well on its way to spending hundreds of billions more to stimulate the economy. That will put more pressure on the dollar to depreciate. So you can image the gasps from around the globe as Geithner made his comments.

Investors are voting with their feet - they’re just not getting the returns from the US and other Western nations.

The World Bank has warned that US policy is destabilising growth in emerging and developing economies. A wall of money is pouring into Asia and could trigger a re-run of the 1997 Asia financial crisis; that as money inflates property and stock markets.

"We are seeing an effort by developing East Asia to deal with the large amounts of liquidity driven in very large part by the monetary policy of easing in the United States," the bank’s chief economist for Asia-Pacific, Vickram Nehru, was quoted by Reuters as saying.

Brazil’s Mantega called for an end to “currency wars” and warned that his country was considering more options to fight of hot money.

But there is no end in sight. Bloomberg says India may start selling its currency while a former Chinese central banker has warned - backing up what the World Bank is saying - that the Fed’s move to print cash would flood the country with cash.

This war is going to get nasty.

To bring this to an end, Washington needs to admit that this isn’t about China’s currency being undervalued but the way some businesses are plainly uncompetitive. Remove the impediments, use your technological advantage and the economy will get on to a more stable world-beating footing.

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Can I invest in Kabul Bank?

Abid Ali — Mon, 13 Sep 2010 11:37:36 +0000

Kabul Bank is a private bank. A monopoly, if you like: the only avenue for government employees to receive their salaries.

A great money making machine. A bank that likes to say its "Touching Hearts, Changing Lives" - it certainly has for its shareholders.

In America’s attempt to break the stranglehold of the informal cash economy, mostly the hawalas - used to transfer vast amounts of money that they fear is driving the insurgency and drugs trade - they've inadvertently created a behemoth on an Afghan scale.

In fact, Western Union is the preferred partner for remittances.

I want to share some numbers with you. Numbers that if they were ever presented in a prospectus or accounts would make you believe this bank was well run, on a par with Western institutions, if not better.

And we all know what happened to Lehman Brothers and Co almost two years ago.

The boring numbers first: Even before Basel III was signed this weekend, Kabul Bank had a Tier 1 capital ratio - the money you need to set aside to make sure you don’t go belly up - of 11 per cent, much much higher than Basel requires.

Kabul Bank had total assets of $1.1bn and liabilities of $987m.

Now the interesting numbers and details: There are 16-lucky shareholders, all with political links to the ruling elite.

	Shareholders	Stake
1.	Sherkhan Farnood	28.16%
2.	Khalilullah Fruzi	28.16%
3.	Farida Farnood	6.68%
4.	Mahmood Karzai	7.41%
5.	Haji Sherin Khan	5.93%
6.	Mohammed Taheer	6.74%
7.	Ghulam Farooq Naseeb	2.96%
8.	Ahmad Javid	2.16%
9.	Jamal Khil	1.93%
10.	Abdul Rab	1.48%
11.	Zahed Faheem	2.96%
12.	Mohammad Ihsan Rafet	0.89%
13.	Shokrullah Shokran	0.74%
14.	Rabiulla Kakar	0.59%
16.	Hayatullah	1.48%
18.	Nesar Ahmad	1.70%

The bank made a profit of $13.7m in 2009, split evenly amongst its shareholders means they would all receive about $850,000 each.

If that wasn’t enough, the former chairman Sherkhan Farnood and the former CEO Khalilullah Fruzi were doing such a good job of running this near-monopoly that they were awarded a bonus of $500,000 each.

Key management personnel, including directors, also shared a salary pool of almost $3m.

Now if you’re a shareholder you can dip into the bank's funds and award yourself a loan at anytime or to one of your companies.

And professional poker player Sherkhan, certainly did that, giving Pamir Airways $11.5m. Sherkhan is the chairman of Pamir.

It’s good to know that the directors, key management and close family members were big depositors, lodging $59.4m with the bank. They withdrew slightly more but that’s their money to do what they like with.

What of the allegations that Sherkhan and Khalilullah actually used Kabul Bank funds worth $160m to buy property in Dubai?

Well the bank’s records for the year ended December 31 2009, don’t actually show any transfer of money to the United Arab Emirates.

In fact, they’re accused of using off-balance sheet funding for that purpose. The accounts show that the bank does have off-balance loans and commitments totalling $121m but none had been given to the property sector.

I’m not in the slightest bit defending these chaps. Money could have flowed out in the years before these accounts were prepared.

But I’m sure the people of Afghanistan would like to know where all that reconstruction money is going. No doubt countries with troops on the ground would like answers as to how their money is being spent.

Just how is money flowing out of the country to finance these purchases? James Bays, our long-time correspondent in Kabul, told Counting the Cost that money is taken out in suitcases through the VIP channels at the airport.

I just wonder, as a private bank, if Kabul Bank will be as open and transparent as it has been in the past? I'm looking forward to the 2010 accounts.

In the meantime, you too can get a copy of the accounts for 2009 audited by AF Ferguson & Co, a member firm of Pricewaterhousecoopers, from Kabul Bank’s website.

As for being a shareholder: Don’t bank on it!

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Why does every plane have two pilots?

Abid Ali — Wed, 08 Sep 2010 06:20:02 +0000

It sounds like the start of a joke. But these are the thoughts of Michael O’Leary, the chief executive of low-cost airline Ryanair.

O’Leary would like to fly short hop routes with only one pilot.

Let the bloody computer fly it,

he tells Bloomberg Businessweek. If the pilot was to have a heart attack then the flight attendant should land the plane, he says.

O’Leary tells the Financial Times that trains only have one driver.

In 25 years with over about 10 million flights, we’ve had one pilot who suffered a heart attack in flight and he landed the plane.

If you haven’t met O’Leary you must think he’s one wing short of a plane. He’s not a shrinking violet and he knows how to court headlines but ignore the man at your peril. O’Leary has taken a little unknown Irish airline to become Europe’s third biggest airline by passenger numbers.

His airline is worth $7.36 billion – almost twice as much as British Airways – and is hot on the heels of the biggest European airline Lufthansa. While Ryanair has been reporting profits over the last decade – with one exception – global airlines have been racking up losses of $50 billion.

Remember Ryanair was the first airline that charged for baggage – other airlines followed.

So just what else is O’Leary thinking about? Making you stand on airplanes, making you pay one euro to use the toilet, and getting you to load your own luggage onto planes.

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