Friday, April 19, 2013

IMF, World Bank spineless with Gulf's dictators...

IMF, World Bank spineless with Gulf's dictators...
By Hossein Askari

It is difficult to understand how the International Monetary Fund and the World Bank can continue to give their run-of-the-mill economic and financial assessments to Persian Gulf oil dictatorships with a straight face.

They have been saying the same things - deregulate markets, cut red t

At the same time, these oil exporters have had anemic average annual per capita growth since their oil revenues surged in 1974. Their economies have not been diversified away from oil and thus they export little besides oil, refined products, natural gas and petrochemicals.

Good jobs are in short supply, and with high unemployment the government has absorbed more and more labor that does little productive work. Human development has been sub-par. Conflicts, both interstate and intrastate, have been at an all-time high, with the region recently becoming classified as the world's most conflict-ridden region. And all the while, the limited oil and natural gas resources of the region are being depleted at the expense of all future generations with little hope of a meaningful turnaround.

Under these circumstances, the average citizens of the region are increasingly angry against their rulers and the foreign powers that back them.

The Fund's and the Bank's assessments of the region's problems and constraints miss the central issue. Rulers in these countries have absolutely no incentive to adopt the foundational reforms that are imperative for a turnaround as long as they benefit as they do now and enjoy the support of foreign powers to hold on to power.

If foreign powers, historically the West, continue to support these dictators, conditions cannot change and reforms will not be adopted. Rulers, their families and their cronies benefit from their oppressive rule beyond anyone's dreams. They are taking directly from the sale of oil, from their treasuries and through corrupt business activities.

They have no incentive to change. There is no price to pay for their actions that rob their citizens and impede human, political, social and economic development as long as they have the support of foreign powers who they reward, their companies and their former senior officials, and hire influential foreign lobbyists to secure the needed political support.

The historical practice of colonialists, exploitation, has been turned onto its head, becoming one of collaborative colonialism. And even if regimes are overthrown, those rising to power will do the same, garner foreign support and do as did their predecessors. It is a veritable closed loop. Nothing can change and all is locked in time.

These oil-exporting countries must establish an independent judiciary and the rule of law (equal justice for all). They must establish economic institutions that are effective and are not politically driven. They should declare that oil and gas belongs equally to every citizen (not especially to rulers) of this and future generations and will be managed accordingly. Political reforms, with a clear roadmap and timetable that delineates a path towards political participation and elected and answerable governments, must be set in motion.

Yes, the Fund and the Bank cannot interfere in international and domestic politics, much less tell the important foreign powers that control the Fund and the Bank to keep their hands off. But the Fund and the Bank can promote three policies that might go along way to achieving the same and supporting the peoples of the region:

ape, reduce corruption, reduce the size of the public sector, cut subsidies, encourage the private sector, adopt rational policies, and so on - and yet no good has come of it. Yes, some of the countries have been superficially transformed with tall buildings and beautiful airports, and there has been some progress in human conditions and development. Meanwhile, rulers, their families and those well connected have become rich beyond belief.
  • They could ask these countries to proclaim that oil and natural belongs equally to every citizen of this and future generations. Rulers have no special access. Rulers will claim that this is already in their constitution or in the Koran (which some claim as their constitution). But it is not so explicitly and in detail stated anywhere.
  • They should tell them how best this could be done. It would be more or less along the lines of what is done in Norway and Alaska. Governments would be weaned from oil revenues in a span of say 10 years and they would begin to finance their expenditures from taxes; the proceeds of oil revenues would be invested in an internationally diversified portfolio of assets as in Norway; an annual check of equal purchasing power would be issued to all citizens much as is done in Alaska.
  • They should recommend to IMF shareholders (that is, the IMF's membership) to adopt a policy that would help all countries around the world. Namely, that the offshore (not domestic) bank and investment accounts exceeding US$1 million of all rulers (monarchs, presidents, prime ministers from all countries in the world) should be disclosed. Surely no country that professes a clean government, especially the West, can object to this. Why should rulers need an offshore account anyway? And if they need it for legal transactions, they should declare it. Threatening multilateral sanctions on any financial institution that helps rulers evade this disclosure and with an agreement by all IMF and Bank members to confiscate any undisclosed accounts could enforce this.

    These recommendations essentially take away the special incentives and benefits of dictators and of their foreign supporters. They would initiate a process of foundational reforms that are necessary for a turnaround. In turn, they would reduce discrimination, afford hope to the general population and thereby ameliorate conflicts within and between countries in the region. 

  • Wednesday, April 10, 2013

    Gazprom outflanks Nabucco...

    Gazprom outflanks Nabucco...
    By Igor Alexeev

    South Stream is an ambitious endeavor of Russia's energy giant Gazprom to get direct access to the EU energy market. It is portrayed and criticized by some politicians in Europe as a ''dangerous'' gateway to a broader economic relationship with Moscow. Remarkably enough, Bulgaria, Serbia, Croatia, Slovenia and Hungary have one-by-one opted for the project.

    Eastern Europe unanimously placed its bet on the South Stream pipeline project. The plain fact is that the new Europeans chose to protect their national interests in spite of all temptations and

    threats from Brussels and Washington. It is not an overstatement to say that the South Stream business blueprint is complete and it is entering construction stage.

    By the end of 2018, the pipeline is planned to reach a transport capacity of 63 billion cubic meters per year - enough gigajoules to supply the energy needs of 38 million households. What has encouraged the pro-South Stream choice of Eastern European political elites, presuming their frosty relations with Russia? Why did they not resort to broadly advertised alternatives?

    The not-so-obvious answers to these geopolitical riddles are conditioned by cold math and economic forecasting. Independent economic feasibility studies show that the expensive and bulky South Stream is the only realistic way to guarantee safe and reliable natural gas supplies to Europe. It will play a pivotal role in the regional energy security up to the 2030s. Other sources such as nuclear power or renewable sources are nothing more than perspective alternatives.

    Sovereign national leaders in Budapest and Belgrade understand very well: overoptimistic advertisements of wind energy on Euronews TV channel will not power heating networks in their countries. And the notorious Cyprus bank bailout affair ruined the last remnants of their belief in ''European solidarity''.

    The primary production of renewable energy within the EU in 2010 was 166.6 million tonnes of oil equivalent - a 20.1 % share of total primary energy production from all sources. EU renewable energy targets 2020 are very ambitious in times of financial turmoil. But even if the European Commission completes this costly energy program, the total share of alternatives will reach only 30%.

    It means that today the end users in Eastern Europe are in urgent need of stable fossil fuel sources. Brussels understands it very well, but puts a brave face on a sorry business. Now EU officials are presenting paper-and-pencil pipelines trying to lure Azerbaijanian businessmen into their controversial Nabucco West project.

    Even the main US lobbyist for Nabucco West, former US Ambassador to Baku Matthew Bryza admits: ''The chances [of the South Stream] are excellent. When the leader of Russia puts his mind to a pipeline it happens.''

    It is often claimed that nuclear energy can be a solution. But Germany, the industrial powerhouse of Europe, has recently banned the use of nuclear power. The influential Green party in Berlin took advantage of overwhelming popular support after the Fukushima incident. Therefore, in the mid-term Germany's energy demand will be satisfied by supplies from Russia via the completed Nord Stream and the emerging South Stream.
    The South Stream Fact Sheet
  • The gas pipeline will be 1,455 km long in Southern and Central Europe;
  • Around 8,500 people will be employed in its construction, with 770 at the operational level;
  • Eight compression stations are to be set up in the main transit countries;
  • The South Stream planned transport capacity may reach 63 billion cubic meters;
  • The overall cost of the project is approximately US$39 billion.
  • A country-by-country survey of the South Stream milestones may shed some light on the key motives behind the strategic decision of the Eastern European countries to opt for this pipeline.

    Bulgaria will develop both South Stream and atomic engineering. Sofia is planning to construct a 1,000-megawatt (MW) reactor at the existing Kozloduy nuclear power plant with the help of the Russian company Atomstroyexport. In 2012, Bulgarian officials broke a deadlock in negotiations with Gazprom and signed a protocol for  the final investment decision on South Stream. The construction of gas receiving facilities will start in Bulgaria in 2013.

    ''A 538-kilometer section of the gas pipeline will provide Bulgarian consumers with continuous and uninterrupted natural gas supplies over a long term,'' said Gazprom chief executive Alexey Miller.

    As early as 2009, Sasho Dontchev, executive director of Bulgaria's Overgas, explained why his country stands with Russia: ''We mostly have to discuss real opportunities. Nabucco would be very fine as it assures an alternative supplier and an alternative route, but the project hasn't been sustained by a sufficient amount of gas. Therefore, South Stream seems more preferable to me now.''

    Serbia was the first South Stream member country to adopt the pipeline's final investment decision. South Stream's first facility - the Banatski Dvor underground gas storage plant - shaved gas consumption peaks in Serbia during the 2011/2012 cold winter season. Early this year, the Serbian government promised to grant South Stream national significance status, and Dusan Bajatovic, the managing director of state-owned Srbijagas, has confirmed that construction of South Stream in Serbia will begin by the end of 2013. Now project implementation is going according to plan despite all sorts of speculation in a number of Serbian media outlets.

    In March this year, Bajatovic explained that some international ''business groups'' attempted to lobby against South Stream, but failed. If we take into account US intrigues in Bulgaria against the Kozloduy NPP, this assumption doesn't seem improbable.

    Croatia gave a final nod to the South Stream in January 2013. Environmental impact assessment procedures required by national law are at their final stage. Gazprom and Croatia's Plinacro signed an Action Plan to implement the South Stream project between 2013 and 2016. The document envisages that a joint project company for building a gas branch to Croatia will be set up at early in the second half of 2013.

    Hungary performed a feasibility study for the Hungarian section of South Stream in 2011. It resulted in approval of the final investment decision on building a 229 kilometer pipeline section. Budapest also granted South Stream the status of a national significance project.

    Csaba Baji, CEO of MVM Group, the largest Hungarian power company, favors the deal: ''With the Hungarian government's support, we are committed to increasing energy security and diversifying the routes of natural gas supply to the European Union. The South Stream project is an important part of our long-term strategy.''

    Slovenia teamed up with Gazprom for South Stream on November 13, 2012. Slovenian stakeholders including energy company Plinovodi signed the final investment decision on construction of the gas pipeline section in this country. Priority is given to environmentally friendly construction schemes and economic efficiency.

    The Russian investors entrusted the majority of technical and operational work to the state-owned Slovenian natural gas company Geoplin for the purpose of carrying out the joint enterprise.

    If we consider strategic agreements, economic feasibility studies and environmental assessments completed by the sovereign Eastern European energy companies, we can predict that the South Stream project will be completed by 2018-2020, but at a higher cost than the present estimate of approximately US$39 billion.

    The rival consortium Nabucco West targets the same market as South Stream. Although today these projects do not compete on equal terms, South Stream boasts a fixed construction schedule and a plethora of bilateral agreements with transit states, while Nabucco West is still undergoing the negotiation process.

    Given the geopolitical importance of energy supplies to Europe, it is very probable that Nabucco West will eventually be completed in the long term, although South Stream may by that time have captured the lion's share of the market.

    German Govt. In Deep Shock Over Intended Greek Reparations’ Bill... explode like a ‘time-bomb’...

    The Greek government is in disarray after the leak of an explosive report drawing up vast reparations claims against Germany, covering both the First and Second World Wars...
    The alleged claim against Germany reaches a grand total of €162bn, including €108bn for rebuilding the country’s infrastructure after the Nazi occupation from 1941 to 1944. This is 80pc of Greek GDP. 
    Premier Antonis Samaras held a special meeting with the foreign minister Dimitris Avramopoulos and other key officials this morning to limit the diplomatic damage from the 80-page report.
    The document – stamped “Aporito”, or secret – was drafted by a panel of experts appointed by the Greek finance ministry and delivered to officials last month.
    The alleged claim against Germany reaches a grand total of €162bn, including €108bn for rebuilding the country’s infrastructure after the Nazi occupation from 1941 to 1944. This is 80pc of Greek GDP.
    The probe was chaired by Panagiotis Karakousis, director-general of the General Accounting Office at the Finance Ministry, and relied on 190,000 pages of documents scattered through the country’s ministries and archives.
    Mr Karakousis told The Daily Telegraph that the report was commissioned by the current leadership, not the previous Pasok government.
    “The purpose was to gather all the material available so that the political leaders can check the data,” he said.
    The Greek foreign ministry said this morning that the report would be sent to the State Legal Service “so that legal elaboration, assessment and setting out of the claims of the Greek State can be carried out and a relevant opinion submitted.”
    The report was first leaked to the Greek newspaper To Vima over the weekend in a story entitled “What Germany Owes Us”.
    The panel concluded that Athens has legitimate grounds to press claims. “Greece never received any compensation, either for the loans it was forced to provide to Germany or for the damages it suffered during the war,” it said.
    The newspaper said the issue has “detonated like a bomb” at a critical juncture when Greece is under intense pressure from creditors. “The government should publish all the findings and determine its position on this sensitive issue,” it said.
    The inclusion of the First World War has baffled historians. Greece declared war against the Central Powers in 1917 and mostly fought against Bulgaria. “I have never hear anything like this before. It is crazy,” said one Greek writer.
    There has long been a vociferous lobby calling for war reparations from Germany, with the so-called “National Council” calling for as much €500bn to cover stolen art work and the loss of 50pc of economic output over almost four years.
    They claim that Germany’s debts were forgiven after the war at the London Conference in 1953 – including its debts to Greece – and that Berlin should remember that Germany’s Wirtschaftwunder was built with US Marshal aid and American help. Some 300,000 Greeks died under the Axis occupation, mostly from starvation.
    Yet this report is an official document and carries the imprimatur of the finance ministry. It is unclear what Athens hopes to gain by stirring up a highly emotional issue.
    The report is certain to be viewed by German officials as a form of moral blackmail as tough talks continue over each stage of Greece’s EU-IMF Troika programme.
    Sources in Greece say the document was prepared as a bargaining chip to be put away in a draw and used only if Germany and other EU creditor powers overplay their the hand, though the circumstances are murky.
    The gambit raises serious questions about the true intentions of Mr Samaras and his New Democracy Party, which has positioned itself as a friend of German Chancellor Angela Merkel.
    It again exposes the breakdown of fundamental trust in the eurozone after three years of depression in the South and mutual recriminations between creditors and debtors. Old demons have been conjured back to life.
    The report includes a welter of different claims on Germany, including €54bn for the costs of forced loans from the bank of Greece to cover the wages and supplies of the Nazi troops, and to support the Afrika Korps.
    Greece has already enjoyed considerable debt relief, though at the expense of private pension funds, insurers, and banks, rather than at the expense the German state or other eurozone countries.
    It is estimated that German taxpayers may have lost €12bn so far indirectly through haircuts on the Greek bondholdings of banks that are co-owned by the German authorities, or have been part nationalised.
    Under current policy, Greece must stick to its austerity regime until the end of the decade, when public debt is expected to stabilise at 122pc of GDP if all goes perfectly. Critics are sceptical, saying the Troika has underestimated the scale of economic collapse at every stage.
    There was bittersweet news today with prices declining for the first time in 45 years. Greece is pulling off its `internal devaluation’ as demanded, but it risks tipping into deflation and aggravating its debt crisis in the process. It may have jumped from the pan into the fire...

    Winner Takes All: The Super-Priority Status of Derivatives...

    Derivatives Managed by Mega-Banks Threaten Your Bank Account. All Depositors, Secured and Unsecured, May Be at Risk

    by Ellen Brown, 

    Cyprus-style confiscation of depositor funds has been called the “new normal.”  Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk.  Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.  

    Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to “bail in” two bankrupt banks in Cyprus. A “bail in” is a quantum leap beyond a “bail out.” When governments are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to “recapitalize” themselves by confiscating the funds of their creditors, turning debt into equity, or stock; and the “creditors” include the depositors who put their money in the bank thinking it was a secure place to store their savings.
    The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here.  “Too big to fail” now trumps all.  Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks.
    Why Derivatives Threaten Your Bank Account
    The big risk behind all this is the massive $230 trillion derivatives boondoggle managed by US banks. Derivatives are sold as a kind of insurance for managing profits and risk; but as Satyajit Das points out in Extreme Money, they actually increase risk to the system as a whole.
    In the US after the Glass-Steagall Act was implemented in 1933, a bank could not gamble with depositor funds for its own account; but in 1999, that barrier was removed. Recent congressional investigations have revealed that in the biggest derivative banks, JPMorgan and Bank of America, massive commingling has occurred between their depository arms and their unregulated and highly vulnerable derivatives arms. Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.
    The tab for the 2008 bailout was $700 billion in taxpayer funds, and that was just to start. Another $700 billion disaster could easily wipe out all the money in the FDIC insurance fund, which has only about $25 billion in it.  Both JPMorgan and Bank of America have over $1 trillion in deposits, and total deposits covered by FDIC insurance are about $9 trillion. According to an article on Bloomberg in November 2011, Bank of America’s holding company then had almost $75 trillion in derivatives, and 71% were held in its depository arm; while J.P. Morgan had $79 trillion in derivatives, and 99% were in its depository arm. Those whole mega-sums are not actually at risk, but the cash calculated to be at risk from derivatives from all sources is at least $12 trillion; and JPM is the biggest player, with 30% of the market.
    It used to be that the government would backstop the FDIC if it ran out of money. But section 716 of the Dodd Frank Act now precludes the payment of further taxpayer funds to bail out a bank from a bad derivatives gamble. As summarized in a letter from Americans for Financial Reform quoted by Yves Smith:
    Section 716 bans taxpayer bailouts of a broad range of derivatives dealing and speculative derivatives activities. Section 716 does not in any way limit the swaps activities which banks or other financial institutions may engage in. It simply prohibits public support for such activities.
    [Smith fleshes out this derivatives argument here.]
    There will be no more $700 billion taxpayer bailouts. So where will the banks get the money in the next crisis? It seems the plan has just been revealed in the new bail-in policies.
    All Depositors, Secured and Unsecured, May Be at Risk
    The bail-in policy for the US and UK is set forth in a document put out jointly by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England (BOE) in December 2012, titled Resolving Globally Active, Systemically Important, Financial Institutions.
    In an April 4th article in Financial Sense, John Butler points out that the directive does not explicitly refer to “depositors.”  It refers only to “unsecured creditors.”  But the effective meaning of the term, says Butler, is belied by the fact that the FDIC has been put on the job. The FDIC has direct responsibility only for depositors, not for the bondholders who are wholesale non-depositor sources of bank credit. Butler comments:
    Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors of failing institutions are to be arbitrarily, de-facto subordinated to interbank claims, when in fact they are legally senior to those claims!
    . . . [C]onsider the brutal, unjust irony of the entire proposal. Remember, its stated purpose is to solve the problem revealed in 2008, namely the existence of insolvent TBTF institutions that were “highly leveraged and complex, with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.” Yet what is being proposed is a framework sacrificing depositors in order to maintain precisely this complex, opaque, leverage-laden financial edifice!
    If you believe that what has happened recently in Cyprus is unlikely to happen elsewhere, think again. Economic policy officials in the US, UK and other countries are preparing for it. Remember, someone has to pay. Will it be you? If you are a depositor, the answer is yes.
    The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy.
    That could mean not just the “unsecured creditors” but the “secured creditors,” including state and local governments. Local governments keep a significant portion of their revenues in Wall Street banks because smaller local banks lack the capacity to handle their complex business. In the US, banks taking deposits of public funds are required to pledge collateral against any funds exceeding the deposit insurance limit of $250,000. But derivative claims are also secured with collateral, and they have super-priority over all other claimants, including other secured creditors. The vault may be empty by the time local government officials get to the teller’s window. Main Street will again have been plundered by Wall Street.
    Super-priority Status for Derivatives Increases Rather than Decreases Risk 
    Harvard Law Professor Mark Roe maintains that the super-priority status of derivatives needs to be repealed. He writes:
    . . . [D]erivatives counterparties, . . . unlike most other secured creditors, can seize and immediately liquidate collateral, readily net out gains and losses in their dealings with the bankrupt, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor, all in ways that favor them over the bankrupt’s other creditors.
    . . . [W]hen we subsidize derivatives and similar financial activity via bankruptcy benefits unavailable to other creditors, we get more of the activity than we otherwise would. Repeal would induce these burgeoning financial markets to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style financial meltdown, thereby helping to maintain systemic financial stability.
    In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He calls the Dodd-Frank policy approach “corporatism” – a partnership between government and corporations. Congress has made no attempt in the legislation to reduce the size of the big banks or to undermine the implicit subsidy provided by the knowledge that they will be bailed out in the event of trouble.
    Undergirding this approach is what Skeel calls “the Lehman myth,” which blames the 2008 banking collapse on the decision to allow Lehman Brothers to fail. Skeel counters that the Lehman bankruptcy was actually orderly, and the derivatives were unwound relatively quickly. Rather than preventing the Lehman collapse, the bankruptcy exemption for derivatives may have helped precipitate it.  When the bank appeared to be on shaky ground, the derivatives players all rushed to put in their claims, in a run on the collateral before it ran out. Skeel says the problem could be resolved by eliminating the derivatives exemption from the stay of proceedings that a bankruptcy court applies to other contracts to prevent this sort of run.
    Putting the Brakes on the Wall Street End Game
    Besides eliminating the super-priority of derivatives, here are some other ways to block the Wall Street asset grab:
    (1) Restore the Glass-Steagall Act separating depository banking from investment banking. Support Marcy Kaptur’s H.R. 129.
    (2) Break up the giant derivatives banks.  Support Bernie Sanders’ “too big to jail” legislation.
    (3) Alternatively, nationalize the TBTFs, as advised in the New York Times by Gar Alperovitz.  If taxpayer bailouts to save the TBTFs are unacceptable, depositor bailouts are even more unacceptable.
    (4) Make derivatives illegal, as they were between 1936 and 1982 under the Commodities Exchange Act. They can be unwound by simply netting them out, declaring them null and void.  As noted by Paul Craig Roberts, “the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system.”
    (5) Support the Harkin-Whitehouse bill to impose a financial transactions tax on Wall Street trading.  Among other uses, a tax on all trades might supplement the FDIC insurance fund to cover another derivatives disaster.
    (5) Establish postal savings banks as government-guaranteed depositories for individual savings. Many countries have public savings banks, which became particularly popular after savings in private banks were wiped out in the banking crisis of the late 1990s.
    (6) Establish publicly-owned banks to be depositories of public monies, following the lead of North Dakota, the only state to completely escape the 2008 banking crisis. North Dakota does not keep its revenues in Wall Street banks but deposits them in the state-owned Bank of North Dakota by law.  The bank has a mandate to serve the public, and it does not gamble in derivatives.
    A motivated state legislature could set up a publicly-owned bank very quickly. Having its own bank would allow the state to protect both its own revenues and those of its citizens while generating the credit needed to support local business and restore prosperity to Main Street...

    Monday, April 8, 2013

    Hello Rafale, how’s it going?

    India’s mammoth MMRCA [Medium Multi-Role Combat Aircraft] deal estimated to be worth variously — and at least worth $16 billion — seems to be a jinxed project. 
    This was a tender where the Russian bid was unceremoniously thrown out by the Indians right at the outset. And, whereas the Americans were cocksure their F-16 aircraft would win hands down in the post-nuclear deal ambience in the US-India strategic partnership, they got rejected just like that by the Indians and the shell-shocked ambassador in Delhi quit his job in disgust. 
    And, this was a tender that to my mind the Eurofighter should, perhaps, have won on merit, but Rafale finally did to my utter surprise. 
    Now when things were looking brilliant for Rafale with the Indian External Affairs Minister even travelling to Paris to tell the maker of Rafale, Dassault, an alluring proposition that Delhi might jack up the original order and buy another five dozen aircraft more than the 126 envisaged earlier, things nosedived. 
    Dassault has picked up a quarrel with the Indian buyer that it can supply 18 aircraft alright on ‘fly-away’ basis but is rather diffident about co-production of the remaining 108 aircraft with its designated Indian partner, the state-owned HAL [Hindustan Aeronautics Limited]. 
    The reason? Dassault says HAL is incompetent to handle a sophisticated job like making Rafale. So, Rafale can fly in, but Rafale can’t be made on Indian soil, as the Indian tender demanded. 
    Maybe, Dassault has a point regarding HAL’s credibility. But, how come Dassault makes the plea at this very late stage? Dassault apparently claims it didn’t check out HAL’s capacity before submitting the offer to build Rafale in India. 
    Now, does it sound credible? To me it stretches credulity by a yard. Hmm. Something is wrong somewhere. Dassault would know that the Indians are stuck with Rafale anyway and could this be bazaar tactic? Air Chief Marshal N A K Brown said only very recently that the MMRCA project is of the “highest priority.” 
    However, there is always an exit route in such seemingly desperate situations. For instance, Dassault has formed a joint venture with the powerful Indian corporate house Reliance. Will HAL move over and make way for Reliance? 
    This could be THE practical solution that Dassault is seeking. Of course, the only catch is that Reliance has no previous military production experience. But then, does it really matter? 
    To begin with, Reliance can always execute the MMRCA deal by supplying Rafale made in France by its partner Dassault and then by and by it can learn to make on Indian soil something that comes to resemble Rafale. Howzaat? 
    Dassault would have known that the UPA government’s new procurement policy would allow that, Or else, can’t the policy be ‘tweaked’, as the Americans would say?  
    After all, Dassault can claim that the UPA government’s new thinking is to give encouragement to India’s corporate houses to take to indigenous arms manufacturing, which it believes is by far the best means of putting an end to the never-ending stream of scams that unfailingly accompany India’s arms procurement deals with foreign companies. Indeed, the best option under the circumstances would be to “aggressively indigenise” our scams. 
    By M K Bhadrakumar


    Monday, April 1, 2013

    China's lust for oil, minerals, rare earths, fish and desire for an alternative northern sea route boils the Arctic Geopolitics...

    The Dragon Covets the Arctic...

    by Dr. A. Adityanjee

    China's lust for oil, minerals, rare earths, fish and desire for an alternative northern sea route boils the Arctic Geopolitics!


    Iceland is a small, sparsely populated island nation with a population of only 320,000 and area of 40,000 square miles. It is the only member of the NATO that does not have an army of its own. Icelandic banks were part of the 2008 global financial crisis and meltdown when they exposed the Icelandic government of huge financial risks by indulging in risky loans and speculative foreign currency transactions without having enough liquidity and capital reserves. The fiscal crisis led to a former Icelandic prime minister losing his job and being hauled to court of law for not supervising the banks enough.
    In an international capitalistic, mercantile system, if Iceland were a company, it was "sitting duck" for outright purchase and acquisition. Fortunately, foreigners are not allowed to buy any property or real estate in Iceland and need a special permit.
    And here comes the Peoples' Republic of China, rich with $ 3.4 trillion in foreign exchange reserves in its kitty. It has built a palatial embassy in Reykjavik, Iceland worth $250 million with only 7 accredited diplomats. China is negotiating a free trade area with Iceland, the first with any European nation. Former Chinese Prime Minister Wen Jiabao even paid a state visit to Iceland for two full days in 2012. Other Chinese ministers and officials have also been very active in Iceland with bilateral visits and cultural events.

    In 2010, Huang Nubo, a "poetry loving" Chinese billionaire and former communist party official visited Iceland to meet his former classmate Hjorleifur Sveinbjornsson, a Chinese translator with whom he had shared a room in 1970s in the Peking University. He expressed his intense love for poetry and put up $ one million to finance Iceland-China Cultural Fund and organized two poetry summits, the first one in Reykjavik in 2010 and the second one in Beijing in 2011.

    Last year (2012), Huang Nubo and his Beijing based company, the Zhongkun group offered to buy 300 sq km of Icelandic land ostensibly to develop a holiday resort with a golf course. This Chinese billionaire wanted to pay $7million to an Icelandic sheep farmer to take over the land and build a $100 million 100-room five star resort hotel, luxury villas, an eco-golf course and an airstrip with 10 aircrafts. A state owned Chinese bank reportedly offered the Zhongkun group a soft loan of $ 800 million for this project.

    The deal was blocked by the Icelandic Interior Minister who asked many pertinent questions but reportedly got no answers. Huang would not take no for an answer and has submitted a revised bid for leasing the land for $ one million instead of outright purchase. He makes an unbelievable assertion that there is a market demand for peace and solitude: "Rich Chinese people are so fed up of pollution that they would like to enjoy the fresh air and solitude of the snowy Iceland".

    The current Icelandic government, a left-of-center coalition has given this proposal a cold shoulder. But, with elections due in April 2013 in Iceland, China is hoping for a more sympathetic government to approve the project. Iceland looks like an easy bird of prey for the wily red Dragon with insatiable appetite.

    China is showing generosity to another poor and sparsely populated, self-governing island of Greenland by offering investments in mining industry with proposal to import Chinese crews for construction and mining operations. Greenland is rich in mineral deposits and rare earth metals. China wants Greenland to provide exclusive rights to its rare earth metals in lieu of the fiscal investments. Under one such proposal, China would invest $2.5 billion in an iron mine and would bring 5000 Chinese construction and mining workers whereas the population of the capital of Greenland, Nuuk is only 15000.

    Arctic Council Membership:

    There are eight members of the Arctic Council that includes Canada, Denmark (including Greenland), Finland, Iceland, Norway, Russia, Sweden and the USA. All these eight countries have geographic territories within the Arctic Circle. It was constituted in 1996 as an intergovernmental body but has evolved gradually from a dialogue forum to a geo-political club and a decision making body. There are continuing territorial disputes in Arctic Circle. Ownership of the Arctic is governed by the United Nations Convention of the Law of the Sea, which gives the Arctic nations an exclusive economic zone that extends 200 nautical miles from the land. Member countries signed their first treaty on joint search and rescue missions in 2011. A second treaty on cleaning up oil spills is being negotiated. The group established its permanent secretariat at Tromso, Norway in January 2013.

    Arctic Melting and Opening of Newer Sea Lanes:

    With global warming becoming a reality, the Arctic ice has started to melt rapidly opening the northern sea-lanes that were frozen earlier. In summer of 2012, 46 ships sailed through the Arctic Waters carrying 1.2 million tonnes of cargo. There are legal questions about the international status of the northern sea lanes.

    China's Lust for Arctic Resources:

    The Arctic has 13% of the world's undiscovered oil and 30% of gas according to the US Geological Survey. Greenland alone contains approximately one tenth of the world's deposits of rare earth minerals. China which already has a monopoly on world's rare earth metal trade wants to continue controlling this global trade. China piously claims that the Arctic resources are the heritage of the entire mankind while insisting that the South China sea is its exclusive sovereign territory.

    In 2004, China set up its first and the only Arctic scientific research station, curiously named "Yellow River Station" on the Svalbard Island of Norway. China, so far, has sent 6 arctic expeditions. China plans to build more research bases. In 2012, the 170-meters long ice-breaker "Snow Dragon" (MV Xue Long) became the first Chinese Arctic expedition to sail along the Northern Sea Route into the Barente Sea. Incidentally, as early as 1999, this 21000 metric ton research ice-breaker Xue Long had docked in the Canadian North-Western territory unexpectedly. China is building another 120-meter long ice-breaker with the help of Finland while the Polar Research institute in Shanghai trains scientists and other personnel for Arctic expeditions.

    China's Previous Use of Deception:

    There is no mandarin character for word transparency. China has been known to use duplicity and deception since the Art of War was written by Sun Tzu. China's rhetoric of "peaceful and harmonious rise" and hegemonic behavior are predictably diametrically opposite to each other. China's use of deception to camouflage its intentions in geopolitical matters is not surprising. While China joined the NPT in 1991, it provided 50 kg of highly enriched uranium to Pakistan, provided that country with a nuclear weapon design and supervised Pakistan's first nuclear test at the Chinese nuclear testing site of Lop Nur. China purchased in 1998 an unfinished aircraft carrier from Ukraine after the break-up of Soviet Union ostensibly for developing a floating casino. The same "floating casino" is now China's first aircraft carrier projecting Chinese naval and maritime power in the South China Sea.

    China's Application in Arctic Council Membership:

    China currently has an ad hoc observer status with Arctic Council. China's application for permanent observer-ship was denied by Norway in 2012 owing to bilateral dispute over awarding of Nobel peace prize to China's Liu Xiabo in 2010. China still has a pending application to be decided in May 2013 Arctic Council summit in Sweden when Canada takes over the chair for the next two years. With a permanent observer status, China would get full access to all Arctic Council meetings. Permanent observers do not have voting rights in the council but can participate in deliberations.

    China is trying to distinguish itself from the rest of the applicants as a "Near Arctic State" on the perniciously clever but fallacious grounds that the northernmost part of China in the province of Manchuria (the Amur river) is only one thousand miles south to the Arctic circle. The fallacy is that Manchuria was a separate, independent country that was annexed by China after the Communist take-over. Manchus had ruled over China for centuries during the reign of Manchu dynasty and last Chinese Emperor Pu Yi was actually the last Manchu emperor. Chinese ownership and annexation of Manchuria (Manchu-Kuo) is still not settled. A disputed territory cannot be used by China to make a geo-political claim for being a "Near Arctic State".

    Other Pending Applications:

    Other countries or non-state actors with pending applications for permanent observer-ship status include Japan, South Korea, India, Singapore, European Union, and non-state actors like Greenpeace and the International Association of Oil and Gas Producers. All these applications will be decided one way or the other in May 2013. The vote has to be unanimous for acceptance and how the US and Russia will vote is the crucial issue. In the past, Norway had vetoed China's membership application. Some of the Arctic Council members may not approve European Union's application because of EU's penchant for restrictive and narrow rulings. Whereas Sweden, Canada, Iceland and Denmark may support China's application, there are doubts about Norway, Russia and the US. Russia is currently the most vociferous member of Arctic Council that has serious reservations in expanding the Arctic club.

    Strategic Issues:

    China has voracious appetite for new territories and has been seeking new frontiers for the last three hundred years with Inner Mongolia, Manchuria, Xinjiang and Tibet. China's list of "core issues" is ever-expanding, starting with Taiwan and Tibet. China has included the whole the South China Sea and its islands as a core issue. China is aggressively claiming sovereignty on these islands based on historical maps and manufactured mythological evidence. China has now a license from the UN for deep sea bed mining for minerals in the Indian Ocean and has developed naval bases in Indian Ocean and Arabian Sea ports. If China manages to get a toehold in Arctic Circle, its behavior will become as belligerent in Arctic as it is in the South China Sea. It might claim sovereignty over the whole of the Northern route sea lanes based on "historical evidence". If in 22nd century, China decides that the Arctic Circle is its core national issue, one would be seeing Chinese aircraft carriers in the Arctic Sea and Chinese nuclear powered submarines in the Barente Sea along with military bases with "Chinese characteristics" in the Iceland and Greenland...