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3/03/2015

China loans to Latin America causing alarm


Πηγή: Journal Sentinel
By Andres Oppenheimer
March2 201

A new study showing that loans from China's state-owned banks to Latin America rose by 71% last year is drawing alarm bells on both sides of the Pacific.

The study, released last week by the Inter-American Dialogue and the Global Economic Governance Initiative at Boston University, says that Chinese banks lent Latin American countries $22 billion last year, and a total of $119 billion over the past 10 years.

Chinese loan commitments to Latin America last year amounted to more than the combined loans from the World Bank and the Inter-American Development Bank, the study says.

Virtually all of Chinese banks' lending went to raw material extraction-related projects in countries that have a hard time getting loans from world markets, such as Venezuela, Argentina, Ecuador and Brazil. Cash-starved Venezuela alone got 47% of China's state-owned banks' loans to Latin America last year, it says.

Kevin P. Gallagher, a Boston University professor who co-authored the study with Margaret Myers, told me in an interview that China's loans to Latin America have been a blessing that has helped the region's economy grow in recent years. But they also have been a curse that, increasingly, poses risks for both Latin America and China, he said.

Among the downsides for Latin America:

First, Latin American countries — especially Venezuela and Argentina — are becoming increasingly indebted to China. Their debts will be increasingly hard to pay because they have to be repaid in U.S. dollars at a time when their currencies are depreciating.

"These are dollar-denominated debts," Gallagher says. "With commodity prices going down, economic growth going down, and their currencies depreciating, the risk is that what looked like manageable debt one day may be unmanageable debt the next day."

Second, Latin America's China dependence has made the region's manufacturing industries less competitive in world markets.

In recent years, China's massive purchases of Latin America's primary commodities such as copper, iron and soybeans helped Latin America grow at record rates. But it also boosted world commodity prices, causing Latin American currencies to appreciate, and has made the region's non-commodity exports — such as electronics and textiles — more expensive to sell in global markets.

In 2000, Latin America and China both had 9% of the world computer hardware market. But by 2011, Latin America had 6% of the world computer market, and China had 55% of it, Gallagher said.

"Latin America failed to take advantage of the massive profits from commodity exports

to reinvest them into upgrading industrial competitiveness," he said. "Today, the region is facing low commodity prices and lacks competitive industries."

Third, China's loans, which come with very few strings attached, pose significant political and environmental risks. Because they don't demand recipient governments to follow strict environmental or anti-corruption standards, they can lend themselves to government abuses.

In Brazil and Ecuador, China's loans to major mining projects are already drawing protests from indigenous people and international environmental groups.

Fourth, Chinese loans are perpetuating Latin America's dependence on commodity exports, especially in South America, at a time when commodity prices are plummeting.

"It continues to lock in the region's commodity-centric model, which for decades has made Latin American economies boom and bust. They need to have both commodities exports and industries to raise their standards of living," he said.

Gallagher, who is also the author of a forthcoming book titled "Saving the China Boom," said China's massive loans to Latin America also have a downside for Chinese banks.

"Chinese banks are overexposed to Argentina and Venezuela," he said. "What happens if one of these countries defaults? These loans do not have default cla

uses, at least not that we know of."

My opinion: In many ways, China's massive commodity purchases and investments have been a blessing for South American countries over the past decade.

But there are growing concerns from both economists following China and in Latin America that China's state-run bank loans will leave the region over-indebted and more commodity-dependent than ever.
In Brazil and Argentina, leading private sector associations and independent economists have been voicing these concerns publicly in recent weeks.

The biggest problem with China's loans is that they have helped generate a culture of complacency in Latin America, which has badly hurt the region's

high-tech and manufacturing exports.

Latin America should welcome these loans, but — as Gallagher said — use them to promote innovation and make their high-tech and manufacturing industries more competitive. Otherwise, loans from China's state banks will do more harm than good.


3/02/2015

Reports: Turkey to help US to liberate Mosul


Πηγή: Breitbart
By Edwin Mora
March 2 2015


The U.S. is now considering launching airstrikes against Islamic State (ISIS, ISIL) targets inside Mosul for months prior to sending in Iraqi ground troops to recapture the city.

“Under the evolving plan, the U.S. would use its air power in the coming months to further isolate

Mosul and weaken the hold of Islamic State fighters on the city. Under this approach, U.S. airstrikes would be focused on picking off Islamic State leaders to undermine their ability to command and control their forces,” reported The Wall Street Journal (WSJ) on Friday.

Unnamed U.S. officials told WSJ that “the on-the-ground fight to retake Mosul isn’t likely to start until the fall at the earliest, after an intensified air campaign to target Islamic State leaders and cut off supply lines in and around the city.”

Kurdish media service Rudaw reported on Sunday that Turkey has decided to help retake Mosul, Iraq’s second largest city, which is still under the control of ISIS.

Asil Nujaifi, the exiled governor of Mosul, told Rudaw that Turkey “has agreed to send weapons and supplies for recapturing Mosul.”

Initially, the U.S. plan was to launch a spring ground offensive to drive ISIS out of Mosul.

An official from U.S. Central Command (Centcom), speaking on condition of anonymity, told reporters on February 19 that the U.S. and Iraq would start a campaign to liberate Mosul by April or May.

“I really doubt it is going to happen that soon,” one U.S. military official told The Daily Beast on condition of anonymity after the Centcom official revealed the Mosul plan to reporters. “And if it does, it will take months.”

Anonymous U.S. military officials are now telling The Journal that it will take “many
months” to prepare Iraqi’s best military units to successfully retake Mosul so they are rethinking the original plan.

“When we feel that the Iraqi forces are ready to go and win decisively, we will go and advise the Iraqis to begin the operation,” a military official told WSJ.

Unnamed officials also told The Journal that “the U.S. believes that a force of around 20,000 fighters will be needed to liberate and hold Mosul.”

Last Friday, Rear Adm. John Kirby, the Pentagon press secretary, told reporters, “We’re not going to be able to go, nor do we want to go any faster than the Iraqis are ready to go.”

Kirby would not rule out an April offensive in Mosul, saying there are no timelines. He acknowledged that any operation to retake Mosul would involve a tough fight.

Lies and myths about Greece and Europe’s debt



Πηγή: People's World
By Conn Hallinan 
March 2 2015

Myths are dangerous precisely because they rely more on cultural memory and prejudice than facts, and behind the current crisis between Greece and the European Union (EU) lays a fable that bears little relationship to why Athens and a number of other countries in the 28-member organization find themselves in deep distress.

The tale is a variation of Aesop's allegory of the industrious ant and the lazy, fun-loving grasshopper, with the "northern countries" - Germany, the Netherlands, Britain, Finland - playing the role of the ant, and Greece, Spain, Portugal, and Ireland the part of the grasshopper.

The ants are sober and virtuous - led by the frugal Swabian housefrau, German Chancellor Angela Merkel - the grasshoppers are spendthrift, corrupt lay-abouts who have spent themselves into trouble and now must pay the piper.

The problem is that this myth bears almost no relationship to the actual roots of the crisis or what the solutions might be. And it perpetuates a fable that the debt is the fault of individual countries rather than a serious crisis at the very heart of the EU.

First, a little myth busting.

The European debt crisis goes back to the end of the roaring '90s when the banks were flush with money and looking for ways to raise their bottom lines. One major strategy was to pour money into real estate, which had the effect of creating bubbles, particularly in Spain and Ireland. In the latter, from 1999 to 2007, bank loans for Irish real estate jumped 1,730 percent, from 5 million Euros to 96.2 million Euros, or more than half the GDP of the Irish Republic. Housing prices increased 500 percent. "It was not the public sector but the private sector that went haywire in Ireland," concludes Financial Times analyst Martin Wolf.

Spain, which had a budget surplus and a low debt ratio, went through much the same process, and saw an identical jump in housing prices: 500 percent.

In both countries there was corruption, but it wasn't the penny ante variety of tax evasion or profit skimming. Politicians - eager for a piece of the action and generous "donations" - waived zoning rules and environmental regulations, and cut sweetheart tax deals. Hundreds of thousands of housing projects went up, many of them never to be occupied.

Then the American banking crisis hit in 2008, and the bottom fell out. Suddenly, the ants were in trouble. But not really, because the ants have a trick: they gamble and the grasshoppers pay.

The "trick," as Joseph Stiglitz, Nobel Laureate in economics, points out, is that Europe (and the U.S.) have moved those debts "from the private sector to the public sector - a well-established pattern over the past half-century."

Fintan O'Toole, author of "Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger," estimates that to save the Irish-Anglo Bank, Irish taxpayers shelled out 30 billion Euros, a sum that was the equivalent of the island's entire tax revenues for 2009. The European Central Bank - which, along with the International Monetary Fund (IMF) and the European Commission, make up the "Troika" - strong-armed Ireland into adopting austerity measures that tanked the country's economy, doubled the unemployment rate, increased consumer taxes, and forced many of the country's young people to emigrate. Almost half of Ireland's income tax now goes just to service the interest on its debts.

Poor Portugal. It had a solid economy and a low debt ratio, but currency speculators drove up interest rates on borrowing beyond what the government could afford, and the European Central Bank refused to intervene. The result was that Lisbon was forced to swallow a "bailout" that was laden with austerity measures that, in turn, torpedoed its economy.

In Greece's case corruption was at the heart of the crisis, but not the popular version about armies of public workers and tax dodging oligarchs. There are rich tax dodgers aplenty in Greece, but Germany, Sweden, and many other European countries spend more of their GDP on services than does Athens. Greece spends 44.6 percent of its GDP on its citizens, less than the EU average and below Germany's 46 percent and Sweden's 55 percent.

And as for lazy: Greeks work 600 hours more a year than Germans.

According to economist Mark Blyth, author of "Austerity: The History of a Dangerous Idea," Greek public spending through the 2000s is "really on track and quite average in comparison to everyone else's," and the so-called flood of "public sector jobs" consisted of "14,000 over two years." All the talk of the profligate Greek government is "a lot of nonsense" and just "political cover for the fact that what we've done is bail out some of the richest people in European society and put the cost on some of the poorest."

There was a "score" in Greece. However, it had nothing to do with free spending, but was a schemedreamed up by Greek politicians, bankers, and the American finance corporation, Goldman Sachs.

Greece's application for EU membership in 1999 was rejected because its budget deficit in relation to its GDP was over 3 percent, the cutoff line for joining. That's where Goldman Sachs came in. For a feerumored to be $200 million (some say three times that), the multinational giant essentially cooked the books to make Greece look like it cleared the bar. Then Greece's political and economic establishment hid the scheme until the 2008 crash shattered the illusion.

It was the busy little ants, not the fiddling grasshoppers, that brought on the European debt crisis.

American, German, French, and Dutch banks had to know that they were creating an unstable real estate bubble - a 500 percent jump in housing prices is the very definition of the beast - but kept right on lending because they were making out like bandits.

When the bubble popped and Europe went into recession, Greece was forced to apply for a "bailout" from the Troika. In exchange for 172 billion Euros, the Greek government instituted an austerity program that saw economic activity decline 25 percent, and unemployment rise to 27 percent (and over 50 percent for young Greeks). The cutbacks slashed pensions, wages, and social services, and drove 44 percent of the population into poverty.

Virtually all of the "bailout" - 89 percent - went to the banks that gambled in the 1999 to 2007 real estate casino. What the Greek - as well as Spaniards, Portuguese, and Irish - got was misery.

There are other EU countries, including Italy and France that, while not in quite the same boat as the "distressed four," are under pressure to bring down their debt ratios.

But what are those debts?


This past summer, the Committee for a Citizen's Audit on the Public Debt issued a report on France, a country that is currently instituting austerity measures to bring its debt in line with the magic "three percent" ratio. What the committee concluded was that 60 percent of the French public debt was "illegitimate."

More than 18 other countries, including Brazil, Portugal, Ecuador, Greece and Spain, have done the same "audit," and, in each case, found that increased public spending was not the cause of deficits. From 1978 to 2012, French public spending actually declined by two GDP points.

The main culprit in the debt crisis was a fall in tax revenues resulting from massive tax cuts for corporations and the wealthy. According to Razmig Keucheyan, sociologist and author of "The Left Hemisphere," this "neoliberal mantra" that was supposed to increase investment and employment did the opposite.

According to the study, the second major reason was the increase in interest rates that benefits creditors and speculators. Had interest rates remained stable during the 1990s, debt would be significantly lower.

Keucheyan argues that tax reductions and interest rates are "political decisions" and that "public deficits do not grow naturally out of the normal course of social life. They are deliberately inflicted on society by the dominant classes to legitimize austerity policies that will allow the transfer of value from the working classes to the wealthy ones."

The International Labor Organization recently found that wages have, indeed, stalled or declined throughout the EU over the past decade.

The audit movement calls for repudiating debt that results from "the service of private interests" as opposed to the "wellbeing of the people." In 2008, Ecuador canceled 70 percent of its debt as "illegitimate."

How this plays out in the current Greek-EU crisis is not clear. The Syriza government is not asking to cancel the debt - though it would certainly like a write-down - but only that it be given time to let the economy grow. The recent four-month deal may give Athens some breathing room, but the ants are stilldemanding austerity and tensions are high.

What seems clear is that Germany and its allies are trying to force Syriza into accepting conditions that will undermine its support in Greece and demoralize anti-austerity movements in other countries.

The U.S. can play a role in this - President Obama has already called for easing the austerity policies - through its domination of the IMF. By itself Washington can outvote Germany, the Netherlands, and Finland, and could exert pressure on the two other Troika members to compromise. Will it? Hard to say, but the Americans are certainly a lot more nervous about Greece exiting the Eurozone than Germany.

But the key to a solution is exploding the myth.

That has already begun. Over the past few weeks, demonstrators in Greece, Spain, Italy, Germany, Portugal, Great Britain, Belgium and Austria have poured into the streets to support Syriza's stand against the Troika. "The Left has to work together having as its common goal the elimination of predatory capitalism," says Maite Mola, vice-president of the European Left organization and member of the Portuguese parliament. "And the solution should be European."

In the end, the grasshoppers might just turn Aesop's fable upside down.

This article originally appeared at Conn Hallinan's blog, Dispatches From the Edge.