Friday, February 11, 2005


Privatisation or nationalisation?

This year's G8 will be momentous. The global economy is suffering mounting stress. Apart from governments interfering in exchange rates, some are prepared to reverse the global trend of privatisation. A recent example is reported - 'Russia bars foreign-owned firms from key assets':

The Ministry for Natural Resources said companies would have to be at least 51 per cent Russian-owned to take part in this year's tenders for strategic oil and metals deposits. The rule may prevent oil companies such as ExxonMobil and ChevronTexaco from developing new Russian oil reserves, and also stymie TNK-BP, a pioneering 50-50 owned Anglo-Russian oil company.

The ban is part of an increasingly clear trend by the Russian government to reassert control over strategic areas of the country's economy and keep foreigners out of the most lucrative assets. It comes days after Russian officials suggested that Siemens should not be allowed to buy Russia's engineering company Power Machines, which is also considered a strategic asset.

Thursday, February 10, 2005


G8 agenda - the international financial architecture

Research by the UK media into 'Black Wednesday' is providing compelling reasons for rethinking the international financial architecture. Floating or fixed exchange rates?

But returning to fixed exchange rates means that national governments would have to comply with monetary discipline, if they want to take part in the global economy. In the early 1970's, it was agreed that the global system of fixed rates (currencies linked to gold) should scrapped. Thereafter, floating currencies became the practice. However, since then, the European Union have tried to reinstate some control, by introducing broad guidelines for the public finances of their member states (Stability and Growth Pact). Moreover, certain countries are pegging to the dollar. Fixed rates are on the way back - unofficially in some cases.

The banking industry isn't too keen on fixed exchange rates. They mauled the UK taxpayer in 1992. The events surrounding 'Black Wednesday', when the UK Treasury used up $40bn in reserves in the failed attempt to prop up the pound, hobbled progress in moving to the protection for taxpayers of fixed rates.

Floating or fixed?

Sunday, February 06, 2005


G8 agenda item - creating order in the international economy?

The governor of the Bank of England is calling for a rethink of the International Monetary Fund. At the G7 meetings in London last week he found some support for the idea from the chairman of the US Federal Reserve and the governor of the central bank of China.

A former chief economist of the IMF published in January some thoughts about reform. It seems the plan is to reflect the realities of the global economy in the past 60 years, and invite emerging markets to buy a bigger say in governance of the global economy.

There has been a lot of rhetoric the last few years about how governance of the international financial system ought to be made more "democratic." Recent victims of emerging market debt crises like Brazil, Turkey, Argentina and others, are particularly peeved. They want more say over the conditions attached to vast bailout packages from the International Monetary Fund, the UN family organization charged with helping to maintain global financial stability. To some extent, the critics have a point. . . This perceived "democratic deficit" has increasingly become a serious challenge to the Fund's political legitimacy and its ability to effectively stabilize crisis situations.

What if middle income emerging market countries assumed real power by putting up a much larger share of the capital needed to fund each others' bailouts? . . .China alone, with over $500 billion in reserves, has more than enough to recapitalize the $150 billion dollar International Monetary Fund three times over. Even Latin America, whose dollar reserves are dwarfed by Asia's and Russia's, could easily buy out Europe's shares in the Fund.

These days, the Fund doesn't have the money to bail out a United States or a Japan. Instead, it is middle income countries like Brazil, Turkey, Russia and China that care the most about Fund bailout policies.

International bankers think reform is necessary. Shouldn't the agenda of the G8 reflect the concern of these experts?

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