Tag Archives: geoeconomics

Resuscitating Democracy: the role of Wikileaks

wikileaks ttip

On August 11, 2015 WikiLeaks has launched a campaign to crowd-source a €100,000 reward for Europe’s most wanted secret: the Transatlantic Trade and Investment Partnership (TTIP).

Starting pledges have already been made by a number of high profile activists and luminaries from Europe and the United States….Since it began to face opposition from BRICS countries at the World Trade Organisation, US policy has been to push through a triad of international “trade agreements” outside of the WTO framework, aimed at radically restructuring the economies of negotiating countries, and cutting out the rising economies of Brazil, Russia, India, China and South Africa (BRICS).

The three treaties, the “Three Big T’s”, aim to create a new international legal regime that will allow transnational corporations to bypass domestic courts, evade environmental protections, police the internet on behalf of the content industry, limit the availability of affordable generic medicines, and drastically curtail each country’s legislative sovereignty.  Two of these super-secret trade deals have already been published in large part by WikiLeaks – the Transpacific Partnership Agreement (TPP) and the Trade in Services Agreement (TISA) – defeating unprecedented efforts by negotiating governments to keep them under wraps.

But for Europeans the most significant of these agreements remains shrouded in almost complete secrecy. The Transatlantic Trade and Investment Partnership (TTIP), which is currently under negotiation between the US and the European Union, remains closely guarded by negotiators and big corporations have been given privileged access. The public cannot read it.

Today WikiLeaks is taking steps to ensure that Europeans can finally read the monster trade deal, which has been dubbed an “economic NATO” by former US Secretary of State Hillary Clinton.  Using the new WikiLeaks pledge system everyone can help raise the bounty for Europe’s most wanted leak. The system was deployed in June to raise a $100,000 bounty for the TTIP’s sister-treaty for the Pacific Rim, the TPP.

The pledge system has been hailed by the New York Times as “a great disrupter”, which gives “millions of citizens… the ability to debate a major piece of public policy,” and which “may be the best shot we have at transforming the [treaty negotiation] process from a back-room deal to an open debate.”

WikiLeaks founder Julian Assange said,

“The secrecy of the TTIP casts a shadow on the future of European democracy. Under this cover, special interests are running wild, much as we saw with the recent financial siege against the people of Greece. The TTIP affects the life of every European and draws Europe into long term conflict with Asia. The time for its secrecy to end is now.”

Excerpts from WikiLeaks goes after hyper-secret Euro-American trade pact

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Unhooking from US Companies: China

ibm china

E-commerce companies and banks in China are scrapping hardware and uninstalling software for mainframe servers made by American suppliers in favor of homegrown brands said to be safe, advanced and a lot less expensive.Domestic rivals of these companies such as Huawei Technology Co. and Inspur Co. are winning contracts from state company and bank IT departments at an accelerating rate.

Some companies, such as e-commerce giant Alibaba Group, have been building internal computer networks with open-source software and commonly available hardware.  The movement dates to 2008, when Alibaba’s computer-network department director Wang Jian proposed cutting back on foreign suppliers and replacing their wares with equipment and technology developed almost entirely in-house. What Wang wanted to get rid of most was the so-called IOE system, an acronym for an IT network based on the names of three suppliers: IBM, whose servers are packaged with the Unix operating system; Oracle, which supplies database-management systems; and EMC, the maker of data-storage hardware. Wang dubbed his campaign the “De-IOE Movement.”

Wang decided to revamp Alibaba’s network by replacing its Unix-based servers with less expensive, X86-based PC servers running on the open-source Linux operating system. In such a system, several PCs with X86 microprocessors inside can be linked in a chain to function as a server, replacing a mainframe server. The e-commerce company also built a database management-system of its own with an open-source structure, and started storing data on an internal cloud-storage system…

De-IOE Movement milestones were reached in May 2013 when Alibaba pulled the plug on its last IBM server, and two months later when Alibaba’s advertising department abandoned its Oracle database. The rest of the company’s databases are scheduled to switch to a homegrown system from Oracle’s by 2015.

IT departments at companies and banks across the country are now following Alibaba’s example — and hitting their longtime American suppliers in the pocketbook.  The switch to servers made at home has been a slow process for Chinese banks. Ultimately, the banks’ IT experts have been making these decisions, although they’re being encouraged by the government to choose Chinese suppliers, according to a source close to the China Banking Regulatory Commission.  [But]

“Getting rid of IOE means that all of the software must be moved and made compatible to domestic server systems, which seems to be a mission impossible,” said the consultant…And replacement costs can be astronomical. “The basic technology networks for an IOE system and a ‘De-IOE’ system are totally different,” said another source a state bank. “De-IOE will lead to transforming personnel and management. It’s hard to estimate how high the costs will be.”  Ultimately, said the IT consultant, Chinese banks will only manage to kill off IOE systems if products made by Chinese suppliers can provide comparable security and capacity levels, and if the new hardware and software are compatible.

China pulling the plug on IBM, Oracle, others, MarketWatch June 26, 2014

Monetary Implications of Geopolitics: Russia, United States, Ukraine

EE_Savings_Bond The record drop in U.S. government securities held in custody at the Federal Reserve is fueling speculation that Russia may have shifted its holdings out of the U.S. as Western nations threaten sanctions.  Treasuries held by foreign central banks dropped by $104 billion to $2.86 trillion in the week ending March 12, 2014 according to Fed data as the turmoil in Ukraine intensified. As of December, Russia held $138.6 billion of Treasuries, making it the ninth largest country holder. Russia’s holdings are about 1 percent of the $12.3 trillion in marketable Treasuries outstanding, according to data compiled by Bloomberg.  “The timing of the drop in custody holdings makes Russia a more likely suspect,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. in a telephone interview. “If Russia did it, then they may have transferred the holdings to another bank outside of the U.S.”  Crimea is preparing for a March 16 referendum on splitting from Ukraine after Russia seized the peninsula. Secretary of State John Kerry warned Russia that the U.S. and Europe could take serious action after the referendum should there be no sign of a resolution to the Ukraine crisis.” The decrease in custody holdings at the Fed spurred speculation Russia may have moved to raise funds to defend its currency as the turmoil worsens. The ruble has declined 10.3 percent against the dollar this year and reached a record low 36.9 per dollar on March 3. It declined 0.2 percent today to 36.6.  “If they were selling to defend the currency, the market would have felt the impact on yields more substantially,” said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA. Central banks at the end of last year may have been adding to their holdings in Europe, such as Belgium’s central bank. Belgium custodial holdings of Treasuries rose by 28 percent in December to $256.8 billion, according to Bloomberg data.  “A lot of people are looking at Belgium,” Keeble said, referring to shifts in foreign reserves. Foreign holdings of Treasuries totaled a record $5.79 trillion at the end of last year (2013), according to Treasury data released in February. Fed holdings for its own account were $2.2 trillion. The U.S. central bank has begun tapering its monthly purchases of Treasuries to $35 billion as it winds down monetary stimulus that was designed to help foster economic growth.  China, the biggest foreign U.S. creditor, held $1.27 trillion of U.S. government bonds as of December. Japan is the second-largest holder at $1.18 trillion. Susanne Walker , Fed Custody Holdings Record Decline Fuels Russia Speculation, Bloomberg, Mar 14, 2014

The Thirst for Commodities: loans-for-oil deals

china latin america

China’s demand for commodities has entrenched Latin America’s position as a supplier of raw materials. The country guzzles oil from Venezuela and Ecuador, copper from Chile, soyabeans from Argentina, and iron ore from Brazil—with which it signed a corn-import deal on April 8th.   Chinese lending to the region also has a strong flavour of natural resources. Data are patchy, but according to new figures from the China-Latin America Finance Database, a joint effort between the Inter-American Dialogue, a think-tank, and Boston University, China committed almost $100 billion to Latin America between 2005 and 2013 (see chart). The biggest dollops by far have come from the China Development Bank (CDB). These sums are meaningful. Chinese lenders committed some $15 billion last year; the World Bank $5.2 billion in fiscal year 2013; foreign commercial banks lent an estimated $17 billion.

More than half of China’s lending to Latin America has been swallowed by Venezuela, which pays much of the loan back from the proceeds of long-term oil sales to China. Ecuador has struck similar deals, as has Petrobras, Brazil’s state-controlled oil firm, which negotiated a $10 billion credit line from CDB in 2009.

Such loan-for-oil arrangements suit the Chinese, and not simply because they help secure long-term energy supplies. They also reduce the risk of lending to less creditworthy countries like Venezuela and Argentina. Money from oil sales is deposited in the oil firm’s Chinese account, from where payments can be directly siphoned.  It is no surprise that Chinese money is welcome in places where financial markets are wary. Ecuador, which defaulted on its debts in 2008, has used Chinese loans both to fill in holes in its budget and to re-establish a record of repayment in advance of trying to tap bond markets again.

But Chinese credit has its attractions in other economies, too. It often makes sense for countries to diversify sources of lending. Loans can open the door to direct investment. And as Kevin Gallagher of Boston University points out, the Chinese banks operate in largely different sectors to the multilaterals. Of the money China has lent in the region since 2005, 85% has gone to infrastructure, energy and mining. Borrowers may have to spend a proportion of their loan on Chinese goods in return; some observers worry about the laxer environmental standards of Chinese banks. But the main thing is that money is available. Expect the loan figures to rise.

Chinese lending to Latin America: Flexible friends, Economist,  Apr. 12, 2014, at 27

Why Germany Loves Russia: geo-economics in action

merkel putin

Chancellor Angela Merkel’s deputy chided Siemens AG (SIE) Chief Executive Officer Joe Kaeser for traveling to Moscow, saying German companies shouldn’t sell out European values to protect business with Russia.   The conflict over Kaeser’s meeting with President Vladimir Putin last week underscores the rival forces tugging at Merkel during the crisis in Ukraine. While the European Union and the U.S. seek to punish Russia for annexing Crimea, many German corporate leaders view Putin as an economic partner.

Frankly, I found the scene a bit off-key,” Economy and Energy Minister Sigmar Gabriel, a Social Democrat who is also vice chancellor, said of Kaeser’s trip to Moscow in an interview with ARD television yesterday, according to an e-mailed transcript. “We don’t want economic sanctions, but we also have to show the Russian president that we can’t accept” his “imperial policy.”

Merkel, who learned Russian while growing up in communist East Germany, heads Russia’s biggest EU trading partner during the worst standoff since the end of the Cold War. Putin risks a “tough reaction” from EU governments if he escalates the crisis over Ukraine, she said on March 26.  While Merkel has said Germany could withstand the economic impact of European economic sanctions against Russia, the heads of Adidas AG (ADS), ThyssenKrupp AG (TKA) and Deutsche Post AG (DPW) questioned the need for sanctions, according to the transcript of a round-table interview with the Die Welt newspaper published two days ago. It showed the CEOs saying EU policy makers mishandled their engagement with Ukraine while affronting Russia.

Asked if Putin must be stopped, Adidas CEO Herbert Hainer said, “I’d turn the question around,” according to Die Welt. “I wonder if one shouldn’t have included Putin in the process much earlier, rather than starting talks when it’s too late.” ThyssenKrupp CEO Heinrich Hiesinger said “Russia felt cornered.” Deutsche Post CEO Frank Appel said the U.S. and its allies had meddled “in the front yard of another big power” and questioned calls by EU leaders including Merkel to review Europe’s energy ties with Russia, saying Germany “will always be dependent on others” for fossil fuel, according to Die Welt.

Kaeser said meeting with Putin showed that Munich-based Siemens, Europe’s biggest engineering company, “won’t be overly influenced by short-term turbulences” involving Russia. “We’re counting on dialogue and mutual understanding,” he said in a ZDF television interview after returning from his trip, which he said Merkel’s chancellery knew about in advance.

By Tony Czuczka, Siemens CEO Rebuked as German Business Defends Putin Partnership Bloomberg, Mar 30, 2014

What Helium Does to the World

Hindenburg_burning

Helium  is used in a range of applications from welding and fibre-optic technology to deep-sea diving. Super-cold liquid helium is essential to making and running the superconducting magnets for MRI scanners and to manufacturing electronic devices from TVs to phones… A third of the world’s helium [ 2.1 billion cubic feet a year  out of a global market of 6.3 billion] comes from an underground reservoir in Texas built up under government auspices and run by the Bureau of Land Management. Such was the supposed strategic value of helium, a by-product of natural gas, that a reserve was created in 1925 to supply the gas to inflate airships. So jealously did America guard its helium that other countries had to fill dirigibles with flammable hydrogen—the Hindenburg was one of dozens that went up in flames as a result.

Once airships had drifted out of fashion, helium remained crucial to the space race and nuclear-weapons development. Nonetheless overall demand tapered. By the mid-1990s the cost of running the Federal Helium Reserve, which bought all the helium that gas firms could produce, was too steep to justify a buffer that was not needed. Lawmakers decided to close it and sell most of the accumulated helium to pay off debts of $1.4 billion….

Helium demand has grown by around 5% a year since 2000 with the advent of new applications, such as MRI scanners. Prices have doubled over the past five years. America’s conventional gasfields, the source of most helium, are depleting and ways to plug the gap left by the rundown of the reserve have proved difficult to develop. New plants in America and Australia are producing the gas but mishaps and technical difficulties at other new refineries in Qatar and Algeria have crimped supplies. This has encouraged firms such as Siemens and GE to look for substitutes for helium. As a result demand may expand by only 2.5% a year for the next decade or two, according to John Raquet of Spiritus Group, a consultancy.

Relief for the helium market seems destined to come from Russia, long a minor producer. The country has the wherewithal to create a reserve of its own. Gazprom appears to be gearing up to become a big supplier by 2018, just as America’s reserve is set to run dry (if it secures the cash to continue past October). Not everyone will be pleased that an arm of the Russian state may in future hold sway over their medical treatment and their children’s parties.

Helium: Inflation Warning, Economist, Sept. 28, 2013, at 68

Latin America Trade: Pacific Alliance v. Mercosur

Brazil-Uruguay frontiers

On May 23rd, 2013 in the Colombian city of Cali the presidents of four Latin American countries—Chile, Colombia, Mexico and Peru—signed  an agreement removing tariffs on 90% of their merchandise trade. They will also agree on a timetable of no more than seven years for eliminating tariffs on the remaining 10%. They have already removed visa requirements for each other’s citizens and will proclaim their aspiration to move swiftly towards setting up a common market.  The Pacific Alliance, as the group calls itself, is “the most exciting thing going on in Latin America today”, according to Felipe Larraín, Chile’s finance minister. Some outsiders think so, too. Costa Rica and Panama want to join; Canada’s prime minister, Stephen Harper, and his Spanish counterpart, Mariano Rajoy, have said they will attend the Cali meeting as observers.

Behind the excitement is the sense that the Pacific Alliance is a hard-nosed business deal, rather than the usual gassy rhetoric of Latin American summitry. Under the leftist governments that rule in much of South America, there has been plenty of talk of regional integration, but precious little practice of it. Intra-regional trade makes up just 27% of total trade in South and Central America, compared with 63% in the European Union and 52% in Asia….

The four founding members are free-market and mainly fast-growing economies which have embraced globalisation, with a web of regional trade-agreements and expanding commercial ties to Asia. Their combined GDP is around $2 trillion—35% of the Latin American total and not much less than that of Brazil, the region’s gian.

The private sectors in the member countries have played a big role in setting the Alliance’s priorities. The stock exchanges of Chile, Colombia and Peru have created a single regional bourse. Negotiators are working to smooth border procedures and standardise rules, such as on labelling. They are making progress in talks to harmonise the rules of origin—how much local content goods must have to be tariff-free—in their existing trade agreements with each other. “They are trying to resolve the problem of the spaghetti bowl of regional trade-agreements,” says Antoni Estevadeordal of the Inter-American Development Bank. This “exercise in regulatory convergence” could be a model for other parts of the world, he adds.

The Pacific Alliance marks a return to the principles of “open regionalism”—the idea, prevalent in Latin America in the 1990s, that opening up to world trade would be more advantageous if combined with creating a deeper regional market, to reap economies of scale. This idea lay behind the founding in 1991 of Mercosur, a group originally comprising Argentina, Brazil, Paraguay and Uruguay.  But the left-wing governments in charge of those countries for much of the past decade have turned Mercosur into a different kind of enterprise. “Today it is almost wholly a political front” with “protectionist internal tendencies which frequently collide with Mercosur’s original principles,” according to Luiz Felipe Lampreia, a former foreign minister of Brazil.  This was underlined last year when the other members suspended Paraguay (because of the impeachment of its left-wing president) and admitted Venezuela, then governed by Hugo Chávez. Under Brazil’s aegis, much of Chávez’s anti-American ALBA block is being absorbed by Mercosur. On May 9th Brazil’s president, Dilma Rousseff welcomed Nicolás Maduro, Chávez’s chosen successor who was narrowly elected as president last month, and affirmed their “strategic partnership”. Brazil is also seeking closer ties with Cuba, which this month offered to send 6,000 doctors to the country.  Brazil’s two main regional partners, Argentina and Venezuela, have slow-growing, state-controlled economies, and their policies flirt with autarchy. That makes them captive markets for Brazilian construction companies and exporters of otherwise uncompetitive capital goods. Brazil had a trade surplus of $4 billion with Venezuela last year.

In the wider world, Mercosur has signed regional trade agreements only with Israel, Egypt and the Palestinian Authority. Argentina has stalled a proposed trade deal with the European Union, on which talks began in 1999. Brazil’s bet has been on the Doha round of world trade talks. It was cheered when Roberto Azevêdo, a Brazilian diplomat, was chosen this month to head the World Trade Organisation (WTO). But many trade specialists consider the Doha round all but dead and the WTO increasingly irrelevant….

In its short life, the Pacific Alliance has proved to be a brilliant piece of diplomatic marketing. Now it has to add substance

Latin American geoeconomics: A continental divide, Economist, May 18, 2013, at 38

See also ALBA