Global Economic News

Capital Flight from Developing Sector Threatens Sovereign Defaults

Oct. 22 (EIRNS)—India, South Africa, Brazil, Mexico, Pakistan, Hungary, Argentina, Ukraine, and a host of other developing nations are all being slammed by massive capital flight, as international financial interests suck up every available penny to try to cover their own exploding derivative and other dollar obligations. The resulting collapse of the values of these national currencies, and the desperate financial straights that the countries are left in, has raised the specter of sovereign defaults by numerous nations—in the short term.

This new feature of the global financial meltdown crisis sharply underscores Lyndon LaRouche's criticism of the lunacy of those developing-sector leaders and others, in Europe and elsewhere, who welcomed the "U.S. dollar crisis" when it first exploded, arguing that it would allow them to benefit from the dollar's demise. Now that the dollar is being converted into toilet-paper, on policy directives from London, those nations are finding that their own currencies are becoming worth even less than toilet paper.

Take Hungary: On Oct. 21, the central bank raised interest rates by 3%, up to 11.5%, after a $6.7 billion loan from the European Central Bank, and promises of more from the International Monetary Fund, failed to stem the capital flight out of their currency, the forint—which has been devalued by 13% in October. This is setting off an economic depth-charge in the country, because 62% of all household debt is in foreign currency. A Bloomberg wire quoted an investment manager in Budapest saying that the central bank decision to hike interest rates was "a desperate, brutal decision. What we got here is the evaporation of global liquidity."

Other emerging situations include:

* India: The rupee fell to an all-time low against the dollar on Oct. 21, as investors bailed out of the stock market. Foreign funds have pulled $12 billion from Indian share markets so far this year, and mutual funds are also facing heavy redemption pressures from panicky investors. The turmoil "is washing up on Indian shores," said Anjan Roy, economic advisor to the Federation of Indian Chambers of Commerce and Industry.

* South Africa: The rand fell to a six-year low against the dollar Oct. 22, having lost 60% of its value this year.

* Ukraine: The government has borrowed $15 billion from the IMF, to try to bolster dwindling reserves, while scrambling to prevent the country's sixth-largest bank, Prominvestbank, from going bankrupt.

* Pakistan: Foreign exchange reserves are rapidly depleting, forcing the government to seek emergency aid in the range of $10-15 billion.

Crisis Hits World Shipping

Oct. 20 (EIRNS)—World shipping of key commodities is grinding to a halt as shippers cannot get banks to give them the credits they need to finance operations, according to numerous reports on Oct. 20. The Australian reported that the Baltic Dry Index (BDI) has plunged 80% this year. This index is a measure of commodities-shipping costs, which reflects demand and prices for bulk carriers, which is at the lowest point since November 2002, when demand for metals was low. Australia is one of the world's biggest iron ore producers. The BDI was at 1,506, down from 11,893 points in May.

The U.S. market is contracting: In September, inbound container numbers at the Port of Long Beach in California were down 15.8% from a year earlier.

China is expecting a severe downturn in shipping. China Shipping Container Lines, China's second-largest container line, expects a 10% volume shrinkage this year. Bloomberg quoted Zhang Denghui, assistant president, saying that "traffic will drop at least 10% for the full year. An even much larger drop is possible, as the full impact of the global economic turmoil is yet to come."

Also, the Pacific Basin Shipping Ltd., Hong Kong's biggest dry-bulk carrier, and Precious Shipping Pcl. said demand for moving coal, iron ore, and other commodities will fall, because banks are guaranteeing fewer loads, Taiwan's Central News agency reported today. "Letters of credit and the credit lines for trade currently are frozen," Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company, said in Singapore yesterday. "Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay."