Global Economic News

British IMF Mouthpiece Tells Russia, China To Dump the Dollar

May 28 (EIRNS)—Martin Gilman, a London School of Economics graduate who formerly was the IMF's representative in Moscow, is egging the Kremlin on in pursuit of the worse-than-useless "ruble as reserve currency" scheme. The Moscow Times of May 13 published Gilman's guest article, "Ruble Reserve Currency May Not Be So Crazy." None of the necessary preconditions for the ruble to function as a reserve currency has been fulfilled, wrote Gilman, but recent days of panic in the U.S. bond market "could be ominous for the future of the dollar."

Fanning fears of a dollar collapse, IMF veteran Gilman called for China and Russia to dump the dollar. "These worried dollar holders have thus far refrained from dumping U.S. Treasury securities only because their prices were rising and the dollar has strengthened over the past year—both of which are almost certainly temporary.... Last week's disappointing auction of Treasury bonds must tempt some to book their profits before the stampede begins. Big conversions by Russia, China or another large holder, or even market fears thereof, could trigger a massive run on the dollar." Now that "doesn't guarantee a global future for the ruble, but it does increase the likelihood that reserve currency substitutes will be in demand."

South Korea, Japan To Be Hit by GM Bankruptcy

May 28 (EIRNS)—Officials in South Korea are reviewing various options to reduce the damage from the expected bankruptcy of GM next week.

GM holds a 72% stake in GM Daewoo, its South Korean carmaker, with the remainder being controlled by state-run Korea Development Bank (KDB). It produces mostly small cars, almost 90% of which are exported. The government is also trying to preserve the more than 800 parts and components companies that deal with GM Daewoo. There is some discussion of KDB providing fresh funds, but that is by no means certain.

GM has no presence directly in Japan, but does business with over 100 Japanese parts suppliers, and has joint ventures with several Japanese carmakers in the U.S. and Canada. The GM bankruptcy will create significant bad debt for the Japanese parts firms, which are already burdened by substantially reduced demand from their Japanese auto company customers.

Post-Vietnam War Globalization Boom Has Gone Bust

May 27 (EIRNS)—Vietnam fought and suffered for 30 years after World War II to throw out colonialism and become truly independent. Little more than a decade after success in that struggle, the brave but naive Vietnamese nation was seduced by the promise of prosperity by becoming a willing partner in the globalization process, selling its citizens' labor power cheap, with the hope of obtaining development in return.

That dream has collapsed as the international system has disintegrated.

In the first five months of this year, new foreign capital coming into the country has dropped to just $6.68 billion, a full 76% lower than the corresponding period last year. Foreign-invested projects collapsed by a shocking 89%, to only $2.7 billion.

Foreign capital found Vietnam attractive only as long as it could produce basic exports at one of lowest labor costs in Asia, but the Vietnam export market has disappeared, exports for the period being down 37%. Thus, no market, no profits, no foreign investment coming in.

And, as in China, masses of the rural population who were drawn to the export production centers for wages, have become unemployed. And being unemployed in the cities with no prospects, they return to their villages, where there is neither employment nor social services to maintain them.

Brits To Demand U.S. Protection of Off-Shore Tax Havens

May 24 (EIRNS)—British banks and stockbrokers are threatening to boycott U.S. customers over the Obama Administration's proposals to crack down on offshore tax evasion, the London Sunday Telegraph reports. The Brits claim that it could become too expensive to service American accounts, if they are required to police their clients to make sure they're not evading taxes. "The danger to us is being hauled over the coals by the IRS for a client that hasn't paid proper taxes."

A delegation of British bankers and private investment managers is meeting with the U.S. Treasury and IRS on June 16 to demand they drop the planned reforms.

Next Ukrainian Gas Crisis Pre-Programmed, Say Russian, Italian Experts

May 27 (EIRNS)—In the framework of the Rome energy summit, Russian Energy Minister Sergei Shmatko warned that Ukraine is not stocking gas. "Kiev has not yet started to pump gas in order to stock their reserves," Shmatko said. Ukraine's reserves amount to 19 billion cubic meters, and cost $5 billion. Russia "is ready to support Ukraine, but we must not be left alone," he said. If Ukraine keeps delaying the pumping, "there will no longer be time to fill their reserves." Shmatko said Russia informed the EU, but the EU "has no clear position."

Although Ukraine still pays 20% lower than the market price for Russian gas, the Kiev government is bankrupt and is not buying gas. The situation will worsen in 2010, when Kiev must pay the full market price. Paolo Scaroni, CEO of the Italian national oil and gas company, ENI, said that Ukraine "is not filling its stocks because it has no money to pay for the supplies. It is not a political problem. It is an economic problem." This means that another gas crisis, with Kiev tapping into gas deliveries for Europe, might break out again next Winter.

Scaroni, who endorsed Shmatko's proposal to ban financial derivatives on oil, was asked by journalists what he thinks about the proposal Shmatko made in an interview with an Italian newspaper. Scaroni answered that he supported "an intervention to allow trading in the forward market only for operators who need it," i.e., oil traders who want to hedge against price oscillations.