World Economic News
Germany Defends Expanded Economic Ties with Iran
As if to emphasize the German government's support for plans by German industry to intensify relations with Iran, Economics Minister Werner Müller went to Tehran over the Aug. 17-18 weekend, to sign a bilateral investment-protection agreement. Back in Berlin, government officials leaked to the press that this was done in spite of American pressure on Germany not to trade with "axis-of-evil" member Iran. Berlin's response has been to point out that other members of the European Union, notably France and Italy, have also pursued a policy of expanding relations with Iran.
Further, Werner Schöltzer, chairman of the German Near and Middle East Association, was quoted in the German press as saying, "German companies that are active in the Iran business, no longer let themselves get deterred by debates about alleged rogue states."
The agreement that Müller just signed in Tehran opens the door to an increase of German investments in Iranian industry, notably in four sectors: petrochemical, machine-building, construction/infrastructure, consumer goods/farming. Trade between Germany and Iran increased by 17% during the first five months of this year, to a total of 830 million euros, a figure which illustrates the improvement of bilateral relations.
Asian Central Bankers Moot Replacing Dollar with Gold
At a five-day seminar on foreign exchange reserve management in Singapore last week, co-hosted by the World Gold Council (WGC), Asian central banks discussed the possibility of replacing dollar reserves with gold. In an interview with Reuters, the Asia-Pacific head of the WGC, Ralston Thiedeman, noted that Asia's reserve-rich central banks have now turned into potential buyers of gold to diversify their reserve assets. He said: "Gold is back on the radar screens.... In the last six to 12 months, central banks in Asia have become far more receptive to talk about gold than they were, say, a couple of years back." Volatility in global financial markets, a weakened U.S. dollar, and low U.S. interest rates were reasons for Asian central banks to diversify their portfolios, Thiedeman said. Out of the $2 trillion of worldwide foreign exchange reserves, more than $1 trillion is being held by Asian central banks. Currently, the share of gold in Asian foreign-exchange reserves is very low compared to levels in the U.S. (55%) and Europe (35-40%).
Financial Times: 'Disgruntled' Saudis Withdraw Billions from U.S.
Saudi investors have already pulled out $100-200 billion from the U.S., according to a front-page article in London's Financial Times Aug. 21, headlined "Disgruntled Saudis Withdraw Billions of Dollars from U.S." Youssef Ibrahim of the New York Council on Foreign Relations states that Saudis have already withdrawn at least $200 billion from the U.S. in recent months, triggered "by hawkish U.S. commentators' calls for the freezing of Saudi assets," as the FT notes. Ibrahim states that this trend accelerated after last week's filing of a lawsuit by relatives of Sept. 11 victims against several Saudi institutions. Other bankers quoted by the FT put the amount of the Saudi pullout at roughly $100 billion. A financial consultant in Ryadh, Bishr Bakheet, is quoted: "People no longer have any confidence in the U.S. economy or in U.S. foreign policy. And if the latest lawsuit is not thrown out in court, it will mean no more Saudi money in the U.S." The FT adds: "An analyst from Rand Corporation said at a Pentagon briefing this month that Saudi Arabia was the 'kernel of evil,' exacerbating concerns among the country's elite that they had become demonized in the U.S. and their money was no longer safe there." The reference was to Rand "analyst" Laurent Murawiec, whose briefing to the Defense Policy Board has been pilloried in the media, rejected by Secretary of Defense Donald Rumsfeld, and disowned by Rand itself.
A Bloomberg wire Aug. 21 linked the fall of the U.S. dollar against other major currencies in recent days to "concern [that] Saudi Arabian investors may sell U.S. assets in coming months." According to Saudi American Bank, investors from oil-producing Persian Gulf countries hold about $1.2 trillion overseas.
U.S.-Saudi Trade Takes a Nosedive
While media reports claim the Saudis are already pulling out of U.S. investments, U.S. exports to Saudi Arabia have also fallen to a 12-year low, BBC Middle East analyst Roger Hardy said Aug. 23. U.S. exports to the Saudis have plunged by 30% for first half of this year; Saudi exports to the U.S. dropped by 24%. Hardy notes the rising tensions between the two countries, and reports that some analysts attribute the trade decline to a Saudi campaign to boycott American products. The strains between the two are real, Hardy says, but they shouldn't be exaggerated; "talk of divorce is premature."
Indonesia Refuses To Fully Privatize Power Industry
Reflecting both strong internal opposition, and a reaction to disastrous results of privatization in the U.S. and elsewhere, in destroying the power industry, the Indonesian government has vastly watered down the privatization bill pushed by the IMF since early last year. The bill which finally passed will allow private companies to build and sell power without passing through the state power monopoly PLN, but will not sell off the PLN itself, and the private companies must use the state distribution and transmission network. Also, the private power companies will only be allowed in the most developed regions of Java and Bali, while the poorer regions will remain under state control. However, as part of the decentralization, regional governments will be allowed to issue licenses for private power companies, which could prove to be a huge loophole.
Pakistan Reschedules $5 Billion in Foreign Debt
Dr. Waqar Masood, Secretary of Pakistan's Economic Affairs Division, told The Dawn of Islamabad Aug. 20 that Pakistan "has just concluded a debt-rescheduling agreement with Finland, and accords with eight other countries, including the United States and Belgium, for about $5 billion of debt. It will be signed by September/October 2002." Dr. Masood also said that "out of $5 billion, $3 billion debt to be rescheduled belongs to the United States alone."
Pakistan's government considers the restructuring of its $12.5-billion debt a significant achievement, as nearly 50% of this debt was due for payment by 2007. There were also individual creditors who are willing to swap their portion of the debt for social-sector funding, up to $1.5 billion.
The government claims that over the past two and one-half years, it has lowered the burden of the high-interest foreign-debt liabilities by nearly $2 billion, from $38 billion to $36 billion, as of June 30 this year. In addition, the country's external debt has undergone a major re-profiling, whereby the share of expensive debt has declined as compared to soft-term debt. Both these initiatives were made possible through a combination of increased supply of foreign exchange and contraction of soft loans.
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