World Economic News
IMF Pressures Argentina for Impossible Conditionalities
The IMF is putting big pressure on Argentina's new Kirchner government to negotiate a long-term agreement, with conditionalities the government isn't in a position to impose. Finance Minister Roberto Lavagna has said the government wants to extend the existing short-term IMF agreement, which expires on Aug. 31, to the end of the year, to reschedule $6.6 billion due during that period, before beginning negotiations on a longer-term agreement.
But both the IMF and the U.S. Treasury have made clear this isn't acceptablethey want a long-term agreement, immediate implementation of "structural reforms," and resumed debt payments. The "reform" agenda includes restructuring of the foreign private debt, raising utility rates, restructuring the banking sector, and increasing the primary budget surplus, as President Lula da Silva has done in Brazil, to guarantee debt payment. From the current 2.5% of GDP, the Fund wants the primary surplus increased to 3.5% of GDP next year, and to 4.5% in 2005which could only be imposed, were state-sector wages to be slashed and taxes increased, in a country where 60% of the population is now officially poor. All of these are politically impossible to implement, as President Nestor Kirchner knows full well, and thus the attempt to lobby for a short-term agreement. Kirchner has already announced that utility rates won't be increased for 90 days, which has greatly displeased the IMF.
None other than IMF Managing Director Horst Koehler will travel to Buenos Aires June 23-24, to try to twist arms, and demand that Kirchner provide evidence of a "sustainable" economic program. When Colin Powell visited Kirchner June 10, his deputy Curtis Strubble annoyed the Finance Ministry with undiplomatic remarks that "Argentina needs a credible program." Similarly, Treasury Undersecretary John Taylor said, "There is still time to negotiate a long-term agreement.... I hope that happens." Lavagna had his spokesman issue a statement saying he agreed with Taylor, but added that the possibility of a long-term agreement would "naturally" depend on what conditionalities the Fund demanded (see also IBERO-AMERICA NEWS DIGEST).
Brazil Lowers Interest RatesBarely
Under fire from all sides, Brazil's Central Bank lowered the benchmark interest rate on June 18but only by one-half percentage point, from 26.5% to 26%. The Central Bank had promised international bankers that it would not permit "politics" to interfere with its "anti-inflation" policy (the pretext used for keeping interest rates at usurious levels). But with Vice President Jose Alencar taking the lead in organizing a "national crusade" to force the government to step in and lower the rates (see last week's IBERO-AMERICA NEWS DIGEST), the "compromise" reached was to lower the rates, albeit at an insignificant amount.
The president of the National Federation of Industries, Congressman Armando Monteiro Neto, pointed out the fraud in all this: that inflation had dropped by a greater amount, and thus, effectively, real interest rates had increased, not lowered, which will worsen the already "recessive" picture faced by business, he said.
Turkey Announces Major Undersea Rail-Tunnel Project
Reflecting the profound impact of Lyndon LaRouche's June 13-18 visit to Turkey (see INDEPTH for full coverage), Transport Minister Binali Yildirim announced at a press conference in Ankara June 20 that construction of the $2.5-billion Marmaray Tunnel underneath the Bosphorus, and its supporting infrastructure, will begin next year, and will be completed by 2008. The undersea rail-tunnel will link Istanbul's Asian and European areas. The total length of the rail link, including the undersea part, will be 13.5 kilometers. In addition, the project will include the upgrading of existing rail links on both sides of the Bosphorus.
The Istanbul Strait Rail Tube Crossing Project and Marmaray Tunnel would carry up to 150,000 passengers per hour, with trains operating every two minutes, Yildirim said. The Japan Bank for International Cooperation would finance the strait-crossing section of the project, while talks are under way with the European Investment Bank to finance the upgrading of the suburban railway network.
Singapore Economist: U.S. Hyperinflation Threatens World Economy
Singapore economist Lim Say Boon warned that the U.S. is on a hyperinflationary binge, threatening the entire world economy, according to the Straits Times June 16. Lim, head of research at the OCBC (Overseas Chinese Bank Corp) Securities in Singapore, had previously warned of the New Economy bubble. He now refers to the current "rubbish rally" in the equity markets, warning that investors should "consider the suspect nature of the drivers behind this recent market surge. The bottom line is that the United States authorities are putting at risk the global system of 'fiat money' by flooding their economy with cheap money and by arm-twisting other major economies to do the same.... If they fail, confidence is likely to plummet globally as the 'Emperor' would have been seen walking around stark naked."
At best, it will create "another asset bubble or two," since the real economy is still declining. The "solution" of tax cuts and negative interest rates to sustain the housing bubble makes people "wonder why the U.S. government would 'commit suicide' by dramatically weakening its people's spending power." The answer, he thinks, is to force Europe and Japan to also hyperinflate, transferring the pain abroadbut it won't work, since it will only create "more pain from bursting of an even larger asset bubble down the line." The money supplyM1, M2, and M3he says have surged since March, and "aggressive printing of money usually results in hyperinflation. So while we are still talking about deflation, the U.S. may already be sowing the seeds for hyperinflation."
U.K. Task Force To Plan for Financial Emergency
The British government has asked the Bank of England to look into possible changes in the law to deal with disruption to the financial system, ostensibly due to terrorist attack or natural disaster, Dow Jones reported June 19. Andrew Large, Bank of England deputy governor in charge of financial stability, will head a task force to "examine the possible need for legislative powers." A statement from the British Treasury said that an interim report is to be published in November.
Spread of Infectious Diseases a Marker for Global Economic Breakdown
The rate of infection of human beings with dangerous new diseases is increasing, as acknowledged by National Institutes of Health (NIH) infectious diseases chief Anthony Fauci and other experts contacted by the Washington Post. The Post's impressionistic article of June 15 is nonetheless another confirmation of the truth of Lyndon LaRouche's and Fusion Energy Foundation's 1974-75 studies and forecasts of the then-foreseeable effects of continued IMF/World Bank anti-development policies. The article goes through six serious diseases newly migrated into the human species in as many years.
However, the article's diagnosis of the causes of this generational downshift in human health, centers on human population growth, increased international travel, and so forthanything but the global economic collapse and worldwide deterioration of public health.
Ironically, a companion article, "SARS Exposed World's Weak Spots," reports in detailin the test case of Toronto, an advanced city in an advanced-sector country, with universal health-care insurance and other advantagesthat it was lack of depth of public health and "surge capacity" in Canada as a whole, which led to the resurgence of the SARS epidemic after it had apparently been halted.
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