WORLD ECONOMICS
Italy Presents a 6.2-Billion Euro Marshall Plan for Middle East
Italian Premier Berlusconi declared on March 14, at the meeting of the European Popular Party which took place in Barcelona, Spain: "I officially presented my Marshall Plan for the Mideast, which involves a financing of 6.2 billion euros in five years. On this issue, I sent a letter to [Spanish President] Aznar, [European Union leader] Romano Prodi, and all other European leaders." Berlusconi was speaking on the eve of the summit meeting of the European Union.
According to preliminary reports to the press, the plan aims at creating 100,000 "stable jobs" in one year through a series of scientific parks with laboratories for Israli and Arab scientists along the Israeli-Palestinian border; a deep water port, able to receive "3 million tons of goods yearly"; a highway between Gaza and the West Bank; industrial areas; common Israeli-Palestinian foundations with "joint programs for religious tourism"; surface metros across Palestinian cities; a "peace district" with a "specialist service center" in the Jordan Valley.
Berlusconi has just returned from Saudi Arabia, where he met the whole leadership of the country, and discussed his plan and the Crown Prince Abdullah's peace plan. He said he would be glad to explain details of the Saudi plan to the EU leaders. Speaking to the press in Gedda, Saudi Arabia, Berlusconi said he hopes there will be no strike against Iraq, "because we must explore all ways to bring peace and to open a second war front would be a mistake."
Interview with EIR Corrspondent in Brazilian Internet Daily Global 21
A broad-ranging interview with EIR correspondent Lorenzo Carrasco, published in the Brazilian Internet daily Global 21, is causing an uproar in the country, according to EIR's Rio de Janeiro bureau. Carrasco was able to give a detailed briefing on the systemic nature of the global financial crash, Lyndon LaRouche's programmatic solutions, and Brazil's role in the building of a New Bretton Woods. In the introduction to the interview, Global 21 reports that LaRouche is continuing the legacy of the American System of Political Economy, as exemplified by Alexander Hamilton, Friedrich List, Henry Carey, Abraham Lincoln, and FDR. It also reports on the publication of the Portuguese edition of Hamilton's Report on Manufactures, and the role played by EIR's beloved friend, Barbosa Lima Sobrinho, now deceased.
The daily, which is closely linked to the government's Foreign Trade Ministry, will have the interview posted on its site for an entire week.
In the interview, Carrasco emphasizes that the only way to understand what's going on in Brazil, is by looking at the global financial crash, which is systemic in nature. The G-7, the G-8, and other nations such as China and Russia must come together to create a new monetary system, as proposed by LaRouche, and Brazil must use its tremendous industrial and agricultural potential, to lead the nations of the Southern Cone into this new monetary system. Asked about the upcoming negotiations for the Free Trade Area of the Americas (FTAA), Carrasco pointed to the disaster of NAFTA, to demonstrate what the FTAA is intended to be. Instead, he said, Brazil must bolster the Mercosur (Common Market of the South) customs union, and help create the "MercoNorte"push for the physical integration of Ibero-America, through large infrastructure projects, "which would provide a real basis for effective political stability" in the region.
He also told Global 21 that the Argentine crisis is just one small piece of the global financial disaster. He detailed the key elements of the global crisis, including the collapse of Enron and the New Economy, "which revealed the enormous vulnerability of the derivatives market." Argentina's leaders don't understand the nature of the crisis; they don't see that this is a civilizational crisis, he said.
Is the Free-Trade Area of the Americas Doomed?
Judging from the Brazilian response to the Bush Administration's imposition of steel quotas, the FTAA negotiations scheduled to take place later this year may never get off the ground. U.S. Trade Representative Robert Zoellick arrived in Brazil, and most certainly won't get a warm reception. In his address to the opening session of the Inter-American Development Bank's (IADB) annual conference in the city of Fortaleza, according to reports from March 13, President Fernando Henrique Cardoso attacked U.S. protectionism, causing U.S. Treasury Undersecretary John Taylor, who was seated beside him, to immediately cancel a press conference planned for after Cardoso's speech. In his speech, which reportedly caused an uproar, Cardoso warned that the U.S. can't demand that other countries embrace globalization, while it shuts its markets to foreign imports.
Even though the U.S. was more lenient with Brazil, allowing it to export 2.8 million tons of steel slab, 52% of the total imported by the U.S., the Brazilians are angry. William Barringer, lawyer for the Brazilian National Steel Company (CSN), said that the U.S. quota puts CSN in an untenable position, and warned, "I would be very surprised if Brazil were at all amenable to serious FTAA negotiations, much less taking a leadership role." Brazilian Ambassador in Washington Rubens Barbosa told Bloomberg, "It's impossible to say if we will be ready to take a leadership position in these [FTAA] negotiations, because there are so many restrictions in place." In retaliation, Brazilian steelmakers are reportedly considering boycotting the U.S. coal industry, which sells $200 million of steel-grade coal to Brazil annually.
Cardoso Blasts IMF for Treating Latin America as 'Illiterate'
"The IMF should stop treating Latin American officials as if they were illiterate," Brazilian President Fernando Henrique Cardoso said in his opening speech to the IADB conference in Fortaleza. Referring to remarks by Peruvian President Alejandro Toledo, on the issue of reforming multilateral credit institutions, Cardoso demanded that the IMF "compute our debts the same way it does the European countries, so as not to strangle our possibilities for financing. We've already asked why [the IMF] doesn't do this, but to date, it has responded as if we were illiterate. We aren't. The Peruvian President knows how to read and is an economist; Not me, I'm only a sociologist."
Cardoso was also harsh on IMF treatment of Argentina, demanding immediate financial aid for that country. The Duhalde government has made tremendous effort, he said, to comply with IMF criteria for a "sustainable" economic program. The conditions for an agreement between the Fund and Argentina already exist, he added. Argentina "has already done things, and now it must be helped to take further steps. You can't demand more of them than they can do."
Financial Times Doesn't Like Bush's Protectionist Turn
The London Financial Times reacted directly to Lyndon LaRouche's announcement of the "Demise of the Importer of Last Resort" by using that title as the headline of its March 11 coverage of the Bush steel tariff. Not only can the FTone of the leading voices of the City of Londonnot handle the paradox of the Bush announcement of steel tariffs, it couldn't control itself from quoting (without credit) LaRouche's forecast of this event on the cover of EIR in January 2001. "During its first year in office, the administration of George W. Bush served notice on its allies that it would pursue U.S. interests single-mindedly.... The decision last week to impose temporary tariffs of up to 30% on steel imports shows some of the same thinking has begun to influence Washington's trade policy," the FT whines.
"In a Financial Times interview, Grant Aldonas, U.S. Undersecretary of Commerce for International Trade, said the U.S. was no longer prepared to be the market of last resort," the FT reportswithout making clear whether it was the Commerce official who used that term, or the FT. "We're unwilling to say we're going to continue to let other countries export their unemployment to the U.S.," said Aldonas, cited as one of the architects of the policy, showing that someone in Washington does understand LaRouche's concept. "We recognize there are a lot of consequences that flow from that."
Aldonas also said, "We have told people [in Europe and Japan] over time that if you don't see stronger growth abroad, you end up seeing friction on the trade account." He added, "There is only so much patience that you have when you are talking about very serious macro-economic issues." "This is the first time the Bush administration has linked the steel measures to larger problems in the global economy," the FT notes.
See LaRouche's article on "The Steel Tariff Paradox" in the Indepth section of EIW.
Trouble for Globalism & WTO: Russia, Philippines
In the midst of a major backlash in Russia against "free trade," which backlash has been spurred anew by the U.S. tariff on imported steel, a currently circulated article by analyst Aleksandr Tsipko draws attention to yet another anti-World Trade Organization move from Russia.
Tsipko points to a new proposal for terms of Russia's entry into the WTO, from the Russian Chamber of Commerce and Industry (of which former Prime Minister Yevgeni Primakov became head last December). The proposal demands "a marked expansion of the list of sectors which should be placed under state protection. Experts take the view that the Primakov proposal is designed in effect to torpedo the whole notion of joining the WTO in the foreseeable future." (Tsipko, an associate of Mikhail Gorbachov, includes this as an example of the undoing of recent years' policies, in an article called "Russia on the Brink of a Systemic Crisis.")
Philippines Trade Secretary Moots Pulling Out of WTO
Citing several issues, most notably the recent U.S. decision to impose steel tariffs of up to 30%, Trade Secretary Manuel Roxas announced plans to review the Philippines' membership in the World Trade Organization.
Federation of Philippine Industries president Raul Concepcion said Roxas merely echoed what domestic producers had long complained of, as being a double standard in the implementation of free trade rules by the WTO. "The WTO has shown that free trade is not fair. There is a different rule for the haves and have-nots, which only reinforces the divide between the rich and poor countries. We agree with Roxas that unless all rules are applied uniformly ... there is no sense in remaining with the WTO."
"I'm speechless." responded the head of the European Chamber of Commerce in the Philippines, while the corresponding American said, "Nobody wants to [withdraw from the WTO]."
LaRouche Answers Russia: Is WTO 'Idiocy or Treason?'
At the Schiller Institute conference in Reston, Va., on Feb. 16, 2002, Lyndon LaRouche received a question from Konstantin Cheremnykh, a journalist, and Schiller Institute collaborator in Moscow, who wrote that "a day after the collapse of Kaiser Aluminum, Russia's Minister of Economic Development is trying to convince our parliament, that Russia has to join the World Trade Organization. Why? Because the process of globalization of markets is increasing in the whole world. The weeks before, central Moscow papers were emphasizing that Russia's economy is less damaged than others, with what is now called a recession, as it is not completely integrated into the globalized economy.
"Using [an expression from late 1916]'Is that idiocy, or is that treason?'I'd like you to comment."
LaRouche replied: "... [T]he International Republican Institute moved in on Russia, when the former President George Bush was in charge. And what they brought in, was a pack of thievesAli Baba style. And these thieves are called 'liberals.' They stole liberallyvery liberally. They robbed the joint; they are now called, 'the oligarchy,' the financial oligarchy. They stole everything in sight.... [T]he raw materials of Russia, were looted; the industries of Russia were shut down. Russia was made a market for dumping products, which it used to produce, but no longer produces. And, therefore, Russia was looted.
"Now, these oligarchs are the sponsors of this kind ofsame thing that's killing the United Statesthe World Trade Organization part of the globalization policy. It never should have existed. It is a piece of thievery! It is a potential Enron, on a grand scale; and it should be shut down, because it's thievery: It's against moral law. And, therefore, when somebody in Russia says, 'We should join the WTO....,' you have to say, 'Here's another thief, running out.' ... Any Russian who proposes such a measure, after all the experience of the past 12 years, would have to be considered morally a traitor to his people."
New IMF Report Points to Huge Risks for the Global Financial System
On March 14, the IMF gave another impressive example of schizophrenia at the top of global financial institutions. On that day, while IMF head Horst Koehler was in Vienna presenting his optimistic views on the coming worldwide recovery, the IMF at a press conference in Washington released its "Global Financial Stability Report," drawing quite different conclusions. The report notes that the international financial system in recent years has already had to absorb an unprecedented series of shocks: "the continuing deflation of the telecom, media, and technology (TMT) bubble across global markets, the onset of a recession in the United States amid a synchronized global slowdown, a financial crisis in Turkey, the terrorist attacks on Sept. 11, the record number of bankruptcies, and the default by Argentina."
However, the ability of the system to absorb such shocks "would again be tested if a global economic recovery is subdued." Financial markets have already anticipated and "priced in a recovery in economic activity and corporate earnings during 2002." If there were to be a "a gap between financial market expectations and economic performance ... it would exacerbate the financial imbalances and some of the underlying weakness in the financial sector." Of course, stock markets would be hit badly, which in turn "could erode the still fragile business and consumer confidence." And the implications would be much broader:
"First, downward asset price adjustment and further deterioration in credit quality could weaken balance sheets of corporates, households, and financial institutions in the major industrial countries, all of which have increased their exposure to traded financial assets in recent years. Second, a subdued recovery would put further pressure on banks' profitability. These developments could be worrisome in light of the fact that present levels of indebtedness in the major industrial countries, both in the corporate and the household sectors, are high from a cyclical perspective. Their debt servicing burden is also high relative to current income." In this respect, the IMF report in particular points to the huge amount of outstanding bank loans to the telecom sector, as well as the exposure of institutions "engaging in credit derivative business."
This Week's Collapse in the U.S. Physical Economy
As the world enters a final phase of an accelerating economic breakdown, contrary to Federal Reserve chairman Alan Greenspan's babbling that the recovery "is already well under way," and Treasury Secretary Paul O'Neill's hysterical declaration that there never was a "recession," bankruptcies and job cuts in the U.S. continue to mount, destroying the national productive capability upon which any recovery depends.
Highlighting the collapse, was the bankruptcy filing on March 6 of National Steel Corp., the fifth-largest U.S. integrated steelmaker, a follow-on to the Bush Administration's refusal to take over retiree health-care and pension costs when it imposed the new steel tariffs. One of the largest producers of carbon flat-rolled steel, shipping about 6 million tons annually, mainly to car and appliance makers, National Steel was the 32nd American steel manufacturer to file bankruptcy since 1998.
Some 128,115 U.S. job cuts were announced in February, according to a March 5 report by the outplacement firm Challenger, Gray, and Christmas. Manufacturing employment, the backbone of a productive economy, fell by 50,000 workers during February.
The crash of the much-touted telecommunications sector has accelerated, spreading from the upstarts to the leaders, with the sector's having accumulated more than $2 trillion in debt since 1996. Both Nokia and Lucent cut their projected sales for the current year, admitting that there would be no recovery this year. Lucent said that a return to profitability will "slip into" 2003. Verizon, the largest U.S. local phone company, plans to cut 10,000 jobs this year, including by not replacing workers who retire, as well as eliminating contract positions. Global Crossing, the communications network operator that filed for bankruptcy in January, will cut 2,400 jobs, and close 71 offices. About 800 employees have accepted buyouts, and as many as 1,600 more jobs will be eliminated. Capital spending will drop by 90%, to $200 million in 2002, from $3.2 billion last year. Avaya, the biggest U.S. maker of office telephone equipment, will cut 1,900 jobs.
K-Mart plans to eliminate 22,000 jobs, and close 284 stores, as part of its bankruptcy reorganization plan, subject to approval by a bankruptcy court hearing scheduled for March 20.
Also filing for bankruptcy: Guilford Mills, once one of the nation's leading makers of clothing and home furnishing fabrics; Florsheim, the 110-year-old maker of men's shoes; Formica Corp., the countertop and floor-maker.
Also cutting jobs: Kraft Food, cutting 7,500 jobs; Waste Management, Inc., the biggest trash hauler in the U.S., cutting 2,000 jobs; Deere & Co., the farm machinery giant, cutting 200 jobs at its Springfield, Ill. plant.
Japan's 'Bear Trap' Nails Speculators
"Japan bears have been badly burned in the past four weeks," the London Financial Times complained loudly March 11. "Since hitting a low of 9,500 on February 6, the Nikkei stock index has jumped 26%" to almost 12,000 March 11, and the yen has risen almost 30% against the dollar.
What has traders screaming is the Japanese government's total re-regulation of speculative short-selling in the Tokyo markets. EIR had been told months back that the Ministry of Finance was planning a "bear trap" against Goldman Sachs, Citibank, Credit Lyonnais, Bear Stearns, and other Anglo-American brokerages and their hedge funds in Tokyo, who have been "dumping Japan bank stocks on the model which [George] Soros used to destroy the Thai baht in 1997," as one Ministry of Finance official put it, to force a run on the Japanese banks.
Following Lyndon LaRouche's attack on the American Enterprise Institute and its "sell Japan" efforts, the Finance Ministry's Financial Services Agency harshly penalized Goldman Sachs and a half-dozen other top foreign brokers in Tokyo, for illegal "short selling," i.e., massive dumping, of major Japanese stocks. Officials said they were desperate "just to get to the end of Japan's fiscal year," March 31, without an obvious bank crash. The measure has done nothing to help the physical economy, but as a political blow to Soros-style free trade it has been effective in the short run. It has jacked the market up close to where the banks, who hold stocks as capital, have seen their capital rise by $12 billion, enough to pretend they have the cash to close their books March 31.
Now all the traders who sold short the stocks of Japan's banks and major heavy industries, hoping to buy them up cheap later, must come up with those shares to sell back to their "counter-parties" at the end of the short contracts. So the mass foreign selling has stopped, and mass panic foreign buying has begun. This is a classic bear trap.
Does Japan Have a Future Beyond March 31?
Trapping bears is nice, but the real question is whether the Japanese bureaucrats have actually understood what LaRouche has been saying, and whether they have formulated any plan for the real economy for after March 31. Bragging of their stock boomlet, some Japanese leaders have already announced, "The crash is off." "There is no more risk of a March crisis ahead of the fiscal year end," announced Takashi Imai, head of the top corporate lobby group Keidanren, at a March 11 press conference.
Yet the government just announced the economy shrank by a real 1.2% in October-December, which is a 4.8% annual decline, and that there has been a 12.0% plunge in capital investment over the last year. Japanese machinery orders fell by 22% in January, to the lowest level in 15 years, it was announced March 11. The Consumer Price Index fell a full 1.4% in January, putting the deflation collapse for the last six months at a 6% annual average. Industrial production fell 1% cent in January, retail sales fell 4.7%, and construction orders received by Japan's 50 top contractors fell 14%.
Further, the Financial Times has announced plans to smash the markets starting April 1, when bank deposit insurance levels are drastically lowered. The re-regulation of short selling, which is selectively penalizing foreigners, means, says the FT, that Japan is "lashing out at the gaijin or foreign speculators. 'Free, fair and global,' is being replaced by xenophobia, and interventionism has gone back on deregulation."
Japan had better "go back to basics," the FT warns, or everyone will be selling Japan, come April 1. "Buying Japan is a short-term trading strategy, not an investment recommendation," the FT concludes bluntly. "Be prepared to sell by April 1."
China Bars Foreign Investment in Key Sectors
China has announced a list of areas barred to foreign investment as it keeps a tight grip on some sectors, despite vast market opening after entering the World Trade Organization in December. China will ban foreign investment in strategic parts of the economy, including construction and operation of power grids and aviation transport-control companies, according to a foreign investment "catalogue."
The plan would bar overseas investment in futures firms, out of worries for financial stability, according to the catalogue released by the China News Service. The broadcasting and television sectors are also closed to foreign investment, as is the production and development of genetically modified (GM) seeds.
That ban could hurt companies like U.S.-based Monsanto, which is developing GM cotton in China. Some foreign industry officials say Beijing's ban on investment in GM seeds is aimed at protecting domestic industry, since China grows GM crops extensively. Foreign Trade Minister Shi Guangsheng forecast that $45-50 billion of foreign investment would flow into China this year.
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