WORLD ECONOMIC NEWS
Global Telecom Meltdown
The U.S. telecom meltdown, which we have been covering on a weekly basis, has now overtaken the global economy. A few of the latest developments:
Germany's Deutsche Telekom's CEO Rone Sommer quit, ending a drive by Chancellor Gerhardt Schroeder's government for his removal, to "reassure financial markets," as Europe's biggest phone company faces 67 billion euros in debt, and a share price of 10.93 eurosdown from a March 2000 peak of 100.85 euros. New interim chief Helmut Sihler, who formerly headed Telekom's supervisory board, will lead the company for up to six months, until a replacement is found. Telekom lost 3.5 billion euros in 2001its first annual loss since privatization beganand 1.81 billion euros in the first quarter of this year.
Motorola posted its largest net loss ever, $2.3 billion in the second quarter, including a $3.4-billion restructuring charge largely for job cuts and asset write-downs, with its semiconductor unit losing $1.3 billion. Sales at the world's second-largest mobile phone maker fell 11% from a year ago.
Intel plans to cut 4,000 jobs, or nearly 5% of its workforce, in the second half of the year, as slumping sales of personal computers caused sales at the world's biggest chipmaker to fall below forecasts.
Apple Computer's third-quarter profit plunged 48% amid falling sales of Mac computers.
World Stock Markets Have Been Crumbling Since 2000
Overall, world stock markets peaked in 2000 and have been falling ever since. The following table shows how far certain indices have fallen since their post-mid-1997 peak, which in most cases are their all-time highs (as of July 12, 2002):
NATION/INDEX |
PERCENTAGE DROP |
|
- |
US Nasdaq |
73 |
Amsterdam AEX |
70 |
Philippines PSE |
59 |
Argentina Merval |
57 |
France CAC 40 |
49 |
Japan Nikkei 225 |
49 |
Germany DAX |
49 |
Taiwan |
47 |
Italy MIBtel |
45 |
India Sensex |
44 |
Brazil Bovespa |
42 |
Chile IPSA |
42 |
Hong Kong Hang Seng |
42 |
Thailand SET |
41 |
US Wilshire 5000 |
41 |
Canada TSE 300 |
40 |
Malaysia KL Composite |
40 |
US S&P 500 |
40 |
Britain FT 100 |
39 |
Spain |
39 |
Singapore |
38 |
Belgium Bel-20 |
37 |
Indonesia |
34 |
Swizterland |
33 |
US Russell 2000 |
32 |
Britain FT 250 |
29 |
US Dow Jones |
26 |
Israel's Inflation Rate Soaring; Unions Threaten Action
Israeli inflation is now running at an official 9%, and is expected to reach 12-15% by the end of the year, according to Ha'aretz July 16. The government is claiming that it could decrease in July, because the shekel has gained a little against the dollar (which is falling against all leading currencies). But the point is, that all economic indicators continue to be down.
The Histadrut labor federation chairman, Amir Peretz, who is also a member of the Knesset (Parliament), announced that workers would be demanding a cost-of-living increase to compensate for the steep inflation rate. The Histadrut leadership will be holding a meeting to consider declaring a work dispute.
China's Unemployement Remains High
Unemployment in China is continuing "relatively high," Qiu Xiaohua, Deputy Director of the National Bureau of Statistics, said at a press conference July 15.
The number of laid-off workers from state-owned enterprises was 4.64 million at the end of June510,000 fewer than at the end of 2001, Qiu said. The number of registered unemployed persons in urban areas, amounted to 7 million, or 4%, by the end of June, about the same as the end of 2001.
Qui said that the large number of laid-off workers and unemployed persons in urban areas is one of the problems to be addressed in the current economic situation.
IMF Blinks; Extends Deadline for Argentina Loan Repayment
The executive board of the International Monetary Fund (IMF) revealed July 15 that it has agreed to extend the July 17 deadline for Argentina's repayment of a $985 million loan to the Fund, for one year. IMF Managing Director Horst Koehler issued a formal statement, saying that immediate repayment of the loan at the present time would be impossible "without undue hardship or risk." Argentina has not yet defaulted on its loans to the so-called multilateral banks [IMF, Inter-American Development Bank (IDB), World Bank], and it was feared that were it to do so now, it would set a dangerous precedent for the collapsing system.
The other debt-repayment crisis, the $500 million owed to the IDB this week, was narrowly averted this past week, when the World Bank and IDB put together a package of $446 million in new loans, essentially a rollover of the unpayable $500 million. Argentina will make up the $54-million difference from its rapidly dwindling reserves.
This apparent softening of the line toward Argentina, reveals more about what the "hardship and risk" to the IMF system would be if Argentina were forced to the wall right now. As it is, this IMF announcement merely postpones the inevitable, for Argentina owes a whopping $5 billion more in debt repayment to the multilateral institutions this year, of which $2.9 billion is due in September. The country's entire reserves are approximately $9.5 billion. Argentina has promised its creditors not to allow the reserves to fall below $9 billion.
Argentine Federal Judge Defies 'Bankers' Arithmetic'
In a ruling that could set a national precedent and cause tremors at the IMF, Federal Judge Jose Alberto Bellingeri issued an injunction this week, redefining a small Argentine municipality's dollar-denominated debt to the Inter-American Development Bank, on the basis of the old, fixed, one-to-one parity between the Argentine peso and the U.S. dollar. Until his ruling, these debts have been paid at the so-called "free-market rate," meaning that, as the nation's currency devalues against the dollar, its debts grow, and the municipalities' precious resources are increasingly drained away. In fact, allowing Ibero-American currencies to float at the so-called "free-market rate" has been one of the key looting mechanisms behind what EIR has termed "bankers' arithmetic."
Now this municipality, at least, will pay its debt at the old ratei.e., bankers' arithmetic was reversed by a sovereign decision.
What prompted Judge Bellingeri's ruling is that the Federal government was withholding, or "discounting," a portion of the revenues it traditionally provides to the municipalities, to make up the difference between the value of the peso at the one-to-one rate, and the rapidly devaluing peso on the free market. The magistrate warned the Federal government that it must "abstain from imposing discounts on provincial and/or national revenue-sharing" in amounts higher than a one-to-one peso/dollar exchange."
The ramifications of the ruling, already acknowledged as setting a national precedent and representing "a warning to the nation," remain to be seen.
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