World Economic News
Japan Bails Out Fifth-Largest Bank; Who's Next?
Raising concerns that other major banks may require similar rescues, Japan's government said it will pump an estimated $17 billion in public funds into Resona Holdings, the nation's fifth-largest bank, effectively putting the lender under government control, after the bank asked for help on May 17. Its capital-to-assets ratio had dwindled below 6%, the legal minimum for domestic banks. Prime Minister Junichiro Koizumi for the first time convened the Financial Crisis Council. "It was a crisis for Resona, but it's not a systemic problem," assured Chief Cabinet Secretary Yasuo Fukuda, denying reality, but even so, suggesting the government does not rule out injecting funds into other banks. "This is not what we will call a crisis," he said.
Resona had been inflating profits for years, raising fears that even larger banks, such as Mizuho Financial Group, have not been truthful in their accounting. The bank revised its losses to $7.3 billion for fiscal 2002nearly triple its earlier estimates.
Bank shares fell on speculation that more lenders will be effectively nationalized; Japanese bonds also dropped. "The crisis at Resona Bank has shown that Japan's financial world is in a far worse state than people generally believed," Japan's top business daily Nihon Keizai Shimbun editorialized on May 17.
Imperial Foreign Policy Fuels U.S. Dollar Collapse
The dollar collapse has accelerated due to the U.S. imperialist foreign policy, and a "vacuum" in economic policymaking, writes David Hale in the Financial Times May 19. In addition to both the growing U.S. Federal budget deficit and current-account deficit, the dollar's decline recently has accelerated, Hale warns, because the U.S. has implemented an foreign policy that would have "unknown consequences for its fiscal position," as it would have to pay for costs of maintaining its empire, without help from allies. For the first time, a nation is attempting to "play the role of global superpower with a large external payments deficit."
Moreover, there is "a vacuum at the center of U.S. economic policymaking," he cautions, where power is concentrated at the White House, while other institutions of economic policy are weak, including the Treasury Secretary.
The U.S. may be forced to devalue the dollar, in order to reduce its current-account deficit, Hale warns, triggering reflation within the euro-zone.
Bank of Japan Governor Warns of Financial Crisis
"Without appropriate policy measures, a financial crisis could possibly happen" in Japan, Bank of Japan Governor Toshihiko Fukui warned a parliamentary committee. The core of the nation's financial system remains "weak" as banks face "deep-rooted" problems. Fukui reiterated his calls for the government to be given the power to act preemptively to inject funds into banks in trouble, rather than wait for the lenders to seek aid. "It's better to take necessary steps as soon as possible before a crisis," he cautioned parliament. "It's better to deal with lenders' problems before their capital level" drops below minimum standards set by government regulators.
'Secret Deal' To Fix Ibero-American Energy Auction Exposed
"AES colluded with Enron to rig Latin American energy auction," the Financial Times "revealed," in a splashy front-page article on May 21, buttressed by a second, even longer article on the inside pages, detailing the sordid doings of the "Secret Deal that Kept Brazil in the Dark." All this was suddenly uncovered, they claim, by a special FT investigation.
Lo and behold, AES's April 1998 purchase of the largest electric distribution company in Ibero-America, Eletropaulo, which supplies five million customers in the giant Sao Paulo market, was rigged, to steal at least 500 million dollars from the Brazilian governmenta case study, in other words, of what Lyndon LaRouche calls "piratization." The FT details the negotiations between AES and Enron executives on the eve of the auction of Eletropaulo which led to an agreement that only AES would place a bid for the company, in return for which AES would guarantee Enron lucrative contracts to supply gas to a power plant that the two companies would build to supply electricity to Eletropaulo. The AES rep walked into the auction with two envelopesone with a bid for $1.78 bn for "the jewel in the crown of energy assets for sale that year," and another with $500 million more, in case a third party joined the auction.
EIR does not know why the FT is breaking this storyafter the five-year statute of limitations for criminal prosecutions in Brazil is up, mind younor why the London paper has suddenly turned "against" the "cowboy culture that allowed side deals among competitors," at this critical moment when AES is trying to stop BNDES from renationalizing its assets, because it has defaulted on a $1.2-billion loan from BNDES. But, whatever the FT's motives, the case study is merely typical.
Despite G-7 Finance Ministers' 'Confidence,' Snow Lectures Them on Need for 'Boldness'
Despite the Group of Seven Finance Ministers' declaration of "confidence" in a recovery, U.S. Treasury Secretary John Snow lectured his counterparts on the need for "bold actions," according to numerous press accounts May 18. "Growth in the major economies is simply not what it could be," Snow told reporters after the meeting. "We need to do more to ensure a robust economy." While bragging about the U.S. tax cut as an example of the kind of action required, Snow said: "I made clear that the U.S. expects others to take bold actions themselvesincluding fundamental structural reforms where necessaryto spur growth, create jobs, and contribute to global prosperity."
Asked about the 21% decline in the dollar over the past year, Snow described it as "fairly modest," making clear that the strong dollar is a thing of the past. The Financial Times said that the dollar is expected to come under renewed pressure as a result of Snow's statement.
Samuelson: Snow's 'Dollar Gamble' Could Lead to Backlash, Panic
Economist Robert Samuelson warned that the weak dollar could lead to a backlash against the U.S. economyand a "panic." The "dollar gamble" announced by Treasury Secretary Snow at the G-7 meeting (see above)intended to increase U.S. exports and domestic productioncould backfire, Samuelson wrote in the Washington Post May 21, since the rest of the world has survived to date by exporting to the United States. Cut that off, and there could be a collapse in the rest of the world, "that could boomerang on the U.S. There's another danger: a big foreign withdrawal from U.S. stocks, which could hurt the market or even trigger a panic."
Dollar Collapse in Iraq; 'Saddam Dinar' Soars in Value
The Iraqi dinaror the "Saddam dinar" as it is known, adorned with its portrait of Saddam Husseinis soaring in value, and it is now at its highest level relative to the U.S. dollar since 1996, the New York Times said May 18. During the last days of the Saddam regime, the dinar fell to the level of 3,000 to the dollar, and U.S. officials (and the media) expected it to fade into oblivion. But it is now trading at 850.
U.S. occupation authorities have flooded the country with dollars, giving $20 each to several million Iraqi workers, and planning to give $40 to about a million pensioners. Next week, employees of government and state owned industries (80% of the workforce) will begin receiving a salary for the first time since before the war, and it will be in dollars (between $115 and $575; less in the Kurdish regions). With the dollars put into circulation by looters, probably more than $100 million dollars is now in circulation, while the economy has come to a standstill. But with the supply of Saddam dinars remaining relatively stable, it is now favored over the "occupation dollar."
Russia's Central Bank Fears Asia-Style Crisis
The Russian Central Bank "fears another default," stated the leading economic news agency RBC, in its internet "Commentary of the Day" May 19. It said: "The situation on Russia's corporate borrowing market looks increasingly similar to the situation preceding the 1997 crisis on Asian markets. In order to prevent Russia from repeating the same mistake, the Central Bank will introduce restrictions for Russian companies that want to borrow on foreign markets" (for more, see RUSSIA/EURASIA NEWS DIGEST).
France: Exempt Defense Spending from Stability Pact
At a European Union meeting of Foreign and Defense Ministers held in Brussels May 19, French Defense Minister Michel Alliot-Marie pleaded strongly in favor of excluding expenses for defense, from those that go into calculating the budget deficit. This is the fourth time that Paris has proposed a reevaluation of the Maastricht Stability Pact. Alliot-Marie stated that "budget problems" are raised every time there is an attempt from the different European countries to develop an autonomous defense capability. "A certain number of Ministers have said that there is a block, an impediment coming from the Pact and that they wished this impediment would be lifted," she stated at a press conference. "We must create the conditions, in which military expenses can escape, at least partially, the Pact." "The protection of our populations is an obligation of the member states of the European Union. We must give ourselves the means to realize it.
What is extremely important is that, according to the daily Liberation, this time around, beyond France, Italy, Belgium, and Germany also pleaded in that direction. They also got the support of the U.K.'s Defense Secretary, Geoffrey Hoon.
"At different moments, Paris has tried, in the recent period, to launch that debate. Vainly, until now." Liberation recalls that in September 2002, Francis Mer, the French Finance Minister, had stated that "expenses that prepare the future, have nothing to do with those that purge the past." Liberation concludes, wondering whether "the urgency to invest in defense will lead to a reform of the Pact? Until now, that type of discussion has never gone too far, each fearing that once the door is open, the others will jump in, claiming that this or other expenses should also merit a special treatment."
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