In this issue:

Argentina President Kirchner: "I could have brought down the whole IMF."

German Exports to Asia Increase Five-Fold Since 1993

Chinese Imports Help German Machine-Builders To Survive

Markets Welcome G-7 Show with Sell-Offs, Currency Turmoil


From Volume 2, Issue Number 39 of Electronic Intelligence Weekly, Published Sept. 30, 2003

World Economic News

Argentina President Kirchner: "I could have brought down the whole IMF."

For 24 hours after the Sept. 9 deadline, on which Argentina was supposed to pay $2.9 billion to the IMF, the government didn't pay, leaving the Fund and the international financial community on tenterhooks. "We were in default for more than 24 hours," Kirchner told his closest allies, during his plane ride to New York on Sept. 22. "I could have fallen, but had that happened, the whole IMF would have fallen with me."

Kirchner is right. Lyndon LaRouche remarked after Kirchner signed with the IMF, that Argentina had missed an opportunity to bring down the whole system. Kirchner seems to have realized he had that power in his hands — but failed to use it.

Instead, he subjected himself to a Sept. 23 meeting with nutty George W. Bush in New York, who reportedly greeted Kirchner with a manic shout, "Here comes the man who conquered the IMF!" While private creditors are shrieking about Kirchner's proposal to restructure $93 billion in debt, with a 75% writedown, George told his Argentine counterpart, "Why, you just keep negotiating hard, don't back down, and fight right down to the last penny with those private [creditors]." Kirchner's government has already made clear it won't be able to complete the restructuring by mid-2004, as the IMF demands, and will have to extend the timeframe to the end of 2004 or even into 2005. It also hopes to convince the Fund to keep rolling over the country's debt, into 2014!

German Exports to Asia Increase Five-Fold Since 1993

Celebrating the 10th anniversary of its founding in Berlin Sept. 24, the Asia-Pacific Committee of the German Industry (APA) reported that trade with the entire Asian and Pacific region has jumped from 28 billion euros to 134 billion, during the past 10 years.

Direct investments of German firms in China have increased by a factor of five, during the same period, which to a significant extent is the work of Mittelstand (small and medium-sized) firms. But also Siemens, one of the big firms, has invested massively, and employs 21,000 Chinese workers and engineers, already. All in all, Germany's exports to China increased by 30% during the first six months of 2003, machine exports even by 36%. The increase in exports to Vietnam is 38%, and to Malaysia and the Philippines 17% each, during the same period.

Also India, South Korea, and Russia rank prominently (no figures given here, unfortunately) on the list of leading importers of machines from Germany, the APA said.

The role of the German machine-building sector as a crucial catalyst in that is, however, being undermined by the private banks: VDMA general manager Dieter Klingelnberg charged at a Frankfurt press conference. Banks have cut credit lines to Mittelstand firms even more, during recent months, so that if that trend is not reversed, 10%, or even 15%, of German firms in the machine-building sector will not be able to survive, he said.

Chinese Imports Help German Machine-Builders To Survive

As the VDMA, the association of machine-building firms in Germany stated Sept. 24, the rapid growth, by 36%, of machine exports to China during the first six months of 2003, has made China the number three importer of German machines, globally, replacing Japan, which has held this position after the EU and the U.S., in the past.

Big infrastructure projects and the related, immense increase of newly established industrial enterprises in China, have created a massive increase in the demand for German machines, the VDMA reports. This trend includes the expansion of German firms in the Chinese market that have begun to establish a sizeable on-site production there, which means they import vital machinery from Germany. Certain categories of machines and machine-tools, as well as special products of electric engineering, have seen an increase of up to 60%, during the first six months of this year, as compared to the same period in 2002.

The Chinese boom, which is also reflected in other Asian countries, has contributed to pushing Germany far ahead of other machine-building countries, internationally: Whereas German machine-builders exported 53% of their annual production in 1992, it rose to 68% in 2002. German machine exporters conquered 19% of the world market in this sector in 2002, leaving far behind the United States with 14.9%, Japan with 12.2%, and Italy with 9.7%.

Markets Welcome G-7 Show with Sell-Offs, Currency Turmoil

Without naming China, Japan, or other Asian countries, the communique of the G-7 Finance Ministers and central bank chiefs gathered in Dubai last week issued calls for "more flexibility in exchange rates." This would be "desirable for major countries or economic areas to promote smooth and widespread adjustments in the international financial system." The statement immediately triggered a dramatic rise of the Japanese yen and the South Korean won against the U.S. dollar on Sept. 22, in both cases, the biggest rise in more than two years. Currency traders bet that the pressure on Asian governments is intensifying, and that they might be forced to stop interventions on the foreign-exchange markets to prevent their currencies from rising too fast against the sinking dollar. The dollar fell sharply against the euro as well, almost hitting the $1.15 mark.

The currency turmoil was accompanied by another big one-day rise of the gold price. In Asia, the gold price hit $386 per ounce, compared to the $381 closing price in New York on Friday, Sept. 19. This brought the price of gold to near the 6-1/2 year high of $389 reached on Feb. 5 this year, when Colin Powell presented his so-called "proofs" of Iraqi WMD to the UN Security Council to justify the war.

Worldwide, stock markets fell sharply on the same day—most spectacularly in Asia. The Japanese Nikkei index fell by 463 points or 4.24%, the biggest one-day decline in two years. The South Korean stock index Kospi plunged by 4.5%. At the same time, and unusual for U.S. markets, Treasuries were dumped parallel to the stock market sell-off. So much for the overall confidence in G-7 leaders, paper currencies, and the global economic recovery.

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