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Banks May Get Creative With Fees In 2012

by The Huffington Post on December 29, 2011

Huffington Post…

Squeezed by regulations under the Dodd-Frank financial reform law, banks are looking to find new ways to wring fees from customers. In 2012, expect to see higher minimum balance requirements and an ongoing push to increase customers’ credit card spending, according to a “2012 U.S. Banking Sector Outlook” report from Trepp, an analytics company that provides information to the banking industry. Other industry analysts predict that some banks could raise overdraft fees from $35 to a new high of $40 and that more institutions will increase monthly maintenance fees on basic checking accounts to between $12 and $15. Over the past three years, various new regulations under the Dodd-Frank Act and the Credit Card Act have reined in certain aggressive fee practices. More regulations in 2012 are expected to further hamper banks’ ability to make big profits off the basic banking activities of consumers. Yet banks’ losses from Dodd-Frank and other regulations haven’t been as dramatic as portrayed. In 2007, the percentage of revenue that came from fees was more than 40 percent, according to Trepp. In 2011, that percentage dropped just 4 points to 36 percent. Big banks are not expected to grow much next year. Financial services firm Keefe, Bruyette & Woods forecast no growth in core revenues next year at Bank of America and JPMorgan Chase. And banks are scrambling to regain revenue. Doug Miller, a senior analyst with Corporate Insight, a firm that provides analysis to the banking industry, said he expects banks to create more packaged and tiered account plans that waive fees if customers bundle together different types of accounts, such as savings, checking and money market, at the same institution. “It is a way to create more of an ongoing banking relationship,” said Miller. “They want all your basic deposit accounts.” For consumers, however, opening more accounts with the same institution has a cost: It makes it harder to unwind personal finances from that institution and monopolizes a customer’s funds. These efforts to earn more money may also fall short. “We are not optimistic that these steps will improve profits in a meaningful way,” the Trepp report said. “At best, [they] will only contribute marginal additional amounts to non-interest revenue.” With diminishing opportunities to lift fees from customers and a tougher regulatory landscape, the outlook for the banking industry, especially the biggest banks, is grim in 2012. Profits are expected to remain flat for the biggest banks, and financial institutions are expected to slash more jobs.

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Banks May Get Creative With Fees In 2012

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Court Grants Telecom Companies Freedom To Aid Wiretaps

by AP on December 29, 2011

Huffington Post…

SAN FRANCISCO (AP) — A federal appeals court says a law granting telecommunications companies legal immunity for helping the National Security Agency with an email and telephone eavesdropping program is constitutional. The 9th U.S. Circuit Court of Appeals issued its opinion Thursday, affirming a lower court ruling that the Foreign Intelligence Surveillance Act, or FISA, passes constitutional muster. The appeal consolidated 33 cases filed against various telecom companies, including AT&T, Sprint Nextel and Verizon Communications Inc. filed on behalf of these companies’ consumers. The ruling continues a legal case stemming from new surveillance rules passed by Congress in 2009 that included protection from legal liability for telecommunications companies that allegedly helped the U.S. spy on Americans without warrants.

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Court Grants Telecom Companies Freedom To Aid Wiretaps

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Toilet Paper Goes Chic With Designer Covers

December 29, 2011

ATLANTA — Are you ready to “Respect the Roll?” Kimberly-Clark is looking to shake up the toilet-paper accessory category with toilet roll covers from designer Jonathan Adler. To boost awareness about a new formulation of its Cottonelle toilet paper that it says is 30 percent stronger, Kimberly-Clark Inc. decided to forgo traditional advertising. Instead, it’s offering limited-edition boxes to hide your backup rolls. Who knew you needed such a thing? It’s the latest effort by consumer product makers to spice up stagnant categories with eye-catching design. In 2010, Kotex introduced the “U by Kotex” line of pads and tampons with neon packaging and pad carriers designed by stylist Patricia Fields, for example. Allen Adamson, managing director of global branding firm Landor in New York, said Target Corp. has successfully brought design to a lot of consumer product categories with such lines as the housewares rethought by renowned industrial designer Michael Graves. But it’s new for toilet paper. “It’s just surprising when design finally meets toilet paper – that’s sort of the final frontier,” Adamson said. Even though it’s a $10 billion industry, according to Nielsen, most people don’t pay attention to which toilet paper roll they buy – or they stay loyal to one brand for decades. “Consumers shop on autopilot and shop quite a bit on deal,” in the toilet-paper aisle, admitted Kurt Simon, brand director for Cottonelle. “They tune out when they go into the aisle. And, largely speaking, they tune out (toilet paper) advertising as well.” Adler created covers in three bright, geometric patterns. Known for bold colors and pop graphics, he has designed everything from home furnishings to hotels and currently operates 16 of his own stores. The roll covers will be available in January at respecttheroll.com for a shipping charge of $1.99 plus an offer code from a package of Cottonelle toilet paper. Or you can order one now for $3.99, including shipping. Adler, whose other projects have included straws for extra-skinny Diet Pepsi cans, said the uniqueness of toilet paper covers appealed to him. He wanted them to be “bold, punchy and mood-enhancing” and tried to infuse a “pop-art element.” “I don’t get calls every day to design spare toilet roll covers,” he said. “But I believe every piece in your home, no matter how unexpected or mundane, should be fabulous.”

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Penny C. Sansevieri: How to Keep Up with Every Piece of Information in Your Industry (Without Being Overwhelmed)

December 29, 2011

I don’t know about you but I spend much of my time trying to stay on top of the deluge of information that keeps coming my way. Between emails, newsletters, RSS feeds, Twitter, and Facebook, the information is sometimes overwhelming and, let’s face it, after a while it becomes white noise. Now, more than ever, it’s important to be super selective when you’re trying to keep up on your industry. Time is key and, for most of us, in very short supply. Using time wisely will not only help you stay current, but also keep the flow of information to a manageable level. Keeping up with information, regardless of the industry you are in, has become almost like drinking from a fire hose. A lot of people are out there creating a lot of stuff. Some of it’s useful, some of it is a waste. How quickly you can determine that will make a huge difference. During the past year, I found that I had an overwhelming amount of content to sift through and when I did, 70 percent of it wasn’t something I needed anyway. But I continued to remain a loyal follower often for no other reason than “just because.” When I became more diligent about the amount of content that flooded my inbox, I not only freed up my email bandwidth, but also created space to be more creative because I wasn’t overwhelmed with reading dozens of blogs, newsletters, etc. Look for solid content: This goes without saying, I know. But the reality is this: if you’ve been reading a newsletter for a while you might not notice the subtle changes, perhaps relating to content, that have made it less relevant with each issue. I encourage you to go through each newsletter, blog, fan page, and Twitter follower and see how many of them you haven’t read or whose information you gloss over. It might be time to un-sub from them. I find that sometimes people don’t like to do that, thinking, “It’s rude” to unsubscribe. No, it’s not. If the information isn’t helpful, it’s just clogging your inbox. The information is probably very good for someone else, but not for you. The less junk you have to filter through, the more you can pay attention to the good stuff. That’s what this exercise is really for. Find Filters: Filters are the people who cover a lot of ground in their content. Let’s say you’re trying to keep up with everything related to building apps, or maybe you’re in publishing. Try to find some key people who do more than talk about their stuff, in other words find people who can discuss the industry and who report on different aspects so you’re getting news and insights all in one place. Google Alerts: This is a great system and a terrific way to manage your news all in one place. Get Google alerts on anything you are tracking. Once a day Google Alerts will send you a list of news items on your topic so you can have them all in one place and not have to spend hours scouring the Internet to keep up on your topic. Don’t try to know everything: We all want to be experts but you don’t have to know everything. Instead network with other experts who can share their insights or who you can learn from. One of the things we’ve started to do this year is bring in experts who can speak to different topics, like Google+, YouTube, Facebook, etc. Limit yourself to five superb industry newsletters : If you’re like me, you probably get a lot of industry newsletters. Just about every expert has one, but here’s the thing: not all newsletters are created equal so unsubscribe from the ones that don’t enhance your knowledge. Again, it’s about being super selective when it comes to the amount of content you have to digest. Also, if you’re promoting online (and you are, aren’t you?) you also need to keep up with changes that will affect your social media campaign. Facebook updates often happen with little or no notice and with all the momentum Google+ is experiencing, it’s a good idea to keep track of a few key sites that will help you navigate your social media information. Here are some that I absolutely love, following these experts will really help you stay on top of the changes in social media: Social Media Examiner Mashable AllFacebook.com InsideFacebook.com Problogger.com Another great site, developed by social media guru Guy Kawasaki, is Alltop. Here you can plug in your area of expertise and get a page full of news items specific to your market. No more hunting around for top news stories, they are right there. This is also a great place for idea and content generation if you’re at a loss as to what to Tweet or post to Facebook. Next up is publishing; I mean if you’re in the industry you should keep up with what’s happening, right? There’s a great newsletter you should get called Publisher’s Lunch, you can access it at www.publishersmarketplace.com . Additionally, check out these blogs which are always helpful and insightful: http://www.amarketingexpert.com http://www.mediabistro.com/galleycat/ http://publishingperspectives.com/ http://blog.nathanbransford.com/ http://www.huffingtonpost.com/books/ http://blogs.publishersweekly.com/blogs/PWxyz/ http://publishing.alltop.com/ http://radar.oreilly.com/publishing/ That’s it. Now make it your goal to cut down the noise and clear the decks for more time and more creative thinking. Too much clutter consumes not just our time, but our bandwidth, too. Keeping tabs is important but I think you’ll find that the deeper we get into the new year, the more selective we’ll all need to be about our content.

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The European Banking Authority (EBA) has warned lenders against being so risk-averse as to prompt a credit crunch.

December 11, 2011

FRANKFURT – The European Banking Authority (EBA) has warned lenders against being so risk-averse as to prompt a credit crunch. It also said regulators would not allow a cut in lending as a means to meeting regulatory capital targets. Banks have changed their behavior far more than the public has realized in the wake of the financial crisis, EBA head Andrea Enria told German magazine Der Spiegel in an interview. “At the moment, our concerns have gone to the other extreme: that we could now have the problem banks are too risk-averse, which could ultimately lead to a severe credit crunch,” Enria said in the interview in the magazine’s Monday edition. Lenders around Europe will need to drum up about 115 billion euros ($154 billion) in extra capital by June 30 to meet a regulatory capital target set by the watchdog. Banks can retain earnings, curb dividends and bonuses, sell off chunks of their businesses or reduce risky assets to meet the target, but Enria put them on guard if they were thinking of choking off loans. “If a bank reduces its lending to small and medium-sized enterprises, it won’t be counted (toward meeting the target),” he said. “We will not allow credit supply to be cut.” Banks have until January 20 to present their roadmaps for meeting the regulatory capital target to banking supervisors. Loan portfolios can be sold, even to hedge funds, to help bolster banks’ equity capital cushions, Enria said. The EBA wants banks to reach a core Tier 1 regulatory capital ratio of 9 percent by the mid-2012 deadline, which should help lenders withstand any market deterioration. The watchdog’s stress tests of banks, based on data from the third quarter, revealed six German lenders need 13.1 billion euros of extra capital to meet the deadline, nearly triple the amount estimated previously. Commerzbank (CBKG.DE) needs 5.3 billion euros and Deutsche Bank (DBKGn.DE) 3.2 billion, with four other public-sector or co-operative lenders — NordLB, Helaba, DZ Bank and WestLB — making up the remainder. “These sorts of high figures do not necessarily mean that banks are in bad shape,” Enria said. “The most urgent problem is funding, and in that regard the German banks are doing better than others. However, the storm is also affecting them, and they, too, have to strengthen their capital.” Only a few large banks have been able to fund their businesses since July, and have had to pay very high interest rates to do so, Enria said. “If banks cannot get funds, they stop lending and that damages the economy,” he said. “We are stuck in a vicious circle and we have to try to break out of it.” ($1 = 0.7482 euros) (Reporting by Jonathan Gould; Editing by David Hulmes) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Wall Street Ends Worst Quarter Since Depths Of 2008 Crisis

October 1, 2011

NEW YORK (Edward Krudy) – Stocks ended their worst quarter since the depths of the 2008 credit crisis, crippled by Europe’s debt debacle, a U.S. credit downgrade and a sputtering global economy. A steep slide on Friday closed out a fifth month of losses as weak economic data from China sparked fears of a global economic slowdown while investment bank Morgan Stanley plummeted on concerns about its exposure to European banks. The S&P 500 index has lost more than 14 percent this quarter and over 7 percent in September alone. As of Thursday, Wall Street’s deep downturn in the third quarter wiped out $2.2 trillion of the Wiltshire 5000 index — the broadest measure of U.S. stocks. “Why is the market so soft and so weak? Because ’08 is still fresh in people’s memories,” said Joseph Mazzella, a senior trader at Knight Capital in Jersey City, New Jersey. Stocks have been battered by the threat of a slowdown and fears that a Greek debt default could spark a credit shock similar to that caused by Lehman Brothers in September 2008, sending markets into a tailspin. Fears of a hard landing in the world’s second largest economy joined the potent mix troubling investors after China’s manufacturing sector shrank for the third month in a row. HSBC’s China flash purchasing managers index showed the longest contractional streak since 2009 in a worrying sign for the world economy, which has looked to China as a rare source of expansion. “The economic engine that has been driving growth has been China and if that comes undone, it gets scary again,” said Mazzella. Investors will be eyeing China’s official PMI, due out on Saturday, which may have edged up again in September. Any disappointment there will be a blow for markets. Financial shares stumbled with Morgan Stanley, which fell 10.5 percent to $13.51 as investors appeared to react to fear signals in credit markets. The cost of insuring Morgan Stanley’s five-year bonds spiked in recent days to almost three times what it was on June 30. It shares have erased all their gains of the last three year. The Dow Jones industrial average dropped 240.60 points, or 2.16 percent, to 10,913.38. The Standard & Poor’s 500 Index fell 28.98 points, or 2.50 percent, to 1,131.42. The Nasdaq Composite Index lost 65.36 points, or 2.63 percent, to 2,415.40. Wall Street’s “fear gauge,” the CBOE volatility index, or VIX, rose more than 10 percent to 42.96, its highest close since mid-August and indicating investors expect more volatility ahead. “There is a lot of fear that GDP growth is going to slow down, or it’s not going to be as fast as consensus estimates assume,” said Adam Krejcik, an analyst at Roth Capital in Newport Beach, California. “Generally speaking there is a lot of fear out there, just a crisis of confidence.” Through Thursday, the MSCI All Country World Index had lost about $4.7 trillion in market capitalization. The U.S. benchmark S&P 500 has lost about $1.7 trillion in market cap during the quarter. Euro zone annual consumer prices unexpectedly rose in September 3.0 percent and followed surprisingly higher inflation in Germany. In what may be a precursor to the quarterly earnings season, Ingersoll Rand Plc tumbled 12.1 percent to $28.09 after the industrial conglomerate cut its third-quarter and full-year earnings forecast to below market estimates. The Morgan Stanley cyclical index dropped 3.6 percent. Markets showed little reaction two U.S. economic reports that were stronger than analysts expected. Business activity in the U.S. Midwest grew more than expected in September, buoyed by new orders and a jump in employment. The Institute for Supply Management-Chicago business barometer surprisingly rose in September more than economists had forecast. U.S. consumer sentiment improved in late September but worries persisted about jobs and finances, which could curb household spending in the coming months, the Thomson Reuters/University of Michigan final September reading of the overall index on consumer sentiment showed. About four stocks fell for every one that rose on the New York Stock Exchange. On the Nasdaq, about 7 stocks fell for every two that rose. About 8.58 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above this year’s daily average of 7.96 billion. (Additional reporting by Himank Sharma; Editing by Kenneth Barry) Copyright 2011 Thomson Reuters. Click for Restrictions .

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James Bacchus: Export Drop Shows Need for New Trade Strategy

August 26, 2011

Turning up the heat a little more in this long hot summer of our national discontent is the news that American exports are declining. This unexpected and decidedly unwelcome decline threatens the achievement of President Obama’s ambitious goal of doubling U.S. exports by 2015 to create two million new jobs. The President has the right goal. Every $1 billion in additional exports adds about six thousand new jobs, and jobs involving exports pay 15% more than average. With consumer demand sagging here at home, we must seize whatever additional markets we can elsewhere for our goods and services. And, until now, this part of his economic recovery plan has seemed to be succeeding. Exports have been rising, accounting for about half of all the jobs created in the United States in the past year, and, overall, exports remain up 16% so far this year . But now this ray of light in Obama’s plan seems to be dimming. U.S. exports fell more than 2% from May to June, and the monthly U.S. trade deficit increased to $53.1 billion — the widest gap since the onset of the Great Recession in the fall of 2008. Exports are declining because of a decreasing demand in other countries for what we have to sell in a slowing global economy. Europe is sputtering. Japan is struggling. Even vaunted China is slowing down. Other developing countries are being whipsawed economically by the ongoing whirl of global economic turmoil. The resulting drop in U.S. exports underscores the need for the White House to take a new look at its trade policy. As our trading partners will be eager to tell us, much of our recent success in increasing U.S. exports can be traced to a devaluation of the dollar that has been furthered by the “quantitative easing” of the Federal Reserve. A weaker dollar has made our goods and services cheaper in foreign markets and foreign goods and services more expensive in the United States. (There is no small irony in the fact that we Americans — quite rightly — accuse the Chinese of doing much the same thing to us through their currency practices.) Other than this tacit reliance on the trade results of a devalued currency, the Obama Administration has depended mainly on export promotion to keep the President’s promise of creating millions of new jobs by exporting. True, there have been a few minor initiatives aimed at helping U.S. businesses engage in exports, and a few more are supposedly in the works. But Obama’s export policy has largely been limited to business-as-usual by the executive branch and occasional presidential exhortation. None too soon, the President seems to have realized that international trade must be a part of our national economic recovery. In this third year of his presidency, Obama is at least, and at last, talking about trade, if only about exports. (The word “import” seems not be part of the President’s vocabulary — though imports, too, are vital to our recovery.) Export promotion is certainly needed. For all our professed focus on the global economy, only 1% of U.S. companies export, and 58% of those companies export to only one country , usually Canada or Mexico. Currently, exports account for only 9.6% of our GDP. But to maximize job creation, we need much more than merely cheerleading for exports. America is much in need of a comprehensive trade strategy aimed at opening up more foreign markets to significantly more sales of American goods and services. And we Americans need our president to be an aggressive advocate not only for exports, but for all trade, and especially for the freer trade needed worldwide to help prevent a new global recession by jumpstarting the renewed growth of the global economy. About 5% of the people in the world are Americans. As the President himself has pointed out, this means that 95% of the potential customers for our goods and services are in other countries. Many of those potential customers either cannot or do not buy from us because the markets of their countries are still closed to our exports or discriminate against them through tariffs and non-tariff barriers to trade. And these barriers have been rising — subtly and not so subtly — all around the world since the beginning of the global financial crisis. So export promotion is not enough. Export promotion must be accompanied by market opening. One way to open up more markets is by insisting that other countries comply with the treaty commitments they have already made to us in existing trade agreements as Members of the World Trade Organization. To its credit, the Obama Administration has been considerably more aggressive than the previous administration in seeking binding and enforceable rulings against the unfair trade practices of other countries in WTO dispute settlement. But we should be even more aggressive in asserting our legal rights in the WTO. (And we will be much more likely to reap job-producing results from doing so if we are equally respectful of the legal rights of other WTO Members.) To cite one example of why we need to be more assertive in WTO dispute settlement: Ours is a knowledge-based and technology-intensive economy that, increasingly, depends for success on the protection of intellectual property rights. The United States International Trade Commission has concluded that we could create up to 2.1 million new jobs by ensuring that China fulfils its clear WTO obligations to protect the patent, copyright, trademark, and other intellectual property rights of U.S. businesses and other U.S. right holders. But by far the best way to open new markets is to tear down trade barriers by concluding more trade agreements. And, to put it kindly, up until now, the conclusion of new trade agreements has been considerably less than a high priority for the current Administration. Belatedly, Obama has come around to supporting long-delayed free trade agreements with three of our leading trading partners — Korea, Colombia, and Panama. Now that he supports these three FTA’s, the President should do more than give speeches extolling their merits; he should submit them to the Congress for approval now. The Korean deal alone would result in a net increase of up to $10 billion in U.S. exports in its first decade. While we tarry, Europe is profiting from a new free trade deal with Korea, and a similar deal between Canada and Colombia has just taken effect. American businesses are losing opportunities in these key markets — and American workers are losing jobs — because we have allowed petty partisan politics to keep us from approving these important agreements. Approving these three pending FTA’s is, however, only the beginning. Other market-opening initiatives are much needed. We must reach an understanding with China on mutual market access consistent with our mutual WTO obligations. We must give higher priority to the proposed “Trans-Pacific Partnership,” which could help pry open other Asian markets. The North American Free Trade Agreement can be improved by strengthening our mutual supply chains with Canada and Mexico, which account for 30% of all our trade. All of this would create more American jobs. Above all, we can create the most new jobs for American workers by opening up more markets worldwide for American exports through a worldwide trade deal. The biggest bang for the buck in job creation through trade does not come from piecemeal deals among two or a few countries that lower trade barriers here and there; it comes from global deals that lower trade barriers everywhere. This is why previous presidential administrations of both parties in the United States have always given precedence to the conclusion of global trade deals among the more than 150 countries that are Members of the WTO. Current global trade talks among the United States and other WTO Members are going nowhere. They have been going nowhere for nearly a decade. The only way they will ever get anywhere worth going is if the United States decides to summon the political will and spend the necessary political capital truly to lead. And only the President of the United States can make this happen. By no means is the United States solely to blame for the sorry state of the Doha Development Round of global trade negotiations. Even so, those negotiations cannot be concluded successfully without the active and ardent engagement of the United States — which, for all our current angst, remains the leading trading nation in the world. Moreover, at this late stage in the round, only an ambitious initiative by the United States could conceivably break the impasse. Yet, despite all the loyal efforts of our tireless trade negotiators, the Obama Administration has invested little in the way of political capital so far toward a successful conclusion of the global trade round or toward setting the stage for further global progress toward freer trade through the WTO. The economic stakes in seeking freer trade from a global trade deal could hardly be higher for the United States. We Americans have gained in national income no less than $1 trillion annually from our cumulative successes in lowering barriers to trade and investment through global and other international agreements since World War II. We could gain another $500 billion annually in national income by agreeing with our trading partners to eliminate all the many remaining barriers to trade and investment worldwide. The Doha round will not create a trade utopia. The agenda of the round is not nearly as ambitious as it ought to be in lowering global trade barriers. But the failure of the round could lead in these fragile economic times to an unraveling of the world trading system in ways that would surely harm American exports. And the success of the round would surely be a needed spur to the sputtering global economy. The successful conclusion of the Doha round could create more American jobs by achieving some of the vast potential gains from freer trade, and, perhaps most important, could establish the global political momentum for achieving much more. With Doha behind us, we could then proceed, in concert with other WTO Members, to craft an even more ambitious global trade strategy aimed at maximum job creation for the 21st century. Indeed, whatever the outcome of Doha, we need a much bolder vision for the WTO. The fact is, far too little of what we need to do in trade is even on the Doha agenda. To achieve the most for American business and workers in the new global economy, the WTO must move one beyond Doha to conclude additional agreements on intellectual property, investment, energy, technical standards, product safety, electronic commerce, green technology, and other critical commercial issues that have not been central to trade talks in the past. The WTO must also confront the global implications of proliferating bilateral and regional trade agreements that threaten to undermine the fundamental rules of non-discrimination that ensure the flow of trade in the world trading system. All of these market-opening opportunities must be pursued if we hope to maximize the creation of American jobs through exports. This will not be done solely by cheerleading. This must be done if we hope to avoid further disappointing news about U.S. exports.

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Florida Home Reportedly Ransacked By Buffett-Linked Mortgage Firm

July 6, 2011

Chris Boudreau of Brooksville, Florida says he is the unwilling recipient of a home makeover, courtesy of his mortgage company. 21st Mortgage Corporation, which says it is a Berkshire Hathaway company on its website, allegedly hired a private firm to ransack and clean out Boudreau’s home, according to WTSP 10 News . They reportedly took out his sofa, tables, television, DVD player, tapes and cabinets. They even shredded Mrs. Boudreau’s wedding dress, claims Boudreau. “When she saw what happened, she actually went into in the dumpster trying to go through the stuff,” Boudreau told the news station. “She was crying her eyes out.” According to WTSP, Boudreau had fallen slightly behind on his mortgage payments, prompting the mortgage company to take independent action. Richard Ray, 21st Mortgage Corp’s Chief Financial Officer, told The Huffington Post that Boundreau’s story, as reported, is one-sided. “It’s inconceivable,” he told Huffington Post, “that we would hire someone to diminish the property that we have a loan against.” For legal reasons, Ray would not discuss Boudreau’s particular situation. Tom Altman, Mr. Boudreau’s attorney, told the local CBS affiliate that when he contacted the mortgage firm, he was told that it had the right to the actions taken because Florida is a “self-help state.” However, according to Altman, Florida is not a self-help state. In fact, he says, the state has very strict foreclosure laws, which he claims 21st Mortgage violated. The Hernando Sheriff’s office sees things differently, however. They have no interest, they told WTSP, in investigating any charges of burglary, breaking and entering and trespassing, claiming the situation to be a civil matter. Boudreau is not the only individual to allegedly experience a mortgage horror story. As the New York Times reported in September, Florida’s former attorney general Bill McCollum announced that his office would investigate claims that banks presented doctored or dubious records in courts as proof that a lease exists against a property. On its website, 21st Mortgage Corp. claims that Clayton Homes purchased their firm at the direction of Berkshire Hathaway in 2003. According to Clayton Homes ‘ own website, Clayton Homes was also acquired by Berkshire Hathaway that same year. Berkshire Hathaway did not respond to requests for comment. Watch the full WTSP News 10 report here:

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Olivier Blanchard: What I Learnt in Rio: Discussing Ways to Manage Capital Flows

June 3, 2011

Last week I traveled to Rio de Janeiro in Brazil to participate in a conference on managing capital flows. Organized jointly by the Brazilian authorities and the IMF, the conference brought together experts from both the demand and supply sides of the issue, including many with a wealth of hands-on experience. The discussion was rich and informative. Clearly we still have a lot to learn about the optimal approach to managing capital flows, about the right policy tools, and the right combination of tools. To start with two general, but important observations. First, while the issue of capital controls is fraught with ideological overtones, it is fundamentally a technical one, indeed a highly technical one. Put simply, governments have five tools to adjust to capital flows: monetary policy, fiscal policy, foreign exchange intervention, prudential tools, and capital controls. The challenge is to find, for each case, the right combination. This is not easy . Second, we need to better understand the costs and benefits of capital flows. The costs depend — more than is generally understood — on the institutional framework in each country: things like the exchange rate regime, the degree of dollarization of the economy, and the credibility of the central bank. Even costs related to ‘ Dutch Disease ‘ — the bogeyman still much in the minds of policy-makers — are in fact not well established. Over the past 18 months, we at the IMF have done some rethinking about the nature of the risks capital flows may bring, and how best to respond. The most recent research attempts to develop a conceptual framework to weigh the benefits of different policy responses, including capital controls. Like the re-examination of many economic principles in the wake of the global crisis, this work is just the beginning of a conversation. The Rio conference highlighted the importance of consulting and debating the issues more broadly, particularly with financial sector experts who understand and influence intermediation, but also with academics and outside researchers. The conference gave me a better appreciation of the universe of issues, and of the outreach and research still to do. I took 32 pages of notes during the conference; I will not impose them on you, but here are some highlights. On the nature of flows… Looking at the relevant set of investors suggests higher flows to emerging markets are here to stay. This is the “new normal,” and is based on a ” fundamental re-rating of global risk ” in favor of emerging market assets with better fundamentals and higher returns. But, it remains to be seen whether, for example, the new appetite of foreign investors for local currency debt comes from a durable shift in demand, or the more temporary expectation of appreciation. The nature of specific investors must inform the policy choices. We often think of inflows and outflows as coming from primarily from decisions by foreign investors. The reality is that many of these inflows and outflows often come from decisions by domestic investors . When this is the case, targeting nonresidents is largely misguided. On the policy options… None of the tools — be they reserve accumulation, prudential measures, or capital controls — are water-tight . So we should move away from strict policy orderings toward a more fluid approach of using “many or most of the tools most of the time” instead of “this now, that later.” It is not clear that the diversity of approaches we observe in practice comes from different circumstances, or from suboptimal responses. It was interesting to observe, for example, that Chile relies on foreign exchange intervention, not on capital controls, but India, instead, relies on capital controls, not on foreign exchange intervention. Are these corner solutions really optimal? There were many other important technical issues beyond these and I’d encourage you to read some of the interesting presentations by the participants and speakers, including remarks by Professor Jagdish Bhagwati, on the Rio conference website . There were some issues that I would like to have seen explored more fully. One was the multilateral angle. As my IMF colleague Min Zhu said in his opening remarks , “ensuring that countries reap the full benefits of capital flows is a shared responsibility between advanced and emerging market economies, between surplus and deficit countries, between capital-exporters and capital-importers.” The challenge is to translate this into practice. What is the actual responsibility of source countries? Should they take it into account in conducting monetary policy, and if so, how? Should we worry about the “beggar thy neighbor” effect of controls? Some of the evidence presented at the conference suggested that these spillovers across recipient countries were not very large. Theoretical and further empirical work is badly needed here. Nor did we have an opportunity to revisit, or even discuss, the current wisdom on capital account openness. In light of new research, what should we be telling policy-makers, those with mostly open and those with mostly closed capital accounts? Should Chile and China eventually converge to the same point along the continuum? And, if so, at what rate? We cannot avoid coming to views on this fundamental issue. Overall, our discussions in Rio were a positive step toward a more constructive, updated approach, away from the contentious legacy of the capital controls debate. We look forward to continuing the conversation as we work with members to find a way toward the right combination of policies. From iMFdirect blog

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Carbon Energy Limited (ASX:CNX) Key Phase 1 Deliverables Achieved In Chile

May 31, 2011

Carbon Energy Limited (ASX:CNX) Key Phase 1 Deliverables Achieved In Chile

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Francine Hardaway: Chile Edging Up to America as Startup Haven

May 9, 2011

On a Chilean freeway, being transported by bus from Santiago to Santa Cruz,  a group of traveling technology entrepreneurs and investors hears startup pitches from companies being accelerated by Endeavor , a global nonprofit accelerator for entrepreneurs with a social purpose. These entrepreneurs are trying to turn Chile solar; purify water and design solar cars. Endeavor is active throughout Latin America; in Brazil, I met an Endeavor-sponsored entrepreneur whose company brings copper wire broadband solutions to small communities. But here is the heart of the story. We had already breakfasted with Chilean president Sebastian Pinera . Last night, we attended an event called “First Tuesday Santiago” to see startups and hear pitches. There are startups everywhere, which is why we’re on the bus heading for a lunchtime wine tasting and a talk by the founder of Vertical, an adventure tour company that has partnered with National Geographic to guide groups up Mount Everest and down to Antartica.    That’s because the Chilean government, under President Pinera, has taken a bold step: It has started an accelerator called Startup Chile, which will bring 100 entrepreneurs with big ideas to Chile to start companies. The founders get a stipend, expenses and the attention of the Chilean government. Last night I met a member of the first cohort, Georges Cadena, who is trying to build a plant in Chile for holographic technology that can be used in windows to cut the cost of solar installations in half. He moved to Chile from California. And a Chilean woman from the Bay Area who moved back to co-found a private equity firm for Chilean wineries. Of 23 companies in the initial cohort, 8 will be remaining in Chile. The people I meet think it’s a lousy time to be in the States, with its stagnant economy, group depression and loss of focus on what immigrants brought to America. Many of them believed in America, they went to America for college or jobs, but  they didn’t see the American dream or the promised land that previous generations saw. So they turned around and came home. Over half the first “class” of Startup Chile are Americans. They are being treated like royalty. President Pinera told his audience this morning that Chile may have been late to the industrial revolution, but it won’t be late to the information revolution. He plans to do everything in his power to change the culture to one tolerant of risk, not afraid to fail and learn from mistakes. He told us Adam and Eve may have been the first entrepreneurs when they ate the forbidden fruit. For a politician, he “gets it,” and he is putting his money where his mouth is by funding these young companies. Chile may yet produce the first solar car.

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Video: Puchi Says AquaChile to Seek Salmon Farms After IPO

May 6, 2011

May 6 (Bloomberg) — Victor Hugo Puchi, chairman of Empresas AquaChile SA, talks with Bloomberg’s Eduardo Thomson about trends in the salmon industry and the company’s initial public offering. ¶ Puchi says AquaChile will look to buy other salmon farms with proceeds from what could be Chile’s biggest IPO in five years. (Source: Bloomberg)

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Income Inequality Is Soaring Globally — Even In Sweden

May 3, 2011

Widening income inequality has been a thorn in America’s side for some time now. Turns out, other countries in the developed world aren’t exempt from it, either. Yes, even Sweden. In a new report , the Paris-based Organisation for Economic Co-operation and Development (OECD) finds that since the mid-1980s income inequality has increased in 77 percent, or 17 of the 22 surveyed countries. Across all OECD countries, the report found, the average income of the richest tenth of the population is now nine times that of the poorest tenth. Globalization, technological innovation and relaxed regulatory environments have all contributed to the growing gap between rich and poor, the OECD found. The report pays special attention, though, to the changing formation of families, pointing to research showing the income inequality has risen in the U.S. as a result of growing numbers of single-headed households. Globally, household income has increased overall by 1.7 percent annually, the OECD found. But not all income levels have benefited equally. The world’s bottom decile of earners saw their income grow annually by only 1.4 percent in the last 30 years or so, while the top decile grew at an annual rate of 2.0 percent. Countries at both extremes of the inequality spectrum are moving closer to the center. Mexico and Chile, which together have the two highest levels of inequality, have seen the gap between rich and poor narrow in recent years. But surprisingly, it’s in the historically egalitarian countries of Denmark, Germany and Sweden that the divide between the rich and poor has widened most in the past decade. This isn’t just an issue of poor versus rich, however. The middle-class has largely been left behind too: “The highest 10% of earners have been leaving the middle earners behind more rapidly than the lowest earners have been drifting away from the middle,” the report’s authors write. Capital income, or income derived from wealth not work, has been a particularly notable source of rising inequality, the report notes, widening more than wage inequality in two-thirds of surveyed countries. Still, capital income remains a relatively low percentage of overall income at 7 percent. On Monday, though, Paul Krugman noted that 400 people alone accounted for 10 percent of all U.S. capital gains income in 2007. With the exception of France, Japan and Spain, wages of the rich have grown more than those of poor since the mid-1980s, the report finds. That has something to do, according to the OECD, with the declining number of average hours worked by low-wage workers, even in comparison to also declining hours worked by the high-wage workforce. Only in Greece and the United States, the report finds, have the average number of hours worked risen for the bottom quintile while declining for the top. (See below chart): The below graph shows where inequality has risen, where it has fallen, and by how much since the mid-1980s: Read the paper: GROWING INCOME INEQUALITY IN OECD COUNTRIES: WHAT DRIVES IT AND HOW CAN POLICY TACKLE IT?

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Naveen Jain: Bring Back America’s Spirit of Innovation and Entrepreneurship

April 25, 2011

As the U.S. economy slowly moves out of the recession, it’s a good bet that businesses started or led by immigrants will play a substantial role in creating jobs and driving growth. In high tech, for instance, 52 percent of startups launched between 1995 and 2005 were founded by immigrants, and foreign nationals have filed for a quarter of patents in recent years. So why are we so eager to send talented immigrants back to their home countries, instead of keeping them here so they can continue to innovate? Our unwillingness to champion entrepreneurs, no matter where they come from, is part of a larger attitude problem around entrepreneurship: We don’t celebrate their achievements as much as we should, and our government support of entrepreneurs is weak. The end result is that talent is attracted here to attend our finest educational institutions, but may not be so welcomed if it wants to stick around and start a business. It wasn’t always this way. Innovators were revered, and schoolchildren learned the names of the great inventors alongside the names of renowned statesmen. Today, people idolize athletes and celebrities — and yes, highly successful and visionary business people like Bill Gates or Steve Jobs, but not the innovators who perhaps have not seen such high-flying levels of success. Can anyone name the inventors of GPS, which has such a huge impact on our lives today? (For the record, Roger Easton, creator of some of the key technologies that led to GPS, was recently inducted into the National Inventors Hall of Fame .) Aside from an attitude shift toward the valuable contributions of entrepreneurs and inventors, we need to cultivate more support on a government level. We can learn valuable lessons from Start-Up Chile , an effort funded by the Chilean government that aims to attract early-stage entrepreneurs from all over the world to launch their businesses in that country. The program provides subsidies to teams of entrepreneurs along with access to sources of capital. It’s a great idea, and one that promises to reap benefits for the country’s economy as well as provide a source for jobs. We need our own American “mobilization” for entrepreneurship and innovators — one that provides both the practical and inspirational support that will attract foreign talent to bring and grow their ideas here, and will help our homegrown talent thrive. Here’s what we need to make this vision happen: Longer stays for entrepreneurs : We don’t have enough of our own innovators in this country, which means we need to encourage budding inventors and entrepreneurs to come here, and stay here. Our current system — the H-1B visa that allows workers to come here temporarily, along with temporary visas for college students — doesn’t provide a long-term solution. We need easy and hassle free access to ” entrepreneur’s visa ” — one that would give deserving startup innovators the time they need to conduct their research, start a company, and see it through to success. The impact on our economy and the job market would be significant. Support from the White House : The President needs to champion the power of entrepreneurship and innovation to help turn around the economy. This message needs to resonate with high school and college students who are poised to create the next generation of entrepreneurs. It will also help restore some luster to the dulled reputations of innovators. In other needs, we need to make entrepreneurship a cherished national value. Connections to markets and customers : The prevailing myth is that innovators and their businesses only need startup capital. But more valuable than money would be a mechanism to bring together budding companies with customers and sources of steady income — perhaps by showcasing their wares on the shelves of America’s powerhouse retailers. Under the direction of the President or a specially created entrepreneurship council, a hundred or so CEOs could meet entrepreneurs and learn more about their innovations. Major retailers could create an “innovation aisle” in their stores to promote new inventions, helping create a funding pipeline to worthy businesses. Programs for college entrepreneurs : More schools need to drive the growth of innovation and entrepreneurship via special training or degree tracks. For instance, Babson College infuses entrepreneurship throughout its curriculum — in fact, one of its most popular classes, the “Ultimate Entrepreneurial Challenge,” lets students compete against each other in business challenges (very much like TV’s The Apprentice ). Unfettered, creative and enthusiastic entrepreneurship is one of the hallmarks of American life, and allowed us to attract the best and brightest to this country. Let’s bring back this spirit of entrepreneurship — to make the U.S. an attractive venue for talent from all over the world, and to do a better job of nurturing young talent here at home.

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Daniel Wagner: Japan’s Government Needs to Move Quickly

April 3, 2011

Minimal Impact to the Global Supply Chain? In the absence of evidence to the contrary, it has become fashionable for some in the global business community to believe that the economic impact of Japan’s earthquake will be minimal. No one can truly know the ultimate impact because the world has never experienced such a severe natural disaster in an economy so critical to the global supply chain: This is not Indonesia, New Zealand, Chile or Pakistan — which have also experienced recent severe earthquakes — this is Japan. For the past three weeks, the world’s third largest economy has been plagued by chronic power shortages and supply chain disruptions — the ‘new normal,’ which is likely to continue for years. Although much of Japan’s heaviest manufacturing occurs in its south, which was largely undamaged as a result of the quake and tsunami, the ability to ship components to these facilities has in some cases been severely impacted, and ongoing power supply disruptions threaten to introduce long-term interruption into the production process. Japan produces approximately 60% of the world’s silicon, used to produce semiconductor chips. Shortages in these chips are only now being felt, as manufacturers had a 2-to-3 week surplus of chips prior to the quake. Japanese manufacturers are expected to lose up to $60 billion as a result of interruption in production capability this year due to power disruptions. For manufacturing organizations outside Japan, the long-term impact is more difficult to assess, but businesses as diverse as auto manufacturers, and video game, LCD, and laptop producers, have already been affected. Businesses throughout Japan have reported difficulty obtaining raw materials and transporting workers. Given that the timing of rolling brownouts is unpredictable, the ‘new normal’ for businesses involves flexible office hour scheduling and inconsistent transportation links, which are subject to change on short notice. All indications are that this is likely to continue for the foreseeable future, and will become acute during peak usage seasons during the winter and summer. If so, expect a more significant impact on the global supply chain in due course. The Importance of Chernobyl’s Radiation Legacy Chernobyl resulted in 400 times more radiation being released than was released in the atomic bombing of Hiroshima, but compared with the amount of radiation released during the atomic testing of the 1950s and 1960s, Chernobyl was a small fraction of that amount. Current estimates of the nature of radioactive contamination in the area surrounding the Fukushima plant downplay the significance of a problem. According to an April 2nd New York Times article , and based on a variety of sources of information it gathered, air and food was only considered to be harmful at the plant “after a short period of time”, while air, soil, water and food was considered to be “possibly harmful after a longer period” near the plant. Only food was considered to be “possibly harmful” elsewhere in Japan, though most of the prefectures in northeast Honshu had detected radiation in food above the legal limit in Japan. According to the report, there is no current cause for concern elsewhere in the world. If Chernobyl is any guide for Japan with respect to radiation contamination, this information is in stark contrast with the facts 10 years after Chernobyl. Vast areas of Belarus and the Ukraine remained contaminated . According to a study released in 2006 by the IAEA, a combination of human activity and precipitation reduced the negative impact of radioactivity on populated areas near Chernobyl, but resulted in the contamination of sewage systems. The main pathways for radiation to impact people was from radionuclides deposited on the ground and the ingestion of contaminated terrestrial food products. The ingestion of drinking water, fish, and products contaminated with irrigation water were considered to be minor pathways toward contamination. Due to the short half-life of radioactive iodine (just 8 days), the contamination of milk, which was the most immediate concern in the food chain, only remained a real concern for about two months following the period when radiation from Chernobyl was stopped. Contamination of various crops, including green leafy vegetables, was also a concern for about two months, though the longer-term impacts have been difficult to quantify. Longer-term concern with respect to human ingestion of foods were most notable in milk, meat, and vegetables. Japan should expect to need to monitor its food supply, and possibly rely on external sources of these foods, for a long time to come. Why the Japanese Government Needs to Move Quickly The focus of much of the press since the quake and tsunami has been on levels of radioactive iodine that has been released into the environment, but cesium-137 is a much greater health concern and has been linked to cancer deaths nine times greater than radioactive iodine, with a half life of 30 years . Last week, for the first time, the Japanese science ministry began to release measurements of cesium-137 in soil around the plant. The levels were highest from two points northeast of the plant, ranging from 8,690 becquerels/kilogram to a high of 163,000 Bq/kg measured on 20 March from a point about 40 kilometers northwest of the Fukushima plant. The hottest spot is similar to levels found in some areas affected by Chernobyl. Assuming the measurement is no more than 2 centimeters deep, nuclear engineer Shih-Yew Chen of the Argonne National Laboratory calculates that 163,000 Bq/kg is roughly equivalent to 8 million Bq/m2. The highest cesium-137 levels in some villages near Chernobyl were 5 million Bq/m2. If true, Fukushima has already released higher levels of Cesium 137 than Chernobyl, making it the worst source of nuclear radiation release in history. Given this, the Japanese government must now move quickly to stop the release of radiation from the Fukushima plants. If preliminary information is correct, Fukushima already is the worst nuclear disaster in history. It could become much worse by degrees if the Japanese government hesitates to use every resource at its disposal — including that of the IAEA and foreign governments — to solve the problem. In the absence of admitting the severity of the problem and acting with haste, Japan’s economy and its people face potentially grave consequences, and the northeast Asia region faces unknown consequences from the release of high levels of cesium-137. Daniel Wagner is managing director of Country Risk Solutions, a political risk consulting firm based in Connecticut, and senior advisor to the PRS Group.

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Obama Calls For ‘New Era Of Partnership’ With Latin America

March 22, 2011

SANTIAGO (By Matt Spetalnick and Simon Gardner) – President Barack Obama called on Monday for a “new era of partnership” with Latin America as he acknowledged a sometimes troubled past between Washington and its neighbors in the region. But his mission to reassert Washington’s influence south of the border was punctuated by questions over the U.S. role in fierce air assaults over Libya, and aides scrambled to keep him up to speed on the attacks in between talks with heads of state and policy speeches. Following a weekend visit to Latin America’s powerhouse Brazil, Obama laid out a vision for deeper trade, investment and political ties with an economically dynamic region where the United States faces growing competition from China. “No region is more closely linked than the United States and Latin America,” Obama told reporters after meeting Chilean President Sebastian Pinera in Santiago on Monday. Still, there have been no major initiatives and the visit has been overshadowed by the air strikes against Libyan leader Muammar Gaddafi. Obama is struggling to balance his handling of world crises, including U.S. military intervention in a third Muslim country, with his domestic priorities of jobs and the economy, considered crucial to his 2012 re-election chances. In his speech on Latin America, Obama hailed the transition in Chile and other Latin American countries to stable democracy from military dictatorship as a model for Arab states swept by popular rebellions against autocratic rule. “There are no senior partners and there are no junior partners, there are equal partners” in the U.S.-Latin American relationship, Obama said, adding that had to be a “two-way” street in terms of shouldering responsibilities. He conceded that relations have “at times been very rocky and at times been difficult,” but said it was important to learn from history and “not be trapped by it.” The United States regularly imposed its will on Latin America in the 20th century and, during the Cold War, it backed a series of right-wing dictatorships against Marxist rebels or left-wing groups. They included the dictatorship of Gen. Augusto Pinochet in Chile. GROWING IMPORTANCE TO U.S. Obama said Latin America, where growth has outstripped the U.S. recovery and democracy has taken hold after brutal civil wars, is now more important to U.S. prosperity than ever. But he offered no major policy changes or initiatives and was short on specifics about how to advance the partnership beyond laying out themes of improved cooperation on trade, clean energy, security and anti-drug efforts. He lauded Chile’s economic success story and promised U.S. cooperation in an investigation of human rights crimes under military rule, but he sidestepped a question on whether he would apologize for what human rights groups allege was U.S. backing for the 1973 coup that brought Pinochet to power. While praising the advances made, Obama — on what his team billed as his signature tour of the region — said some Latin American leaders are still clinging to “bankrupt ideologies” and called on communist-ruled Cuba to respect human rights. Obama is popular in Latin America but there is a sense among its leaders that relations have been neglected while he battles urgent domestic challenges and foreign wars. China, in the meantime, has deepened its influence in the region by rapidly expanding trade and investment. “I know that, at times, the United States has taken this region for granted,” Obama said. Many Latin Americans are disappointed that Obama has not taken significant steps to ease the longstanding U.S. embargo on Cuba. He made no promises to do so in Monday’s speech, saying any further steps would require Cuba to first take “meaningful actions” on granting rights to its people. Obama made no direct reference to Venezuelan President Hugo Chavez, the most vocally anti-U.S. leader in the region. Pinera backed Obama’s call for a new alliance, but reminded him that Panama and Colombia are still waiting for long-promised free trade agreements with the United States. In Brazil, Obama signed a series of trade and energy deals but also found himself in the awkward position of meeting a leader, President Dilma Rousseff, whose government abstained in last week’s U.N. Security Council resolution giving the go-ahead for the strikes on Libya. Copyright 2010 Thomson Reuters. Click for Restrictions .

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Video: De Gregorio Says Chile Interest Rate Rises May Continue

March 4, 2011

March 4 (Bloomberg) — Chile Central Bank President Jose de Gregorio talks about the country’s monetary policy and the prospect for further interest rate rises. He speaks with Bloomberg Television’s David Tweed in Paris.

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Video: De Gregorio Says Chile Interest Rate Rises May Continue

March 4, 2011

March 4 (Bloomberg) — Chile Central Bank President Jose de Gregorio talks about the country’s monetary policy and the prospect for further interest rate rises. He speaks with Bloomberg Television’s David Tweed in Paris.

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Benedict Clements: Healing Public Health Care Finances: Budget Reforms That Work

February 8, 2011

Heath care reform is tricky. On the one hand, providing access to affordable health care is of paramount importance. But spending on health care is putting enormous pressure on public purses all over the world, and it’s only getting worse. How can we fix this? How can governments keep their health care promises to citizens without busting the budget? A recent paper by the IMF’s Fiscal Affairs Department tries to help with these choices, presenting public health spending projections for fifty advanced and emerging countries, and posing reform options. Advanced economies Let’s start with the basics. In advanced economies, health care spending alone accounted for about half of the rise in government budgets in the past 40 years. If we do nothing, these costs will continue to soar. Public health spending is projected to climb by 3 percentage points of GDP over the next 20 years in the advanced economies. The increases in health spending are driven by population aging but more importantly by technical progress and the availability of better and more expensive technologies. This is simply not affordable. Reforms are needed to control spending, but these reforms must also be equitable, protecting access to basic health care for all who need it, especially the poor. The situation appears dire, but there are options. Past experience suggests that reforms can help slow the growth of spending in an efficient and equitable manner. We find that the most promising reform strategies combine top-down budget control and bottom-up reforms to improve efficiency. Budget systems that cap total health expenditures and impose a high degree of central oversight can provide powerful incentives for expenditure restraint. Among the countries with a history of the lowest increases public spending, Italy, Japan, and Sweden have a greater reliance on budget caps. Bottom-up reforms help control costs by enhancing efficiency. This allows more and better service delivery to patients for a given amount of resources. Some examples include: Strengthening market mechanisms: increasing patient choice of insurers, allowing greater competition between insurers and providers, and relying on a greater degree of private sector provision (e.g. Germany and Japan). Changing the way doctors and hospitals are paid: moving away from reimbursement to providers after services are rendered (fee for service) towards more sophisticated management and contracting systems. These systems include built-in incentives for providers to minimize waste and improve services (e.g. Germany and Italy). Greater reliance on private insurance can also help slow down the growth of public health spending (e.g. Australia, Canada, and France). Let’s not forget the equity angle. Cost containment reforms should minimize any potential adverse effects on the poor. Most advanced economies have achieved universal access to basic health services, and health reforms should respect this safety net. Despite the promise of these reforms, it’s important to recognize that they may still not be sufficient to keep public health spending from rising, as a share of GDP, in some countries. If so, even deeper cuts in other spending areas or additional revenue increases may be needed to support fiscal adjustment. Emerging economies The challenges are a bit different in emerging economies. Here, public health spending is expected to increase by only about 1 percentage point of GDP over the next 20 years. A key challenge here is to improve the health safety net, as health indicators–such as life expectancy and infant mortality–are substantially lower. Preventive and primary care should be given greater emphasis, which will require a change in the financial incentives facing health care providers, as should fighting infectious diseases and enhancing care in poorer rural areas. For many emerging markets, the key challenge is to expand basic health care. In these countries, especially in Asia and Latin America, there is scope to boost spending. To cover as many people as possible at an affordable cost, the public health system should focus on first providing the most essential health services. Thailand and Chile have successfully expanded basic coverage at a low fiscal cost and provide valuable lessons for other countries. But in countries where access to health is already extensive, the challenge is to make public spending more efficient to prevent it spinning out of control in the future. This is especially true in Eastern Europe where budgets are under pressure. Despite the obvious differences, advanced and emerging markets share something very basic in common–they all need to get “more bang for their buck” when it comes to public health care spending. From iMFdirect blog

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Leslie Lipschitz: Today’s Bounty, Tomorrow’s Promise: Better Policies to Manage Natural Resources

December 15, 2010

Countries rich in natural resources are often looked at with envy: they face few financial constraints and that should speed their development path. But the reality is less rosy. Countries with an abundance of natural resources–typically oil, gas or minerals–have, on average, performed less well than comparable non-resource rich countries. That raises one of the perennial questions in economic policymaking. How to manage the economic and social challenges that stem from resource wealth? Or, to borrow the words of Professor Thorvaldur Gylfason (University of Iceland), how to prevent “nature’s bounty” from “becoming the curse of the common people”? Broadening the policy dialogue While this issue isn’t a new one, it is particularly topical for a number of African economies that have new natural resource discoveries about to come on stream. So, in early November, the IMF Institute, in cooperation with the Bank of Algeria, organized a High Level Seminar on Natural Resources in Algiers , focusing on the challenges that these countries face, and distilling lessons from countries that have managed their natural resources successfully. The seminar brought together senior officials with experts from academia and civil society organizations. One of the advantages of being an international organization with a near-global membership is that the IMF is a unique repository of examples of member countries’ good and bad policy practices and experiences from which other policymakers can learn and benefit. The IMF is thus well placed to bring together policymakers and experts to discuss what has worked and what has not–that is, to learn from one another and from history. Participants from Botswana, Chile, Mexico, and Norway discussed what had worked best in their countries, and some other country representatives were quite frank on what had not worked in their experience. Common themes The benefits from “picking each other’s brains” were immediately evident in Algiers. Representatives from countries with newly discovered natural resource wealth, such as Ghana and Uganda, had the opportunity to ask direct questions and get advice from experts and from other policymakers about how best to manage resource wealth. Several themes emerged. Many acknowledged the difficulties of negotiating contracts with big multinational extraction firms about the sharing of exploration costs and the distribution of profits. Clearly governments want to ensure that a fair share of the profits stay in the country, while companies want to be certain that the initial investment in exploration and discovery will yield a fair return. While countries shared their experiences, they also heard the point of view of a major global petroleum company. Various technical experts also weighed in with suggestions on how contracts could be structured to deal with various contingencies. A second universal question is how the benefits should be shared between current and future generations. This entails a careful balancing act between the urgent need to address current poverty and the longer-term investment strategy–and it often requires substantial political fortitude and robust institutions to ensure that domestic spending does not exceed the level that can be absorbed effectively. While there is clearly no single ideal, universally applicable solution, elements from many of the countries’ strategies might well be useful in other cases. The primary common denominator of success was undoubtedly good governance underpinned by robust and transparent institutions. Underlying these natural resource-specific issues is the need for a stable and predictable macroeconomic environment to enable countries to capitalize on their resource wealth. Here, the views of the IMF were sought on a range of macroeconomic issues–such as designing fiscal policies, monetary and exchange rate policies for cushioning the volatility of resource revenues, and the efficacy of ‘industrial policies’ designed to favor specific sectors (for example, through trade policies or budgetary subsidies). Continuing the dialogue on good policies While the High-Level Seminar in Algiers provided a rich and varied discussion, it would be naive to think that there might be a ‘quick fix’ for an issue that countries have struggled with for many years. But, to the extent that this seminar–the proceedings of which we plan to publish as a book–has stimulated policymakers’ thinking about both the complexities and successful examples of managing natural resource endowments, it will have met our objectives. What is needed is an ongoing consultative dialogue inclusive of the civil society and a collaborative approach. We at the IMF are committed to being part of that conversation. In addition to country level policy discussions, we will continue to engage on two broad fronts: First, by providing technical assistance in areas such as tax and expenditure policies, monetary policies under alternative exchange rate regimes, and the use and management of sovereign wealth funds. Second, by providing training opportunities. For example, following the Algiers Seminar, the IMF Institute launched a new two-week course on “Macroeconomic Management in Resource Rich Countries” (at Stellenbosch University in South Africa). This course aimed at giving a broad overview of all topics and challenges involved in policymaking and strategic planning for countries with resource wealth. Next year the course will be offered again–to different regional audiences at the Joint Vienna Institute in Austria and the Joint Partnership for Africa in Tunisia. From iMFdirect blog

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Malaysia signs FTA with Chile

November 14, 2010

Malaysia signs FTA with Chile

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Layne Christensen Drillers reach trapped miners in Chile

October 11, 2010

Layne Christensen Drillers reach trapped miners in Chile

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Trapped Chile Miners Get More Than 1,000 Job Offers

September 14, 2010

SANTIAGO, Chile — Chile’s 33 trapped miners have something good to think about: their next jobs. Bulldozer driver, mechanic, electrician. And here’s a couple they might find particularly useful: “risk reduction specialist” and “escape-tunnel driller.” Two dozen companies with operations in Chile have made more than 1,000 job offers to the trapped miners and their 317 sidelined co-workers at a job fair this week. Even if they choose to go back to mining, the work won’t necessarily be underground and it will almost certainly be with a company with a better safety record than their struggling current employer. The 33 miners have been trapped for 40 days in harrowing, sweltering conditions since an Aug. 5 collapse. No miners in history have been trapped so long, and it still could be months before a hole large enough to get them out is completed. They are getting food, medicine, communication and other essentials through narrower holes dug by rescuers, but their anxiety has become evident, with more questions asked each time they hear the drilling stop. Their relatives wait anxiously for the miners, many in tents at the mine itself, but in many ways life goes on without them. One of them, Ariel Ticona, became a father for the first time Tuesday. The San Esteban mining company, which owns the mine, has pursued bankruptcy protection since the collapse and has claimed it can’t afford to pay the trapped miners, even though they’ll have to work their way out by clearing rubble around the clock below the escape tunnels. The San Jose miners have been offered 1,188 jobs as of Tuesday, many of them posted on a government labor ministry web site. Mining industry companies have interviewed some 200 of the miners who are not trapped at a hotel in the regional capital of Copiapo, and say they have no trouble waiting for the trapped miners to be rescued before they interview them as well. “The 33 won’t be without a job,” vowed Sara Morales, a deputy human resources director for Terra Services, a Chilean drilling company. She told The Associated Press on Tuesday that she had received resumes from 80 miners and will offer 20 of them jobs. There will be no deadline for the trapped miners to take advantage of this “relocation program,” said Jose Tomas Letelier, a vice-president at Canadian gold mining company Kinross. None of the trapped miners should have to venture back into marginal mines like San Jose that struggle to meet Chile’s modern safety standards. Many of these job offers come from some of the world’s most advanced mining companies – major international players making huge investments in Chile. The companies are prepared to have the miners work as truck or bulldozer drivers, heavy equipment operators, electricians, mechanics, and supervisors in various jobs up on the surface. Kinross alone is offering 46 positions, including risk reduction specialist. “As the name suggests, it’s to prevent risks in mining, which is a very risky activity … it’s a very important role,” Letelier said. Even without the government-organized job offers, the miners shouldn’t lack for work in the industry. Chile’s mining sector is booming, with $50 billion in new investment expected in the next five years, making skilled mining workers increasingly hard to find. “It’s already difficult today to find certain kinds of operators,” Letelier said. Some of the jobs being offered to the miners seem risky – like the four “explosives handler” positions the San Geronimo mining company seeks to fill. Some of the spouses of the trapped men have warned them to give up mining or else. Lila Ramirez has said her marriage to 63-year-old Mario Gomez will be over if he returns to the mines. And Carola Narvaez, whose husband, Raul Bustos, is stuck underground, said a few days after the miners were found alive that “in my heart, I don’t want him to ever return to the mines.” Asked if she thought her husband would be willing to give up the relatively good wages a man can make in mining – and if she would have the power to convince him otherwise – she flashed a bittersweet smile and shrugged. “Every man has to work,” she said. Miners who narrowly escaped the San Jose collapse have said they chose to work at the marginal gold and copper mine precisely because its added risk meant the San Esteban mining company had to pay slightly better wages. The San Jose mine lacks safety measures such as an escape tunnel, and just weeks before the collapse, falling rock cost one worker his leg. Dozens of engineers are now working day and night to construct and maintain the three giant drills that the government has brought in to reach the miners. Two drills have been put into service, but one of them was out of commission for six days after breaking when it hit an iron bar. That drill, known as the “Plan B” drill, was working again Tuesday after engineers used magnets to pull out a large shattered piece and replacement parts were flown in from the United States. A massive “Plan C” drill is expected to be operational by Sept. 20. Once the drills break through to the bottom reaches of the mine, they’ll have to do it all over again, widening the tunnels just enough to be able to pull the men out one by one. Experts believe it will be early November before the last miner is rescued. Worry gave way to joy for Ticona on Tuesday when his wife, Elizabeth Segovia, gave birth to their daughter by cesarean section. The couple had planned to name the girl Carolina, but Ticona had a change of heart by the time he and a relative had a recorded video chat through a fiber-optic cable connection. “Tell her to change the name of our daughter … and give her a long-distance kiss!” Ticona said as the other miners shouted, “We’re going to name her Esperanza!” – the Spanish word for hope. Segovia told Chile’s Canal 13 network that she had exactly the same thought. ___ Associated Press Writers Federico Quilodran in Santiago, Aliosha Marquez in Copiapo, Brad Brooks at the San Jose mine and Frank Bajak in Bogota contributed to this story.

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Walden Bello: The Political Consequences of Stagnation

September 14, 2010

My apologies to T. S. Eliot, but September, not April, is the cruelest month. Before 9/11/2001, there was 9/11/1973, when Gen. Pinochet toppled the Allende government in Chile and ushered in a 17-year reign of terror. More recently, on 9/15/2008, Lehman Brothers went bust and torpedoed the global economy, turning what had been a Wall Street crisis into a near-death experience for the global financial system. Two years after the collapse of the global economy, prospects for economic recovery remain distant. Despite modest upturns at the end of 2009, the end of public stimulus spending in the United States, China, and other states has renewed fears of a double-dip recession. All major sectors in the economy remain cautious; firms are not investing, banks are not lending, and consumers are not spending. Partly to blame for the continued mess is a lack of coherent, focused, and directed government action. The debate continues to rage over the merits of government intervention. While many assert that stagnation presents a significant threat to future economic stability, and can only be countenanced by direct public stimulus, others argue that widening deficits and the risk of default present a bigger problem. Anti-spending groups in the United States, relying on thoroughly discredited neoclassical economic principles, have built a wide base of support from Wall Street bankers, doctrinaire neo-liberals, Tea Party enthusiasts, and small-government supporters in the American middle class. Meanwhile, Obama’s nascent steps toward Keynesian interventionism have been compromised by the absence of an inspiring alternative to the predominant neoliberal paradigm. The Obama administration made the mistake of accepting responsibility for the crisis. Accusations leveled at greedy bankers directly clashed with the assertions that those same banks were “too big to fail” and focused too much attention on personality flaws rather than structural problems. Meanwhile, the administration watered down reform legislation, eliminating the very provisions that would have addressed the problem. Therefore, while the Obama administration did attempt to use public resources to jumpstart the economy, it relied on a pallid Keynesianism, failing to present its policies as part of a convincing narrative. A more coherent approach should supplement purely technocratic management with democratic decision-making at all levels of the economy, greater income and distribution equality, and a more cooperative business ethnic. If progressives fail to reclaim the narrative for government management and populism, these ideas may well be co-opted by other movements that also welcome state intervention, but coupled with a reactionary social and cultural program. The result is a well-known political outcome: fascism. For the full article, click here .

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Video: Trapped Chile Miners Remain in Good Spirits Amid Ordeal: Video

August 27, 2010

Aug. 27 (Bloomberg) — Miners in Chile smile and wave at a camera at 700 meters (2,300 feet) underground in a collapsed cooper mine where they have been trapped since Aug. 5. The 33 miners face a three-month rescue mission, and their only contact with the outside world is through six centimeter-wide drill holes through which they receive food, water and medicine. Bloomberg’s Deirdre Bolton reports. (Source: Bloomberg)

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Brazil, Chile airlines unveil merger plan

August 15, 2010

Brazil, Chile airlines unveil merger plan

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Garcia’s Booming Peru Economy May Not Help Defeat Chavez-Like Challenger

June 8, 2010

By Matthew Bristow and John Quigley June 8 (Bloomberg) — When Alan Garcia ’s first term as president of Peru ended in 1990, the economy had shrunk by 10 percent, inflation was raging at 7,000 percent, and half the population lived in government-declared emergency zones where Maoist guerrillas were active. Two decades later, the man Peruvians nicknamed “Crazy Horse” for his unstable policies presides over South America’s fastest-growing economy , with lower inflation than Switzerland. During the first Garcia administration, Peru defaulted on $14 billion in debt. Since he returned to power in 2006, the country won its first ever investment-grade rating. The economic success hasn’t lifted Garcia’s approval rating, which sank to 26 percent last month. Hostility to the president, and the political establishment, increases the chance of Ollanta Humala , an ally of Venezuela’s Hugo Chavez , taking power in elections next April to choose Garcia’s succesor, said John Crabtree, a Latin America researcher at Oxford University. There is a “sizable danger” that the 2011 vote will produce a populist winner, said Crabtree, the author of “Peru Under Garcia: An Opportunity Lost,” about the first Garcia administration. “More people are disenchanted by the way in which democracy works in Peru than in any other country in Latin America,” he added in a telephone interview from Oxford. Garcia’s approval rating stands at 26 percent, according to an Ipsos Apoyo Opinion y Mercado poll taken May 12-14 for Lima’s El Comercio newspaper. That’s down from 29 percent in March and a high of 58 percent two months after he took office. The poll of 1,200 people had a margin of error of 4.4 percent. Bubbling Discontent Even though the economy has performed well under Garcia, poverty and corruption have kept discontent bubbling at dangerous levels, said Daniel Kerner , an analyst for the Eurasia Group, a Washington-based political risk group. Garcia “focused on maintaining macroeconomic stability and proving that he was a responsible administrator, with the hope that growth would trickle down,” said Kerner in a telephone interview from New York. “He never did much to alleviate poverty, other than try to guarantee that Peru remained a good destination for investment.” Peru, South America’s sixth largest economy, is rebounding faster than its neighbors from the global recession. Bank of America said in a May report that Peru “is in a growth league of its own” after gross domestic product expanded 8.8 percent in the 12 months to March, led by construction and manufacturing. The International Monetary Fund forecasts growth of 6.3 percent this year, the most in the Western Hemisphere. Record Investment Foreign direct investment is expected to reach a record $8.4 billion in 2011, according to Bank of America. The country became a net creditor in 2007, as reserves soared to a record $35 billion. It costs less to protect Peru’s debt against default than it does for bonds issued by Brazil, which share its Baa3 investment grade rating by Moody’s Investors Service. The sol has strengthened 14 percent against the U.S. dollar since Garcia took office in July 2006, and the Lima General Index has gained 74 percent in dollar terms, compared with 80 percent for Chile’s IPSA index and 95 percent for Brazil’s Bovespa index. Peru’s fast growth has been driven by high prices for commodities including gold and copper, which account for 75 percent of exports, said Cesar Ferrari, who served as Garcia’s general manager of the central bank from 1987-1988. “Garcia caught a good wave,” Ferrari said during an interview in Bogota, Colombia. 180 Degree Pirouette Garcia, 61, a lawyer trained at the Sorbonne University in Paris, has abandoned his former hostility to the IMF and foreign capital, said Crabtree. Instead, he’s maintained the market- friendly policies established by Presidents Alberto Fujimori and Alejandro Toledo . “Ideologically he has pirouetted around 180 degrees,” Crabtree said. Fujimori eliminated price controls, floated the currency and sold off hundreds of unprofitable state companies while president from 1990 to 2000. Toledo, his successor, helped secure investments in infrastructure and energy, including Hunt Oil Co.’s $4 billion liquefied natural gas plant. Toledo also initiated talks that led to free-trade agreements with the U.S., the European Union and China. Popularity Falling There has been no equivalent under Garcia of the social programs of Brazilian President Luiz Inacio Lula da Silva, which have lifted 30 million people out of poverty since 2003 and helped keep Lula’s approval ratings at a record 76 percent, said Kerner. Brazil’s minimum wage has increased more than fivefold in dollar terms over that time, while more than 9 million government-registered jobs were created. Garcia did not respond to requests for an interview and his press office did not comment for this article. In 2008, the most recent year for which statistics are available, poverty was 36.2 percent in Peru, compared with 25.8 percent in Brazil, according to the United Nations Economic Commission for Latin America . Voters blame Garcia for corruption scandals within his American Popular Revolutionary Alliance, or APRA, such as the sale of public land at discount prices to party members. Only 14 percent of Peruvians think that Garcia was “free from acts of corruption”, according to the Ipsos Apoyo poll. Humala Factor Garcia’s failure to win popular backing may jeopardize economic stability and foreign investment by boosting the expected candidacy of Humala, said Kerner. Garcia defeated Humala by 52.5 percent to 47.5 percent in a 2006 runoff. Humala opposed a free trade deal with the U.S. and threatened to renegotiate contracts with foreign mining companies that include BHP Billiton Ltd. and Anglo American Plc. As an army lieutenant colonel, he led an uprising in 2000 against Fujimori, seizing the mining town of Toquepala. The event ended without bloodshed, and congress later voted to pardon him. Humala’s backing is strongest among the poor in the rural Andean highlands outside of the capital, where the benefit of economic growth has been scarcely felt, said Crabtree. Whereas in Lima, 15 percent of homes don’t have access to running water and sewage, that number rises to 80 percent in Huancavelica, a neighboring province, according to a UN study in April. Humala, 46, had the support of 13 percent of those surveyed by Ipsos, tied with Toledo. Lima’s Mayor Luis Castaneda , with 22 percent support, is the frontrunner. He’s followed by Congresswoman Keiko Fujimori, who has vowed to pardon her father, in jail for his role in paramilitary massacres of rebel sympathizers. Any advance by Humala in pre-election polls is likely to lower asset prices and spark capital outflows, Bank of America said in a report last month. Garcia is banned by the constitution from seeking two consecutive terms and his APRA party has not yet selected a candidate. Only 22 percent of Peruvians say they are satisfied with their democracy, the lowest among 18 countries in Latin America, according to a 2009 survey by Latinobarometro , a Santiago, Chile-based pollster. “Inequality, poverty, corruption–all those things combine to create this demand for change from wide segments of the electorate,” said Kerner. To contact the reporters on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net ; John Quigley in Lima at jquigley8@bloomberg.net

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Wal-Mart Sees World Cup Sales Boom in Countries Reaching Final

June 7, 2010

By Sarah Shannon June 7 (Bloomberg) — Wal-Mart Stores Inc. , which has outlets in eight of the 32 countries competing in the soccer World Cup, anticipates sales will boom in those markets should their teams reach next month’s final match. Revenue at stores open at least a year in the nations that contest the final will probably gain by an additional 2 to 4 percentage points over the tournament’s monthlong duration, Wal- Mart’s international chief marketing officer Rick Bendel said by phone from Bentonville, Ankansas. Countries whose teams make the semi-final may see a 1 percent to 2 percent benefit, he said. “It’s a television event, and what goes with TV is fresh food, drinks, TV sets, sofas, memorabilia, mugs,” Bendel said. In the U.K., where Wal-Mart’s Asda is the second-biggest supermarket chain, the event could drive “hundreds of millions of pounds” in additional revenue, he said. Wal-Mart has an exclusive global agreement with a subsidiary of FIFA, soccer’s governing body, to sell memorabilia with the patented term “World Cup” on items such as paper plates, beer vessels and balls. The retailer, which has outlets in 14 countries outside the U.S. including World Cup contenders Brazil, Chile, Mexico, Japan, Honduras and Argentina, will face competition from rivals such as Britain’s biggest supermarket company Tesco Plc , which is sponsoring the England team. Retailers are tapping the fervor surrounding the World Cup with special products and in-store displays. DSG International Plc , Britain’s largest consumer electronics retailer, is offering 10 pounds ($15) in cash for every goal England scores to customers buying a television for more than 599 pounds. Kingfisher Plc ’s B&Q home-improvement chain in the U.K. is stocking gnomes and wheelbarrows with England’s St George flag. ‘New Dimension’ Wal-Mart sees potential for similar global deals to the FIFA agreement, whose terms Bendel wouldn’t disclose. “It’s really great that FIFA approached us,” Bendel said. “It’s a signal of the fact that this is a new dimension for Wal-Mart in terms of leverage. It might open up channels for license suppliers, the movie industry etc. to consider Wal-Mart as a slightly better partner.” The executive said Wal-Mart’s planned 778 million-pound acquisition of Netto’s 193 U.K. discount supermarkets shows the retailer has “tremendous belief” in growing the Asda unit, “when they could be investing in some developing markets.” Asda’s U.K. market share fell to 16.8 percent in the three months through May 16, according to Kantar Worldpanel, leaving it 0.5 percentage points ahead of third-placed J Sainsbury Plc. To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net .

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Akhtar Badshah: The intersection of business and society

May 14, 2010

We all know that trust in business has fallen steadily in recent times. Scandals and economic crises have raised questions about the role that corporations play in our society. Yet, at the same time, we are seeing many in the private sector making good progress adopting more socially responsible practices, and businesses are being called upon to do more in support of broad community initiatives. The disasters in Haiti, Chile and now the Gulf of Mexico are examples where business leaders are working in partnership with government and development agencies to not only help with the relief and recovery efforts but also to invest in the economic revitilization of the impacted regions. As I take on the chairmanship of the Board of the Business Civic Leadership Center of the U.S. Chamber of Commerce, I want to reflect on the progress the BCLC has made. In both Haiti and the Gulf Coast, BCLC has emerged as a trusted partner for government and non-profit agencies that are responding to these issues. So far, BCLC has played a very specific and limited role. However, with each success we are being asked to take on more responsibilities, not as an organization but rather as a representative of our member companies. While attitudes toward business over the past several years have suffered, BCLC is a vehicle for all of us to rebuild trust and to show how business contributes positively to society. The only way we can succeed is to continue to make the right and effective investments in the community while partnering with government and service delivery organizations such as NGOs so that we can be strategic in our approach and collaborative in our efforts, achieving impact in the areas of greatest need and at the maximum possible scale. I believe that the BCLC plays a very important role at the intersection of business and society, helping companies to think about how they can use their resources to have a positive impact in a responsible manner. That’s a great opportunity and one that will benefit everyone.

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`Super Tax’ on BHP, Rio, Xstrata May Stall Mining Takeovers in Australia

May 3, 2010

By Rebecca Keenan and Elisabeth Behrmann May 4 (Bloomberg) — BHP Billiton Ltd. and Xstrata Plc’s expansion and acquisitions plans may stall on Australia’s plan to increase taxes on mining companies whose profits have surged A$80 billion ($74 billion) in the past decade. “Any probability of mining takeovers proceeding has lessened,” Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne, including BHP and Rio Tinto Group, the world’s largest and third-biggest miners, said on Bloomberg TV. “It definitely increases the hurdles for prospective buyers in the resources space in Australia.”      Takeovers of Australian resource companies this year have risen to the highest since 2008, led by Peabody Energy Corp.’s A$4.1 billion bid for Macarthur Coal Ltd. Brazil and Chile may join Australia, the world’s biggest exporter of iron ore and coal, in imposing new mining taxes, prompting BlackRock Investment Management Ltd. to cite rising “resource nationalism” as a major risk for producers. “I know from direct involvement we have as a firm there are a number of major transactions on the cusp of being announced that they are going back and rerunning their numbers now,” said Mike Elliot , global mining and metals leader at Ernst & Young in Sydney. “Not necessarily with a view that this has killed any of those deals, but it does change the balance within those deals.” BHP, the world’s biggest mining company, and Rio, the third-largest, yesterday fell the most in 3 months after Australia announced the so-called super tax at the weekend. The 40 percent tax on resource profits will raise A$12 billion in its first two years, the government said. Xstrata Impact “There could be a serious impact on any activity in the mining industry in Australia, including M&A,” Xstrata spokeswoman Claire Divver said by phone. Xstrata, which operates coal, copper, zinc and nickel mines in the country, has about a third of its assets in Australia and New Zealand according to data compiled by Bloomberg. The combined value of takeovers announced this year in Australia in the energy and mining industries reached $27.3 billion, according to Bloomberg data. That’s the busiest start since the same period in 2008. Resource mergers and acquisitions may “dry up” because of the new tax set for introduction in 2012, according to Citigroup Inc. If a tax had been in place over the past decade, Australia would have collected A$35 billion in revenue from miners, whose profits had risen by A$80 billion in the same period, Prime Minister Kevin Rudd said May 2. The tax may reduce BHP’s earnings by 17 percent and Rio’s by 21 percent in 2013, according to UBS AG estimates. It also may threaten Peabody’s bid for Macarthur and a proposed iron ore joint venture between Rio and BHP, which aims to cut $10 billion in costs. Tax Regime Shares of Brisbane-based Macarthur, the world’s biggest exporter of pulverized coal, fell by the most in 11 months yesterday on concern the tax will make the deal less likely to succeed. St. Louis-based Peabody is continuing its study of Macarthur’s finances and will “factor in” the potential affect of the planned tax, said spokeswoman Jennifer Morgans . “A change in tax regime may be material enough to be one of the precluded conditions for a Macarthur takeover,” said Andrew Harrington , a Sydney-based analyst at Patersons Securities Ltd. “It’s quite common to have a clause pertaining to changes in the laws of the country where the takeover is taking place.” Peabody may reduce its bid because the tax may affect its valuation of Macarthur, Macquarie Group Ltd. said today. The net present value of emerging iron ore producers in Australia will be reduced by more than 30 percent should the changes be implemented, the broker said. Iron Ore Venture The new tax may see Rio withdraw from the iron ore venture with BHP as it may trigger a material change clause, Credit Suisse Group AG said. Rio and BHP, the second- and third-largest iron ore exporters, are seeking to combine Australian operations in a 50-50 venture. “We would think a material change clause would be triggered in the iron ore joint venture agreement,” Credit Suisse analysts led by Paul McTaggart said yesterday in a report. BHP is committed to the iron ore joint venture, spokeswoman Amanda Buckley said. Rio’s Melbourne-based spokesman David Luff wasn’t immediately available to comment. Encourage Exploration To be sure, a new exploration rebate in the tax package, designed to boost discoveries, may encourage some spending, Ernst and Young’s Elliott said. “If this is going to be a renaissance of exploration, one of the ways they back into that is to make acquisitions of some choice exploration companies,” he said. Resources companies make up 9 percent of Australia’s economy and last week warned that a 40 percent levy and double taxation with payments to states would threaten $108 billion of planned investment. BHP, with 51 percent of its assets in Australia, said taxes on its operations there will increase to 57 percent in 2013 from 43 percent now. “The mining tax has an adverse, and ultimately material, impact on underlying valuations,” said Angus Gluskie , who manages about $300 million at White Funds Management Pty in Sydney. To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net ; Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

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AMR Declines Most Since October as Fuel Costs Lead to Wider Quarterly Loss

April 21, 2010

By Mary Schlangenstein April 21 (Bloomberg) — American Airlines parent AMR Corp. slid as much as 7.7 percent in New York trading, the most since October, as higher fuel prices and stagnant passenger traffic led to a wider quarterly loss than analysts expected. The first-quarter deficit was $452 million, or $1.36 a share, excluding costs linked to currency devaluation, Fort Worth, Texas-based AMR said today. That was wider than the $1.31 average in 9 analysts’ estimates compiled by Bloomberg. American, the second-biggest U.S. carrier, paid 16 percent more per gallon for jet fuel, tempering the benefit from the return of some high-fare overseas travel as the recession eased. AMR spent $1.48 billion for fuel , its second-largest cost after labor, as total traffic for the quarter was little changed. “We were expecting a little more pricing traction” in the quarter, said Hunter Keay , a Stifel Nicolaus & Co. analyst in Baltimore who recommends buying AMR shares. The carrier missed Keay’s revenue estimate by about $20 million. AMR tumbled 55 cents, or 6.4 percent, to $8.01 at 2:29 p.m. in New York Stock Exchange composite trading. The shares slid as low as $7.90 for their biggest intraday percentage drop since Oct. 30. The company’s net loss widened to $505 million, or $1.52 a share, from $375 million, or $1.35, a year earlier, according to its statement. Sales rose 4.7 percent to $5.07 billion. “That disappointing result, which was driven by lingering weakness in the economy combined with rising fuel prices, underscores the reality that despite a lot of hard work and progress, we remain regrettably far from our goal of sustained profitability,” Chief Executive Officer Gerard Arpey told employees in a letter today. AirTran Shares Fall AirTran Holdings Inc., a low-fare carrier based in Orlando, Florida, that flies mostly in the eastern U.S., today said its quarterly net loss was $12 million, or 9 cents a share, compared with net income of $28.7 million, or 21 cents, a year earlier. AirTran slid 53 cents, or 9.1 percent, to $5.27 in NYSE trading, the shares’ biggest intraday decline since October. Delta Air Lines Inc., the world’s biggest carrier, said yesterday that its first-quarter loss narrowed to $256 million and forecast a profit this quarter. Continental Airlines Inc. and Southwest Airlines Co. report results tomorrow. American’s passenger traffic on international flights rose 1.7 percent in the quarter, after a 12 percent plunge a year earlier. The increase for all traffic was 0.4 percent, the carrier said. ‘Modest Success’ Winter storms in the U.S. and earthquakes in Haiti and Chile reduced revenue in the quarter by as much as $25 million, American said. Unit revenue, which reflects fares and traffic, rose 6.8 percent in the airline’s main jet operations on the resumption of business travel. Corporate revenue increased more than 17 percent from a year earlier. “While average fares are still not where we need them to be, we are seeing fewer sales and, in fact, the industry has had some modest success in raising fares,” Arpey told workers. “It’s fair to say there is cause for some cautious optimism on the revenue side of the equation as we head into summer.” American’s cost to fly each seat a mile, a measure of efficiency, jumped 9.2 percent. Excluding fuel, expense on that basis increased 5.7 percent. Yield, or average fare per mile, rose 3.7 percent. AMR ended the quarter with $5 billion in cash and short- term investments , including $460 million for specific uses. Labor Talks The company and unions for its flight attendants and for ramp workers and mechanics were ordered April 14 to return to contract negotiations by the National Mediation Board. The Association of Professional Flight Attendants and the Transport Workers Union asked the board to declare talks deadlocked and trigger a 30-day countdown to a possible strike. American is trying to hold down spending on labor , its largest expense, while boosting productivity. The workers want to recoup pay and benefits given up in 2003 to save the airline from bankruptcy. AMR ’s first-quarter spending for wages, salaries and benefits rose less than 1 percent to $1.7 billion. AirTran said its quarterly loss excluding a $4.7 million gain related to fuel hedges was 12 cents a share. That was narrower than the 13-cent average of 10 analysts’ estimates compiled by Bloomberg. Sales rose 12 percent to $605.1 million, less than the average of $606.3 million from 7 estimates. Storms in February that forced Washington-area airports to close for several days reduced AirTran’s revenue by at least $10 million, and storms in Atlanta forced more cancellations, CEO Bob Fornaro said today in an interview. AirTran canceled 1,400 flights in this year’s first two months, more than in 2009’s first 10 months of 2009, he said. To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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Venezuela Gets $20 Billion Loan From China, Forms Oil Venture, Chavez Says

April 18, 2010

By Daniel Cancel April 18 (Bloomberg) — Venezuela secured a $20 billion loan from China and agreed to form a joint venture to pump crude oil from a block in the Orinoco Belt, President Hugo Chavez said as he promised to meet the Asian country’s energy needs. Chavez said the $20 billion financing from China is separate from a $12 billion bilateral investment fund, without providing details. Venezuela currently sends China 460,000 barrels a day of crude oil to repay an $8 billion loan that finances infrastructure projects in the South American country. “We agreed on a huge long-term financing plan,” Chavez said on state television. “This is a larger scope, a super heavy fund. China needs energy security and we’re here to provide them with all the oil they need.” Venezuela, the largest oil producer in Latin America, is diversifying its export markets and seeking loans from Russia to Japan in a bid to boost oil output and finance social programs. Chavez expects $120 billion of investment to flow into the Orinoco Belt in Eastern Venezuela in the next seven years to add more than 1 million barrels a day of new production. Venezuela state oil company Petroleos de Venezuela SA and China National Petroleum Corp. signed a joint-venture agreement in Caracas that will require a $20 billion investment to pump and refine heavy crude oil at the Junin 4 block of the Orinoco Belt. Visit Canceled PDVSA, as the company is known, will hold a 60 percent stake in the block that is expected to eventually produce 400,000 barrels a day, Oil Minister Rafael Ramirez said on April 16. CNPC will have to pay the Venezuelan government as much as $1 billion to access the reserves, he said. A Chinese delegation attended the signing ceremony yesterday in Caracas after Chinese President Hu Jintao canceled his planned visit to Venezuela and Chile following an earthquake that killed more than 1,400 people in China’s Qinghai province. Hu is expected to reschedule his trip to Venezuela. The two countries plan to build three electric plants powered by petroleum coke with a capacity of 300 megawatts each, Chavez said. Another thermoelectric plant will be built in Merida state to produce 500 megawatts, he said. Bilateral trade between the two countries surged to $8.9 billion in 2008 from $85.5 million in 1999, according to Venezuela’s state bank, Bancoex. To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net .

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Ukraine Agrees to Dispose of Enriched Uranium Stockpile by ’12, Gibbs Says

April 12, 2010

By Edwin Chen and Roger Runningen April 12 (Bloomberg) — Ukraine agreed to get rid of its stockpile of highly enriched uranium, enough for several nuclear weapons, in an agreement the White House announced as President Barack Obama opens a nuclear security summit in Washington. Obama expressed confidence that the summit will produce progress on checking the spread of nuclear weapons. “I think that at the end of this we’re going to see some very specific concrete action that each nation is taking that will make the world a little bit safer,” the president told reporters. On Ukraine, White House press secretary Robert Gibbs said its stockpile will be disposed of by 2012 under the agreement. Some of it may be shipped to the U.S. for storage as part of an effort to keep it out of the hands of terrorists. Russia also will have a role in disposing of the material. “This is something the United States has tried to make happen for more than 10 years,” Gibbs said at a briefing. Heading off the potential for nuclear terrorism is the top priority in Obama’s nuclear strategy, and the two-day Washington summit involving 46 nations and the U.S. is focused on steps toward the president’s goal of securing nuclear stockpiles worldwide within four years. Obama and Ukraine’s President Viktor Yanukovych met earlier today as the summit was getting under way. Gibbs said Ukraine will convert its civil nuclear research facilities to operate with low-enriched uranium fuel. Significant Measures In another step toward disarmament, Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov are scheduled to sign a deal tomorrow in which each side agrees to dispose of 34,000 metric tons of weapons-grade plutonium, enough material for about 17,000 nuclear weapons. “These are both very significant measures and exactly the kind of thing that we hoped would be stimulated by holding this conference,” said Gareth Evans , a former Australian foreign minister. “It was a matter of this conference actually being the occasion to get people to the line on very specific commitments.” Evans, co-chairman of the International Commission on Nuclear non-Proliferation and Disarmament, is attending a conference of experts in Washington that is being held in parallel with the Nuclear Security Summit. John Brennan , Obama’s homeland security adviser, said at the briefing that al-Qaeda is determined to gain the material to make a nuclear device and such a weapon is the “most prized goal of terrorist groups.” “We cannot wait any longer before we lock down those stockpiles,” Brennan said. The consequences for failure would be “devastating.” Gibbs said the U.S. is “absolutely” willing to offer technical or financial assistance to other countries that want to unload their stockpiles. He said he had no estimate on what the cost of the Ukraine agreement would be to the U.S. Ukraine follows Chile, which was among the first to surrender highly enriched uranium, about 40 pounds, or 18 kilograms, that it got from Britain and France for two research reactors, the Associated Press reported today. The material was shipped last month to the U.S. after the country’s earthquake. The summit is the latest effort by Obama on one of his foreign policy goals, laying the groundwork for someday eliminating nuclear weapons. He signed a treaty with Russia last week to further cut their atomic weapons and the release of an administration doctrine that reduces the role of nuclear arms in U.S. defense strategy. The possibility of a terrorist group getting a nuclear weapon is “the single biggest threat to U.S. security” in the near and distant future, Obama said yesterday before meeting with South African President Jacob Zuma . Along with al-Qaeda, groups that have sought nuclear weapons include the Aum Shinrikyo cult that killed 12 people in a 1995 sarin gas attack on the Tokyo subway, according to Matthew Bunn , an associate professor at Harvard University who once worked as an adviser on U.S. nuclear controls. The United Nations atomic energy agency has documented 18 cases of theft or loss of highly enriched uranium or plutonium, not counting incidents that individual countries haven’t confirmed, Bunn said. The U.S. and Russia’s Plutonium Management and Disposition Agreement, to be signed tomorrow, was agreed to in principle by then-Presidents Bill Clinton and Vladimir Putin in June 2000. Disputes between the two governments over protocols to implement the agreement delayed action until now. Step in Process A White House fact sheet said the deal represents a step toward nuclear disarmament because weapon-grade plutonium will come from each nation’s stockpile. Disposal prevents “the plutonium from ever being reused for weapons or any other military purpose,” according to the National Security Council fact sheet. Each country will dispose of the plutonium by using it as fuel in civilian reactors to produce electricity, the council said. An initial pledge of $400 million in U.S. funds to help Russia dispose of its plutonium has been reduced to $100 million, the NSC said, and the amount will be spread over decades of verified disposal. To contact the reporters on this story: Edwin Chen in Washington at echen32@bloomberg.net ; Roger Runningen in Washington at rrunningen@bloomberg.net .

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Emerging Currencies Overtake G-7 as Volatility Drops

April 12, 2010

By Ye Xie April 12 (Bloomberg) — Traders in currency options are showing that emerging economies have become safer relative to developed nations than at any time in almost two years. Three-month implied volatility for the seven biggest developing country currencies fell to 10 percent in March compared with 11.4 percent for industrialized nations, according to JPMorgan Chase & Co. indexes. The gap is the widest since July 2008. So far this year, eight of the 10 best-performing currencies are from emerging markets. The record U.S. budget deficit , Europe’s bailout of Greece and the prospect of a hung parliament in the U.K. are increasing the risk of losses in dollars, euros and pounds. In developing markets, the deficit fell to one-third the level of advanced nations this year and the economies are growing twice as fast as the U.S., the International Monetary Fund says. “The global perception of risk is changing,” said Jerome Booth , who helps manage $32 billion in emerging-market assets as the head of research at Ashmore Investment Management Ltd. in London. “Where you want to be is non-leveraged places, and that means anything in emerging-markets. This is a start of a trend. The rally in emerging-markets has barely started yet.” Global Recovery That’s a switch from three years ago, when record-low volatility was fueled by investors underestimating the risks of leverage. Now, volatility is declining in developing markets as countries from China to Brazil lead the global recovery, while swelling budget deficits in the U.K. and U.S. will weaken those nations’ currencies, Booth said. China’s imports surged 66 percent in March from a year earlier, causing the country’s first trade deficit since 2004. The rise in imports helps the global economic recovery, Huang Guohua , the head of the customs bureau’s statistics department, said on April 9. In Turkey, the lira climbed 6.8 percent against the euro this year to the strongest level since December 2008. Gross domestic product increased at an annual rate of 6 percent in the fourth quarter of 2009, lagging behind only China among the Group of 20 nations. Goldman Sachs Group Inc. forecasts the expansion may help Turkey’s $620-billion economy overtake Germany to become the third-biggest in Europe by 2050. The implied volatility for the lira is below that of the pound by the most since 2000. The lira was forecast to fluctuate at an annual rate of 10.6 percent in the next three months, as of March 30, 2.7 percentage points less than the pound, data compiled by Bloomberg show. “Dropping volatility says: ‘Buy, buy, buy,” said Sebastien Galy , a currency strategist at BNP Paribas SA in New York. U.K. Budget In the U.K., the pound is down 4.6 percent versus the dollar this year and has fallen against 14 of 16 most-traded currencies, including an 11 percent drop against the Mexican peso. National elections are raising the prospect that U.K. voters may fail to elect a governing majority for the first time since 1974. A weakened government may struggle to enact budget cuts with the nation’s debt set to almost double. The euro has lost 12 percent versus the Mexican peso this year as Europe weighed options to help Greece avoid default on its debt. European governments offered Greece a rescue package worth as much as 45 billion euros ($61 billion) yesterday at below-market interest rates. “Investors had a bit of a blasé attitude prior to the Greek situation,” said Robert Stewart , who oversees $74 billion as the head of currencies at JPMorgan Asset Management in London. “Investors are slowly awakening to the reality.” Hyper-Inflation Three decades ago, emerging-market currencies fluctuated the most amid debt crises and hyper-inflation. Mexico defaulted in 1982 while the Asian financial crisis that started in 1997 wiped out one third of the region’s economy. Now it’s developed countries that are dealing with the biggest debt. The administration of President Barack Obama predicts its budget deficit will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. Moody’s Investors Service forecasts that the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. Emerging nations are moving in the opposite direction. The budget deficit for developing countries will fall to 2.8 percent of their economies this year, from 4 percent in 2009, according to an IMF report in November. Industrialized governments’ budget gap will decline to 8.1 percent from 8.9 percent, the Washington-based fund said. Developing nations reduced their foreign debt to 26 percent of GDP last year from 41 percent in 1999, while advanced nations’ debt may surge to 106.7 percent of GDP this year from 78.2 percent in 2007, according to IMF data. Credit Crisis In July 2007, the JPMorgan Emerging Market Volatility Index fell to a record low of 5.8 percent as central banks made their interest-rate and currency moves more predictable. When credit markets froze later that year, the index began rising and hit a record 35.8 percent in October 2008, one month after Lehman Brothers Holdings Inc. collapsed. The JPMorgan G-7 Volatility Index , including the euro, the pound and the yen, reached 26.6 percent. Emerging-market volatility is falling again as the Mexican peso and the Malaysian ringgit gained 7.4 percent versus the dollar this year, the best performers in the world after the Costa Rican colon. Mexico’s government forecasts it will keep the budget deficit at 2.8 percent of GDP this year after lowering spending and increasing taxes even as the economy shrank 6.5 percent in 2009 in its worst recession since 1932. Mexican Peso The implied volatility of the Mexican peso was 1.39 percentage points below that of the euro as of April 1, the most since October 2008, according to Bloomberg data. Exports from Malaysia, South Korea and Taiwan are growing to feed demand in China, which is leading the global economic recovery. Overseas shipments from Malaysia rose 18.4 percent in February from a year earlier. The central bank has raised its growth forecast for Southeast Asia’s third-largest economy, predicting an expansion of as much as 5.5 percent this year, the fastest since 2007. Korea exports climbed 35.1 percent in March from a year earlier, while Taiwan’s surged 50.1 percent. Overlooking Risks? Investors may be overlooking the risks of developing- nations, said Harald Hild , a money manager at Quaesta Capital Optivest AG in Switzerland, which oversees about $1 billion. The South African rand, Colombian peso and Brazilian real have increased more than 20 percent in the past year against the dollar, making their exports more expensive. These countries are also “highly dependent” on the U.S. and may falter should America’s economic recovery stumble, he said. “It’s really amazing how strong the risk appetite is for emerging-market currencies,” said Hild, who has traded currency options for 16 years. “I’m not sure how long this will hold.” Countries from Chile to China may lure $722 billion in overseas investment this year, 66 percent more than in 2009, the Washington-based Institute of International Finance said in January. Developing-nation bond funds attracted $7 billion this year, pushing assets under management to a record $74.7 billion, according to Cambridge, Massachusetts-based research company EPFR Global. Falling volatility is making emerging-market currencies more attractive, especially to investors in carry trades, said Thanos Papasavvas , head of currency management at Investec Asset Management in London. In such trades, investors borrow in countries with low interest rates to buy financial assets in those with higher yields. “You’ll see the appreciation of emerging-market currencies versus developed-market currencies as a long-term, strategic trend,” said JPMorgan’s Stewart. “Investors will allocate more to emerging markets.” To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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Emerging Markets Overtake G7 Currencies With Lowest Volatility Since 2008

April 11, 2010

By Ye Xie April 12 (Bloomberg) — Traders in currency options are showing that emerging economies have become safer relative to developed nations than at any time in almost two years. Three-month implied volatility for the seven biggest developing country currencies fell to 10 percent in March compared with 11.4 percent for industrialized nations, according to JPMorgan Chase & Co. indexes. The gap is the widest since July 2008. So far this year, eight of the 10 best-performing currencies are from emerging markets. The record U.S. budget deficit , Europe’s bailout of Greece and the prospect of a hung parliament in the U.K. are increasing the risk of losses in dollars, euros and pounds. In developing markets, the deficit fell to one-third the level of advanced nations this year and the economies are growing twice as fast as the U.S., the International Monetary Fund says. “The global perception of risk is changing,” said Jerome Booth , who helps manage $32 billion in emerging-market assets as the head of research at Ashmore Investment Management Ltd. in London. “Where you want to be is non-leveraged places, and that means anything in emerging-markets. This is a start of a trend. The rally in emerging-markets has barely started yet.” Global Recovery That’s a switch from three years ago, when record-low volatility was fueled by investors underestimating the risks of leverage. Now, volatility is declining in developing markets as countries from China to Brazil lead the global recovery, while swelling budget deficits in the U.K. and U.S. will weaken those nations’ currencies, Booth said. China’s imports surged 66 percent in March from a year earlier, causing the country’s first trade deficit since 2004. The rise in imports helps the global economic recovery, Huang Guohua , the head of the customs bureau’s statistics department, said on April 9. In Turkey, the lira climbed 6.8 percent against the euro this year to the strongest level since December 2008. Gross domestic product increased at an annual rate of 6 percent in the fourth quarter of 2009, lagging behind only China among the Group of 20 nations. Goldman Sachs Group Inc. forecasts the expansion may help Turkey’s $620-billion economy overtake Germany to become the third-biggest in Europe by 2050. The implied volatility for the lira is below that of the pound by the most since 2000. The lira was forecast to fluctuate at an annual rate of 10.6 percent in the next three months, as of March 30, 2.7 percentage points less than the pound, data compiled by Bloomberg show. “Dropping volatility says: ‘Buy, buy, buy,” said Sebastien Galy , a currency strategist at BNP Paribas SA in New York. U.K. Budget In the U.K., the pound is down 4.6 percent versus the dollar this year and has fallen against 14 of 16 most-traded currencies, including an 11 percent drop against the Mexican peso. National elections are raising the prospect that U.K. voters may fail to elect a governing majority for the first time since 1974. A weakened government may struggle to enact budget cuts with the nation’s debt set to almost double. The euro has lost 12 percent versus the Mexican peso this year as Europe weighed options to help Greece avoid default on its debt. European governments offered Greece a rescue package worth as much as 45 billion euros ($61 billion) yesterday at below-market interest rates. “Investors had a bit of a blasé attitude prior to the Greek situation,” said Robert Stewart , who oversees $74 billion as the head of currencies at JPMorgan Asset Management in London. “Investors are slowly awakening to the reality.” Hyper-Inflation Three decades ago, emerging-market currencies fluctuated the most amid debt crises and hyper-inflation. Mexico defaulted in 1982 while the Asian financial crisis that started in 1997 wiped out one third of the region’s economy. Now it’s developed countries that are dealing with the biggest debt. The administration of President Barack Obama predicts its budget deficit will swell to a record $1.6 trillion in the fiscal year ending Sept. 30. Moody’s Investors Service forecasts that the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. Emerging nations are moving in the opposite direction. The budget deficit for developing countries will fall to 2.8 percent of their economies this year, from 4 percent in 2009, according to an IMF report in November. Industrialized governments’ budget gap will decline to 8.1 percent from 8.9 percent, the Washington-based fund said. Developing nations reduced their foreign debt to 26 percent of GDP last year from 41 percent in 1999, while advanced nations’ debt may surge to 106.7 percent of GDP this year from 78.2 percent in 2007, according to IMF data. Credit Crisis In July 2007, the JPMorgan Emerging Market Volatility Index fell to a record low of 5.8 percent as central banks made their interest-rate and currency moves more predictable. When credit markets froze later that year, the index began rising and hit a record 35.8 percent in October 2008, one month after Lehman Brothers Holdings Inc. collapsed. The JPMorgan G-7 Volatility Index , including the euro, the pound and the yen, reached 26.6 percent. Emerging-market volatility is falling again as the Mexican peso and the Malaysian ringgit gained 7.4 percent versus the dollar this year, the best performers in the world after the Costa Rican colon. Mexico’s government forecasts it will keep the budget deficit at 2.8 percent of GDP this year after lowering spending and increasing taxes even as the economy shrank 6.5 percent in 2009 in its worst recession since 1932. Mexican Peso The implied volatility of the Mexican peso was 1.39 percentage points below that of the euro as of April 1, the most since October 2008, according to Bloomberg data. Exports from Malaysia, South Korea and Taiwan are growing to feed demand in China, which is leading the global economic recovery. Overseas shipments from Malaysia rose 18.4 percent in February from a year earlier. The central bank has raised its growth forecast for Southeast Asia’s third-largest economy, predicting an expansion of as much as 5.5 percent this year, the fastest since 2007. Korea exports climbed 35.1 percent in March from a year earlier, while Taiwan’s surged 50.1 percent. Overlooking Risks? Investors may be overlooking the risks of developing- nations, said Harald Hild , a money manager at Quaesta Capital Optivest AG in Switzerland, which oversees about $1 billion. The South African rand, Colombian peso and Brazilian real have increased more than 20 percent in the past year against the dollar, making their exports more expensive. These countries are also “highly dependent” on the U.S. and may falter should America’s economic recovery stumble, he said. “It’s really amazing how strong the risk appetite is for emerging-market currencies,” said Hild, who has traded currency options for 16 years. “I’m not sure how long this will hold.” Countries from Chile to China may lure $722 billion in overseas investment this year, 66 percent more than in 2009, the Washington-based Institute of International Finance said in January. Developing-nation bond funds attracted $7 billion this year, pushing assets under management to a record $74.7 billion, according to Cambridge, Massachusetts-based research company EPFR Global. Falling volatility is making emerging-market currencies more attractive, especially to investors in carry trades, said Thanos Papasavvas , head of currency management at Investec Asset Management in London. In such trades, investors borrow in countries with low interest rates to buy financial assets in those with higher yields. “You’ll see the appreciation of emerging-market currencies versus developed-market currencies as a long-term, strategic trend,” said JPMorgan’s Stewart. “Investors will allocate more to emerging markets.” To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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Swiss Re Says Brazil Spending for World Cup, Olympics Means More Revenue

April 8, 2010

By Alexander Cuadros April 8 (Bloomberg) — Swiss Reinsurance Co. , the world’s second-biggest reinsurer, said Brazil’s infrastructure spending as it prepares for the 2014 World Cup soccer tournament and the 2016 Olympics means the country will be a “high-growth market” for the company. Most revenue gains for the Zurich-based company will be in emerging markets such as Latin America, while those in U.S. and other developed countries remain “flat to low,” said Walter Bell , chairman of the Swiss Re unit for U.S., Canada and Brazil. “Our commitment to the region is long term,” Bell said in an interview at the World Economic Forum on Latin America in Cartagena, Colombia. “Brazil is at the top of the list. Mexico — we’re very bullish on Mexico.” Brazil said in January it plans to spend 19.5 billion reais ($11 billion) to improve infrastructure and prepare for the World Cup in two years. Rio de Janeiro state, whose capital will host the Olympics, expects as much as $90 billion in investments in the next three years, primarily in shipbuilding, iron and steel manufacturing and nuclear power, Governor Sergio Cabral said last week. Brazil’s planned infrastructure investments mean it “will be a high-growth market for some time to come,” Bell said. He declined to say how much he expected revenues in the region to increase. Reinsurance rates may react to this year’s “excessive” catastrophes such as the February earthquake in Chile and the Xynthia windstorm that crossed Spain and France, Bell said. “The market has been predicting rates would rise,” he said. “With that kind of severity and frequency of risk, pricing will probably have to be more reflective of what the risk reinsurers and insurers are taking on these days. There’s some elasticity in the rates.” Quake, Windstorm Swiss Re said last month it expects about $500 million in claims from the Chile quake and about 100 million Swiss francs ($93 million) in losses from Xynthia. Global reinsurance prices dropped 6 percent for policies renewed Jan. 1 after catastrophe damage fell and capital markets improved, according to Marsh & McLennan Cos. Only two tropical storms struck the U.S. in 2009, compared with 2008 when Hurricanes Ike and Gustav contributed to $27 billion in costs to insurers, according to the Insurance Information Institute. Swiss Re increased its dividend in February and reported a 2009 profit gain, recovering from the previous year when the reinsurer reported a loss of about 1 billion francs tied to securities such as credit default swaps. To contact the reporter on this story: Alexander Cuadros in Cartagena at acuadros@bloomberg.net .

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Tennis players raise $125,000 for disaster relief in Chile

April 5, 2010

Tennis players raise $125,000 for disaster relief in Chile

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Hu Jintao to Attend Nuclear Summit in Washington, Boosting Obama Efforts

April 1, 2010

By Bloomberg News April 1 (Bloomberg) — China’s President Hu Jintao will attend a nuclear summit in Washington this month in a boost to the Obama administration’s efforts to combat the spread of bomb- making materials. “China highly values the nuclear security issue” and opposes nuclear proliferation and nuclear terrorism, Foreign Ministry spokesman Qin Gang said in Beijing today, announcing the visit. Obama has made the reduction and eventual elimination of nuclear arms a central part of his foreign policy, and more than 40 nations have been invited to attend the April 12-13 summit in the U.S. capital. Hu’s participation is also seen as a sign of warming ties with Washington. “It represents in a very major way a positive turn in US- China relations during an extended period of frostiness,” said Carlyle A. Thayer, professor of politics at the Australian Defense Force Academy, University of New South Wales, said in a telephone interview. Ties between the two have become frayed in recent months over issues including the sale of U.S. arms to Taiwan, Washington’s repeated calls on Beijing to allow the yuan to appreciate, Obama’s meeting with the Dalai Lama in February and the decision by Google Inc. last month to pull out of China over censorship and privacy concerns. Hu’s decision to attend the summit comes two days after Qin told reporters that China appreciates “positive statements on improving China-U.S. relations,” made by Obama and Deputy Secretary of State James Steinberg . Constructive talks between Obama and Hu may help cool the ardor of trade protectionist lawmakers pushing for punitive tariffs on China for keeping the yuan artificially cheap to boost exports. Nuclear Arsenals Obama said March 26 that he and Russian President Dmitry Medvedev agreed to cut their nuclear arsenals by almost a third in an accord that replaces the Strategic Arms Reduction Treaty of 1991. The two leaders are set to sign the treaty in Prague on April 8. After the summit Hu will travel to Brazil for a meeting of BRIC nations. He’ll also visit Venezuela and Chile, Qin said To contact the reporter responsible for this story: Frederik Balfour at fbalfour@bloomberg.net

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Jim Luce: Introduction to mFinance: Cell Phone Banking

March 19, 2010

Growing up in Ohio as a young teen, I would take my savings account passbook to the bank and deposit my earnings from snow shoveling or grass mowing. When I moved to New York City in the 1980′s, bank tellers still stood behind bullet-proof windows, but soon ATMs became as ubiquitous as Starbucks. Now, I follow my own HSBC account on-line. Cell phones in some parts of the world can now be used to buy a Coke! There is a funny trend happening. The developing world never built the infrastructure we have in the developing world – and therefore they are now leapfrogging ahead, at an amazing speed. We in North America and Europe are stuck with what the experts call “legacy infrastructure,” that is hard to break away from. One reason is the decades and enormous investment poured into developing the infrastructure – now that investment of time and money must be protected. Travelling around the world about one week a month, working on orphan care though the U.N.-affiliated NGO I founded ten years ago, Orphans International Worldwide ( OIWW ), I have seen the future in the developing world. It is our own future: cell phone banking, known as “mFinance.” At the GSM Association annual congress in Barcelona, Diarmuid Mallon, of Sybase of Reston, Virginia explained the basics of mFinance to me. At the recent GSM Association ( GSMA ) annual congress in Barcelona which I attended, Diarmuid Mallon, Senior Product Marketing Manager of Sybase in London was willing to explain it all to me: We now have a global network of connectivity that is almost endless. It can be used for healthcare, for education, and of course for finance. More people today have cell phones than have radios – or even land lines. We are seeing mobile operators creating joint ventures throughout the developing world. People are paying bills, sending money – or even air time – over their cell phones. It is simply more convenient that the old ways. The majority of people in the developing world are “unbanked.” Mobile technology is empowering them – allowing them to control their own finances – giving them financial independence. Diarmuid even has his own blog on this topic. I heard about Diarmuid’s colleague Bill Dudley’s blog on this topic from Haiti, where I have operated orphan care since Hurricane Jeanne many years ago. I find Bill’s blog fascinating. Bill has written about mobile messaging (SMS) and worldwide donations, as well as another outlining how SMS was helping to save lives in Haiti. He tells me has just finished a piece about how SMS usage actually increases in dire situations, relating to the new surge in messaging from Chile, following that nation’s earthquake. Bill shared his thoughts on SMS with me from London: One of the things that I try to get across in my blogs – which focus on mobile messaging and the mobile ecosystem in general, is that SMS messaging is and should be a part of any humanitarian relief – through the use of short codes such as was done to raise funds for Haiti. The blog and references to the Ushihidi 4636 Project was another fine example of the use of the mobile ecosystem… in this case – to help save lives. As much of the developing world has less of fixed communications infrastructure than mobile infrastructure. It is, in fact, the mobile infrastructure and popularity of mobile devices for the populace that promotes the use of simple SMS messaging for a variety of purposes. SMS is used to communicate with family and friends because it is many times cheaper than voice calls, especially when most of the developing world uses pre-paid plans). SMS is also used to interact with organizations, and to conduct financial transactions — thus “mFinance.” This is really why the developing world has certainly leapfrogged the developed world, when it comes to using mobiles for mCommerce or mFinance functions. Orphans International Worldwide is in the process of setting up orphan care in Leogane, epicenter of Haiti’s earthquake. We will have a Communications Tent, sponsored by CharityHelp International ( CHI ) with assistance from Skype . We hope to get Digitel , Haiti’s premier carrier, and Google involved as well. Consumers buy a MoneyBox Kit with a local ATM card and a stored value on the street and link the kit with their mobile phone. Consumers buy a MoneyBox Kit allowing them to create a saving account using their phone, without the need to visit a bank branch. They can save, send money and pay for goods and services just using their phone. And they can get an ATM card for easy cash-out Mobile phones are ideal to begin to move small amounts of money to teach financial literacy and allow people to mature to regular bank customers. I was also able to interview Ignacio Mas, Technology Program Adviser of the Gates Foundation, on this same theme (see story). I believe that mobile phone users of eFinance services will eventually save enough to open a regular bank account – although they will continue to access their funds, pay bills, and reconcile their monthly statements by cell. Mobile technology, no matter how primitive it remains in the U.S., is transformative. The global financial system is changing. Surprisingly, it is the developing world that is leading our own legacy-bound financial system into cell connectivity.

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Insurers’ 2010 Natural-Disaster Costs May Hit $110 Billion, Swiss Re Says

March 16, 2010

By Jamie McGee March 16 (Bloomberg) — Natural disasters may cost insurers as much as $110 billion worldwide in 2010, five times more than last year when the U.S. escaped hurricane damage, Swiss Reinsurance Co. said. “We have already seen significant events in 2010,” Thomas Hess , chief economist of Zurich-based Swiss Re, said today in a statement. “The industry is therefore well-advised to prepare for much higher losses.” In the first two months of 2010, an earthquake hit Chile and European Windstorm Xynthia struck France. Insured losses from the 8.8-magnitude quake in Chile on Feb. 27 may be as much as $8 billion , catastrophe modeler Eqecat Inc. said on March 1. Xynthia, which killed at least 47 people, may cost insurers as much as 2 billion euros ($2.75 billion), according to Risk Management Solutions. Costs to insurers from natural disasters totaled a below- average $22 billion in 2009, Swiss Re said. Only two tropical storms hit the U.S. last year, compared with 2008 when Hurricanes Ike and Gustav contributed to more than $44 billion in insured losses from natural disasters. “The year is off to a very bad start from a loss perspective for the industry,” Michael Paisan of Stifel Nicolaus & Co. said yesterday in an e-mail. “The wind will blow during hurricane season, so there will be more losses.” The most expensive of the 133 natural catastrophes occurring in 2009 was European storm Klaus, which cost 2.35 billion euros, Swiss Re said. The reinsurer said “secondary perils” including floods, hail, tornadoes and drought caused more than half of the insured losses last year. Haiti The earthquake that struck Haiti on Jan. 12 killed as many as 300,000 people, demolished homes and leveled commercial buildings. Insured losses will be a fraction of the total. Haiti has less than $20 million in non-life premium income, Risk Management Solutions said, citing Axco Insurance Information Services. Rebuilding the poorest country in the western hemisphere may cost as much as $13.9 billion, according to the Inter-American Development Bank. Munich Re, the world’s largest reinsurer, has said losses from natural catastrophes caused by climate change will rise. “The trend towards an increase in weather-related catastrophes continues,” Peter Hoppe, head of Munich Re’s Geo Risks Research, said in a Dec. 29 statement. Climate change is also being blamed for a long-term trend toward severe flooding, according to a report issued today by the Interagency Climate Change Task Force, which includes the National Oceanic and Atmospheric Administration and the White House’s Science and Technology Office and Council on Environmental Quality. North Dakota, South Dakota, Minnesota and Iowa are among U.S. states that “potentially historic flooding” in coming weeks, government forecasters said today. To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net ;

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Henry Kissinger Is Recovering From Stomach Ailment at Hospital in Seoul

March 13, 2010

By Jungmin Hong March 13 (Bloomberg) — Henry Kissinger , former U.S. secretary of state, is in stable and not serious condition in a South Korean hospital after being taken there with abdominal pains this morning. The former U.S. secretary of state isn’t in danger and is recovering, Choi Kingdegar, a spokesman at Yonsei University’s Severance Hospital in western Seoul, said by phone today. The results of his examination aren’t available yet, Choi said. Officials at the U.S. embassy in Seoul were not available for comment. Kissinger was in the South Korean capital to deliver a lecture on North Korea’s nuclear program, according to the Korea Herald newspaper, which earlier reported his hospitalization. Kissinger, 86, helped orchestrate the opening of relations between China and the U.S. as well as detente and arms-control agreements with the Soviet Union under Republican Presidents Richard Nixon and Gerald Ford . He shared the Nobel Peace Prize with Le Duc Tho for the cease- fire the two negotiated in 1973, leading to the withdrawal of U.S. combat forces from Vietnam. The former Harvard University professor also came under fire over his support for policies such as the U.S. bombing of Cambodia and backing of authoritarian regimes in Pakistan, Chile and Indonesia. To contact the reporter on this story: Jungmin Hong in Seoul at jhong47@bloomberg.net

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Chile May Borrow Abroad, Tap Copper Savings for $30 Billion Reconstruction

March 13, 2010

By Sebastian Boyd March 13 (Bloomberg) — Chilean President Sebastian Pinera plans to tap copper savings funds and may borrow abroad to pay for the estimated $30 billion cost of repairing damage caused by the 8.8-magnitude earthquake that struck the country Feb. 27. More than 500 Chileans died in the quake and the tsunami that followed it, Pinera said yesterday. That death toll will probably rise as more bodies are identified and because of the “many people” still missing, he said. The country has been left poorer by the earthquake, he said, citing damage done to homes, schools, hospitals and infrastructure. Last month’s quake, the world’s fifth biggest in the past century, was a “calamity” for Chile, Pinera said. “Chile is poorer than a few weeks ago,” Pinera told reporters in Santiago yesterday. “We’re poorer for the loss of life, we’re poorer for the loss of economic wealth.” Pinera said he plans to rewrite the 2010 budget to free up resources for a reconstruction fund, adding the government will also tap its savings. Chile has $11.3 billion invested overseas in an economic stabilization fund that the government can use to finance a budget deficit. Using money from the fund could mean selling dollars to buy pesos, boosting the Chilean currency. “We will study the possibility of contracting debts overseas,” Pinera said. “Chile has hardly any public sector debt.” Chile, South America’s fifth-largest economy with gross domestic product of $169 billion, is a net creditor, with more in its offshore savings funds than it owes. The country has $1.75 billion of international bonds outstanding, all due before the end of 2013, according to data compiled by Bloomberg. Loan Offers Multilateral lenders such as the World Bank, the Inter- American Development Bank and Caracas-based Corporacion Andina de Fomento have offered to lend Chile money, Finance Minister Felipe Larrain said. “The options are there, but before that we have to look at the numbers and see how much we’ll need in financing,” Larrain said. “We’re still working on the budget and analyzing the different items in the budget to see how to allocate resources to reconstruction.” Chile’s government will spend $300 million on cash handouts to the poor, Larrain said. Pinera signed the bill authorizing the payments in his first legislative act as president, and it will be sent to Congress on March 15, Larrain said. The government hopes to make the first payments this month, the finance minister said. The high price of Chile’s main export, copper, may also help pay for reconstruction, the president said. Years of Rebuilding Rebuilding “won’t last weeks or months,” Pinera said. “It will last years, because the magnitude of the damage caused is on a scale never before seen in Chile,” Chile’s new government will need to weigh the advantages of borrowing in dollars, which may push up the peso, and borrowing in pesos, which could push up the cost of selling bonds for Chilean companies. “If they tap too much domestically, they’ll crowd out the private sector, which needs funds for reconstruction,” said Rafael de la Fuente, chief Latin American economist at BNP Paribas SA in New York. “If they go abroad, they put pressure on the currency. That’s the trade-off.” The peso rose 3.1 percent in the five days following the quake, the most of any of the seven Latin American currencies tracked by Bloomberg, on speculation the government would need to sell dollars to pay for rebuilding. Since then it has depreciated 1.8 percent, the most of 26 emerging-market currencies, after central bank President Jose De Gregorio said it may have “overshot.” Chile’s peso will begin weakening late this year as the earthquake, economic growth and record-low interest rates sap demand for fixed-income assets, said Guillermo Osses, who helps oversee $50 billion in emerging-market assets at Pacific Investment Management Co. The peso may slide to 550 per dollar in a year and to as weak as 600 in an “extreme case,” Osses said. To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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Quake, Aftershocks Cripple Chilean President Pinera’s Plan to Spur Economy

March 11, 2010

By Michael Smith and Sebastian Boyd March 11 (Bloomberg) — Sebastian Pinera was inaugurated as Chile’s president today minutes after powerful earthquakes shook buildings in Santiago and Valparaiso, stirring memories of last month’s devastating 8.8-magnitude temblor. A tsunami alert was issued for 1,200 kilometers (750 miles) of Chile’s coast after three earthquakes shook the country and were felt in the congressional building where Pinera was sworn in. One was a 6.9-magnitude temblor near Constitucion, Chile, which was devastated by last month’s quake and tsunamis. Pinera urged coastal residents to take higher ground as a preventative measure against the kind of tsunamis that swept away entire neighborhoods in last month’s quake. “I call on all Chileans to dry their tears and join in the task of confronting this emergency, in the task of rebuilding our country better than it was before,” Pinera said after taking office in Valparaiso, 120 kilometers west of Santiago. Pinera sent Interior Minister Rodrigo Hinzpeter to direct the government’s response at the national emergency office in Santiago. Today’s quakes caused damage in Rancagua, a city 87 kilometers south of Santiago, and declared the region a disaster area, newspaper El Mercurio reported on its Web site. Pinera said he would send troops to secure the city. Government Spending Destruction from the Feb. 27 earthquake — the world’s fifth strongest in a century — has upended the new president’s agenda and his plans to shrink government, attack red tape, and double average economic growth . In the aftermath of the quake, which killed more than 490 people, Pinera will now have to increase, not cut, spending. Pinera won a Jan. 17 runoff election with pledges to raise per capita income by more than 50 percent by 2018 to $22,000 a year. That’s equal to European countries such as Portugal and would at last move Chile out of the ranks of emerging markets and into the developed world. Pinera is reviewing the goal of joining the developed world within eight years, says Ena Von Baer, his communications minister. A week before Pinera’s inauguration, fisherman Adolfo Opazo walked in a daze to where his house stood until Feb. 27, when an earthquake and tsunami turned his neighborhood in Constitucion into a wasteland. Opazo’s home was smashed, and the wooden skiff that was his livelihood destroyed. His family sleeps in a tent in a slum above this coastal town of 54,000, located 300 kilometers south of Santiago. Decomposing Bodies The air reeks of decomposing bodies and excrement as Opazo, 42, asks how Pinera will rebuild his home, his livelihood — and the rest of the country. “Pinera promises prosperity, a government that works, development,” Opazo said, as reported in Bloomberg Markets magazine. Opazo wears mud-splattered jeans and his eyes are bloodshot from fatigue. “I hope Pinera can help me get my life back.” Chile may have to borrow from abroad for the first time since 2004, and Pinera may have to tap the $15 billion outgoing President Michelle Bachelet saved in sovereign wealth funds. “Obviously this is a catastrophe for the whole country and it has widespread effects on prospects for development and growth in Chile,” says Von Baer. The changes started with the inauguration. Pinera canceled lavish parties to celebrate his victory over the center-left coalition that had governed Chile since the late dictator Augusto Pinochet ceded power in 1990. ‘Government of Reconstruction’ “Our future government won’t be the earthquake government,” Pinera, 60, said March 4 after meeting with Bachelet. “It’s going to be a government of reconstruction.” Bachelet has said damage estimates from the quake reach $30 billion, equal to almost 20 percent of Chile’s gross domestic product . The tremor wreaked havoc across a 700-kilometer swath of central Chile, including Concepcion, the nation’s second- largest city. About 2 million of Chile’s 17 million people suffered damage to homes or businesses, most in the nation’s poorest regions. The temblor toppled hospitals and bridges, spilt open highways, leveled villages and turned industrial plants into heaps of twisted steel. Bachelet estimates it will take four years — the length of the new president’s term — to rebuild. Austere Budget Promises “President Pinera has a vision of making us a first world country, but this hit hard,” says Juan Carlos Diaz, municipal administrator in Talca, a city of 240,000 people in the heart of the country’s fruit and wine export industries, 257 kilometers south of Chile’s capital, Santiago. The quake destroyed one of four houses and businesses there, killing at least 38 people and leaving 60,000 homeless. The rebuilding won’t happen without help from the top, Diaz says. During his campaign, Pinera criticized Bachelet’s government for wasteful spending, and a week before the earthquake he promised an austere budget this year. In the days after the disaster, Pinera, who made his fortune investing in credit cards and airlines, pledged to rewrite the 2010 national budget to focus on reconstruction. The temblor laid bare the two Chiles that have emerged in the 20 years since Pinochet was forced from power. The dictator started Chile’s road to development by opening the economy to imports and foreign investment, selling state utilities and creating a private pension system. Foreign Investment Once Pinochet left power, foreign mining companies, banks and utilities poured billions of dollars into Chile, helping gross domestic product grow every year but two since 1990. That helped push the national poverty rate down to about 14 percent, from 39 percent in 1990. Today, Santiago, home to a third of Chile’s population, is a city of underground expressways, luxury malls and modern apartment buildings, all built to withstand magnitude-9 earthquakes. That showed in the aftermath of the quake, when no high- rise building collapsed in the city of 6 million. In contrast, the quake and tsunamis leveled poorer regions. Thousands of wooden and adobe homes and businesses were destroyed. “This isn’t Santiago,” says Opazo, the fisherman in Constitucion. He walks to a heap of splintered wood, mangled cars and smashed furniture where he found bits of his and several neighbors’ homes. “Everybody is poor here.” Pinera’s Legacy Pinera could reap political gain from the natural disaster if he does a good job quickly rebuilding, says Patricio Navia , a specialist in Chilean politics and public opinion at New York University in Manhattan. “Pinera can use the recovery effort to define his legacy,” Navia says. The new president says the economy can still grow by about 5 percent in 2010, compared with International Monetary Fund estimates of a 1.7 percent- contraction last year. “We want to build a better country than we had before,” Pinera said in a March 8 speech. The South American country won’t have a problem paying for the reconstruction. Standard & Poor’s gives Chile an A+ credit rating, the highest in Latin America. All of Chile’s $1.75 billion of international debt is due in the next three years, so the country could easily sell bonds to rebuild, says Enrique Alvarez , head of research for Latin America at IDEAGlobal in New York. Financing Reconstruction “Chile is in a very advantageous position to tap international markets,” he says. Hernan de Solminihac , Pinera’s public works minister, says the administration also wants to use private financing to rebuild bridges, roads and water systems. Full recovery may take longer than the one term Pinera can serve as president, says Robert Barro , an economics professor at Harvard University in Cambridge, Massachusetts, whose research focuses on the impact of disasters on economies. “The usual recovery from a major disaster is typically distributed over five or six years,” Barro says. A big focus will be on housing, since 1.5 million homes in Chile were damaged, a third of which were destroyed. Pinera has estimated the cost of that reconstruction alone will be about $20 billion. In Constitucion, 80 percent of the homes and businesses in the swath of city near Maule river delta were ruined. Near Opazo’s destroyed house, hundreds of dwellings were smashed into bits of splintered timbers and bricks by the tsunami. Getting Help “We cannot rebuild without the president,” says Constitution Mayor Hugo Tilleria. Just after dawn on March 5, Domingo Arriagada walked toward the second floor of his house, sitting 15 meters from its foundations atop a pile of smashed stone, wood and fabric that once were his family’s possessions. All he’s found is a waterlogged tan upholstered chair. “I don’t know where the first floor is, can you see it?” says Arriagada, 54, a sawmill foreman. “I don’t have any money to rebuild, so we have to get some help.” The quake also hammered the export companies that help fuel Chile’s economy, including wine, pulp and timber production. At the Balduzzi Vineyards & Winery in San Javier, 270 kilometers south of Santiago, 5-meter high tanks filled with wine waiting to be bottled were burst open. Equipment Destroyed Enough wine to fill 600,000 bottles flooded out into the town’s streets, equal to half the winery’s annual production. The earthquake decimated vineyards across central Chile, including the biggest, Concha Y Toro SA, spilling 125 million liters (33 million gallons) of wine worth about $250 million, according to industry estimates. In Constitucion, the tsunami smashed into a cellulose plant and lumber producer owned by Celulosa Arauco y Constitucion SA, a unit of Chile’s Empresas Copec SA. The waves flooded the pulp plant, destroying equipment. The timber mill was reduced to a pile of twisted steel and battered machinery. Arauco, the world’s second-biggest pulp producer, says the plant, which employs 280 people, has been closed indefinitely. Pinera won the presidency with a pledge of adding 1 million jobs to Chile’s 7.4 million-strong workforce during his term. That’s the equivalent of creating more than 20 million jobs in the U.S. The spending spree on reconstruction may help the new president meet his goal, especially in labor-intensive industries hard hit by the 2009 recession such as construction. New Jobs Many of the new jobs would replace workers whose employers were wiped out. Marcos Veragua, a director of the small retailers and tourism association, says at least 40,000 businesses are in the quake-ravaged towns. On one street in Talca, the quake turned Angela Lagos’ costume and tuxedo shop into a pile of splintered beams and adobe bricks. That put her and her daughter out of work, and she’s not sure if she will have the funds to reopen. “This is my whole life, 15 years of work, gone,” Lagos, 49, who voted for Pinera, says while picking through the rubble for anything of value. “Pinera is a businessman, right? So, he should be able to help us rebuild, to know what to do. He has to.” On the coast near Iloca , 150 kilometers west, the tsunami destroyed almost 400 fishing boats and the jobs they provided. Waves smashed Miguel Valenzuela’s 8-meter trawler against the docks and ripped the front of his house off, sweeping all his belongings out with it. “Those jobs are gone because I don’t have any money to buy a new boat, not without government loans or something,” says Valenzuela, 52. “Pinera has his work cut out for him.” To contact the reporter on this story: Michael Smith in Constitucion at mssmith@bloomberg.net ; Sebastian Boyd in Santiago at sboyd9@bloomberg.net

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Vineyard Defaults Surge as Lost California Land Values Undermine Napa Wine

March 8, 2010

By Dan Levy March 8 (Bloomberg) — In California’s Napa Valley, producer of the most expensive U.S. wines, 2010 may be a vintage year for foreclosures as the industry is squeezed by falling land values and a consumer shift to cheaper brands. As many as 10 wineries and vineyards in Napa will change hands in distressed sales or foreclosures this year and next, up from none in 2008, according to Silicon Valley Bank. In a bank survey of vintners, 7 percent called their finances “very weak” or “on life support.” “We have 250 vintner clients saying this downturn is the worst in 20 years,” Bill Stevens , manager of the bank’s wine division in St. Helena, California, said in an interview. “Anybody who was late to the party won’t have staying power.” Land values in Napa, home to about 400 producers, have fallen 15 percent from the 2007 peak, driven in part by slumping demand for high-end wine, said Robert Nicholson , principal at International Wine Associates, a consulting and financing firm in Healdsburg, California. The decline makes it harder for owners to refinance mortgages , especially if the property is worth less than the loan. Napa winery and vineyard loan defaults rose fourfold to 18 in the year through January, according to San Diego-based research firm MDA DataQuick . In the survey by Silicon Valley Bank, whose clients are mostly high-end West Coast wineries, 71 percent of respondents said credit is harder to get. The recession has set in motion a “secular change,” with budget-conscious consumers trading down to less expensive wines, said Peter Kaufman , managing partner at Pleasanton, California- based Bacchus Capital Management LLC , a private-equity fund that provides mezzanine financing to wineries. Sales Fall The dollar value of U.S. retail wine sales dropped 3.3 percent to $29 billion in 2009 after rising every year and almost tripling from 1991 through 2008, according to Gomberg, Fredrikson & Associates in Woodside, California. Though consumption increased 1.9 percent to 323 million cases last year, people are buying less expensive labels, the industry consultant said in a March 5 report. Sales of super-premium bottles priced more than $15 declined 10 percent last year, and those over $30, defined as ultra-premium, fell at least 15 percent, according to Rabobank Nederland NV , the Utrecht, Netherlands-based bank that finances agriculture businesses. Napa and neighboring Sonoma are the top U.S. producers of premium wine, the bank said. “No more is it about stocking wine cellars with 5,000 bottles of Screaming Eagle,” said Bacchus Capital’s Kaufman, referring to a Napa “cult cabernet” that can sell for $750 or more a bottle. “High-rollers are discovering that there are lots of drinkable $20 to $40 bottles of wine.” Cheaper Imports Super-premium wineries are likely to bear the brunt of changing consumer habits, and lenders will pressure clients who can’t cover costs to “seek solutions before the loan goes into default,” Rabobank said in a January report. Cheaper imports from countries such as Chile, Argentina and Australia are cutting U.S. winery margins, according to Stephen Rannekleiv , lead analyst on the Rabobank report. “Consumers are looking at price point and saying that Napa is not the price they want to be buying at,” New York-based Rannekleiv said in an interview. “Wine prices drive grape prices drive land prices.” Bill Harlan, maker of Napa’s Harlan Estate Proprietary Red that counts four perfect ratings from widely followed critic Robert Parker , said he expects to see foreclosures mount. “No area is going to be unaffected by this financial meltdown,” he said in a telephone interview. Distress Sale Harlan, whose Oakville, California, winery is 60 miles (97 kilometers) north of San Francisco, has seen the distress up close. In December, he acquired 21 acres next door known as Diamond Oaks Winery from businessman Dinesh Maniar , owner of two separate Napa parcels that are facing foreclosure, according to county land records and documents in U.S. Bankruptcy Court in Santa Rosa, California. David Chandler, an attorney for Maniar, didn’t return calls seeking comment. Diamond Oaks lists a $35 bottle of pinot noir and a $30 cabernet sauvignon as “new products for March” on its Web site . There have been few recent property deals because sellers are reluctant to accept the low bids they are seeing, said Tony Correia, an appraiser in Sonoma for Correia-Xavier Inc. More than 30 wineries are for sale in California, Oregon and Washington, the most ever, according to Rob McMillan , executive vice president and founder of the wine division of Silicon Valley Bank, a unit of SVB Financial Group in Santa Clara, California. The properties have too much debt, were new arrivals to the wine market or have owners who are looking to retire as competition rises and profit margins fall, he said. Endangered Deals Some Napa land deals that were never publicly disclosed or confidentially recorded at the county assessor will unravel this year and in 2011, according to Vic Motto , chief executive officer of Global Wine Partners LLC , an investment bank and advisory firm in St. Helena that brokers property sales. He declined to identify which of the buyers may not be able to hold onto their properties. “There were heavily leveraged transactions that occurred that were private, not transparent, and there is no data to show that,” said Motto. Napa land values, the highest among U.S. wine regions, are based on wine appellation, or a property’s geographical boundary, and soil quality, according to Correia, the appraiser. On-premises wineries are also valued by production facility and capacity and proximity to main tourist thoroughfares, he said. Napa Valley runs about 30 miles from the city of Napa in the south to Calistoga in the north. Napa Premium Average prices are $150,000 to $200,000 an acre for a vineyard planted with red varietals such as cabernet sauvignon and $115,000 an acre for white grapes such as chardonnay, said Sean Maher, president of Maher Advisors Inc. , a brokerage in St. Helena. The most desirable sites in Rutherford and Oakville can fetch $250,000 an acre, he said. Napa wine grapes have been the most expensive in California since the 1970s, said Terry Hall, a spokesman for the Napa Valley Vintners Association in St. Helena. Last year they cost an average $3,401 a ton, 56 percent more than second-place Sonoma grapes and more than double those from third-place Mendocino, a preliminary 2009 report from the state Department of Food and Agriculture shows. California produces 90 percent of all U.S. wine, according to the U.S. Tax and Trade Bureau in Washington. ‘Blind Fools’ Mortgage defaults will also hit Napa residential parcels owned by hobbyists, or those who intend to produce 100 to 300 cases a year, said Deborah Steinthal , principal of Scion Advisors. In October, the Napa-based consultants forecast that “hundreds of properties will go into foreclosure.” That’s the scenario facing Sandra Sutherland, who bought a four-bedroom house and more than seven acres of chardonnay, merlot and pinot noir grapes for $2 million in 2005. She and her business partner haven’t made loan payments to Charlotte, North Carolina-based Bank of America Corp. since January 2009. “We went in like blind fools,” Sutherland said. “We didn’t really expect to get the loan, but felt committed when we did.” Owners who have invested for years and managed land prudently should survive the tumult, said Harlan, who has produced 18 vintages since buying the property in 1984. The 2007 vintage of his flagship wine, the most recent, sells for $500 a bottle. “In the long run, those that don’t compromise the quality, manage their wines better and manage their land better will be fine,” he said. “We just need to make sure we get through the short run.” To contact the reporter on this story: Dan Levy in San Francisco at dlevy13@bloomberg.net .

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