The Center in the Media

China, Russia leaders seek South American inroads

From  Associated Press
By Joshua Goodman
July 18, 2014


BOGOTA, Colombia — It’s enough to make an aging U.S. Cold Warrior shudder.

During overlapping visits to Latin America, the leaders of China and Russia have been welcomed with open arms by governments that are among the most hostile to Washington, including Cuba, Nicaragua and Venezuela. Together with stops in Argentina and Brazil, which both have distanced themselves from the U.S. in recent years, the tours underscore the mix of ideology and economics that’s allowing the two superpowers to expand their influence in America’s backyard.

“These are all countries the U.S. has some real question marks about,” said Kevin Gallagher, a Boston University economist and expert on Chinese-Latin American ties. “It’s going to require some PR so as not to be interpreted in certain, phobic circles as an overt alignment with left-leaning governments at odds with the U.S.”

Both Chinese President Xi Jinping and Russian leader Vladimir Putin said their visits were focused on expanding commercial ties, not taking aim at the U.S. The timing was triggered by a summit Tuesday in Brazil of leaders from the so-called BRICS group — Brazil, Russia, India, China and South Africa.

At the summit, BRICS leaders agreed to create their own development bank worth $100 billion, a move seen as a strong push against the World Bank and the International Monetary Fund, which they perceive as too U.S.-centric.

Prior to arriving at the beach resort of Fortaleza, Putin paid his first visit in more than a decade to Cuba, where he touted a recent decision to wipe clean 90 percent of the communist-run island’s $35 billion debt to Moscow and announced deals to invest in Cuba’s offshore oil industry. He also made a surprise stop in Nicaragua for a meeting with the country’s president, former guerrilla commander Daniel Ortega, and then signed a deal on nuclear power in Argentina.

Xi also is visiting Cuba and Argentina during his nine-day tour, as well as making a stop in Venezuela, which in recent years has signed loans-for-oil deals valued at more than $50 billion, making it the biggest recipient of Chinese financing in the region.

Of the two visits, Xi’s has sparked the greatest interest. Putin’s outreach seemed driven by a desire to poke at the U.S. in response to what he sees as American meddling on Russia’s doorstep in Ukraine and eastern Europe. China, however, has supplanted the U.S. as the biggest trading partner in country after country.

As China’s economy has soared over the past decade, its thirst for oil, soybeans and iron-ore has been a boon to South America’s commodity producers. Purchases of the region’s goods have surged 20-fold since 2000, according to the Inter-American Development Bank.

China also is interested in being included in a proposal to build a railway that would cross South America, linking ports on Brazil’s Atlantic coast to Pacific ports in Peru.

But as growth in China and Latin America slowed in the wake of the global financial crisis, frictions have emerged, especially in Argentina and Brazil, where manufacturers have started to plea for protection from a flood of cheaper, Chinese-made imports.

“The honeymoon is over and everyone is trying to manage the relationship in ways to maximize the benefits and mitigate the costs,” said Gallagher….


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Yellen Should Remain Cagey Over Rate-Hike Timing

From  FOXBusiness
By Dunstan Prial
July 14, 2014


Federal Reserve Chair Janet Yellen will answer a whole lot of questions on Tuesday and Wednesday during her semi-annual monetary policy testimony before two separate Congressional committees.

There’s one question she won’t be answering, however, and it’s the one question everyone wants answered: When will the Fed start raising interest rates?

Yellen has been asked the same question in countless forms over the past few months and her answer has always been the same: rates will start to move higher when the Fed determines that the economy is strong enough to absorb higher borrowing costs.

In all likelihood, the questions from the Congressional committee members grilling her over the next two days will require her to come up with numerous variations of that response during her testimony.

Analysts say Yellen should resist the temptation to offer more specifics.

“While it is true that unemployment is already where the (policy setting Federal Open Markets Committee) thought it would be at the end of this year and inflation is already higher, it is too soon for Yellen to shift gear and start signaling clearly that policy is likely to tighten sooner and/or faster than the market expects. There is still simply too much uncertainty around the state of the economy and the appropriate path of policy for Yellen to do that,” said Roberto Perli, an analyst with research firm Corner Stone Macro.

Currently, Fed economists and a broad consensus of analysts believe rates will start to rise in mid-2015. But the truth is that Fed policy makers don’t really know precisely when they’re going to start raising rates. They can’t.

Perli said Yellen should reiterate her oft-stated position that all Fed policy decisions are data-dependent. With that point made clear, Yellen might suggest that rates could move higher sooner than anticipated if the data comes in stronger than expected.

“But she will likely cast this as a hypothetical, while also stating that if the economy stops making progress tightening will take place later. In other words, she will most likely keep all options open,” said Perli.

Specifically, the data the Fed is looking for is unemployment in a range of 5.2%-5.6% and inflation ranging from 1.7% to 2%. That would fulfill the Fed’s dual mandate of full employment and price stability.

Both economic indicators are gradually moving in the direction of those thresholds, but there’s no telling exactly when they’ll reach those targets.

Message of Stability

Mark Williams, a former Fed examiner who now teaches banking at Boston University, said the most important message Yellen needs to convey is one of stability.

“She needs to send the message that the course is going to be steady and that she has a firm hand on the rudder,” Williams said….


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The Huge SIPC Risk Your Broker Isn’t Disclosing

From  Forbes
By  Laurence Kotlikoff
July 16, 2014


Your broker has a duty to disclose all risks from investing with him and his company. He also has an obligation to tell the truth. If he misleads you, including failing to disclose a major risk to your investment, you can sue him personally.

There is one huge investment risk that your broker is surely not disclosing. It’s the risk arising from SIPC, the so-called Securities Investor Protection Corporation. And there is one extremely serious misrepresentation he surely is making, namely that your brokerage account is insured by SIPC. Falsely claiming that you are insured represents financial fraud.

Let’s start with three basic facts.

First, SIPC is a company mandated by Congress, but owned and operated by Wall Street firms, the largest of which have a well-deserved reputation for dishonesty. Citi’s $7 billion settlement with the Justice Department for marketing fraudulent securities, made just days ago, is the latest evidence in this regard.

Second, SIPC, i.e., Wall Street, is supposed to pay you up to $500,000 if your brokerage firm goes bust, including going bust due to fraud. There are multitudinous ways for brokerages to defraud their clients, get caught, and go under. But if SIPC chooses to define the fraud as a Ponzi scheme, it can a) avoid making good on its insurance pledge and b) accuse you of participating in the theft for up to 6 years and sue you to recover the funds you “stole!”

Third, as a front-page NY Times article just pointed out, Ponzi schemes are a dime a dozen. And since there is no clear definition of a Ponzi scheme, SIPC can call virtually any fraud it wants a Ponzi scheme.

I provided a simple example of the terrible risk arising from SIPC brokerage “insurance” in a recent Forbes column entitled, Close Your Brokerage Account and in a longer version published by PBS NEWSHOUR entitled Why No One Should Use Brokerage Accounts.

Today, I want to provide the “simple” math SIPC uses to a) renege on its insurance commitment and b) put you in truly terrible danger for doing what every investor expects and is entitled to do – spend the proceeds of his investment.

When you understand this math, you’ll understand why I’m advising you to a) close your brokerage account and b) avoid spending any withdrawals that SPIC can claw back arising from past or future fraud in your brokerage firm discovered in any of the next six years.

The “Simple” Math Underlying SIPC’S and Perforce, Your Broker’s Insurance Scam

I’ll start with the math and then illustrate it via an example. I assume your brokerage firm is headquartered in New York, whose 6-year claw-back, bankruptcy “law” is the basis of SIPC’s malfeasance.

Let’s call X the difference between withdrawals and contributions over the entire history of your account.

Note that we all invest on the basis of X being positive, i.e., on the basis of our being able to earn a return on our investments and, therefore, take out more than we put in.

But if X is positive when your brokerage goes under and SIPC calls it a Ponzi scheme, you not only lose every penny of your remaining account balance, which I’ll call Y. You also get no insurance protection from SIPC – not a penny, not a dime, not a quarter, and certainly not $500,000.

Y could be all the money you have left in the world. It could be far larger or far smaller than $500,000. But as long as X is a penny or more, SIPC will declare you a “net winner” and pay nothing whatsoever on your insurance claim.

In addition to not paying your insurance claim, SIPC will have its trustee sue you, up to the amount X, for every penny you withdrew from your account over the last six years with no credit whatsoever given for contributions you made to your account over the past six years.

Illustrating SIPC’s and Perforce, Your Broker’s Insurance Scam

Say you saved up $200,000 and invested it 40 years ago with your Kansas broker, whose brokerage company operates out of NY. Had the investment yielded the stock market’s historic 10 percent average return and had you let the money ride, your account balance would exceed $9 million. But it’s only $1.4 million because your return, as reported to you, wasn’t always great and because you a) took out $300,000 back in 2000 to pay for your mom’s nursing home and b) withdrew $100,000 per year for the past six years to help your daughter start a business, cover your medical bills, contribute to your church, and help finance your retirement. The $1.4 million would be only $1.35 million had you not reinvested $50,000 three weeks back at the strong suggestion of your broker.

Today you learn that your brokerage is broke. It borrowed heavily, pledging your securities and those of other customers as collateral, to place a huge bet that went south. You’re appalled, especially when you learn that the brokerage’s top management has been doing this for years while covering its losses with new investors’ funds.

SIPC rides to the rescue. But then it realizes, as it did in the Madoff case, that it doesn’t have the funds to cover its insurance obligations and it certainly doesn’t want to assess its members. So it declares the bankruptcy a Ponzi scheme.

You’ve just lost $1.4 million – virtually your entire remaining retirement savings. You’re devastated. You call up SIPC to request the $500,000 in insurance. Here’s what SIPC says:

“You are a net winner because you took out $900,000 over the last 40 years and contributed $250,000.”

“Your X is $900,000 less $250,000 or $650,00. And because your X is positive, we, SIPC, owe you nothing.”

“Because you stole $600,000 over the last six years and because $600,000 is less than X, you owe us $600,000.”

“We’ve hired the most expensive lawyers in the country to sue you for the $600,000. They are paid by the hour and have every incentive to work as long and as hard as it takes to make you pay.”

“Have a good day.”

Additional Insurance “Protection” Your Brokerage Advertises

Some brokerage companies claim to provide extra insurance holdings. Read the fine print. First the companies have ridiculously low limits on their total insurance coverage. Second, their insurance kicks in only after SIPC’s $500,000 payout limit is reached. But if SPIC is paying you $0 (not counting the $600,000 you need to pay it), its limit is never reached and you get no protection from the “additional protection.”

Here’s Charles Schwab & Co.’s statement: “This additional protection becomes available in the event SIPC limits are exhausted. “

Here’s Fidelity’s statement: “In addition to SIPC protection, Fidelity provides its brokerage customers with additional “excess of SIPC” coverage. The excess coverage would only be used when SIPC coverage is exhausted.”

Here’s Merrill Lynch’s statement: In addition to SIPC protection, MLPF&S has obtained excess-SIPC coverage through a Lloyd’s of London syndicate. This policy provides additional protection for shortfalls above the SIPC limits (including up to $1.9 million for cash), subject to an aggregate loss limit of $1 billion for all customer claims.

I could go on with these listings, but you get the point.

SIPC’s Response

SIPC’s CEO Stephen Harbeck responded to my column in Your Brokerage Account Is Safe With the Securities Investor Protection Corporation. I responded to his column in Why Brokerage Account Insurance Is a Bigger Scam than Madoff.

As these columns indicate, I have relatives, friends, and colleagues who were twice victimized – first by Madoff and then by SIPC in its infamous, precedent-setting victimization of Madoff victims. But my personal interest in SIPC’s scam and its elimination doesn’t alter this basic fact:

SIPC has made all of us all Madoff victims. Thanks to its actions in the Madoff case, none of us can now safely use brokerage accounts.

Please have your broker read all the above-cited columns as well as this excellent exposé of SIPC “insurance” by nationally syndicated financial columnist, Scott Burns. Also ask your broker to push for immediate passage of H.R. 3482 and S. 1725, which would eliminate the SIPC risk to your brokerage account. Finally, tell him you’re closing your account pending passage of the bill.


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BRICS announce $200B challenge to world financial order

From  Aljazeera
By  Michael Pizzi
July 15, 2014


After years of railing against the Western-dominated global financial order, a powerful bloc of the world’s emerging economies has finally done something about it.

On Tuesday, the BRICS nations — Brazil, Russia, India, China and South Africa — formally introduced their long-awaited $100 billion development bank to be headquartered in Shanghai and a currency reserve of the same size, institutions that aim to be both competitor and antithesis to the World Bank and International Monetary Fund.

The New Development Bank (NDB), announced at the sixth BRICS summit in Fortaleza, Brazil, has been billed as an answer to decades of grievances in the developing world about a global financial architecture that critics say the United States and Western Europe have exploited to enforce the subservience of the developing world.

“The BRICS bank will be one of the major multilateral development finance institutions in this world,” Russian President Vladimir Putin said Tuesday.

The hotly anticipated announcement was seen as a watershed moment for a coalition that has struggled to prove it is anything more than an acronym with 20 percent of the global GDP and a shared distaste for the unipolar world order. Since its first summit in 2009, the group has struggled to institutionalize its otherwise incoherent grouping, which is often at loggerheads politically and is too geographically disparate for a security framework to be viable. It even has discordant views on how to manage trade, which has precluded a trade partnership from materializing.

Negotiations hit an impasse Tuesday and were nearly derailed as the two nations vying for supremacy within the bloc, India and China, pleaded their respective cases for hosting the bank’s headquarters. India apparently relented in return for the first five-year presidency of the bank, which should be up and lending by 2016.

Though at first the NDB will bankroll badly needed infrastructure projects in the BRICS nations, other countries will be permitted to buy in and apply for funding.

The impetus for launching a bank run by the emerging world was born amid the global financial crisis of 2008, when economic turmoil and imprudent financial planning by the U.S. and Europe sent shock waves through the less industrialized world. The West had lost credibility as the world’s financial manager, a role it has held undisputed since world leaders meeting in Bretton Woods, New Hampshire, set up the IMF and a predecessor to the World Bank in 1944.

At the same time, the U.S. Congress has refused to approve a draft deal that would restructure the Washington-based Bretton Woods institutions to boost voting power for China and other developing nations, which feel shut out even though they now contribute substantial funding.

“What the BRICS are doing is showing they’re going to play a greater role in the global financial system, one way or another,” said Peter Hakim, president emeritus of the Inter-American Dialogue, a think tank that focuses on Western Hemisphere affairs.

Despite the ambitious rhetoric of BRICS officials, their projects are not the first of their kind, nor will they compete with the 66 years of development experience under the World Bank’s belt or with the liquidity of the $755 billion IMF. Most economists describe the BRICS bank as complementary, rather than a rival, to the World Bank — in fact, the World Bank president himself has welcomed the BRICS’ venture as a means of filling the vast funding gaps in rapidly developing countries.

But the BRICS have also promised to do things differently, offering no-strings-attached loans that do not permit the lender to meddle in a country’s domestic affairs.

That lofty promise is a direct affront to the World Bank and IMF, whose “one size fits all” loan programs mandate unpopular austerity measures and budget cuts while encouraging rapid export production — a model that developing world economists say stunts a poor country’s domestic institutions, undermines its leadership and molds it into a commodities workshop for the West. Argentina, whose IMF-imposed budget cuts in the 1990s hastened the country toward default, is often held up as the poster child for Bretton Woods reform.

In contrast to the World Bank, the NDB will begin as an egalitarian venture among the BRICS, with each founding nation contributing $10 billion (before the bank’s value is doubled at some point) and holding equal voting power. Even though China’s economy is larger than that of the other four members combined, the country has agreed to hold an equal stake in the bank — a sticking point for India that has delayed an agreement for two years.

China will hold a larger stake only in the currency reserve, which is a sort of emergency fund, like the IMF, that is meant to protect BRICS nations from another global crisis.

“This could really be the seeds of the next Bretton Woods that in the long run replaces the international financial institutions,” said Kevin Gallagher, a director of the Global Economic Governance Initiative at Boston University. “And that would be the West’s fault, because they haven’t let those institutions adapt to the realities, needs and expertise of the 21st century.”…


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The biggest challenge for BRICS success? Big brother China

From  Reuters
July 15, 2014


In two years of tough negotiations to create the new BRICS development bank, the main stumbling block was not a lack of resources or commitment, but fellow partner China.

The Chinese initially wanted a bigger share of the bank that was formally launched on Tuesday by the leaders of the five BRICS countries in a direct challenge to the West’s tightly-held grip over global finances, officials involved in talks said.

In the end, Brazil and India prevailed in keeping capital participation equal among members, but fears linger that China, the world’s No. 2 economy, could try to assert greater influence over the $100 billion bank to expand its political clout abroad.

“It is inevitable that the Chinese will dominate the new bank,” said Riordan Roett, a political scientist at Johns Hopkins University. “The Chinese don’t get involved in these ventures unless they are going to have, not total control, but a significant amount of influence.”

Known for their striking differences in economics and politics, the BRICS face the challenge of containing China’s drive to control institutions that were supposed to give each partner an equal voice.

Internal discord became evident on Tuesday when the group struggled to overcome a last-minute stalemate in negotiations as China and India vied for the headquarters of the bank. To overcome the snag, Brazil withdrew its request for the bank’s first presidency in favor of India, a senior official involved in the discussions said.

The bank will be based in Shanghai, China’s business hub.

The objective of the bank is to break away from a model that gives little voting rights to emerging economies and perpetuates the dominance of the United States and Europe over the International Monetary Fund and World Bank.

“This is a big challenge for the BRICS. Sometimes when you get down to the actual negotiations and countries want more say, they forget about some of their lofty aspirations when they were criticizing the IMF and World Bank,” said Kevin Gallagher, professor of international relations at Boston University…


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Emerging Nations Bloc to Open Development Bank

From  The New York Times
July 15, 2014


RIO DE JANEIRO — At a meeting in Brazil, the leaders of Brazil, Russia, India, China and South Africa announced on Tuesday that they were establishing a development bank to challenge the influence of venerable institutions like the World Bank and the International Monetary Fund.

The New Development Bank, which will be based in Shanghai, will open with an initial capitalization of $50 billion. India will name the first president, according to a statement from the leaders of the so-called BRICS group of nations who have gathered in the northeastern city of Fortaleza, and Russia and Brazil will select other top officers.

The five-nation bloc also said it would create a $100 billion fund of currency reserves for members to use during balance of payments crises. Pointing to concerns that the United States Federal Reserve was stepping back in its aggressive efforts to stimulate the American economy, possibly opening the way for interest rate increases in the United States, Brazil’s president, Dilma Rousseff, said the fund could mitigate the volatility that could emerge from such shifts.

“This provides security, a kind of safety net for BRICS countries and others,” Ms. Rousseff said.

Taken together, the New Development Bank and the contingency fund reflect ambitions of forging a new global economic framework.

Nations like Brazil already have huge development banks that dwarf the World Bank in size. Still, leaders in emerging economic powers chafe at the policy prescriptions coming from the World Bank and the I.M.F., which emerged from the Bretton Woods monetary conference in New Hampshire 70 years ago.

While the United States has long wielded influence in the global economy through those institutions, China, which accounts for about 70 percent of the collective gross national product of the countries represented at Fortaleza, has tried to play down its staggering economic weight in the bloc. But that could change over time, analysts said, if animus grows over China’s trade surpluses with other members.

“There may be potential cracks in the facade of unity once China asserts its interests,” said Eric Farnsworth, vice president of the Council of the Americas and the Americas Society in the United States.

The BRICS countries face other challenges like slowing economic growth…

…“They still have just shy of half the world’s population,” said Kevin P. Gallagher, a professor of international relations at Boston University, emphasizing the influence the countries already have within organizations like I.M.F. and the World Trade Organization. “They are a force regardless of their growth rate, which will remain faster when averaged than the West’s for years to come.”


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Latin America has power to reshape relations with China – but will it use it?

From  The Christian Science Monitor
By Stephen Kurczy
July 14, 2014


FORTALEZA, BRAZIL — South American nations have a lot of issues to raise with China: questionable labor and environmental practices of Chinese firms in the Andes; unfair trade rules toward major exporters like Brazil; the region’s desire to evolve from a mere commodities supplier to an advanced manufacturing base.

So when Chinese President Xi Jinping makes his first visit to South America this week, he’s likely to face tough questions from hard-bargaining regional leaders, right?

Probably not, says Mauricio Mesquita Moreira, principal trade and integration economist for the Inter-American Development Bank.

“The focus will be more on unity. It will be more political theater than meaningful negotiations on important issues,” Mr. Moreira says.

While observers say that South America has the power to reshape the region’s relationship with China, leaders here are unlikely to address the difficult issues. Amid slowing economic growth in Brazil, the inability of Argentina and others to access international credit, and the desire of Peru and Andean nations to attract investment in infrastructure development, nobody wants to tamper with the Chinese lending spigot.

China deals with Latin America on a country by country basis, though analysts see top economy Brazil as a de facto trade leader for the region. A failure to address the status quo could mean a lost opportunity for Brazilian President Dilma Rousseff to be a key voice on top issues such as trade imbalances, labor rights, and environmental concerns related to Chinese investment across the region. While this is far from Africa, where Chinese companies are often accused of poor environmental practices and labor relations, Latin American leaders still face mounting pressure from civil society to demand higher standards and better trade terms from Beijing.

“The region doesn’t take enough advantage of having so many assets that the Chinese can’t get anywhere else – soy, iron, copper,” says Kevin Gallagher, professor of international relations at Boston University and author of numerous studies on Chinese investment in Latin America. “Latin America could punch above its weight a little more.”…


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China’s Xi begins 2nd trip to Latin America, in sign of expanding role

From  McClatchyDC
BY TIM JOHNSON, McClatchy Foreign Staff
July 14, 2014


MEXICO CITY — Chinese President Xi Jinping on Tuesday starts his second lengthy trip to Latin America in barely more than a year, showering attention on a region partially neglected by Washington and relishing China’s role as the biggest financier to Latin America.

Xi arrives in the Brazilian city of Fortaleza for the start of a two-day summit of the BRICS nations – Brazil, Russia, India, China and South Africa – then meets with regional leaders before heading to Argentina, Venezuela and Cuba.

Xi and a delegation of 150 Chinese bankers and industrialists will spend eight leisurely days in the hemisphere, a contrast to the often surgical-strike visits by President Barack Obama and Vice President Joe Biden.

If Latin American presidents are watching Xi’s trip with acute interest, it’s because of China’s huge role in providing loans around the hemisphere. By some accounts, China has provided more financing to Latin America in the past decade than the total of all loans by multilateral institutions such as the World Bank.

China’s trade with the region has skyrocketed. Trade volume between China and Latin America reached a record $261 billion last year, almost 21 times the figure in 2000, the China Daily newspaper noted over the weekend.

While Xi, who came to office in March 2013, will travel to only four countries, he’ll meet other Caribbean and Central and South American leaders, and will take strides toward giving China a greater role in a regional assembly.

“China is trying to become a leader within organizations that are not dominated by the U.S., and preferably which exclude the United States,” said Robert Daly, the director of the Kissinger Center on China and the United States at the Woodrow Wilson Center in Washington.

One of those groups is the Community of Latin America and Caribbean States, a bloc formed in 2011. Canada and the United States weren’t invited to join.

Xi will meet Thursday with the leaders of Brazil and four countries in the bloc – Costa Rica, Cuba, Ecuador, and St. Vincent and the Grenadines – and is poised to announce a forum of cooperation with foreign ministers of the 33 countries later this year in Beijing.

Jorge Heine, a veteran Chilean diplomat who’ll take up a post as ambassador to Beijing later this month, said China was moving quickly toward “dealing with Latin America on regional terms, not just on a bilateral basis.”

“It’s not just another routine visit,” Heine said. “It means a ratcheting up of links between Latin America and China.”

“The political message is quite interesting and strong,” added Gonzalo S. Paz, an Argentina expert on China-Latin America relations, who spoke with Heine and Daly on a conference telephone briefing organized by the Wilson Center.

Booming trade has made bilateral ties strong with nations such as Chile, Peru and Brazil, where China is the No. 1 trade partner based on its deep appetite for raw materials such as crude oil, iron ore, copper and soybeans.

“The China boom lifted the Latin American boat for a long time,” Kevin P. Gallagher, a specialist at Boston University on Latin America-China financial ties, said in a telephone interview.

“They’re all happy that they’ve got China, but the honeymoon stage is over,” Gallagher added. “They’re all running current account deficits with China now.”…


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New powers ready for the ‘Rio consensus’ era

From  IOL Business report
By Kevin Gallagher
July 14, 2014


Conveniently scheduled at the end of the World Cup, Brazil hosts the leaders of fellow Brics members Russia, India, China and South Africa in a meeting that presents them with a truly historic opportunity. While in Brazil, the five countries hope to establish a new development bank and reserve currency pool arrangement.

This action could hit a trifecta: recharge global economic governance and the prospects for development as well as put pressure on the World Bank and the International Monetary Fund (IMF) to get back on the right track.

The Bretton Woods institutions, headquartered in Washington, originally put financial stability, employment and development as their core missions, with good reason. That focus, however, was derailed in the last quarter of the 20th century.

During the 1980s and 1990s, the World Bank and the IMF pushed the Washington Consensus, which offered countries financing conditional on a doctrine of deregulation.

With the benefit of hindsight, the era of the Washington Consensus is seen as a painful one. It inflicted significant economic and political costs across the developing the world.

What is more, the operations of the World Bank and the IMF are perceived as rigged against emerging market and developing countries. The unwritten rule that the head of the IMF is always a European and the World Bank chief is to be an American is a superficial but no less grating public expression of that.

Worse is the fact that the voting structure of both institutions is skewed towards industrialised countries, and grants the US veto power.

It was not always that way…

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BRICS Fight Waning Clout With $150 Billion Deal at Summit

From  Bloomberg
By Raymond Colitt and Arnaldo Galvao
July 14, 2014


The leaders of five of the world’s largest emerging markets will showcase a new currency reserve fund and development bank this week. Critics say neither is enough to revive the group’s waning clout.

Brazil, Russia, India, China and South Africa, known as the BRICS, will approve the creation of the $100 billion reserve fund and $50 billion bank at a July 15-16 summit in Brazil’s coastal city of Fortaleza and the capital Brasilia, President Dilma Rousseff and other officials said last week. Negotiators are still trying to agree on shareholding in the bank, according to three Indian officials who requested not to be named because the talks were not public. India wants member stakes to be based on contributions not on economic weight.

The initiatives are born out of frustration with a lack of participation in global governance, particularly in the World Bank and International Monetary Fund, said Arvind Subramanian, senior fellow at the Peterson Institute for International Economics. The measures aren’t big enough to boost growth or cohesion in the group as foreign investor sentiment sours and member states focus on issues close to home, such as Brazil’s elections, the conflict in Ukraine and new economic policy plans in India.

“It’s hard to see a lot of impetus at this stage for the BRICS in general and for these initiatives in particular,” Subramanian said by telephone from Washington. “There’s going to be a lot of attention on domestic issues.”

Economic Growth

Economic growth in the five countries is projected to average 5.37 percent this year, half the pace seen seven years ago, according to the median estimate of economists surveyed by Bloomberg. Brazil and Russia will grow 1.3 percent and 0.5 percent, respectively.

Yuri Ushakov, Russian presidential aide on foreign policy, said in an interview that the group’s growth rate is still above that of the global average and that its economic and political weight is increasing.

The BRICS have evolved from the original term coined in 2001 by then-Goldman Sachs Group Inc. economist Jim O’Neill to describe the growing weight of the largest emerging markets in the global economy. In 2011, South Africa joined to give the BRICS a broader geographic representation. The group’s track record in pursuing a common agenda on the world stage has been mixed.

“It’s easier to say what the BRICS aren’t than what they are,” said Jose Alfredo Graca Lima, under-secretary for political affairs at the Brazilian Foreign Ministry.

Two Posts

The five countries failed to agree on a candidate to head the World Bank in 2012 and the International Monetary Fund in 2011, two posts at the heart of their demands for more say in global economic matters.

The summit is unlikely to provide a common front to push ahead global trade talks either, even though the World Trade Organization is headed by Brazilian Roberto Azevedo. Brazil itself has increased protectionist measures under Rousseff.

India and South Africa have signaled they may backtrack on a trade facilitation agreement reached at the WTO talks in Bali, Indonesia in December 2013, wrote Carlos Braga and Jean-Pierre Lehmann, professors at Lausanne, Switzerland-based IMD business school.

The joint communique by BRICS trade ministers today said member countries stood by the Bali agreement. Brazilian Trade Minister Mauro Borges said he understood India had certain concerns about its implementation.

‘Common Position’

“The meeting of the BRICS trade ministers did not intend to forge a common position on the ratification of the Bali agreement,” Borges told reporters today in Fortaleza.

Indian Prime Minister Narendra Modi is unlikely to rock the boat at the Brazil summit, said N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a government-backed research institute in New Delhi.

“Domestic issues are dominating his agenda, especially growth and inflation,” Bhanumurthy said.

Russia expects BRICS leaders to discuss international issues, including the situation in Ukraine, and speak out against “sanction pressure,” Ushakov told reporters July 10.

All BRICS members except for Russia abstained from a United Nations vote that called on states not to recognize Crimea’s autonomy from Ukraine. Rousseff met with Russia’s Vladimir Putin earlier today in Brasilia.

Financing Needs

The new development bank, which won’t impose policy requirements on borrowers, will help fill fast-growing infrastructure financing needs, said Kevin Gallagher, professor of international relations at Boston University. The BRICS can also use it to pressure developed countries, particularly the U.S., to advance stalled measures to make global financial institutions more equitable, he said.

“They can say, ‘look, we have an alternative,’” Gallagher said in a phone interview. “It gives you a lot of political leverage.”…


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