Mexico Norte: Futbol & Hispanicization of the USA

CONCACAF should be ashamed of itself. I think it was a f***ing disgrace that the entire post-match ceremony was in Spanish. You can bet your ass if we were in Mexico City it wouldn't be all in English - Team USA goalkeeper Tim Howard after losing to Mexico 4-2 in Los Angeles during the Gold Cup

Sour grapes, Howard? This assertion is untrue. Watch the footage. Yet I suppose I too would be miffed if I allowed my toughest rivals four unanswered goals. Race riots aside, something that really blows apart the myth of the United States as a melting pot is when the Mexican national football (soccer) team El Tricolor plays its United States counterpart on the latter's home soil. Team USA is booed and jeered lustily, often by US residents with roots south of the border. Where's the love of country? It's not an isolated incident as this phenomenon has been going on for years, posing an interesting sociological question of where Chicano loyalties lie. With Hispanics accounting for over half of US population growth, these dynamics invite further examination.

The CONCACAF Gold Cup is a biennial regional competition for top football bragging rights among countries in North America, Central America and the Caribbean. Whatever the tournament, though--friendlies, qualifiers, and whatever else have you--the oddly enduring sight of Team USA being booed on home soil remains when matched up against El Tricolor . And so it was for this year's Gold Cup finals matchup. Despite taking an early 2-0 lead, Team USA was eventually overcome by a Mexican side featuring the emerging star Chicharito (of Manchester United fame) at the Pasadena Rose Bowl, urged on by strong home away from home support. It was not a pretty scene for the gringos as most of the 93,420 attendees were for El Tri. From the LA Times:

It was imperfectly odd. It was strangely unsettling. It was uniquely American. On a balmy early Saturday summer evening, the U.S soccer team played for a prestigious championship in a U.S. stadium…and was smothered in boos. Its fans were vastly outnumbered. Its goalkeeper was bathed in a chanted obscenity.

Even its national anthem was filled with the blowing of air horns and bouncing of beach balls. Most of these hostile visitors didn't live in another country. Most, in fact, were not visitors at all, many of them being U.S. residents whose lives are here but whose sporting souls remain elsewhere. Welcome to another unveiling of that social portrait known as a U.S.-Mexico soccer match, streaked as always in deep colors of red, white, blue, green...and gray.

With loyal "Americans" like these, who needs furriners?

Even when the U.S. scored the first two goals, the Mexico cheers stayed strong, perhaps inspiring El Tri to four consecutive goals against a U.S. team that seemed dazed and confused. Then when it ended, and the Mexican players had danced across the center of the field in giddy wonder while the U.S. players had staggered to the sidelines in disillusionment, the madness continued.

Because nobody left. Rather amazingly, the Mexico fans kept bouncing and cheering under headbands and sombreros, nobody moving an inch, the giant Rose Bowl jammed for a postgame trophy ceremony for perhaps the first time in its history. And, yes, when the U.S. team was announced one final time, it was once again booed.

A long time ago, I tagged along with a Mexican-American friend to visit San Antonio from Houston (two increasingly Hispanicized cities themselves). Despite subsequently serving for the US military and one of those nefarious private security contractors besides in Iraq--the very definition of an ugly American to many--I will never forget his narrative explanation of a key event in US history. While diehard gringos know the battle cry of "Remember the Alamo" by heart, he simply said "We kicked their ass" without a trace of irony.

There are certainly reasons you can point to as to why this undercurrent of Chicano resentment keeps bubbling to the surface. Certainly, sporting events can be venues where latent discontent is manifested. Latinos are often discriminated against as "illegals" even if they are not. Discriminatory legislation is often bandied about as a result. There's also the fact that those of Mexican descent have had a more difficult time economically than others in this supposed melting pot.

Likely, many Latin Americans believe that they moved to "America" due to economic necessity and not out of any great abiding loyalty to a country presumptuous enough to name itself after two vast continents. With the US economy increasingly down in the dumps, this instrumental justification grows more specious. As the land of opportunity becomes more of a curse, expect even more overt displays of anti-American sentiment from this increasingly large yet often marginalized group. Yes, Team USA versus Mexico in the US of A with the former getting booed may portend similar dynamics on a larger scale.

Some parting thoughts:

• Football (soccer) as a popular sport in the US is still a faraway dream despite considerable grassroots participation judging from indifference to Team USA in "international" competition;
• Mexican-Americans have seriously divided loyalties;
  
• A supposed reason for the sport's prospects in the United States is its growing Hispanic population. But, if much of this population more or less throws the finger at the home team and cheers on Mexico, well, you can figure that one out;
• To remedy these unedifying spectacles, apparently clueless organizers Stateside should try to hold these competitions in states like Maine--the most homogeneous state with a 95% white population. New Jersey won't quite do. While the crowd is almost certain to be smaller, holding these events in border states is just asking for it;
• "Founding Fathers"-style national myths need reconsideration in this day and age given that Anglos will be the minority in not that many years.

I can certainly sympathize. It's pretty bad to hear "Yankee Go Home!" all over the world to come home and find that, gee, you're not welcome there either. What this phenomenon bodes for the United States is certainly an interesting question. Strangers in your own land--some melting pot, eh, muchachos?

The Pinko Path: On Peru Joining Latin Left's Ranks

It's somewhat odd that the whitebread commentariat hasn't made more of this event, especially since it's happening in their own backyard. While dependencia theory of Latin American countries becoming pliant and fertile grounds for Western exploitation may have gone out of fashion in academic circles, the same does not necessarily hold with Latin American leadership struggles. In the run-up to the seventies when dependencia theory was in full bloom, you had the likes of Jacobo Arbenz in Guatemala and Salvador Allende in Chile whose political fates were--how do I put this--eased along by American intervention. Curiously enough, when leftist ideologies were supposed to have gone out of style, we have seen in the past few years the emergence of several new figures on the Latin left. The questions remain the same as ever: should we promote local industry or welcome foreign extractive concerns? Is there a way to reconcile both objectives to promote development? The faces may change but the essential issues remain the same.

Sure, the brothers Castro had their share of (short-lived) ideological peers over the intervening years. However, it is only in more recent decades that we have witnessed the rise of Hugo Chavez in Venezuela, Evo Morales in Bolivia, Daniel Ortega in Nicaragua, and Rafael Correa in Ecuador. (Prior to Fernando Henrique Cardoso becoming president of Brazil, he was one of the foremost dependencia authors, but turned out to be rather neoliberal upon assuming office.) And so it is that in this alleged twilight time for the Latin left that we have another potentially joining its ranks with the recent election victory of Ollanta Humala in Peru, stock-in-trade socialist firebrand rhetoric in hand.

Without a doubt, certain parts of the Andean business community are running scared as markets have reacted quite negatively:

Shock waves from leftist Ollanta Humala's victory in Peru's Sunday presidential election rattled stock markets and corporate suites around Latin America, as investors girded for the possibility of sweeping changes in one of the region's star economies. Peruvian stocks fell a record 12.5% on fears over increased government intervention in the economy after Mr. Humala's defeat of conservative Keiko Fujimori on Sunday [daughter of controversial former President Alberto Fujimori]. Nervousness also roiled shares of companies throughout the region with Peruvian investments, such as Grupo Mexico, a huge copper producer, and LAN Airlines, a Chilean based regional air carrier...

One of Mr. Humala's economic advisers, Kurt Burneo, tried to reassure markets that Mr. Humala wouldn't spoil an economic formula that has produced 12 consecutive years of growth. "I totally reject that a fiscal binge could happen," Mr. Burneo told Peruvian radio. He said Mr. Humala would be committed to maintaining growth and investment in order to fund his plans for greater social spending. "One point of growth of output generates an increase of 1.2% in tax revenue, thus it's key to continue growing, " Mr. Burneo said.

Mr. Burneo, a former vice minister of the economy in the centrist government of former President Alejandro Toledo who is well-liked by investors, underlines the questions surrounding Mr. Humala's government. Mr. Burneo joined Mr. Humala's campaign in the runoff race after Mr. Toledo was eliminated in the first round of voting, and it is unclear whether he represents Mr. Humala's current philosophy.

Analysts say there is often dissonance between the more moderate advisers who joined Mr. Humala after the first round and the more left-leaning ones who began with him. In a television interview Sunday, Felix Jimenez, a left-leaning economist who is part of the original Humala team, was still defending the interventionist 197-page governing proposal by Mr. Humala that spooked investors during the first voting round. That plan was replaced with a more mainstream five-page plan in the runoff.

So many years after, it's back to debating dependencia:

The Peru election is reviving an ideological debate that had seemed to be settled in Latin America between the largely market-oriented economies of Peru, Brazil, Chile and Uruguay ,and the more populist ones of Venezuela, Ecuador, Nicaragua and Bolivia. The latter seemed on the decline in recent years, beset by faltering economies and growing domestic political headaches, while the former grew more strongly and consistently. In 2005 to 2010, per capita gross income in Peru rose 82%, to about $5,200. Peru has roughly halved the poverty rate to just above 30% over the past decade.

But Mr. Humala's win is prompting some soul searching about the flaws in Peru's economic model, governing institutions and political elite. Analysts said Mr. Humala capitalized on the persistence of rural poverty, the broad distrust Peruvians feel towards traditional politicians and institutions and divisions within the centrist political establishment that kept it from settling on a single candidate to oppose Mr. Humala, who lost a prior presidential bid.

It was, to be sure, something of a surprise to Peruvian elites and observers of the country's political scene:

"For some observers, the idea of an Humala victory in 2011 was inconceivable," said Maxwell Cameron, a political scientist at University of British Columbia. "If he lost in 2006, surely he would win even fewer votes in 2011 after another five years of growth. However, he added, "It was precisely this overconfidence that led the center-right to fail to unify behind a single candidate with broad appeal." Moreover, "After five years of growth, prosperity remained unequally distributed and heavily concentrated in the coast and major cities..."

A paper written a few years ago by Julio Carrion, a political scientist at the University of Delaware, sums up the paradox in Peru between high growth and widespread public dissatisfaction. The title: "It isn't the Economy, Stupid. Economic Growth Does Not Reduce Political Discontent in Peru."

Poverty and inequality were accountable for part of the problem, he wrote, but not all of it. Another issue, he wrote, is Peruvians lack of faith in government and public officials. In a survey last year by Latinobarometro of Chile, Peruvians ranked the lowest of 19 nations in the region in their confidence, in Congress, political parties, and the courts. About one-fifth of the members of Peru's Congress have been caught up in scandals, by the count of a local newspaper...

Mr. Humala, a former military officer, cast himself as the anti-politician. He emerged in the public eye in 2000 when he led 60 troops in an uprising against Alberto Fujimori in an isolated mining town. The act was largely symbolic, but it catapulted Mr. Humala into prominence. Moving forward, [political consultant Hugo] Santa Maria told a conference call of investors that economic growth for the second half of 2011 could decline to 4% to 4.5% from around 7% due to investors' caution over Mr. Humala. "A slowing down of private investment...will slow down the economy," he said.

So, a previous Latin American high-flyer is in danger of stalling. Mining giants operating in the country are already thinking twice, for instance. Will Humala be a Lula de Silva (a former activist turned pro-investment figurehead; they apparently have lots of them in Brazil) or a Hugo Chavez (an erstwhile mentor of his)? It was not so long ago that Lula was regarded with healthy suspicion, yet he turned out to be quite progressive in trying to reconcile social activism with welcoming enterprise. Commentators suggest Humala has learned from his 2006 run when his Chavistic stylings scared off many voters, and that he now intends to be more Lula-like. (The stock market rebounded Tuesday.) His appointments for central bank governor and finance minister represent early opportunities to assuage fears.

Yet, it again begs the question about the foundational stability of rapid but unequal growth in LDCs. So many times you see trickle-down failing to do its thing despite reasonably healthy growth rates. It's certainly something for libertarians and their ilk to ponder.

But with all that comes a blessing of sorts: a side benefit of the Cold War ending is that Washington no longer sees the need to pull the strings in its backyard in fear of Soviets gaining a foothold in Latin America. Despite the appearance of various regimes casting a baleful eye towards Washington--we want to be self-sufficient, go away American imperialists, etc--the old will to meddle in this part of the world is not what it once was.

UPDATE: Markets are being further assuaged by credit rating agencies stating no downgrade is imminent, but geez, isn't it too soon to comment after such recent elections?

Divided We Fall: Mexican Agustin Carstens' IMF Bid

[NOTE: I highly recommend reading Agustin Carstens' manifesto for an LDC IMF head before moving on.] Although you may occasionally get the feeling that I'd happily back boxing legend Julio Cesar Chavez as the next IMF managing director, let's just say I am more a fan of third world solidarity than most of the rest. Following up on my previous post about a lack of LDC unity on the matter--aside from rhetoric (only) pointing toward consideration of an LDC IMF chief, we have a really sad case on our hands here.

As I trod through the lonely road of lost causes, let me just say that Banco de Mexico Governor Agustin Carstens would have been my choice for the post among declared candidates in the running to be the next IMF managing director. He certainly has the qualifications as a former IMF deputy managing director. As Mexico's central bank governor, he too has overseen the transformation of an economy that, in previous decades, suffered from chronic balance of payments crises. Nowadays, foreign investment is flooding into the country as the peso--that former symbol of chronic devaluation--is becoming positively muscular.

So what's the problem? Well again, there's next to no backing from other LDCs. Uruguay aside [?!], nobody has indicated support for Carstens despite him going on a roadshow to garner support:

Mexican central bank Governor Agustin Carstens, nominated to lead the International Monetary Fund, criticized European nations for publicly backing French Finance Minister Christine Lagarde before all the candidates are known. “I find it strange that they are advocating in some forums for an open, transparent, merit-based candidate and they have made up their minds before the candidates are on the table,” Carstens, 52, said in an interview today in Sao Paulo. “All the other countries are playing by the book.”

Carstens, who has won a single public endorsement abroad, from Uruguay, said he expects emerging markets to support his candidacy once there is a final list of nominees to serve as the IMF’s next managing director. He met with his counterpart from Brazil today before traveling to Buenos Aires in a bid to rally support among developing countries for his candidacy.

Still, there is hope that while he isn't yet a name to rival Christine Lagarde among the central banker / finmin crowd, he is building name recognition so that he will be the front-runner when Lagarde or whomever European candidate gets the nod steps down.

While Carstens’ campaign is unlikely to succeed, his strong credentials as a former IMF deputy managing director are impossible to overlook and may advance his bigger goal of giving emerging markets more say in how the world economy is run, Guillermo Le Fort, a former IMF economist from Chile, said in a telephone interview. “Carstens is making a principled stand,” Le Fort, who was also a director on the IMF’s board for Chile and five South American nations from 2000 to 2004, said. “If he’s successful in advancing the cause of emerging markets, the Europeans might feel red in the face and decide to hold more honest, open elections based on merit in the future.”

Any of the IMF’s 187 member nations has until June 10 to nominate candidates for the managing director’s position, the fund said in a May 20 statement. The IMF executive board, which will select a managing director by June 30, is aiming for consensus rather than a majority vote, according to the fund.

And as the title says, divided we fall, although Carstens may be wily in thinking longer term:

Emerging economies that advocate a merit-based selection process appear unlikely to break Europe’s hold on the top job because so far they have been unable to rally around a single candidate, Arturo Porzecanski, a professor of international economics at American University in Washington, said. “The likes of Brazil, Russia, China, India will not support one another -- never mind Mexico,” he said in a telephone interview June 1. “Emerging countries are not being supportive.”

Carstens’ trip is similar to that of a political campaign designed to gain support in emerging countries for his bid, Morris Goldstein, senior fellow at the Peterson Institute for International Economics in Washington, said in a May 31 telephone interview. Carstens’ meeting today in Sao Paulo with central bank President Alexandre Tombini followed a meeting yesterday in Brasilia with finance chief Mantega. He’ll be traveling to Ottawa after Buenos Aires to promote his candidacy.

Brazilian officials and Carstens share the view that IMF needs to continue to reform and give developing markets more representation, the Mexican official said. “What is clear is that we have very similar views on the challenges and the solutions that need to take place in the institution,” said Carstens about his meeting with Tombini.

Carstens could be building his reputation for a successful future run if his bid for the IMF top job fails this year, Kevin Gallagher, associate professor of international relations at Boston University, said in a telephone interview June 1. “He’s trying to carve out a space for emerging markets and let people know who he is,” Gallagher said. “He’s all of a sudden become a household name in this community. Maybe five years from now the world will think that maybe it will be Carstens’ turn.”

To be sure, Carstens’ campaign isn’t necessarily doomed, according to Goldstein, who was an IMF official for 24 years. “It’s a matter of whether he can get support first of all in the rest of the emerging market world,” he said. “If he were able to unite the emerging markets, he would have a real chance.”

It's put up or shut up time. Unfortunately, it seems LDCs are squandering a perfectly good opportunity with a more than viable candidate to break the US-Europe stranglehold on Bretton Woods institutions. It's a shame--a real shame.

More Research on Remittances from the US

Despite its obviously more limited prospects for international workers at the current time, the United States remains the world's largest source of workers' remittances--especially to nearby Latin America. It is thus with no small interest that I've been flipping through this new Congressional Budget Office report Migrants' Remittances and Related Economic Flows. For those of you interested in migration in general or are into area studies, this should be worth a look.

What follows is the summary, though the rest is well worth reading if the subject matter catches your fancy:

Migrants to the United States often send money to people in their home country or take it with them when they return home. Those transfers can involve sending money through banks or other institutions to family members or others in the home country, making financial investments in the home country, or returning to the home country while retaining bank accounts or claims on other financial assets in the United States. All three types of actions are similar in their economic effects, even though only transfers of money through banks and other financial institutions to foreign individuals are commonly thought of as migrants' remittances.

As one of the most important destinations of global migration, the United States is the largest national source of remittances. The opportunity to send or bring remittances home is one of the important motivations for migration, and policies that affect migration to the United States could affect outflows of remittances. In turn, the flow of remittances can affect economic growth, labor markets, poverty rates, and future migration rates in the United States as well as in recipient countries.

This document updates and expands upon the Congressional Budget Office's previous analysis of remittances—Remittances: International Payments by Migrants (May 2005)—and presents data through 2009. The new presentation provides a better view of people's total transfers of money between the United States and other countries but, because of changes in the way the data are collected and reported, does not provide as much information as was previously available on the portion of those transfers that is attributable to migrants. (See "Notes and Definitions" at the beginning of the full document for a summary of terminology and the appendix for a discussion of recent changes in the classification of remittances.) The existing data on global remittances and related economic flows are not of very high quality, and the comparisons and trends reported here should be viewed only as approximations.

A constant theme among reports of this kind is that "data on migration and remittances are patchy." You would hope that nations can get together and figure out better ways to track movements of persons and their monies as globalization continues apace.

Trouble Among BRICs: Brazil v PRC Imports, Pt 2

Here's another angle on the incipient troubles of one major emerging economy dealing with imports from another in the traditional domain of more labour-intensive manufacturing. A few weeks ago, I dubbed the importation of cheap Chinese garments in Brazil--land of the famously skimpy swimwear--the "bikini wars" in honour of China's previous entanglement with the EU known as the "bra wars."

As it turns out, the story is a bit more complex. In an odd rerun of the so-called "Wal-Mart effect" wherein Chinese imports by the leviathan US retailer are attributed to keeping inflation in check Stateside over the past few decades, we have similar dynamics in Brazil at present. As commodity prices spiral upwards, affecting food, energy, and so forth, Brazilian authorities have been of two minds about Chinese imports. On one hand, Brazilian retailers and certain other firms keep on lowering manufacturing input costs are welcoming the influx of Chinese goods to keep costs down. For instance, Casas Bahia is an important retailer of furnishings and housewares in Brazil that has pioneered selling on an instalment basis to less well-off segments who would otherwise be unable to purchase these goods given that consumer credit is scarcely available to them. However, it is raising more than one eyebrow in that, alike Wal-Mart, most of its goods come from China.

On the other hand, Brazilian finished goods manufacturers are crying foul over the usual things--cheap Chinese labour, an undervalued currency, etc:

Cheap imports from Asia help to reduce the price of household goods but they are also accused of undermining domestic manufacturers. The government is being forced to choose between local industry and protecting the poor from inflation. “Imports have a deflationary impact; they act as a brake on rising prices,” said Hugo Bethlem, vice-president of Pão de Açúcar, Brazil’s biggest retailer.

Fuelled by rapid credit growth in the lead-up to last year’s presidential election, Brazil’s economy expanded 7.5 per cent in 2010. The government is forecasting that it will grow about 4.5 per cent this year, but the slowdown has not been enough to reduce the overheating in the economy.

Economists expect inflation to breach the central bank’s target level this month and to peak in August at about 7 per cent. Meanwhile, the central bank has responded by raising interest rates – it was expected to increase the benchmark Selic rate of 11.75 per cent late on Wednesday by another 25-50 basis points.

But Brazil’s interest rates are already the highest of any large economy. Further increases are only attracting more hot money inflows from abroad, worsening what Brazil calls the “currency war”, the steady appreciation of its currency, the real, against the US dollar. In recent weeks, the real has appreciated from a level of about R$1.65 against the dollar to between R$1.55 and R$1.60.

To augment the interest rates increases, the government is implementing capital controls that seek to dampen consumer credit growth – one of the sources of overheating in the economy. It is also introducing taxes that aim to discourage companies from borrowing dollars abroad at low interest rates and then repatriating the proceeds to Brazil, a trend that is strengthening the real.

It's now little wonder why Brazil has been most critical of the BRICs on IMF efforts to prescribe guidelines on capital controls...when their own folks are inundating them with speculative inflows! The speculative element of (presumably unhedged) foreign borrowing is interesting. The Asian financial crisis famously exposed Southeast Asian borrowers who thought going abroad to borrow in yen and other low-interest rate currencies was a smart thing--until their currencies faced massive devaluation, that is. Now we have nearly the opposite situation: the real is more likely than not to appreciate given the tightening bias at home while the US remains a money-for-nothing enthusiast. Certainly, few are betting that the US will do better than Brazil in the near future. End result? Not only is it possible to save on interest expense, but also gain on anticipated BRY (Brazilian real) appreciation.

It looks like a one-way bet a the moment, increasing the local currency's strength in the process, as more and more take it. There's no easy way out for Brazilian officials, and I am not quite sure if Beijing will be sympathetic to Brazilian financial authorities despite both pretty much agreeing on the harmfulness of American free-money policies.

How to manage China? Well, slapping tariffs is being tried:

In the meantime, [Brazil] is trying to protect domestic manufacturers from the stronger real, which is leading to a flood of cheap imports, by raising tariffs, particularly on Chinese goods. Only a few days before [Brazilian President Dilma] Rousseff left on a five-day trip to China this month, Brazil slapped an anti-dumping tariff of $4.1 per kilogramme on Chinese-made synthetic fibres, in response to growing pressure from domestic industry lobby groups.

Make no mistake: in global currency war, it's not just rich versus poor countries, but poor versus poor countries as well (inter alia). It's not just a matter of LDCs appreciating their currencies vis-a-vis those of industrialized nations as some commentators believe it is--see and hear Martin Wolf at the LSE on this point--but of LDCs moving in lockstep to avoid South-South entanglements of this nature in the process. A Hobbesian currency war of all against all, then? That's how it stacks up for now as America has completely lost its bearings and its ability to stabilize the system.

Rumour: Carlos Slim, Rupert Murdoch Want F1

Ah, Bernie Ecclestone. The F1 impresario was mugged late last year outside his tony office in Knightsbridge, about twenty minutes from where I live. However, if the rumour proves to be correct--which I kind of doubt--he may now be falling into the clutches not of street thugs but of two of the world's wealthiest persons who are allegedly keen on the pinnacle of motorsports. Which, to be honest, is not quite an achievement given that probably its biggest competition is American NASCAR--a race series proudly featuring antique technologies alike carburettors {?!] Seen any production cars running on those recently? Like America itself, its racing series is a thing of the past.

So it's the silly season as financial news dries up this Holy Week. The latest rumour has it that Mexican multibillionaire Carlos Slim--the world's richest man and whose worth is currently pegged at an astronomical $74 billion--is teaming up with media mogul Rupert Murdoch (who isn't even on the Forbes Top 100 Rich List this year) to make an unsolicited bid for the commercial rights for Formula One. Call it a Latin habit: Just as Hugo Chavez has involved state enterprises in sponsoring Williams' Venezuelan driver Pastor Maldonaldo, Slim is sponsoring Sauber's Mexican driver Sergio Perez. (The above picture is of Sergio Perez and Carlos Slim Jr):

Formula One Chief Executive Officer Bernie Ecclestone said there are no plans to sell the car racing competition to media company News Corp. (NWSA) or Mexican billionaire Carlos Slim. News Corp., owner of cable-television channels including Speed, may make a bid with partners for motor racing’s most popular series, a person familiar with the matter said yesterday. Sky News, which is controlled by News Corp., reported the company had talked to Slim.

Formula One owner CVC Capital Partners Ltd., a London-based private equity company, recorded losses of $660 million last year on costs associated with a $2.5 billion loan the firm took out to pay for the 2005 acquisition of Formula One, according to accounts published for its Delta (3) U.K. Ltd. unit on April 6.

Despite private equity firms not exactly being known as long-term investors, Ecclestone pooh-poohs the alleged bid:

“CVC are not in the slightest bit interested in selling,” Ecclestone said in a telephone interview today. “A lot of people approach them but they are there for the long term.” Ecclestone helped set up the series, which hosts Grand Prix races from Monaco to Abu Dhabi. The sport has attracted wealthy team owners like U.K.-based billionaire Richard Branson and Indian liquor magnate Vijay Mallya. Car companies like Fiat SpA’s Ferrari group, Renault SA and Daimler AG’s Mercedes compete for the constructors’ championship.

Ecclestone, 80, has become a billionaire since setting up the sport. He said he knows Slim and News Corp. chairman Rupert Murdoch. “If they were interested for sure they would have called me and they haven’t,” he said. Yesterday, Julie Henderson, a spokeswoman for News Corp., declined to comment, as did Arturo Elias, a spokesman for Slim...

Ecclestone said that though CVC is committed to owning the series, he couldn’t rule out a sale if an “enormous” bid was tabled. “If someone was to come along with an enormous offer,a lot more than it were worth, then they have to look at it,” he said. “They have never talked about selling, though.”

Given the nasty walling-off habits of his enterprises--exclusive cable channels and pay-per-view on Sky on one hand and newspaper online paywalls (Wall Street Journal, Times of London, and even the tabloid News of the World) on the other--Murdoch has an uphill struggle if he thinks he can "privatize" the sport's viewer access. For, the infamously complex Concorde Agreement between Bernie Ecclestone's firm and the FIA stipulates that free-to-air is one of the preconditions for its maintenance. Free-to-air obviously maximizes the viewer audience of F1's sponsors, hence its commercial importance. In other words, Slim and Murdoch would have to rewrite the commercial agreement behind the sport even if the agreement is up for renegotiation soon:

One obstacle to a deal with News Corp, the co-owners of Sky, could be the existence in the Concorde Agreement of a clause specifying that transmission of the races must be available on free-to-air terrestrial television, a stipulation supported by major sponsors. That could be a subject for discussion in any redrafting of the next agreement, which has already been drawn up and is due to be signed in 2012. But Formula One already splits its television deals in Austria and Germany, where Sky share the rights with ORF and RTL, each of them transmitting the qualifying sessions and races simultaneously.

If there's one thing for sure, though, it's that the man who's run the show for years on and while growing the business tremendously will be richly rewarded whatever the outcome is since he knows the ins and outs of the business he has built:

Despite his advanced age, however, Ecclestone will be playing a long game, giving himself plenty of room for manoeuvre. His recent criticisms of Todt and of the new technical regulations scheduled for 2013 will be part of that game. Murdoch and Slim may well get whatever it is they are after. But, deal or no deal, Formula One's ringmaster will not be the loser.

And yes, this is a story of globalization pure and simple as a race series spanning several prosperous (or increasingly prosperous) countries is being fought over by a wizened Englishman against a purported combination of a wealthy Latin American seeking to join forces with the most recognizable media titan--an Australian--of our age. Heck, Ecclestone may decide to sell at the top given signs of declining attendance and potential troubles over connivance with authoritarian regimes alike that of Bahrain. Sometimes the smartest know when to just walk away.

UPDATE: To pile one rumour atop another, it's said that the Slim/Murdoch bid would need to gain approval from each of the 12 teams (in addition to the above proviso of broadcasting free-to-air wherever possible).

The Hugo Chavez - Formula One Connection

It seems colourful regimes and Formula One go hand in hand given that the latter is already populated with several colourful characters. From S&M fetishists to crash artists, F1 has all the shenanigans going on. Given that it is one of if not the world's most-watched sport depending on who you're listening to, there's also the allure of a vast global audience. While watching the qualifying session for tomorrow's Shanghai Grand Prix, my early morning daze failed to dim my awareness of one of Williams' sponsors: PDVSA. That, of course, is the national energy company of Venezuela and a vehicle for various Hugo Chavez pet projects. Remember when Hugo Chavez made the PDVSA-owned CITGO chain in the US sell discounted heating oil to poor American citizens to show up el diablo Jorge Bush?

Just as Fernando Alonso brought Spain's Santander Abbey from McLaren to his current team Ferrari, drivers tend to bring their national sponsors with them for obvious reasons as the home audiences tune in to watch their compatriots. And so it is with Williams F1's new driver, Pastor Maldonaldo, the reigning GP2 champion. Our man Pastor's website is swathed with Venezuelan flag colours, while nearly all his sponsors are affiliated with the Venezuelan government. As a vehicle for jingoism, sports has few peers, and so PDVSA signed a long-term contract with Williams F1 worth $14M at the start of the year:

Williams has followed up its signing of driver Pastor Maldonado with a long-term sponsorship deal with Venezuela's state-owned oil company PDVSA. Venezuelan driver Maldonado took the GP2 title last term and will drive alongside veteran Brazilian Rubens Barrichello in 2011. And the cars will carry the livery of the world's fifth largest oil exporter.

The country's president Hugo Chavez announced the deal in Caracas and team owner Frank Williams feels it will make a huge difference to their competitiveness following the loss of a number of sponsors at the end of the 2010 season. "They are a substantial partner and can make a meaningful difference to our fighting ability," Williams said in a statement.

PDVSA's head of corporate affairs Julio Gonzalez added: "Pastor will fly our flag this year and carry the hopes of an entire country in this new chapter of his career." Williams finished sixth behind the dominant Red Bull outfit in last year's Constructors' Championship.

Although it has fallen on hard times in recent years without a major engine supplier, Williams is a storied name in F1. It has won 9 constructors and 7 drivers titles. It is also a paragon of British motorsport, with Sir Frank Williams obviously having been knighted. Certainly, there is political risk being involved with an outfit like PDVSA that may result in reputational damage.

In particular, I am thinking of another storied British institution that decided to accept funding from another oil-rich country with a chequered past. For Williams' sake, I hope it won't become another LSE-Libya episode. Meanwhile, the Guardian has a wryly amusing take on Hugo's newfound fondness for bourgeois recreational activities alike motor racing:

Chávez has embarked on a little revisionism, recognising the importance of sport to his nation's economy and the value of having Venezuela represented on the global sporting stage. This year the state-owned oil company PDVSA will put $14m (£9m) into the Williams Formula One team, which will this season have the Venezuelan Pastor Maldonado as one of its drivers – a decision that led to Chávez being accused of hypocrisy (capitalism surely has no greater sporting expression) and misusing his patronage (Maldonado is an avowed supporter of the president).

Last, I found it curious that the description of PDVSA on the Williams website states "Between 2004 and 2010, PDVSA contributed $61.4 billion to social development projects across the country." I'd settle for exchanging this sort of braggadocio for rising not falling Venezuelan petroleum production and not sending away auditors to hide this fact.

Adios Panama Canal: PRC's Colombia Railway Plan

It's been a longstanding ambition of many a would-be-conquistador that may finally come true. For, here's an interesting bit of realpolitik that you may have missed of the early Chinese bird catching the Latin American worm. Among Latin American countries, Colombia is regarded as having among the best ties with the United States in recent times. Aside from the Bush-Uribe conservative rapport of years gone by, the two countries also have an FTA-in-waiting.

Yet, we also know that there's a new sheriff in the world economy spreading its largesse far and wide while attempting to win friends and influence people--the PRC. As Washington's megadeficits plunge the US into an infinite abyss, the loaded Chinese are using their coffers runneth over to this end. As it turns out, even the Colombians are hedging their bets. After all, it doesn't take a genius to figure out that it's probably better to catch a rising star than to be dragged down by one that's fading fast.

In this article, mooted plans to build a railway running across Panama to the Pacific stem from a number of things: First, it could well be an easier overland route for commodities to get to the Pacific, from which they journey on to China. Panama remains in the PRC's doghouse [woof-woof] for continuing to recognize the Republic of China or Taiwan as "China," and this diplomatic tussle has marred their trade relations. Second, the wily Colombians are said to be annoyed with American delays in passing the aforementioned FTA, and think pressure can be applied by appearing to side closer with the PRC. Third, on the Chinese side this time, I personally think it would be a huge blow to American prestige if a landmark infrastructure project were to be completed in the United States' backyard by the PRC. Then again, given the pathetic state of modern America, it has little choice but to sit back and watch those that can show those that can't. From TIME:

...Bogotá and Beijing are in talks to build a multi-billion-dollar railway connecting Colombia's Caribbean and Pacific coasts. Said [Colombian President Juan Manuel] Santos, in a poke at U.S. superpower self-esteem, "Asia is the new motor of the world economy..."

In the past 10 years, annual Latin American exports to China have gone from negligible to more than $40 billion as the Asian giant reaches for commodities like oil, copper and soy beans to fuel its roaring economic growth (10% last year). China is now the top purchaser of exports from Brazil and Chile; and according to the U.N.'s Economic Commission on Latin America & the Caribbean (ECLAC), within five years it should replace the European Union as Latin America's second-largest trading partner after the U.S. In the process, Beijing is lavishing billions of dollars in financing on the region, from hydro-electric projects in Ecuador to development funds in Argentina.

And now, perhaps, a major railway in Colombia to compete with the nearby Panama Canal as an Atlantic-to-Pacific shipping shortcut. Chinese officials confirmed this week that their country has agreed to invest in the $7.6 billion project, which would stretch about 140 miles (220 km) from Colombia's northern Caribbean region, near Cartagena, to an as-yet undesignated site on its western Pacific coast, mainly to ferry Colombia's abundant coal to Asia.

What's less certain, however, is whether a trans-Colombian railway would really be more efficient than using the Panama Canal — especially since that shipping lane is undergoing a $5.25 billion expansion to accommodate more massive cargo ships. (Relations between China and Panama are also cool due to Panama's strong ties with Taiwan.) Ever since the canal was completed in 1914, rail, particularly across southern Nicaragua, has been discussed as an alternative...

Still, both Colombia and China seem to think it's worth the risk. China sees the country "as a good strategic opportunity," says [Inter-American Dialogue President Michael] Shifter, "a good location for conveying a lot of South American commodities but also a place with more sophisticated governance today." The rail partnership is also a pragmatic move for Bogotá, he says...

Many Colombia watchers believe a key impetus for Santos is to make Washington nervous about China's growing involvement with the U.S.'s top South American ally, in the hopes of getting Congress to expedite the free-trade agreement (FTA). But analysts like Shifter doubt that's a consideration, since the Colombians are well aware that the FTA is being held up mostly because of opposition from U.S. labor unions (based partly on concerns about human rights for Colombian workers). Either way, recently leaked U.S. cables, based on conversations with Colombian diplomats, help explain why Colombia, despite its realization that China is out to exploit its natural resources, is building the partnership. "Colombia is wary of Chinese motives," says a March 2009 message from the U.S. embassy in Beijing, released last month by WikiLeaks. "However, Colombia needs new economic partners, particularly given the lack of progress on a U.S.-Colombia [FTA]."

And particularly because Colombia wants to fuel its own boom. Its economy is expected to grow 5% or more this year and next; the World Bank now rates it the 39th best nation to do business with, up from 76th place just five years ago, and Santos has pledged to put it in the top 20 by 2014. He wants its coal production to increase 70% by then, to 124 million tons a year; its oil output by 75%, to 1.4 million barrels per day; and its value-added products to jump from 29% of total exports to 40%.

It's looking to China to help it get there in large part because the Harvard-educated Santos is said to be especially impressed with Beijing's commitment to getting things done. In other words, the can-do spirit Latin America used to expect from the U.S. — the kind that built the Panama Canal.

That'll show those Yanks up, indeed. It also begs the question, will the ongoing Panama Canal enlargement to accommodate larger vessels pay off if the Chinese decide to route their business elsewhere? The answer is likely yes because it's large oil tankers that'd more easily pass through, but still, it demonstrates how the world has moved on.

Brazil-PRC Trade: Bikini Wars & Beyond

A few days ago, I featured Brazilian Finance Minister Guido Mantega citing China for its unfair trade practices. Today, we feature a rather racy application of this complaint. While the affinity of the Chinese people for intimates is certainly beyond my realm of expertise (even if can vouch that Western-style billboards featuring underwear models are common in Chinese megalopolises), you can be sure that Chinese garment manufacturers love making them for the rest of the world. Only a few years back when Peter Mandelson was exiled to Brussels and served as the EU trade commissioner, he famously prosecuted the "bra wars" that involved invoking safeguard clauses under the terms of China's WTO accession as the multifibre agreement (MFA) was being phased out in 2005 and Europe was being inundated with intimates from the PRC.

Fast-forward to today and it appears our Chinese friends are once again involved in a trade row over their knickers--this time with fellow BRICs nation Brazil. There are two sides to this story that portray the economic relationship differently. On one hand, Brazilian commodity exporters are glad to have the Chinese market fuelling demand for their wares. On the other hand, Chinese imports are proving to be a tough challenge for domestic competition--especially in garments. Brazil is famous for coming up with all sorts of variations on--how should I describe 'em--slinky swimwear. However, inventing or popularizing something is no guarantee of continuing dominance. Think of the British in cricket, football, golf, tennis, etc.

And so it has come to pass that Brazil's bikini industry is up in arms against Chinese competition. I can hear it coming: Unfair trade! Undervalued currency! Slave wages! Like others have found, it's no picnic being in direct export competition with the mighty Chinese manufacturing machine. Let's begin with the happier side of this relationship with jet-setting Brazilian billionaire Eike Batista, purportedly the world's eighth richest person, riding the crest of a massive eastbound commodity wave. From Auntie:

Indeed, the real purpose of our helicopter trip was to view Eike Batista's latest project, a vast superport north of Rio, built with this customer in mind. The centrepiece of the complex is a two-mile-long pier jutting straight out into the South Atlantic, which has been dubbed "the highway to China". Mr Batista's companies control enormous reserves of iron ore and oil - commodities the Chinese economy desperately needs.

In fact, Chinese demand for the raw materials Brazil has in abundance has pushed prices to record highs and, as a result, Mr Batista's business - and the Brazilian economy - is booming. Eike is confident the boom will continue and that Chinese demand will help power him yet further up the world wealth rankings.

"I told Carlos Slim," he recalled with a grin - referring to the world's richest man, the Mexican telecommunications tycoon - "clean your rear-view mirror on the right hand side and clean your rear-view mirror on your left hand side because I don't know which side I will be overtaking you."

But then we get to the domestic bikini industry:

But, down on the beaches below Mr Batista's office [down at the Copa for you Barry Manilow fans], the fit doesn't seem quite so perfect. There are few products as emblematic of Brazil as the bikini but Brazil's bikini industry is in trouble, fighting off stiff competition from - you guessed it - China...

Then, three years ago, the Chinese entered the market. Within 12 months the export business that [Brazilian bikini designer] Ieura had been building up had disappeared completely. "My biggest competitors used to be other Brazilian companies," Ieura said ruefully, "now it is the Chinese."

And it is not just the bikini industry that is suffering. A recent study found that more than 80% of Brazil's manufactured exports are being adversely affected by competition from China. That is a real danger to the Brazilian economy because mining and commodities are not very labour intensive. The bulk of the Brazilian workforce is employed in manufacturing industries. The problem is that, natural resources aside, Brazil has a similar competitive advantage to China - cheap unskilled labour. As a result, the two countries tend to compete in similar sectors and, just as in most other economies around the world, China tends to win.

Even on Copacobana beach, the thong [sic] remains the same in the trade realm, it seems. Mayhaps it's a sexed-up version of the commodity curse.

UPDATE: See this (surprisingly informative and unbiased) USDA feature for a brief description of the multifibre agreement mentioned in the context of the "bra wars."

Castronomics, From Fidel to Li'l Brother Raul

What must this island nation do to work around the long-running US embargo against it? First came the foreign exchange-bringing tourists. Then came the Venezuelan doctors-for-oil deal. Vile consumerist filth like DVD players and cell phones came along shortly thereafter. Let's just say that since assuming leadership from his quite ill brother, erstwhile "Maximum Leader" Fidel, Raul Castro has set about dismantling Soviet-style central planning. Oh, the irony. To keep the revolution going, you must soft-pedal its more socialist elements.

Anyway, the good news as far as Cuba is concerned is that its trade surplus reportedly doubled in 2010 as Raul moves to consolidate the process of reforms he set into motion:

Cuba racked up a $3.9 billion trade surplus last year as President Raul Castro's efforts to cut imports and earn more abroad bore fruit for a second consecutive year, the government's statistics office reported on Friday. The surplus was nearly twice the $2 billion reported in 2009 -- good news for Cuba but only a first step toward getting its debt-ridden economy out of the woods.

The country has been struggling with severe financial problems since 2008, when hurricanes, the international financial crisis and internal inefficiencies left it without funds to pay its bills. The National Statistics Office reported on its web page, www.one.cu, that exports increased 12.9 percent to $13.6 billion in 2010, led by the selling of services at $9.4 billion. Imports fell 3.3 percent to $9 billion.

Higher prices for Cuba's main exports -- nickel, petroleum derivatives and medical and other technical services -- likely accounted for most of the increase, while revenues from tourism and communications were also reportedly up.

Some 75 percent of Cuban exports come from services such as tourism, communications and the export of doctors and other professionals to oil-rich countries such as Venezuela, Angola, Algeria and Qatar, which pay for the services on a sliding scale linked to oil prices. Prices for oil increased significantly in 2010, as they did for Cuban exports nickel and sugar.

Meanwhile, Raul the reformer is still at it. Heck, if retaining government employees that can't be paid for is a measure of socialism, then many parts of the United States are more communistic than Cuba circa early 2011:

Raul Castro has hammered away at the need for Cuba to get its economic house in order and pay its bills since taking over as president from his brother Fidel in 2008. The country's growing debt and service payments are a key reason for Castro's push to overhaul Cuba's Soviet-style economy, according to government insiders.

The reforms, to be discussed at a Communist Party congress in April, include drastic budget cuts and layoffs and ending most state subsidies. They also would grant state-run companies more autonomy and encourage more small private businesses, foreign investment, cooperatives and other "non-state" forms of running enterprises.

The revolution will continue...if fuelled with foreign exchange, that is.

Brazil FinMin: From Currency War to Trade War

If nothing else, you gotta love this guy for his military-industrial complex of sorts where economic misunderstandings forever threaten to take us to the brink of all-out conflict. A few months ago, Brazilian Finance Minister Guido Mantega had the international press corps by the ear after his statement that the world was engaged in "international currency war." Perhaps tired of that phrase and desiring attention once again, he's now moved on from that shtick in proclaiming that we are on the brink of outright "trade war." Being more of an equal opportunity complainer this time around, Mantega now identifies not just the US but also China as being currency manipulators. I'm somewhat surprised that he would so vocally single out another important emerging economy, but hey, maybe things are really becoming dire in Brazil when it now runs a current account deficit with the United States, of all countries:

“This is a currency war that is turning into a trade war,” Mr Mantega said in his first exclusive interview since Dilma Rousseff, Brazil’s new president, took office on January 1. His comments follow interventions in currency markets by Brazil, Chile and Peru last week and recent sharp rises in the Australian dollar, the Swiss franc and other currencies amid an exodus of investment from the sluggish economies of the US and Europe...

Mr Mantega, [Brazil's] finance minister since 2006, coined the term “currency war” in September before launching controls on foreign portfolio investments in Brazil aimed at stemming an increase of 39 per cent in the real against the dollar over the past two years. He said that most of Brazil’s measures last year were directed at the spot market but the focus had switched to the futures markets, which he said were now behind the upward pressure on the currency.

On Thursday, Brazil’s central bank launched a surprise measure to curb short selling of the dollar against the real by onshore banks. “You can expect more measures on the futures market,” he said.

He said currency manipulation would be on the G20 agenda this year. Brazil would also lobby to have the WTO define exchange-rate manipulation as a form of veiled export subsidy. Any attempt to change WTO rules to incorporate exchange rates would be difficult, however, as China could be expected to veto it, analysts said.

Mr Mantega said that Brazil’s trade with the US had slipped from an annual surplus of about $15bn (£9.6bn) in Brazil’s favour to a deficit of $6bn since the US began trying to reflate its economy through loose monetary policy. He said China’s undervalued currency was also distorting world trade. “We have excellent trade relations with China ... But there are some problems ... Of course we would like to see a revaluation of the renminbi.”

If not necessarily approving of them, you have to acknowledge the thoroughness of Brazil's countermeasures to keep the real low--intervening in spot and forward markets; making its voice heard at the G20 and WTO, etc. they're playing for keeps and have gone beyond what most other countries have done despite their similar bellyaching.

So how would Brazil line up if the United States were to pursue the inclusion of undervalued exchange rates as an actionable subsidy at the WTO? Do Brazil's loyalties lie with the US, China, or mostly just with itself? That would be interesting to watch. Latin melodrama--don't leave home without it.

WikiLeaks: Shell 'Infiltrates' Nigeria, Hugo Bossed

I can hardly believe that this is my third post on WikiLeaks. After cataloguing typical American double-speak on "Internet freedom" (whatever that is) and suggesting that WikiLeaks move to Montenegro if survival is its goal, we now have two interesting entries.

First, I have in the past featured the highly controversial activities of Royal Dutch Shell in Nigeria. To say that its activities in the Niger Delta and relationship with the Ogoni tribe are controversial is to put things mildly. Now we have these cables in which American officials claim that a Shell executive boasted of infiltrating the Nigerian government. From WikiLeaks' media partner The Guardian:

The oil giant Shell claimed it had inserted staff into all the main ministries of the Nigerian government, giving it access to politicians' every move in the oil-rich Niger Delta, according to a leaked US diplomatic cable.

The company's top executive in Nigeria told US diplomats that Shell had seconded employees to every relevant department and so knew "everything that was being done in those ministries". She boasted that the Nigerian government had "forgotten" about the extent of Shell's infiltration and was unaware of how much the company knew about its deliberations.

The cache of secret dispatches from Washington's embassies in Africa also revealed that the Anglo-Dutch oil firm swapped intelligence with the US, in one case providing US diplomats with the names of Nigerian politicians it suspected of supporting militant activity, and requesting information from the US on whether the militants had acquired anti-aircraft missiles.

There's another story that caught my eye. I have never been much of a fan of Venezuela's so-called Bolivarian Revolution insofar as it has done rather worse by its people in the aftermath of expropriating several Western oil companies. If you kick the foreigners out, I'd be a heck of a lot more impressed if you could at least sustain output at pre-nationalization levels. Let's just say Hugo Chavez hasn't achieved this feat. Talk about ideology trumping reality. Worse, for lack of technical expertise, it's said that he's asking same Western companies he kicked out to come back on terms more favourable to them. Not very impressive; Simon Bolivar probably wouldn't approve:

Venezuela's tottering economy is forcing Hugo Chávez to make deals with foreign corporations to save his socialist revolution from going broke. The Venezuelan president has courted European, American and Asian companies in behind-the-scenes negotiations that highlight a severe financial crunch in his government. Venezuela's state-owned oil company, PDVSA, is the engine of the economy but buckled when given an ultimatum by its Italian counterpart and has scrambled to attract foreign partners, according to confidential US embassy cables released by WikiLeaks.

The memos depict an unfolding economic fiasco and suggest some of Chávez's key allies – Argentina, Brazil and Cuba – are gravely concerned at Venezuela's direction. "President Chávez, for his part, is acutely aware of the impact the country's general economic trajectory has had on his popularity," says one cable...

However, in separate private conversations with the [American] ambassador, Patrick Duddy, industry figures detailed the parlous state of the industry. A senior manager from Chevron estimated the state oil company's output at 2.1m to 2.3m barrels per day, well below official declarations of 3.3m.

And then there's the humiliation of Hugo as he calls back the conquistadores:

Italy's ambassador to Caracas, Luigi Maccotta, told his US counterpart that [national] Italian oil company ENI squeezed PDVSA over an Orinoco belt deal in January this year knowing it had no one else to turn to. The Italians delayed the signing by two days to reinforce the Venezuelan government's "need for ENI". Paolo Scaroni, the company's CEO, then faced down Venezuela's oil minister, Rafael Ramirez, over changes to terms and conditions.

"Thirty minutes before the ceremony was supposed to begin Scaroni told Ramirez: 'Take it or leave it, I can get on my plane and move on.' Ramirez apparently used that half an hour to convince President Chávez to accept all of ENI's proposed changes or risk losing the deal," according to the US cable. The Italians said they would not pay PDVSA a standard signing bonus because the company already owed them $1bn.

Colour me unimpressed, Hugo.

Those Poor Brazilian Victims of Currency War

Having coined the endearing term "international currency war," Brazilian Finance Minister Guido Mantega and his erstwhile superiors are now complaining about the (largely anticipated) $600 billion greenback aerial bombardment the Fed will soon mount with extreme prejudice. With the Brazilian real up nearly 40 percent since early 2009, the country's industries are running into serious headwinds in export markets and are understandably keen on the government doing something about it. While Brazil has slapped taxes on foreigners buying local bonds, it hasn't done a heck of a lot to curb inflows. So, President Lula and President-Elect Rousseff are jetting of to the G20 to protest pretty soon. Oh my, what hath the Americans done?

Brazil, the country that fired the gun on the so-called “currency wars”, is girding itself for further battle. Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.

“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.” At a joint press conference with president-elect Dilma Rousseff, outgoing president Luiz Inácio Lula da Silva said on Wednesday he would travel to the G20 summit in Seoul with Ms Rousseff, ready to take “all the necessary measures to not allow our currency to become overvalued” and to “fight for Brazil’s interests”. “They’ll have to face two of us this time!” he said.

Ms Rousseff added: “The last time there was a series of competitive devaluations[,] it ended in world war two.” Brazil has been an early casualty in the currency wars, as the real has risen by 39 per cent against the dollar since the start of 2009, prompting fears it will hollow out Brazil’s industrial base by making manufactured exports uncompetitive. Data released on Thursday showed September industrial output was 2 per cent lower than in March. “Brazilian industry is well and truly stuck in a rut, due in part to the recent strength of the real,” Capital Economics, a London-based research firm, said in a note to clients on Thursday.

“[The Fed’s decision] is cause for concern. These are policies that impoverish those around them and end up prompting retaliatory measures,” Brazil’s foreign trade secretary, Welber Barral, said separately.

With local benchmark interest rates at 10.75 per cent – the G20’s highest after stripping out 5 per cent inflation – international capital has flooded into Brazil. To curb that, the country has imposed a 6 per cent tax on bond inflows, but with limited effect so far. Emerging market fund managers say the tax, paid on point of entry, has had some impact on short-term bond investors – but not on long bonds held to maturity which, after netting off the tax, still provide a yield of about 11 per cent. “That’s higher than you can get anywhere else, especially for an investment- grade credit,” said Kieran Curtis, emerging markets fund manager at Aviva investors, which has £1.3bn under management.

Economists agree that one reason why Brazilian interest rates are so high is loose fiscal policy. Federal government spending has grown by 18 per cent this year. Ms Rousseff has pledged to trim government spending, although there are doubts that she will be able to push through cuts.

International currency war? Competitive devaluations leading to World War II? Let's just say the boys and girls from Brazil have a major military-industrial complex going on. Yo Guido Mantega, fire your guns!

Chile, From Rescuing Miners to Rescuing the US$

This week, the Chilean President Sebastian Pinera Echenique did his victory lap here at the LSE after the successful and heartwarming rescue of the stranded miners. Again, do bear with me as I wasn't able to attend that event since LSE IDEAS' own Niall Ferguson was presenting at the same time. However, you can of course listen to President Pinera's presentation via video and podcast which you can follow through the link above.

And speaking of Chile, we turn to the more nitty-gritty, nasty business of protecting oneself from serial dollar bombardment from the US. Almost exactly a month ago, I discussed the many different countries keen on keeping the value of their currency reasonable howsoever defined by--how do I phrase this--actively participating in the currency markets. With undimmed prospects for American-led international currency war, even the in recent years passive Chile is keen on putting the brakes on the US-led jihad on fiscal sanity. Simply put, a mighty Chilean peso is not on the cards for them. Fancy that; all sorts of pesos are becoming hot property throughout Latin America after it being a term of abuse for permanently devaluing currencies during the seventies through the nineties:

Chile may take new measures as soon as this week to control its sharply appreciating currency, which has tested the Andean country's hands-off approach to markets as it aims to become a regional financial hub. Countries from Thailand to Peru have taken steps to curb their strengthening currencies as investors chase high interest rates provided by fast-growing emerging economies.

Chile Finance Minister Felipe Larrain warned, "We may have something to say this week" as the country studies "alternatives" for controlling the peso. The peso has strengthened more than 12 percent against the dollar since the end of June. But the country has held off so far on buying dollars in the local foreign exchange market, like Colombia, or raising taxes on foreign investment in local assets, as Brazil has done twice since the beginning of October.

As its peso hovers around 485 per U.S. dollar, near 28-month highs, here are some of Chile's options: One likely approach would be to offset incoming investment with increased capital outflows. President Sebastian Pinera, a billionaire businessman, said this week in London that he is not planning capital controls, and he would like to stem the peso's appreciation by encouraging more Chilean investment abroad.

Last month Peru raised the amount of assets that pension funds can hold overseas in an effort to increase dollar demand and lessen the pressure placed on its currency by capital inflows.

Actively purchasing US dollars, imposing capital controls, promoting outward portfolio investment, raising taxes on FDI...the list of potential countermeasures goes on and on. After rescuing miners, Chile finds itself in the odd position of, well, saving the US dollar.

UPDATE: Can streamlining customs procedures for exporters help offset a stronger peso? It's one measure you can try, but still...

Vile Capitalists Invade Cuba...With Microfinance

[NOTE: Inspired by the story in question, what follows is my finest World Socialist Website impression at the moment. See what you make of it.] Friends, comrades, lend me your ears. The imperialists are once more attempting to take over the island of Cuba with their financial chicanery. Their latest attempt involves subjugating our free peoples via the evil machinations of "microfinance." Sure, they like to portray it as some sort of grassroots movement by the proletariat, but no, it's a full-blown assault planned and orchestrated by the global rentier class. Having sucked the life out of the rest of the developing world and even turned inward to destroy some of its workings in the imperialist's metropoles, its sights are now set on Cuba. The spinners of capitalist propaganda at Reuters have the details. It's as if the conquistadors never left...

Some European countries are quietly working to bring hard-currency loans to Cuban farmers, an idea the communist-led government has traditionally resisted but now looks ready to accept to help its economic reforms. A small flow of Spanish money for credits in Cuba is set to start up in 2011 and there are hopes it can grow as Cuba modernizes its state-dominated socialist economy.

The first loans will be financed by Spain's Agency for International Development Cooperation, which next year will donate 490,000 euros ($680,000) for agriculture, a priority for the cash-strapped Caribbean state dependent on food imports. "We are trying to help create a financial instrument currently nonexistent in Cuba to provide the agriculture sector with credit in hard currency," said Juan Diego Ruiz, local coordinator of the Spanish government aid agency.

Cuban officials have for long been wary of "microcredits" -- first developed in the 1980s to provide financial services to the poor in Bangladesh -- because they worry the small loans to groups of individuals could undermine the country's socialist principles, especially if coming from abroad.

But Western diplomats say Cuba's government now appears ready to give such financing a try, even though it does not want to talk openly about "microcredits". Hard currency loans would allow groups of Cuban farmers, who lease land from the state, to buy the imported supplies, ranging from irrigation systems to seeds, they badly need to increase production, Ruiz said.

Cuban President Raul Castro has made a series of reforms aimed at boosting agricultural output and he unveiled plans last month to lay off 500,000 state workers in the next six months. The government says many of those being laid off will be allowed to enter the private sector in the boldest reform since Castro succeeded his older brother Fidel Castro in 2008.

Those changes have made Cuba more appealing for European policymakers and Ruiz said the hard currency small loans "could eventually become an instrument linked to the ongoing process of economic adjustments." Spain has offered 4 million euros ($5.5 million) to finance potential future loans for microcredit in Cuba under very favorable terms that take into account the island's current acute liquidity shortage.

The 27-nation European Union also has been discussing providing up to 2 million euros ($2.8 million) for credit. "The European Commission is willing to accompany or facilitate the process of economic reforms at the request of the Cuban government," said the EU representative in Cuba, Javier Nino-Perez...

Western diplomats say Cuba's resistance to microcredits in the past seems to have eased following sharp economic shocks in recent years. The island was battered by three hurricanes in 2008, which did an estimated $10 billion in damage and dragged down the already struggling economy. The global financial crisis that followed delivered another blow.

Traditionally, the government blames the long U.S. trade embargo against Cuba for most of its financial woes. When last month's ground-breaking labor reforms were announced, state media said the central bank was studying the idea of offering credits to small private enterprise, but specifics were not spelled out.

Because of the political sensitivities, diplomats said the loans will not go directly from foreign providers to individuals. Instead, the initial Spanish funds will be channeled through the state-owned Bank of Credit and Commerce to groups of farmers leasing land from the state.

But Cuba would have to allow microcredit recipients to open bank accounts in hard currency. Cuba does not belong to multilateral financial institutions such as the International Monetary Fund or World Bank, so its success in microfinancing will depend on credits from friendly nations.

"The main challenge is scale. Microfinances only work when there is sufficient scale to have an impact, and in order to reach that, external financing is critical," said Sergio Navajas, an expert with the Inter-American Development Bank in Washington. Experts say Cuba appears headed down a path taken by its communist ally Vietnam, which has developed a market socialism often seen as a model for Raul Castro's current reforms. Microfinances played a key role in the Vietnamese economic transformation. "At first, Vietnamese authorities were also cautious," a Western diplomat in Cuba said.

My goodness...doi moi for the hoi polloi! First came DVD players. Then came cell phones. Pretty soon the remaining sanctity of Cuban labour will be further encroached by these lecherous usurers. They've softened us up real good with various crises endemic to capitalism. With our resistance crumbling, they now want to turn us into "market socialists"--code words for imperial corporate takeover. If Comrade Fidel were in good health, he'd have none of these bourgeois affectations. But alas, the revolution limps along meekly.

Tired of Austerity? Gas Your Leader (in Ecuador)

Here's another nifty IPE-related article I found just on the front page of Yahoo! It seems that enforcing austerity is difficult all over the world. Here in Europe, there were demonstrations across the continent yesterday over axes falling over and over on the public sector as plotted by EU bigwigs. In Latin America, however, public sector workers have come up with an ingenious strategy to (literally) Stick It to the Man.

A few months back, I wrote about the leftist stylings of Ecuador's President Rafael Correa. However, some on the Ecuadorean police force have apparently not taken kindly to imminent reductions in their pension plans. Where art thou workers of the world uniting and so forth? From the Associated Press comes this remarkable story of the gendarmes beating the stuffing out of Correa:

Hundreds of police angry over a law that would cut their benefits plunged this small South American nation into chaos Thursday, roughing up and tear-gassing the president, shutting down airports and blocking highways in a nationwide strike. Incensed officers shoved President Rafael Correa around, pelted him with water and doused him in tear gas when he tried to speak at a police barracks in the capital. Hours later, surrounded by rebel cops in a hospital, Correa declared himself "practically captive." Correa, 47, was hospitalized after being nearly asphyxiated by the tear gas.

The government declared a state of siege, putting the military in charge of public order, suspending civil liberties and allowing soldiers to carry out searches without a warrant. The insurgent police took over police barracks in Quito, Guayaquil and other cities. Some set up roadblocks of burning tires, cutting off highway access to the capital.

This police-led disturbance is being called a coup by some, though others are more reluctant to do so. Meanwhile, Colombia and Peru have locked down borders in sympathy for Correa. Colombia doing so is remarkable given its right-leaning government:

Colombian President Juan Manuel Santos said on Thursday Bogota was closing the border with neighboring Ecuador where unrest erupted over austerity measures. "I spoke with (Peru's president) and the two countries decided to close the borders with Ecuador as a political sign of solidarity with President Correa and with Ecuador's democracy," Santos told reporters before getting on a flight for a regional meeting in Argentina on Ecuador's unrest.

Now that's what I call real "militant labour." Say what you will, but it certainly looks like a novel manoeuvre to catch the attention of deficit cutters. With law enforcers like these, who needs criminals?

UPDATE: It looks like the military is at least still loyal to Correa as they helped liberate their beleaguered leader:

Ecuadorean soldiers stormed a hospital early today and rescued Rafael Correa from mutinous police who had besieged the president and plunged the country into anarchy. Army units blazed their way into the hospital with automatic gunfire and stun grenades in a battle which left at least two dead, dozens injured and enabled Correa's swift and triumphant return to the presidential palace.

The leftist leader, emotional and euphoric, addressed crowds of cheering supporters from the balcony. "What loyalty, what support," he shouted to loud applause. "This will serve as an example for those who want to stop the revolution not through the ballot box but with weapons..."

The protests were triggered by a law passed by Congress on Wednesday that would end the practice of giving medals and bonuses with each promotion, part of Correa's effort to save costs and slim bureaucracy.

Coming from another country with a long history of these sorts of stunts, I must say it's amazing how vulnerable many states are to such petulance. It only takes a few to seriously threaten any number of governments with existential crises. I feel like having a banana right about now.

Brazil FinMin Declares 'International Currency War'

I enjoy hyperbole as much as the next guy, but this one's got to be top of the pops for 2010 as far as verbal jabs are concerned. Although Brazilian authorities curiously threatened to use their new sovereign wealth fund to buy dollars sometime ago, they haven't done so (yet). And, while the central bank has waded in to buy dollars on a fairly regular basis these past few weeks, the article excerpted below notes this buying is in anticipation of the imminent floatation of Petrobras stock that's attracting many foreign investors. Still, the relatively higher yield of the real is drawing in the punters and causing headaches for export-minded authorities:

An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness. [Really? That's a surprise.] Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.

“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies...

The US dollar has fallen by about 25 per cent against the Brazilian real since the beginning of last year, making the real one of the strongest performing currencies in the world, according to Bloomberg. In spite of Mr Mantega’s recent aggressive public statements, however, Brazil has so far held back from taking any action other than intervening in the local currency spot market.

The central bank bought as much as $1bn a day for much of the past two weeks – about 10 times its daily average in recent months – but this was largely to absorb money entering the country to take part in last week’s $67bn share issue by Petrobras, the national oil company. [In other words, that's sterilization to us to mop up excess local liquidity.] “There’s a real gap between the rhetoric and the action,” said Tony Volpon, head of emerging market research for the Americas at Nomura Securities in New York.

Of course, we all must trace where the impetus to intervene stems from for so many. If the US insists on near-zero interest rate policy and refuses to withdraw extraordinarily accommodative measures like trying to refloat the housing market singlehandedly, it certainly cannot fault others on currency manipulation. Before pointing the finger at what everyone else is doing, America should for once look in the mirror and see itself as the rest of us do. Make no mistake: Sammy is the biggest manipulator there is--the rest's efforts pale by comparison.