Archive for March 8th, 2011

March 8, 2011

US shooting wife commits suicide – Lahore, Pakistan

News source: Huffington Post

The USA’s special relationship with Pakistan is under increasing strain as Shumaila Kanwal, the Pakistani wife of a Pakistani man shot and killed by  U.S. official, Raymond Davis, committed suicide by eating rat poison Sunday.  Before she died she told doctors that her actions were precipitated by fears that the American would go free unpunished for what he did.

The U.S. is demanding that as Mr. Davis has diplomatic immunity (unspecified), the Pakistani authorities must release him.  Mr. Davis is claiming that he had acted in self-defence when he shot and killed two armed Pakistani men when they tried to rob him in Lahore in late January this year.  He was arrested after the incident and has been detained since them.

Since the shooting, anti-American feeling has reached record levels in Pakistan as coupled with the USA’s campaign of drone missile attacks in the northwest border with Afganistan which have killed many civilians and now the suicide of one of shot men’s wife who died a few hours after being hospitalised, there are fears that things could escalate beyond control.

The Pakistani government is keen to resolve things as it needs the billions of dollars in aid given to it by the U.S. government for its co-operation in the ‘war on terror’.  However, it is getting increasingly unpopular as it seen as a puppet of the U.S. government and now there are problems in how to proceed to fix matters so that a ‘win-win’ situation can be achieved for all.

What are your views? Let us know..

March 8, 2011

Russia is St. Lucia’s newest best friend

So it seems, as from yesterday, Russia became the Caribbean island of St. Lucia‘s newest best friend. Why, you might be asking? Well, this seems to be a case of love of the purest sort as the countries have signed a ‘Protocol of Intention‘ whereby Russia has agreed to ‘open its doors’ to St. Lucians and the delighted islanders can now expect science and technology scholarships at Russian universities and other such gifts.

As reported by Caribbean 360, the island’s Minister of External Affairs, International Trade and Investment, Rufus Bousquet said: “This protocol of intention allows us to move in the multilateral arena and to hold discussions in terms of improving our bilateral relations…of course it also includes a clause which allows us to put high level experts to hold discussions on matters of mutual interest…..We understand that Russia has a very strong academic record in the areas of engineering and I am sure that there will be many St Lucians who would like to take advantage of that expertise”.

Caribbean 360 reports that Russia’s Ambassador designate to St Lucia, Victor Zotin, had responded: “I hope very much that the other steps will follow this document and we shall develop a relationship between our two states.  We are interested in developing all round relations with your country: education, investments and tourism which is very important for your country. I hope very much that more and more Russians will come to your beautiful island of St Lucia”. He also said that Russia will co-operate in initiatives to increase tourist visitors from Russia to the island.

Russia and St. Lucia has entered into diplomatic relations in 1979 after the island declared its independence from Britain. Saint Lucia is an independent island on the eastern side of the Caribbean Sea boundering the Atlantic Ocean.[3] It is near the other Caribbean islands of St. Vincent, Barbados, Martinique and Dominica.  It is around 238 square miles wide and has a population of around 174,000.  It is a former British colony. It’s main industry is tourism and over 1 million tourists visit it each year, most of them American.

[Caribbean Affairs Contributor]

March 8, 2011

Article: How financial melt-down in Eastern and Central Europe will domino-effect the west

[Dr. Edward Lestrade, Finance & Economy Contributor]

This article was written in 2009 as “The Financial Crisis in Central & Eastern Europe and Implications for Western Economies” and originally published in European Newsletter 4/2009 (Thomson Reuters) and SSRN.  It shows how western economies can be dominoed if the financial crisis currently obtaining in the region of eastern and central Europe brings about economy collapses in the region.

Emerging Economies and emerging risks

In the early 1990’s following the decline of the Soviet Union and the advent of the independence of the countries formerly occupied by it, west European banks keenly bought out, or into the relatively cheap  major  banks  in  the  majority  of  the  newly-independent  countries.  Furthermore,  the  cut  in interest rates in the USA post-2002, had effectively raised interest rates world-wide to record low levels creating an easy-credit scenario and attendant higher risk lending in foreign currencies.

Following from all that, in the period between 2002 and 2007, western banks, especially Austrian, Swiss  and  Swedish  banks,  made  unprecedented  loans  to  banks  in  eastern  and  central  Europe  in anticipation  of  capturing  the  potentially  lucrative  markets  opening  up  in  the  region  and  took advantage of the low international interest rates prevailing at the time. However, the risk aspects of those  deals  are  now  emerging  with  a  vengeance  as  the  global  economic  downturn  bites  further forcing western banks to pull back and refuse to renew loans, or ‘rollover’ credits and thus leaving many borrowers in the region of Central and Eastern Europe with unpayable loan debts.  Apart from Austrian banks, other western banks at risk in eastern and central Europe include leading banks in Belgium (KCB), Italy (Intesa Sanpaolo) and Sweden (SEB and Swedbank).

In  the case  of  Hungary,  Swiss  and Austrian  banks  had  promoted  home  mortgage  loans  in Swiss currency  where  interest  rates  were  significantly  lower.  The  only  risk  for  borrowers  then  was  the event of the devaluation of the Hungarian currency which would force the house owner borrowers to repay something like double the monthly amount of their repayments in Swiss Francs.

Unfortunately, for Hungary and some other countries in the region, in 2008 to early 2009, that risk did emerge when the  Hungarian currency significantly  lowered against the Swiss  franc. This  had been  mainly  due  to  the  situation  over  the  past  18  months  where  western  banks  and  funds  had significantly reduced their business investments in eastern countries so as to revert capital to parent banks in the west which had been hard hit by the US financial institutions’ collapses. In respect to Poland, where more than 60% of the country’s mortgages are in Swiss francs and with the Polish zloty dropping recently to more than 50% against the Swiss franc, the  country is  now facing the same position as Hungary in exposure terms.

According to Neil Shearing of ‘Capital Economics’, a leading economics research consultancy, Austrian and Swedish banks are most exposed to the ‘high risk’ countries in emerging Europe which include: Hungary, Ukraine, Romania, Latvia, Lithuania, and Estonia. He explained that whilst the ongoing structural reforms to the financial regulatory systems in these countries made it difficult to assess the true extent of the west’s exposure, it was clear that it would take only one western bank in the region running into difficulty to create a serious system risk to the west’s banking systems.

This view was echoed by the Austrian newspaper, Der Standard, which commented that a failure rate of only 10% in the banking systems in eastern and central Europe would lead to a collapse of the entire Austrian financial sector. In that context, especially depressing is the estimation from the European Bank for Reconstruction and Development (EBRD) which assesses that bad debts in the region may well go up to 10% and could even reach 20%.

According to the Morgan Stanley investment bank, eastern and central Europe has borrowed more than USD1.7 trillion mainly from west European banks. Much of the borrowing is in the form of short-term  lending  indicating  repayment  over  one  year.    Effectively,  in  2009,  eastern  and  central European  countries  are  due  to  repay,  or  procure  to  be  rolled-over,  around  USD400  billion amounting to some 33% of the region’s total GDP.

However, in the current economic climate where western European banks are becoming less willing and in  some cases, refusing to roll-over  loans to eastern and central European banks and thereby effectively shutting down credit avenues for the region, loan repayments to western European banks have  become  seriously  problematic  for  the  region.    This  problem  has  contributed  to  the  steep decline of the region’s financial health which in turn is impacting more and more negatively the financial systems of western Europe.

Impact on western European banking system and economies

According to Danske Bank of Denmark the economies in the region of central and eastern Europe are on the verge of collapse with Ukraine, in particular, being on the brink of sovereign default. As such, it said, policy makers all over Europe must continue to call for immediate action to stop the problem affecting the Eurozone. However, it would seem that the problem is already affecting the Eurozone as in February 2009, credit agencies, such as Moody’s, reported that west European banks with eastern and central European subsidiaries were likely to be downgraded due to their exposure in the precarious current situation of the region’s banking system which has been brought about by the financial crisis in the west. The Moody’s report specifically referred to banks in Eastern Europe owned by western European banks and included banks such as: Raiffeisen Zentralbank Oesterreich and Sweden’s Swedbank. This public warning by Moody’s is serving to more, or less force western banks with subsidiaries in eastern Europe to severely restrict lending conditions in the region at a time when exactly the reverse is needed to keep economic growth from folding totally and thereby setting off a chain reaction of lending defaults in the west.

The  credit  rating  agency’s  reports  have  underlined  the  vulnerability  of  western  European  banks operating in eastern and central Europe, particularly those based in Austria and Sweden. According to the ratings agencies, generally, banks headquartered in Austria, Italy, France, Belgium, Germany and Sweden comprise around 85% of the total western European bank claims on eastern and central Europe.  As such, most debts in central and eastern Europe are owed to the west, in particular, to Austrian,  Swedish,  Greek,  Italian,  and  Belgian  banks  and  of  the  USD4.9  trillion  in  loans  to  the region from western banks, 74% amounts to lending from western European banks.  These figures make it abundantly clear that the west’s banking systems are inextricably linked to those of eastern and central Europe and declines in either region are going to seriously affect the other.

Impact on the commercial sector in Western Europe

The banking sector of western Europe has not been the only sector in Western Europe affected by the downturn in the economies of eastern and central Europe. The commercial sector has also been hit hard.  Central and eastern Europe which was once a dream destination for western companies eager to tap into new markets, has become a nightmare for large foreign operators in the region such as Telekom Austria and the German retailer, Metro AG.  Several other western European telecom companies are also critically exposed in the region. For example, the Norway-based Telenor Group earned 20% of its 2007 income from its activities in central and Eastern Europe and is also present in Russia, Ukraine, Serbia, Montenegro and Hungary. It is also the majority owner of Kyivstar, the largest  mobile  operator  in  Ukraine.  The  company  is  again  the  second-largest  mobile  network operator in Serbia which, like Ukraine, was bailed out by the International Monetary Fund (‘IMF’) but has recently requested more money as a result of its sharply deteriorating economy.

The  other  large  investors  in  the  Balkans  at  risk  too  are  Telekom  Austria  and  Greece’s  Hellenic Telecommunications  Organization  SA  OTE.  Furthermore,  Sweden’s  largest  telecoms  operator, TeliaSonera, has a strong presence in the Baltic region as well Russia, Turkey and Kazakhstan. The company has a 40% or so sales income from Eastern Europe. Also at risk is France’s Telecom FTE which has a 20% or so sales output to the emergent countries in Europe and Africa.

Extent of the financial crisis in eastern and central Europe

The  position of  Hungary,  the  Balkans  and  Ukraine  is  more  or  less  the  same,  compounding problems for western banks in general. Specifically, according to the IMF, western European banks are five times more exposed to the current financial crisis than their US and Japanese counterparts, being almost 50% more leveraged. As a result it is not surprising that the Greek government had recently ordered Greek banks to withdraw from the Balkans and there is the likelihood that western European  head  offices,  or  countries  may  well  follow  suit  resulting  in  the  closing  down  of subsidiaries in eastern and central Europe.

Bail-out  sums  needed  to  rescue  the  economies  that  will  be  affected  by  such  actions  are  already beyond the limits of the IMF which  has already  doled out rescue packages to  Hungary,  Ukraine, Latvia,  Belarus  and  Iceland  (with  Pakistan  and  Turkey  being  in  line  for  such  aid  shortly).  It  is reported that the IMF’s reserves of 155 billion Euros are fast depleting and it has been forced to sell off its gold reserves to raise much-needed cash for rescuing economies in trouble.

Particular countries in risk of imminent economic failure in the region of eastern and central Europe according to recent reports are:-

Ukraine

It  appears  that  the  IMF’s  $16bn  rescue  package  is  fast  going  towards  default  as  the  country’s economy shrank by 12% in GDP recently leaving, in particular, banks like Unicredit, Raffeisen and ING facing disasters of unimaginable proportions.

Latvia

The country is fast moving towards irretrievable bankruptcy with confirmation by country’s central bank’s governor that the Latvian economy is: ‘clinically dead’ after it reduced 10.5% in the fourth quarter of 2008.

Western European Countries at risk from the effect of banking failures in eastern and central Europe

Austria

The  country  is  exposed  to  the  tune  of  Euro  220  billion  by  its  financial  sector.  This  exposure  is equivalent of around 75% of the country’s GDP.  The Austrian banks which appear to be most at risk from the failure of the eastern and central European banking system are Austria’s Erste Bank and  Raiffeisen  International  RAIFF,  as  well  as  Italy’s  UniCredit  Group,  which  controls  Bank Austria, which has a focused and dominant presence in Central and Eastern Europe.

Switzerland

In a recent interview with economist, Arthur P. Schmidt, the Swiss daily Tagesanzeiger. reports that Switzerland is threatened with bankruptcy over its exposure in eastern and central Europe.  That is because, in countries such as Poland, Hungary and Croatia where the Swiss franc had become the currency of choice, many households and small firms took out loans in Swiss francs, and not in the national currency zloty, forint, or kuna, because of the lower interest rates offered. As a result, in Hungary, 31 percent of all loans are in Swiss currency and of household loans it is 60%.  Therefore, as the financial crisis ended cheap credit, central and eastern European currencies are in decline. For example, at  the end of September 2008, 46 francs was the going rate for 100 Polish zlotys, but now the going rate is in the region of 30 francs and dropping. What this means is that borrowers are likely to default on their loan repayments due the significantly increased cost of the borrowing. This will lead to economic problems in the already fragile economies of the region. Furthermore, as as large amount of the 200 billion U.S. dollars of eastern European loans were issued in Swiss francs, economic failures in central and eastern Europe have clear and dire implications for the Swiss economy.

Summary

As the EU has no current framework for dealing with the crisis in eastern and central Europe, it is clear that its failure to rescue one of the economies in trouble will trigger huge crisis for the region which  would  have  serious  implications  for  any  recovery  from  the  global  economic  downturn  in western  Europe.  Therefore,  it  was  not  surprising  that  in  February  2009,  the  World  Bank  urged intervention in Central and Eastern Europe to assist the region to cope with the effects of the global financial crisis and economic downturn.  The bank had already commenced helping the region with urgently needed funds, but according to its president, Robert Zoellick, in an interview with the UK Financial Times in 2009, more backing from the EU was needed.

Generally,  the  EU  seems  to  be  cautious  to  devise  a  co-ordinated  action  plan  for  the  region  as, according  to  the  EU’s  Economy  Commissioner,  the  member  states  of  the  region  each  enjoy different relationships with the EU and as their needs therefore differ, making a combined initiative for  the  region  impracticable.    However,  this  view  was  not  shared  by  Lithuania  as  the  country’s Prime Minister, Andrius Kubilius, supports Austria’s urging of the EU to develop a support plan for the  region  on  the  basis  that  the  cause  of  the  region’s  recent  economic  problems  was  due  to  the banking troubles of the west.  Also, the Hungarian prime minister, Ference Gyurcsany has called for a €100 billion  cash  injection  plan  from  the  EU  for  assisting  the  region’s  banks  which  are  under severe pressure from the current global economic downturn.

[reprinted from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1408530 – 4/2009]

March 8, 2011

Turkey is at war with its journalists

Why is Turkey at war with its journalists? Is the country about to go the way of Egypt?

Time CNN World journalist, Pelin Turgut, and two of his friends were in the group of seven journalists arrested by the Turkish police in Istanbul and Ankara last week. Time CNN World reports that in the group were Nedim Sener and Ahmet Sik who are respected and balanced journalists working for mainline Turkish publications.

They same two were initially charged with: ‘belonging to a terrorist organization and inciting the public to hatred’ as confirmed by their lawyers. The men are denying the charges, but are still under detention.

A clue to their detention, Time CNN World reveals, is that the men have been critical of the government and its backer, an allegedly influential Islamic sect headed up by a USA-based imam named called Fethullah Gulen. It is alleged that he control’s Turkey’s security forces.  Before he was arrested, Sener had been on trial for ‘ revealing classified information’  in a book where he claims that the Turkish security forces which he alleges were involved in the murder of Turkish-Armenian journalist, Hrant Dink, who died in 2007.  Sik’s book on the Gulen network, (The Imam’s Army) was about to be published when he was arrested and he had been warned: “Whoever gets near this [issue] burns”.  Last week detentions followed raids on a newsportal’s offices – ODatv. Four of its journalists had been arrested. The newsportal has been critical of the government.

US Ambassador to Ankara, Richard Ricciardone said: Journalists are being detained on the one hand while addresses about freedom of the speech are given on the other. We do not understand this”. However, his comments were derided by the Turkish government, with the Turkish Prime Minister Recep Tayyip Erdogan referring to him as being ‘amateurish’. The government is refusing to make any comments on the detentions.

In 2009, the news group, Dogan, which was critical of the government got a 4.8 billion lira ($3.05 billion) tax fine after it reported alleged corruption matters to do Mr. Erdogan’s party. “Young reporters are now intimidated to ask certain questions of the Prime Minister and some ministers,” says Murat Yetkin, a commentator for the Radikal newspaper. in Turkey. Additionally, Mr. Erdogan has taken many cartoonists and journalists to court for defamation and has orchestrated the banning of thousands of websites deemed to be ‘anti-government’ including: YouTube, Vimeo and Blogger.

Sounds like Egypt all over again, but Mr. Erdogan should be worried, Turks do not take very kindly to effrontery and overt authoritarianism may well suffer the same fate as Egypt’s now departed former dictator.

[Answar Tashib, Middle East Contributor]

March 8, 2011

Carnivals in pictures – Brazil/ Dominica

February and March make up the carnival season for Brazil and the tiny Caribbean island of Dominica.

Carnival days are ones of shows, parties and parades on a non-stop ‘party until you drop’ basis. In Brazil’s Rio, various samba schools compete for prizes and are judged by costume and dancing skills. Then there are the street festivals – dancing and music – where everyone participates. Key party dates are:

  • March 5th 2011
  • February 18th 2012
  • February 9th 2013
  • March 1st 2014.

Dominica’s carnival season starts in February and ends with two wild ‘jump up’ days on March 7th to 8th. The scene is similar to Brazil’s, but on a smaller, less extravagant scale (though not less pleasurable). There are calypso (singing) competitions, music and beauty competitions and for the lucky girl, election to the status of Carnival Queen.

Dominica Carnival Queen 2011, Jacintha Fagan

[Art & Entertainment Contributor]