Oil
and Gas: A Real Bummer for Anyone Owning a Hummer
By
Scott B. MacDonald
 NEW
YORK (KWR) Energy prices have been on the rise. Although
there was considerable speculation that oil prices would
fall in 2003, they did not. And in 2004, oil and gas prices
are still high and the ongoing higher cost pressure for
oil and gas is not likely to go away any time soon. For
anyone thinking the world is still awash with cheap and
easy oil and gas, wake up and smell the coffee. The days
of easy energy are gone. The next wave of energy politics
is going to be driven by lower levels of reserves, greater
sensitivity to geopolitical factors, and increasing demand.
Oil prices have been on the rise lately, with crude oil
for April delivery settling above $36.00 a barrel on the
New York Mercantile Exchange for several days in March.
The major driver in the recent price hike is growing concern
that gasoline supplies in the United States will not increase
fast enough to meet peak demand during the summer driving
season. U.S. refinery efforts to re-supply low gasoline
supplies this spring may also be negatively effected by
a recent accord to reduce production during the second
quarter of the year. According to U.S. government data,
the country's motor fuel supplies in the week ended February
20 fell for the fourth week in five. The bottom line is
that the United States is heading into its peak demand
period, with a backdrop of stronger economic growth and
low inventories. In addition, there are a number of new
state and federal fuel regulations, which add to costs.
The combination of these factors is expected to keep oil
prices high during the months ahead.
There are other, longer-term factors at work. Outside of
the United States, there are five other key factors likely
to maintain a period of higher-than-originally planned
oil prices. These are:
1. Strong and unrelenting demand from China and India.
As these economies continue to expand at rapid growth rates,
their demand for energy is also expanding. China was a
net oil exporter during the 1980s. By the early 1990s it
shifted into a major oil and gas importer. It is now in
the process of developing a strategic oil reserve and plans
have recently been announced for the construction of a
third liquefied gas import terminal to meet rising energy
demand. The first two terminals – one in Guangdong
and the other in Fujian provinces – are in construction
and will take in natural gas from Australia and Indonesia.
2. Constraints on supply are being caused by 15 years
of insufficient investment. According to a December 2003 released
study by the World Energy Council, oil production may have
reached a plateau outside of the Middle East. Over the
past three decades the development of North American, European,
Asian and African sources of oil has helped reduce world
dependency on OPEC countries. However, many North Sea and
North American fields are in decline and the rate of non-OPEC
oil discovery is considerably down. There are also questions
as to the real level of Saudi reserves. Saudi Arabia’s
five giant fields that have produced around 90% of the
country’s oil, were drilled during 1940 and 1965.
Although there are new fields, questions exist as to how
much oil is contained. Significantly, much of the optimism
about an ever-lasting supply of oil comes from the view
of Saudi Arabia as a large bottomless barrel of oil.
3. Overstatement of reserves. One of the things becoming
apparent for oil producers is that in the past there has
been an overstatement of oil reserves. In some cases this
was done to play well with stockholders; in others it was
poor methodology. No matter what the reason, oil reserves
are not as high as what was commonly thought. In late 2003
and early 2004 a number of companies surprised the market
with news that they were taking their reserve levels down
to more conservative (and accurate) assessments. Among
the companies doing this were Shell, Forest Oil, Nexen
and El Paso. There are others that are also likely to reduce
their reserve levels.
4. Over the last few years, OPEC has regained a grip
on markets. Although it is not entirely dominant, it has managed
to maintain the key role as the swing producer in global
production, largely due to Saudi Arabia's still considerable
reserves. OPEC has also worked to develop a closer relationship
with two major non-OPEC producers, Mexico and Russia.
5. Politics is also playing a role in higher oil prices.
Venezuela's political problems are likely to get worse
soon as the government is seeking to avoid going to a referendum
vote on President Hugo Chavez. The opposition is threatening
violence - again. Venezuela is currently in the middle
of three days of riots. Adding to the questionability of
Venezuelan oil, President Chavez has stated that his country
would halt all oil shipments to the United States if Washington
seeks to blockade or invade the South American country.
Venezuela shipped 1.32 million barrels of oil a day to
the United States in December, making it the fourth largest
supplier to the United States, after Mexico, Canada and
Saudi Arabia. The higher level of rhetoric from President
Chavez comes from the fact that he is under pressure at
home in the form of an articulate and motivated opposition
(which has also been somewhat disorganized) and concerns
generated by the March U.S. military intervention (through
the United Nations and with French troops) in Haiti.
While Venezuela has its issues, Nigeria's oil and gas production
is vulnerable to ongoing labor-management problems and
ethnic tensions. Although not as complicated as either
Venezuela or Nigeria, Indonesia's oil and gas production
is rapidly declining as corruption and nationalism is resulting
in the departure of many multinational companies that have
badly needed capital and expertise.
We have also seen strong natural gas prices, reflecting
ongoing demand in the United States and declining domestic
North American supplies. While the U.S. demand for natural
gas is a constant, other energy-hungry countries, like
China, Korea and India, are also looking for new sources
of natural gas. It is in this environment that a ministerial
level meeting of natural gas producers will meet in Cairo
on March 14-16. Officially called the Gas Exporting Countries
Forum (GECF), this group includes Algeria, Brunei, Indonesia,
Iran, Libya, Malaysia, Nigeria, Norway, Oman, Qatar, Russia,
Trinidad and Tobago, United Arab Emirates and Venezuela.
GECF was initially created in May 2001 in Teheran with
the purpose of discussing technical issues, upstream industries,
transportation, marketing and technological implications
of gas-to-liquids. Additional meetings took place in Algiers
in February 2002 and in Osaka in September 2002. At the
Algiers meeting, Russian President Vladimir Putin called
for an "alliance" of Eurasian gas-exporting countries " ...
to exercise effective control over the volumes and directions
of Central Asian gas exports".
While we are a long way from the creation of a natural
gas cartel along the lines of OPEC, we could see an informal
Organization of Gas-Exporting Countries (OGEC). Certainly
this group of countries is far-ranging and on the surface
has little in common beyond natural gas. OPEC was created
to help promote oil-producing countries and help them deal
with the major multinational oil companies. Adding to the
glue in this group was a sense of Third World nationalism.
That was then; this is now. Third World solidarity is not
what it used to be and it is difficult to see how Russia
would control its gas production and exports for the sake
of quotas that are supportive of Norway, Algeria or Venezuela.
What GECF could develop into is a more regular natural
gas producers forum, providing a broad-gauged body helping
to push prices in one direction or another. Considering
the current spike in energy prices, anything resembling
a cartel could spook the market - be it a real cartel or
perceived.
Considering all of the above, we see a world energy market
that is undergoing a structural change – ongoing
demand, falling production, less than expected reserves,
and better coordination among producer nations. While this
does not necessarily mean that the global market will have
a shock along the lines of 1973/74 and 1979/1980, it does
point to the potential for a decade of higher oil and gas
prices – something that has not yet really hit policy-makers
in many of the more developed countries. It is, however,
gradually making itself felt in the stock and bond market,
where a number of energy companies continue to gain in
value – something not likely to go away any time
soon.
The
Election Year Trade Ballet--Truly Questionable Entertainment
By
Russell L. Smith, Willkie, Farr, and Gallagher, LLP
WASHINGTON (KWR) The debate over trade currently taking place
in the context of the U.S. Presidential campaign at
best resembles an elaborate, classic ballet performance.
Each step was choreographed years ago, and the dancers
are practiced in executing their positions. The result
of such a performance in ballet would be entertaining
but artificial. But in the trade debate, the results
are very real, unattractive, and often counterproductive.
Witness the 2000 election, in which Bush and Gore, two supposed
advocates of “free trade,” each professed that
commitment in their debates and their campaign literature.
In fact, in an effort to win West Virginia and other steel-making
states, Bush and running mate Cheney actually attacked the
Clinton Administration for not doing enough for the steel industry
and all but invited the submission of a trade remedies safeguards
(“Section 201”) case on steel if they took office.
When those events came to pass, and the Administration was
forced to decide on whether to violate WTO rules and protect
the U.S. steel industry with high tariffs, the President did
what he committed to do, despite the strongest efforts by many
of his advisors to find some alternative to trade protection.
The results were as expected: a spike in steel prices, a severe
decline in imports, an adverse WTO decision, threatened worldwide
retaliation, and a substantial loss of credibility at a critical
moment in the Doha Development Agenda (DDA) negotiations. Bush
correctly repealed the tariffs at the mid-point, ostensibly
because they had served their purpose of providing “breathing
room” for consolidation of the U.S. industry. Because
U.S. steel imports were artificially depressed, while at the
same time global steel demand was increasing and foreign steelmakers
were shipping to other markets, as the U.S. economy has recovered,
the aftermath of the steel tariffs has been lack of supply,
enormous price increases, and hardships for those consuming
industries that need reasonably priced steel to feed increasing
demand for their products. This short term “fix” has
created a long-term dilemma.
We are now on the edge of what will be a bitter Presidential
campaign. The two candidates, Bush and Kerry, are already on
stage to perform the trade ballet. Each one says he is committed
to free trade as a philosophy and each offers a record to support
that claim. However, each one seems to have forgotten how to
be consistent with his dance steps. Acting through USTR Zoellick,
Bush is seeking to revive the DDA negotiations. However, at
the same time, acting through Commerce Secretary Evans, Bush
is also promising to deliver a “level playing field” to
U.S. manufacturers. Kerry touts his votes in favor of trade
agreements but promises to staunch the outflow of jobs from
the United States, and to reopen all outstanding U.S. trade
agreements.
These contradictory messages about trade policy have the potential
to produce some very negative results. The grand ballet could
soon become a second-rate dinner theatre production.
The United States has underway two dumping cases that threaten
major imports from key trade and strategic partners--bedroom
furniture from China and shrimp from China, Thailand, Vietnam,
Ecuador, Brazil, and India. In each case, the timing could
not be more cynically political, since they are designed to
move forward within the Commerce Department during the summer
and fall of 2004. In each case, the constituencies are highly
political--furniture industry workers and shrimp fishermen
in key Southern states. In each case, industries that have
high cost structures and have suffered in an economy in which
prices pressures come from many directions, the domestic petitioners
are arguing loudly that imports are the cause of all their
problems. In each case the petitioners are mobilizing political
support.
What seems to be forgotten in each case is that the economic
and strategic consequences of imposing prohibitive duties on
furniture and shrimp are serious and deserve political notice.
China has built a multi-billion dollar wood furniture industry
premised on its cost efficiencies, and its success is reflected
in the fact that many U.S. retailers depend on Chinese imports
to be able to offer their customers less expensive, high-quality
wood furniture. These American retailers, and their customers,
will potentially be deprived of the benefits of these imports
by a dumping case. A depressed business sector--furniture retailing--will
become more depressed. China, which is involved in a difficult
effort to comply with market opening obligations taken on when
it joined the WTO, will be confronted with market restrictions
on an important export that it sees as fairly traded. This
case opens the U.S. trading relationship to question at a moment
when it is vital that the U.S. begins to adjust, and to deal
with, China’s growing economic and strategic dominance
in Asia.
A negative outcome in the shrimp case could have far worse
consequences. The exporting countries are all developing countries
with whom the United States is allegedly seeking better economic
relationships. Yet, at a time when the United States is preaching
partnership in Asia, some of our most important and well-established
allies already regard us negatively. The Wall Street Journal
reported recently that in Indonesia, for example, public opinion
towards the United States is at an all time low, in part because
the United States is perceived as caring more about U.S. businesses
than the best interests of Indonesians. Ironically, Indonesia
was not even mentioned in the shrimp dumping petition.
So what will happen in Vietnam and Thailand following the shrimp
case? In Vietnam, the United States has pursued a special economic
relationship as part of efforts to reconcile with a former
enemy, but has already placed high duties on catfish exports
and now threatens another industry vital to Vietnam’s
economic future. In Thailand, a country the United States claims
is a major security ally and one with which we hope to negotiate
a free trade agreement, shrimp farming employs hundreds of
thousands of citizens, and by itself is a factor in the country’s
GDP. This economic activity is concentrated in southern Thailand,
which has a large Muslim population.
All of these factors should call for extreme caution in the
handling of these dumping cases since their ramifications will
go far beyond whatever assistance to domestic industries that
they may provide. Exclusionary duties will adversely affect
many hundreds of thousands of U.S. workers in furniture retailing,
and in almost every level of food service and grocery marketing.
Beyond the domestic and foreign jobs losses in these cases
lies the longer-term impact on American policy. At home, dumping
cases make few headlines. In the target countries, they are
headline news, and the headlines inspire resentment toward
the United States, which is seen as seeking to cut off key
developing country industries simply because they are successful.
U.S. decision makers need to weigh the potential long-term
damage at home and abroad of pressing trade restrictions that
are politically attractive in the short term. Long after the “entertainment” value
of prosecuting ambivalent trade remedy cases, the real world
consequences are often not amusing at all.
Japan’s Recovery: More than Just a Flash in the
Pan
By
Darrel Whitten
TOKYO
(KWR) Over the past year, Japan's Nikkei 225 index has regained
a degree of vitality not seen for most of the "Heisei
Malaise". What is the Japanese stock market trying to
tell us? We believe that Japan's economy and stock market
is at a juncture similar to that experienced in the US in
the early 1980s, as the US economy and stock market was emerging
from a decade-long malaise.
The first major change of foreign investor sentiment was
the replacement of BOJ Governor Hayami with the new Governor
Fukui. Mr. Fukui gave the impression to both the Japanese
government and investors that he would be much more flexible
regarding "unconventional" monetary policy. Mr.
Fukui gave foreign investors the impression that the BOJ
was about to embark on a more aggressive reflation stance.
Then came the de facto nationalization of Resona Bank by
the government in May, 2003. This was taken as a resolute
attempt by Japan's banking regulators to; a) continue pressuring
the banks to clean up their NPL (non-performing loan) problems,
and, b) at the same time ensure a "soft landing" in
terms of financial sector fragility. It marked a major turning
point in the growing fear among domestic politicians and
investors that Heizo Takenaka, appointed as the new Financial
Services Agency Minister in September 2002, might force a "hard
landing" solution on the nation's banks that could jeopardize
any chance of an economic recovery. These fears proved unfounded.
The grim forecasts of a possible collapse of the Japanese
financial system made regularly since Japan nearly experienced
a financial meltdown in late 1997 have rapidly lost their
shock value as the signs of a revitalization of the banking
sector become unmistakable. The program to reduce NPLs at
the major banks by half by March 2005 now looks achievable.
Many domestic critics and investors claim that Prime Minister
Koizumi has been long on talk but short on execution as regards
his reform initiatives. However, PM Koizumi's self-state
first priority for reform was the definite and final disposal
of bank NPLs and a stabilization of Japan's financial system.
With the major banks now expected to meet their NPL ratio
targets by the stated cut-off date, the Koizumi Administration
appears well on its way toward achieving the stated number
one priority of its original reform program.
Japan's current economic recovery was first dismissed as
yet another transitory phenomenon that was based mainly on
exports. But as 2004 has progressed, there is increasing
evidence of a deepening of the recovery. Third quarter FY03
(October-December) GDP growth was a big surprise, clocking
in at 7% annualized growth rates, and the Bank of Japan's
December Tankan survey was already indicating better-than-expected
business conditions, with Japanese businesses being more
optimistic than they have been in six-and-a-half years.
Industrial production has been rising for over a year, and
has recently accelerated to the 5% YoY level. Meanwhile,
inventory levels continue to decline. Machinery order growth
by the last quarter of calendar 2003 had accelerated to high
two-digit levels. There are also signs of life among Japan's
beleaguered consumers. The BOJ's integrated retail sales
indicator jumped by 2.2% over the previous month in January,
and has been in a mild recovery since last fall. Real household
expenditures during January were also up 1.3% YoY.
Corporate profits are in solid recovery. The MOF's survey
of incorporated enterprises indicates that aggregate ordinary
corporate profits for the October-December period of 2003
grew by 16.9% YoY-after bottoming in terms of YoY change
rates in late 2001 on declines approaching 40% YoY.
Moreover, the cyclical recovery is being aided by significant
improvement in the earnings structure of companies. Operating
profit and ordinary profit margins for the large companies
in the MOF survey of incorporated enterprises are nearing
levels not seen since the beginning of the Heisei Malaise,
as companies have reduced debt, trimmed employment ranks,
sold off or closed unprofitable businesses, and moved operations
overseas.
While Japanese companies are still reluctant to increase
hiring, there is evidence that investment in domestic plant,
equipment and factory sites is recovering. In 2003, the number
of sites purchased for new factory construction increased
for the first time in three years to over 1,000 cases, according
to METI. In other words, the "hollowing-out" trend
may be reversing.
A Nikkei survey of over 1,600 listed companies reporting
in March indicates that listed companies in all industrial
sectors will mark a combined 21% gain in consolidated pretax
profit for the current year through March 31, the first record
high in three years. The survey also indicates aggregate
pretax profit will rise another 14% in fiscal 2004, for the
third consecutive year of gains.
All the above is evidence that the economic recovery is deepening
and will be more pervasive than any mere cyclical up-tick
in the Heisei Malaise so far. Indeed, we are convinced that
Japan has turned the "big corner" and is now well
on it's way to escaping the Heisei Malaise. The key will
be "continuing to stay the course" to ensure that
the recovery deepens further, and eventually leads to improved
medium-term growth potential for Japan's economy.
Free operating cash flow for large firms, the real value
driver behind stock prices, first turned positive in late
1993. It has remained positive throughout the Heisei Malaise.
However, balance sheet and financial sector risk has heretofore
more than offset this free cash flow - until the regulators
and the banking sector began to get their arms around the
NPL problem.
As the negative cycle of falling prices (deflation), depreciating
asset values and growing NPLs begins to reverse, bankruptcy
risk and financial sector fragility improves, allowing both
financial institutions and investors to become less risk
adverse. The "bankruptcy" and "growth" discounts
disappear, and domestic investors are able to assume a higher
risk profile, i.e., to begin shifting assets from bonds and
bank deposits into the stock market.
When this happens, domestic institutional investors could
well become the driving force of the next big upleg in the
Japanese stock market, as they shift assets from an overwhelming
preference for bonds and fixed income into stocks. Once begun,
the secular shift into stocks by domestic institutions could
well continue driving Japan's stock market for the next several
years.
Over the short-term, it could prove problematic for the Bank
of Japan should end-of-deflation expectations run too far
ahead of actual fundamentals, as it could instigate a "buyers
strike" in the bond market, and sharply push up bond
yields at a time when the government would rather keep interest
rates as low as possible to facilitate increased deficit
funding bond issues.
With even the BOJ finding it difficult to suppress their
optimism about the current recovery, however, the inevitable
shifting of monetary policy gears could cause an interim
correction in the stock market. However, we would view this
as mainly a transitory impediment, as Japan's economy and
financial markets begin to return to normalcy.
Turning
the Corner: Israel’s Economy Looking at
A Sustainable Recovery
By
Scott B. MacDonald
NEW YORK (KWR) The last few years have been difficult
for the Israeli economy. The ongoing media
show of terrorist attacks, fractious public
debates about settler colonies, and the construction
of a wall to separate Israelis and Palestinians
have conveyed the image of an economy in shock.
Indeed, the combination of difficult global
economics and local problems overshadowed the
Israeli economy and created a somewhat pessimistic
outlook. It now appears that the tide is turning
and prospects for 2004 look better.
Although the 2000-2003 period witnessed one of the
most difficult economic downturns in the Israeli economy,
credit should be given to the important transformation
that occurred during the 1980s and 1990s. Throughout
much of the pre-1980 period, the Israeli economy was
considerably more statist in orientation, given to
regulatory and bureaucratic intervention. While the
state sought in a fashion to control the commanding
heights of the economy, labor laws were rigid and a
sizeable amount of the work force was unionized. Although
there was a degree of job security and a considerable
focus on national security (with major conflicts fought
in 1948, 1956, 1968 and 1973), the cost was felt in
slow growth and high inflation.
During the 1980s and 1990s, economic reforms liberalized
labor markets, reduced the state's role in the economy
and provided a stimulus for private sector development,
especially in the high-tech sector. This resulted in
rapid, yet balanced, economic expansion, rising per
capita incomes and employment generation. The development
of the high tech sector was able to take advantage
of one of Israel's major strengths, its highly educated
and skilled labor force.
In 2000 the tide turned against the Israeli economy.
From 2000 to 2003, a combination of Middle East violence
(a second Iraq war and an upswing in tensions with
the Palestinians) and a global decline in orders for
computer parts and telecom equipment resulted in a
sustained economic downturn, with high unemployment
(10.7% at year-end 2003). Middle Eastern violence hurt
tourism and foreign direct investment as well as forcing
the government to spend more money on security (swelling
the fiscal deficit to 7.5% of GDP in the first half
of 2003). The global decline in high-tech orders had
a heavy impact on the export sector. Complicating matters,
the country's politics have been far from stable. While
Ariel Sharon has managed to maintain his position as
prime minister, his coalition has been fractious and
scandals (one of which included the Prime Minister's
son) have undermined confidence in the government.
Real GDP in 2003 was a disappointing 1.3%, helped along
by marginal consumer demand of 2%.
Despite the difficulty of the last three years, conditions
for a sustainable economic recovery are now in place.
In the fourth quarter of 2003, real GDP growth was
2.6%. The main drivers were growth in private consumption
of 7.2% and export expansion. We expect these trends
will continue in 2004. Real GDP for this year should
be in the 2.6-3.1% range. The Bank of Israel (the central
bank) has been accommodative, recently dropping interest
rates to close the gap with the United States. In addition,
key global markets for Israeli products are once again
expanding. In 2003, the high-tech sector's output was
5.3%, the first positive numbers since 2000. The sector
was clearly helped by a depreciation of the shekel
against the currency basket in 2003 and 2003. Indeed,
high-tech exports were up in 2003 to $10.2 billion,
accounting for 25% of goods & services exports
(up from 2002's $8.8 billion).
Based on data from a range of Israeli tech companies,
2004 is looking like it will only be better. Export
expansion is expected to be a healthy 7% (up from last
year's 3.3% and a dismal 1.5% in 2002). Private Israeli
economists are also looking for further expansion of
consumer spending. Consensus puts consumer growth at
2.8% for 2004, after 2.0% in 2002 and 0.1% in 2002.
Israel’s economy is also likely to continue benefiting
from a healthy flow of foreign direct investment (FDI).
FDI peaked in 2000 at $5 billion, much of it going
into the high tech sector, including start-ups. Although
2001 saw an additional $3.5 billion of FDI, 2002 saw
it fall to $1.6 billion, roughly the same level as
in the mid-1990s. Although 2003 was a difficult year
for the economy, filled with uncertainty, FDI bounced
back to $3.6 billion. Once again Israeli high-tech
was an attraction. That trend is expected to continue
in 2004.
Israel is also set to maintain control of the fiscal
imbalance in 2004. Last year, the fiscal deficit was
as wide as 7.5% of GDP, but ended the year at 3.9%.
The target for 2004 is 4%, which barring any major
unforeseen expenditures (which can never be ruled out
in the Middle East), should be attainable.
To be certain, Israel still faces considerable challenges.
The highly fragmented nature of the political system
constantly makes for difficult-to-hold together coalitions.
Domestic debt remains high and there is a need to reduce
public sector debt (standing at year-end 2003 at 106%
of GDP). Last, but hardly least, terrorism remains
a strong negative factor. Part of the problem is directly
linked back to the ongoing challenge from the Palestinian
Authority, which is supported to varying degrees by
regional governments. There are other more radical
Palestinian groups, Hamas and Hezbollah that represent
terrorist threats as well. Without the deadly and disruptive
nature of terrorist attacks, the Israeli economy would
be far more geared for growth. All this being said,
Israel still has considerable strengths, which outweigh
the negatives.
Digital
Democracy: Lesson's From the First Internet Presidency
By
Michael Feldman
 CAMBRIDGE,
MA (KWR) The important inroads made by the
Howard Dean campaign in raising funds and mobilizing
support over the internet, as well as the missteps
which led to the unraveling of his candidacy,
are currently the object of intense scrutiny
by groups within the Democratic and Republican
parties. They would be well advised to study
as well the rise and current difficulties of
the world’s first Internet president – South
Korea’s Roh Moo-hyun.
Roh’s election in December 2002 startled
observers not only around the world but in
South Korea itself, where Roh had been considered
a long shot right up until election day. The
very fact he was a serious contender astounded
some, given his unconventional political background.
The son of a peasant, he never attended college,
spent years as a construction worker, and taught
himself law at night until passing the bar
exam. He seemed an unlikely Presidential candidate
for an increasingly internationalized South
Korea; his only administrative experience
was a breif stint as Maritime Minister, had
rarely traveled outside Korea, and spoke almost
no
English.
The core of the Roh team is from what the Korean
press calls the “386” generation;
in their 30’s when the expression was
coined, now many are in their 40’s; they
came of age in the tumultuous 80’s, when
South Korea made the difficult transition from
dictatorship to democracy; and they were born
in the 60’s, together with the tremendous
burst of development and productivity which
has produced one of the economic powerhouses
of Asia and perhaps the most wired nation on
earth.
One of the factors which made Roh’s victory
possible was the advanced penetration of information
infrastructure in Korea, particularly broadband
internet access. Throughout the country, over
75% of homes are wired for broadband. And people
use it - a recent study found that the average
South Korean internet user spends an amazing
1,340 minutes a month online, compared with
641 for an American. In addition, there were
demographic factors in play; over 70% of the
Korean population is under 40, and grew up
with computers. The target audience for the
campaign was the millions of Koreans in their
20’s and 30’s.
The seed for this successful presidential campaign
was an unofficial on-line fan club (www.nosamo.org),
set up for Roh in 2000 after he lost his third
attempt to be elected to the National Assembly,
the same body which just impeached him (Roh
has run for the Assembly five times, winning
twice). After his presidential candidacy was
ignored by a
majority of conventional Korean news media,
the banner was picked up by a variety of small
regional newspapers, internet web logs and
alternative news sites like OhmyNews (ohmynews.com).
While Chosun Ilbo, Joong-ang Ilbo and Dong-A
Ilbo were dismissing Roh as a dangerous leftie,
Ohmynews was giving his candidacy and the rising
movement around it blanket coverage. The broadband
penetration allowed them to broadcast unedited
streaming video of Roh’s speeches and
campaign rallies.
In addition, Roh’s Millennium Democratic
Party raised millions and mobilized supporters
for huge rallies via a series of web sites
and networked mobile phones. The drama came
to a head on the eve of election day, when
a former rival who had endorsed Roh suddenly
and unexpectedly withdrew his support, tipping
the balance in favor of conservative candidate
Lee Hoi Chang. On the day of the voting a massive
electronic get-out-the-vote mobilization, advising
people of the opposition’s last-ditch
move to steal the election, produced an unprecedented
turnout of younger voters which gave the victory
to Roh.
Since taking office in February 2003 however,
Roh has had anything but smooth sailing. Elected
on a promise to root out corruption, he has
seen several members of his administration
jailed and others indicted. Roh's political
opponents have tried to connect him to a
campaign fundraising scandal which has
seen many of his
aides and
campaign
team embroiled in legal and PR difficulties.
Dealing with in-house corruption has severely
limited
his
effectiveness
in cleaning
up the endemic corruption in society in general.
Even his wellspring of support in the alternative
media has dried up. OhmyNews
withdrew support for the Roh administration last
year in protest
to Roh meeting with George Bush. Strangely,
the current incident leading to Roh’s
impeachment grew out of an off-hand comment
in a television interview last month which
was deemed to be in violation of South Korea’s
strict election laws mandating Presidential
neutrality.
What lessons can US political campaigns,
as well as politicians among other internet-active
electorates, take away from this post-industrial
morality tale? Despite the differences in
demographics
and democratic traditions, we feel that there
are several:
-
Converting
eyeballs to action – It’s
not enough to get people to visit
a political web page. The key is converting their interest
to actions; contributing money,
attending events, organizing networks and lobbying friends.
-
Voting
day turnout is essential – An
effective personal network uniting
supporters electronically via computers, PDAs and cell
phones can make the difference
in a close election. Get-out-the-vote efforts are nothing new, but
the techniques used by the Roh
campaign were innovative and effective.
-
Winning
can be the problem – This is especially
a consideration for unconventional
or “outsider” candidates
without a major party endorsement.
The skills needed to successfully govern a major modern
country are quite different
from those needed to get elected. Pre-election supporters can
quickly turn into opposition
if they disagree with policy decisions of the new administration.
-
Trying
to do too much too fast – Moving
too fast can unite seemingly
incompatible political forces against you in alliances which may not
last beyond the current battles
but which can make it difficult or impossible to govern.
Finally, political planners should
approach the internet with a note
of caution.
While its potential to raise money
and awareness
may be awesome, it can tear a candidate
down as quickly as it builds him
up. In the final
analysis, it is no substitute for
the tried and true tools of political
success;
a
sound and extensive face-to-face
organization on
the ground, a solid support network
in the bureaucratic and administrative
corridors
of power, and the ability to seek
consensus and
compromise among traditional power
centers rather than forcing them
into the opposition.
On the other hand, policy makers and
advisors to both President Bush and Senator
Kerry
should pay close attention to the
situation unfolding in Seoul – not
only as a case study of how to
utilize the internet in a modern political
campaign, but for the further lessons
it will surely teach us. Those who see
the collapse
of the Howard Dean campaign as
the end of the Internet in politics are
clearly mistaken. The Korean case shows
that the day of digital democracy is
just beginning to dawn.
Michael
Feldman is a Sr. Consultant and Webmaster
at KWR International
Very
Positive Signs in Vietnam
By
Michael Preiss
 HONG
KONG (KWR) One country to watch this year is Vietnam.
Both macroeconomic developments and local political
change are worthwhile paying attention to.
Some 10 years ago global investors were very excited that
reforms and major economic policy changes (Doi Moi) could
help Vietnam come out of its economic isolation. At that
time, however the old leadership disappointed and Vietnam
fell of the radar screen.
This year however the country is back with a vengeance. Today
Vietnam is run by a new generation, leaders ready to let
go of the past, to forget about communism, to adopt free
market principles in the national economy.
Steady annual economic growth of 7 per cent, the US-Vietnam
bilateral trade agreement, outsourcing from China and a dynamic
private sector are all catalysts for attracting foreign investment
into Vietnam.
“Hang Khong Vietnam” (Vietnam Airlines) once
affectionately know as Hang On Airlines, for its low efficiency
(to put
it politely) now flies the most modern jets and has expanded
its international network and flight frequency to bring business
travelers and the world back to Vietnam’s markets.
Especially the routes, Beijing to HCMC and Hanoi are packed
with Chinese manufacturers looking for further outsourcing
opportunities, before more tariffs and trade sanctions get
imposed by the Bush Administration and before the RMB is
likely to be revalued this year.
In addition, remittances repatriated to Vietnam by the 2.5
million overseas Vietnamese (Viet Kieu) has become an important
financial source of capital. The money the overseas Vietnamese
repatriated has registered a 20 percent increase last year,
reaching US$2.7 billion. Overseas Vietnamese also come back
to invest. Latest figures show 1,274 projects and businesses
have been set up by overseas Vietnamese with a total amount
of registered capital of U$710 million.
Commodity exports in 2003 grew at 18.5 percent; the highest
for the last three years. Export value accounted for 52.6
percent of GDP, much higher than the 46 percent for 2001
and the 47.6 percent for 2002.
The structure of Vietnamese exports has also changed. The
proportion of light industrial products and handicrafts in
total export values rose to 41 percent in 2003 from 33.8
percent in 2000; the exports of crude oil or semi-posed items
fell to 49.5 percent in 2003 from 55.8 percent in 2000; and
exports of processed items rose to 50,5 percent from 44.2
percent during this period.
Vietnamese products have entered almost all the corners of
the world helped by the cheap dong. One U.S. dollar currently
is around 15,715 Vietnamese dong.
Exports to America, Europe, Asia and Africa have increased
considerably, especially to the US, which has become the
biggest trading partner with an estimated two-way trade value
of $3.7 billion, accounting for 20.2 percent of Vietnam’s
total export value in 2003.
To further facilitate the new boom, the central bank has
allowed foreign bank branches to mobilize dong funds from
Vietnamese individuals and organizations. Foreign bank are
now allowed to receive demand and term deposits in Vietnamese
dong equivalent to half their equity capital.
International agencies have also renewed their commitment
to Vietnam. The World Bank has pledged US$100 million for
a poverty reduction program. The Asian Development Bank (ADB)
has pledged US$50 million for a banking-finance program and
another US$90 million for an agriculture program.
However most importantly, Vietnam has just launched far-reaching
measures for the development of the stock exchange. The Government
decided to complete the legal framework and foreign -invested
enterprises can now officially be equitised. The big news
is that the Government’s decision allows foreign-invested
enterprises (FIEs) to go private.
Businesses that want to be converted into joint-stock companies
can apply in the first quarter of this year. Furthermore,
Prime Minister Phan Van Khai announced that the total market
capitalization shall reach 3 per cent of GDP by 2005 and
10-15 per cent in 2010.
The Ministry of Finance issued a circular in December allowing
individual and institutional foreign investors to buy unlimited
numbers of stocks and bonds on the stock exchange and, from
2004, hold larger stakes in securities and fund management
joint ventures.
Foreigners can now hold 49 per cent against 30 per cent earlier.
Another decree, which came into effect in January, lowers
listing eligibility for joint stock companies to a capital
of VND5 billion ($319,000) from VND10 billion earlier.
In the bond markets, the government plans to issue approximately
VND45,000 billion worth of Government bonds in 2004.
The new generation of Vietnamese leaders should give investors
signs of optimism. The economic rules that have limited Vietnam
for decades are now being dismantled and state ownership
gives way to private capitalism. Once Vietnam embraces capitalism,
democracy and the rule of law will follow. It could well
reinvent the whole country and put Vietnam firmly on the
radar screen of international investors again.
Michael Preiss is the Chief Investment Strategist for
CFC Securities.
eMergingPortfolio.com
Fund Research tracks country/regional weightings and fund flow
data on the widest universe of funds available to emerging market
participants, including more than 1,500 emerging market and international
equity and bond funds with $600 billion in capital and registered
in all the world's major domiciles. http://www.emergingportfolio.com/fundproducts.cfm.
eMergingPortfolio.com also offers customized financial analysis,
data and content management services on emerging and international
markets for corporate and financial Internet sites. For more information,
contact: Dwight Ingalsbe, Tel: 617-864-4999, x. 26,
Email: ingalsbe@gipinc.com.
The
Great New Game in Ventral Asia and its Implications
on Regional Balance
By
T. W. Kang
History
Repeats Itself in Far East Asia and in Central Asia
The controversy on the Korean peninsula has six nations
racking their brains to see if there is a solution. This
peninsula has been one of the hot spots of Asia for more
than the past two millenia especially for Korea, Japan,
and China, and more recently, Russia and the United States.
This immediate focus leads one to forget or marginalize
another strategic corridor, or "crossroads",
in Central Asia. This region, which encompasses the nations,
Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan
could be described in many ways: the center of the Silk
Road where East and West meet, West Turkistan which is
located on the west side of the mountain pass from former
East Turkistan (which is Xinjian Uyghur Autonomous Region
of the People's Republic of China), the chess board over
which the "Great Game" of the 19th century was
played by Russia and Britain, and so on. The "Great
Game", simply put, was a contest of intelligence,
brinksmanship, and military operations which lasted the
better part of the 19th century based on the British belief
that Russia was after India, and the Russian belief that
Britain was after Central Asia.
This region has also seen many powers come and go for two
millenia or more. The Persians, Tang, Turkics, Mongolians,
Timur, Shabanitz, the Russians, and the Soviets, are only
a few. And, history may be repeating itself here as well.
The Beginnings of the New Great Game
Nine eleven was truly a defining moment, which had a rather
ironic side effect in Central Asia. During the period when
the U.S. was trying to gather support for the Afghan campaign,
the Chinese and the Russians agreed to the anti-terrorist
rationale for their own domestic reasons, and this, in
part, allowed the U.S. to negotiate with Central Asian
states to locate military forces in Khanabad in Uzbekistan
and Bishkek in Kyrgyzstan albeit for non-offensive operations.
It should also be noted that these three powers (U.S.,
Russia, and Chia) also have a hand in the Korean peninsula
situation.
The result is there is a U.S. military presence not only
off the east end of China (in the form of bases in Korea
and Japan), but now also off the west end of China. As
is well known, the west end of China, the Xinjiang Uyghur
Autonomous Region, in particular, is a sensitive spot,
given the combination of its poor economic status and its
relatively recent intense assimilation into an increasingly
Han influenced environment. There were unconfirmed reports
from Japanese trading firm intelligence that the Chinese
had performed military exercises in cooperation with Kyrgyzstan,
and that the Russians had positioned their advanced fighters
planes in Bishkek.
Turning our attention towards the economic arena, yet another
type of game is being played out -- a game in which the
South Koreans and Japanese are lagging. For example, in
resource rich Kazakhstan, where about 70% of the GDP is
energy related, it is said there are supplies for 700-800
thousand barrel equivalents per day. In comparison, in
the Sakhalin II project, the operator Shell is trying to
extract 60-90 thousand barrels per day at their off-shore
Molikpaq platform. U.S. oil firms seem particularly interested,
and the Far Eastern Economic Review reported that James
H. Giffen, a New York Merchant banker, has been indicted
for distributing $78 million to Kazak leaders including
the President and Prime Minister. It has also been reported
that the Chinese have been aggressively discussing the
prospects of drawing a pipeline from Kazakhstan. In addition,
from a food perspective, this country, which is home to
16 million people, also produces 15 million tons of grain.
In rival Uzbekistan, a nation of 25 million people that
derives its pride from the glory of the Timur empire around
the 15th century, which stretched from the west edge of
China to Turkey, a different mode of competition exists.
Compared to the progressive and relatively reformist Kazakhstan,
Uzbekistan has maintained a gradualist approach to reform,
which has so far traded off growth rate for economic stability.
Although both countries became independent in the early
90's, by the year 2000, Kazakhstan had almost three times
the GDP and exports, and five times the GDP per capita.
International institutions have been critical of the Uzbek
approach, and in particular, EBRD (the European Bank for
Reconstruction and Development) has rated Uzbekistan rather
low in terms of economic policy reform as it transitions
from a centrally planned economy to a free market economy.
Yet, it appears that some people have the talent to turn
the most conservative, autocrative environments into a
business opportunity. The now severely weakened South Korean
group, Daewoo, and in particular, its charismatic ex-leader,
Kim Woo Joong was looking for a manufacturing base to serve
the former Soviet market in the early nineties. It takes
two to tango, and President Karimov of Uzbekistan, who
used to work in a large aircraft production facility, strongly
desired to develop Uzbekistan's own automotive production
capability. A marriage of convenience was born in the form
of a 50-50 joint venture, and Daewoo brought the capital
and needed manufacturing know-how, in return for government
incentives to reduce business risk. It seemed the venture
achieved its original expectations: practically all the
new cars on the streets of Tashkent and other cities in
Uzbekistan are Uz-Daewoo cars, and even in Moscow, the
heart of the former Soviet Union, Uz-Daewoo cars have a
rather visible presence, no doubt a source of pride for
Karimov. Trouble is, Daewoo's core organization became
bankrupt, and therefore, the Daewoo side is in the process
of finding a way to liquidate their share in the venture.
Need for a New Balance in Asia.
As the economic community in the Far East focuses on China
as a manufacturing base and market, fashion seems to favor
the cooperative image of China over the unavoidable competitive
realities. The East Coast of China already has a high-income
market segment that some analysts claim is of comparable
order with its South Korean equivalent. This region is
also the home of dynamic enterprises that are fast becoming
viable competition for Japanese and Korean companies in
the world markets.
Simultaneously, the Chinese government has been focusing
in recent years on shoring up the economics of the Western
half of the nation; Xinjiang Uyghur being an important
part of this for political reasons. Chinese, being the
merchants that they are, are already eyeing the neighboring
former Soviet Central Asian nations mentioned above as
markets.
Although it is to be expected for geopolitical reasons,
government officials in Kazakhstan and Uzbekistan have
said that Far East Asian economic interest in Central Asia
trails U.S., European, Russian, and Chinese interests by
a wide margin. So far, foreign investment from Japan and
South Korea has been either practically non-existent or
divested, apart from the Uz-Daewoo investment mentioned
above. In the case of Japan, economic assistance is much
larger than private sector investment in the region.
In the past, both Korea and Japan has dealt with the Middle
Kingdom only in the Far Eastern theatre. But, back then,
there were no planes and computer networks. Is it not time
for the two nations to diversify their economic presence
to both ends of China, particularly at a time when there
remains a window of opportunity?
The
Effect of Complacency, Tightening and Fear on
Commodity Prices
By
Keith W. Rabin
Last
month’s turnaround in the equities markets – as
well as precious metals, ADR’s and many other
sectors was quite interesting. An Associated Press
report noted “Stocks surged higher … as
investors overcame their initial disappointment with
the government's January employment report, believing
the moderate job growth would help keep interest rates
stable in the near future.”
One might ask what would have been the reaction had the report indicated
real progress -- giving credence to what we would call the “illusion
of progress” that underlies many Wall Street and government growth
estimates. One cannot say for sure, yet drawing from the near panic that
ensued after a slight change in Fed wording last month, it is fair to say
a strong number may have had the opposite effect.
In a sense, we have been living in the best of all possible worlds. Many
gold investments have been based on the precept the economy is precariously
balanced and at any moment a slight shove will drive us over the edge.
A bearish posture proved quite rewarding in 2001 and 2002. However, gold
has continued to appreciate over the past year, while this type of thinking
has been almost 100% wrong since the invasion of Iraq last year.
While there seems to be no real reason to think the present advance in
the equities market is anything more than a cyclical upturn within a secular
bear market –many smart investors have underperformed – wedded
to a perceived need to base their exposure on micro fundamentals, rather
than the fervor that has been created through excessively loose fiscal
and monetary policy.
Therefore, even though precious metals are usually viewed as a “flight
to safety” investment, gold’s advance over the past year has
been positively correlated to advances in U.S. equities. We would argue
this is because the related carrying costs are highly correlated with interest
rates.
Why is this important? Until last Friday, we had been seeing a severe correction
in gold and other commodity investments. One can attribute this to some
extent to an overbought/oversold phenomenon, yet a more important variable
has been the perception that the economy has begun to enter into a sustainable
recovery. This concurred with the change of Fed rhetoric, which caused
many participants to believe we might shortly see an upward move in rates.
A move toward tightening is considered highly undesirable as it indicates
a definitive move beyond the “perfect storm” that presently
exists, and which has allowed a simultaneous move upwards in almost every
asset class.
Given that few individuals (at least among the people we speak to) except
sell side analysts, brokers and retail investors appear to truly believe
current growth is really due to any real underlying strength in the U.S.
economy – as opposed to being the result of unprecedented fiscal
and monetary stimulation – it’s sustainability is in question.
Therefore any move upwards in rates or even the hint of one -- could quickly
bring an end to the party.
We believe this explains the real deterioration seen over the past few
weeks and the return of the bad = good reasoning that accompanied the release
of the weaker than expected employment number.
The problem, however, is ultimately interest rates will be raised. Absent
real fundamental strength, this may be caused by upward pricing pressure
caused by the ongoing stimulation, the need to prevent a rapid fall in
the dollar, and a weakening in Asian purchases of U.S. treasury securities
to name a few possibilities.
It is true this may not be for a long time and the U.S. may very well be
experiencing a Japanese-style phenomenon where we see a very weak pricing
environment for years to come. The question therefore is whether any rise
in rates will be based upon real fundamental strength or the need to maintain
foreign investment inflows. The problem is this is not likely to be clear
at the time and one can be reasonably sure the Fed and others will make
ever effort to interpret the move as one of strength rather than weakness.
Many investors are therefore likely to use the movement toward higher rates
as a reason to reallocate their portfolios in the belief that rates are
rising due to the need to combat the inflation and other pressures resulting
from an economy that in the words of President Bush is “strong and
getting stronger”. While we do not have great confidence this is
the case, over the short term, the perception may prove troubling for the
metals complex.
Where does this leave us? With the need to be cautious. Fundamentals point
to higher gold and resource prices – especially when measured in
dollar terms. This is due to a bias toward 1970s-style stagflation, where
excessive stimulation is being used to prop up an economy that simply needs
to take a rest. The result is additional asset inflation, built upon anemic
fundamentals, which lack the ability to grow additional jobs or sustainable
upward earnings momentum.
Resources, however, will by no means move up in a straight line. Absent
greater uncertainty any move toward, or hint of, higher rates is likely
to negatively impact commodities – at least until investors realize
the move is more a reflection of a lack of confidence in the U.S. economy,
rather than an economic tightening in response to stronger sustainable
growth and strengthening fundamentals.
That said, there are many developments that could trigger the uncertainty
needed to drive commodities higher. Aside from obvious ones such as international
terrorism, one likely development over the next few months may be the rise
of a resurgent and more coherent Democratic party -- which will create
more uncertainty as they move to more effectively challenge the policies
of the Bush Administration. Other factors might include a disorderly depreciation
of the U.S. dollar, more corporate scandals, the lack of any real progress
on Iraq, unexpectedly weak economic data or the emergence of tensions in
other parts of the world.
Therefore, we are not suggesting the time is right to lighten up on resource
investments. In fact there is some evidence to suggest the present consolidation
is moving behind us. The key point is there is a real possibility that
any move toward higher rates, or the perception of one, could cause a temporary
bump in this uptrend.
It is an interesting dilemma as policy-makers need to show progress on
the economic front – but not so much progress that there is a demonstrated
need to raise rates – which is likely to provoke downward movement
far greater than what has been seen in the past few weeks. Investors, therefore,
need to prepare themselves for this possibility and to position themselves
in whatever manner best suits their individual circumstances.
This
article was published last month
as a KWR
Special Report and
also appeared on the
321gold,
Kitco and
Financial
Sense Online websites.
|
|
FacilityCity
is the e-solution for busy corporate executives. Unlike
standard one-topic Web sites,
FacilityCity ties real estate, site selection, facility
management and finance related issues into one powerful,
searchable, platform and offers networking opportunities
and advice from leading industry experts.
|
Japan
Briefs
by
Scott B. MacDonald
Japan’s Foreign Exchange
Reserves – A New Record: Japan's foreign
reserves breached the $700 billion mark for the
first time, rising $67.71 billion to a record $741.24
billion at the end of January, according to data
released Friday by the Ministry of Finance. It
was the fifth straight record high and the biggest
monthly gain ever. The key reason for the massive
rise in foreign exchange reserves was the government’s
carrying out a series of dollar-buying interventions,
worth a total of Y7 trillion, on foreign exchange
markets in the month.
New Tighter Accounting Standards for Regional
Banks:
It was announced in early March that the four major
auditing firms plan to apply stricter guidelines
for regional banks, focusing on the credibility
of deferred tax asset valuations and urging them
to raise in-house asset assessment standards to
a level on a par with those applied to major banks.
Details of the guidelines have been disclosed.
Shin Nihon & Co., Azsa & Co., ChuoAoyama
Audit Corp. and Tohmatsu & Co. have commenced
to explain the new procedures to regional bank
clients that have begun assessing their assets
in preparation for the fiscal 2003 earnings results.
The key point of the stricter standards is to improve
the reliability of deferred tax asset estimates,
which represent future tax breaks on loan loss
reserves that cannot be claimed as expenses for
current tax purposes. Most regional banks include
such assets in their equity capital based on profit
projections for the following five years.
By
Scott B. MacDonald
 Brazil – It’s
Official 2003 Was Bad: Official GDP numbers for 2003 are
finally out and they confirm that last year was bad on the
growth front for Latin America’s largest economy. Real
GDP growth was at a negative 0.2%. This was the worst result
in a decade. Despite that result, the economy did commence
a gradual recovery in the second half of 2003. The government
expects real GDP growth in 2004 will be between 3.5% and
4%. The Lula government has also announced it will propose
a series of measures for the construction sector, which slid
8.6% last year.
Indonesia:
In early March 2004 it was announced that BP PLc
is seeking $1.3 billion in loans from Chinese and Japanese
lenders
to finance the Tangguh gas project. BP PLC was seeking
loans from the Bank of China and Japan Bank for International
Cooperation (JBIC) for the construction of Indonesia's
third liquefied natural gas (LNG) plant in the Bird's Head
area of Papua province. A consortium consisting of Japan's
JGC Corp., U.S. Kellogg Brown & Root, and local company
Pertafenikki Engineering won the tender to build the LNG
plant at an estimated cost of $1.3 billion, which is expected
to enter into full operation in 2007. To date, Tangguh
has secured a total of 7.4 million tons per annum of LNG,
including contracts to supply 2.6 million tons per annum
to China's Fujian province, 1.1 million tons per year to
South Korean buyer (SK and Posco) and a preliminary contract
to supply 3.7 million tons of LNG to U.S.-based Sempra
Energy. The discussion with JBIC was in the final stages,
while discussion with the Bank of China was still in the
preliminary stages.
Currently, Indonesia has two LNG plants namely Bontang
in East Kalimantan and Arun in Aceh province, which have
a combined capacity
of 31.6 million tons per year. Indonesia's natural gas reserves,
both potential and probable, stand at 178 trillion cubic feet (TCF).
The Tangguh project will provide significant revenue for Indonesia,
particularly Papua, one of the poorest regions in the country.
Under the contract, the central government will receive 70 percent
of Tangguh's before-tax revenue, while Papua will receive 70 percent
of the central government's revenue share.
Israel Implements Sarbanes-Oxley: In early March,
the Government Companies Authority adopted part of the US Sarbanes-Oxley
Act of
2002, and will apply it to companies under its jurisdiction. An official
announcement to this effect will be published today. The Government
Companies Authority notified the accountancy firms and auditors for
government companies about the new guidelines yesterday. The key
guideline: chairmen, CEOs and CFOs of government companies to sign
declarations attesting to the veracity of financial reports. At this
stage, the new guidelines will not apply to the three publicly-traded
government companies - Bezeq (TASE:BZEQ), El Al (TASE:ELAL), and
Ashot Ashkelon Industries (TASE:ASHO)- in order to give the Israel
Securities Authority time to issue similar guidelines of its own.
India - Russian Defense Minister Sergei Ivanov and Indian Defense
Minister George Fernandes signed a $1.5 billion deal on Jan. 20
to sell the Russian aircraft carrier Admiral Gorshkov to the Indian
navy. Russia will refurbish the carrier before delivery in 2008.
India is acquiring 28 MIG-29MK jets for the carrier in the deal
as well as unspecified parts and components for the carrier, likely
to include new missile and radar systems and helicopters.
Book
Reviews: The Price of Loyalty: George W. Bush, the
White House and the Education of Paul O’Neill
 Ron
Suskind, The
Price of Loyalty: George W. Bush, the White House and
the Education of Paul O’Neill
(New York: Simon & Schuster, 2004). 348 pages.
$26.00.
Reviewed
by Scott B. MacDonald
 Click
here to
purchase Ron Suskind's
book, "The Price of Loyalty: George W. Bush, the White
House and the Education of Paul O’Neill ", directly
from Amazon.com
It
is the election season and any book that provides insight
into the main actors on the political stage will get
considerable attention. Hence, Ron Suskind’s The
Price of Loyalty is timely as it provides a verdict about
one of the men contending to be in the White House post-November
2004 – George W. Bush. Seen through the eyes of
former Treasury Secretary Paul O’Neill, this portrayal
of the Bush White House is not flattering. Indeed, the
book is really Mr. O’Neill’s well-timed and
carefully thought revenge on a White House crew – Dick
Cheney, Karl Rove and other close political associates – that
came to constitute a praetorian guard that encircles
the President and made the bringing of any new ideas
virtually impossible.
What was galling to O’Neill is that the Republican
White House under Bush, Jr. was not like prior Republican
White Houses, which placed an emphasis on a rigorous process
of examining issues and finding pragmatic solutions. Instead,
George W. Bush, Jr. appeared to have a disdain for any such
process, took the advice of a handful of advisors (mainly
on the political side) and said very little to provide his
cabinet ministers with any guidance on policy. According
to Suskind, O’Neill warned Vice President Cheney that “without
a process that included strongly positioned honest brokers
and a rigorous, disinterested vetting of various proposals, “all
you’ve got are kids rolling around on the lawn.”
In a sense, the hardcore issues – tax cuts, 9/11, treatment
of developing world economic problems, and how to stimulate
the U.S. economy – are a backdrop as to the real issues
in the book - the price of loyalty. In O’Neill’s
mind, the process is necessary to reach policies that are
in the best national interest.
The President, his advisors
and cabinet ministers are there as they have the nation’s
best interests at heart. Their loyalty transcends ideology.
In contrast, the Bush White House, dominated by the political
crew of Karl Rove and the dark eminence Vice President Cheney
(former friend and betrayer of O’Neill), had their
loyalty to the Bush family. As Suskind wrote: “The
Bushes, of course, have relied on a different oath: loyalty
to a person, whether ‘41’ or ‘43’,
and to the family. There might be disagreements on what position
the best available facts or political calculations recommend.
But you stick together, no matter what.”
In the end, O’Neill never became part of the inner
circle, much to his discontent. At the same time, he was
baffled by the opaque nature of the Bush White House and
ill at ease with the President, who hardly came off as an
intellectual heavyweight. In this light, we see that the
President never really earned O’Neill’s respect.
Indeed, O’Neill had worked in Washington with other
administrations, been a player in Republican party circles,
and was a CEO of a major Fortune 500 company. Beyond the
clash between someone who is a pragmatist with ideologues
(the villains being the supply siders in the White House
like Larry Lindsey), the issue between President and Treasury
Secretary was over ego. O’Neill had severe problems
with how economic policy was made and did not like the lack
of what be regarded as intellectual rigor nor the opaque
manner of how policy was really decided.
O’Neill, through Suskind, warns: “The President
was caught in an echo chamber of his own making, cut off
from everyone other than a circle of his own making, cut
off from everyone other than a circle around him that’s
getting smaller and in concert with him on everything – a
circle that conceals him from public view and keeps him away
from the one thing he needs most: honest, disinterested perspectives
about what’s real and what the hell he might do about
it.” It is likely that such words are music to the
Democrats, but are also partly a product of a White House
that cherishes a lack of transparency and disclosure and
is guided by a certain ideological rigor.
For anyone interested in U.S. politics and an inside view
of the Bush White House (of which there are few), Suskind’s
book is worthwhile reading.
Recent
Media Highlights
For
pictures and updates of our recent Japan Small Company
Investment Conference, click above
Past
Issues of the KWR International Advisor
 KWR
International, Inc. (KWR) is a consulting firm
specializing in the delivery of research, communications
and advisory services with a particular emphasis on public/investor
relations, business and technology development, public
affairs, cross border transactions and market entry programs.
This includes engagements for a wide range of national
and local government agencies, trade and industry associations,
startups, venture/technology-oriented companies and multinational
corporations; as well as financial institutions, investment
managers, financial intermediaries and legal, accounting
and other professional service firms.
KWR
maintains a flexible structure utilizing core staff and
a wide network of consultants to design and implement
integrated solutions that deliver real and sustainable
value throughout all stages of a program/project cycle.
We draw upon analytical skills and established professional
relationships to manage and evaluate programs all over
the world. These range from small, targeted projects within
a single geographical area to large, long-term initiatives
that require ongoing global support.
In
addition to serving as a primary manager, KWR also provides
specialized support to principal clients and professional
service firms who can benefit from our strategic insight
and expertise on a flexible basis.
Drawing
upon decades of experience, we offer our clients capabilities
in areas including:
Research
- Perception
Monitoring and Analysis
- Economic,
Financial and Political Analysis
- Marketing
and Industry Analysis
- Media
Monitoring and Analysis
Communications
- Media
and Public Relations
- Investment
and Trade Promotion
- Investor
Relations and Advisory Services
- Corporate
and Marketing Communications
- Road
Shows and Special Events
- Materials
Development and Dissemination
- Public
Affairs/Trade and Regulatory Issues
Consulting
- Program
Design and Development
- Project
Management and Implementation
- Program
Evaluation
- Training
and Technical Assistance
- Sovereign
and Corporate Ratings Service
Business
Development
- Business
Planning, Development and Support
- Market
Entry, Planning and Support
- Licensing
and Alliance Development
- Investor
Identification and Transactional Support
- Internet,
Technology and New Media
For
further information or inquiries contact KWR International,
Inc.
Tel:+1-
212-532-3005, Fax: +1-212-799-0517, E-mail: kwrintl@kwrintl.com
©
2004 - This document is for information purposes only.
No part of this document may be reproduced in any
manner
without the permission of KWR International, Inc.
While the information and opinions contained within
have been compiled by KWR International, Inc. from
sources believed to be reliable, we do not represent
that it is accurate or complete and it should be
relied on as such. Accordingly, nothing in this document
shall be construed as offering a guarantee of the
accuracy or completeness of the information contained
herein, or as an offer or solicitation with respect
to the purchase or sale of any security. All opinions
and estimates included within this document are subject
to change without notice. KWR International, Inc.
staff, consultants and contributors to the KWR International
Advisor may at any time have a long or short position
in any security or option mentioned in this newsletter.
This document may not be reproduced, distributed
or published, in whole or in part, by any recipient
without prior written consent of KWR International,
Inc.
|
