Bhutan
An unwanted election in Bhutan
Democracy comes to the tiny Himalayan kingdom
STREAMING down mountain paths in their best national costume, thousands of Bhutanese turned out to vote in their country’s maiden election on Monday March 24th. Early estimates suggested that over 72% of some 320,000 registered voters had cast a ballot—a triumph for civic educators in the fastidiously-ministered Himalayan kingdom.
Of two political parties contesting the poll—both led by a former prime minister—the Druk Phuensum Tshogpa (DPT) won with a landslide. Voters may have approved of the many former ministers among its candidates: there being little else to choose between the DPT and its rival, the People’s Democratic Party (PDP).
In Bjeezam village, in central Bhutan, a queue of voters awaited the opening of a polling-station, a primary school in a paradisal wooded gorge, beside a crashing mountain stream. Many had travelled 200km from Thimpu, the capital, to vote in the place of their birth. As they passed through the school’s gates, local peasants and city-slickers turned a giant Buddhist prayer-wheel that stood there.
“Democracy can be a good thing—we hope,” said one metropolitan voter, Norbu Wangdi, putting a brave face on a political transition that has stirred more fear than joy in Bhutan.
Leaders of both the parties have said they would prefer to have remained under the former monarchic system. Many voters said they were casting a ballot—with a heavy heart—simply because this was the wish of their recently-abdicated ruler, King Jigme Singye Wangchuk.
Few elected governments could boast of the king’s record. Accelerating a reform process begun by his father, whom he succeeded in 1972, the king transformed Bhutan from one of the world’s most reclusive poor countries to one of its more enlightened.
Over the past 25 years its economy has grown at an average annualised rate of 7%, mainly on the back of sales of hydro-generated electricity to India. With massive investments in public health care, life expectancy has risen from 40 years at the time of the king’s succession to 66 years today. The school enrolment rate leapt by over 20% in the 1990s.
At the same time, the king maintained a strict control on the lives of his 700,000 subjects, especially through rules to preserve environmental resources and the Buddhist culture of the majority. In a society rich in sacred streams and memories of demons, this was, by and large, popular.
Yet a big minority of Nepali-speakers from the country’s south, including many Hindus, had more to complain of. Some among them became violent in 1990, to protest against their perceived marginalisation. In response, the government drove around 60,000 southerners—including, it said, many illegal immigrants—into Nepal. Most languish there still, in UN-run camps.
America recently offered sanctuary for as many as 60,000 of these refugees. But it will not resolve the worries of over 100,000 Nepali-speakers who remain in Bhutan. Thousands have been denied citizenship and voting rights because of their association with the lot sent into exile. For them, at least, democracy may offer a better future. Of 47 candidates, the DPT fielded nine Nepal-speakers; another six contested the election for the PDP. Officials in both parties said that resolving the southerners’ grievances would be a priority of their government.
More generally, candidates promised voters more of the sort of developments they had received at the former king’s favour—especially more electricity connections and rural roads. Both parties keenly expressed loyalty to the former king, and to his 28-year-old son and successor, King Jigme Khesar Namgyal Wangchuck. This was unsurprising. Besides its leader, Jigmi Thinley, the PDT boasted another former prime minister among its candidates and several former ministers. The DPD is led by a former prime minister, Sangay Ngedup, a brother of the former king’s four wives—who are also sisters.
Nonetheless, the election campaign saw an unexpectedly high degree of rancour between the rival candidates and their supporters. In Bjeezam, some voters said they feared this might lead to constant feuding between the two parties—or even civil war. Others said that they feared that, after India’s example, Bhutan will now see a surge in corruption. And so saying, they spun the prayer-wheel, and cast their vote.
McCain Says Democrats Won't Acknowledge Gains in Iraq (Update1)
March 24 (Bloomberg) -- Senator John McCain, returning to the U.S. after a trip to Europe and the Mideast, accused Democrats of refusing to acknowledge gains being made in improving security in Iraq.
``My Democratic opponents who want to pull out of Iraq refuse to understand what is happening,'' McCain, who has clinched the Republican presidential nomination, told a group at a veterans town hall in Chula Vista, California. ``We are winning in Iraq.''
McCain said allied forces are taking the fight to al-Qaeda in the northern Iraqi city of Mosul and are making progress that would be undermined by pulling out U.S. forces. Insisting he isn't ``painting to you the most rosy scenario,'' McCain said, ``If we set a date for withdrawal, the way Senator Clinton and Senator Obama do, all of that will be lost.''
Democratic presidential rivals Hillary Clinton of New York and Barack Obama of Illinois support what they call an orderly withdrawal of troops from Iraq.
McCain, conceding that U.S. alliances in Europe are frayed, said his call for a new treaty to slow global warming was well received in London and Paris. He also said that President Nicholas Sarkozy of France expressed support for committing more NATO troops in Afghanistan.
Health Care, Economy
McCain talked about health care and the economy at today's meeting before turning to a recent audio recording in which al- Qaeda leader Osama Bin Laden described Iraq as the center of Muslim global jihad against the West.
``For the first time, I have seen Osama Bin Laden and General Petraeus in agreement,'' McCain said. ``The central battleground is in Iraq today.'' General David Petraeus is the top U.S. commander in Iraq.
Democratic National Committee spokeswoman Karen Finney said in an e-mailed statement that ``John McCain's only plan for Iraq is 100 years of President Bush's open-ended commitment to a failed strategy.''
McCain is on the West Coast this week to raise campaign funds and appear at town hall meetings.
JPMorgan Raises Bear Stearns Bid to Woo Shareholders (Update5)
March 24 (Bloomberg) -- JPMorgan Chase & Co. quadrupled its offer for Bear Stearns Cos. to $10 a share and struck a deal to buy 39.5 percent of the company without a shareholder vote, making it unlikely opponents can block the takeover.
``It is a done deal,'' said Bruce Foerster, who was a managing director at Lehman Brothers Holdings Inc. before starting advisory firm South Beach Capital Markets in Miami. ``If JPMorgan lets go, Bear Stearns will go bankrupt. The agitation by shareholders got a better price but this ends the uncertainty.''
The companies agreed to an all-stock transaction that values Bear Stearns, once the biggest U.S. underwriter of mortgage bonds, at about $2.4 billion, the New York-based banks said today in a statement. They had agreed March 16 to a takeover that valued the firm at $2.52 a share, or $366 million, based on JPMorgan's March 20 stock price and the smaller number of Bear Stearns shares outstanding at the time. Bear Stearns stock peaked at $171.50 in 2007.
JPMorgan Chief Executive Officer Jamie Dimon may have outflanked shareholders who planned to hold out for better terms. By snapping up almost half the company before the deal is presented to investors for a vote, JPMorgan diminished their ability to thwart the sale. Bear Stearns agreed to issue new stock as part of the transaction, and the firm's entire board of directors will vote their own holdings in favor of the sale, the companies said today.
New Stock
``The price is still catastrophically low, but it will change the attitude of people who stay at Bear,'' said George Ball, the chairman of brokerage firm Sanders Morris Harris Inc. ``Those are the people Jamie needs to win over.''
Bear Stearns rose $5.29, or 89 percent, to $11.25 at 4:10 p.m. in New York Stock Exchange composite trading. JPMorgan gained 57 cents to $46.54.
While the new offer values Bear Stearns at $2.4 billion, current shareholders will get only about 60 percent of that. The JPMorgan stock given to Bear Stearns in exchange for the new shares the smaller firm is issuing will end up back in JPMorgan's hands when the deal is completed. Bear Stearns's current owners will receive $1.5 billion of JPMorgan stock, four times the amount they were promised under the previously negotiated deal.
Bear Stearns will issue 95 million new shares without seeking a shareholder vote by taking advantage of an exemption from NYSE rules governing share sales, the banks said. The exchange requires companies to give notice when they act under the exemption. The notice period ends on or about April 8, the firms said. NYSE could refuse to grant the exemption, according to Fox-Pitt Kelton Cochran Caronia Waller LLC.
Shareholder Suits
``Such a clause would have made perfect sense over the prior weekend, given that Bear was in the midst of a panic,'' wrote Fox-Pitt analyst David Trone in a report. ``By this weekend, however, the run-on-the-bank at Bear was apparently eliminated by the involvement of JPMorgan and the Fed's backing.''
Some shareholders are still likely to sue Bear Stearns for securities fraud, claiming it misled investors about its cash problems, said Roger Kirby, a partner in the New York law firm Kirby McInerney LLP. Kirby said his firm has been retained to represent such an investor, declining to identify the client.
Once JPMorgan has the 39.5 percent stake, Dimon will need only an additional 10.5 percent of shareholders to approve the takeover. Employees' total holdings will drop to about one fifth from one third once the company issues the new stock. Bear Stearns board members, who own a total of 7.2 million shares, will control about 3 percent, according to Bloomberg data.
`Bulletproof'
``They made this deal bulletproof,'' said Frederick Lane, co-founder of investment bank Lane Berry & Co. ``No further hold-up is possible.''
The original bid, more than 90 percent lower than the securities firm's market value at the start of the month, drew opposition from shareholders led by U.K. billionaire Joseph Lewis. Dimon, 52, met with Bear Stearns employees to seek their support last week.
The Federal Reserve helped engineer the takeover two weeks ago after customer withdrawals crippled the New York-based firm. The central bank agreed at the time to provide a financial guarantee against losses on a pool of ``less-liquid'' Bear Stearns assets that the firm had valued at $30 billion.
The Fed adjusted its financial support today, the two banks said. JPMorgan will now be responsible for the first $1 billion of potential losses on the Bear Stearns assets, while the Fed will assume the risk of loss on the remaining $29 billion.
BlackRock Role
The Federal Reserve Bank of New York said in a statement today that it will lend $29 billion to a limited liability company formed to purchase and then sell the unspecified assets. JPMorgan will lend the remaining $1 billion. The regulator hired BlackRock Inc., the largest publicly traded asset manager, to oversee the liquidation of the collateral.
The Fed loan and the JPMorgan loan are for a term of 10 years. The central bank will pay interest at the credit market rate, currently 2.5 percent. JPMorgan will pay the same rate plus 475 basis points, currently 7.25 percent. Any sale proceeds that remain after repaying the loans and covering ``necessary operating expenses'' for the newly formed company will go to the Fed, the regulator said.
Standard & Poor's Ratings Services raised its credit rating and counterparty rating on Bear Stearns today to AA-/A1+ and removed the firm from CreditWatch.
Bankruptcy Threat
``The price increase and the anticipated increase in the amount of shares controlled by JPMorgan raise the probability that the deal will be completed,'' S&P said. ``On its own, Bear Stearns' viability is uncertain. If the deal is amended in any way, we would review the circumstances at that time.''
Bear Stearns climbed 12 percent to $5.96 on March 20 in New York on speculation JPMorgan, the third-largest U.S. bank, might raise its bid or risk prompting rival offers.
The stock closed at $30 two days before Chief Executive Officer Alan Schwartz, 58, was forced to accept JPMorgan's terms or face bankruptcy after customers and lenders abandoned the broker.
Lewis and James ``Jimmy'' Cayne, Bear Stearns's 74-year-old former chief executive officer, were trying to recruit investors to counter JPMorgan's offer, the New York Post reported last week, citing people familiar with the situation. Cayne, who remains non-executive chairman of the company, is among the directors who have agreed to vote their own shares in favor of the amended sale agreement, according to the companies' statement.
Lewis's Plan
``Finding a counterbidder is attractive but a lot more difficult,'' the Sunday Telegraph cited Lewis as saying in a report yesterday. ``There are two ways to block the deal: first by a shareholder no vote and second by litigation. We should be able to block the deal by one of these ways.''
Lewis spokesman Doug McMahon didn't return a call today seeking comment.
Bear Stearns employees, directors and lawyers are prohibited from seeking an alternative transaction, according to the agreement, which was filed with regulators last week.
Bear's financial troubles began in July, when two hedge funds that invested in securities tied to U.S. subprime mortgages collapsed. The firm had to bail out the funds and take possession of many of their instruments.
Asia Stocks Gain for Third Day; National Australia, Canon Rise
March 25 (Bloomberg) -- Asian stocks rose for a third day, led by banks, after JPMorgan Chase & Co.'s increased bid for Bear Stearns Cos. eased concern about tumbling financial asset prices.
National Australia Bank Ltd., the country's biggest by assets, advanced to a one-month high in Sydney, where markets rebounded after a four-day break. BHP Billiton Ltd. climbed after U.S. home sales unexpectedly gained, lifting copper prices. Canon Inc., the world's largest maker of digital cameras, led Japanese exporters higher.
``By seeing more value in Bear Stearns and paying more for it, the same could be said for the value of financials in this region,'' said Hans Kunnen, who helps manage $128 billion at Colonial First State Global Management in Sydney. ``I won't say overall sentiment has turned, but that the market is buoyed by bits of positive news.''
The MSCI Asia Pacific Index added 1.9 percent to 138.55 as of 11:02 a.m. in Tokyo, on course for its first three-day gain since the period ended Feb. 27. All 10 industry groups advanced.
Japan's Nikkei 225 Stock Average climbed 1 percent to 12,608.72. The S&P/ASX 200 Index surged 4.2 percent in Australia after a four-day holiday, during which the Standard & Poor's 500 Index rallied 4 percent in the U.S. Benchmarks advanced in other markets open for trading.
National Australia jumped 5.9 percent to A$30.84, on course for its highest close since Feb. 27. Kookmin Bank, South Korea's largest, rose 2 percent to 56,100 won. DBS Group Holdings Ltd., Southeast Asia's biggest bank, added 1.3 percent to S$18.24 in Singapore.
Higher Bid
Bear Stearns surged 89 percent in New York Stock Exchange composite trading after JPMorgan raised its offer to about $10 a share from $2.52 and struck a deal to buy a 39.5 percent stake without a shareholder vote, making it unlikely opponents can block the takeover.
MSCI's Asian index has rallied 2.4 percent in the past three days, led by financial shares, on speculation the U.S. will contain credit-market losses. The advance helped pare the benchmark's 2008 loss to 13 percent.
Commonwealth Bank of Australia, the nation's biggest provider of home loans, surged 6 percent to A$41.67. St. George Bank Ltd., Australia's fifth-largest, rose 6.3 percent to A$27.73. The stocks also climbed after the banks announced profit gains from shares received in Visa Inc.'s initial public offer.
Stocks extended their advance after the U.S. National Association of Realtors said existing home sales climbed 2.9 percent to an annual rate of 5.03 million in February, increasing for the first time in seven months. Economists had forecast a decline to 4.85 million, according to a Bloomberg News survey.
BHP, Canon Jump
BHP, the world's largest mining company, rose 2.2 percent to A$34.60, rebounding from its biggest drop in more than 20 years. Rio Tinto Group, the third-largest, added 1.6 percent to A$118.10. Copper prices rose 1.4 percent in New York yesterday after the release of the housing report.
Canon surged 3.7 percent to 4,770 yen. The company gets almost 30 percent of its sales from the Americas. Westfield Group, which operates 59 shopping malls in the U.S., surged 5.1 percent to A$18.68. James Hardie Industries NV, the No. 1 provider of home siding in the U.S., added 6.3 percent to A$6.27.
Nippon Electric Glass Co. surged 9.6 percent to 1,497 yen. The world's third-biggest supplier of glass for liquid-crystal displays advanced after saying it expects sales to accelerate next year.
Leighton Holdings Ltd., Australia's largest engineering and construction company, rose 10 percent to A$42.40, the most since November 1997. The company may form a $700 million alliance with Accor SA to build hotels in India and China, the Australian Financial Review reported, without citing anyone.
Murdoch vs. the Times
We had a conversation there that I've been carrying around like a hot rock ever since. As the paper's executive editor at that time, I was eager to hear Murdoch's critique of Escapes, our new lifestyle section. We had rushed Escapes into print to steal thunder from the debut of the Wall Street Journal's ballyhooed Personal Journal section.
Murdoch allowed that Escapes was all right as an attempt to thwart the Journal's targeting of young professional women, a key readership group for the Times. Then he added some advice about how to conduct a newspaper war: "You ought to hit them where they live," he said of the Journal. "Go after hard business news and beat them on their strength."
I can't shake the memory because it seems obvious to me that Murdoch now plans to do to the Times what he was advising me to do to the Journal. He will spend whatever it takes to undermine the Times' standing as America's leading general-interest newspaper. But my real fear is that Murdoch or some other unsuitable purchaser will then buy the Times through a combination of financial and psychological pressures on the strong, but hardly ironclad, Sulzberger family trust that controls the vast majority of the company's voting stock. There is no more important question in American journalism than the future of the Times, and I don't think the newspaper or the journalistic profession is taking Murdoch in particular or the takeover issue in general seriously enough.
It is an article of faith in the Times newsroom that the Sulzberger family trust, updated in 1997 from a previous agreement, is bulletproof. It may be, against the threat it was designed to counter: a renegade cousin or two stampeding the family into selling. But is it built to withstand repeated proxy battles with hedge funds or investment banks attacking the
New York Times Co.'s dual-class stock structure? In recent weeks, New York investor Scott Galloway and his Firebrand Partners, along with the hedge fund Harbinger Capital Partners, have bought huge blocks of Times stock. This points to the trust's vulnerability to converging trends unique to this moment—the financial decline of the Times, predatory investors, Wall Street and family anxiety about stock prices, and the emergence of Murdoch as the most powerful individual in mass communications. These factors could bring us to the point where the unthinkable is possible.When Arthur Sulzberger Jr. fired me in 2003, I took quite a beating from media reporters on journalistic issues. Since then, I've watched Arthur get roughed up by the financial press for his business decisions. Any tendency toward schadenfreude on my part has been offset by two powerful factors. As a Times pensioner, I want the paper to make money under public-spirited owners. As a reader, I believe a Murdoch takeover of our last independent national newspaper would be a disaster for the trustworthy reporting on which our civic life depends. The Sulzbergers are one of the most admired publishing families ever. Throughout his career, Murdoch has used his newspapers and broadcasting properties in a broadly unprofessional way—as political muscle to advance his commercial interests.
Murdoch, jolly pirate that he is, reportedly sent Sulzberger a handwritten note after buying the Journal. "Let the war begin," it said. Since then, Murdoch has targeted three Times strengths—foreign news, the Washington/politics report, and the Sunday magazine—and suggested he'd invest heavily to beat its news sections. You could call it hitting them where they live. I hope the Times has battle plans to which I'm no longer privy, but from the outside, their response to Murdoch's trumpeting seems way too relaxed.
There's no argument that the Times is financially vulnerable, a fact that calls attention to a small but crucial trapdoor in the family trust agreement. In November 2006, the Times saw fit to print the news that by a vote of six to two, the governing board of the family trust could "change the company's corporate structure"—that is, set in motion a sale of the Times to an outside buyer. This came in response to the attempt by Hassan Elmasry of
Morgan Stanley to incite a revolt among the owners of class-A stock, who can elect only four of 13 directors. The family owns the great majority of class-B shares through the family trust, electing nine of the 13 and thereby controlling the paper. In my 25 years at the Times, I never heard it suggested that the paper could be sold without unanimous family consent. Now we know that six of eight trustees out of an eventual 50 or more heirs hold this crucial power, a provocative fact in view of stock performance.This situation creates a psychological environment that Murdoch can exploit if his plan of pouring money into the Journal has the intended effect of keeping the Times Co.'s stock price down. Forward-thinking cousins are likely to wonder about their share of a cash offer from an outsider with pockets deep enough to pay a premium based on the aura of the brand. For this kind of buyer, $4 billion has been bruited as an attractive price. Higher offers might come from individuals or communications conglomerates looking for a trophy acquisition that could grow in value under new management.
Does the Sulzberger family trust rule out acceptance of such an offer? Not as I read the most recent proxy statement. As the Times has reported, the dual-stock "structure can be overturned" on the vote of six of the eight family trustees. The current trustees are Sulzberger, his sister, and six of their cousins or spouses of cousins. They can take such action tomorrow over the objections of Sulzberger or any future chairman. The issue then hinges on the kind of question that blows dynasties apart. Could dozens of restless heirs—plus the already unhappy owners of class-A stock—exert enough pressure on six Sulzberger relatives to put the company in play?
As far as Wall Street is concerned, it is already in play, according to predictions that represent differing threat levels to the Times' tradition of quality journalism. Here are some:
The Protectorate
I'm impressed by this one, as outlined by a financial blogger named John Ellis, who argues for a friendly sale of the Times Co. to
Google. (For Google C.E.O. Eric Schmidt's take on the deal, see "Search Mission.") As I see it, the buyer gets a prestige title and a historical source of quality content. The Times gets a guaranteed revenue stream and a promise of editorial independence. I would go a step further and have Google put the Times into its foundation, meaning that any profits would have to be plowed back into journalism to keep the I.R.S. satisfied. Problem: Google could collapse or be purchased by anyone, including Captain Jack Sparrow.The Handpicked Buyer
Mike Bloomberg is mentioned most often. He's too rich to milk the company or cheapen the brand, but I don't see him being a nonmeddling owner like Arthur Sulzberger Sr. or Katharine Graham.
Going Local
The underestimated Donald Graham of the Washington Post now looks like the smartest hereditary publisher of his generation because he figured out the wild card you need to play this hand. After limiting the Post's footprint and aspirations to the Beltway, Graham was accused of embracing boutique journalism. But he also made a killer acquisition in the form of Kaplan Inc., an educational-tutoring firm that BusinessWeek called the Post's "financial crown jewel." The Post lives on as a great local newspaper on the strength of non-newspaper revenue. Problem: The Times burned through its killer-acquisition budget over the last 15 years by buying back its own stock and spending $1.3 billion on two dinosaur newspapers in Massachusetts.
Mr. Goodbar
In the past, cruising investors like Saul Steinberg and Morgan Stanley have made passes at the Times, hoping to capture enough noncontrolling stock to break the family lock through legal or fiduciary challenges. Now Galloway and Harbinger, an Alabama hedge fund based on the heavy-construction fortune of the late John Harbert, have bought a 19 percent stake (at press time). The Times rejected Galloway's four candidates for board seats, setting the stage for a contentious April board meeting. Problem: None of these outside aspirants is a sure bet to make money in journalism, much less exercise Sulzberger-style editorial restraint while doing so.
Going Private
Two years ago, I would have bet you that Sulzberger and his closest friend, investment banker Steve Rattner, were quietly scraping up the financing and deep-pocketed partners to help take the Times private. This would soothe the nerves of the newsroom—and your correspondent—more than any other course. Problem: That might require turning a struggling company with manageable debt into a heavily leveraged one.
To me, underlying all these scenarios is the fact that, based on business performance, something's got to give at the Times. That brings me back to my hunch about Murdoch. He portrays himself as ambivalent about the newspaper. One Murdoch associate told me, "He once said to me about the Times, 'I'd love to buy it to close it.' " I believe the first part of that quote is true, the latter part a joke. Recently—and more accurately—Murdoch said in one of his Australian papers that he had considered buying the Times but that Washington regulatory agencies make that impossible.
Ho ho ho. What regulatory agencies? It's unlikely that a McCain White House is going to pump oxygen to the F.C.C., S.E.C., or antitrust division of Justice in time for them to block a media deal of this magnitude. And would any Democratic president choose to start a new term by signing up for the ceaseless pummeling on Fox that would result from thwarting Murdoch? For now, the thing to watch is the newspaper war promised by Murdoch. If his heavy spending on the Journal has the side effect of further depressing Times stock, a lot of cousins could start looking over their shoulders and fingering their calculators.
Bogotá Eyes the Irish Model
When Colombia's trade minister visited the Journal's New York offices two weeks ago, the last thing I expected to come up in our conversation was Ireland. To my surprise, it was the first subject he raised.
No sooner had Luis Plata sat down then he started talking about the Irish economic transformation -- from impoverished ugly duckling to swanky swan of Europe in just two decades -- and why a similar growth model is just what Colombia needs.
Some of the necessary policy adjustments are already under way in Bogotá, he said, and with any success, the reforms can be deepened. But the big question mark is whether the U.S. Congress will approve the pending Free Trade Agreement. The FTA, Mr. Plata explained, is as important to Colombia's growth as European Union membership has been to Ireland's.
To think that Democrats might undermine Mr. Plata's visionary agenda is troubling. In 2006, U.S. official development assistance aimed at alleviating poverty around the globe was $23.5 billion and it was pretty much money down a rat hole. That's because development requires economic liberalization, and leaders of poor countries have little incentive to disturb the status quo of monopolies and protectionism that put them in power. Their incentives are even less when rich-country handouts are flowing.
Now along comes Colombia, with a leader -- President Álvaro Uribe -- who is willing to risk political capital to open domestic markets, cut taxes and spur competition in a bid to grow fast à la Ireland. All his government asks from Washington is two-way trade, but Democrats want to slam the door in his face.
Before Mr. Plata became trade minister last year, he headed a government export agency. "We starting going to Ireland several years ago, he says, "because we were looking at countries around the world that had been successful in attracting foreign direct investment. What we found was that Ireland had lowered its corporate tax rate from 40% to 12.5%," and as a result "was attracting investment, had lowered tax evasion and had increased tax collection. We went back to Colombia and said, 'why don't we just bring [our corporate rate] from 38% to 12.5%.'"
That wasn't a popular view with Colombia's treasury department. "It got me kicked out of their offices," Mr. Plata recalls.
No surprise there. Bean counters in every treasury in Latin America have tax-cut phobia in their DNA. It explains why they often get jobs at the International Monetary Fund in Washington after the collapse of the governments they've served back home. At the fund they can put into practice their deeply held convictions that the only responsible fiscal policy is one built on a static analysis to discover the "right" tax rate. Embracing the notion that production creates its own demand, and that government revenues expand under a low-tax regime, is considered high-risk behavior.
Mr. Plata is more sympathetic toward his treasury colleagues. He says that they have to balance the medium- and long-term benefits of tax cutting with the more immediate need to finance the government. Nevertheless, he was convinced that Ireland's experience could be applied to Colombia. Despite the initial reaction, his team "went to work" on the idea of attracting investment through tax cuts.
In a perfect world, he would have won a flat corporate rate. But he had to compromise and instead came up with the "single-enterprise free-trade zone." It expands the low-tax treatment that companies receive when they are located within a "free trade zone" -- normally an industrial park -- to any company that meets certain investment criteria. Businesses (excluding mining and oil) that qualify by meeting minimum investment amounts and employment targets now pay a 15% flat tax instead of 33%. They also import all raw materials with no tariffs and pay no value-added tax.
In addition to offering these tax advantages, the government is writing "stability contracts" to guarantee that the rules will not change when presidents do. It is also working to reduce the regulatory burden, since red tape is one of the most common complaints from foreign investors.
The "single-enterprise free-trade zone" was launched last May, and to date it has attracted about $864 million in foreign direct investment. That number would be higher under a pure flat tax, and if Colombia is to rival the Irish miracle, it will have to move in that direction. But to persuade the treasury to adopt a broad-based flat tax, Mr. Plata will have to show some results with his initial experiment.
That's why the FTA is so important. Companies investing in Colombia are looking beyond the domestic market and, as the minister notes, the recent dustup with Venezuela -- in which President Hugo Chávez threatened to close the border -- demonstrates the fragility of Colombia's export market. About half of Colombian exports now go to Venezuela and Ecuador. Access to the U.S. market and to duty-free imports from the U.S. are both crucial for producers.
All of this begs the question of why congressional Democrats want to reject the Colombian trade agreement. They say it's because Mr. Uribe hasn't done enough to quell violence against labor leaders in the country. But murders are down dramatically, and as Mr. Plata says, "you can't make the case that killing the FTA will make things better."
What will make things better is investment, which is fundamental to reducing poverty. Peru, Mexico and Central America all have FTAs with the U.S., which means that Colombia is automatically disadvantaged if it is denied one. And that could harm national security, which is so fragile. As Mr. Plata pointed out, "You don't win the peace with soldiers alone. You have to have a functioning economy." Surely Democrats can't be against that.
Hillary's Berserker Campaign ... for 2012
Blonde Ambition
By JEFFREY ST. CLAIR
Hillary Clinton can not win the Democratic nomination for president. The numbers tell the story. Even with robust victories in Pennsylvania, Indiana, West Virginia and Kentucky, Hillary will trail Obama in popular votes and pledged delegates as they enter the convention hall in Denver.
Any other candidate would have been shamed into dropping out long ago. But these are the Clintons and they have no shame.
So why does Hillary persist? Because she hasn't abandoned her aspiration for the White House. Not in 2008, but for 2012. Here's the perverse logic at work.
If Obama defeats McCain in November, it will take an act of treachery beyond anything even the Clintons have ever conjured from their grimoire of political demonology for Hillary to challenge him in 2012. She will be 69 in 2016, almost ready to move into one of the Beverly Nursing Homes, owned by a company she once represented as a corporate lawyer, aggressively protecting the bottom line against such extravagances as healthy meals, clean sheets and proper medical care for the elderly.
Hillary Clinton is the prisoner of an unimpeachable mathematics. So she makes the most of a remorseless situation by doing what the Clintons do best: commit political fratricide. Quite literally, in this case, by knocking off a brother.
In order to realize her vaulting ambition, Hillary must mortally wound Obama as candidate in the fall race against John McCain so that she can run against McCain in 2012.
McCain is at best a one term president. The signs of this are as clear as the scar jagging down his face. McCain, whose resemblance to Lon Chaney becomes eerier by the day, is already an old man, older than Reagan when he was first elected. He is plagued by a cancer he refuses to speak about, a war he refuses to end and an economy that is collapsing beyond the point of recovery. Add to this prospectus, the fact that McCain is prone to the most self-destructive impulses of any American politician since Aaron Burr. His political fate will be sealed before he even swears his oath.
Thus Hillary's berserker strategy against Obama. (For more on "berserkerism" see the SF novels of Fred Saberhagen.)
Down in Mark Penn's dark computer lab, the data culled from pulse polls and focus groups probing the hidden prejudices in the psyche of white America are being packed like shrapnel into political landmines set for Obama: he's unpatriotic, he's un-Christian, he's a Palestinian symp and, yes, he's black. That's three strikes and one head shot.
Exploitation of racial panic is second nature to the power couple Ishmael Reed calls Ma and Pa Clinton. Bill Clinton launched his 1992 campaign by personally overseeing the execution of Ricky Ray Rector, a brain-damaged young black man. He wagged his finger at the rapper Sister Souljah, denouncing her music and political opinions as a danger to young minds. The Clintons pilloried their one-time friend Lani Guinier, for her legal writings on the status of blacks and women and booted Dr. Jocelyn Elders from her position as Surgeon General for her refreshingly candid statements about the utility of condoms and masturbation for sexually active youths.
And that's how they treated people they knew. At a structural level, the Clintons' economic and social agenda, incubated at the conservative Democratic Leadership Council, struck directly at poorest precincts of America, targeting blacks and Hispanics with a fervor not seen since Pat Buchanan and Kevin Phillips crafted the infamous Southern Strategy for Richard Nixon. Hence, the dismantling of welfare, harsh federal crime bills, the refusal to intervene against racial profiling or redress the grievous injustices caused by the racially-motivated sentences handed out for crack cocaine.
The fallout from Ms. Clinton's racially-tinged blitz against Obama will spread far and wide across her party like the toxic particles from a nuclear blast. They've done it all before. The Clintons' reckless first two years in the White House, from the heavy-handed Travel Office fiasco to the fires of Waco and HRC's sophomoric bungling of the health care reform, spurred the GOP takeover of congress in 1994, which they used to their political profit. Then in 1996, Clinton refused to allocate DNC money to tight senate and congressional races, a miserly tactic that allowed the faltering Republicans to retain control of both houses of Congress. It was a cynical decision that many high-ranking Democrats believe constituted a deliberate sabotage of the party's prospects, designed to secure a monopoly-like control of the party apparatus for the Clintons, turning the DNC into their own private PAC.
That's the logic of triangulation. The daisy-cutter tactics of Hillary's current campaign might be called pre-emptive triangulation. The Clintons enrich themselves politically by looting the ruins of their own party.
Look how swiftly her campaign knee-capped her friend Bill Richardson. After working sedulously for Richardson's endorsement only to lose out to Obama, Mark Penn dismissed the governor as "irrelevant." On Good Friday, Clinton intimate James Carville denounced Richardson as "a Judas."
Clinton believes she must destroy the party in order to save it-for herself. But her campaign geared at women and white working class voters relies on a perversion of the past. The recent past at that, as if they believe that the American electorate is blinking out from a kind of political Alzheimer's, where the short-term goes first. Perhaps that's why Penn and his pack of geeks geared their themes to appeal to geezers and grandparents. Clintontime is recast as a glittering epoch of peace and prosperity. Yet this was a decade when Iraq was bombed every three days and a half-million people died under the cruel sanctions regime, when cruise missiles where launched on Sudan and Afghanistan to divert popular attention blow-jobs and thong-snapping interns, when an illegal air war was orchestrated against Serbia, racking up thousands of civilian casualties and the ongoing bloodbath against peasants in South America known as Plan Colombia, the drug war that keeps on killing.
The Clinton 90s was a time when the economic chasm in America between the rich and everyone else deepened and widened profoundly, under the command of Alan Greenspan and Wall Street maestro Robert Rubin, and the social safety nets protecting the most vulnerable among us where shorn in the name of political pragmatism. The Clintons evoke a nostalgia for a time that never was. If you require objective confirmation of the economic enervation unleashed by the Clinton program consult Contours of Descent, economist Robert Pollin's brilliant dissection of that dismal era.
This coarse reality is transparent to those who lived through it and still suffer the aftershocks of the Clintons' neoliberal program. That's one reason why almost the only blacks to back HRC are encrusted members of Congressional Black Caucus and corporate shills like Andrew Young, who whitewashed Nike's crimes against workers in its Asian sweat-factories. Both camps are old hands at palming political gratuities and walking around money.
Meanwhile, Obama plays the role of willing victim like he had trained for it at Actor's Studio. He exudes a sense of entitlement nearly as all-engrossing as the Clintons and compounds this with a martydom complex that dramatizes the wounding of each sling and arrow lobbed his way.
Although it's not strictly attuned to her peculiar pathology, Hillary could almost call it quits right now, even before she claims Pennsylvania as a scalp. She has fatally toxified Obama and almost certainly secured the White House for her good friend John McCain.
Hillary is following the Reagan model. In 1976, Ronald Reagan bled Gerald Ford through the long winter and spring months, before bludgeoning him the late primary in Pennsylvania. As told in Adam Clymer's new book, Drawing the Line at the Big Ditch: the Panama Canal Treaties and the Rise of the Right, Reagan finally found a theme to his weird internecine challenge in the Panama Canal Treaty. Reagan fell short in the end, but he had hobbled Ford, who stumbled and fell against Carter in the fall election. Carter inherited a stagnant economy, soaring oil prices and a simmering crisis in the Middle East. Reagan easily unseated Carter in the 1980 election. The Clintons are shrewd enough to detect the striking historical parallels here and craven enough to exploit them for their own long-term advantage.
The Clinton war room may still throb to the beats of Fleetwood Mac's "Don't Stop Thinking About Tomorrow." But late at night, when Mandy Grunwald has slipped on her flannels and Mark Penn has powered-down his Cray super-computer, Hillary and Bill will surely toast their strange time-delayed victory to the chords of McCartney's "Live and Let Die.
What's This, the SWF Magna Carta?
Two things: the Financial Times reported earlier on that SWFs from the UAE and Singapore have acceded to US requests on their conduct so as not to invite protectionist ire or government scrutiny Stateside. However, there are more forthcoming guidelines to be put out, especially by the IMF. Here is part of the official statement from the US Treasury site:
Sovereign wealth funds (SWFs) represent government-owned investment vehicles, funded by foreign exchange assets and commodity export receipts, etc., which invest internationally for financial objectives such as stabilization and intergenerational savings.
The United States, Abu Dhabi
, and Singapore, being a group of nations with SWFs and a country receiving investments from SWFs, have a common interest in an open and stable international financial system. We support the processes underway in the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development
Policy Principles for Sovereign Wealth Funds (SWFs)
SWF investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government. SWFs should make this statement formally as part of their basic investment management policies. [What happened to point #1?]
2. Greater information disclosure by SWFs, in areas such as purpose, investment objectives, institutional arrangements, and financial information – particularly asset allocation, benchmarks, and rates of return over appropriate historical periods – can help reduce uncertainty in financial markets and build trust in recipient countries.3. SWFs should have in place strong governance structures, internal controls, and operational and risk management systems.
4. SWFs and the private sector should compete fairly.
5. SWFs should respect host-country rules by complying with all applicable regulatory and disclosure requirements of the countries in which they invest.Policy Principles for Countries Receiving SWF Investment
1. Countries receiving SWF investment should not erect protectionist barriers to portfolio or foreign direct investment.
2. Recipient countries should ensure predictable investment frameworks. Inward investment rules should be publicly available, clearly articulated, predictable, and supported by strong and consistent rule of law.
3. Recipient countries should not discriminate among investors. Inward investment policies should treat like-situated investors equally.
4. Recipient countries should respect investor decisions by being as unintrusive as possible, rather than seeking to direct SWF investment. Any restrictions imposed on investments for national security reasons should be proportional to genuine national security risks raised by the transaction.
However, Singapore now says US Treasury concerns are overblown for a number of reasons. First, Singapore disputes that Temasek, one of its two SWFs, is really an SWF per se for obscure technical reasons I think few buy. Actually, there are several ways SWFs are funded which do not mean they are not SWFs. Second, Singapore claims that its procedures already comply with what the US Treasury is asking for. Actually, research exists pointing out this same thing: Temasek is already quite transparent in a neoliberal sense, but it's the other Singaporean SWF, GIC, that isn't quite transparent. Still, the message seems to be one of Singaporean indifference at US intrusion than the tone of getting SWFs' paymasters to acquiesce to American demands. From Bloomberg:
An agreement by government-run funds of Abu Dhabi and Singapore to increase transparency won't shed more light on Temasek Holdings Pte's $118 billion portfolio, because the company said it already meets disclosure guidelines.U.S. Treasury Secretary Henry Paulson said yesterday that funds including the Government of Singapore Investment Corp. agreed to adopt rules for greater disclosure. Temasek, owned by Singapore's finance ministry, said it already provides more information than government-run funds.
``Temasek is not a sovereign wealth fund,'' spokesman Mark Lee said by telephone today. ``Temasek has to sell assets to raise cash for new investments and doesn't require the government to give approvals.''
The U.S. is pushing sovereign wealth funds to adopt new disclosure rules because of concern that a lack of transparency could spark a rise in protectionism. The European Commission has called for an international accord to limit the political influence of the state-owned capital pools, which have grown in number to about 40, managing between $2 trillion and $3 trillion.
Singapore's GIC and counterparts in China, Russia and Dubai have deployed record central bank reserves of as much as $2.9 trillion, buying stakes in U.S. financial services companies. GIC invested in UBS AG and Citigroup Inc. in the past three months as banks sought to replenish capital after the value of their U.S. subprime mortgage
In January, Temasek paid $6.2 billion for a 9.4 percent stake in Merrill Lynch & Co. after the largest U.S. brokerage had the biggest loss in its 93-year history because of writedowns on subprime mortgages and related securities.
``These types of groups play a more important role because of their investments in large financial institutions,'' said David Cohen, a Singapore-based economist with Action Economics. ``They will be under pressure to move towards greater disclosure to show that their investments are business transactions and not politically motivated.''
Temasek, set up in 1974 to manage S$350 million ($252 million) of Singapore's state assets, now owns stakes in ICICI Bank Ltd. of India, Bank of China Ltd. and DBS Group Holdings Ltd., Southeast Asia's biggest bank.
The company, which has about S$164 billion ($118 billion) portfolio of assets, started publishing an annual review of its investment strategy and performance in 2004, while GIC first publicly disclosed details on its performance in 2006.
``Temasek discloses a lot more than GIC and always has a strong sense of corporate governance,'' Lee said. Paulson's statement ``will not any impact,'' he said. The company seeks approval from a board consisting of independent directors and a representative from the Ministry of Finance, its only shareholder, Lee said...
``Temasek is ultimately controlled by the government and it is not a private organization,'' said Cohen of Action Economics. ``Temasek has many similarities to GIC.''
The company's net income fell 29 percent to S$9.1 billion in the year ended March 31, 2007, Temasek said in its annual report released Aug. 2. Total assets under management rose 27 percent to S$164 billion after Temasek bought shares in companies including Standard Chartered Plc, and is the U.K. bank's biggest investor.
Temasek has given a return on investment of more than 18 percent by market value since its inception more than three decades ago, according to the company's most recent annual report.
Paulson said yesterday the three countries agreed that all investments must be based only on commercial grounds, and the funds should increase the disclosure of information and make sure they have strong risk management and governance controls. They also agreed that countries that receive investment shouldn't set up protectionist barriers and have consistent, non-discriminatory investment rules.
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