Zimbabwe

By hook or by crook in Zimbabwe?

Zimbabwe’s opposition declares victory. But official results are delayed, amid accusations of rigging

DESPERATE to avoid having a victory stolen from them, again, the leaders of Zimbabwe’s opposition, the Movement for Democratic Change (MDC), have declared themselves the winners of general elections held on Saturday March 29th. Their declaration may well be justified, but it is premature and likely to be overruled.

The MDC says that its leader and presidential candidate, Morgan Tsvangirai, was ahead in the race for the presidency. The MDC has tallied results that were posted outside polling stations in some parts of the country, especially in the urban areas where the opposition is strong. The party claims that it did similarly well in the parliamentary election, for example bagging most of the seats in Harare and Bulawayo, the country’s two main cities. A rival opposition movement led by a former ally of President Robert Mugabe, Simba Makoni, whose impact appears to have been limited on the presidential race, also suggests that the MDC has “swept the board”, in the parliamentary elections at least.

But those running Zimbabwe’s elections have allowed a long delay before declaring the official outcome. Results are yet to be announced from some parts of the rural areas and, it is widely assumed, officials loyal to the ruling ZANU-PF party of Mr Mugabe are arranging some way to keep their man in office. The opposition claims are based on partial results, mainly from towns. The few results from the countryside, where the ruling party usually dominates, suggest that the outcome will be much closer. Officials have given warning to the opposition not to jump the gun. The government’s main spokesman, George Charamba, has compared the MDC’s claims of victory to a “coup”.

The voting was not without problems. Some complained of being turned away from polling stations at schools, marquees and community halls because of irregularities on the voters’ roll. The MDC said that its official observers were sometimes denied entry to polling stations. Concern about intimidation arose because policemen, for the first time, were deployed inside polling stations. But one fear, that voters in densely-populated opposition strongholds would not have time to cast ballots, seemed unfounded. In some places determined voters had started queuing the night before to be ready to cast ballots from 7am, but long lines that were apparent in the morning had largely dissipated by the afternoon.

Another worry, that “ghost” voters would inflate support for Mr Mugabe and the ruling party, seemed more justified. About 5.9m voters were registered in about 9,000 polling stations, some in remote or sparsely-populated areas that were hard for the opposition or monitors to visit. Western journalists and observers were barred from the country, but African monitors raised concerns over irregularities in the voters’ roll: in Harare for example, about 8,500 voters were registered with addresses that turned out to be vacant land. The opposition complained that 3m extra ballot papers had been printed. As was typical in other rigged elections in Zimbabwe, rivals to Mr Mugabe were only handed the voters’ roll just before election day.

It is in the counting and tallying, however, that most feared that rigging would take place. After voting closed on Saturday the counting began at polling stations, with some officials working by candlelight or kerosene lamps. Official results, however, were to be announced centrally—leaving officials scope to tamper with the overall score to favour Mr Mugabe. The opposition suggests that delays are a sign that results from polling stations, especially in remote areas, are being massaged as they are collated centrally.

The army and the police are also on the streets and have given warning that any violence would not be tolerated. In any case Mr Mugabe says he is confident of another victory and he has dismissed accusations of rigging. “Why should I cheat? The people are there supporting us, day in, day out,” he says. Ahead of the poll, he was in a generous mood, distributing tractors and ploughs in rural areas. It seems most unlikely that a majority voters would want to keep Mr Mugabe as their president, given the country’s economic collapse, plummeting life expectancy and mass emigration. Rough opinion polls organised in the weeks before the election suggested that, if all were free and fair, Mr Tsvangirai should have won, with Mr Mugabe second and Mr Makoni a distant third. If none were to get more than 50% in the first round, a second round would be held. Whether the official results come anywhere close to that suggested reality, however, remains to be seen.

Stock Markets Call Bluff of Asian `Decoupling': Andy Mukherjee

Commentary by Andy Mukherjee

March 31 (Bloomberg) -- The stock-market scorecard for the first quarter of 2008 looks very different from what analysts had expected at the start of the year.

The four best-performing Asian markets have been Taiwan, Pakistan, Thailand and Sri Lanka, posting modest gains of between 2 percent and 8 percent in U.S. dollar terms.

Is this the Asian ``decoupling'' that global investors had so fondly hoped for? Weren't the larger and faster-growing economies of China and India supposed to shield investors from the mortgage- and credit-related financial crisis in the U.S.?

And look where the Chinese and Indian markets are at the start of the last day's trading for the first quarter: among the 10 worst-performing equity benchmarks globally so far this year, together with Vietnam, that other Asian miracle-in-the-making.

With declines of about 16 percent year-to-date in the Hang Seng Index and the Kospi Index, Hong Kong and South Korea are also near the bottom of the Asian heap.

Several things went wrong with the larger, more liquid and more-foreign-owned markets of the region.

First, hedge funds sold stocks that were the easiest to sell as their investors, spooked by volatility and gripped by pessimism, pulled money out. As Mark Matthews, a Merrill Lynch & Co. equity strategist in Hong Kong, says, ``It is easy to kick out Asia and come back to it later.''

Winners and Losers

Besides, with energy, food and metal prices holding high in an environment of declining real U.S. interest rates, Asian markets paid a price for rising inflationary expectations, which have forced them to tighten monetary conditions.

Or at least not loosen them.

That has been particularly a problem for economies such as China, India, Vietnam and Singapore where domestic demand -- either for investments or for consumption -- is strong.

Local forces, too, have played a part.

In China, large blocks of currently non-tradable shares held by the government and strategic investors are coming out of lockup restrictions. Investors are nervous about a stock glut, which could be as large as $428 billion.

So much for the losers.

The winners' story is much more remarkable, especially when you consider that the quarter began with a heightening of political risk in two out of these four markets and -- at least at the time -- a far-from-certain process of reduction of the same risk in the two remaining ones.

Assassination, Civil War

Sri Lanka and Pakistan haven't decoupled from the global meltdown. If these illiquid markets have done well, it's only because they have paid investors a hefty premium for taking on the risk of domestic politics or internal-security conditions taking a turn for the worse.

The final week of 2007 saw the assassination of former Prime Minister Benazir Bhutto in Pakistan and the escalation of hostilities between the army and the Liberation Tigers of Tamil Eelam in Sri Lanka. That led to the Sri Lankan government withdrawing from a 2002 cease-fire agreement in January.

The politics in both these countries remain precarious.

A showdown between Pakistan's newly elected democratic politicians and their sworn enemy, President Pervez Musharraf, could produce outcomes that are impossible to predict right now. Musharraf, it must be remembered, no longer controls the army, the most important source of political power in Pakistan.

Nor is there much hope of a quick reconciliation between the Sinhalese and the Tamil populations in Sri Lanka.

On the Mend

The politics in Taiwan, stable now, were also rather volatile three months ago.

Until the final week of December, Ma Ying-jeou, who recently won the election for Taiwan's presidency, still ran a risk of being disqualified from contesting the poll. The High Court cleared him of corruption charges only on Dec. 28.

The new president of Taiwan is expected to end the previous administration's frosty stance toward China, allowing the Taiwanese economy to benefit from the growth and dynamism of the mainland. All of that, of course, is still up in the air.

And so is the political future of Thailand.

In late December, Samak Sundaravej, who had just won a landslide mandate to form a democratic government and end the disastrous 17-month rule by a military junta, was still trying to cobble together a coalition amid concerns of stability.

Many observers feared that the Thai army, loath to lose power to a loyalist of former Prime Minister Thaksin Shinawatra, would scupper Samak's chances of forming a stable government.

Those concerns, it appears, weren't unfounded. At the moment of writing, Thailand is once again looking shaky. There's speculation about a coup plot that Prime Minister Samak says will fail.

Betting against internal or external strife, sometimes simply on the assumption of ``it can't get any worse,'' is risky. But it may be better than swooning over sexy -- but fundamentally untrue -- hypotheses like decoupling.

Or at least that's what the Asian equity scorecard suggests.

Arabs' Dollar Doldrums Fail to Shake Central Bankers (Update2)

By Matthew Brown

March 31 (Bloomberg) -- Central bankers in the Middle East are proving the U.S. dollar's decline to record lows is a small price to pay for the loyalty -- and oil money -- of their biggest Western ally.

The governor of the Saudi Arabian Monetary Authority, Hamad Saud al-Sayari, called the dollar a ``good buy'' when it fell to $1.55 a euro on March 12. The United Arab Emirates, conceding to U.S. pressure, will keep the dirham tied to the currency, a U.A.E. central bank official speaking on condition of anonymity said March 17.

While a booming economy has pushed the average rate of inflation to above 7 percent in Saudi Arabia and the five other Gulf Cooperation Council members, none say they will follow Kuwait and resolve the problem by ending their fixed exchange rates to the dollar. That's because doing so may spark a new dollar crisis, said Simon Williams, the chief Gulf economist at HSBC Holdings Plc in Dubai, a move that would slash the value of their $500 billion of assets denominated in the currency.

``The Gulf states may be decoupled from the U.S. economy, but they are still shackled to the dollar,'' Williams said. ``While they recognize the shortcomings of the status quo, policy makers seem minded to maintain it, at least for now.''

The survival of the pegs shows how hard it is for major economies to break from the dollar, regardless of its 13.7 percent decline on a trade-weighted basis in the past 12 months. Saudi Arabia keeps the riyal fixed at 3.75 to the dollar by purchasing or selling the greenback with the local currency.

Bank Meeting

Gulf central bank governors will hold the first of two meetings this year in Doha, Qatar, on April 6-7 to discuss monetary and currency policy.

Speculation about a revaluation peaked in November before a GCC meeting. U.A.E. central bank Governor Sultan Bin Nasser al- Suwaidi said he might link the dirham to a basket of currencies, and an unidentified official from the Saudi Arabian Monetary Authority said a revaluation was under consideration. The U.A.E. dirham and the Saudi riyal both jumped to 20-year highs.

GCC countries are unwilling to change because so much of their revenue comes from oil, which is priced in the U.S. currency. Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain control 40 percent of the world's proven crude reserves. Oman earned about 65 percent of its revenue from oil in the past year, government data show. Half of Saudi Arabia's gross domestic product is accounted for by the oil and gas industries.

Rejecting Iran

Saudi officials rejected a suggestion by Iran and Venezuela to stop pricing crude in dollars at a meeting of the Organization of Petroleum Exporting Countries in Riyadh on Nov. 19. Saudi Arabia doesn't want the U.S. currency to ``collapse,'' Foreign Minister Prince Saud Al-Faisal said.

``If OPEC made a definitive statement that it was going to be paid in other currencies, you could get a run on the dollar,'' said John Waterlow, an analyst at Edinburgh-based energy advisers Wood Mackenzie Ltd. ``But they are so heavily invested in dollar- denominated assets it would damage their financial position.''

GCC states' accumulation of dollar-denominated assets increased in 2007, even as the U.S. currency lost 10 percent against the euro. Dollars accounted for 67 percent of new GCC state assets managed by their central banks and sovereign wealth funds in 2007, up from 60 percent in 2006, according to RGE Monitor, a New York-based economic consulting firm led by former White House adviser Nouriel Roubini.

Faster Inflation

Linking their currencies to the dollar forces the GCC states to lower their interest rates in lockstep with the Federal Reserve. That reduces their ability to fight inflation, which accelerated to between 7 percent and 10 percent by the end of 2007, from an average annual pace of 1.4 percent in the decade through 2005, according to Commerzbank AG.

Rising prices, in turn, diminish the competitiveness of Gulf states as they seek to attract foreign employees. About 90 percent of the workforce in the U.A.E. and Qatar comes from overseas, according to the U.S. Department of State. Almost half of all companies in the GCC say revaluing their currencies would be positive for business, a survey by HSBC showed in January.

``Price stability is paramount when it comes to ensuring longer-term growth and making the region an attractive destination,'' said Marios Maratheftis, head of research for the Middle East and Pakistan at Standard Chartered Plc in Dubai.

The GCC states are diversifying their reserves. The U.A.E began buying euros in 2006 to increase the share of the European currency in its reserves to 10 percent from 2 percent.

U.S. Calling

The Qatar Investment Authority, the emirate's sovereign wealth fund, holds about 40 percent each in dollars and euros, according to RGE Monitor. The fund is looking at investment opportunities in countries including China, Japan, Korea and Vietnam to diversify currency risk, Kenneth Shen, head of strategic and private equity at the QIA, said in September.

Political pressure keeps Gulf states wedded to the dollar. Al-Suwaidi received calls from U.S. government officials after saying in November he might drop the peg, a person familiar with the matter said Jan. 3 on condition of anonymity. He received more calls this month after Dow Jones Newswires reported that the central bank had started a study into linking the dirham to a currency basket, a central bank official said.

``The U.S. has always been the guarantor of the Arabian Gulf's military security,'' said Anoushka Marashlian, senior Middle East analyst at Global Insight in London. ``Gulf policy makers wouldn't do anything to compromise that relationship, especially considering current tensions surrounding Iran.''

`Magnitude of Decision'

Before adopting the pegs, five of the GCC states used the Gulf rupee issued by the Reserve Bank of India and linked to the British pound. The U.A.E. began pegging the dirham to the dollar in 1978, while Saudi Arabia began tying the riyal to the U.S. currency in 1986. Kuwait pegged the dinar to a basket of currencies from 1975 to 2003 before using the dollar in preparation for a single Gulf currency. It abandoned that system in May.

``Analysts from outside the Gulf tend to look just at the economics,'' said HSBC's Williams. ``They see that depegging from the dollar makes sense and assume that change is imminent. What they sometimes miss is the politics of regional decision-making. They underestimate the magnitude of the decision.''

Paulson Plan Endorses Fed's Enhanced Market Authority (Update1)

March 31 (Bloomberg) -- Treasury Secretary Henry Paulson's plan to overhaul U.S. market regulation would officially endow the Federal Reserve with the broader authority that it has already accrued in the past two weeks.

The Fed, which engineered JPMorgan Chase & Co.'s purchase of Bear Stearns Cos. and became lender of last resort to the biggest bond dealers, will oversee ``market stability,'' under proposals that Paulson will unveil today. The Securities and Exchange Commission, traditionally the main regulator of Wall Street firms, will be merged with the Commodity Futures Trading Commission, according to a draft of the report.

``It would be Congress and the president essentially giving a blank check to a regulator over which they have very little power,'' said Michael Greenberger, a professor at the University of Maryland in Baltimore and a former CFTC official. Paulson's proposal will ``allow Wall Street to do whatever they want until a crisis occurs, at which point the Fed would intervene.''

The central bank's response to the credit freeze and the near bankruptcy of Bear Stearns shows how the role of regulators is being redefined by events, regardless of Paulson's review, which began nine months ago. SEC Chairman Christopher Cox isn't protesting the proposed merger of his agency -- formed during the Great Depression -- with the CFTC, saying that regulation would be better served by fewer organizations.

`Regulatory Divides'

``Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can't be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today's regulatory divides,'' Cox said in a statement on March 29.

Paulson, 62, is scheduled to speak at 10 a.m. at the Treasury Department in Washington. Fed Chairman Ben S. Bernanke testifies to Congress two days later.

The Treasury will recommend that the Fed share authority over banks, securities firms and insurers in monitoring corporate disclosures, writing rules and stepping in to prevent economic crisis, according to the draft, which was distributed to officials last week and obtained by Bloomberg News.

The plan also suggests a distinction be made between the Fed's ``normal'' lender-of-last resort discount window to help banks meet short-term funding needs and ``market stability'' lending to help stave off funding shortages and panics. In that function, loans could be extended to federally chartered insurers and financial institutions.

Historical Precedent

President George W. Bush and U.K. Prime Minister Gordon Brown have also agreed to establish a joint body to develop plans to regulate the international banking system, the Financial Times reported today. The working group will examine issues such as the role of credit-rating companies and ways of increasing cooperation between financial regulators in both countries, the paper said.

Changes to the U.S. regulatory system, parts of which date back to the Civil War, have been proposed in the past, only to be thwarted in Congress and frustrated by industry opposition. The Presidential election also makes it hard for the Bush administration to push through changes in its final year, said Bill Isaac, who was chairman of the Federal Deposit Insurance Corp. between 1981 and 1985.

``It's a lame duck administration, so it automatically means they have less credibility than they would have if they were in their first year,'' said Isaac, who now heads The Secura Group, a financial consulting firm in Vienna, Virginia. ``And the known devil is better than the unknown devil in the minds of those who are regulated.''

Reich Bets on Survival

John Reich, director of the Office of Thrift Supervision, said he's skeptical that the combination of his agency with the Office of Comptroller of the Currency, as proposed by Paulson, will be easily achieved.

``Expect to see news stories and renewed questions about what the future will hold,'' Reich wrote in letter to employees on March 28. ``The 20th anniversary of the OTS is next year. We can all expect -- despite predictions over the years to the contrary - - to be celebrating it.''

The OTS, a Treasury division created in 1989 after the savings-and-loan crisis, oversees lenders including Calabasas, California-based Countrywide Financial Corp., the biggest U.S. mortgage lender, and Seattle-based Washington Mutual Inc., the largest U.S. savings and loan.

In his letter, Reich outlined obstacles to Paulson's plan, saying congressional debate and hearings could stretch into next year, when a new Congress and a new president ``may well have their own priorities and agendas.''

Lack of Support

A dozen similar efforts by presidents, legislators and others over the last 60 years never ``became reality,'' Reich wrote. His office distributed the letter to reporters on the weekend.

He also said there was a lack of industry support for restructuring the regulatory system, including opposition from the American Bankers Association to merging the OTS with another agency.

Treasury's proposal would ``create a more coherent supervisory scheme'' by ending ``some of the inconsistencies arising from today's patchwork system,'' Lou Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm, said in a report.

Still, expanding the Fed's role to stabilize markets would exacerbate the ``moral hazard problems'' stemming from the central bank's decision to lend money to investment banks after the near collapse of Bear Stearns, said Crandall, who used to work at the New York Fed.

So-called moral hazard is the notion that bailouts encourage financial companies to take risk because they assume the government will always come to the rescue.