Businessweek: The Economy Five Wild Cards For 2005

The Economy: Five Wild Cards For 2005

What could throw the economy for a loop? Here are some threats worth watching

There's an old saying in economic forecasting: The consensus is always wrong. That's why the key to investing wisely in 2005 may well lie in considering how the economy will stray from expectations. To evaluate the risks and possibilities for 2005, BusinessWeek asked the economists in our annual outlook survey to think outside the box of their basic forecasts by identifying the wild cards that could have a positive or negative impact on the outlook. That's not to say consensus forecasts are useless. Far from it. They provide an important baseline for judging the economy's performance as it plays out. For 2005, the 60 forecasters we surveyed expect, on average, that the economy will grow 3.5% from the end of 2004 to the end of 2005. That's a bit below the 3.8% pace expected for 2004. The consensus view is that profit growth will slow to 6.7%, and inflation will fall, as oil prices slip to $39 per barrel by the end of 2005. The Federal Reserve will keep lifting the federal funds rate, to nearly 3.5% by yearend, from 2.25% now, and the yield on 10-year Treasury bonds will increase from 4.3% to 5.1%. In general, economists see the dollar slipping at a gradual pace of about 10% against major currencies and 5% vs. all currencies. The jobless rate should fall from 5.4% to 5%.

All in all, that's not too shabby. But what could throw the consensus for a loop? Here are five economic wild cards for 2005 that bear close scrutiny as the year progresses. They're especially important because they are interrelated: A surprise in one area could generate unexpected consequences elsewhere. These wild cards are the most credible threats to the general forecast -- and to the value of your portfolio.

WATCH OUT FOR FALLING DOLLARS

A possible crash in the U.S. dollar surpassed even oil prices as the biggest question mark on economists' minds for 2005. "This has been my worst nightmare for some time," says Nicholas S. Perna of Perna Associates in Ridgefield, Conn. The growing concern is America's ability to attract the massive amount of foreign capital it requires to finance both private and public investment. The trouble: A rising federal budget deficit subtracts from the available pool of domestic savings, even as the widening trade deficit adds to the financing needs.

The danger, says Perna, is a loss of confidence in the U.S. economy and those running its economic policy that could play out in a rerun of the 1980s. Early in that decade, the stimulative effects of budget deficits helped to push up the dollar and the trade deficit. But in 1985-87 the dollar plunged 40% vs. major currencies, yields on Treasury bonds jumped two percentage points, and stock prices plunged 30% in October, 1987.

Economists already see some increasing reluctance by both private investors and central banks to hold U.S. Treasury securities. But if the greenback really tanks, "the primary effect will likely be on the U.S. corporate bond market, where overseas investors -- largely Europeans -- account for about half of new-issue buying," says Vincent Boberski at RBC Dain Rauscher in Minneapolis.

Sharply higher interest rates would be especially damaging to a frothy housing market, the stock market, and heavily indebted consumers. More ominously, higher rates would increase the risk of an outright recession.

AVOIDING ANOTHER OIL SLICK

Unlike the dollar, oil is a wild card that could swing either way. On the negative side, another spike in oil prices could slow consumer demand just as it did in 2004. "If oil remained at $50 to $55 per barrel, it would lower gross domestic product growth next year by about one percentage point," says Richard D. Rippe at Prudential Equity Group. Other economists worry that, given the right geopolitical upheavals or supply disruptions, oil could hit $60 or $70, a shock that would further crimp household buying power and pummel corporate profits. "Oil prices at $80 would undermine business and consumer confidence sufficiently to cause a mild recession late next year," says Kurt Karl of reinsurance firm Swiss Re.

But economists see an equal, if not greater, chance that oil prices could fall, perhaps to $25 per barrel. That could be precipitated by several factors, including an expected slowdown in global demand, a mild winter, or an easing of Mideast tensions either in Iraq or between Israel and the Palestinians. Cheaper oil "would spark a period of very strong growth in the U.S. as consumers and companies respond to the cash flow gains generated by the drop, pushing growth towards perhaps 6% for a time," says Ian C. Shepherdson of High Frequency Economics in Valhalla, N.Y. Stock prices would benefit handsomely, and the wealth effect would support consumer spending. However, don't expect falling oil prices to keep rates down. "The Federal Reserve would probably continue to raise interest rates with the economy growing above its potential," says Lynn Reaser at Banc of America (BAC ) Capital Management in St. Louis.

INFLATION BREATHES FIRE

Oil and the dollar have one thing in common: the potential to affect inflation. That may well explain why our survey's inflation forecasts vary more than usual, from 1.2% to 4.4%. Consumers and businesses could easily adjust to a return of low inflation after 2004's oil-fueled rise. But if prices pop up 4%, that would send both bond investors and the Fed scrambling. "We believe there is a significant risk that inflation will be higher than expected," says Lynn O. Michaelis at Weyerhaeuser Co. (WY ), noting that the dollar's drop and higher commodity prices are just beginning to wend their way into final goods prices. Matters could be worse if China revalues its currency higher. "This would result in revaluations of other Asian currencies and allow U.S. businesses to become more aggressive in their pricing," says Mark Zandi at Economy.com Inc.

Bear in mind that many of the factors that held inflation down during the 1990s are reversing. And it's not just the weaker dollar or costlier energy. First, productivity growth is slowing, as it does when a recovery matures. That, together with a tightening job market, will push up unit labor costs. Second, factories are busier. "The Fed's capacity numbers understate the true capacity utilization rates," asserts Robert Shrouds at DuPont (DD ). "Based on the experience at my company, utilization rates are high across a broad range of products." Lastly, monetary policy is still unusually accommodative, with the Fed's target interest rate still close to zero after adjusting for inflation. An inflation surprise would cause the Fed to lift rates more and faster than expected.

POP GOES THE HOUSING BUBBLE

If rates rise faster than the consensus expects, housing is especially vulnerable, say some economists. "Houses that look affordable now would not look so with mortgage rates two percentage points higher," says Nariman Behravesh at Global Insight Inc. in Waltham, Mass. If mortgages rise to 8%, many buyers would have to scale back their aspirations, and some homebuyers would be priced out of the markets, causing a downshift in home demand.

More important, a weaker housing market would prick any bubble in prices, deflating household wealth. Consumers would have to save more and shop less. And with mortgage rates up, refinancing would dry up, also crimping spending.

AS THE WORLD CHURNS

Another wild card foremost in our economists' minds is a sharp slowdown in global growth. "The euro area is weighed down by currency appreciation and the absence of any domestic demand dynamic," says Bruce Kasman at JPMorgan Chase & Co. (JPM ), "and Japan's recovery could prove disappointing." If China's efforts to cool off its economy rip its fragile financial fabric, that could have global repercussions. The risk is that weak demand would cut into U.S. exports, thwarting the chances for a lower dollar to help stabilize the trade deficit.

Not surprisingly, the threat of terrorism looms over all. "A terrorist strike in the U.S. or marked escalation of the conflict in the Middle East could result in an attendant drop in business confidence that would undermine the expected recovery in investment and employment," says Tim O'Neill at BM Financial Group/Harris Bank in Toronto. Another attack could hasten the dollar's decline, roil the financial markets, and harm the economy.

The problem is that terrorist attacks are impossible to forecast. But that only illustrates how one day's events can derail a yearlong consensus forecast. If all goes according to the forecasters' plans, 2005 should be a decent year for both the economy and a well-balanced portfolio. But investors should heed the lesson of recent years: Expect the unexpected.

By James C. Cooper & Kathleen Madigan

Japan Times: China's power prevents Japan from invading Asia again: Lee

China's power prevents Japan from invading Asia again: Lee

SINGAPORE (Kyodo) Japan is unlikely to again go down the militarist path and invade its Asian neighbors as it did before and during World War II because China's growing economic prowess has created a new balance of power, according to Singapore's elder statesman.

"I do not see a return to a situation the Japanese were in during the 1930s and 1940s. That Asia will not come back," Lee Kuan Yew, 81, told a dinner organized by the Foreign Correspondents' Association on Monday.

"We have an Asia now that is completely different with China . . . economically growing 8 to 9 percent. So I don't see a repetition of the old behavior, but an evolution into a new balance."

In response to a question, Lee said Prime Minister Junichiro Koizumi's visits to Yasukuni Shrine, the dispatch of ground troops to Iraq and preparations for a more significant role for the Self-Defense Forces reflect a "gradual evolution" that could turn out to be positive.

"I see this as a development that the U.S. would be happy with and will fit in with the balance that eventually must be established between the U.S. and Japan on the one, and China on the other," he said.

He said the United States needs Japan to continue as a partner.

"A U.S. without Japan would be at a great disadvantage in Asia," he said.

Lee was Singapore's first prime minister, holding the reins for more than three decades until 1991. In the 1990s, he quipped that allowing Japan to rearm would be like giving liquor chocolates to an alcoholic.

In his memoirs, published in 1998, Lee says 50,000 to 100,000 mainly Chinese people in Singapore were massacred by the Japanese military during the 1942-1945 occupation.

On an East Asian economic community, Lee said: "If we want an economic community, I think it is possible, but it will take many years. But to be an East Asian union, that is different. To have one currency, that will take many decades."

The Japan Times: Dec. 22, 2004
(C) All rights reserved

New York Times: China in Line as U.S. Rival for Canada Oil

China in Line as U.S. Rival for Canada Oil

By SIMON ROMERO

CALGARY, Alberta, Dec. 21 - China's thirst for oil has brought it to the doorstep of the United States.

Chinese energy companies are on the verge of striking ambitious deals in Canada in efforts to win access to some of the most prized oil reserves in North America.

The deals may create unease for the first time since the 1970's in the traditionally smooth energy relationship between the United States and Canada.

Canada, the largest source of imported oil for the United States, has historically sent almost all its exports of oil south by pipeline to help quench America's thirst for energy. But that arrangement may be about to change as China, which has surpassed Japan as the second-largest market for oil, flexes its muscle in attempts to secure oil, even in places like the cold boreal forests of northern Alberta, where the oil has to be sucked out of the sticky, sandy soil.

"The China outlet would change our dynamic," said Murray Smith, a former Alberta energy minister who was appointed this month to be the province's representative in Washington, a new position. Mr. Smith said he estimated that Canada could eventually export as many as one million barrels a day to China out of potential exports of more than three million barrels a day.

"Our main link would still be with the U.S. but this would give us multiple markets and competition for a prized resource," Mr. Smith said. Delegations of senior executives from China's largest oil companies have been making frequent appearances in recent weeks here in Calgary, Canada's bustling energy capital, for talks on ventures that would send oil extracted from the oil sands in the northern reaches of the energy-rich province of Alberta to new ports in western Canada and onward by tanker to China.

Chinese companies are also said to be considering direct investments in the oil sands, by buying into existing producers or acquiring companies with leases to produce oil in the region. In all, there are nearly half a dozen deals in consideration, initially valued at $2 billion and potentially much more, according to senior executives at energy companies here.

One preliminary agreement could be signed in early January. A spokesman for the Department of Energy in Washington said officials were monitoring the talks but declined to comment further.

China's appetite for Canadian oil derives from its own insatiable domestic energy demand, which has sent oil imports soaring 40 percent in the first half of this year over the period a year ago. China's attempts to diversify its sources of oil have already led to several foreign exploration projects in places considered on the periphery of the global oil industry like Sudan, Peru and Syria.

In Calgary, however, the negotiations with China have focused on the oil sands, an unconventional but increasingly important source of energy for the United States. Higher oil prices have recently made oil sands projects profitable, justifying the expense of the untraditional methods of producing oil from the sands. Large-scale mining and drilling operations are required to suck a viscous substance called bitumen out of the soil.

"China's gone after the low-hanging fruit so far," said Gal Luft, a Washington-based authority on energy security issues who is writing a book on China's search for oil supplies around the world. "Now they're entering another level of ambition, in places such as Venezuela, Saudi Arabia and Canada that are well within the American sphere."

Canada's oil production from the sands surpassed one million barrels a day this year and was expected to reach three million barrels within a decade. The bulk of output is exported to the Midwestern United States. That flow pushed Canada ahead of Saudi Arabia, Mexico and Venezuela this year as the largest supplier of foreign oil to the United States, with average exports of 1.6 million barrels a day.

Even so, there is the perception among many in Alberta's oil patch that Canada's rapidly growing energy industry remains an afterthought for most Americans. That might change, industry analysts say, if Canada were to start exporting oil elsewhere.

"A China agreement might serve as a wake-up call for the U.S.," said Bob Dunbar, an independent energy consultant here who until recently followed oil issues at the Canadian Energy Research Institute.

Executives at energy companies and investment banks in Calgary say an agreement with the Chinese could materialize as early as next month. Ian La Couvee, a spokesman for Enbridge, a Canadian pipeline company, said it was in talks to offer a Chinese company a 49 percent stake in a 720-mile pipeline planned between northern Alberta and the northwest coast of British Columbia.

The pipeline project, which is expected to cost at least $2 billion, would send as much as 80 percent of its capacity of 400,000 barrels a day to China with the remainder going to California refineries. Sinopec, one of China's largest oil companies, was said by executives briefed on the talks to be the likeliest Chinese company in the project.

A rival Canadian pipeline company, Terasen, meanwhile, has held its own talks with Sinopec and the China National Petroleum Corporation about joining forces to increase the capacity of an existing pipeline to Vancouver. Richard Ballantyne, president of Terasen, said it had supplied almost a dozen tankers this year to help Chinese refineries determine their ability to process the Alberta crude oil blends.

"There's been significant interest so far, but the way I understand it, their refineries are still better suited to handling Middle Eastern crude than ours," Mr. Ballantyne said. "That has to change if they're intent on diversifying their sources of oil."

Separately, Marcel Coutu, the chief executive of the Canadian Oil Sands Trust, a company that owns part of one of the largest oil sands ventures in the tundralike region around the city of Fort McMurray in northern Alberta, said he had recently met with officials from PetroChina, one of China's several state-controlled energy concerns, and had agreed to send it trial shipments of oil.

In an interview, Mr. Coutu described PetroChina's interest in a deal as very serious, but he declined to say when one might materialize. "China can become one of our capital sources, enabling us to go a bit further afield than the New York market for our financing," Mr. Coutu said.

Additionally, Chinese companies are also said to be considering investments in smaller Calgary-based companies, like UTS Energy, that have approved leasing permits for parts of the oil sands. Officials from the Chinese companies said to be negotiating in Calgary - PetroChina, Sinopec and CNPC - did not respond to requests for comment.

Wilfred Gobert, vice chairman of Peters & Company, a Calgary investment bank, said Canada's main attractions for the Chinese are the stability of its political system and its sizable reserves. Canada ranks behind only Saudi Arabia in established petroleum reserves, now that its oil sands are included in international estimates of Canadian oil resources.

Before prices rose and the United States expanded its calculation for estimates of reserves, oil sands were often scoffed at as an uneconomical way to produce oil. They still involve risks not normally associated with conventional oil exploration.

Large amounts of capital are necessary to produce oil from the sands, with companies having to acquire large shovels, trucks, specialized drilling equipment or supplies of natural gas to make steam before producing one barrel of oil. So, the price of oil needs to remain elevated, at a level of $30 a barrel or so, for ventures to remain profitable.

[Oil prices for February delivery slumped 3.3 percent, to $44.24 a barrel, in New York on Wednesday, the biggest slide in two weeks.]

An entry into Canada would assure the Chinese of a steady flow of oil, even if the profit margins from the activities were to pale in comparison to what the international oil companies expect from their investments, said Kang Wu, a fellow at the East-West Center in Honolulu who follows China's energy industry. "For China it is foremost about securing supply and secondly about profits," he said. "That explains the incentive in going so far abroad."

China's growing demand for oil is responsible for much of the increase in worldwide prices in the last year. Mr. Kang of the East-West Center estimates that demand in China could grow from 6 million barrels a day to as much as 11.5 million barrels within a decade. China's domestic production is expected to remain nearly stagnant, Mr. Kang said, resulting in aggressive efforts to import more oil from sources like Canada.

"China needs oil resources and has a big market," Qiu Xianghua, a vice president at Sinopec, said in a speech in Toronto this month. "Canada needs markets."

Alberta, a province of 3.1 million people, is keenly aware of the potential for Chinese involvement even as American companies like Exxon Mobil, Burlington Resources and Devon Energy remain prominent in its energy industry. Ralph Klein, the premier of Alberta, traveled to Beijing in June to drum up investment in the tar sands.

And yet officials and authorities on Canadian energy supplies are cautious not to suggest that Canada will ever turn off the spigot to the United States. At a time of a highly competitive market for global oil, in fact, some analysts see greater interest in Alberta's oil reserves as a healthy avenue for China to explore, even if it were to push the United States to seek an even greater diversity for its own energy needs.

"The pipeline system that connects Alberta to the U.S. isn't going to be lifted out of the ground and put into the Pacific," said Daniel Yergin, chairman of Cambridge Energy Research Associates. "The flows to the U.S. will continue, but it should be expected and welcomed for China to meet the challenge of its growing dependence on imported oil."

Still, the prospect of dealing with China has many here pondering relations with the United States. The last time any significant oil-related friction arose between the nations was in the 1970's, when Ottawa became concerned over what it perceived as too much American control over Canadian oil, leading to greater federal involvement in the oil industry.

"Watch the Americans have a hissy fit if a Chinese incursion materializes," Claudia Cattaneo, a Calgary-based energy columnist for The National Post, recently wrote. "So far, the Americans have taken Canada's energy for granted."

Prudent Investor Debates: Philippines in a State of Anarchy?

From this week's newsletter: Prudent Investor Debates

Philippines in a State of Anarchy?

Early last week I read an article by a local political analyst Mr. William Esposo of the Inquirer-GMA 7 website and found it initially repugnant. Since your prudent investor analyst do not want to succumb to confirmation biases, with an opened mind I digested the thesis that the Philippines is in an advance state of anarchy let me quote some important quips of Mr. Esposo’s arguments:

“The lethal combination of the most extreme poverty and runaway consumer prices, graft and corruption, public disillusionment over the political system coupled with the total absence of an inspiring leader-model and topped with an all-encompassing fiscal crisis lead to only one conclusion: we are headed for a period of anarchy…

“I’ve said in previous columns that this nation is already in revolt, in the psychological sense. In contrast to our previous political crises, people have become too disenchanted to even see hope in the changing of the guard. The people want a system overhaul. The yearning to change the system becomes even more intense as the pressures mount….

“More and more people I talk to have told me that they find an authoritarian regime an acceptable alternative to the present system. In his column several weeks back, my friend and Inquirer columnist Randy David wrote about Washington Sycip and F. Sionil Jose expressing support for an authoritarian regime and a revolution, respectively. Five years ago these mild-mannered gentlemen would have found these radical views unthinkable.

Writing as an investor, for a state that is on an initial phase of ‘revolt’, as Mr. Esposo suggests definitely is unworthy of investments. But is the country truly in a state of anarchy? Or is anarchy simply confined to the mindsets of political analysts with blinders and experts banking on controversial hugging headlines? While it is true that problems such as extreme poverty graft and corruption, public enchantment does exist, does this suggests that the Philippines must undergo a violent cleansing process to uplift its economy and its people? Will a change of political system guarantee the amelioration of the economic health of the country?

Well for Mr. Esposo arguably it is, hence their radical call for an authoritarian regime. This is sharp contrast to what foreign analysts think of our economic health as I have shown you lately. Warts and all analysts from Credit Lyonnais, Morgan Stanley, Goldman Sachs, the Economist and independent market maven the preeminent contrarian and my personal favorite thinker Dr. Doom or Marc Faber are economically bullish on the Philippines. So why these extreme nuances?

“Wealth distribution in Asia has been heavily skewed and has benefited relatively few. Second, poor governance suggests the danger of the collective wealth being squandered by rent-seeking and systemic financial risks. In addition, it is possible that inflation will be raised in the US to ease the debt burden of future generations, which could impair Asia’s inheritance.” notes Daniel Lian Southeast Asian Economist for Morgan Stanley. Wealth distribution (poverty levels), inflation (high prices) and rent seeking (patronage ‘palakasan’ culture, cronyism) and systemic financial risk (fiscal crisis) are well identified and similar to the observation of Mr. Esposo. In other words, these foreign analysts are fully aware of the disequilibrium in the economic and political structure. However unlike Mr. Esposo he identifies the risks of US inflationary policies from which Mr. Lian posits “may impair Asia’s inheritance”.

On the plus side Mr. Lian cites of a possible domestic investment boom which is of course is virtually impossible to the likes of Mr. Esposo. Mr Lian says, “Both Malaysia and the Philippines also have considerable scope for lifting investment. Malaysia has consistently generated very high savings (44% of GDP) and the Philippines has plenty of room to raise its savings rate to at least the low 20%s, if the present round of revenue-enhancement efforts, coupled with structural fiscal reform, result in a significant reversal in the government’s deficit trend. Raising the investment rate to the low-20% area COULD TRIGGER A SIGNIFICANT RISE IN INVESTMENT IN THE REPUBLIC. However, in the case of Malaysia, there is some uncertainty about the investment outlook due to the government’s attempt to reduce its investment role. In the Philippines, the battle in the current round of revenue enhancement moves and structural fiscal reform is far from over.”

Morgan Stanley is bullish on Asia and the Philippines not only in its outlook but it puts its money where its mouth is according to Bloomberg’s Hui-yong Yu “Morgan Stanley, raising $3 billion for its fifth global real estate fund, got a commitment of as much as $440 million from Washington state’s pension fund to invest in Asia and Europe… Morgan Stanley…is betting on economic recoveries in Asia and Europe to lift property values.”

In addition the latest news is the mining front is that Dr Marc Faber who sits in the board of Canadian Mining Ivanhoe Mines is in talks with local mining heavyweight and Philippines’ largest gold producer Lepanto Mining. According to the Philippine Daily Inquirer, “CANADIAN mining firm Ivanhoe Mines Ltd. is considering investing in mining projects of the Lepanto group Lepanto group chairman Felipe Yap said Thursday…Yap said he met with Ivanhoe Mines founder and chairman Robert Friedland to discuss the potential investment of the Canadian firm. “I am excited to look at investment opportunities here in the Philippines,” a Yap associate quoted Friedland as saying.” Money invested represents votes of confidence.

Now if the Philippines simmer into a revolutionary phase obviously this would be felt by these investor/analysts. Either these investors stall their investments or sell out. Apparently based on market data, manifestations of these conditions have not yet emerged. But Should it?

To suggest the likelihood of the return of authoritarianism is equally revolting. Name me a Latin American country (which has patently a similar culture to the Philippines than that of the rest of Asia) that has prospered economically out of dictatorship? Not Brazil, Argentina, Chile, Ecuador, Peru, Bolivia and Nicaragua. Some of our Asian neighbors had their encounters with Dictatorship and/or statism but has returned to the fold of democracy. You’ve got the likes of India, Indonesia, Thailand, South Korea and Malaysia. Myanmar (Burma) nor North Korea are no Thailand and is hardly your economic paragon. In fact both China and Vietnam are now gradually phasing in market based economies that are unlikely to prosper under a dictatorship, I believe that the Political transition would follow soon.

The usual argument for a return to authoritarianism is predicated on virtuous of discipline and central control. And this is premised largely on model leaders that would be ideal or in Mr. Esposo’s words ‘inspiring leader model’. And in most occasions, the premier model would be Mr. Lee Kwan Yu of Singapore. Singapore’s 8 million people is largely a homogenous society and could be easily controlled. The Philippines is a technically heterogeneous considering that it has more than 172 dialects, 7,100 islands, and 15 regions including National Capital Region (NCR), Autonomous Region of Muslim Mindanao (ARMM)and Cordillera Autonomous Region (CAR). Hence even amongst ourselves unity can hardly be attained, simply observe the Philippine organizations abroad, as much as the local political butterflies, Filipinos abroad could hardly foster unity.

The best parallels could be seen with Indonesia which also underwent a plentiful horrid years of Dictatorship (1967-1998), yet if one notices in economic terms according to World Bank 2002 the Philippines ranked 133^rd against Indonesia’s 145^th based on GNI Atlas methodology per capita income, as measured in Purchasing Power parity the Philippines ranked 126^th against Indonesia’s 140^th.

In terms of corruption according to Transparency International the Philippines ranked 77^th in 2002 against Indonesia’s 96^th place. Moreover according to the same corruption watchdog, President Mohamed Suharto ranks as the most corrupt leader with an ill-gotten wealth estimates of around $15-35 billion, our own Ferdinand Marcos was ranked second with an estimated stash of about $5-$10 billion. Of course there would be an update on these as Iraq’s deposed despot Saddam Hussein and his cronies were reportedly able to skim over $21 billion out of the UN Oil for Food scandal which were originally intended for food and medicine provisions for the Iraqi people.

The additional list of most corrupt leaders includes Mobutu Sese Seko of Zaire, Sani Abacha of Nigeria, Slobodan Milosevic of Serbia/Yugoslavia, Jean Claude Duvalier of Haiti, Alberto Fujimori of Peru, Paulo Lazarenko of Ukraine and Arrnoldo Aleman of Nicaragua. Now note, most of these most corrupt leaders were tyrants. In other words, authoritarianism breeds corruption rather than slays them. Corruption under an authoritarian regime is and has been the rule and their much touted Singapore’s Mr. Lee Kwan Yu is an exception to the rule which means that in context of probabilities, under an Authoritarian regime the likely outcome would be a more corrupt government. So be careful of what these analysts wish for.

In terms of Business conduciveness, World Bank’s Doing Business shows that the Philippines has a more attractive business environment COMPARED to Indonesia it takes 25 procedures 380 days and costs about 50.7% as percentage to debt to set up a business in the Philippines compared to the Indonesia’s 34 procedures 570 days and 126.5% of costs. So if there was any country that needed a revolution it would have been Indonesia.

And for one to believe that a country can emerge as immaculate is delusional according to Director of Global Governance at the World Bank Institute, Daniel Kaufmann, “there is no such thing as zero corruption, even in countries that rate at the highest levels in terms of ethics and the control of corruption.” This not to mean that your analyst would be tolerant of these malfeasance this is to say that reforms are required and not some iconoclastic actions that would exacerbate rather than alleviate our present predicament.

But of course, these local revolution inciting analysts have their self-serving agenda, either they bear an irresolvable personal difference with the present administration or they seek other agendas such as outmoded left leaning political paragons or have personal interests on an alternative government or are simply dolts engaged in oodles of tarradiddles.

Finally I would like quote Mr. Lew Rockwell of the Ludwig Von Mises Institute about the corruptions of governments, “In a free market, big isn't the same as corrupt or inefficient. Bigness is the reward of market success. If you give the consumers a good product or service at a price better than the competition, your business tends to grow. No matter how large the firm, its managers are always accountable to the public. Moreover, no market position, however exalted, is permanent. Private business must earn its keep every day, or suffer losses and even bankruptcy. This is what makes market institutions accountable; the watchdogs of the system are investors and consumers with their own property at stake.

“In government, the opposite is true. Big and corrupt go hand in hand. The worse the government is, the more it grows at public expense. So long as the coerced revenue pours in, government can disregard the public interest, and go about its usual business of rewarding its friends and punishing its enemies. Rules, regs, and whistle-blowing that attempt to keep conflicts of interest at bay work about as well as prison bars of thread. For mankind has never discovered a method for keeping the robber state from acting according to its nature.”

To diminish corruption we need less government not more.

*****
For a sample of the horrors of Authoritanism read the Economist article about Myanmar "Forced and other customs"

Mineweb: They love gold and they’re trading gold – but will they buy more?

They love gold and they’re trading gold – but will they buy more?
By: Rhona O'Connell
Posted: '21-DEC-04 12:00' GMT
© Mineweb 1997-2004

LONDON (Mineweb.com) -- The gold market has long been seen as global, in the sense that gold can be totally anonymous and has been traded either as a commodity or a currency the world over for thousands of years. The recent proliferation of “formal” gold trading is a not a modern day phenomenon, as there have been commodities exchanges, on and off, going right back through history, with Commodities Exchanges in Amsterdam in the Middle Ages. This year, however, has seen a proliferation of announcements of planned new formal exchanges or trading centres.

We have already outlined the plans for the Dubai Commodity Exchange and its intention to commence gold futures trading in the first half of 2005. The National Multi Commodity Exchange of India is already operating gold futures contracts (fully computerised and online rather than open outcry). Now hard on the heels of these developments in Dubai and India come two more countries announcing plans for formal exchanges, in the shape of Pakistan and Vietnam. While these two countries are not among the world’s largest consumers in terms of overall tonnage, they are nonetheless enthusiastic for gold investment, being among the world’s heavier consumers of gold on a per capita basis.

The accompanying table shows overall tonnage in jewellery and bar hoarding form recorded by GFMS Ltd for 2003 in these countries (and for the world as a whole) and how they compare on a per capita basis. It shows quite clearly that the UAE, of which Dubai is an important part, is by far and away the heaviest consumer of gold on a per capita basis with a hefty 23.9 grammes, or 0.77 ounces, in 2003 (on a more comprehensive analysis, only Saudi comes particularly close, with 6.1g per capita). The world average, by contrast, is a mere 0.44g or 0.014 ounces while it the US it worked out at 1.21g per capita. These number s should be interpreted with caution, as some recorded UAE demand will be tourist purchase, as is also strongly the case in Turkey. Even so the fact that UAE offtake is more than 50 times he world average does talk to the love of the Middle East fro gold.

Country	Exchange	First Trading Date	Jewelry Demand	Bar Hoarding 2003 (source:GFMS Ltd)
			tonnes	Per capita
USA	COMEX	Dec-74	348	1.21
JAPAN	TOCOM	Mar-85	84.5	.66
TURKEY	ISTANBUL	Aug-97	155.8	2.24
CHINA	SHANGHAI	Oct-02	203	.16
INDIA	MCEX	2003	547.5	.55
UAE	DMCC	First half 2005	90.9	23.92
VIETNAM	HANOI, HO CHI MINH	Early 2005	58.8	.73
PAKISTAN	NCEX	Early 2005	59.5	.41
World			2715.1	.44

World Bank: Corruption - What Can be Done to Fight It?

World Bank: Corruption - What Can be Done to Fight It?

The global cost of corruption tops a trillion dollars a year in bribery alone. Corruption drains treasuries, delays development and is even linked to high rates of infant mortality. All of which makes fighting corruption a top priority around the globe, writes the Voice of America (12/17).

General Suharto of Indonesia... Ferdinand Marcos of the Philippines... and Mobutu Sese Seko of the former Zaire... they represent some of the most corrupt leaders in recent history. Global governance expert Daniel Kaufmann of the World Bank calls them 'kleptocrats' who ravaged their nations. But he says the face of corruption is changing. "There are many countries nowadays where, thanks to a move towards democracy, the leader has integrity, and the problem of corruption is still absolutely enormous." For example, in Nigeria, democratically elected president Olesegun Obasanjo and his cabinet face political constraints in an environment where corruption is deeply ingrained. And using traditional methods to attack the problem just don't work.

Kaufman says that is a waste of money. "You have a big corruption problem in a country, (so) throw another institution (at it) and start an anti-corruption commission, anti-corruption agency; a lot of funds have gone to that. We do not see major positive fruits out of that."

At the World Bank one new idea is to 'name and shame' companies that don't play by the rules. "It is no secret that we have made mistakes in the past and some World Bank funded projects have been tainted," said Kaufman. "There is a much tougher approach now." The World Bank sponsors an anonymous phone line to take tips. Then it bans companies found guilty of wrongdoing and posts their names on the Web.

The Internet and technology can also help nations create transparency. Kaufman provided an example. "In Chile, 80 percent of individuals are filing their tax returns on line -- probably the highest in the world nowadays." That means the government picks up more money to spend on development. But Kaufmann adds that fighting corruption is not just a job for governments or the World Bank. It's up to every exporter, business owner, judge, and citizen to build a world of integrity.

Yahoo News: Global Mining Firm Eyes Philippines

Prudent Investor Says: Welcome Dr. Marc Faber!!!

Global Mining Firm Eyes Philippines

MANILA, Dec 20 Asia Pulse - The Ivanhoe Capital Corporation (ICC), one of the world's leading mining companies, has expressed interest in the possibility of investing in the country after the Supreme Court recently decided to allow foreign companies to explore and develop the country's mineral resources.

President Gloria Macapagal-Arroyo welcomed ICC Chairman Robert Friedland and ICC legal representative Edward Rochette during a courtesy call at the Malacanang's Music Room on Friday.

Accompanying them were Trade and Industry Secretary Cesar Purisima and Philip Romualdez, who represented the local mining chamber.

ICC's Ivanhoe Mines, with operations in the Asia Pacific region, is a producer of copper, gold and iron ore products. The company's sales revenue in 2003 was US$89.7 million.

Purisima said ICC would likely tie up with Lepanto and Benguet Mines in exploring mineral deposits and promoting mining entrepreneurship in the country.

Purisima said Friedland, who was due to proceed to China on Saturday, would be back in Manila next year for a mining conference scheduled from February 2 to 4.

Purisima said ICC has discovered the largest copper deposit in Mongolia and the largest nickel deposit in Canada.

Currently, Ivanhoe Mines is evaluating coal, copper and gold discoveries in central and southern Mongolia and exploring for copper and gold in the Chinese province of Inner Mongolia and in Australia.

A study conducted by the National Economic and Development Authority (NEDA) has placed the potential mining wealth of the Philippines at $840 billion (P47 trillion), or 10 times the country's annual gross domestic product (GDP), and 15 times more than the total foreign debt of $56 billion.

Hugo Salinas Price: Silver's Three Flags published by 321gold

Prudent investor says: And the movement for Hardmoney BEGINS....IN MEXICO!!!

Silver's Three Flags
Hugo Salinas Price
Asociación Cívica Mexicana Pro Plata, A.C.

20 December, 2004

This article, translated by the author, appeared in Spanish on the 11th of December, 2004, in "La Jornada," a Mexico City newspaper.

Silver as a vehicle for popular savings, has turned out to be a very effective flag that has gathered support amongst the principal Mexican political parties, which in everything else are deeply at odds with one another.

This past 30th of November, the 31 governors of all the states that make up the Mexican Republic sent a communiqué to the "Ways and Means" Committee of the Mexican House of Representatives, in which they expressed their unanimous approval of the monetization of silver and urged the Committee to approve a bill which aims to achieve precisely this objective.

176 Mexican newspaper writers put their signatures to full page declarations by the Journalists' Club in the main newspapers of Mexico City, also in support of the monetization of the "Libertad" silver ounce.

A permanent organization of ex legislators also expressed their support for the measure in favor of the monetization of silver.

A poll by national T.V. Azteca, revealed that 96% of viewers approved of the monetization of the silver ounce, when asked if they were, or were not, in favor.

The Bank of Mexico, Mexico's Central Bank, is adamantly opposed to this measure. It does not want the public to have the opportunity of saving in monetized silver. It wants to maintain its unblemished monopoly on the printing of Mexico's money, which has no intrinsic value, and does not want the public to have any alternative for its savings, other than bills or bank deposits.

The Bank of Mexico sent a group of twelve men to the meeting of the Ways and Means Committee on the 30th of November, in order to confuse and cow the members of this committee, and forestall a favorable vote on the bill to monetize silver.

We do not know how the members of the Committee will cast their decisive vote, when the time comes.

Even in case their vote should be negative, we can predict, by the support given to this reasonable and salutary measure in the interest of Mexico, that the idea of monetizing silver will not die. The idea of using silver as money that cannot be devalued, for savings by the people, is now firmly rooted in the public conscience of Mexico. An idea on the march is a force that does not die easily. Suppressed, it will only gather more strength. Such is the history of all ideas. But silver flies another, more important flag.

In the mid-19th Century, when modern Italy had not yet taken shape and was still under the domination of Austria-Hungary, there was sown the idea that Italy should be reborn as a united and self-governed State, and that the domination of Austria-Hungary should be expelled.

Garibaldi came forward as a leader of this "resurgence" of the Italian fatherland. A young composer, Giuseppe Verdi, composed an opera to symbolize Italy under the heel of Austria-Hungary: Nabuco was its name. The Hebrews captured by Nabuco, the Babilonian king, symbolized the Italians under the rule of Austria-Hungary.

One hymn of this opera was so moving, that it spread like wildfire among the population. It became impossible to frustrate the resurgence of Italy. Verdi's hymn is, to this day, the national anthem of Italy.

This is silver's second flag: national union, with a consciousness of our own worth, our own culture and our independence. A national consolidation will take place when we once again take up silver, our ancestral money.

However, there is another still greater flag for silver:

Silver turned into Mexican money, circulating in parallel with paper money, no matter how insignificant the importance of that small amount of silver in the nation's economy, means that Mexicans will always remember that silver can actually be used as real, honest money. And that as the years pass, it will always be there, inviting us to use it in the most dangerous and dark times that may come.

Silver in circulation will serve to remind us that it is possible for a society to use silver and benefit from the use of real money, honest money.

Otherwise, it is possible that we may forget this, as has happened to many nations in the world. When Mexico monetizes silver, it will become a lighthouse of hope for the world, a light that shows the way out of the swamp of slavery and perpetual impoverishment that comes with paper money. Paper money, which is today the only kind of money in the world, ensures economic and therefore political control over the populations that use it. The planet's banking caste that issues paper money and virtual, electronic money, threatens to become the sovereign power through the fictitious money it issues, and aspires to dominate all humanity.

The outcome of paper money is the dehumanization of the human race.

This is silver's third and most important flag: the cause of humanity.

Silver's flags, therefore, are three:

The flag of people's savings.
The flag of national union.
The flag of the preservation of men, from dehumanization.

The silver coin as money: an idea that has taken life and will not be suppressed.