Author: Ben Debski

Juncker, who chairs monthly meetings of finance ministers from the 16 countries that use the euro, added that the idea would not be on the agenda for the March meeting.

But he backed the idea to succeed. “Yes I do think [an EMF will be formed], under the condition that the principles will be put the right way round.

“By no means can this develop into a channel to avoid the no bailout clause of the treaty, so these principles have to be sorted out.”

“This is not a short-term story, it’s months, and no way is this meant to deal with the Greek case.”

The idea for a new rescue fund that could be tapped to help financially troubled Eurozone countries has been backed by Angela Merkel, though the response from some other leading European politicians has been more lukewarm.

The European Commission has said it is ready to propose setting up such a body and ECB President Jean-Claude Trichet said the bank has not rejected the idea but needs to see more details.

The IMF’s strategy to capitalise on surging gold to raise new resources for lending was first announced in 2008 and had been comfortably received by the market, with expectations for enthusiastic takers amongst Asia’s central banks.

Its sale of 200 tonnes of this quota to India, announced in early November, and small disposals to Sri Lanka and Mauritius prompted a frenzy of speculation over further sales.

But the key take-away for some analysts from the IMF announcement that it would soon begin phased open-market sales for its remaining 191.3 tonnes of gold was that central bank appetite for bullion may not be as robust as first thought.

“It could be viewed quite negatively that central banks, who obviously would have been favoured as buyers for the remaining gold, have found current (price) levels unattractive,” said Saxo Bank senior manager Ole Hansen.

The 191.3 tonnes on offer compares with total identifiable demand in 2009 put at 3,385.8 tonnes in the World Gold Council (WGC) demand trends survey.

Central bank activity has been seen as a key foundation of gold’s ability to rally even as other fundamentals, such as dollar weakness, faltered.

A third European central bank pact to limit sales seemed to cement that fundamental support, assuring investors that any official sector sales would be orderly.

Spot gold hit a record $1,126.10 per ounce in January and is still up almost a percent so far this year, even after a sustained period of falls.

WGC CEO Aram Shishmanian said that although some countries could sell gold reserves to cover budget deficits, the trend was unlikely to be big enough to damage the market.

The WGC’s managing director of government affairs, George Milling-Stanley, said the fact that the IMF had sold more than half of what it had on offer in off-market deals was a success.

“Any talk of this sale being a failure by the IMF is nonsense. The IMF always intended to sell this gold eventually on the market,” he added.

Lukewarm reception
No one can be sure what the psychology was behind the latest IMF development, but if the hope was to entice new official sector buyers, early indications are lukewarm.

Sri Lanka’s central bank was unlikely to buy more IMF gold right now as the nation has already reached its required reserve level, its governor said.

HSBC metals analyst James Steel noted that the idea that central banks may turn into net buyers of gold this year was an important element in the psychology of the rally.

“The fact that [the IMF] has announced that the remaining gold…will be sold on the open market is an indication that the IMF has been unable to find a willing buyer for the remaining gold,” he said.

Commentators have previously identified China, which last year said it had been adding substantially to its gold reserves in recent years, as a potential buyer of IMF gold.

But former officials poured cold water on that idea last year, pointing out that it would be cheaper for China, the world’s biggest gold miner, to buy domestic supply to boost reserves, and that near-record prices made IMF gold too expensive.

All is not lost?
After an initial knee-jerk drop, gold prices are recovering some poise, hovering above $1,100 per ounce.

Commerzbank said in a note to clients that central banks that had been waiting on the sidelines, may now see an opportunity to buy.

But with a clouded demand picture from central banks, and uncertainty on the dollar’s trajectory, some analysts are beginning to wonder about where the impetus to take gold higher from here will come from.

A fiscal crisis in Greece has helped to send gold prices in euros to record highs and dollar-gold to one-month highs approaching $1,130 an ounce.

“It doesn’t feel like we’ve reached the top of the market, but the problem is the huge amount of investment demand that has been behind this price increase. It doesn’t seem to be here at the moment,” said VM Group analyst Matthew Turner.

“The caveat is that you never quite know where the investment demand is going to come from. The Greece issue may be the catalyst for European investors to buy gold – so it’s not all over yet.”

At the centre of controversy is outspoken FDP Foreign Minister Guido Westerwelle, who has come under a barrage of criticism from his own party and Merkel’s Christian Democrats (CDU). Polls show support for the pro-business FDP has nearly halved since September’s election to about eight percent.

One former CDU cabinet minister, deriding Westerwelle’s description of unemployment benefits as reminiscent of Roman decadence, described him as an ass.

FDP supporters feel let down by a failure to deliver substantial tax cuts. Party credibility also took a hit when a 1.1 million euro donation from a hotel group owner emerged after the government pushed through tax breaks for hotels.

In response, Westerwelle has reiterated his determination to see through tax cuts despite Germany’s strained public finances and adopted arguments on welfare benefits to appeal to his core voters which are putting strains on the coalition.

“The image of this government in its first few months has been poor and doubts could grow about Merkel’s ability to lead unless she is firm with Westerwelle,” said Gero Neugebauer, a political analyst at Berlin’s Free University.

The conservative-FDP coalition was welcomed by business when it won power in September as a break from the wrangling that beset the previous conservative-Social Democrat coalition.

Westerwelle caused a storm recently by describing as socialist Germany’s attitude to the welfare state – a relatively generous net of benefits and support that formed the foundation of German state reconstruction after World War Two.

He compared long-term unemployment benefits to “late Roman decadence” and insisted the system needed a radical rethink.

Scorn
In a sign of the growing tensions in the coalition, conservatives have poured scorn on Westerwelle.

“In Roman times, decadence was about… Emperor Caligula appointing his ass as consul. Westerwelle’s comparison is right up to a point: 100 days ago, an ass became foreign minister,” former CDU cabinet minister Heiner Geissler told Die Welt paper.

Westerwelle’s cabinet colleague, CDU Labour Minister Ursula von der Leyen, also distanced herself, saying the welfare state had proved itself in the last 60 years and she saw no decadence.

The debate also triggered criticism from senior FDP colleagues about his leadership style. Some have demanded he relinquish some of his responsibilities. As foreign minister and party head, many think Westerwelle has too much on his plate.

“The party leadership needs to be stronger as a team. More FDP faces need to be in the foreground,” Westerwelle’s deputy Andreas Pinkwart told the Hamburger Abendblatt, adding the slump in the polls showed voters were very disappointed with the FDP.

A key test comes in May with an election in Germany’s most populous state, North Rhine-Westphalia (NRW).

It is uncertain if the CDU and FDP will hold the state. Analysts say the FDP is doing so badly, the CDU may be forced to find another partner in the Greens.

“If the NRW vote goes badly for the FDP, pressure will grow on Westerwelle to give up some responsibility. That looks bad, said Dietmar Herz, political scientist at Erfurt University.

“The FDP has been thrown into a panic. Westerwelle has gone storming in and tried to appeal to his core supporters but it’s unclear if his strategy will work,” added Herz.

The effect could be to limit the appeal of the FDP, traditionally seen as a party for young professionals, which Westerwelle successfully widened in 11 years of opposition.

When Slovakia adopted the euro in January 2009, Alexander Joszay loved driving across the border to Hungary, where financial crisis had weakened the forint to deliver lower prices for euro-earners.

But the factory where the 58-year-old maintenance man worked liked the idea too. It sacked Joszay and other Slovaks a few months later and moved across the border.

 “There was not just the single positive thing of people taking advantage of the exchange rate,” said Joszay, who worked for car parts firm MBE in this eastern Slovak town.

“People also lost work after the employers told them it was no longer profitable to continue with production.”

Slovakia’s case underscores the euro’s double-edged nature for the European Union’s ex-communist countries and serves as a warning for Poland, Estonia, Bulgaria and other states who see the stability of the single currency as a panacea for crisis.

Slovakia attracted billions of euros in foreign investment to become the world’s largest producer of cars per capita, but the country of 5.4 million people depends on autos and electronics for more than half its exports.

“Policy-makers in general envy Slovakia for entering the euro zone because they are scared of currency volatility. The euro provides stability in this sense,” said Lars Christensen, head of emerging markets research at Danske Bank.

“But it takes away the flexibility, and it is clear that Slovakia is suffering in terms of loss of competitiveness,” he added.

The euro has helped Slovakia be perceived as a better credit than others in the region: its 10-year benchmark bond yield is now 97 basis points over the euro zone’s benchmark German bund, much tighter than Poland’s 285 and Hungary’s 403 points.

The economic problems faced by many ex-communist EU newcomers are still too significant for them to consider joining the euro zone any time soon.

The euro entry criteria require all applicants to cut fiscal deficits to below three percent of GDP, but most euro candidates face ballooning fiscal gaps as the crisis bites deeply into budget revenue. Even euro members are giving themselves until 2011 to start bringing down deficits.

A Reuters poll shows economists expect Estonia to be the next eastern EU member to join the euro, perhaps in 2012. All other states were seen joining in 2014 at the earliest.

“Euro zone enlargement by another central European economy is … not going to happen quickly,” said Michal Dybula, central European economist at BNP Paribas in Warsaw.

Heavy shield
Slovakia became only the second ex-communist country to adopt the euro after Slovenia, capping a decade of transition from a central European laggard to a leader in economic growth, which culminated with 10.4 percent expansion in 2007.

Emboldened by investments by Volkswagen, Kia Motors and PSA Peugeot Citroen, the alpine country saw euro entry as the next prestigious move.

Two revaluations of its crown currency in the runup to the switch pushed it 30 percent higher against the euro, so low eurozone interest rates were not a spur to inflation as in euro-joiners Slovenia and Ireland.

From behind the euro shield against market turbulence, Slovaks went on bargain-hunting trips to neighbours like Poland, where the crisis had wiped a third off the value of the zloty versus the euro in a matter of months.

But with the euro appreciating by more than 20 percent against the dollar from 2007 to mid-2008 and regional currencies sliding by up to 30 percent in the early months of 2009, Slovak factories became more pricey than their regional peers.

That amplified problems as the crisis slashed demand for cars and electronics, drove unemployment to multi-year highs, stopped wage growth, and pushed down consumer spending.

In the service sector, once-popular Slovak ski resorts and spas suddenly found themselves too expensive for their usual guests, and Czech, Polish and Hungarian visitors fell by almost a third at the start of the year.

In 2005 before Slovakia joined the euro, its average unit labour cost was the equivalent of just EUR4.60 per hour, below the average of its neighbours Poland, Hungary and the Czech Republic. Once inside the euro that jumped 54 percent to EUR7.10 per hour in January 2009, undermining competitiveness.

MBE, which made cable boxes for Ford and employed around 700 people in 2008, said it had to cut production at the end of the year due to consumers’ evaporating demand for new cars.

“The euro was the last straw,” said former MBE executive Ladislav Mento. “Production became more expensive and it was moved to Hungary.”

Output pain
Not all producers share the view the currency has complicated doing business.

“The euro’s key advantage is that it lowers transaction costs in the economy – costs related with (foreign exchange) conversion, for securing against currency swings,” said Maria Valachyova, senior analyst at Slovenska Sporitelna.

And the benefits of euro-zone membership have continued to resonate for big subsidiaries of foreign firms. Because they sell most of their production in the euro zone anyway, they see the euro as a price stabiliser.

The largest Slovak company by sales, Volkswagen said the country’s adoption of the euro was one reason for siting production of its new small model UP! in the plant near the Slovak capital Bratislava.

“Euro adoption was very important from this point of view, because it enables long-term planning and eliminates foreign exchange risks related to currency volatility,” said Andreas Tostmann, chairman of the board of Volkswagen Slovakia.

“We are capable of solving the supply issues,” Vladimir Fisinin, president of the Russian Poultry Breeders’ Union, the powerful industry lobby told reporters.

Russia has been purchasing large volumes of US poultry since the early 1990s, when it turned to the US to supply low-cost meat, mostly chicken leg quarters, commonly known as “Bush’s legs”.

The nickname goes back to when US President George Bush Sr was promoting US- Russia trade. Moscow recently banned the meat because US producers use a chlorine wash, which Russia claims violates its food safety standards.

Russia said it was ready for a second round of talks after a first round in January ended without any commitments from Moscow to reopen its market.

Analysts said Russia has the upper hand as it is rapidly expanding domestic production and looking for alternatives to the 600,000 tonnes Washington could ship under an import quota granted to it for this year.

“I believe they will have to yield in one way or another,” said Yelena Tyurina, general director of the Agricultural Marketing Institute thinktank.

“If they do not export the meat to Russia, they will have problems with disposing of these volumes especially because they are now also having problems with China.”

China, another important market for US poultry meat, has said it will levy heavy anti-dumping duties on US chicken products.

“The United States will most likely agree with the Russian demands, as poultry meat prices there are falling, while stocks are rising,” said Darya Limareva, an analyst with the Institute for Agricultural Market Studies (IKAR).

Stocks to last several months
Russia appears to have sufficient stocks to survive without US imports, while domestic producers are rapidly increasing output in line with the goal set by the government to reach self-sufficiency in poultry meat in the next three years.

“I believe stocks may last until the end of March,” Tyurina said. “And imports from other countries continue and domestic producers are increasing output,” she added.

Fisinin said that Russia had stocks of 220,000 tonnes of poultry meat at the start of the year, which rose further in January.

“Even if not a gram of poultry is imported [from the US], we will live happily until the end of May,” he said.

IKAR’s Limareva said that average accumulated stocks of domestic poultry meat alone in Russia may last 25 to 27 days. “Russia will not face a deficit at least in the next couple of months. That’s for sure,” she said.

Russian domestic poultry output rose last year by 315,000 tonnes, equal to half of planned US exports to Russia this year, Fisinin said.

“This year we have all the necessary capacities to increase output by another 300,000 tonnes, and by 150,000 in the first half of this year, thus patching the possible gap,” he said.

Russia has set the target to completely end imports by the end of 2012, and poultry breeders are drafting a plan of achieving this target, which they expect to send to the Agriculture Ministry for approval in March, Fisinin said.

“In the next three years we plan to raise output by 920,000 a year,” he said.

Domestic poultry prices have been declining this year, and the existing high stocks are unlikely to reverse this process in the next few weeks, Limareva said. But prices may rise if US imports stop as meat from alternative suppliers will cost more.

“Brazil, the European Union, Thailand and Turkey, have expressed their wish to ship poultry meat,” she said. “But it is evident that signing new contracts will take time and prices of new supplies will be substantially higher.”

“We are running the risk of loosing cheap product which is mostly used in meat processing and production of semi-fabricates, as well as sold in provinces, where incomes are lower than in big cities,” Tyurina agreed.

The Baltic state of Lithuania – sandwiched
between Latvia and the Russian exclave Kalingrad – faces an economic
contraction of 18 percent for 2009.

To that the government has said it will add
a 30 percent increase in household power prices in 2010, as it fulfils a
condition of EU membership and shuts Ignalina, the Chernobyl-style
nuclear power plant that provides 70 percent of Lithuania’s power.

EU officials in Brussels pressed for the
closure at the start of the century, when the bloc was embarking on its eastern
enlargement. Their goal was to lower the risk of a repeat of the Chernobyl
nuclear explosion of 1986.

Neither recession nor energy security were factors when the
sculpture was symbolically unveiled on May 1, 2004 as Lithuania, once occupied
by the Soviet Union, joined the EU. It is described by the country’s tourism
website as marking “the poignant return of Lithuania to the family of
European nations”.

But from December 31 – when temperatures can drop to minus 30
degrees Celsius (minus 22 Fahrenheit) and rivers freeze – the closure will
make Lithuania more dependent on an increasingly irregular supply of power from
its former occupier.

“It’s the worst crisis ever,” said Jan
Glushachenkov, a 44-year old former excavator driver who lives next to the
sculpture above a compass mosaic.

Speaking to reporters in the still hush around the column near
the village 26km northeast of Vilnius, Glushachenkov said he has
already been out of work for almost a year.

He pointed out the more pressing risks Brussels now faces in
closing the reactor with the country’s 3.5 million people locked in recession:
“People will have to emigrate or to go to steal.”

Population losses due to net emigration since 1990 already
amounted to about 10 percent, according to a 2008 report from the OECD.

Edgy relations

For those who stay, things will be tough. Glushachenkov’s
neighbour Ludwik Trypucki, an 86-year-old farmer, said the shutdown will lift
his monthly power bill to about 18 percent of his 800 Lithuanian litas ($333.5)
pension. He already pays 120 litas per month.

“I understand they had to close it if it was unsafe to
operate, but they had to agree in advance to get cheaper electricity. Now it’s
unclear where that will come from,” he said.

Lithuania plans to import electricity from Estonia, Russia
and Ukraine, via neighbouring Belarus. A small amount will be imported via
cable from Finland and Latvia.

The increasing energy dependence on Russia, which will also
supply gas for a fossil fuel-powered electricity plant, comes as relations
between the countries remain edgy.

Lithuania objected to Russia building a gas pipeline to
Germany under the Baltic Sea and attempted to block the start of EU-Russia
talks on a strategic partnership.

Some in the Baltic region fear a planned pipeline under the
Baltic Sea from Russia to Germany, Nord Stream, could offer Moscow a direct
energy lever with Europe, enabling it to cut off countries’ gas to wield diplomatic
pressure.

Russia has in the past been a reliable gas supplier to
Lithuania, although it has cut oil supplies to a Lithuanian refiner, Mazeikiu
Nafta, now owned by Polish oil group PKN Orlen.

Inflation

Prime Minister Andrius Kubilius is hopeful countries in the
region will be happy to sell Lithuania electricity surpluses the downturn has
created in their countries, and pointed to long-term power contracts Lithuania
has signed.

“Lithuania will become more dependent on imports of
energy resources after Ignalina’s closure. That will reduce our energy
security, but we feel assured about the next year,” he told reporters.

The EU has allocated so far about 820m euros ($1.17bn) in aid to decommission the plant, deal with the nuclear waste and
upgrade a fossil fuel plant, but the central bank points to the shutdown’s
broader impact.

“A 30 percent hike in electricity prices will slash
gross domestic product by one percentage point and will increase inflation by
almost one percentage point,” said Raimondas Kuodis, the central bank’s
chief economist.

“It does not look a lot in the context of the global
crisis, but for Lithuania’s economy it’s a painful hit.”

Besides jobs lost at the reactor in the town of Visaginas in
Lithuania’s easternmost corner, businesses straining to maintain working
capital will be squeezed.

Arturas Zaremba, head of major cement producer Akmenes
Cementas, said his power prices would more than double to 15 Lithuanian cents
per kilowatt-hour from six, raising costs for the company with revenues of 125
million litas by six or seven million litas.

“The electricity price increase will be a serious shock
not only for our company, but for the whole economy,” he said.

In Visaginas, unemployment at about nine percent – less than
the national average of 11.7 percent – is forecast to reach about 11.5 percent
in 2010.

“I have been working at the plant for 27 years, my whole
life was connected to it,” said Andrei Grigoriev, walking past a memorial
stone from 1975 marking where the town was begun.

“Of course, it is painful to see it being shut, and that
it was a politically motivated decision,” he said.

Lithuania’s opposition made a last unsuccessful attempt in
December to force the government to restart negotiations with Brussels with a
view to extending Ignalina’s lifespan, a project supported by former Prime
Minister Gediminas Kirkilas.

“The European Commission does not fully apprehend the
situation of the Baltic states, and think that electricity imports from Russia
is not a problem,” he said. “They don’t share the same historical
experience.”

Better opportunity in Africa

In an office hooked up by closed-circuit TV to a direct view
of the gleaming, cavernous interior of the reactor hall, Viktor Shevaldin,
Ignalina’s veteran head, says he is resigned to the closure of the plant’s
remaining reactor at 11pm on New Year’s Eve.

Full decommissioning at an estimated cost of 8.6bn
litas will take about 25 years.

“We face a different future, but we have come to terms with
it already,” said the grey haired 60-year-old.

But let him talk more, and his tone changes. The chance of a
major accident is one per one million years of reactor work, he said:
“It’s like being hit by a meteorite while walking on the street.”

Back at Purnuskes, Algirdas Kauspedas, an architect who
became a celebrity rock musician with a band he formed in the last days of the
Soviet Union, is pragmatic.

“Market perspectives are bleak here. It’s better to look
for possibilities in Africa,” he said.

The global economic downturn has hit hard the poorest EU member country, which benefited from investment in real estate and financial services in the past decade.

Stoyan Stalev, head of the state investment promotion agency, said he expected FDI to have fallen over 50 percent in 2009 to about three billion euros, but would show a moderate growth of about 10 percent this year following an economic recovery in Western Europe.

He told reporters that Bulgaria, which joined the EU in 2007, planned an advertising campaign in Asia to promote itself as an investment destination and a gateway to the 27-nation bloc.

“We will seek a better position in the regions with high growth rates. Korea has a growth rate of four percent, China – eight. We expect serious investments from there,” Stalev said.

China’s largest sports utility vehicle maker, Great Wall Motor Co has already started the construction of a plant to assemble cars under its badge in northern town of Lovech.

“If that investment goes through as planned, it will be a huge success, because car manufacturing is a very important factor for the whole economy,” he said.

Another Chinese investor, Luoyang Glass Group, plans to build a glass factory near Razgrad, in northeastern Bulgaria.

Stalev said there was Korean interest in real estate, while other officials had said electricity production was also on the radar screen of Korea companies.

Economists and analysts have criticised Sofia for failing to create a stable manufacturing base during the boom years, when most foreign cash was channelled into real estate.

Bulgaria’s poor infrastructure, inefficient courts and rampant corruption have put serious investors off and the Balkan country of 7.6 million remains the least developed EU nation.

Stalev said Sofia’s main priority was attracting production-linked investment to create jobs and ensure a return to sustainable growth.

He also said there was room for building logistics parks and warehouses to benefit from Bulgaria’s geographic position as a gateway between Europe and Asia.

Bulgaria can benefit from its fiscal stability and corporate tax of 10 percent – the lowest in the EU – as well as the efforts of the new centre-right government, elected last July, to overhaul the infrastructure and crack down on graft, he said.

Tiny nations like twin-islands St. Kitts and Nevis, a short chain of lush green volcanic cones set in an azure sea, have felt the shocks of the downturn and credit crunch as keenly as the winds and seas that lash them every summer.

Their high dependence on tourism, remittances, investment flows, imports and commodity prices makes them all the more vulnerable to recent worldwide economic tremors that have shaken giants like the United States and China.

Shock has followed shock. First, soaring oil prices last year pushed up energy and food import bills and swelled inflation. Then, recession in the United States and Europe cut tourism and investment flows.

The International Monetary Fund forecasts real 2009 GDP for the eight member Eastern Caribbean Currency Union (ECCU), which includes St. Kitts and Nevis, will contract by 2.5 percent “reflecting a sharply-slowing global economy, declining tourist arrivals and foreign direct investment flows, and increased financial sector stresses.”

“It’s been difficult, it’s not without pain, and we have gotten wet,” said Richard Skerritt, St. Kitts and Nevis’ Tourism Minister, citing a 12 percent January∞April drop in visitors from the United States.

Tourism
Since the local sugar industry closed in 2005, tourism has taken over from “King Sugar” as the economic mainstay on the twin-island state of 40,000 people and now contributes an estimated 40 percent of gross domestic product.

Any dip in visitor activity is painful. The January-April visitor fall-off forced the country’s biggest resort, the St. Kitts Marriott, to lay off 100 employees.

“That was a shock, because in a small country, lay-offs hurt everybody,” Skerritt said.

Nature too has taken its toll on the former British territory. Hurricane Omar, which pummeled St. Kitts and Nevis last year, forced the closure in October of the Four Seasons, the biggest resort on Nevis, which has still not reopened.

“Weathering the storm”
To the east, Antigua and Barbuda’s hotels suffered a 30 percent decrease in occupancy and government revenue fell by 25 percent, Antigua Prime Minister Baldwin Spencer said.

St. Kitts’ Skerritt said his government was fighting back. It had removed some duties and taxes to shield consumers from price rises in basic food, introduced stimulus measures for small hotels and negotiated hard with airlines and big resort operators to try to keep visitors coming.

“We are weathering the storm better than most,” Skerritt told Reuters. St. Kitts was banking on the Christophe Harbour project, a big new hotel, marina and golf course development on its southeast peninsula, to attract new visitors.

Skerritt said the new resort was already impacting the local economy and had created some 100 new jobs.

Citing another encouraging sign, he said St. Kitts’ cruise passenger arrivals had increased by 150 percent in the last three years, from 200,000 to 500,000, thanks to the Port Zante cruise terminal which now had more than 50 shops.

But spending by cruise visitors was sharply down across the Caribbean, retailers and tour operators said.

“It’s the same story in Jamaica, the Cayman Islands, all the big retailers are down,” said Avi Sippy of Diamond Island Jewelers in Port Zante.

In St. Lucia, whose 170,000 population is one of the largest in the eastern islands, the government is putting a brave face on the situation.

“Tourism arrivals remain fairly buoyant although there is a fair degree of discounting (of prices),” Foreign Affairs and Trade minister Rufus Bousquet told Reuters.

“I’m not suggesting it’s a rose garden, but we’re paying our bills.”

Financial shocks, social strains
At a June summit in St. Kitts of the Venezuelan-backed regional energy alliance PetroCaribe, Jamaican Prime Minister Bruce Golding warned that the recession could stoke social tensions and inequalities.

“Poverty that had been reduced, we are in danger of that poverty returning… We fear a real danger that we will come out of this crisis with the gap between rich and poor countries widening,” Golding said. He demanded “a seat at the table” for small developing countries at global groupings like the G20.

Fraud scandals
Some analysts see the cumulative shocks straining Caribbean unity. “There is a growing sense of every country for itself,” said David Jessop, executive director of the UK-based Caribbean Council, that specialises in Caribbean trade issues.

“We’re now a year, a year and a half into the global economic crisis and the Caribbean hasn’t actually been able to agree a strategy,” Jessop added.

Compounding their troubles, recent high-publicity fraud scandals and financial collapses have pummeled the region’s financial sector.

Analysts say the case of Texas billionaire Allen Stanford and his Antigua-based banking operation, charged in the United States with running a “massive Ponzi scheme,” is another black eye for the Caribbean’s offshore finance sector.

The charges have implicated Antigua’s top financial regulator, adding force to critics who say the region’s financial sector lacks adequate control and oversight.

Similarly, the collapse earlier this year of the Trinidad-based Caribbean business conglomerate CL Financial has sent shock waves through the Eastern Caribbean’s financial system, the IMF says.

“High government exposures, credit risk and liquidity risk present major threats to ECCU banking system stability,” the fund said in a report published in May.

ECCU members are Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines.

Many regional governments view calls from the developed world for the Caribbean to clean up its tax havens as unfair. But some are moving to sign multiple bilateral tax treaties to meet demands for more financial transparency and oversight.  “It’s a good way to show transparency and to generate business,” said St. Lucia Foreign Minister Bousquet.

Floating in 8,000 feet of water in the Gulf of Mexico, Anadarko’s Independence Hub continues to produce enough clean-burning natural gas each day to heat or cool more than five million homes, more than two years after initiating production. This first-of-its-kind facility continues to serve as an unmatched feat of collaboration, engineering and visionary courage. It’s also a perfect example of the commitment Anadarko has made to finding and developing the energy resources vital to the world’s health and welfare.

This year, Anadarko expects to spend between $4bn and $4.5bn in capital – more than $1bn above its total net income in 2008. During a year where most independent oil and natural gas companies significantly slashed their budgets, Anadarko maintained its commitment to exploration and the development its three international mega-projects.

“We’re continuing to invest in exploration to capitalise on the tremendous opportunities we have in our portfolio,” Anadarko Chairman and CEO James Hackett said. “We have financial flexibility as the result of maintaining a healthy balance sheet and prudently managing our capital spending during times of higher commodity prices. Following the unprecedented simultaneous acquisitions of two peer companies in 2006, we built a high-graded portfolio of opportunities through the acquisitions and subsequent divestitures.”

Anadarko’s exploration programme has uncovered two of the world’s largest deepwater discoveries during each of the last two years. The first discovery was made offshore Ghana at the Jubilee field in 2007. Since that time, Anadarko and its partners have drilled six additional successful wells offshore Ghana, and Anadarko has significantly expanded its acreage position to more than eight million gross acres along the Cretaceous trend offshore Ghana, Sierra Leone, Liberia and Côte d’Ivoire.

In 2008, Anadarko became the first foreign operator to make a deepwater pre∞salt discovery offshore Brazil at the Wahoo prospect. The company plans to drill another exploration well on the same block later this year and conduct multiple drillstem tests to gather additional data and information on the area.

In addition, Anadarko has announced four oil discoveries in the deepwater Gulf of Mexico in 2009. Several of the discoveries are near existing infrastructure, enhancing the company’s development options following additional
appraisal drilling later this year and into 2010.

“While our exploration programme has had an excellent run of success, we’ve also continued to keep a focus on increasing production in our existing fields and moving forward with the development of our mega∞projects offshore Ghana, in the deepwater Gulf of Mexico and in Algeria,” added Hackett. “Even though we anticipate spending between 12 to 25 percent less capital in 2009, we still expect to be able to grow our sales volumes by two to four percent from a base production of 206 million barrels of oil equivalent. This is a great example of Anadarko’s commitment to delivering on our near-term goals, while continuing our work to position the company for top-tier performance in the future.”

“Our world is going to continue to need increasing amounts of energy. It is fundamental to human existence, and it’s important that we continue to invest in finding and developing additional resources,” continued Hackett. “Technology continues to advance, creating the potential to recover resources from tighter formations and underneath deeper water than previously thought possible. Independence Hub may have been the first of its kind; however, with access, innovation and investment, our industry can reach even
greater heights in the future.”

Further information: www.anadarko.com

Unscathed by conflict or political instability, Cape Verde has quietly become a middle-income nation and looks set to be one of few in Africa to meet any of the Millennium Development Goals set for measuring progress in improving livelihoods. Yet it has loftier ambitions.

In return for special deals on economic and political cooperation with Europe, it increasingly plays a trouble-fixing role on the more unruly mainland some 400km away.

It hopes to turn its location to its advantage by becoming a springboard for business in West Africa. And it thinks tourist numbers could soon match the country’s population.

“The fact that we don’t have resources has made us be creative,” Fatima Fialho, Cape Verde’s minister for tourism, industry and energy, says. “We are an economy in transformation – moving from one of aid to one of production,” she added, detailing plans for a service-based economy focusing on shipping and fisheries, providing a hub for technology, finance and tourism.

Economic growth for 2010 will be 5-6 percent, she says. The country is not without its challenges. The lack of rain still means over three quarters of its food is imported. Cape Verde’s response to the financial crisis has been to accelerate its public investment programme, known locally as the nation’s “air bag”. This has delivered an impressive upgrade of infrastructure, but also rising debt levels.

Fitch ratings said in May a fiscal deficit of 12 percent of GDP in 2010 and 2011, and central government debt at 78 percent of GDP by the end of next year, should ensure long-term growth but will increase pressure for sound management.

Poor, but successful
After other African nations with similarly small populations but far higher revenues, mainly from oil, failed to use vast sums of money to benefit the country outside a tight-knit elite, the nation is being heralded as a non-resource success story. In April, the African Development Bank (AfDB) called Cape Verde the first African case of “policy induced graduation”.

“Here is evidence that no matter how bad the initial conditions, with good governance, solid institutions, and a peaceful political and social climate, take-off is possible,” Donald Kaberuka, AfDB group president, said during a visit.

Ahead of elections next year, Jorge Santos, deputy head of the MpD opposition party, is quick to express confidence in the political system, saying there is no comparison in the region. Donor aid has played a key role in its success.

But so too have payments from its diaspora – believed to be double the 500,000 Cape Verdeans living at home. Many left the country due to hardship there and, spread out across the globe, send millions to families back home every month.

Even after taking a hit from the global crisis, remittances amounted to $172m in 2009, having averaged 12.3 percent of GDP between 1999-2008, according to the AfDB.

But Fialho said that tourism has just overtaken remittances as the biggest contributor to the economy at around 20 percent of GDP: “This is an important shift.” Ever since Italian dictator Benito Mussolini built the first airport on the island of Sal, Italians have dominated tourism there. Charter flights from around Europe jet in to a number of gleaming new airports, ferrying most of the 330,000 tourists in 2009 to all-inclusive hotels on sun-blessed beaches.

Some in the industry grumble that vast hotels, like a 4,500∞bed all inclusive resort being built for Spanish firm Riu on Boa Vista, are wrecking the charm of the islands. “This is not very good for local communities – they only stay in the hotels. They don’t learn about our cultures… we must not move too fast,” said Lindorfo Olivio Marques Ortet, who owns a hotel for walkers in mist-shrouded hills above Praia.

But Fialho argues that mass tourism was essential to get the country on the map, and the focus is now on improving services to meet a target of 500,000 visitors a year by 2012.

Link to the region
Uninhabited until it was discovered by Portuguese mariners in the 1450s, the country’s population is a mix of settlers and former slaves, a combination that means tribalism is not an issue. Yet many speak of Africa as a separate continent and have far more links with Europe or the Americas. The national airline, for example, flies directly to Brazil, the United States and a number of airports across Europe, but just one in Africa.

The islands, however, are becoming an increasingly important strategic partner for the African mainland but also for outsiders looking to strengthen their African links. “What Cape Verde can bring to the region is a bridge,” according to Foreign Minister Jose Brito.

A visit by Brazil’s President Luiz Inacio Lula da Silva in July highlighted the role Cape Verde could play as a springboard into West Africa. But Europeans and the United States also see the country as a barrier against the flow of drugs and people. Cape Verde was the first West African nation used to transit cocaine headed to Europe, and has since been widely praised for cracking down on corruption and improving law enforcement.

In July, it helped the United States by receiving a Syrian prisoner from Guantanamo Bay. The country is also increasingly active in seeking to resolve African conflicts, such as in Guinea-Bissau. In return, Praia has secured a special partnership with Europe and is the first country to be made eligible for a second round of funding from the US Millennium Challenge Corporation.

Brito said it was in Europe’s interests to have a special relationship with Cape Verde, especially in having a real partner in fighting crime, and the country would seek to meet EU standards, but was not looking to join the institution. “We are an African country… Cape Verde cannot be alone, separate from what is happening in (the region).”

Despite two decades of hardship, war and a loss of markets, Matko Jasprica has kept his Croatian fish farm alive and now hopes to start exporting sea bass and sea bream to the European Union.

With a small team, Jasprica runs the Plankton farm situated 1.5 miles (2.4 km) out to sea from the picturesque fishing village of Drace, on the Peljesac peninsula in the southern Adriatic. The farm is hidden from sight and screened from the northerly wind by a tiny island.

The fish, grown in dozens of square and round cages, can be detected only by bubbles on the sea surface. The farm produces around 120 tonnes a year.

“Our plan was to adjust our standards and start exports to the European Union, as demand on the local market is small,” said Jasprica. “We must be ready when Croatia joins the EU – we can’t beat big producers but we can be competitive with new technologies.”

Experts say demand for seafood is set to rise as the world population grows and wild fish stocks decline. The EU, which produces 1.2 million tonnes of seafood and consumes 25kg per person per year on average, has to import 65 percent of its needs.

“We expect the world population to increase to nine billion in years to come and there are some expectations that we need to double food production by 2030,” said Torgeir Edvardsen of the European Aquaculture Technology and Innovation Platform.

“A lot of this production cannot come from terrestrial sources. We’ll have to farm the sea much more than we’ve done up until now,”

Growing business

Fish farms produced 51.7 million tonnes of fish worldwide in 2006 with an estimated value of $78.8bn, according to figures from the UN Food and Agriculture Organisation (FAO).

Some scientists say farmed fish production has reached 70 million tonnes since then, coming close to the 80 million tonnes of wild fish caught in open seas – a maximum that cannot be exceeded due to restrictive fishing quotas to protect species.

“There is no question – aquaculture is the way of the future,” said Marshall Gilles, head of the Canadian government’s agriculture and fishery division, adding that farmed fish will probably account for 60 percent of available world stocks by 2030.

Gilles said his government fully supported the industry, which can provide permanent employment for the coastal population, most of which depend on seasonal jobs in tourism.

Fish farming output, which has grown consistently by 10 percent a year for the past 20 years, is expected to reach nearly 120 million tonnes by 2020, said Branko Glamuzina, who teaches aquaculture at the University of Dubrovnik.

“Aquaculture is the fastest growing agro-business,” Glamuzina said. “It actually represents the only serious business that can provide enough seafood for the ever-growing population.”

Investment opportunity

Despite a long seafood tradition, Croatia lags behind in the technology and development needed to compete in the EU fish and mussels market with other Mediterranean countries such as Italy, Greece and Spain, Glamuzina said.

It should rather go for niche markets, such as growing oysters. “We have farms, must improve standards and need investors,” he said.

While Croatia still has plenty of potential fish farm sites, most of its developed competitors have run out of available space near the coast and are forced to move farms further offshore.

This involves increased costs for transport and cages but it remains the only viable option for key fish producers, such as Norway, which accounts for nearly half of Europe’s total production of fish, mainly salmon.

“Aquaculture definitely has to move further and further from the sheltered coastal waters because of society’s urge to protect tourism, protected sites and species,” Edvardsen said.

Offshore farming poses new technological challenges and environmental risks, and industries and researchers are exploring methods to address them.

“The more you move from shore, you get more waves, more current, more energy,” said Arne Fredheim of the Norway-based CREATE research centre for aquaculture. “You have to have all kinds of equipment, you have long distances to travel, and you have to have permits to fish finfish.”

Some environmentalists warn about the negative impact of fish farms’ waste on nutrients at the seabed. They are also concerned about interbreeding of escaped fish species with wild fish and the use of large quantities of wild fish to feed farmed fish.

The conservation organisation WWF generally supports aquaculture as an ever∞growing source of seafood but insists on setting standards to minimise harm to the environment.

“The rapid expansion of the aquaculture industry has not come without impacts. However, when done responsibly, aquaculture’s impact on wild fish populations, marine habitats and water quality is minimal,” WWF said in a statement.

Dusko Zmijanjac, a manager at the Plankton fish farm, believes that farmed fish is safer for human consumption.

“Farmed fish is healthier than wild fish which gets everywhere, including into polluted areas,” he said. “Tests have never revealed the presence of heavy metals in our fish.”

Introducing goods and services tax and cutting subsidies
Malaysia was supposed to cut its fuel subsidy bill from May this year as part of the 2010 budget to tackle its budget deficit which in 2009 hit a more than 20 year high of 7.4 percent of GDP. That measure was withdrawn as it was “unpopular” with voters.

Similarly, plans to debate a goods and services tax (GST) in the current parliamentary session were withdrawn due to the risk of hurting the government’s popularity as were proposals for electricity price hikes.

These measures are unlikely to be implemented before the next general election that must be held by 2013 at the latest, but could come in 2011.

An early election with early implementation by a government with a strong two-thirds majority in parliament would be positive for investors. If the government fails to win back the two-thirds parliamentary majority it lost in the 2008 polls, unpopular measures such as these could be delayed again.

There are no firm pledges on fiscal reform.

Economic growth targets are ambitious at 6.5 percent by some unspecified timeframe. In its “Vision 2020” drive to win developed nation status, then-premier Mahathir Mohamad projected seven percent annual growth. The outcome from 1998-2008 was 5.5 percent. Malaysia is Asia’s third most trade dependent economy relative to its size. Any targets could be rendered meaningless if there is a double dip global recession or if demand for commodities or oil declines.

Reforms to social system and support for Malays
The most controversial area of reforms. How far will Prime Minister Najib Razak go in unwinding the linchpin of Malaysia’s political and social system that gives a wide array of benefits to the 55 percent Malay population?

Although the proposals say that social support will shift to the poorest 40 percent of families after subsidies are cut, the issue of how far the rest of the social safety net for Malays will change has been fudged.

The “New Economic Model” planned by Najib is being marketed as the successor to the decades old “New Economic Policy” introduced by his father, Malaysia’s second prime minister, Abdul Razak Hussein, in the wake of race riots in the 1960s.

To please reformers and win back ethnic Chinese and Indian voters who deserted the National Front in 2008, Najib will have to embrace deep reform. In doing so, he would alienate Malays who are the core voters of his United Malays National Organisation (UMNO), the linchpin of the National Front coalition.

So far, Najib’s reforms have been welcomed by investors but have not gone far enough. Najib’s political style was described as at best “pragmatically cautious” by Bridget Welsh, a Malaysia expert at Singapore Management University.

Najib already faces a growing tide of Malay concern that has focused on religion and rights.

“Zero tolerance” on corruption
Malaysia has long pledged to eradicate corruption, one of the reasons that voters deserted the government in the 2008 polls. Najib has made some efforts to clean up vote buying in UMNO by enlarging the franchise in party polls, but there have been no major arrests on graft charges.

Malaysia has fallen to a record low of 56th place among 180 countries in anti-graft watchdog Transparency International’s 2009 corruption perception index.

A billion dollar scandal over a port free trade zone that has rattled bondholders has seen a few minor company officials charged.

UMNO recently ran a state legislature candidate who was a former cabinet minister suspended from the party in 2004 for corruption, a move critics said showed it was business as usual for cronyism.

High quality education for all
Crucial to Malaysia’s bid to win a stake in the global knowledge economy is its education system. At present, it turns out tens of thousands of graduates a year who learn by rote and are ill-equipped for the new economy.

Malaysia’s tertiary education enrolment ratio lags both Singapore and Thailand, according to UN data. A report from investment bank Morgan Stanley said its gross tertiary enrolment ratio and gross tertiary completion ratio are seven percent and six percent lower than the average of economies with its level of GDP per capita.

Education has become increasingly politicised with the abandonment of a policy of teaching maths and science in English instead of Bahasa Malaysia.

It is also an issue that could trigger a racial backlash against the government.