Bolivia
Divided we rule
A boost for Bolivia's president as he wins a referendum on his rule, but divisions persist
CRIES of “Evo, brother, the people are with you!” resounded on Sunday August 10th in front of Bolivia's presidential palace. The revellers were celebrating victory by the country’s socialist president, Evo Morales, in a referendum on whether he should remain in office. He not only survived but appears to have emerged with a stronger mandate, according to unofficial results (official ones are due at the end of the week). These suggest that Mr Morales secured over 60% support, more than the 54% he won in a presidential election in December 2005.
But his chief opponents, the governors of four eastern regions, also appear to have had their mandates confirmed by the recall referendum, with thumping majorities. The referendum has thus confirmed Bolivia’s political divide between the impoverished, Amerindian, high plains in the west, which remains strongly loyal to Mr Morales, and the more prosperous, capitalist and gas-rich eastern lowlands, which backs the opposition.
Nevertheless, the apparently categorical margin of Mr Morales’s victory may give new momentum to his plans to “refound” South America’s second-poorest country (after Guyana). “What Bolivians have expressed with their vote is the consolidation of this process of change”, he said on Sunday, to an audience brandishing chequered Indian flags. Mr Morales is now likely to call—and probably win—a separate referendum on a new constitution that would increase the role of the state in the economy, strengthen the powers of the president, weaken the judiciary and give some indigenous communities greater autonomy. The text of the constitution was hurriedly approved in December by an assembly at which the opposition was not present.
Yet the president will still face stiff opposition. The eastern governors will claim that their victory in their regions in the recall referendum is an endorsement of autonomy referendums they have held in the past three months. They want local control over land reform, taxes and gas and oil revenues. Those votes were unofficial and unrecognised but they helped to bring Mr Morales's “revolution” to a halt.
Bolivia's regional division has deepened since the election in December 2005 of Mr Morales. Of Aymara Indian descent, Mr Morales has brought the natural-gas industry under state control, vastly increasing government revenues but scaring off private investment. Some of his opponents accuse him of being a “puppet” of his ally, Venezuela’s leftist president, Hugo Chavez. He has campaigned relentlessly for a transfer of money and power to Bolivians of indigenous descent. They have now responded with a renewed demonstration of loyalty.
The opposition accuses Mr Morales of trying to divide the country along racial lines. “With this ratification, what has been confirmed is the country’s polarisation”, says Oscar Ortiz, the opposition president of the Senate. The eastern governors can still make life difficult for Mr Morales.
Though both sides have said they will recognise the result of the referendum, neither side appears ready to reach a compromise, in which the draft constitution might be amended to take into account some of the opposition’s concerns.
Violent marches, pickets and confrontations toppled Mr Morales’s two predecessors. The run-up to the recall referendum was marked by demonstrations and some violent clashes around the country. Mr Morales has won an important battle, but he is far from uniting Bolivia.
Commentary by Kevin Hassett
Aug. 11 (Bloomberg) -- Suppose you worked hard, invented a better mousetrap and your product was so successful that you registered sales of $171 billion over the past 12 months. How much would your company be worth?
Surely, you might feel like you'd made it to easy street. After all, General Electric Co. had revenue of $180 billion over the past 12 months, and the total market value of the firm was a whopping $295 billion as of Aug. 8. Or maybe you could even do better than that. Cisco Systems Inc. had revenue of $39.5 billion and it was worth $143 billion as of last week.
But before you make your guess, let's add this condition: Your product is an automobile. In terms of market value, that condition is about as negative as it can get. It's like finding out your running back has blown out both his knees.
General Motors Corp. posted $171 billion in revenue over the past year -- and its market capitalization as of Aug. 8 was a woeful $5.7 billion. Similarly, Ford Motor Co. posted revenue of $163 billion over the same period and had a market capitalization of just $11 billion. To put this in perspective, General Motors is now worth a little more than half as much as motorcycle manufacturer Harley-Davidson Inc.
The fact is, while automakers have enormous sales, they have losses rather than profits. The companies are worth so little because investors want to own profitable businesses.
Lately, the losses have been frightful. General Motors posted a $15.5 billion loss last quarter and is hemorrhaging money at the rate of about a billion dollars a month. The automaker has about $20 billion on hand, and some have begun to question whether it will survive.
Another Bailout?
Washington insiders are even dusting off their auto-bailout playbooks.
Before legislative action gets going, however, the government needs to consider the sad economics of auto manufacturing. The rationale for any bailout is that short-term fluctuations have put a company in a situation that it doesn't have the liquidity to escape from, but that the long-run prospects are rosy enough that it shouldn't close down.
The popular version of the auto story seems to fit this description. The surge in oil prices has hammered U.S. companies that disproportionately bet their profits on sport-utility vehicles and trucks. Losses are high now, but profits from SUVs were significant in the past. As consumers shift toward more fuel-efficient cars, automakers will suffer while they adjust production but eventually will be profitable again.
This version of the story is inconsistent with the facts. Even in the glory years of SUV profits, U.S. automakers didn't make much money, if at all. The firms have strained to survive, yet have little to show investors they can provide reasonable returns in the long run.
Negative Tax Bill
During the past five years, Ford's tax bill was on average negative, meaning its losses were so large that the company was refunded taxes paid in previous years.
The U.S. companies have a hard time being profitable for a number of reasons. The U.S. product has generally been viewed by consumers as less desirable. Ford and Chevy products have regularly received lower-quality scores from J.D. Power and Associates than Honda Motor Co. and Toyota Motor Corp. And their less-desirable product is manufactured by an extremely costly unionized workforce.
To make matters worse, the main competitors that aren't Japanese all operate out of countries with much lower tax rates than the U.S. When profits do pile up in the good years, U.S. companies pay about 34 percent more in taxes than those operating elsewhere in the Organization for Economic Cooperation and Development, a group of the richest nations. That drains cash reserves that are necessary for retooling when the bad times hit.
Golden Opportunity
U.S. vehicles have suffered from lower quality for a number of reasons that involve both the failure of management and labor. But the bottom line is that any company that has a more costly product that offers lower quality than the competition will have trouble making a profit. A manufacturer can price the profit out of its product in the short run to stay afloat, but long-run prosperity isn't an achievable objective absent fundamental change.
With combined sales over the past 12 months of about $330 billion, Ford and General Motors would provide an enterprising management with a golden opportunity to create a profitable business with a market capitalization that is closer to GE's.
Just Not Profitable
But doing so would require both a radical improvement in product quality and a sharp rationalization of the production process. That's the kind of charge that an eager acquirer might be willing to take on, especially if the U.S. had a corporate tax that made production here more desirable.
If the U.S. stays a high-tax environment, however, then it may well be that investors decide that it's just not profitable to base an auto manufacturer in the country. Only a government- supported industry would be sustainable.
Accordingly, it seems that two distinct paths await the auto industry: Down one, the U.S. has a lower corporate-tax rate, and a large and successful auto industry. Down the other, the government pours money into a failing industry that gets worse and worse every year.
Aug. 11 (Bloomberg) -- U.K. producer prices increased in July at the fastest pace since records began in 1986, adding to pressure on the Bank of England to wait before cutting interest rates as the economy edges toward a recession.
Prices charged by factories rose 10.2 percent from a year earlier, compared with a 10 percent increase in June, the Office for National Statistics said in London today. Economists forecast 10.3 percent, according to the median of 32 estimates in a Bloomberg News survey. Prices increased 0.4 percent on the month.
Bank of England Governor Mervyn King predicts record oil and food prices will drive inflation to double the 2 percent target later this year while the economy may contract. Policy makers, concerned that workers may ask for more pay to compensate for the higher cost of living, kept the main interest rate unchanged at 5 percent last week.
``Manufacturers are getting some traction to put up prices,'' said James Knightley, an economist at ING Financial Markets in London. ``This suggests that inflation will stay above target for longer. It'll take time for the Bank of England to respond to the recessionary environment with rate cuts.''
The pound was little changed against the dollar following the report, after falling against the U.S. currency for a seventh day. It traded at $1.9232 at 10:39 a.m. in London. It was also little changed against the euro at 78.22 pence per euro.
Inflation Rate
Inflation at factory gates has been slower than raw material cost gains for a year. Companies also aren't passing on those costs to households at the same rate. Consumer-price inflation probably accelerated to 4.2 percent in July, according to the median of 38 economists' estimates in a Bloomberg News survey. The statistics office will publish that report tomorrow.
The pound has fallen 12 percent against a basket of Britain's main trading partners in the past year, fanning the cost of imported raw materials. RPC Group Plc, the U.K. maker of plastic containers for Nivea sun cream, said July 23 that first-half operating profit will fall after polymer prices increased.
The weaker currency also makes British goods cheaper overseas. Exports rose 4.2 percent in June, outpacing the 4.1 percent gain in imports, the statistics office said today. The goods-trade gap still widened to 7.7 billion pounds ($15 billion), as the deficit with countries outside the European Union swelled to a record.
Raw Materials
Raw material costs jumped 30.1 percent from a year earlier, compared with 30.8 percent in June. Imported materials, including oil, rose a record 21.2 percent in the year, the statistics office said today. Input prices fell 0.6 percent from June, on a seasonally adjusted basis.
Oil prices have dropped 19 percent since reaching a record above $147 a barrel on July 11. They are still more than 60 percent higher than a year ago.
``It's early days to say that it's all clear, but the oil drop will have helped to assuage some of the central bank's fears,'' said Nick Bate, an economist at Merrill Lynch & Co. in London. ``The slowing in the economy should reduce the ability of producers to raise prices.''
The International Monetary Fund last week slashed its forecasts for U.K. economic growth to 1.4 percent this year and 1.1 percent in 2009. The economy expanded 3 percent in 2007.
The Bank of England releases new quarterly forecasts on Aug. 13. The next interest rate decision is Sept. 4.
The statistics office said that the producer-price index will be re-based from September to show 2005 as 100, compared with the current index that uses prices in 2000 as 100.
Aug. 11 (Bloomberg) -- Russia sent ground forces into Georgia proper for the first time since fighting began five days ago, seizing a military base and forcing the Georgian army to retreat toward the capital.
Georgian officials accused Russia of seeking to overthrow the government of President Mikheil Saakashvili, while Russia said it was protecting the separatist Georgian regions of Abkhazia and South Ossetia. Both countries gave contradictory accounts of fighting. Georgia says Russia is invading two cities while the Russians insist they're hitting only military targets.
``We no longer know the limits of the invading Russian Army,'' said Kakha Lomaia, the Secretary of Georgia's National Security Council. ``Russia seems intent on overthrowing the democratically elected government of Georgia and occupying the country.''
The conflict is Russia's first major military offensive outside its borders since the 1991 break-up of the Soviet Union. The war threatens to draw the U.S. into confrontation with Russia. The Bush administration backs Georgia's bid to join NATO which Russia views as a security threat. The West has courted Georgia as a counterweight to Russia's influence in the region, in part because it has an oil pipeline that bypasses Russia.
Russian troops seized a military base in the town of Senaki, 40 kilometers (25 miles) from Abkhazia, and ``invaded'' the city of Gori near South Ossetia, Georgian Interior Ministry spokesman Shota Utiashvili said by phone. Russian Deputy Prime Minister Sergei Ivanov said in comments on CNN that Russia has ``to attack Georgian military targets'' to ``protect the lives of Russian citizens.''
Senaki
About 30 armored personnel carriers and more then 20 trucks with Russian soldiers entered Senaki and took control of its military base, Georgian Deputy Defense Minister Batu Kutelia said by phone. A Russian official said the move into Senaki, 40 kilometers (25 miles) from Abkhazia, is aimed at preventing Georgian troops from massing.
Ivanov said the South Ossetian capital Tskhinvali was still being shelled by Georgian artillery near Gori. A Russian Defense Ministry official said ``not a single Russian soldier'' is in the city. Most residents of Abkhazia and South Ossetia hold Russian passports.
French President Nicolas Sarkozy, who currently holds the EU presidency, is to visit Russia tomorrow to try to negotiate a cease-fire.
Russia Achieves `Goals'
``Russia has achieved its goals,'' said Alexander Rahr, a Russia expert at the German Council on Foreign Relations in Berlin, said in a Bloomberg Television interview.``Georgia will not be able to reunite with its regions in the coming decades.''
Russia may be seeking to incapacitate the U.S.-armed Georgian military and topple Saakashvili, a U.S.-educated lawyer who came to power in 2003 and has sought to bring his former Soviet nation into the North Atlantic Treaty Organization, said Masha Lipman, an analyst with the Moscow Carnegie Center.
``I think Russia has not brought in its troops for the first time projecting military force outside its borders since the collapse of the Soviet Union in order to pull out quickly and return to the status quo,'' Lipman said in an interview on Bloomberg Television. ``I think that Russia has serious goals and Russia will not withdraw until its goals are fulfilled.''
Georgia and Russia have been fighting since Aug. 8 when Russia moved in troops and bombed targets after Georgian forces launched an offensive into South Ossetia, which split away from Georgia in an early 1990s war.
EU Peace Mission
The Russian incursions came after Saakashvili proposed a cease-fire to the five-day conflict and on the eve of a peace mission by the European Union.
Kutelia said the Georgian armed forces had withdrawn from Gori and regrouped in Mtskheta, some 70 kilometers (45 miles) from the capital Tbilisi.
``We are moving the defense line to Mtskheta,'' Deputy Defense Minister Batu Kutelia said by text message.
Saakashvili earlier today accused Russia of seeking ``regime change.'' ``We want and need an immediate cease-fire,'' he said in a conference call with reporters.
At least 1,600 civilians have died in South Ossetia since the conflict began on Aug. 7, according to Russia. Georgia says hundreds of troops have been killed on both sides as well as ``huge numbers'' of civilians.
Russia hasn't received an official proposal from Georgia for a cease-fire, Anatoly Nogovitsyn, Russian deputy chief of the General Staff, told reporters today in Moscow. Georgia has downed four Russian planes and 18 Russian soldiers have been killed, said Nogovitsyn.
Halt Military Action
The European Union's executive branch demanded a halt to all Russian military action on Georgian territory.
``We consider that the latest developments, such as the crossing of the Georgian borders by Russian troops, changed the dimension of the conflict,'' European Commission spokeswoman Krisztina Nagy told a news briefing in Brussels.
The Russian offensive has continued even though Georgia says it complied with Russian demands to withdraw its troops from South Ossetia. U.S. Vice President Dick Cheney said Russia's ``aggression'' would have ``serious consequences'' if it continued.
Putin today rounded on the U.S. for its ``cynicism'' in transporting 800 Georgian troops back from Iraq to take part in the conflict. He accused U.S. officials of ``Cold War thinking'' in televised comments.
`Russian Aggression'
U.S. Republican presidential candidate John McCain called for an international diplomatic response to what he termed ``Russian aggression'' in Georgia.
McCain said Moscow's attempt at ``toppling a democratically elected government'' is ``unacceptable to all the democratic countries of the world and should draw us together in universal condemnation of Russian aggression.''
Russia has said its actions are justified by what it calls a Georgian-waged ``genocide'' in South Ossetia. Russia says most of those killed in the conflict are civilians who died through Georgian military action.
Fighting spread over the weekend to Abkhazia, another separatist region which like South Ossetia is seeking independence from Georgia. Russia sent 9,000 troops there in addition to a 3,000-strong peacekeeping force on the ground.
Georgia is a key link in the U.S.-backed ``southern energy corridor'' that connects the Caspian Sea region with world markets, bypassing Russia. The BP Plc-led Baku-Tbilisi-Ceyhan oil pipeline to Turkey runs about 100 kilometers (60 miles) south of the South Ossetian capital, Tskhinvali.
Aug. 11 (Bloomberg) -- U.S. stocks rose, adding to the biggest weekly gain since April, after oil's drop to a 14-week low boosted retailers and credit card companies.
All but one of the 29 companies in the Standard & Poor's 500 Retailing Index advanced as crude retreated for a second day and Goldman Sachs Group Inc. said Wal-Mart Stores Inc. may increase its profit forecast. Financial shares contributed the most to the S&P 500's rally as American Express Co., Discover Financial Services and Capital One Financial Corp. each gained more than 2 percent.
The S&P 500 advanced 9 points, or 0.7 percent, to 1,305.32 after jumping 2.9 percent last week. The Dow Jones Industrial Average climbed 48.03, or 0.4 percent, to 11,782.35. The Nasdaq Composite Index added 25.85, or 1.1 percent, to 2,439.95. Almost five stocks rose for every two that dropped on the New York Stock Exchange.
``We could have another 6 to 8 percent rally in the next few months as people start picking stocks that will do well in a lower oil environment,'' said Barry James, president of Dayton, Ohio-based James Investment Research, which manages $2 billion. ``This is not a temporary drop in oil. It's going to be something that's a huge driver when you think about what it could mean for companies.''
After falling to a 2 1/2-year low on July 15, the S&P 500 has rebounded 7.4 percent. It's still down 11 percent this year as record fuel costs and bank losses stemming from the U.S. mortgage crisis prompted analysts to lower profit estimates.
Leadership Reversal
Leadership in the market reversed as the S&P 500 rebounded. Financial shares have led the gain among 10 industries since July 15, rising 29 percent as a group. Energy shares have fared the worst, losing 8.8 percent. In the previous 12 months, energy shares had posted the only advance among 10 industries, while financial shares slumped 53 percent for the worst performance.
Wal-Mart gained 1.2 percent to $58.56. Second-quarter earnings at the world's largest retailer may exceed the company's own forecast because of fewer clearance sales in home and clothing departments, Goldman Sachs said.
S&P 500 consumer companies dependent on discretionary spending had the biggest gain among 10 S&P 500 industries, climbing 2.5 percent. The group extended last week's 7.7 percent advance, which was the steepest since March 2003.
American Express, the largest U.S. credit-card company by purchases, climbed 3.6 percent to $39.17. Discover added 2.8 percent to $15.39. Capital One rose 6 percent to $46.
Financial stocks in the S&P 500 gained for a second day, increasing 1.8 percent.
Oil's Slide
Oil dropped 0.7 percent to $114.45 a barrel in New York on signs the U.S. economic slump will extend into 2009, crimping fuel demand. The U.S. may grow at an average 0.7 percent annual pace from July through December, half the gain in the first half of the year, a Bloomberg survey of economists showed.
Commodities prices are in the ``greatest decline ever,'' according to Birinyi Associates Inc., a Westport, Connecticut- based research and investment firm. The Reuters Jefferies/CRB Index of 19 raw material and agricultural commodities has tumbled 19 percent since its July record. The last similar slump was in April 1974 when the measure lost 15 percent, Birinyi said.
`Game Changing'
The retreat in oil prices looks like ``a game-changing event'' for ailing U.S. airlines, Morgan Stanley analyst William J. Greene said. The industry will be profitable in 2009 if crude averages $115 a barrel, a price reached last week, Greene wrote in a report.
No comments:
Post a Comment