Bolivia's Morales hails poll win

Bolivia's President Evo Morales addresses his supporters

Bolivia's President Evo Morales has claimed victory in a referendum on whether he should continue in power.

Unofficial results gave Mr Morales a convincing win, and he promised to continue his reforms, including the nationalisation of key industries.

Four of six opposition governors, who have led protests against the president and are demanding more autonomy, also won the right to stay in office.

The outcome of the vote is likely to leave Bolivia divided, analysts say.

Both sides were quick to interpret the result as a validation of their position.

"What the Bolivian people have expressed with their votes today is the consolidation of change," Mr Morales told thousands of cheering supporters in La Paz.

"We're here to move forward with the recovery of our natural resources, the consolidation of nationalisation, and the state takeover of companies," he told the crowd from the balcony of the presidential palace.

Santa Cruz's Ruben Costas said the outcome was a defeat for Mr Morales

The president congratulated the opposition governors who were re-confirmed in their posts and urged them "to work together" with him.

Unofficial exit polls said Mr Morales had won more than 60% of the vote. Official results are expected in the next few days.

In all, eight governors were subject to recall votes, and five of them were victorious, according to early projections.

One of Mr Morales's fiercest opponents, the Santa Cruz governor Ruben Costas, celebrated his referendum victory in front of supporters who chanted "Autonomy, autonomy".

"This referendum has defeated the remains of centralism, has squashed the manipulation of the enemies of true change, " said Mr Costas.

Three governors, including two Morales supporters, are set to lose their jobs and fresh elections will then be held.

But the defeated governor of Cochabamba, Manfred Reyes Villa, refused to recognise the result and vowed to resist any attempt to make him stand down.

"My lawyers have told me this is unconstitutional. Legally, I continue to be the governor of Cochabamba," he said.

Deep divisions

Bolivia has become increasingly divided between rich and poor, east and west, over the president's plans to radically reorganise the way the country is run, says the BBC's Daniel Schweimler in La Paz.

The result leaves Bolivia as polarised as ever, correspondents say

Mr Morales wants to give poor and indigenous communities and women a greater voice, and he wants to redistribute land in what is South America's poorest country, our correspondent adds.

But many in the gas-rich east of the country oppose the president's proposals and resent the central government cutting their share of gas revenues. They have responded by calling for greater regional autonomy.

Mr Morales has criticised what he calls privileged groups who talk of separation and oppose change.

The dispute sometimes breaks out in violence, and protests increased in the run-up to the referendum.

Last week, Evo Morales had to cancel two planned trips when angry protesters blocked regional airports.

Russian troops in Georgia advance

Russian TV broadcast images of troops in Abkhazia

Russian troops have entered Georgia from the breakaway region of Abkhazia, as the conflict between the two neighbours appears to be broadening.

Moscow said it had launched a raid on the town of Senaki to stop Georgia from attacking Russian forces in South Ossetia, another breakaway region.

And Georgia says Russian troops have captured the town of Gori in central Georgia - a claim denied by Moscow.

As the fighting continued, foreign envoys were pressing for a ceasefire.

Violence erupted in South Ossetia late last week when Georgia launched an overnight assault on the territory.

Russia, which supports the province's bid for separation, then bombed targets throughout Georgia and moved troops into the region and into Abkhazia.

The Georgian president runs for cover as he visits a bomb site

Russian denial

Russia confirmed for the first time on Monday it had advanced beyond the borders of Abkhazia, saying it had launched an operation in the town of Senaki.

A Defence official told the Interfax news agency the move was intended to prevent Georgian troops from shelling South Ossetia, and to stop them from regrouping.

ABKHAZIA Broke away from Georgia in 1992-1993 war De-facto independence not recognised internationally 2,000 Russian troops there sent as peacekeepers Georgia seized strategic Kodori Gorge in Abkhazia in 2006 Abkhazia rejected Georgian offer of autonomy within federal state Q&A: Violence in South Ossetia In pictures: Georgia in crisis Profile: Abkhazia

Georgian officials then accused Russian troops of moving into the town of Zugdidi, near Abkhazia.

The Russians issued an ultimatum to Georgian forces to disarm or face attack, and proceeded to occupy government buildings there, the Georgians said.

And the conflict over South Ossetia also appeared to have widened, with Georgia accusing Russia of capturing the town of Gori, just 76km (47 miles) from Tbilisi.

"This is a total onslaught," Georgia's National Security Council secretary Alexander Lomaia told AFP news agency.

He said Georgian troops were pulling back to defend Tbilisi.

But Russia's defence ministry later issued a statement rejecting the claim, saying there were no Russian troops in Gori.

Local officials in South Ossetia's secessionist government accused Georgia of bombing targets in the capital, Tskhinvali, by helicopter.

Nato plea

On Monday EU envoys were attempting to broker an agreement between Tbilisi and Moscow.

Georgian President Mikhail Saakashvili signed an EU-backed ceasefire, but the document was rejected by Moscow.

And leaders from both countries carried on a war of words, with Russia accusing Georgia of genocide, and President Saakashvili hitting back with claims of ethnic cleansing.

Russia has also called for an emergency meeting with Nato on the conflict.

Georgia's foreign minister is due to meet Nato on Tuesday, but Russia says the organisation should hear Moscow's side before making any decisions.

Nato's Secretary General Jaap de Hoop Scheffer has accused Russian of using disproportionate force and violating Georgia's sovereignty.

Monday Morning Outlook

---

What Hath The Fed Wrought?

We want to add our congratulations to the US Olympic Men’s, 4x100 Freestyle Relay Team. A new world-record, and an amazing anchor leg comeback over the favored French team, was simply amazing. How ’bout them apples?

The technology behind the new Speedo swimsuit worn by most swimming medalists in Beijing is a reminder of the fact that the globe is still in the midst of a technological boom. But, unlike the 1990s, this productivity growth is not holding back inflation. Neither is weak economic growth – experienced in the US since last fall when the subprime crisis first unfolded.

In fact, the value of the gold in a gold medal is up 115% since 2004, while silver prices are up 130%. Much of this increase in commodity prices has occurred in the past year, pushing the 12-month changes in consumer prices to 5% and producer prices up to 9.2%.

We believe this is due to a massive shift in Federal Reserve policy toward loose money. Between September 2007 and April 2008, the Fed added enough dollar liquidity to drive the federal funds rate down from 5.25% to 2.0%.

While it is true that these lower rates helped some adjustable-rate mortgage holders avoid re-sets to higher rates, while other borrowers experienced a reduction in borrowing costs, these benefits came with a huge cost.

Last August 16^th, the day before the Fed cut the discount rate by 50 basis points at an emergency meeting, oil traded at $68.54/bbl. By July 2008, oil prices had increased to $146.13/bbl., up 113% in less than a year. As oil prices soared, airlines bled cash and car sales plummeted. Moreover, inflation has eroded consumer confidence about the economy, the future and elected politicians.

The Fed’s excess money creation also caused the dollar to fall sharply in value on foreign exchange markets, which has reduced living standards for every American.

In addition, there are always two sides to every economic coin. Any benefits from lower interest rates have been offset by significant costs to lenders. Bank loans tied to the prime rate were reduced. Good for the borrower, but bad for the bank. Lenders were forced to take lower payments, while both economic risk and inflation were rising. No wonder bank stocks (even with no subprime exposure) have been hurt so badly.

In addition, Auction Rate Securities, which are often indexed to Libor, saw their yields fall as the Fed cut rates. It’s not a coincidence that auctions failed when buyers balked at the lower yields. Lower interest rates also hurt retirees dependent on fixed incomes, while they undermined the fixed income marketplace, enlarging losses on fixed income portfolios that were marked to market.

All of this is to suggest that the costs of the Fed’s sharp interest rates cuts have been large. In fact, they may have contributed more to current economic problems than the subprime crisis itself.