An "Ordinary Man" to Build a 180 Mile Canal Across Nicaragua. We Will See.

When the United States was deciding how to cut the passage from the east to the west it considered two alternatives: Nicaragua and Panama.  Thanks to fortuitous events and the opportunism of Panamanian patriots, it chose Panama.  The idea of a canal through Nicaragua is being revived by a Chinese businessman.

John Paul Rathbone wrote in the Financial Times that Nicaragua's "congress voted to give Wang Jing the go ahead to build a new canal in its country.  On June 13th, Daniel Ortega left-wing Sandinista government gave HKND, the newly-registered group [a] 50-year concession' to study the feasibility and build a canal."   So HKND is a special vehicle for this $40 billion project.  Furthermore "HKND is working on the feasibility study for the giant project with McKinsey as well as China Railway Construction, a large state-owned group."

Nicaragua is ruled by the left wind Sandinistas under Daniel Ortega.   Mr. Wang is a good friends of President Ortega's son.

And who is Wang Jing? Rathbone described Mr. Wang as a "40-year-old businessman...who also heads Beijing Xinwei, a midsized telecoms company."  The FT's Kathrin Hill interviewed this self described "very ordinary Chinese citizen" for its "Beyond the BRICs" blog. Hille tells us, "he lives with his mother, his younger brother and his daughter in Beijing."


Hille talks with Wang in this video about his plans and asks whether his US$40bn project is a front for the Chinese government's ambitions to extend its influence in the US's backyard:


This is a project not without risks.  Rathbone warns, "[a]lthough global trade is growing, the Panama Canal is nearing the end of a $5bn expansion plan to double its capacity, while global warming means melting ice packs in the Arctic could make a northern route a viable alternative to crossing the central American isthmus by canal."

Risks and opportunities for Brazil

Brazil's central Bank has cut interest rates from high levels.   Two weeks before Brazil's next interest rate decision it remains unclear whether the central bank will cut rates again.  In this FT video from October 7 2011, Zeina Latif, Latin America chief economist with RBS in São Paulo, explains to Jonathan Wheatley, deputy emerging markets editor, why although the crisis in Europe looks like an opportunity to cut rates there are multiple risks involved. (5m 24sec)

Bullish Baltic Dry?

September 28 2011: The Baltic Dry index, a measure of the use of the largest ships, has climbed sharply of late while all else is bearish.   In this video, FT investment editor, James Mackintosh,  analyses what this apparently bullish signal tells us about the outlook for the world economy. (3m 29sec)

http://video.ft.com/v/1187399924001/Bullish-Baltic-Dry-

Revalue or else?

October 5 2011: Back in 1971 Richard Nixon risked a trade war to force the rest of the world to devalue the dollar. The US Senate is considering a similar move to force China to revalue the renminbi. Here James Mackintosh, analyses why the world needs the Chinese currency to appreciate much further. (3m 59sec)

http://video.ft.com/v/1202190857001/Revalue-or-else

Twenty Years of a Convertible Ruble.

For approximately 500 years the Russia has used the ruble as its currency. Since the Soviet Union's fall in 1991, the country has undergone some drastic changes, including the ruble. After the fall the Russians focused on the challenge of converting their centrally planned economy to that of a market based economy with an emphasis with global integration. In 1991, the USA and the IMF recommended the economy undergo a radical “shock therapy” approach to market oriented reform. Rather than kick starting the Russian economy it led to collapse. Millions fell into poverty and corruption and crime grew rampant.

Hyperinflation resulted from the removal of the Soviet price controls. There were monumental difficulties in actually implementing the fiscal reforms. The govenment depended heavily on short-term borrowing to finance its budget deficits from 1991 until the 1998 financial crisis. These financial problems were exacerbated by low prices for Russia’s major exports a lack of investor confidence. The led to a falling ruble, a weakened banking system, and the constant threat of runaway inflation.

Despite these ongoing economic difficulties Russia and its ruble continued to struggle forward, claiming small victories along the way. In 2000, Russia successfully upheld its external debt obligations in addition to making a large advance payment of principal to loans from the IMF and building up its own Central Bank reserves. In 2002 the Russian government successfully assumed its payment of roughly $14 billion in official debt payments coming due. It was able to accomplish these feats through a sound government budget, improving trade, and substantial current account surpluses.

The current account surpluses caused the ruble to appreciate rapidly in value. However given its role in Russia’s exports, the country and the economy depend heavily on the price of energy. The 2001 U.S. recession and the global slowdown after the high tech burst caused energy prices to fall. In 2002 the G8 nations cancelled $20 Billion of the old Soviet Union’s debt. They hoped this would induce Russia to use these savings to safeguard Russia's nuclear and other dangerous materials from terrorists.

In 2004 the Stabilization fund of the Russian Federation was established and integrated into the federal budget as a safety net against falling oil prices. This was aimed at keeping the ruble stable through turbulent times in the energy sector.

The battle for economic stability lasted for more than half a decade. However, in 2007, Russia achieved one of its goals when the IMF certified the Russian economy had achieved macroeconomic stability.

In 2009 Russia’s GDP grew at its fastest since the fall of the Soviet Union. This meant that Russia and its ruble had officially overcome the consequences of the 1990 recession and economic collapse. Throughout all of this the ruble has been under the strains of inflation, although unemployment was cut nearly in half from 2000 to 2007.

In 2011 the upheaval in the Middle East has provided Russia with higher prices and increased demand for its energy exports as it helps to fill the gap left from reduced production in the Middle East. This will hopefully bring welcomed news for the Russian economy and its ruble.

The ruble has improved much more than Russian politicians and laws so that investors having greater faith in the currency than the integrity of its government.

-Stephanie Giberson

Stephen Roach: Unconscionable Policy Blunders

Stephen Roach, the chairman of Morgan Stanley Asia on the bittersweet taste of vindication and China's role in the economic crisis:

What China Sees as Its Borders are not What its Neighbors See Them

In this video the Economist reviews the history that has led to suspicions between China and its neighbors that bedevil its boundaries to the east, south and west:




Please note that the Republic of China overthrew the last Chinese dynasty.  When Mao Zedong led the Chinese Communist revolution against the Republic, he eventually conquered the mainland after Japan withdrew.  Chiang Kai-Shek retreated to the island of Taiwan with his government.

Asia's growing economic power.

The Economist shows graphically that Asia is regaining the economic dominance it enjoyed a millennium ago - but it still has some way to go.

The "B" in BRIC is Brazil and Henrique Meirelles is Brazil's Banker

My four favorite central bankers are Thomas Hoerner, Glenn Stevens, Mark J. Carney and Henrique Meirelles.

Henrique Meirelles is the president of Brazil's Central Bank. In this video he has tea with the Economist and says there's no room for complacency despite Brazil's impressive economic performance.

The BRIC Rally Is Based On Fundamentals

Dominic Elliot told us in the July 27th Wall Street Journal that "the 'BRIC' acronym [was] created in 2001 by a team led by Jim O'Neill, Goldman Sachs Group's chief economist to mean Brazil, Russia, India and China. The bank fashioned the acronym while making a prediction about the speed of growth of the four biggest emerging markets."

In his interview with Mr. O'Neill, you will find his case that their recent spectacular stock market performance is based on fundamentals.