Daily Sources 4/2

1. Daniel Pimlott at the Financial Times reports that the G20 agreed today to provide $1.1 trillion to fight the financial crisis. Of that, $750 billion would go to the IMF, $250 billion would go to trade finance, and $100 billion would go to multilateral development banks.

"On financial regulation, the G20 agreed to 'extend regulation and oversight to all systemically important financial institutions, instruments and markets', including for the first time big hedge funds. It also said that credit agencies would be registered and monitored for the first time, after the failing of credit ratings played a big part in exacerbating the credit crisis.

The communique said that the G20 would extend 'regulatory oversight and registration to credit rating agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.'"

No globally coordinated stimulus program was agreed upon, nor was a globally coordinated method of addressing the financial sector's balance sheets. The communique did explicitly provide support for Mexico's application for a $47 billion flexible credit line. The communique itself can be found here.

2. Chris Giles, George Parker and Gillian Tett at the Financial Times report that Dominique Strauss-Khan, the managing director of the IMF, argued in an interview with the paper yesterday that the G20 was failing to recognize that in order to resolve the financial crisis, you must first resolve the issues facing the financial sector. Quote:

"[You] never recover before the cleaning up of the banking sector has been done. The US ... is rightly insisting on stimulus and the EU rightly insisting on regulation. They are not yet moving quickly enough in doing the cleaning up of the financial system."

3. Gabi Thesing at Bloomberg reports that the European Central Bank cut its benchmark interest rate by 0.25% to 1.25%, 0.25% less than what most economists had expected.

"'The latest economic data and survey information confirm that the world economy and the euro area is going through a severe downturn,' said ECB President Jean-Claude Trichet at a press conference in Frankfurt after the decision. 'Available indicators of inflation expectations remain firmly anchored.'"

4. Frank-Walter Steinmeier, the German Foreign Minister, has a piece on the future of NATO in today's Der Speigel. Reflecting on the purpose of NATO in anticipation of the organization's weekend summit marking its 60 year anniversary in Strasbourg, Steinmeier argues that the organization is still required. Regarding Afghanistan, Steinmeier says:

"We certainly welcome the new US strategy. We have to work together to ensure that Afghanistan never again becomes a safe haven for terrorists. We have to enable the Afghans to assume themselves the responsibility for security in their country. And there was a broad and common understanding at the recent conference in The Hague that we need to devote more efforts and means to civil reconstruction, and that we have to develop a regional approach that includes Pakistan."

Regarding Russia, he says:

"It's a fact that Russia is and will remain a difficult partner. But at the same time it is true that in the end we can only achieve pan-European security by working with, and not against, Russia. That's why I'm advocating an active NATO policy toward Russia. We must use the instruments we have for dialogue, such as the NATO-Russia Council. And at the same time we have to do more than just formally revive them. We must strive to develop these instruments into a platform for active security cooperation. From Afghanistan to fighting pirates, the list of relevant areas for cooperation is long."

Steinmeier also argues that the return to full-membership of France to NATO is further evidence that NATO is not a competitor of the EU, but a partner. Worth reading in full.

5. Jonathan Weisman at Real Time Economics posts that in a translation of parts of a speech that Russian President Medvedev made at the G20 summit, he suggested that a basket of currencies replace the dollar as the global financial system's reserve currency. The speech was provided to the Wall Street Journal by a Kremlin aide--and so far I have been unable to find a translation of the entire document on the web. The translation also includes the following point:

"It is not our goal to destroy existing institutions or to weaken the dollar, pound or euro. We are simply calling for a joint assessment of how the global currency system can most favorably be developed for the sake of the global economy ... ."

Meanwhile, Stephen Bierman at Bloomberg reports that Russia increased oil output as OPEC pursued cuts.

"March output advanced 0.4% a day in comparison with both the previous year and month to 9.8 mb/d, the Energy Ministry’s CDU-TEK unit said in an e-mailed statement today. It was the first increase on year-on-year production since 2007."

Platts reports that Oil Movements, a London-based consultancy, estimates that OPEC oil exports, excluding Ecuador and Angola, will fall to 22.15 million b/d in the four weeks ending April 18, down 960,000 b/d from the previous four-week period. Rachel Jones at the Associated Press reports that the EIA released data yesterday showing that Venezuela increased oil exports to the United States by about 14% in January from December. Venezuela had promised to cut its exports to the US by 16% starting January 1 to comply with the embargo. The country still sends about half of its oil exports to the US, according to EIA estimates.

6. Alex Morales and Gaurav Singh at Bloomberg reports that Indian and Chinese officials in interviews with the news wire said that global warming policies being considered by Japan and the US are being seen as protectionist measures.

"'If there’s going to be a border tax imposed, that would very much have the danger of triggering a trade war,' Su said in a telephone interview from Beijing. 'That’s not something that we would be happy to see,' he said before the start of United Nations talks running through April 8 in Bonn.
...
'We should be very careful that climate change doesn’t become a peg on which we start hanging protectionist tendencies,' Shyam Saran, India’s special envoy on climate change, said in an interview in New Delhi two days ago."

7. Keith Bradsher at the New York Times reports that Beijing has adopted a plan to become one of the leading producers of hybrid and all-electric cars within three years. I would add that all electric cars mean, in China, more coal consumption--the dirtiest carbon-based fuel of all.

8. On March 27, China and Myanmar agreed to the construction of pipelines to transport African and Middle Eastern crude oil from Myanmar's Arakan coast to Kunming. Construction is expected to commence on the pipeline soon and scheduled to be complete in 2013. The oil pipeline is expected to cost $1.5 billion and the natural gas pipeline $1 billion. The pipeline will create an alternative to the Strait of Malacca for African and Middle Eastern crude en route to China. (I've drawn a rough idea of the route on the map below--it has no relationship to the actual route, it only connects the start and end points.)



15 million barrels pass through the Strait of Malacca every day, on average--the article gives no sense of the throughput planned for the two pipelines. About 80% of Chinese crude oil imports of about 3.3 mb/d pass through the Strait.

"Over the past few years, Chinese analysts and leaders have been describing the strait, as a strategic vulnerability, drawing attention to the consequences for China if this shipping channel were to fall into the hands of 'hostile powers' or pirates or terrorists. What if the US were to block China's access to the strait in the event of a China-Taiwan conflict?

In November 2003, Chinese President Hu Jintao articulated this fear when he declared that 'certain major powers' were bent on controlling the strait. Analysts have been discussing the country's 'Malacca dilemma' since then and exploring options to overcome it. One proposal, partially undertaken, is to develop a port and pipeline terminal at Gwadar, in southwest Pakistan, from where Middle East fuel could also be pumped to western China."

Perhaps, but the project actually extends the arena which China's navy might be called upon to be able to project force to from the Malaccan Strait to the coasts of Arakan--well into the Indian Ocean. So it doesn't really obviate the possibility of a naval disruption to supply.

9. Jeff Stein at Spy Talk reports that a Uighur dissident, Rebiya Kadeer, in the US is being harassed by Chinese agents.

"Her accusations are backed up by other dissidents, the FBI and a Virginia congressman whose own files were infiltrated by Chinese hackers."

"Information management" is clearly a priority of many closed societies, but allegations of intimidation on US soil are especially serious--proof would absolutely have the effect of souring the view of the PRC by many in Congress and the Administration. Meanwhile, Dennis C. Wilder, China director and then senior director for East Asian affairs at the National Security Council from August 2004 to January 2009, has an op ed in the Washington Post which argues that we would do well to reassure our allies in the Asia Pacific that we are not seeking to partner with China in such a way as to subordinate their interests to a "G-2".Key excerpt:

"A more realistic Chinese goal may be to create a partnership with the United States in which our Asian allies, such as Japan, South Korea, Australia, Thailand and the Philippines, are relegated to a subordinate status and the United States and China would share Asian preeminence--at least for a time.

The G-2 moniker worries Asians for just this reason. From Japan to India, there are concerns that America's search for a solution to its worst economic crisis since the Great Depression may lead the Obama administration into not only expanded strategic economic and political dialogues with China but a full-blown strategic partnership. As the center of gravity of US economic interests moves from Europe to Asia, they worry, the United States could become enamored of a 'China first' approach. Notably, the career Indian diplomat MK Bhadrakumar recently lamented that 'the US-India relationship is entering a phase of lull' while Washington engages in 'Chinamania.'"

A very worthwhile read in full.

10. Blaine Harden at the Washington Post reports that Pyongyang warned via a radio broadcast yesterday that it "will relentlessly shoot down" reconnaissance aircraft of the US and allied nations seeking to monitor its satellite launch.

"Experts who have examined recent satellite photographs of the rocket said its payload is probably a satellite-like device."

BR Myers, a researcher of North Korean ideology and propaganda at Dongseo University in Busan, South Korea, has a very useful opinion piece in today's New York Times, despite it's very misleading and rather unhelpful title (decided upon by the editors, not the author) "To Beat a Dictator, Ignore Him."Instead, what the piece argues is that a regime considers its ideological self-justification and propaganda regarding its own accomplishments and stature as critical to its survival--"information management."

"This means demanding changes where they matter most, and can be immediately verified — on the propaganda front — before putting our faith in some grandiose timetable of disarmament. If Kim Jong-il will not cease referring to himself as a 'military first leader,' or stressing that America and North Korea 'can never share the same sky,' we can be certain, without letting yet another deadline elapse, that he is negotiating in bad faith. For far too long, American diplomats have treated Kim Jong-il’s political culture as his business. It is ours as well."

Well worth reading in full.

11. Muriel Boselli and Ikuko Kao at Reuters report that the CEO of Total, Christophe de Margerie, told a conference today that the investment terms offered by Iran for the development of South Pars were commercially unattractive.

"It is very important to reduce the costs of energy projects, we will see if we can get acceptable terms, but frankly today the terms offered today (in Iran) are not attractive enough. Because of the unsatisfactory conditions, Total was never able to strike a real deal for the South Pars project."

12. Nick Bunkley at the New York Times reports that at an annual rate GM's sales were down 45% in March; Chrysler’s were down 39%; Toyota's were down 9%; Nissan's were down 38%; and Honda's were down 36 percent.

"Over all, industry sales fell 37% in March from a year ago, but they rose nearly 25% from February’s 27-year low, the biggest February-to-March increase since 2005."

13. The Associated Press reports that initial claims for jobless insurance rose to a seasonally adjusted 669,000. 5.73 million are continuing to claim benefits.