Susanne Walker at Bloomberg reports that in an interview with the news wire Japanese Finance Minister Kaoru Yosano said
"The US dollar’s position as the world’s reserve currency isn’t under threat. Our trust in US Treasuries is absolutely unshakable."Meanwhile, Jens Erik Gould, also at Bloomberg reports that Mexican central bank Governor Guillermo Ortiz said in an interview that Mexico would contribute more to the IMF either by purchasing special drawing rights bonds or by directly lending to the institution. He went on to say:
"The IMF has to be re-energized and revitalized and that of course involves changes in the governing structure, and at the center of those changes is a greater participation from the emerging markets. The other side of the coin is that they also have to contribute."He further indicated:
"The dollar will remain the central reserve currency probably for some time. I am not really worried about the status of the dollar at the present time."Simon Johnson's analysis of the April 2 G-20 meeting provides, I think, some insight into what is taking place here--see Daily Sources 4/3 #3. In short, he argued that the Obama Administration convinced the Europeans, who traditionally have led the IMF, to make the selection process for its chief open and transparent. "Insiders" believe the current IMF managing director to resign within the year, meaning that the campaign for the next MD has already begun.
"How did the Obama administration pull this off? In a brilliant move, they took the lead by volunteering to open up the selection process for the World Bank, the IMF’s sister organization, which has always been run by an American. The next president of the World Bank is very likely to be Chinese."
2. CHINA'S NBR SAYS INDUSTRIAL PRODUCTION UP 8.9% IN MAY YOY, TURNS OUT THAT CAR STATS ARE NOT FOR PURCHASES, BUT FOR DELIVERIES FROM FACTORIES TO RETAIL OUTLETS, FITCH RATINGS SKEPTICAL OF CHINESE FINANCIAL SECTOR DATA
Terence Poon and Juan Chen at Dow Jones report that China's National Bureau of Statistics announced that value-added industrial production rose by 8.9% in May from a year previous. And Yves Smith at Naked Capitalism says she feels like she's being gaslighted, given the recent revelation that the data on car sales from China are not for cars that people have bought, but for a shipment from a factory to a retailer. She quotes from MetalMiner:
"There are some apparently contradictory numbers coming out of China at the moment. Take those car sales as an example. Our man on the ground tells us BYD, a noted Chinese car maker, reported 30,000 car sales of one model by end of last year, but the number plate agency recorded only 10,000 new cars of that model registered for use on the road. What happened to the other 20,000 are they running around without number plates? In a police state, I don’t think so. Our understanding is auto sales are recorded in China when they leave the factory, not when they are registered on the road, so dealers can build up inventory while car 'sales' are rising."So maybe sales of cars in China aren't quite outstripping those in the US. Which is perhaps more reason to doubt the official GDP and industrial production numbers, given electricity generation and consumption and apparent oil demand numbers, as per the IEA--see Daily Sources 5/14 #2. In late May, the China Electricity Council, or association, announced it would stop publishing electricity consumption numbers--see Daily Sources 6/8 #6. Of course, the number of cars on the road have a large effect on oil consumption. (But it would be inadvisable to mount a high horse on this issue, lest it die underneath you--see Michael J. Panzner's elucidation of how the US government cooks its own statistics at Financial Armageddon.) That said, James T. Areddy at China Journal notes that Charlene Chu, a Fitch Ratings analyst in Beijing,
"has compiled numbers that seem to suggest that when credit policy in China has gotten tighter and stock prices have gone lower, banks have started peddling more wealth management products to their rich clients — and in doing so piled up hidden risks for themselves.Chu says the sector suffers from "high information risk." Worth reading in full.
After Wall Street collapsed last year and US government was prompted to bail out its biggest banks, China’s financial institutions gained recognition as among the world’s largest and healthiest. After all, nonperforming loan ratios in China were near 2% on average last year from about 15% in 2003.
Chu, a former China watcher for the Federal Reserve Bank of New York, isn’t sanguine about such figures. The Fitch analyst has long argued that NPL ratios and other basic indicators of banking-system health favored by China’s policymakers sometimes mask other concerns. She sees evidence that local banks are downgrading their assessment of loans within the five categories of loan quality, without boosting NPLs, and notes that Chinese banks’ profit margins are getting pinched."
3. EUROZONE INDUSTRIAL PRODUCTION DOWN 1.9% IN APRIL MOM, 21.6% YOY
Ralph Atkins at the Financial Times reports that Eurostat announced that eurozone industrial production fell by 1.9% in April from March, down 21.6% since April 2008.
"Economists pointed out that the latest fall in industrial production was noticeably less severe than around the turn of the year, and that other 'hard' data--for instance, German industrial orders figures--have shown a marked improvement.4. SPAIN TO DECIDE ON RENEWING NUCLEAR POWER LICENSE IN COMING WEEKS
Still, the sharp contraction in activity has left the eurozone economy badly wounded. Industrial production in April was down to a level not seen for almost 12 years, and the latest monthly fall offered scant hope of an early return to economic growth.
'We are definitely in the recovery phase but today’s data confirm that it will be fragile and there will be negative surprises,' said Marco Annunziata, chief economist at Unicredit. 'Policymakers should not be in any hurry to withdraw [economic] policy stimulus.'"
Elisa Santafe at the AFP reports that Madrid will either come down for or against nuclear power in the coming weeks as it decides whether to renew the operating licenses of the oldest of its six nuclear power plants.
"Prime Minister Jose Luis Rodriguez Zapatero, whose socialist government has backed the development renewable energy sources such as solar and wind power, has said he wants to phase out nuclear energy in the country when the life span of its six nuclear plants expires.Phasing out nuclear energy doesn't make a lot of sense from the perspective of Spain's energy security--it provides about 20% of the country's electricity generation--be interesting to see. (h/t Leanon at Drum Beat.)
But on Monday the five-member board of the country's nuclear watchdog unanimously agreed to recommend that the Garona nuclear plant in northern Spain should get a new 10-year operating license if it upgrades its safety equipment.
Nuclear Safety Council chairwoman Carmen Martinez Ten said the decision was taken on technical and security grounds and not for reasons of 'energy policy, economics or another nature'."
5. ITALY TO RECEIVE PREFERENTIAL TREATMENT IN LIBYA
Adam L. Freeman and Flavia Krause-Jackson at Bloomberg report that Libyan leader Muammar Qaddafi promised today to give Italian companies preferential treatment.
"Qaddafi is visiting Italy for the first time after the country agreed last year to pay the North African nation $5 billion (3.5 billion euros) over 25 years to compensate for the occupation from 1911 to 1943. That paved the way for closer commercial ties and increased efforts by Libya to contain illegal immigration."
"Libya, Africa’s third-largest oil producer, is studying further investment in Italy’s Enel SpA and Eni SpA, Shokri Ghanem, chairman of Libya’s National Oil Corp., said on June 1 in Abu Dhabi. The Libyan Investment Authority, the country’s investment arm, has $80 billion in liquid assets. Libya owns almost 5 percent of UniCredit SpA, Italy’s biggest bank.Italy is also moving to integrate its energy sector more closely with Russia, following, it seems, Berlin's lead in that area.
'Libya is an important country for us,' Fulvio Conti, chief executive officer of Enel, told reporters in Rome today, news agency Radiocor reported. 'We have always had excellent relations and we will continue to do so in the future.'
Libya accounted for 31% of Italy’s oil imports in the first quarter while the North African country’s gas met 13% of Italian demand, according to the Italian statistics agency."
6. UN SECURITY COUNCIL ANNOUNCES NEW SANCTIONS ON NORTH KOREA
Colum Lynch at the Washington Post reports that the UN Security Council today voted unanimously to impose new financial, military and trade sanctions on North Korea in response to its recent decision to restart its nuclear program, nuclear test blast, and missile launches--as well as its decision to call the 1953 Armistice a dead letter.The sanctions do not provide for a comprehensive trade embargo, however, and China specifically inserted an exception which would allow for continued sales of small arms and light weapons.
"The resolution calls for UN members to inspect all shipments entering or leaving North Korea if there is a reasonable suspicion that the cargo contains banned nuclear or missile technology. Member nations would be given the right to search ships suspected of carrying banned materials on the high seas and to seize any contraband.Galrahn at Information Dissemination notes that a resolution was introduced in Japan yesterday to allow for naval intercepts, ie participation in a blockade:
The resolution, however, includes important caveats, such as the need for the flag state--the country in which a ship is registered--to approve the searches. If the flag state does not allow inspections on the high seas, it would be required to direct the ship to a nearby port for a search. But council members would not be authorized to use force to ensure that happens."
"Japan may change its laws to allow its navy to inspect North Korean vessels on the high seas if the UN Security Council approves such a step, the government said on Thursday.Some analysts believe that the recent measures taken by Pyongyang are the result of the question of succession--the USDOS Press Secretary answered some related questions in the briefing today:
'Once the resolution is adopted, we have to clear the issue of enacting a domestic law,' to pave the way for naval intercepts by officially pacifist Japan, said Chief Cabinet Secretary Takeo Kawamura."
"QUESTION: When South Korea media, at the beginning of this month, first started reporting on the existence of documents in which North Korean diplomats stationed overseas were apparently being foresworn to allegiance to Kim Jong-un as the successor of Kim Jong-il, the spokesman for this Department at the podium on June 2, who shall remain nameless, but whose initials are Robert Wood, said – (laughter) – that such reports were speculative. I wonder whether the Department today still regards the reporting surrounding the apparent anointment of Kim Jong-un to be purely speculative.
MR. CROWLEY: Obviously, we have heard the same reports that you have heard, and we know there are questions of succession in North Korea, given the questionable health of Kim Jong-il. As to--as far as we know, Kim Jong-il is still the leader of North Korea. I believe his--he is in firm control of the country. What happens down the road, we don’t know. That is up to North Korea.
QUSTION: So you are no more illuminated on the subject of whether or not Kim Jong-un has been anointed the successor today than the Department was when this question was raised on June 2?
MR. CROWLEY: It is something that we are conscious of. We are looking at it. We don’t know that it necessarily influences what is happening now.
QUESTION: But you don’t question that the anointment has occurred?
MR. CROWLEY: I don’t--I mean, who the--we know who the current leader of North Korea is. Who the next leader of North Korea is is up to North Korea. We are more conscious of what they are doing and for whatever reason, obviously, the actions that North Korea has taken recently are provocative, unhelpful. We expect sometime today there will be a vote on a new Security Council resolution. And at the end of this vote, should the resolution be adopted, North Korea will be facing a sanctions regime unlike any other on earth.
And in that regard, we will continue close consultations with the members of the Security Council, those in the five-party process, for the moment. We will implement those sanctions aggressively. As I think Ambassador Bosworth said in testimony yesterday before the Senate Foreign Relations Committee, we are taking appropriate defensive measures. But he made clear also that the door is still open to negotiations, and we hope that North Korea will, at some point in the future, come back to that process."
7. TALIBAN TARGETS ISLAMIC INSTITUTIONS IN PAKISTAN
Shaiq Hussain and Haq Nawaz Khan at the Washington Post report that a top anti-Taliban cleric was killed in a suicide bomb attack on a religious seminary in Lahore today. An apparently coordinated attack took place in a mosque in the northwestern garrison town of Nowshera, where another bomb killed four and wounded many others. I doubt that the decision by the Taliban to target Islamic institutions will be likely to bolster its reputation in Pakistan, nor cow the population at large. Sounds like they're getting desperate to me.
8. KYRGYZSTAN REBUFFS APPEAL TO KEEP MANAS OPEN ... THE UZBEK CONNECTION
Michael Schwirtz at the New York Times reports that Kyrgyzstan yesterday rebuffed an appeal from the Obama Administration to allow the US to continue to operate from the Manas airbase.
"On Thursday, Foreign Minister Kadyrbek Sarbayev said there were no plans to reverse that decision, despite the appeal by Mr. Obama, who, according to the Kyrgyz government, sent a letter to Mr. Bakiyev seeking greater cooperation between the countries. American officials in the region had no immediate public comment on the Kyrgyz government’s statement."In May, Uzbek President Islam Karimov announced during a state visit of South Korean President President Lee Myung-Bak that the Navoi cargo airbase is being used for non-lethal supply to NATO forces in Afghanistan. The announcement coincided with a number of agreements with KNOC--Korea's state oil company--and seemed an indication that South Korea was coordinating energy security policy with the US--see Daily Sources 5/13 #8. The Kyrgyz parliament voted to approve its President's measure to end the lease of the Manas base to US forces on February 19. A former Kyrgyz Ambassador to the US published an opinion piece at the time which stated that Russian pressure was not the primary reason for the closure--and that the original reason for allowing the US access was Bishkek's conflict with the Islamic Movement of Uzbekistan and sympathy for the US following 9/11. That said, Russia's offer of aid was almost half of Kyrgyz GDP--$150 million in aid, forgiveness of $180 million in debt, and $2 billion in loans--see Daily Sources 2/20 #4.
9. OBAMA'S CAIRO SPEECH MAY HAVE INSPIRED HAMAS POLICY SHIFT, NETANYAHU GOVT SEEMS UNLIKELY TO ACCEPT TWO-STATE SOLUTION
Middle East Pulse reports that according to Assaf Gabor in Makor Rishon-Hatzofe Obama's Cairo speech may have inspired a shift in Hamas policy:
"Hamas Political Bureau Director Khaled Mashal: 'Hamas will not be an obstacle to a peace agreement in the 1967 borders, Hamas will be a positive element helping to reach a solution that is fair to the Palestinians and will enable them to realize their rights.'Bardawil further suggested that the condition for Hamas recognizing Israel is a Palestinian state. Gil Hoffman at the Jerusalem Post seems to suggest that a two-state solution is something that the Netanyahu administration cannot politically accept, however. (h/t to Michael Collins Dunn at MEI's Editor's Blog for both of these.)
In response, high-ranking Hamas figure Salah Bardawil told Makor Rishon-Hatzofe, 'Mashal disclosed the first details of Hamas's new policy, as a factor that will act in the framework of a Palestinian government, after there is Palestinian unity, and in the framework of the Mecca agreement.'
Bardawil explained Hamas's strategy, which is dealing with a situation of being globally ostracized: 'The change is a response to Israeli pressure to make Hamas irrelevant and to disregard it as representing the Palestinian majority.' He said that the new compromising American policy had an effect: 'Khaled Mashal, after Obama's visit and the change in policy being led by Obama, said this with the goal of showing the world the real problem, which is Israel's attitude."
10. OPEC SUPPLIED 118KB/D MORE IN MAY THAN APRIL, REDUCES GLOBAL DEMAND FORECAST BY 200 KB/D, UPBEAT ON GLOBAL ECONOMY
Alexander Kwiatkowski at Bloomberg reports that OPEC reported that it supplied 118 kb/d more oil in May than it did in April.
"OPEC reduced the forecast for demand for its crude as global consumption shrinks. The group estimates it will need to produce 28.6 mb/d in 2009 to balance global supply and demand, 2.2 mb/d less than last year. Last month it estimated that it would need to pump 28.8 mb/d."The report indicated the organization's view that:
"In light of the considerable challenges the world economy and commodity market, particularly the oil market, have undergone, the worst appears to be behind us. Prices have not only remained steady, but have even moved higher."Kate Mackenzie at FT Energy Source puts that in the context of the IEA's decision yesterday to up its demand forecast for 2009 by 120kb/d and the EIA's earlier slight increase in projected world demand--by 5kb/d IIRC. She notes that OPEC indicated that the contango in oil has flattened some as OECD inventories fell in parallel with falling production.
11. BRAZIL'S SENATE TO SET UP NEW OIL COMPANY FOR SANTOS BASIN
Kate Mackenzie at FT Energy Source reports that new regulations are being introduced quickly which, in sum, will create a 100% state-owned company to lease Brazil's pre-salt fields, or Santos basin, to Petrobras and others.
"Petrobras, although state-controlled, is 60% owned by mostly foreign shareholders, and the country’s left-wing government is unenthusiastic about sharing the huge gains from the pre-salt fields with others--hence the creation of the new company. The plan is that the new state-owned company will be able to grant concessions without going to tender, which industry observers believe will favor Petrobras. For international oil companies, however, the outlook is less certain."
12. CHÁVEZ THREATENS TO SHUT GLOBOVISIÓN--A BIT MORE DIRECTLY THIS TIME
Christopher Toothaker at the Associated Press reports that Hugo Chávez yesterday urged executives at Globovisión "to reflect" upon their critical stance towards the government, or the station "won't be on the airwaves much longer."
"Globovisión--a Caracas-based all-news network--has been the only anti-Chavez channel on the open airwaves since 2007, when Chavez refused to renew the broadcast license of another opposition-sided channel, Radio Caracas Television. That network moved to cable."The best summary of the recent efforts to silence opposition in Venezuela I've seen recently was Fausta Wertz's--see Daily Sources 6/1 #10.