Daily Sources 4/21

1. MORE GRIM FORECASTS FROM JAPAN AND THE IMF

MarketWatch reports that Tokyo is expected to cut its forecast for GDP growth to a 3% contraction for the year starting April 1. Mark Landler at the New York Times reports that the IMF released its global financial stability report today, estimating that banks and other financial institutions will suffer $4.1 trillion in aggregate losses in their holdings due to the financial crisis.

"In its global financial stability report, released Tuesday, the fund estimated that financial institutions would have to write down an estimated $2.7 trillion in loans and securities originating in the United States from 2007 to 2010. That estimate is up from $2.2 trillion in the fund’s report in January, and $1.4 trillion last October."

The story finishes by noting that the response to the crisis has been uneven:

"The fund estimates that in the United States, for example, banks reported $510 billion in write-downs by the end of 2008 and face an additional $550 billion in 2009 and 2010. In the euro zone, banks reported just $154 billion in write-downs by the end of last year and still face $750 billion. British banks are in somewhat better shape: having written down $110 billion, they face $200 billion more, the fund said."

2. KNOW YOUR CHICKEN: CHINA TO CONSIDER NEW RULES ON LENDING, CONSIDERED BY SOME ANALYSTS THE KEY TO BOTTOMING THE GLOBAL CRISIS; BUT IF THEY'RE COUNTING ON US CONSUMPTION, THE PROGNOSIS DON'T LOOK GOOD ... DEFLATION IN GERMANY, BUT LOW INTEREST RATES SUPPORTING ITALIAN REAL ESTATE MARKET; SWEDEN, THE ECB, AND CANADA LOOK SET TO BOARD THE QE BUS

The Wall Street Journal reports that the China Bank Regulating Commission is considering rules which would ensure that new loans are going to the real economy as opposed to the asset markets or bank accounts.

"A sharp cutback in credit would run the risk of derailing the nascent improvement, and is precisely what officials aren't planning to do. But they aren't pushing on the accelerator, either. The central bank has put interest-rate cuts on hold since December. The government is also expressing concern that the lending surge could be adding to financial risks or isn't directly aiding businesses in need of cash.

'Banks ought to fully realize that dealing with the impact of the crisis is a long-term task, and should pay close attention to risks accumulated from a burst of lending,' the head of China's banking regulator, Liu Mingkang, said at the agency's quarterly meeting last week."

A chart of loan growth by the WSJ:



The loan growth is what Brad Setser identified yesterday as a potential "green shoot" in the global economy--see Daily Sources 4/20 #1. Jesse's Café Américain reproduces a chart from contrary investor.com which shows how "falling aggregate demand and the weaker dollar" has undone the import market in the US--with the EU the largest market for Chinese imports:



Beijing appears to be placing some trust, therefore, in soon to recover American consumer demand. However, as Jesse comments:

"This is the worst decline in retail sales in the post World War II era.

The US consumer has finally hit the wall. The folks in DC think they can crank this Frankenstein monster of reckless consumption back up again, given the right jolts of liquidity and spin.

To think that consumers will start borrowing and buying again without a meaningful change in the dynamic of their cashflows implying an increase in the median wage, is a hard to believe. Even for the reckless American consumer, this episode has been daunting to their over-confidence, and rightfully so."

Rebecca Wilder at News N Economics adds that bank lending has stalled at an annual rate of growth of about 2.2% and that the credit crunch is now fully evident in the data. She points out:

"However, there is one exception: as of March, real estate lending is still rising slightly, but only because households are drawing on existing home equity lines of credit. I see this as another shoe to drop on consumer spending."

Her comments:

"The chart illustrates lending on revolving home equity lines of credit (HELOC). Lending (blue line) is still rising through March at a 20% annual rate. Households are using these lines of credit (presumably) to finance consumption needs, and a 20% annual growth rate is likely unsustainable.

Eventually, the lines of credit will run dry; and households will be forced to cut back on spending, taking another leg down. Not shown here is non-revolving real estate lending, which is down 1.3% in March since its peak in January 2008."

Well worth a look. In the meantime, Karey Wutkowski and Juan Lagorio at Reuters report that the credit card companies are scheduled to meet with the White House Thursday to discuss fees and interest rates.

"Scott Valentin, an analyst at Friedman, Billings, Ramsey, said credit card companies could also eliminate some late payments, or over-limit fees, to please Washington.

'The card companies are sensitive to what is going on around them, and public perception, and the government actions that are being contemplated, and are trying to put on a good face,' he said.

Credit card issuers have received over $120 billion in taxpayer funds since October, money the government has asked them to use to expand lending.

But with US credit card defaults at record highs, lenders are trying to protect themselves by tightening credit limits and closing accounts, actions that have infuriated lawmakers, consumers, and even triggered a New York state attorney general inquiry.

'Some of the very banks we rescued compound the hardships of ordinary Americans with unfair fees and interest charges,' said Senator Carl Levin, a Michigan Democrat who has co-authored credit card legislation.

Citigroup Chief Financial Officer Ned Kelly said in a conference call Friday with analysts to discuss the bank's quarterly results that the credit card business has shifted from growth to risk management.

He added that higher prices on credit cards helped the bank, one of the largest US credit card issuers, to cushion its losses."

The piece, well worth reading in full, concludes:

"'The administration clearly wants to keep the money flowing to the consumer, and the credit card companies are trying to protect themselves, hopefully there will be a middle ground some place,' said Anton Schutz, president of Mendon Capital."

In the meantime, Eurointelligence notes that Il Sole 24 published a story today noting that the one-month Euribor fell to below 1% this month for the first time ever. Euribor is the the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another prime bank. This is reportedly goosing the Italian real estate market as about 42% of new mortgages are based on one-month Euribor.

"The savings in mortgage payments to Italian mortgage holders are indeed substantial (the same applies almost to the same extent to the 3-month Euribor based mortgages, which are popular in Spain)."

In the meantime, Lukanyo Mnyanda and Anna Rascouet at Bloomberg report that the German Federal Statistics Office announced today that German producer prices fell by an annual rate of 0.5% last month, after rising 0.9% in February. German bonds prices rose on that news and the news yesterday that European Central Bank policy maker Christian Noyer indicated there was "room" for further interest rate cuts by the organization. In addition, Johan Carlstrom at Bloomberg reports that the Riksbank cut its benchmark interest rate by 0.5% to 0.5% and indicated that it stands ready to take further measures to resuscitate Sweden's economy. And the Bank of Canada also today cut its benchmark rate to 0.25% from 0.5%, indicating that it will leave the rate at that level through 2009, according to Bloomberg's Greg Quinn.

"'Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010,' the central bank said in a statement from Ottawa today. The central bank will provide updates at each future policy decision, starting June 4, on its commitment to leave the key rate unchanged."

3. THE EU IS TRAINING DIPLOMATS IN ANTICIPATION OF LISBON TREATY RATIFICATION

Der Spiegel reports that "hundreds of bureaucrats" at the European Commission are taking courses in political analysis and public relations in preparation for the new role the commission would take should the Lisbon Treaty come into force.

"Among the key provisions of the treaty is the creation of a European External Action Service and the appointment of a 'foreign minister,' though the title has been renamed as the 'high representative of the Union,' as well as an EU president. The idea is to groom an EU diplomatic service so it can start its work the day the treaty--once known, and rejected by voters in France and the Netherlands, as the 'EU constitution'--goes into effect."

4. CHINA WORKING TO DEFUSE INTERNATIONAL WORRIES

Javier Blas at the Financial Times reports that Niu Dun, China’s Deputy Agriculture Minister, told the journalist Monday that "We cannot rely on [investments in] other countries for our own food security. we have to depend on ourselves." In November, Zhang Xiaoqiang, Vice Chairman of China's National Development and Reform Commission, has announced that the country will set as a strategic priority domestic production of 95% of their grain consumption through 2020--see Daily Sources 11/14 #5. Obviously food security trumps all other resource security concerns, but Beijing's recent change in strategy in terms of overseas oil and gas resource acquisitions--via joint ventures and loan agreements--and its decision to veer away from the strategy pursued by other food deficit nations like Saudi Arabia to purchase overseas agricultural production seems to demonstrate recognition in Beijing that its resource security policies as set forth so far have ignited worries globally about their intentions. Obviously, if your resource security is dependent upon overseas holdings, their security would require the projection of force overseas. The notion that China is slightly adjusting the cut of its jib is also reinforced by the news today--via Jeb Blount at Bloomberg--that Petrobras Chief Executive Officer Jose Sergio Gabrielli said in an interview with the news wire that the company is not offering crude as collateral for the $10 billion in loans coming from China.

In that vein, there was an interesting comment made yesterday noting the story picked up by the US Naval Institute's blog that there has been heavy trading in options for McDermott International on rumors that CNPC is considering purchasing the company. McDermott is, among other things, the US Navy's sole provider of nuclear fuel and nuclear fuel assemblies as well as a manager of the US Strategic Petroleum Reserve. I doubt it is happening as rumored, but should it prove the case, it surely would be a huge story. In the meantime, Edward Wong at the New York Times notes that Beijing is clearly attempting to manage global concerns about China's rise, most recently deciding to unveil its nuclear submarines to public scrutiny in an international review of the country's fleet.

"The officer, Vice Adm. Ding Yiping, deputy commander of the Chinese Navy, told Xinhua in an interview on Monday that 'suspicions about China being a "threat" to world security are mostly because of misunderstandings and lack of understandings about China.'

He added: 'The suspicions would disappear if foreign counterparts could visit the Chinese Navy and know about the true situations.'"

Military analysts have most recently been concerned by the Chinese decision to retrofit ballistic missiles with warheads designed to take out air craft carriers. The recent news that supertanker companies expect the global fleet to contract in the medium term on the back of dismal demand is met, today, by the report by Toby Anderson at Lloyd's List that 35 additional very large crude carriers will be required if Venezuela is to meet its plans for increased crude supplies to China. (I'm afraid all I have access to is the snippet advertising the story, for the previous forecasts about the shape of the global supertanker fleet, see Daily Sources 4/16 #8.)

5. JAN 12 LETTER FROM KURDISH LEADER BARZANI TO OBAMA INCLUDED PLEA FOR SUPPORT FOR KRG OIL POLICIES

Ben Lando at Iraq Oil Report writes of a previously undisclosed letter from Kurdistan Regional Government of Iraq's President Massoud Barzani urging the Obama Administration to support the KRG's oil policies, whereby they would lease concessions to international oil companies without the explicit assent of the central government in Baghdad.

"He is blunt in pressing for U.S. support for controversial oil contracts signed by the KRG, which have been condemned as 'illegal' by Iraq Oil Minister Hussain al-Shahristani, criticized by Prime Minister Nouri al-Maliki and referred to by Bush administration officials as unhelpful in the reconciliation process."

The Obama Administration has declined, as of yet, to take sides in the matter.

6. THE BUSH ADMINISTRATION OFFERED TO DROP OIL SANCTIONS ON IRAN IN 2008

Kate Dourian at Platts reports that Hooshang Amirahmadi, speaking at the Middle East Petroleum and Gas conference in Dubai, said he was party to negotiations with Tehran in 2008 where the US offered to suspend sanctions on Iranian oil and gas in return for a six week suspension of uranium enrichment.

"'The bottom line is that the US offered to suspend sanctions on oil and gas in return for Iran freezing uranium enrichment for six weeks,' [Amirahmadi] said.

The offer was rejected by Tehran and the response to the US request for a 'wish list' from the Iranian leadership was: 'Leave us alone.'

Amirahmadi said when asked what type of sanctions the US was offering to suspend that it applied to executive orders dating back to the Clinton era, which imposed a trade ban against Iran, including trade in oil and gas, and prohibiting US investment in Iran's energy sector.

Other sanctions which were legislated, such as the Iran-Libya Sanctions Act (ILSA) of 1996--later amended to drop Libyan sanctions--was not included in the offer as it would require a congressional vote."

7. SAUDI ARABIA PUTS ANOTHER OIL PROJECT ON HOLD

Kevin Baxter at Reuters reports that Saudi Aramco has put the $9 billion Manifa offshore oilfield project on hold for six months.

"The Manifa project is in line to become Saudi Arabia’s largest offshore field, capable of producing 900,000 barrels of crude. However, the heavy sour crude the field holds makes it expensive to process and not economically viable in the current financial climate."

This delay is on top of delays for a number of domestic Saudi Aramco projects slated for export--see Daily Sources 4/14 #6.

8. VIETNAMESE ECONOMY EXPANDING!

Jason Folkmanis and Nguyen Dieu Tu Uyen at Bloomberg report that Vietnamese Prime Minister Nguyen Tan Dung told investors at a conference in Hong Kong yesterday that Vietnam's economic growth is rebounding after slowing in the first quarter.

"'The stimulus package has already had a good effect on the economy, and we believe it will have more impact,' he said. 'Growth will accelerate in the second, third and fourth quarters. We are targeting 5% to 5.5% growth for the year.'

Vietnam’s economy expanded 3.1% in the first quarter from a year earlier, the slowest pace on record, according to figures from the General Statistics Office in Hanoi.

Stimulus money will be invested in projects in areas including transportation and energy, Dung said. The $8 billion amount includes money from the government budget, according to the prime minister, who didn’t specify if any of the funds he was referring to had been included in the budget prior to the creation of stimulus plans."

9. HOW TO HELP MOLDOVA

Louis O'Neill, former OSCE ambassador and head of mission to Moldova, has an opinion piece in today's Wall Street Journal where he suggests a way to bolster Moldovan sovereignty in the current circumstance. To wit:

"With all these forces still tugging at a relatively new, unconsolidated and poor nation, it seems a proper time and in everyone's interest to give Moldovan sovereignty a boost. After all, every nation recognizes Moldova's territorial integrity and sovereignty, but also the right for Transdniestria to have a special status within a unified country. A serious restart of the '5+2' talks on Transdniestria comprising Russia, Ukraine, the Organization for Security and Cooperation in Europe, the EU, the US as well as Moldova and Transdniestria, could lead to a real settlement. Such a deal could open important new areas of trust in a reinvigorated US-EU-Russian relationship and improve the lives of people on both sides of the Dniester."

Well worth reading in full.

Daily Sources 4/17

1. GERMAN ECONOMIC COUNCIL REJECTS A FURTHER STIMULUS PACKAGE, EUROPEAN PARLIAMENT WANTS STRICTER FINANCIAL REGULATION, GLOBAL DEFLATION IN EVIDENCE ... OR NOT ... OR YES

Eurointelligence reports that Wolfgang Franz, head of Germany’s council of economic advisers, has rejected the notion of a third stimulus package, arguing that the economy is likely to bottom in the middle of this year on the back of stimulus beginning to take effect and lower commodity prices. The European Parliament is seeking regulation which would require banks issuing securitized paper to hold a stake of at least 10-15% versus the European Commission's plan to require a 5% stake. "[T]he regulation of rating agencies seems to be a done deal." Gotta give em credit for that last bit.

However, Mike Shedlock at Mish's Global Economic Trend Analysis notes that deflation, defined (incorrectly as it turns out) as sustained widespread price drops has gone global. Japanese wholesale prices have fallen to levels not seen since 2002; Germany sees sharpest decline in wholesale prices in 22 years; the Chinese consumer and producer price indexes have both gone negative; and US producer prices see the sharpest decline in 59 years; consumer prices see the sharpest drop in 55. Mr. Shedlock quotes from David Rosenberg at Merrill Lynch:

"Relative to year-ago levels, overall [Consumer] prices fell by 0.4%, for the first dip into deflationary territory since August 1955. Looking ahead, easy energy comparisons versus a year-ago will be a key factor in leading the overall CPI lower in the months ahead. Food prices, eased to 4.4% Y/Y versus a peak of 6.1% Y/Y in October 2008, will also be a factor. By 3Q, we anticipate annual declines of 2.5%. Core prices were unchanged at 1.8% Y/Y in March, though down from the nearby peak of 2.5% in August 2008. By 3Q, the core CPI is also expected to ease toward 1.0%, with depressed demand and more competitive pricing for a broad array of consumer categories as tailwinds.

Underlying weakness in core CPI

'Owners’ equivalent rent–-a category that accounts for 31% of the core CPI)--rose 0.2% M/M, in part due to falling natural gas prices, which have an inverse relationship to rent prices.'"

Mish points out that owner's equivalent rent is a process by which the Bureau of Economic Analysis estimates what housing would cost if owners' rented from themselves and concludes:

"OER is not a valid pricing barometer. By ignoring housing prices, CPI massively understated inflation for years. The CPI is massively overstating inflation now."

Mish plots the consumer price index if you substitute the Case Shiller housing index for owner's equivalent rate versus regular CPI:



The post is well worth reading in full. (h/t Yves Smith at naked capitalism.) The "proper definition of deflation," per Mish, is "a net decrease in the money supply and credit, with credit being marked to market" ... and by that measure deflation has been global for some time now.

But the wires appear to be crossed, because Real Time Economics reports that consumers see prices rising, which is what we understand as inflation. The number is apparently strongly influenced by gasoline prices, which have indeed risen a fair amount in the last two months.

"The University of Michigan’s latest reading of consumer sentiment showed expectations for inflation over the next year rising in April to 3%, from 2% in March.
...
JP Morgan Chase economist Abiel Reinhart notes that the one-percentage-point increase in inflation expectations has occurred just three times in the past quarter century: in 1990 after the Iraqi invasion of Kuwait, in 2001 after the Sept. 11 attacks and in 2005 after Hurricane Katrina."

In another post on the same consumer sentiment index, Michael S. Derby at Real Time Economics reports that consumer sentiment rose much more than economists had expected in April. In the meantime, Tim Hanrahan at Real Time Economics has a chart of the Fed's expanding balance sheet:



The graphic in the post itself is interactive, noting, via pop-ups, when certain events happen along the time line. Brad Setser has a chart which may provide additional clarification as to why the Fed is purchasing agencies--international demand for them has collapsed:



Setser notes:

"Treasuries are the only US asset foreign investors still want, despite their low yields. Over the past 12 months, the US--rather amazingly--could have financed its trade deficit by just selling Treasuries. And nothing else. At least so long as Americans didn’t move large sums out of the US.

It still could for that matter. The $85.1 billion in Treasuries foreign investors bought in the first two months of 09 (mostly in February) easily exceeds the $62.2 billion January-February trade deficit.

At some point, though, central bank and flight-to-safety demand for Treasuries will fade. That won’t necessarily signal a loss of confidence in US government bonds. It could equally signal renewed confidence in the Agencies--or at least an and to the reallocation of existing reserves toward Treasuries."

Worth reading in full. (Setser also makes the interesting point that it is easier for foreign central banks to shift from agencies to treasuries than it would be to transfer out of US assets altogether.)

Meanwhile, P O Neill at Fistful of Euros notes the stories on the schism in opinion at the European Central Bank, writing:

"The latest Eurostat inflation data might concentrate minds, showing annual Eurozone inflation of 0.6% and several countries already in deflation. But if the cautious EU countries thought that the G20 enhancements to the IMF would bail out them out any further anti-crisis measures, that money to eastern Europe needs to start flowing soon. Note: the only big announcement since the G20 is the facility for Poland, and that’s a precautionary facility. The ECB can’t dodge this issue forever."

2. CHINESE RAILWAYS TO GET ADDITIONAL $2 BILLION IN SPENDING FROM STIMULUS, AND LOOKS READY TO GET AN AIRCRAFT CARRIER, TOO

Ian Johnson at the Wall Street Journal reports:

"Wang Yongping [the Ministry of Railways' chief spokesman] said the funding will come from government bonds issued late last year to bolster China's economy. The new spending could create 150,000 jobs, he said, based on the ministry's experience. The entire Chinese railway system employs about 2 million. 'The government considered the economy when it invested in the railway,' Mr Wang said."

Galrahn at Information Dissemination notes that the PLA will likely announce its intention to build its first two air craft carriers next week. Infrastructure and defense--I suspect Beijing's own military industrial complex will become much more of a political headache to China, just as it is in the US, as efforts to combat the global financial crisis unfold.

3. SPANISH PROSECUTORS OFFICIALLY RECOMMEND AGAINST PROSECUTING US OFFICIALS FOR WAR CRIMES

In a move which contradicts my post linking to Prof. Juan Cole on the matter yesterday, Paul Haven at the Associated Press reports that Spanish prosecutors today formally recommended against investigating allegations against Bush Administration figures. The prosecutors also formally recommended that Judge Baltasar Garzon should not oversee any such investigation should one be ordered given another judge's superior competence in these types of investigations, and Garzon formally stepped aside from the case a few hours later.

"Prosecutors said any such investigation ought to be conducted in the United States, not Spain. They also questioned the idea of bringing charges against lawyers and presidential advisers who neither carried out the alleged torture themselves, nor were ultimately responsible for ordering it.

The prosecutors wrote that going after lawyers who wrote nonbinding recommendations for the president and his senior staff, rather than targeting higher-ranking officials who authorized the alleged torture, 'raises important problems from a legal standpoint.'

It also questioned the appropriateness of a case that would effectively put on trial 'all of the policies of the past US administration (as reproachable as they may be),' saying such an endeavor was beyond the scope of the Spanish legal system."

Although Spanish law asserts universal jurisdiction in instances of torture, war crimes, and other "heinous offenses," it seems clear from the recommendation that the government wants to put limits on its usage.

4. CHECHEN ANTI-TERRORIST OPERATIONS DECLARED OVER, POSSIBLE RUSSIAN-AZERBAIJAN GAS DEAL, GAZPROM ENTERS BOLIVIAN UPSTREAM WITH PDVSA

Michael Schwirtz at the New York Times reports that Russia officially ended its counter-terrorism operations in Chechnya yesterday.

"Russia’s National Antiterrorist Committee said in a statement that the decision was made 'to guarantee conditions for the further normalization of the situation in the republic and for the development of its social and economic spheres.'

The committee did not mention troop withdrawals, though Russian officials said they would now have more legal leeway to scale down the number of federal military and security forces. While the violence in Chechnya has declined, it seemed likely that many troops and security forces could remain for some time."

Catrina Stewart at the Associated Press reports that following a meeting with Azeri President Ilham Aliyev, Russian President Dmitry Medvedev told reporters that ""We have a very high chance of entering a full-blown agreement" on natural gas supply from Azerbaijan through Russia. Baku would likely be hoping to balance a bit out of the Western orbit via such a deal. Moscow is continuing a policy of deepening interdependence with Western Europe.

Meanwhile, Moscow marked the beginning of the Americas Summit by announcing, via the prospectus of its upcoming bond issue, to take a 20-24.5% stake in upstream gas join venture Petroandina. Anna Shiryaevskaya at Platts reports that Petroandina is 51% owned by Bolivia's state-owned YPFB and 49% by Venezuela's PdVSA.

"Gazprom had not previously revealed how large a stake it was considering taking in Petroandina, which owns licenses for the development of 12 blocks in Bolivia. The blocks include Aguarague, Iniguasu and Inau with potential reserves of up to 300 billion cubic meters of gas, Gazprom said."

5. ROMANIA OFFERS MOLDOVANS ROMANIAN CITIZENSHIP

In a move rightly regarded as destabilizing, Der Spiegel reports the Romanian President Traian Basescu this week offered Moldovans with Romanian blood citizenship.

"'We are not going to allow a new Iron Curtain on the Prut (River)," said President Traian Basescu on Wednesday, referring to the river that separates the two nations. 'We cannot accept that the Romanians across the Prut are isolated from the rest of Europe.'

'Reunification' with Romania was a Moldovan election issue. Romania has always been an ethnic big brother to Moldova, and the smaller country even belonged to modern Romania until 1940, when Moldova was annexed by the Soviet Union. Some ethnic Romanians in Moldova now think reunification would be a quick way to join the European Union, since Romania has been a member since 2007."

However, Moldova has a significant Slavic population, which tends to identify with Russia, and Russia tends to regard as its ethnic little brother. Worth raeding.

6. UN REPORT ON KIRKUK ADMINISTRATION TO BE RELEASED NEXT MONTH UNLIKELY TO PLEASE EVERYONE

Ernesto Londoño at the Washington Post reports:

"In Kirkuk, the crown jewel of the 300-mile strip of disputed territories, Arab politicians announced over the weekend the creation of a political group that includes Sunni leaders who gained prominence in 2006 and 2007 when, with financial backing from the United States, they took up arms against the group al-Qaeda in Iraq in the western part of the country.

The Kurds, meanwhile, have been aggressively collecting signatures in the oil-rich city for a nonbinding petition with which they hope to demonstrate that the majority of Kirkuk's residents want the city annexed to the autonomous Kurdish regional government."

7. PAKISTAN SECURES $5 BILLION IN ADDITIONAL AID FOR ITS ELITE TO DISTRIBUTE, WHILE THE TALIBAN APPEALS TO THOSE THEY EXPLOIT

Chisa Fujioka and Yoko Kubota at the Washington Post reports that more than $5 billion in new aid was pledged to Pakistan in a conference today. President Zadari is reported to have said, "If we lose, you lose. If we lose, the world loses." The US matched a pledge by Japan for $1 billion over the course of two years, subject to Congressional approval.

Jane Perlez and Pir Zubair Shah at the New York Times argue that the Taliban's success in Swat and elsewhere has been to appeal to landless peasants in their struggle against the landed elite.

"In Swat, accounts from those who have fled now make clear that the Taliban seized control by pushing out about four dozen landlords who held the most power.

To do so, the militants organized peasants into armed gangs that became their shock troops, the residents, government officials and analysts said.

The approach allowed the Taliban to offer economic spoils to people frustrated with lax and corrupt government even as the militants imposed a strict form of Islam through terror and intimidation.

'This was a bloody revolution in Swat,' said a senior Pakistani official who oversees Swat, speaking on the condition of anonymity for fear of retaliation by the Taliban. 'I wouldn’t be surprised if it sweeps the established order of Pakistan.'"

I reiterate my suspicion that this is not just about money, and that the inequitable access to justice and security is a major driver here, but clearly the inequitable distribution of wealth contributes to inequitable access to justice and security. From my far remove.

8. ASSASSINATION ATTEMPT ON THAI 'YELLOW-SHIRT' LEADER

The Canadian Broadcasting Company reports that Sondhi Limthongkul, a media tycoon and founder of Thailand's "yellow-shirt" protest movement, was shot at by gunmen in a pickup track today as he was on his way to work. A bullet fragment entered his skull and Sondhi is in stable condition at the hospital after having surgery to remove it.

"The pre-dawn attack came hours before Thailand's government held a special cabinet meeting to discuss the recent violence that left two demonstrators dead.

After the meeting, Prime Minister Abhisit told reporters cabinet members agreed to extend the country's state of emergency for a sixth day in order to control rioting.

'We have to make sure peace and order truly returns,' he said.

It's not clear when the state of emergency will be lifted."

The bad blood is building. (h/t The FP Morning Brief.)

9. ANGOLA'S CRUDE EXPORTS TO RISE IN APRIL, PETROBRAS SEEKING OIL RIGS

Angola is increasing its crude exports by 7% in June, per Alexander Kwiatkowski at Bloomberg, who writes that loading programs for BP Plc, Total SA, Chevron Corp., Exxon Mobil Corp. and other companies are scheduled to load 1.85 mb/d that month. Meanwhile, Florence Tan and P.R. Venkat at Dow Jones Newswires report that Petrobras will begin the process of accepting bids for new oil drilling rigs in the next couple of months.

"The company, which awarded contracts for 12 rigs last year, still needs 28 more over the next five years as part of its expansion.

'We will divide them (28 rigs) into lots of 5-7,' Chief Financial Officer Almir Barbassa told a news conference Thursday, adding the company will seek bids for the first lot in 2-3 months."

The company expects first oil from Tupi, an oil field thought to hold between 5 and 8 billion barrels of recoverable oil equivalent, on May 1.

10. US-MEXICAN ENERGY COOPERATION

President Obama and Mexican President Felipe Calderon announced yesterday that the two countries would initiate a cross border dialogue on energy and climate change. Alexander Duncan at Platts reports:

"The 'Bilateral Framework on Clean Energy and Climate Change' is similar to an effort which Obama helped launch when he visited with Canadian Prime Minister Stephen Harper in February.

Obama also backed Mexico's bid to host next year's UN climate change negotiations. The negotiations this December, to be held in Copenhagen, will set the stage for a new international climate treaty to replace the Kyoto Protocol."

If I remember correctly, such a dialogue was a key recommendation by Sen. Lugar and as such represents an example of bi-partisanship.