Newswire: South-South Cooperation

[Russia - Brazil] -- Russia, Brazil to Buy $20 Billion IMF Bonds, Diversify Reserves

Russia and Brazil, seeking to reduce their dependence on the dollar, announced plans to buy $20 billion of bonds from the International Monetary Fund and diversify foreign-currency reserves.


[Brazil - Russia - IMF] -- Brazil (and possibly Russia)to Buy $10 Billion of IMF Bonds, Mantega Says

Brazil will buy $10 billion of bonds issued by the International Monetary Fund to help the Washington-based lender provide financing to countries hurt by the financial crisis, Finance Minister Guido Mantega said.

“This is an investment that Brazil is doing with part of its reserves and making available financing so that the IMF may help emerging countries, especially developing countries which today face a shortage of capital because of the global financial crisis,” Mantega said.

Russia’s central bank said today it may cut investments in U.S. Treasuries, currently valued at as much as $140 billion, a week after China said it may reduce reliance on the dollar and U.S. bonds. Treasuries fell after Alexei Ulyukayev, first deputy chairman of Bank Rossii, said some reserves may be moved into IMF debt.


[China - Afghanistan] -- Afghanistan to boost economic, security ties with China: Afghan FM

"Since the beginning of the new era in Afghanistan in late 2001,China has been among our most committed and generous friends," Spanta, who is here for an official visit, told a seminar on Afghanistan's role in the region.

China has been instrumental in regional consensus and international solidarity with Afghanistan, he said, noting China is also the largest investor in the war-hit country.


[China - Cameroon] -- China vows to enhance friendly military co-op with Cameroon

The Chinese armed forces are willing to advance friendly cooperation with Cameroon, Chinese Defense Minister Liang Guanglie said here Wednesday.

The Chinese armed forces attach importance to its relations with Cameroon, said Liang, adding China is ready to work together with Cameroon to raise bilateral military ties of friendly cooperation to a higher level.

The Bank of the South -- A step towards regional integration in South America

[South America Analysis] -- The significance of creating a new regional bank in South America.

** Note the opinions reflected in this article are my own and do not reflect any resource used in writing this analysis.



As high level Economy and Finance ministers from seven South American countries meet in Argentina with the goal of moving forward the creation of the Bank of the South (El Banco Sur), it is imperative to examine the bigger picture. I have synthesized two major points I would like to highlight.

1) South American countries are experimenting with new institutions. If found to be viable and efficient, these institutions can potentially form the building blocks of larger and more complex ones. The end result will be the promotion of legitimate regional integration in South America.

2) The Bank of the South, along with other efforts such as the Andean Development Corporation will provide South American countries first-hand experience in promoting economic development through South-South Cooperation. Development via this avenue takes advantage of the strengths and weaknesses of other developing countries to promote development from within. South-South Cooperation has great potential to create a new channel in which to promote sustainable economic growth and empower developing countries with the tools and means in which to help each other develop, thus cutting their reliance on external aid from wealthy donor countries or multi-lateral organizations such as the IMF (eventually).

The Bank of the South, which has been financed by the South American countries of Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela, will begin operations with an initial capital pool of $10 billion. This figure was agreed upon during the last meeting held in March in Caracas, Venezuela (MercoPress).

When you casually see hundreds of billions of dollars being thrown around in today’s headlines, it is easy to dismiss this $10 billion effort as menial, at best…

The real point however is not to rock the boat, the boat in this context being the International Monetary Fund (IMF) and other multilateral lending institutions. Hugo Chavez may be full of rhetoric that says otherwise, but as much as he would like the Bank of the South to counter the influence of the IMF, he knows at the moment it cannot.

Consider two major lending institutions—the IMF and the Inter-American Development Bank (IDB). Ideas are being floated around to increase IMF capital to $500 billion (see this BBC article). Granted not all this will go to Latin America, but no less this is a substantially larger capital pool than the Bank of the South will have. The IDB, which is a Latin America specific regional lender, has $101 billion of its own of capital.

However, if we look at one other regional lender—the Andean Development Corporation, which includes some of the remaining South American countries which are not participating in the Bank of the South (Peru, Chile and Colombia), has a capital pool of $5 billion. The Bank of the South, with seven founding members and $10 billion in capital to lend is a definite step forward for the region

Consider for a moment, the fact South American countries have not always been as successful as they are now at managing inflation, debt, budgets, political stability, etc. Today in 2009, South American countries have international reserves. Click here to access a great article with some straight forward data that illustrates this phenomenon from Victoria Saddi’s site, Brazil and Economics. In a few years the United States may have to add to their Chinese and Middle Eastern credit lines by opening up new ones with countries in Latin America.

Definitely not a good thing for U.S self-esteem, but that is another story all together. Discussion welcome for those who would like to share their opinions on the subject.

The Bank of the South will not tip the international balance of power in either the worlds of regional and or international lending institutions. It will however help create the foundation for future organizations and institutions which one day will rival the influence of first world institutions like the IMF.


~ Analysis by Bennett Reiss

Does anyone really care what the IMF thinks?

Apr 22 (Retuers) - For the first time since the end of World War II, the International Monetary Fund is projecting that the world economy has fallen into a severe recession.

IMF statistics are widely used when proving a point in journalism, academic research or any other type of report. There are a handful of sources to turn when you need a legitimate source and the IMF's wonderful website is one of them.

It's full of statistics, economic research, news and pages dedicated to just explaining to you what the heck the IMF does... sounds like a exhilarating experience no?

There is already a raging debate among academics, economists and politicians if the good produced by the IMF outweighs the bad.

You don't see IMF economists, moving markets with their speeches on major news networks.

This is because they don't and they can't. When it comes down to it the IMF has true little power to influence momentum in markets. Financial markets don't care about what the chief economist at the IMF thinks or says because anyone in the business probably has a research department in their company that has already come to the same conclusion. Heck, I could have Googled what these IMF guys said in this Reuters video.

Building China's position in multilaterial organizations

China announced plans to create a $10 billion fund for investment cooperation between itself and its fellow ASEAN (Association of South East Asian Nations) members.

Additionally China will provide a $15 billion credit line to its South East Asian neighbors, further extending its influence in the region.

China has been making its presence known in multilateral organizations around the globe. Recently pledging increased levels of support for organizations like the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB).

Bloomberg reports in this article:

The investment fund will promote infrastructure development linking China with the 10 members of the Association of Southeast Asian Nations, while the loans will be offered over three to five years, according to a statement on the Foreign Ministry Web site today citing an interview with Foreign Minister Yang Jiechi.

The measures from the world’s third-largest economy, and one of the few forecast to maintain growth this year, may help speed recovery from the global financial crisis and cement China’s leadership in the region. The nation has already signed currency swap agreements with Indonesia, South Korea, Hong Kong and Malaysia this year to help ease foreign-exchange shortages and aid bilateral trade and investment.

“China is going to take the opportunity of this crisis to further establish itself in Asia,” said Huang Jing, a visiting professor at the National University of Singapore’s Lee Kuan Yew School of Public Policy. “All this will have a huge political and diplomatic impact in the region, in addition to the economic impact.”

Check out this link see a post a few weeks back on China & the IMF / IDB.

Latin America hopeful for more Chinese investment

The Governor of the People's Bank of China, Zhou Xiaochuan was in Colombia this weekend rubbing shoulders with the head honchos of Latin America's governments, intellectuals and business leaders.

Chinese Central Bank Governor Zhou Xiaochuan
attends the Inter-American Development Bank (IDB)
meeting in Medellin, Colombia, March 28, 2009.
(Xinhua/David De La Paz)

Most major media outlets from North America and Europe picked up Zhou's pledge that China would actively support the International Monetary Fund (IMF) and other multilateral lending organizations such as the Inter-American Development Bank (IDB).

This naturally means China will want a legitimate voice in these institutions. Hopefully a Chinese voice will be for the better, not worse. Giving the Chinese a shot after all the foul-ups with U.S led efforts in the IMF shouldn't be too much to ask.

After reading through comments and quotes from various media reports on Zhou's speech, the consensus is clear. China plans on continuing the promotion of South-South Cooperation between developing nations—and is particularity optimistic about the prospects which lie ahead in regard to Sino-Latin American cooperation..

“South-South cooperation is all the more important amid the current financial crisis, and China will expand its trade with and increase its investment in Latin American countries after it joined the IDB, he said.”

"We see huge potential for economic ties and trade between Latin America and China," he said, noting that China has a free-trade pact with Chile, has concluded negotiations for such a pact with Peru and could have one with Costa Rica.

"The potential for China to make foreign direct investment in the region is huge," he said, adding that some sectors of special interest are in pharmaceuticals, computer software, aeronautics and biological products.

Trade between China and the greater Latin American region has been growing at an average rate of 40% in recent years and hit a record high of $143.3 billion in 2008 according to Xinhua News Media.

Zhou was in Colombia attending the 50th annual meeting of the IDB, which it joined in January this year.

FT Commentary -- How are frozen credit markets and the global slowdown being felt down in South America?

Stephen Fidler put together a great piece on January 8th where he presents various perspectives and analysis from South America on how the global crisis is affecting the region.

Across the continent, the crisis has brought about a large-scale destruction of wealth. Claudio Loser, a former western hemisphere chief at the International Monetary Fund, calculates that 40 per cent of Latin America’s financial wealth was wiped out in the first 11 months of 2008 through falls in stock and other asset markets and currency depreciation. That $2,200bn (£1,440bn, €1,610bn) loss alone could cut domestic spending by 5 per cent next year, he estimates.

On top of that, flows of credit from abroad have contracted sharply and the region, much of which depends on exporting raw materials, has been pummeled by a collapse in commodities prices. The deterioration in Latin America’s terms of trade – the price of exports divided by the price of imports – could hit even harder than the credit crisis, says Mr Loser, now with the Inter-American Dialogue, a Washington think-tank. “The fact that the terms of trade have gone so far against the Latin American economies in terms of agriculture, minerals and petroleum is really going to hit the region very hard,” he says.

Click here to access the full article from the Financial Times

Analysis: Peruvian economy grows 10.3% during the 1st half of 2008

The Peruvian Central Bank raised its benchmark interest rate on Thursday (September 11th) by 25 basis points to 6.5%.

On the surface international investors are increasingly starting to view Peru as a safe region for commodity plays and “alternative investment strategies.”

- Standard & Poor's and Fitch Ratings upgraded Peru's foreign debt to one level below investment grade. (click here for article)

- In May Peru entered talks with the Paris Club to re-nogciate its foreign debt and for the first time, Peru's international reserves are expected to exede foreign debt. (click here for article)

- Peru has achieved relative political and economically stability, successfully passing power from one democratically elected president (Toledo) to another (Garcia) and producing healthy economic growth the past few years.

- Generous macro-economic incentives have helped to attract FDI from abroad, particularly in Peru's mining and energy sectors.

- According to this article from MercoPress, which quotes the INEI: Peru's National Institute of Statistics (click here to visit) the Peruvian economy grew at a rate of 10.3% in the first half of 2008, making it the fastest growing economy in the region.

Lets think about this for a second...

Until the recent retreat/collapse/correction in commodity markets, for the majority of 2008, commodity prices have been sky-rocketing, setting records as arguably one of the strongest bull markets the commodity sector has ever experiences.

Peru, a major producer and exporter of copper, zinc, and other metals has naturally benefited a great deal from soaring commodity prices. However, now that commodity prices have come back down to reality it will become increasingly more difficult for Peru to produce such great numbers. The bright side is commodity prices may rise once again once global growth and confidence pick up, but with the recent developments in the US financial markets it is looking as if the global economy has a long way to go until recovering from the recent credit and banking crisis.

Investors should always research the bad and the good. Some factors which come to mind are as follows:

- The recent replacing of Finance Minister Luis Carranza with Luis Valdivierso, who aside from a more impressive resume having worked for the IMF... is really not much different that Mr. Carranza. It's a pity the main reason Carranza even stepped down was for “family reasons.” Stating, as the Minister of Finance he was over-worked, had little family time and could not adequately support his family.

- Protests and strikes from local communities and unions will remain a obstacle for many companies operating in the remote regions of Peru.

- The population and satisfaction of the Peruvian people with their current president Alan Garcia, and other Peruvian politicians whom are not of the radical left such former presidential candidate Ollanta Humala, have whitnessed their approval ratings shrink a great deal in the past 1-2 years... Meanwhile Humala has managed to remain in the spot light, maintain his friendship with Hugo Chavez and will probably will run for President once again in Peru's next election. Expect great changes if he wins.

Reuters -- "Era of Cheap Oil Over" -- IMF' chief Dominique Strauss-Kahn warns of looming threats from rising prices for LATAM

Using the great and free online personal finance management site "Mint," I have been able to monitor all my personal expenditures from my various bank accounts and credit cards.

Since the month of September, I've seen my expenditure on food increase roughly 20% and my gas expenditure has increased about 70%. Since August 2006, when I purchased the car, the cost of filling my tank has more than doubled.

If price rises are really hitting home in the United States, the cliche "world consumer," this pinch is definitely affecting the emerging world. IMF, chief Dominique Strauss-Kahn urged Latin American leaders on Monday "the rising threat of inflation in Latin America, urging policymakers to take steps to contain the shock to prices from energy and food."

He continues, explaining "The task for policymakers is to ensure that the initial impact of the supply shock on prices is contained and that macroeconomic policies successfully prevent higher inflation from becoming entrenched in expectations and wage demands"

“In the short term the challenge for Latin America is inflation. The region built credibility in the last decade and that credibility is now being tested”.

Strauss-Kahn's comments as the world as a whole attempts to fight inflation and ride the wave of problems resulting from the global credit crunch and sub-prime mortgage crisis in the US.

To view the full article from Mercopress in which I accessed Strauss's comments from click here

Reuters - Era of Cheap Oil Over

Viva El Peru! -- Various developments and stories from the Andean Republic

Since beginning this site, I aside from mentioning Peru within posts, most of my longer and more in depth analytical pieces have been on Argentina, Ecuador, China, commodities and rising food costs.

I would like to dedicate this update and perhaps the one to come later this afternoon (July 18- 2008) to recent developments in Peru, one of Latin America's best preforming economies in recent years and quickly gaining international recognition for both its economy and equally important-- Peru's unique culture.

I begin today's focus on Peru, with a chart I assembled for my dissertation on Sino-South American relations and economic cooperation, providing a general picture of how Peru's economic growth compares with its neighbors. My dissertation focused on the below countries and their growing relations and trade with China.

I must mention Ecuador and Uruguay each experienced their own respective healthy growth rates in 2006 and 2007. Information has been assembled from the International Monetary Fund (IMF), and account for inflation which is on the rise throughout the continent, but is particularly high in Venezuela and Argentina.

As you can observe above, comparing Peru with other countries in the region, it is preforming quite well and the IMF forecasts healthy growth for the country foward to 2009, at which point it has also been estimated Peru's economy will achieve fast. At the time of writing of my dissertation (Jan-April, 2008), estimates and future forecasts by the IMF were as follows. Please, by all means, let me know if the figures have been significantly altered since earlier this year.


Latin America - Country Growth Rates 2006-2009 (r = Real GDP percent change, e = expected and f = forecast)

Source: IMF GDP calculations adjusted for inflation

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Peru has many good things going for it right now. First, copper unarguably one of Peru's most important natural resources has risen sharply in value over the past few years, in addition to other raw material exports Peru has in abundance-- fishmeal, gold, silver and zinc. Copper is a key input in economic development-- and even if as of recent days the price has dropped, it will remain a commodity in strong demand for quite some time-- thanks in large to China which now relies on Chile and Peru for 50% of its total imports of copper from abroad.

Below is a graph which predicts copper demand and China's economic growth based off the proportional level of copper demanded from other countries at similar levels of development, using South Korea as the primary benchmark due to many similarities its own plan for initiating their economic development and similar needs of having to import many of the inputs necessary to industrialize.



Below is a graph generated from the London Metals Exchange home page, using their price graph generator.

LME copper spot 2002-2008

Thankfully, as Mr. Michael Reid states in his new book, the Forgotten Continent: The Battle for Latin America's Soul it seems Latin American countries are in a different position than they where during past commodity booms. Today, thanks in large to the BRIC countries and to emerging market demand, the current commodity boom will remain in swing for longer than ones of the past. Second, from historically failing to re-distribute profits from commodity booms to constructive areas of the economy to ensure sustainable growth after commodity prices fall many leaders now know better.



Peruvian present Alan Garcia, who had previously been considered a charismatic, populist, has shown he's learned from many of his past mistakes and currently retains pretty decent support and popularity rating in Peru.

In his first term as president in the late 1980's, his economic and internal policies lead to escalating violence from the war then in full swing, with the Peruvian state on one side, fighting the Maoist Shining Path Guerrillas on the other. Escalating violence and failed economic plans also lead the nation to experience the worst hyper-inflation of Peru's history.

Today he is viewed as a healthy moderate, leading the way with other popular Peruvian politicians such as Lima's mayor who also enjoys high popularity ratings as of recent polls, in investing profits from commodities in constructive projects. New water facilities are being built for Lima, which sits in the driest desert on the planet, highways are being built / repaired, ports are being upgraded and new airports are being built in Northern Peru (a region historically ignored in large by the central government).

I end this post (with more to come later), with a article I saved from March's APEC summit which took place in Lima.

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China sees Peru as the gate to South America - Andina News

Lima, Mar. 10 (ANDINA).- Macroeconomic and political stability and impressive growth makes Peru the ideal entrance gate for Chinese investments and trade to Latin America, said Chinese ambassador to Lima Gao Zhengyue.

One of the advantages that Peru offers to China as economic partners is its strategic economic convergence, derived from its geographical position in the continent, as a bridge between Asia and South America and the Atlantic Ocean through the bioceanic corridor.

Peru is also important due to its projection towards a sub regional extended market through the Andean Community (CAN) and Mercosur.

Chinese Ambassador to Peru
Gao Zhengyue

So far this year, around 30 delegations have visited Peru, and probably this number would increase when the Free Trade Agreement (FTA) between Peru and China is signed, he told Andina news agency.

Chinese business leaders are very interested in diversifying investments to Peru, currently concentrated in mining, in sectors such as ports, airports and road construction.

The Chinese government is interested in taking part in the social programs promoted by Peruvian government, as "Agua para Todos" (Water for Everybody) and "Techo Propio" (My Own Roof), he said.

"Whenever the Peruvian government can show projects to the Chinese business leaders, they will start to study them and decide to make investments", he said.

Gao Zhengyue told Andina that he is very satisfied with the firts two Rounds of Negotiations to sign a Free Trade Agreement (FTA) between Peru and China and hopes the FTA could be signed at the end of this year, so it would come into effect immediately.

The Chinese diplomat said his country is ready to welcome Peru's President Alan Garcia when he visits China next week.

(Accessed via Andina news agency -- China-Peru Free Trade Agreement Joint Feasibility Study; 2005-06).”