domingo, abril 06, 2014



India’s election

Can anyone stop Narendra Modi?

He will probably become India’s next prime minister. That does not mean he should be

Apr 5th 2014.


WHO does not marvel at the prospect of India going to the polls? Starting on April 7th, illiterate villagers and destitute slum-dwellers will have an equal say alongside Mumbai’s millionaires in picking their government. Almost 815m citizens are eligible to cast their ballots in nine phases of voting over five weeks—the largest collective democratic act in history.

But who does not also deplore the fecklessness and venality of India’s politicians? The country is teeming with problems, but a decade under a coalition led by the Congress party has left it rudderless. Growth has fallen by half, to about 5%too low to provide work for the millions of young Indians joining the job market each year. Reforms go undone, roads and electricity remain unavailable, children are left uneducated. Meanwhile politicians and officials are reckoned to have taken bribes worth between $4 billion and $12 billion during Congress’s tenure. The business of politics, Indians conclude, is corruption.

No wonder that the overwhelming favourite to become India’s next prime minister is the Bharatiya Janata Party’s Narendra Modi. He could not be more different from Rahul Gandhi, his Congress party rival. The great-grandson of Jawaharlal Nehru, India’s first premier, Mr Gandhi would ascend to office as if by divine right. Mr Modi is a former teaseller propelled to the top by sheer ability. Mr Gandhi seems not to know his own mindeven whether he wants power. Mr Modi’s performance as chief minister of Gujarat shows that he is set on economic development and can make it happen. Mr Gandhi’s coalition is tainted by corruption. By comparison Mr Modi is clean.

So there is much to admire. Despite that, this newspaper cannot bring itself to back Mr Modi for India’s highest office.

Modi’s odium

The reason begins with a Hindu rampage against Muslims in Gujarat in 2002, in which at least 1,000 people were slaughtered. The orgy of murder and rape in Ahmedabad and the surrounding towns and villages was revenge for the killing of 59 Hindu pilgrims on a train by Muslims.

Mr Modi had helped organise a march on the holy site at Ayodhya in 1990 which, two years later, led to the deaths of 2,000 in Hindu-Muslim clashes. A lifelong member of the Rashtriya Swayamsevak Sangh, a Hindu nationalist group in whose cause he has vowed lifelong celibacy, he made speeches early in his career that shamelessly whipped up Hindus against Muslims. In 2002 Mr Modi was chief minister and he was accused of allowing or even abetting the pogrom.

Mr Modi’s defenders, and there are many, especially among the business elite, point to two things. First, repeated investigationsincluding by the admirably independent Supreme Court—have found nothing to charge their man with. And second, they say, Mr Modi has changed. He has worked tirelessly to attract investment and to boost business for the benefit of Hindus and Muslims alike. Think, they say, of the huge gains to poor Muslims across India of a well-run economy.

On both counts, that is too generous. One reason why the inquiries into the riots were inconclusive is that a great deal of evidence was lost or wilfully destroyed. And if the facts in 2002 are murky, so are Mr Modi’s views now. He could put the pogroms behind him by explaining what happened and apologising. Yet he refuses to answer questions about them. In a rare comment last year he said he regretted Muslims’ suffering as he would that of a puppy run over by a car. Amid the uproar, he said he meant only that Hindus care about all life.

Muslims—and chauvinist Hindusheard a different message. Unlike other BJP leaders, Mr Modi has refused to wear a Muslim skullcap and failed to condemn riots in Uttar Pradesh in 2013 when most of the victims were Muslim.

The lesser of two evils

Dog-whistlepolitics is deplorable in any country. But in India violence between Hindus and Muslims is never far from the surface. At partition, when British India fractured, about 12m people were uprooted and hundreds of thousands perished. Since 2002 communal violence has died down, but there are hundreds of incidents and scores of deaths each year. Sometimes, as in Uttar Pradesh, the violence is on an alarming scale. The spark could also come from outside. In Mumbai in 2008 India suffered horrific attacks by terrorists from Muslim Pakistan—a nagging, nuclear-armed presence next door.

By refusing to put Muslim fears to rest, Mr Modi feeds them. By clinging to the anti-Muslim vote, he nurtures it. India at its finest is a joyous cacophony of peoples and faiths, of holy men and rebels. The best of them, such as the late columnist Khushwant Singh are painfully aware of the damage caused by communal hatred. Mr Modi might start well in Delhi but sooner or later he will have to cope with a sectarian slaughter or a crisis with Pakistan—and nobody, least of all the modernisers praising him now, knows what he will do nor how Muslims, in turn, will react to such a divisive man.

If Mr Modi were to explain his role in the violence and show genuine remorse, we would consider backing him, but he never has; it would be wrong for a man who has thrived on division to become prime minister of a country as fissile as India. We do not find the prospect of a government led by Congress under Mr Gandhi an inspiring one. But we have to recommend it to Indians as the less disturbing option.

If Congress wins, which is unlikely, it must strive to renew itself and to reform India. Mr Gandhi should make a virtue of his diffidence by stepping back from politics and promoting modernisers to the fore. There are plenty of them and modernity is what Indian voters increasingly demand. If, more probably, victory goes to the BJP, its coalition partners should hold out for a prime minister other than Mr Modi.

And if they still choose Mr Modi? We would wish him well, and we would be delighted for him to prove us wrong by governing India in a modern, honest and fair way

But for now he should be judged on his record—which is that of a man who is still associated with sectarian hatred. There is nothing modern, honest or fair about that. India deserves better.


Two heads are worse than one

Brazil’s state-controlled energy giant, under Maria das Graças Foster, is paying dearly for meddling by Dilma Rousseff’s government

Apr 5th 2014


UNIQUE.” That is how Credit Suisse, a bank, sums up Petrobras. It has a point. Most companies’ stocks would sag on the sort of news Brazil’s oil giant has faced in the past three weeks. A federal investigation was opened, into alleged backhanders paid to its employees by a Dutch company in exchange for oil-platform and drilling contracts. (Both companies deny the allegations.) A parliamentary inquiry is imminent, into the purchase in 2006 of a refinery in Texas which cost $1.2 billion but is now worth no more than $180m. A former director has been arrested in a money-laundering probe. If that were not enough, on March 24th Standard & Poor’s, a ratings agency, downgraded its corporate debt. Yet Petrobras’s shares have risen by 30%.

The reason for this seemingly irrational exuberance is that investors consider Petrobras’s prospects to be inversely linked to those of Brazil’s government, led by the president, Dilma Rousseff. The rally began with rumours (later proved premature) that Ms Rousseff’s poll lead over her likeliest challengers in a presidential election this October was dwindling. The government owns a majority stake in the company and makes most of the strategic decisions over the head of Maria das Graças Foster, the chief executive.

These, the market feels, have been disastrous. The company is required by law to hire and buy parts from an inchoate local oil-services sector, leading to delays and cost overruns. It was told to build unviable refineries in the poor north-east to promote regional development. It is also the only principal operator allowed in vast, ultra-deep pré-sal (beneath the salt) fields discovered in 2006 off Brazil’s coast. This monopoly is a curse as well as a blessing: Petrobras is obliged to devote resources to the pré-sal that might be better employed elsewhere. Despite debt-fuelled investment of roughly $40 billion a year, production has flatlined at around 2m barrels a day (b/d) in the past three years.

Most damaging, says Adriano Pires, an energy consultant in Rio de Janeiro, “Petrobras is being misused as a tool of macroeconomic as well as industrial policy.” Since 2006 the government has capped petrol prices to curb inflation. Unable to meet rising domestic demand with what it produces, the company has to import petrol and diesel, which it must then sell at a loss. This has cost it an estimated 48 billion reais ($21 billion) in the past three years alone—and makes Ms Foster possibly the only oil boss in the world praying for lower petrol prices.

All this has left Petrobras overstretched and underperforming. It is the least profitable of the world’s big oil firms, reckons Credit Suisse. Its market value has fallen by almost half, from 405 billion reais shortly after a public share issue in 2010 to 209 billion reais today (see chart).

Hopes that Ms Foster, a career engineer and chum of Ms Rousseff’s, would turn the company around have proved forlorn. Widely regarded as clever and honest, she has done plenty of things right since taking the helm two years ago. The recent scandals pertain to events that predate her tenure. She replaced a management team dominated by political appointees with abler experts and returned some resources to maintaining mature fields, whose output suffered as attention turned to the pré-sal. She has also trimmed costs.

But Ms Foster’srough and authoritarianmanner has alienated the ranks and stifled critical thinking, says a former executive who used to work with her. With little room for cost-cutting in the heavily unionised, 86,000-strong workforce, she has tightened the screw on suppliers. “She is killing the supply chain,” laments the boss of a struggling medium-sized firm. Even small contractual claims can now take up to a year to resolve. That not only chokes suppliers but undermines Petrobras’s own operations, which rely on their products. It also contradicts the government’s loud support for local industry, remarks this boss.

Ms Foster’s main failure, however, was that she did not convince Ms Rousseff to let domestic petrol prices rise, says Wagner Freire, an oil expert and a retired director of Petrobras. Investors at first gave the untested Ms Foster the benefit of the doubt because they believed she had the president’s ear. Last October she seemed close, announcing that a transparent new price formula would be put in place. But she had to backtrack after herself getting an earful from Ms Rousseff.

Still, João Castro Neves of Eurasia Group, a risk consultant, thinks that the situation has reached a critical juncture. Domestic petrol prices will have to go up, regardless of who wins the election, he says, “as a matter of necessity, if not conviction”. Congress is rumoured to be considering the easing of local-content and lead-operator requirements in the pré-sal. If this happens foreign oil companies are likely to pile in, boosting the domestic industry which will cater to them. Mr Castro Neves believes the auction last year for the right to tap the Libra pré-sal field, which raked in $15 billion from a consortium of European and Chinese firms, was the last big concession deal on the old, stingier terms.

Petrobras has a lot going for it. It boasts reserves equivalent to 17 billion barrels, not counting the potential pré-sal riches which could be the world’s biggest. Last year it managed to install nine platforms at sea, a remarkable achievement, says Cristian Silva of Gaia Partners, an oil-services firm. Its pré-sal wells now pump 400,000 b/d, up from 70,000 b/d two years ago. In finding oil and getting it out of the ground, Petrobras is the second-most-lucrative among the oil giants, according to Credit Suisse. Investors still harbour hopes that it can reach its goal of doubling production to 4.2m b/d by 2020 (the company expects a 7.5% rise this year). An $8 billion debt issue in March was three times oversubscribed. Despite the ratings stumble, Petrobras retains investment grade.

Petrobras is unlikely ever to be a normal company. But with less political meddling it could be profitably unusualperhaps even unusually profitable.

Putin 1 - Dimon 0: JPMorgan Unhalts Russian Money Transfer

by Tyler Durden

on 04/03/2014 11:17 -0400

Yesterday when we reported that a "Furious Russia Will Retaliate Over "Illegal And Absurd" Payment Block By "Hostile" JPMorgan", in which we explained that unlike previous responses to Russian sanctions by the West, which were largely taken as a joke by the Russian establishment, this time Russia is furious, we said that "we certainly can not be the only ones looking forward to the epic battle prospect that is Vlad "Shootin" Putin vs JP "Fail Whale" Morgan." Alas the title fight lasted for just about a day, and was won, with a technical knock out in the first round, by none other than the former KGB spy who can now add the whale which manipulates all markets to its trophy case which includes about 100 statues of a crushed and beaten John Kerry

Because after shocking the world with its unilateral decision to halt Russian money transfers without a direct order from the administration, Reuters reports that JPM has folded and will process said payment from Russia's embassy in Kazakhstan to insurance agency Sogaz, easing tension after Moscow accused the U.S. bank of illegally blocking the transaction under the pretext of sanctions.
In other words, Putin 1 - Jamie Dimon 0.

More from Reuters:

The confrontation threatened to further strain ties between Washington and Moscow, locked in the worst standoff since the Cold War over Russia's annexation of Ukraine's Crimea region.

"Following consultation with our regulators, we are processing this transaction," JPMorgan said in a statement.

Last month, Washington imposed sanctions, including visa bans and asset freezes, against several Russians close to President Vladimir Putin and against Rossiya Bank, which it said was the "personal bank" for the leader's inner circle.

The destination for the embassy payment was insurance agency Sogaz, which is 48.5 percent owned by Abros, a wholly-owned subsidiary of Bank Rossiya.

Industry consultants in Moscow say financial institutions are unclear about how to apply the new rules in some situations, such as when dealing with subsidiaries of companies which have either been sanctioned or which have shareholders that have been punished.

Several Western investors and their banks are facing quandaries over individual situations.

Guidelines on the U.S. Treasury department's website from the U.S. Office of Foreign Assets Control says that property which is more than 50 percent owned by a person on the sanctions blacklist is affected and advises acting "with caution" when ownership interests are less than 50 percent.

"It is up to private companies and lawyers to figure out who is subject to sanctions," said one Moscow-based lawyer. "Of course (a U.S. bank) is more scared of the American (authorities than the Russian ones)."

Needless to say, this is quite anticlimatic, as we were certainly looking forward to the discovery of JPM documents which would be released into the public domain following the imminent annexation of all JPM offices in Russia. Looks like we'll have to wait a little longer.

Meanwhile, if even Jamie Dimon.... 

....can't stand up to Putin.... who can?