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06 октября, 21:09

Ricardo Hausmann on the Venezuelan Tragedy, by David Henderson

The Financial Times has an excellent interview with economist Ricardo Hausmann on the Chavez and Maduro-created tragedy that is Venezuela. HT2 Timothy Taylor, aka, the Conversable Economist. The whole thing is worth reading. With help from a good interviewer, Cardiff Garcia, Hausmann, an economics professor at Harvard's Kennedy School, gives a good narrative about the changes in economic policy that took Venezuela from being one of the economic jewels of South America to being arguably, if the numbers are adjusted for reality, one of the poorest countries in South America. Short summary of economic policy: price controls, profligate government spending, and expropriations with the attendant disrespect for property rights. Short summary of political strategy: Chavez overthrows Venezuela's constraints on presidential power and he and his successor jail political opponents and critics. Now some highlights. The trouble started way before Chavez So it was a magnet. It was wealthy, prosperous. It used massively its resources to invest in infrastructure. When democracy came along it prioritised education, health, public housing. And it was a fairly prosperous place. University education was free. Not only primary and secondary but university education was free. There was very cheap access to electricity, water and so on. So it was a fairly prosperous place. When in 1973, 74 the price of oil went up, then the country had these grandiose plans. Very much State centric at the time. State owned enterprises in steel, aluminium, ship-building and all sorts of other things that ended up in very bad failures, and the 1980s was a very, very difficult period in Venezuela. Chavez's consolidation of power Well, in the first couple of years he was focused on changing the constitution in order to create a much more powerful Presidency, with a much longer period and with a possibility of re-election, with a single chamber in the legislative branch instead of two, so as to make it more pliant. And with the ability to scrap all the judicial system and start from scratch. So he concentrated his first couple of years in consolidating political power. He did not change the economics much. He left the same Finance Minister that [previous President Rafael] Caldera had, Maritza Izaguirre, and there was no discernible change in policies. Then in the year 2000, with the new constitution, he got re-elected and there he started to move a little bit more on the economic front, and in one day he asked the more-pliant-now National Assembly to grant him the power to pass laws through Presidential Decree. And on one day he passed 48 laws through a Decree. No-one had read the laws. Nobody had discussed the laws. That led to a massive protest movement, and that massive protest movement ended up unseating him for something like 48 hours, and then his popularity had actually collapsed and things were not looking well for him. Government spending on "social" programs and their intellectual origin And there he [Chavez] started to use oil money to massively expand social programmes. These social programmes were mostly designed by Cuba, in Cuba, with significant Cuban advice. And he started to spend a lot of the increasing oil money in that. Price controls, exchange controls, and import controls--and Chavez's motive So they used exchange controls, price controls, import controls as a way of keeping control on the private sector -- as a way of making the private sector pliant and dependent on bureaucratic decisions of the State. And there I think Sebastian Edwards' model of saying: Okay, what we are going to do now is we are going to expand spending, this is not going to generate inflation because we're going to have price controls, and this is not going to generate a balance of payments crisis because we have import controls... But that, mixed with the fact that they could borrow internationally, and they borrowed internationally in massive amounts. In incredibly massive amounts. The collapse of the oil industry that reads like a precis of a chapter in Atlas Shrugged Let me just give you a sense of the magnitude of the mismanagement of the oil industry. In 1998, the year before Chávez got elected, or the year in which in December of that year Chávez got elected and he took power in February 1999. In 1998, Venezuela produced 3.7 million barrels of oil [per day]. Today it's producing about two. If Venezuela had maintained its market share in the world oil industry -- which it could have because it had infinite reserves, it had the largest reserves in the world -- it would be producing two million barrels more than it is currently producing. With the same market share. So the collapse is immense relative to history, and it's immense relative to this opportunity cost of where it should have gone had it just kept its market share the way it was. That collapse of the oil industry happened in two steps. First, all the know-how of that industry, centuries of man-years of experience was lost in the firing of these people. They were not only fired but persecuted, so most of them left the country. Many of them left the country. And they caused, for example, an oil boom in Colombia [where many of them moved to]. Colombia went from producing 200,000 barrels of oil [per day] to a million barrels of oil thanks to the fact that Venezuelans knew how to extract much more oil from the fields that Colombia was already exploiting. So there was a massive loss of human capital. They also wanted to create a politically conscious oil company, so they started to put an enormous amount of social programmes and other things on the books of PDVSA, the oil company. And as a consequence they starved the company from investment and they ran the company in an amazingly corrupt way, and this is really not just talk about corruption but evidence of corruption in massive ways. There were these foreign oil companies... These foreign oil companies have been complaining to the government that they want to wrest control of the procurement of oil projects because they know that this procurement is being done at multiples of what things should cost. There's people that have been found in the US owning hundreds of millions of Dollars of money that has been laundered out of PDVSA and so on. Chavez's wave of nationalizations Exchange controls and price controls were put in 2004. Chávez won re-election in 2006. And in early 2007 he announced that he was now going to move towards socialism, and he started with a spree of nationalisations. In those days the price of oil was very high, so he could afford to just buy everything that moved or that he fancied. So for example he nationalised the telephone company that was owned by Verizon. He nationalised the three cement companies that were owned by the Mexicans, Cemex, Holcim and Lafarge. He nationalised one of the largest banks, which was owned at the time by Banco Santander. He nationalised the supermarket chain. He nationalised 3.7 million hectares of land. So he went on an expropriation spree. At the beginning, when he had money, he would pay for things, and then if these were things owned by people he didn't like, he would just expropriate and not pay for them. So he changed the contracts of the oil companies in a way that essentially extracted part of the expected cash flows out of them, and many of them accepted but a few of them, Exxon, Conoco Phillips and so on sued. And these suits are now being adjudicated by the International Court for the Settlement of Investment Disputes, and these investment disputes in Washington now add up to $16 billion of claims. Of expropriations that he didn't pay for. And these are only the foreigners. He expropriated the service companies that provided services to the oil company, because they started to protest that they were not being paid so instead of paying he just expropriated them. Another chapter out of Atlas Shrugged So he took over significant chunks of the Venezuelan economy, and the typical thing is that the moment they took over a company, they ran it to the ground. Production collapsed. They nationalised the steel company. The steel company at the time of nationalisation was producing 4.5 million tons of steel with 5,000 workers. It now has 22,000 workers but it's producing something like 200,000 tons of steel. So they ran those companies to the ground. Aluminium is almost not done any more, when Venezuela was producing about a million tons of aluminium back when... So essentially they expropriated the economy and collapsed it on the public sector. And in the private sector they created all these constraints and this enormous uncertainty over property rights because everybody else was being expropriated and you never knew when it would be your turn. Owens-Illinois was a company making bottles. They were expropriated. Why bottles? Another company making detergents was expropriated. Why detergents? So everybody else would not know when would his turn come up. The effect of the Venezuelan government's interventions on living standards So as a consequence, incomes per capita have collapsed to a degree that it is hard to transmit and understand, and that collapse in private incomes is accompanied by a collapse in public services like healthcare for example. They are just beyond belief. People have been writing pieces that I'm sure are going to win a Pulitzer Prize, because it's just astonishing how life expectancy rates, how the prevalence of diseases that had been eradicated... Venezuela was the first country to eradicate malaria back in 1961. Even before the US did. And malaria is back big time. Measles is back big time. There are no drugs for HIV. There are no drugs for hypertension. There are no machines to do dialysis. There are no cancer drugs. So there's been an incredible collapse in health standards. And as you know, Caracas is the highest murder city of the world. It beats Central American countries which come second and third as the most violent city in the world. So that is what's happened to the collapse in living standards. The awful role of lenders, including Goldman Sachs So you think of capital markets as being angels for good in the world. But when capital markets have to deal with a government that is willing to compromise future cash flows for any cash up front, and it's not using the resources to create any good things for the future, then you're giving money to an authoritarian regime to mismanage in the short run and you are condemning the future of the country with obligations that they will not be able to afford to pay. So that's why I call them hunger bonds. A very clear example that prompted this was Goldman Sachs lending the government $850 million at an interest rate of 50%. No-one has a project that pays 50%. So the government has $850 million now, then they have to pay an amount going forward that they will not have the resources to pay it with. Because they're not using the money in any investment programme that will be able to pay for that debt. That debt is just to prop up the current regime, and in my mind that makes that debt odious. It's a debt of the regime, it's not a debt that should bind the people of a country, because the regime does not represent the people and the regime cannot commit the future of the country. The people's future. Trump's sanctions, surprise, surprise, haven't made things better Cardiff Garcia: Any potential restructuring now is further complicated by the US sanctions enacted since that initial interview was taped. The sanctions which have made it very hard, maybe impossible, for US investors to enter into any new exchange of bonds that would happen as part of a restructuring. The government's attacks on Hausmann and a close relative Then obviously the government has attacked me for writing op-eds, or they accuse me of these fancy conspiracy theories of all kinds. But the truth is they haven't been able to grab me but they have been able to put my brother-in-law in jail for being a journalist. So that in itself was also a very traumatic experience for the whole family. So I would say this repression, this oppression, this destruction of dreams has been a very disrupting element of my life these last few years. . . . No, he's under house arrest. After spending seven months in very, very inhumane conditions. My one little criticism is that it would have been nice for Cardiff to draw Hausmann out on something that virtually every economist knows, but some readers do not: there is no mystery in why shelves in supermarkets are empty: price controls cause shortages and extreme price controls cause extreme shortages. (11 COMMENTS)

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27 апреля, 17:46

A giant cement firm may have unwittingly funded Islamic State

KEEPING cool in the heat of war is not easy. That might help explain why LafargeHolcim, a French-Swiss cement-maker, blundered so badly while running operations in Syria as fighting raged. On April 24th the firm said that its chief executive, Eric Olsen, will go, a casualty of a growing scandal over its activities in the country. The board of the world’s biggest cement producer stated only last month that Mr Olsen was not responsible for, nor aware of, wrongdoing by the firm in Syria. But public pressure has been increasing, notably after Jean-Luc Mélenchon, a left-wing candidate in France’s presidential election, attacked the firm and its “damned cement” in a television debate on April 4th. François Fillon, a pro-business rival, agreed the firm should be punished if allegations against it proved to be true. At issue is the activity of Lafarge before the firm’s merger with its Swiss rival, Holcim, in 2015. In 2010 Lafarge had built a cement factory of 240 workers for $680m near Kobane, a north Syrian town. Operations there continued until 2014, long after the violence began in 2011. The firm evacuated foreigners in 2012; local workers fled in September...

24 апреля, 17:39

Крупнейший производитель цемента в мире лишился руководителя из-за выплат сирийским боевикам

LafargeHolcim признала, что в 2013 году были приняты «неприемлемые» меры для продолжения работы завода в Джалабии

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24 апреля, 16:47

Head of Holcim Steps Down Due to Reports that Company Funded Terror Groups in Syria

About a year ago, a French foreign minister tipped off authorities about Swiss-French cement giant, Holcim-Lafarge, in regards to their activities in Syria. It was alleged, and then proven, that managers in their Syrian plant were 'paying off' terror groups in order to stay in business, continuing to supply groups in Syria with the much needed concrete that was being used to rebuild after the destruction of war demanded it. Human rights groups, led by Sherpa and 11 former employees of Lafarge in Syria, filed suit to hold the world's largest producer of concrete accountable. “It appears from the investigation that the local company provided funds to third parties to work out arrangements with a number of these armed groups, including sanctioned parties, in order to maintain operations and ensure safe passage of employees and supplies to and from the plant. In hindsight, the measures required to continue operations at the plant were unacceptable...the investigation revealed significant errors of judgment that are inconsistent with the applicable code of conduct.” The CEO of Holcim, Eric Olsen, announced he'd be stepping down today, not because he did anything wrong, but to bring 'serenity' to the wholesome Swiss-French company. In a statement, Mr. Olsen said he was "driven by my conviction that it will contribute to addressing strong tensions that have recently arisen around the Syria case". "While I was absolutely not involved in, nor even aware of, any wrongdoing I believe my departure will contribute to bringing back serenity to a company that has been exposed for months on this case," he added. The Syrian factory in question was started in 2010, costing $680m. It stopped operating in 2014, after work in the region became untenable, due to the war. In Holcim's internal report on the matter, they said "very simply, chaos reigned and it was the task of local management to ensure that the intermediaries did whatever was necessary to secure its supply chain and the free movement of its employees." Holcim's stock peaked in June of 2014 at 78.9 chf, right around the time they closed down the Syrian plant. Shares are now trading in the mid 50s. Content originally published at iBankCoin.com

17 апреля, 14:00

The 3 Stages of a Country Embracing Renewable Energy

The world is undergoing a transformation in how it gets its power. In Germany, we have a word for it: Energiewende. It means energy turning point. (We use the same word Wende to describe the fall of the Berlin Wall and all the dramatic changes that came with it.) In this transformation, we are witnessing the decarbonization of power consumption, thanks to the large-scale deployment of renewable energy sources such as wind and solar. Earlier this year, the European Union announced that its climate and renewable energy targets—a 20% cut in greenhouse gas emissions, 20% of EU energy from renewable sources, and a 20% improvement in energy efficiency—are actually on track to realization by the year 2020. At the same time, we’re also seeing the decentralization of power production. For example, in Germany, more than 1.5 million households supply their own electricity, either for self-consumption or directly to the central grid. In 2015, around 40% of new PV installations were accompanied by a battery. In the nation’s rural areas, more than 180 bioenergy villages have taken responsibility for their own electricity generation. Similarly, in cities, energy and housing associations are installing PV panels on multi-unit buildings, and the German ministry of economics and energy estimates around 3.8 million apartments could be supplied with PV panels placed on their rooftops. Industry players have realized the marketing and cost-saving potential, too: automaker BMW powers the plant where it manufactures the i3 and i8 electric vehicles with a 10 MW wind park, and discount retailer Aldi Süd has installed photovoltaic panels on 1,000 supermarkets. In 2016,renewable, intermittent energy sources contributed more than 30% to gross electricity generation. Besides the environmental benefits, there are huge implications for the manufacturing sector and for national competitiveness. Countries that manage to transition effectively to low-carbon generation technologies will be home to competitive energy solutions and manufacturing firms that are more resilient to energy shocks and weather disruptions. That’s why so many countries are moving ahead with ambitious plans in this sector. In 2016, China installed 34 gigawatts (GW) of PV-panel-driven renewable power capacity. In January, the country’s energy agency announced that it will invest $361 billion to shift from smog-generating coal power to renewables. India plans to install 100 GW by 2022, up from 4.9 GW of new installations in 2016. The United Arab Emirates is investing $163 billion in renewable energy projects, with a target of meeting nearly half of its power needs with renewables by 2050. Morocco aims to do so by 2030. In two chief regions in Australia, rooftop PV penetration has already reached 30 percent. Around the world in 2015, additions of renewable power capacity outpaced other forms of electricity generation—coal, gas, oil, and nuclear—combined. While regulatory policy, implementation, and rollout may differ from country to country, decentralization typically encompasses three phases. Each brings its own challenges. Countries in the first phase, which we call “Energiewende 1.0,” focus on promoting renewable energies, such as solar, wind, biomass, or geothermal energy. Regulatory incentives include instruments like requiring utilities to source a small portion of their generation from renewable sources. Countries with a strong manufacturing base, such as China or Germany, may have a secondary objective: establishing a domestic manufacturing base for the respective renewable technology. During this first phase of development, the total contribution of renewable power generation hovers below critical thresholds. The electricity infrastructure can cope with the additional, intermittent strain on the distribution network. Supply and demand remain largely unaffected. Some countries such as Denmark and Germany have already entered the second phase, “Energiewende 2.0,” which is characterized by a large share of intermittent, weather-dependent power sources. In Germany, we have a word for the cloudiest days when the wind is not blowing very hard: Dunkelflaute. It means “dark doldrums.” Dealing with days like these — when both wind and solar power generation is very low – must be part of the equation as regulators and industry introduce more renewable power into a system originally designed for more flexible electric power generators such as gas-fired plants. During this second phase, grid operators frequently have to intervene to keep the electricity grid in balance. For example, interventions in Germany’s largest transmission grid operated by private company TenneT increased from fewer than 10 interventions per year in 2003 to almost 1,400 interventions in 2015. In the third phase, which is yet to come for any country, we predict that the electricity supply industry will be forced to leave its roots as a public infrastructure service and become truly private businesses, with customized solutions for each producer and consumer. This seems like the natural end-game for the broader decentralization patterns we’re observing. Thus markets entering “Energiewende 3.0” will have to answer two major questions. Who will bear the costs of expensive high-voltage transmission infrastructure if most supply is organized on a local or individual level? And how can governments steer the transition from a public to a private infrastructure, in particular the co-existence of both a central network and decentralized solutions? Many governments still hesitate to foster the transition to decentralized power generation structures. It’s not easy, as the financial turmoil of major European power companies demonstrates. But electric utilities have been learning to adapt to these new realities of decentralized supply. They’re beginning to offer bundled services and package solutions instead of simply selling electrons by the kilowatt hour. We believe it is only a matter of time until flat rates for electricity become the standard. Private-sector solutions are stepping up to meet market needs, too. So-called aggregators are now bundling the energy input of individual households to sell on wholesale markets. And demand-response providers identify companies that can temporarily switch off part of their electricity consumption—increasing the elasticity of demand to keep the grid balanced. ReSTORE, the European market leader in demand response, has already attracted more than 125 large industrial and commercial consumers, including heavyweights such as petrochemical company Total, steel producer ArcelorMittal,  and cement manufacturer Holcim. Compensation paid to these manufacturers can amount to more than 100,000 euros per year per megawatt of avoided energy consumption. Countries in the developing world that have historically struggled to electrify their rural areas may be able to jump ahead to the third phase more quickly. In these markets, entrepreneurs recognize opportunities in the absence of public sector solutions. For example, Bangladeshi startup SOLshare establishes peer-to-peer microgrids that deliver solar power to households and businesses. That enables people to become solar entrepreneurs, because they can trade excess electricity for profit. Whether via community initiative, entrepreneurial disruption, or traditional supplier adaptation, the global energy transformation is underway. Inevitably, it will affect national and industry competitiveness. Manufacturers and businesses have a large stake in managing this transition effectively, whether they’re driving the changes—or simply benefitting from the flexible, decentralized system.

26 марта, 14:35

Мировой лидер по производству стройматериалов Lafarge-Holcim и терроризм, Тьерри Мейсан

Мы начинаем публикацию серии статей по вопросам из недавно вышедшей книги Тьерри Мейсана «От 11 сентября до Дональда Трампа». Жан-Люк Меланшон во время предвыборных дебатов упомянул компанию Lafarge-Holcim, поэтому мы начнём с рассказа о том, чем на самом деле занималась эта компания в Сирии.

25 марта, 09:49

Мировой лидер по производству стройматериалов Lafarge-Holcim и терроризм

Lafarge является мировым лидером по производству цемента. По заказу НАТО в Сирии компания обеспечивает строительство бункеров для джихадистов, а в Ираке осуществляет восстановительные работы на суннитской территории. В ответ Lafarge передаёт Альянсу управление своими предприятиями, расположенными на территории этих стран.