World Economic News
Ford Closes Production at Hermosillo Plant
The Ford Motor Company temporarily shut down production at its assembly plant in Hermosillo, Mexico, because parts supplier Collins Aikman halted deliveries Oct. 13, in a dispute over Ford's refusal to cover the rising costs of plastics in parts made by CÁ, the Wall Street Journal reported. Ford said it will sign no new contracts with the supplier.
Financiers Expand Global Infrastructure Privatization
On Oct. 11, the AIG Insurance Group, long associated with pirate Maurice "Hank" Greenberg, took over London's City Airport for $1.4 billion. Thus far this year, the value of infrastructure acquisition/take-over deals has reached a record $145 billion, nearly three times the level of $54 billion for all of 2000, the Financial Times reported Oct. 13. This year has witnessed five infrastructure privatizations of greater than $10 billion, led by Spain's Ferroval's $30.2 billion takeover of Britain's BAA (which operates Britain's airports) on Feb. 6; Spain's Abertis Infrastructuras' $28.4 billion takeover of Italy's Autostrade (which operates highways, and inspects and repairs motor vehicles) on April 23; and a U.S. private equity consortium's $27.5 billion takeover of Kinder Morgan (natural gas transmission) on May 29.
Fitch, Standard Poors Downgrade Italian Debt
The Fitch rating moved from AA to AA-, while the SÐ rating moved from AA- to A+. Both "oracles" motivated their decision with Prime Minister Romano Prodi's "difficulty in reducing primary surplus to 3.5% of GNP in the short of medium term." The primary surplus is the budget surplus once debt service is not considered.
One year ago, the European Central Bank announced that it would no longer discount sovereign debt under an A- rating; this is two steps below the current SÐ rating of Italy.
Italian Central Banker: Hands Off My 'Independent' Bank
Mario Draghi, governor of the Bank of Italy, warned the government not to take back political control over the central bank, as threatened by the reform bill passed in the previous legislature, which mandates the government to buy back a majority stake from private banks. "Property must have no interference in the institutional functions" of the central bank, Draghi said in a testimony before the Joint Senate and House Finance Committee on Sept. 26. "A plurality of shareholders is therefore important in relation to this principle," added Draghi, who before being appointed governor was head of Goldman Sachs Europe.
In a related move, the chairman of the Italian Banking Association (ABI), Corrado Faissola, warned the government Oct. 3: "There should be no seizure" of assets, and if the government wants really to buy back shares, shareholders should be "adequately paid. According to ABI, the government should pay something between 10 and 21 billion euroswhich of course the government does not have. The former government had instead estimated a figure of 800 million euros. Faissola, like Draghi, opposes the reform bill on a crucial issue: that private banks' ownership of the central bank jeopardizes the latter's independence. The current situation, Faissola said, "has never generated problems concerning independence" of the Bank of Italy.