From Volume 6, Issue 29 of EIR Online, Published July 17, 2007

World Economic News

OECD Warning: Biofuels Threaten World Food Supply

July 10 (EIRNS)—A combined IEA/OECD (International Energy Agency/Organization for Economic Co-operation and Development) report, warning of the dangers posed by the advance of biofuels for the supply of food, released on July 9, is widely covered internationally. The German daily Sueddeutsche Zeitung dedicates its July 10 lead editorial to the issue, under the headline, "Starving for Gasoline?" The article portrays the recent tortilla riots in Mexico as a "mene tekel" writing on the wall, indicating what kind of conflicts are to come, should larger areas of arable land be reassigned to production of crops for conversion to biofuels. The daily warns that biofuels are inefficient and directly compete with the world's food supply, particular that for export to countries hit by food shortages. Also China's National Development and Reform Commission on July 10 put out a warning on negative biofuel effects: It said that inflation could surpass 3% already in the first half of the year, which is the "warning" level set by the People's Bank of China. Inflation rose by 3.4% in May, the highest in two years. Food prices, and rising international grain prices due to biofuels, are the key problems, China's Xinhua reported on July 10.

Another Hedge Fund Down the Toilet

July 12 (EIRNS)—The Financial Times reported that Basis Capital, a hedge-fund manager based in Sydney, Australia, with $1 billion in structured credits and junk-rated loans, announced that it may restrict withdrawals by investors, after having lost 14% in one of its funds last month. The hedge fund sent a letter to investors, saying it had been hit by "indiscriminate" repricing of "otherwise fundamentally sound collateral," referring to the U.S. subprime market. The Times reports that more hedge funds are likely to limit redemptions, to prevent forced sales of illiquid assets at low prices, but that the true scale of the problem might not become clear until September. Since most funds allow quarterly withdrawals, many funds may not tell their investors until the end of the quarter, that they're imposing restrictions.

China, Russia Discuss Dangers of Overheated Economy

July 13 (EIRNS)—China and Russia are facing financial challenges due to high capital inflows, skyrocketing foreign exchange reserves, and resulting excess liquidity, all of which are pushing inflation upwards. These problems could trigger a crisis, Chinese Finance Minister Jin Renqing told his Russian counterpart Alexei Kudrin during their annual China-Russia finance ministers' dialogue, held in Moscow July 9-11, Interfax reported on July 13. This dialogue was initiated by Russian President Vladimir Putin when he visited China in March 2006.

Jin and Kudrin gave a press conference after their meetings on July 11, where Jin announced that, despite strong growth of close to 11% in the first half of this year, the Chinese economy could face a crisis, Interfax reported. The problems of excess investment, a huge trade surplus and excess money supply could trigger such an event, Jin said. The problems have emerged in China as a result of unbalanced world economic development. "It is impossible to solve [these problems] at the expense of our domestic reserves," Jin said.

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