Global Economic News
Governments Try To Build Reserves of Non-Existing Food
Jan. 28 (EIRNS)As the outlines of the hyperinflationary food crisis become clearer, governments around the world are attempting to ameliorate the damage, making larger-than-usual purchases of food, to build reserves.
Last week, Algeria bought 800,000 tons of wheatmuch more than usualand Saudi Arabia announced plans to double the size of its wheat stockpile, according to an account in the Financial Times.
Bangladesh and Indonesia joined the rush on Jan. 27, placing unusually large rice orders. Traders said that Jakarta, which usually buys rice in 200,000-ton allotments, tendered for more than 800,000 tons. Bangladesh said it would double rice purchases this year.
Indonesia also announced on Jan. 28 that it was suspending all import duties on wheat, soybeans, fertilizer, and other food-related items for the rest of the year, because of expected food price hikes. The government had previously scrapped import duties for rice products.
Spain, Spain, and More Pain
Jan. 25 (EIRNS)The looming collapse of the Spanish banking sector is the driving force behind more and more feverish calls for expanding the European Financial Stability Facility (EFSF) into a massive bailout fund to save the rapidly sinking Inter-Alpha banking system.
The IMF, in an update to its Global Financial Stability Report, called for the EFSF not only to be expanded, but to be given a "more flexible mandate." The Irish Times writes that the obvious reason for this, is the fear that the Fund could be wiped out, were a larger European economy to need rescuing. It doesn't mention Spain by name, but it is obvious what is being referred to. It also calls for the European Central Bank to continue pumping unlimited liquidity to the banks, and to keep active its Securities Markets Program for buying public and private debt securities.
The EFSF will raise its first EU5 billion in bonds today. It is already oversubscribed, because it is considered the best buy in town.
In Spain, Finance Minister Elena Salgado held a hastily organized press conference last night to announce the Zapatero government's plan to "eliminate any doubt about the solvency of our financial institutions," according to the Financial Times. Her plan is to demand that the banks increase their capital ratio to 8%, insisting that capital injection into the banks, including the thoroughly bankrupt cajas (savings banks), would in no way exceed EU20 billion, and that most of that would come from the private sector. The cajas would have until September to come up with private capital; those that failed could then turn to the government bailout fund, the FROB, but only if they had first converted into banks. Meanwhile, the FROB is, itself, planning to go to the marketsfor a piddling EU3 billion.
But the whole plan, including the timetable, was stillborn.
City of London ventriloquist's dummy Ambrose Evans-Pritchard drives the point home in today's Daily Telegraph, in an article headlined "Spain Tempts Fate with Minimalist Bank Rescue," stating that Salgado is wildly optimistic. He quotes the chief European economist of Inter-Alpha Group's bankrupt Royal Bank of Scotland (RBS), Silvio Peruzzo, saying: "This is unlikely to be a game-changer.... We view EU50 billion as the minimum recapitalization for the Spanish banking system." Pointing to the collapse of the housing bubble, he said that prices could fall by 40%. Unsold homes are estimated to number 1.2 million.
Peruzzo called on EU leaders to greatly expand the EFSF to "save Spain." RBS goes so far as to say that the EFSF should be allowed to buy Spanish and other Eurozone bonds preemptively, and even recapitalize banks. Unless EU policies become more "forceful," Spain "will remain exposed to contagion."