From Volume 38, Issue 35 of EIR Online, Published September 9, 2011

Global Economic News

South Korea, Argentina Stand Up to Foreign Rating Agencies

Aug. 29 (EIRNS)—The governments of South Korea and Argentina are showing some backbone in standing up to the foreign ratings agencies that act on behalf of Wall Street and the City of London.

South Korean regulators will investigate Korea Investors Service, a local unit of Moody's, over its fairness in assessing enterprises in the country. The Financial Supervisory Service (FSS), which has been making a preliminary inquiry into Korea Investors Service, plans to dispatch inspectors to the Seoul office of the credit-rating firm in early September.

Moody's, which conducted its on-the-spot assessment of Korea in May, is expected to announce its sovereign debt rating of South Korea in the coming weeks.

In Argentina, Amado Boudou, finance minister and a candidate for Vice President, told the annual conference of the Economic Association for Argentine Development (AEDA) today that foreign rating agencies had contributed to the current global financial crisis, because their ratings caused countries to make "bad decisions."

Last week, Moody's downgraded Argentine bank shares from "stable" to "negative," alleging that the "expansionist" and "interventionist" policies that President Cristina Fernandez de Kirchner might make over the next 12 to 18 months, threatened the solvency of the local banking system. Boudou charged that "it's clear that [the agencies] were not good institutions in terms of decision-making, and became a very big problem in the recent crisis." In fact, he asserted, the ratings agencies have in effect been making economic policy instead of sovereign governments.

This month, South Korean regulators carried out an on-the-spot probe into Korea Ratings, whose majority shareholder is Fitch Ratings, and has been inspecting NICE Investors Service. An FSS official said these agencies' "credibility" comes under a spotlight as several large enterprises, including LIG Engineering & Construction and Korea Line Corp., had faced a liquidity crisis following several rating firms' positive assessments. In June, the prosecution raided the office of the local company, Seoul Credit Rating & Information, suspected of engaging in misdeeds in connection with the scandal-ridden savings banking industry, which has seen several failures.

New Thai Government Moves To Implement 'Mini'-NAWAPA

Aug. 30 (EIRNS)—Just a week ago, the newly installed Pheu Thai government of Yingluck Shinawatra, sister of deposed Thaksin Shinawatra, began outlining government policy in Parliament, the first official act of her government under the Thai constitution.

Aug. 30, she announced a $3.3 billion policy to funnel water from the central region to the less fertile Northeast, as part of a large-scale national water-management scheme. She also announced a $10 billion plan for rubber plantations in the Northeast.

The "Development Plans for 20 Basins" scheme aims at developing 25 million acres of irrigated land throughout the country to its full potential. It was accepted in principle by the Surayud Chulanont government and will be approved by the Cabinet in the near future.

At a briefing recently at the Royal Irrigation Department, which will implement the scheme, Yingluck said it "corresponded well" with her Pheu Thai party plans to develop river basins in Isaan area, along with two policies aimed at benefiting people in the Northeast, who are strong supporters of the party. Only 28 million of the 25 million acres, or 9%, of land in farming and residential areas is sufficiently irrigated with regular amounts of water from dams, reservoirs, and irrigation gates. Once the scheme is implemented, there will be another 13.5 million acres of irrigated land.

The entire scheme, which should cost around $60 billion over the four-year period of the 11th NESD Plan, which begins next year, will make another 13.6 million acres of land available adjacent to that available during the seasonal peak.

Yingluck, upon taking office, immediately visited the area hit by three rounds of flooding this year, and started "kicking ass" to insure that promised aid actually got to the intended recipients. On her return from inspecting floods in Udon Thani's Muang district, Yingluck said additional measures must be taken to tackle flooding. An example was the expansion of sluice gates in Udon Thani to drain water faster from the Muang district into the Mekong River.

Goldman Sachs, the Serial Killer

Sept. 2 (EIRNS)—On the same day as it was announced that Goldman Sachs had been sued by the Federal Housing Finance Agency for violating the law in its sale of mortgage securities, the contents of a Goldman Sachs "Strategy Note" was revealed in a major Italian daily. The document showed that Goldman Sachs is currently playing exactly the same fraudulent scheme of betting against an asset, while selling it to its customers, that it did in the run-up to 2008.

Goldman issued the 54-page "Strategy Note" from its trading desk to favored clients on Aug. 16, saying that Eurozone banks need at least $1 trillion in recapitalization (which would be half of their capital). In it, Goldman advises customers to go short on the euro with six-month bets against the Swiss franc, and to buy credit default swaps on an index of European banks. It also published figures for 77 banks, exposing which ones are shakier than the others.

Meanwhile, Goldman Sachs "has been among the promoters of an event in London these days, dedicated to saving Europe: a meeting between investors and credibility-seeking Spanish authorities," writes analyst Marco Valsania in the Italian financial paper Il Sole 24 Ore, adding: "The U.S. bank is also among the large helpers for selling Madrid bonds," and noting that "this is the same practice followed by Goldman in 2008, when the bank bet against subprime mortgages while at the same time selling them to customers."

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