November 15, 2024

Investors See Another Putin Presidency as Good for Business

The conclusions, expressed in articles and research notes published recently, appear to reinforce an axiom here that it rarely pays to bet against Mr. Putin on the Russian market.

Since Mr. Putin, the current prime minister, announced that he would pursue a third presidential term, analysts studying Russia through the lens of profits and risks have been writing that the only plausible alternative — that Mr. Putin remain prime minister, with a weaker aide or ally in the constitutionally stronger post of president — would produce political instability, which would be bad for business.

According to this analysis, the reunification of power in the Russian president in both title and practice — even one, like Mr. Putin, who has a track record of abrogating contracts — creates a more predictable long-term outlook for companies like Exxon Mobil, which has just agreed to a major oil exploration deal in the Russian Arctic.

This investment argument in favor of more stable, less pluralistic politics in Russia seems also to reflect the reality that rapid economic development has been achieved in a number of post-Communist countries that never transitioned to democracy, like China.

“Politically, Putin’s decision to return will reinstall a leader with the power to implement decisions and end an increasingly dysfunctional diarchy — if at the cost of hardening Russia’s ‘soft authoritarian’ image,” noted Cliff Kupchan, a senior analyst at the Eurasia Foundation.

“Many observers have emphasized that Putin’s rule may extend longer than Brezhnev’s, and almost as long as Stalin’s,” he wrote in a research report, referring to Leonid I. Brezhnev, who ran the former Soviet Union for 18 years until his death in 1982, and Joseph Stalin, who ruled for 25 years until 1953.

“Predictability will at least in the short-term reassure investors and improve market sentiment,” Mr. Kupchan wrote.

Russia’s main stock index, the Micex, rose 2.5 percent Tuesday, the second day of gains after Mr. Putin’s announcement.

“With less political uncertainty, the authorities may hope that capital flight eases and that some may return capital in coming months to take advantage of cheaper asset prices,” Charles Robertson, chief economist at Renaissance, wrote in a note for investors.

Kingsmill Bond, an investment strategist with Citigroup in Moscow, published a research note over the weekend, “Return of the Master,” that suggested investors would be “pleased that the political uncertainty is over,” though noting that “there is little sign that Putin will adopt the radical change that some had hoped for.” In the short term, Europe’s debt crisis and oil prices will guide the market here more than domestic politics, he said.

Not all economists share the view that less change is better. Laza Kekic, a former Soviet specialist at the Economist Intelligence Unit, said Mr. Putin’s decision to run again for president was “a retrograde, and indeed farcical step, that is incompatible with economic and political progress in Russia” and that after this decision, the country was on the way to becoming a “third-world petrokleptocracy.”

Clouding the picture somewhat of an authoritarian government able to impose its economic will, Russia’s long-serving finance minister, Aleksei L. Kudrin, resigned Monday after Mr. Putin’s announcement. Mr. Kudrin had become the symbol of Russia’s fiscal responsibility.

Mikhail D. Prokhorov, a billionaire who was ousted this month as head of a right-wing political party, wrote in a blog that other economic liberals might follow Mr. Kudrin’s example and resign.

“I think we are on the verge of very important, perhaps tectonic, shifts in the consciousness of the elites, including the power elites,” Mr. Prokhorov wrote.

Other analysts note that companies and investors will now be able to price in political risks whose contours are not likely to change much, as Mr. Putin is poised to remain in power until 2024.

“Western businesses work wonderfully with dictators,” said Mikhail G. Delyagin, an economist and director of the Institute of Globalization Problems, a research concern. “For them, it is hardly a matter of principle.”

Article source: http://feeds.nytimes.com/click.phdo?i=5753403f04915c2e6150921bab2dc040

Ecuador Votes on Bid to Give More Control to President

Campaigning ahead of the vote further polarized the Andean country, which went through a decade of political instability before Mr. Correa was elected in 2006, emerging as the country’s strongest leader in decades while drawing criticism for his consolidation of power. Mr. Correa, a left-leaning economist, pushed for the referendum after he survived a chaotic police rebellion in Quito in September and his approval ratings climbed. He and his supporters described the revolt as a coup attempt.

That rebellion, during which Mr. Correa opened his shirt and dared police officers to kill him, accentuated tensions between the president and his critics, including some in the news media.

Mr. Correa has long had a tense relationship with Ecuador’s news media over criticism of his policies, which have aligned the country with leftist allies like Venezuela and overhauled its political institutions.

Included in the 10 measures of the referendum is a controversial proposal to create a state body to regulate media content.

The president’s critics say other measures are intended to weaken Ecuador’s judiciary. They would allow citizens to be detained longer without charges being filed against them; the appointment of judges by a commission influenced by Correa supporters; and the creation of a so-called Transitional Judiciary Council, expected to be dominated by the president’s supporters, to speed certain judicial reforms.

“Correa is holding this referendum with the purpose of consolidating the powers of the executive branch,” said Fabián Corral, dean of the law department at San Francisco University in Quito. “Judicial reform is necessary, but dependence of judges upon the executive branch is not going to help.”

Some voters in Ecuador, however, said they were voting out of their admiration for Mr. Correa, an ally of Venezuela’s president, Hugo Chávez. Mr. Correa’s support is based at least in part on a nationalist focus that chafes at foreign interference.

Last month, Mr. Correa, 48, expelled the American ambassador, Heather M. Hodges, over comments made public in a diplomatic cable released by WikiLeaks, in which she referred to high-level police corruption in Ecuador and possible knowledge of it by Mr. Correa.

“Correa is a great fighter,” said Oswaldo Pazmiño, 64, a Quito resident who campaigned in favor of the proposed measures. “Nobody can stop him; he is the reincarnation of Eloy Alfaro,” he said, referring to an Ecuadorean leader in the early 20th century who is associated with antiestablishment rebellion.

Official results were not expected to be available on Saturday.

Media rights groups in Ecuador and abroad expressed concern over some ballot measures.

One would prohibit owners of media companies from having financial interests in other industries, presumably to prevent the formation of media conglomerates.

A measure similar to the media regulation efforts in Venezuela and Bolivia would create an oversight panel that would hold “communicators or broadcasters responsible” for messages considered violent, sexually explicit or discriminatory.

Mr. Correa has already clashed with some Ecuadorean journalists. He filed a lawsuit this year against El Universo, Ecuador’s top opposition newspaper, seeking criminal libel penalties of three years in prison each against an editorial writer at the newspaper and three members of its board of directors.

The lawsuit, which seeks as much as $80 million in fines from the individual defendants and El Universo’s parent company, was filed in response to a column that contended Mr. Correa ordered security forces to open “discretionary fire” at a hospital during the police revolt. Several people were killed as the rebellion unfolded and was put down.

Joel Simon, executive director of the Committee to Protect Journalists in New York, wrote a letter to Mr. Correa in April criticizing the bid to regulate media content. The oversight panel, Mr. Simon said, “would open the door to government censorship.”

Simon Romero reported from Caracas, and Irene Caselli from Quito, Ecuador.

Article source: http://www.nytimes.com/2011/05/08/world/americas/08ecuador.html?partner=rss&emc=rss

Rush to Use Crops as Fuel Raises Food Prices and Hunger Fears

But last year, 98 percent of cassava chips exported from Thailand, the world’s largest cassava exporter, went to just one place and almost all for one purpose: to China to make biofuel. Driven by new demand, Thai exports of cassava chips have increased nearly fourfold since 2008, and the price of cassava has roughly doubled.

Each year, an ever larger portion of the world’s crops — cassava and corn, sugar and palm oil — is being diverted for biofuels as developed countries pass laws mandating greater use of nonfossil fuels and as emerging powerhouses like China seek new sources of energy to keep their cars and industries running. Cassava is a relatively new entrant in the biofuel stream.

But with food prices rising sharply in recent months, many experts are calling on countries to scale back their headlong rush into green fuel development, arguing that the combination of ambitious biofuel targets and mediocre harvests of some crucial crops is contributing to high prices, hunger and political instability.

This year, the United Nations Food and Agriculture Organization reported that its index of food prices was the highest in its more than 20 years of existence. Prices rose 15 percent from October to January alone, potentially “throwing an additional 44 million people in low- and middle-income countries into poverty,” the World Bank said.

Soaring food prices have caused riots or contributed to political turmoil in a host of poor countries in recent months, including Algeria, Egypt and Bangladesh, where palm oil, a common biofuel ingredient, provides crucial nutrition to a desperately poor populace. During the second half of 2010, the price of corn rose steeply — 73 percent in the United States — an increase that the United Nations World Food Program attributed in part to the greater use of American corn for bioethanol.

“The fact that cassava is being used for biofuel in China, rapeseed is being used in Europe, and sugar cane elsewhere is definitely creating a shift in demand curves,” said Timothy D. Searchinger, a research scholar at Princeton University who studies the topic. “Biofuels are contributing to higher prices and tighter markets.”

In the United States, Congress has mandated that biofuel use must reach 36 billion gallons annually by 2022. The European Union stipulates that 10 percent of transportation fuel must come from renewable sources like biofuel or wind power by 2020. Countries like China, India, Indonesia and Thailand have adopted biofuel targets as well.

To be sure, many factors help drive up the price of food, including bad weather that ruins crop yields and high oil prices that make transportation costly. Last year, for example, unusually severe weather destroyed wheat harvests in Russia, Australia and China, and an infestation of the mealy bug reduced Thailand’s cassava output.

Olivier Dubois, a bioenergy expert at the Food and Agriculture Organization in Rome, said it was hard to quantify the extent to which the diversions for biofuels had driven up food prices.

“The problem is complex, so it is hard to come up with sweeping statements like biofuels are good or bad,” he said. “But what is certain is that biofuels are playing a role. Is it 20 or 30 or 40 percent? That depends on your modeling.”

While no one is suggesting that countries abandon biofuels, Mr. Dubois and other food experts suggest that they should revise their policies so that rigid fuel mandates can be suspended when food stocks get low or prices become too high.

“The policy really has to be food first,” said Hans Timmer, director of the Development Prospects Group of the World Bank. “The problems occur when you set targets for biofuels irrespective of the prices of other commodities.”

Mr. Timmer said that the recent rise in oil prices was likely to increase the demand for biofuels.

It can be tricky predicting how new demand from the biofuel sector will affect the supply and price of food. Sometimes, as with corn or cassava, direct competition between purchasers drives up the prices of biofuel ingredients. In other instances, shortages and price inflation occur because farmers who formerly grew crops like vegetables for consumption plant different crops that can be used for fuel.

China learned this the hard way nearly a decade ago when it set out to make bioethanol from corn, only to discover that the plan caused alarming shortages and a rise in food prices. In 2007 the government banned the use of grains to make biofuel.

Chinese scientists then perfected the process of making fuel from cassava, a root that yielded good energy returns, leading to the opening of the first commercial cassava ethanol plant several years ago.

“They’re moving very aggressively in this new direction; cassava seems to be the go-to crop,” said Greg Harris, an analyst with Commodore Research and Consultancy in New York who has studied the trade.

In addition to expanding cassava cultivation at home, China is buying from Cambodia and Laos as well as Thailand.

Although a mainstay of diets in much of Africa, cassava is not central to Asian diets, even though the Chinese once called it “the underground food store” because it provided crucial backup nutrition in lean harvest years. So the Chinese reasoned that making fuel with cassava would not directly affect food prices or create food shortages, at least at home. The proportion of Chinese cassava going to ethanol leapt to 52 percent last year from 10 percent in 2008.

More distant or indirect impacts are considered to be likely, however. Because cassava chips have been commonly used as animal feed, new demand from the biofuels industry might affect the availability and cost of meat. In Southeast Asian countries where China is paying generously for stockpiles of cassava, farmers may be tempted to grow the crop instead of, for example, other vegetables or rice.

And if China turned to Africa as a source, one of that continent’s staple food crops could be in jeopardy, although experts note that exporting cassava could also become a business opportunity.

“This is becoming a more valuable cash crop,” Mr. Harris said. “The farmland is limited, so the more that is devoted to fuel, the less is devoted to food.”

The Chinese demand for cassava could also dent planned biofuel production in poorer Asian nations: in the Philippines and Cambodia, developers were recently forced to suspend the construction of cassava bioethanol plants because the tuber had become too expensive.

Thailand’s own nascent biofuel industry may have trouble getting the homegrown cassava it needs because it may not be able to match the prices offered by Chinese buyers, according to the Food and Agriculture Organization.

Biofuels development in wealthier nations has already proved to have a powerful effect on the prices and the cultivation of crops. Encouraged by national biofuel subsidies, nearly 40 percent of the corn grown in the United States now goes to make fuel, with prices of corn on the Chicago Mercantile Exchange rising 73 percent from June to December 2010.

Such price rises also have distant ripple effects, food security experts say. “How much does the price of corn in Chicago influence the price of corn in Rwanda? It turns out there is a correlation,” said Marie Brill, senior policy analyst at ActionAid, an international development group. The price of corn in Rwanda rose 19 percent last year.

“For Americans it may mean a few extra cents for a box of cereal,” she said. “But that kind of increase puts corn out of the range of impoverished people.”

Higher prices also mean that groups like the World Food Program can buy less food to feed the world’s hungry.

European biofuels developers are buying large tracts of what they call “marginal land” in Africa with the aim of cultivating biofuel crops, particularly the woody bush known as jatropha. Advocates say that promoting jatropha for biofuels production has little impact on food supplies. But some of that land is used by poor people for subsistence farming or for gathering food like wild nuts.

“We have to move away from the thinking that producing an energy crop doesn’t compete with food,” said Mr. Dubois of the Food and Agriculture Organization. “It almost inevitably does.”

Article source: http://feeds.nytimes.com/click.phdo?i=602d8dafe702c65e109b8fec8e3df563