Saturday, May 22, 2010

Thailand and its Red Shirts

Michael Hennigan at a red shirts' rally in central Bangkok, Saturday, April 03, 2010

British-born Thai Prime Minister Abhisit Vejjajiva was a contemporary of British Prime Minister David Cameron at Britain's top public school, Eton, and at Oxford University.

The son of medical professors who was born in Newcastle, had what is likely to be a Pyrrhic victory this week in the ejection of the Red Shirt demonstrators of the United Front for Democracy Against Dictatorship, from the centre of Bangkok, involving a death toll of 80 people.

Abhisit became prime minister in 2008 through the violence and judicial shenanigans of his elite, aided by the 193-day protest of his yellow shirt supporters that culminated in a 10-day siege of Bangkok's airports, which brought down an elected government that was widely supported by the poor.

The Financial Times Asia columnist David Pilling commented this week: "There has been little of the international condemnation that followed last year's crackdowns against pro-democracy demonstrators in Iran, let alone those in Tiananmen Square in 1989. Imagine the outcry if, in Greece, the rowdy anti-austerity demonstrators had been mown down with sub-machine guns."

Thaksin Shinawatra, a member of a wealthy Chinese trading family from Thailand's second biggest city, Chiang Mai, became a police chief and then a billionaire telecom entrepreneur, before wining an election in 2001, by appealing to the poor of Thailand. He was the only prime minister since the end of absolute monarchy in the Kingdom of Siam in 1932, to serve a full term and be re-elected in 2005. He was ousted in a military coup in 2006.

Military rule was a shambles and following a general election, a pro-Thaksin party, People's Power Party (Thailand), led by Samak Sundaravej formed a government with five smaller parties in December 2007. Samak was disqualified from office by the Constitutional Court of Thailand in September 2008 for accepting a fee for being a host of a TV cooking program. Opposition politician Abhisit Vejjajiva became prime minister with the support of the army and the yellow shirt protesters in December 2008 and appointed a leader of the movement as his foreign minister. Other leaders of the middle class protest movement also escaped sanction.

The Red Shirts recent protest began in March and their principal demand was for an early general election. When I saw the protestors in early April, near the Central World shopping centre, Asia's second-biggest which was set on fire this week, they ranged from young to old and it was clear that the thousands of farmers who had made the journey from the rice fields of the north and norh-east, must have had deep grievances.

Thaksin had likely been corrupt and had waged a war on drugs involving many extra-judicial killings. In a society where there is a huge gulf between the well-off and the poor, he however, won the allegiance of poor farmers and the urban poor through cheap healthcare and better access to credit.

So after winning three elections, the poor viewed Abhisit Vejjajiva's uunelected government as a dictatorship of the wealthy.

Thailand's popular King Bhumibol Adulyadej, who was born in the United States in 1927, is said to be in poor health and has not intervened in the crisis.

Fair elections and a fairer society, can only end the fracture in a country that calls itself, Land of Smiles.

Sunday, May 16, 2010

Boom or bust, big names in Irish professional services are raking in the money

Boom or bust, the big names in Irish professional services are raking in the money as they take advantage of the semi-cartel which operates at the top, with the help of the Irish government.

Even though big players in the economy, these firms are not obliged to disclose any financial performance data and in turn, the Government provides a Victorian veil of secrecy on public contract information, behind the excuse of "commercial confidentiality."

The Victorian secrecy protects the insiders - - big firms -- and is both anti-competitive and against the public interest.

In Ireland, where the concept of "conflict of interest" gets little attention, cronyism is rife in many sectors where thee public sector is a big purchaser. Inevitably, it is difficult for outside firms to breach the cosy circles of influence.

Big 4 accounting firm PricewaterhouseCoopers (PWC) issues some performance data in the UK; in Ireland it just reveals total revenue.

The European Commission, the IMF and OECD have repeatedly warned about the semi-monopolies in the Irish sheltered sectors of the private sector but while Cowen calls for "sacrifices" it's business as usual for those in accountancy and law, providing undertaking services for the failed businesses of the crash.

The public sector is the biggest procurer of goods and services in the State and goes along with what are effectively fee cartels among professional services firms.

Lawyers and insolvency accountants are on a roll and the State's "bad bank" NAMA has a €2.5bn meal ticket for the big firms over the coming decade; Two civil servants run NAMA and it has already incorporated the Victorian era culture of secrecy on contracts -- which hardly helps to promote competition and cannot be in the public interest.

Dr. Don Thornhill, the chairman of the National Competitiveness Council said last month that a lot of second-tier law firms have let people go, but he asked, have the prices charged by those firms reduced?

Even though excess fees are either paid by the State or struggling business creditors, the professional institutes have nothing to say about it and IBEC, the employer's body, is also reluctant to upset vested interests.

Last February, in the High Court, an examiner seeking fees equivalent to a €884,000 annual salary for investigating the viability of the insolvent Dublin private members club Residence, was told by the High Court to re-examine his rates.

Mr Justice Peter Kelly said fees of €425 an hour sought by Jim Stafford, of Friel Stafford Corporate Recovery, were not acceptable in the current climate.

Stafford was seeking costs of €61,857, plus €50,000 legal costs, for the 90-day examinership period.

The judge questioned why five people (including Stafford) were involved in an examinership and he also queried the legal fees.

This Residence business was a small one -- just think of the bonanzas available from the bigger examinerships and collapses.

Any accountancy firm worth its salt could assess the viability of a business -- and any legal question is farmed out.

So why is it a closed shop?

Irish Law firms among Europe's top earners

The Irish firm Arthur Cox has one of the highest turnovers for a law firm in Europe and has reported annual revenue per partner in excess of €1 million, according to magazine.

The firm, reported fee income of €105 million and is in 14th place in a list of the top 100 in Europe in terms of turnover, which was published last week.

McCann FitzGerald at €100 million is in 16th place and Matheson Ormsby Prentice €95 million is 19th on the list, which excludes UK firms.

The magazine said Arthur Cox has 560 staff of whom 370 are fee-earners. Of these 235 are lawyers and 101 are partners. The revenue per lawyer is €447,000 while the revenue per partner is €1.04 million.

McCann FitzGerald has 429 staff of whom 272 are fee-earners, the magazine says. There are 198 lawyers and 69 partners with the firm having revenue of €505,000 per lawyer and €1.45 million per partner.

The figures for Matheson Ormsby Prentice show that it has 530 staff of whom 490 are fee-earners. There are 350 lawyers and 90 partners, with the firm having a revenue per lawyer of €271,000 and per partner of €1.06 million.

A&L Goodbody is 23rd on the list with a revenue of €85 million. It is reported to have 550 staff of whom 66 are partners. The firm’s revenue per partner is given as €1.29 million.

The big fee "cartels" in Irish professions; Time for Ireland to change "the natural state of things"

Sunday, May 09, 2010

The Euro isn't Dead!

German Chancellor Angela Merkel addressing the Bundestag, Wednesday, May 05, 2010.

The following is a comment on the blog of Prof. Simon Johnson, a former chief economist of the IMF.

Despite current woes, the euro has been a success; net job creation in 1999-2008 outpaced the US and three times more than Europe's record during the same number of years before the euro launch in Jan 1999; intra-region trade has expanded and the record on inflation has been better than Germany's pre the euro launch.

Europe has steadily expanded its share of the world's 100 biggest multinationals compiled annually by the UN Conference on Trade and Development, from 57 in 1991 to 61 last year, while the US number has dropped from 26 to 19.

Greece and Portugal account for less than 5% of the Eurozone’s GDP. Even when Ireland and Spain are added in, the so-called peripheral countries or PIGS account for less than one-fifth of the region's GDP.

Of the 16 members of the currency union, these 4 countries were woefully misgoverned during the international credit boom. In 5 years to 2009, 100,000 civil servants were added to the public payroll in Greece and the prime minister has said his country is endemically corrupt with just 5,000 declaring annual incomes of over $130,000 in an economy of 11m.

Far away hills are green and in the US, it was not uncommon for Ireland's Celtic Tiger to have been held up as a model of development; it's temporary prosperity was built on quicksand; while the Irish became the second biggest investors in commercial property across Europe from the windfalls of a housing bubble at home and employment grew by 25% in the decade to 2008, jobs in the export sector stagnated. Today, 90% of Ireland's tradable goods and services exports are made by foreign-owned firms, mainly American.

In 2006, Spain with a population of 40m, was building as many new housing units as the US.

In the early years of the last decade, Germany went through painful labour and welfare reforms and was called the "sick man of Europe." In March 2010, it was the only Eurozone economy to have added jobs compared with March 2009.

Yes, restructuring of debt may be inevitable, but to do it now would not serve the interests of those countries in dire need of reform.

I admire Pres Obama but getting involved in this issue would be counterproductive; as for DSK and his role in the IMF, Simon's views may be coloured by some personal issues.

As for Trichet's press conference last Thursday, with banks and broker analysts begging for public protections, why should he have caved-in when he deemed it inappropriate.?

The ECB has considerable firepower in its arsenal and has shown since 2007 that it can act very aggressively when necessary.

As for the future of the Eurozone, the reversion to own currencies, high interest rates and inflation, may be a cure worst than the disease. The majority of Iceland's exports are its own fish resources; devaluation for other countries without hard fought reform, could only be a short-term benefit if at all.

Ireland will only become a net contributor to the EU budget in 2013 -- 40 years after joining what was called the European Economic Community; Spain, Portugal and Greece have also benefited from huge cash transfers, mainly funded by Germany. In the period 1994-2006, Greece was given cash foreign aid of $60bn to support its infrastructure development. Germany is now blamed for being a huge export success to emerging markets.

Yes the rules for entry to the EMU were too easy and fiscal surveillance was weak, nevertheless the euro has been a success.

The Euro is a success; Free lunch yet to be invented

Monday, May 03, 2010

Europe and IMF agree €110bn financing plan with Greece

Greek prime minister, George Papandreou, addressing his Cabinet on Sunday, May 02, 2010

"In a study done last year, the OECD described government-run Greek hospitals as deeply corrupt. It concluded that we could save 30 percent of the costs, which is enormous....In Germany, a stent for heart operations costs about €500. In Greece it costs €2,000 to €2,500. The fault lies with corruption," -- Greek PM Papandreou in interview with Der Spiegel, Feb 2010.

While a debt restructuring may be required at the end of the 3-year period of the EU-IMF €110bn rescue plan which was agreed last weekend, Greece is likely to be better governed; the European banking system would be in better shape and hopefully reforms of the fiscal shortcomings of the EMU will be in progress. We may even have a common European bond.

The latest to treat Germany as the piñata of the crisis is David McWilliams in the Sunday Business Post: "Greece is the symptom of this crisis, but Germany is the cause...It is only right that Germany pays for the Greek problem, because Germany is the reason for the crisis."

This audacious claim ignores the role of France which has the greatest exposure to Greek debt; two French banks – Crédit Agricole and Société Générale – control Greek banks and the claim that Germany is an outlier because it  "prefers to save than spend or invest" also does not stand up. OECD data shows that from 1994, the French household savings rate has consistently been above the German level.

France isn't singled out because it has a current account deficit but critics appear to want German companies, who are operating in world markets, to become less competitive.

Bundesbank president, Prof. Axel Weber, has acknowledged that German enterprises will naturally have to focus more on the domestic market than before the crisis and he said in March that Germany’s export success was based on companies embarking on a “painful, but eventually successful, restructuring process, including innovation, outsourcing, wage moderation as well as a balance sheet cleanup.” He said it should "be noted these were market-based adjustments, neither initiated nor managed by policy makers.”

Either way, peripheral countries have to get their economies in better shape; the biggest challenges are from beyond Europe.

It is easier to identify a problem than propose a credible solution. Germany was prudently governed and undergoing reform when it was partytime for Ireland and other misgoverned countries. These countries squandered billions of euros in German financed EU funding.

In 2003, Prof. Hans-Werner Sinn of the Ifo institute, had a book published: Ist Deutschland noch zu retten? (Can Germany Be Saved?) - - Its blurb read: "Taxes keep rising, the pension and health insurance systems are ailing. More and more companies are going bankrupt or are leaving the country. Unemployment has reached alarming levels. Germany is outperformed by its neighbours. It’s growth rates are in the cellar, and it can’t keep up with Austria, the Netherlands, Britain or France. Germany has become the sick man of Europe. "

In Ireland, Mary Harney disdainfully spoke of being closer to Boston than Berlin and today, German success is the cause of the woes in Ireland, Greece and so on!!!

The admirable thing about George Papandreou is that he readily acknowledges where the principal responsibility for Greece's woes lay.

Finfacts report: Europe and IMF agree €110bn financing plan with Greece

Irish Economy Blog thread

Saturday, May 01, 2010

Eurozone, Germany and rescuing Greece

Greek Prime Minister George Papandreou (r) briefs trade union and business group leaders on the austerity plan required by the EU-IMF, at a meeting in Athens, Thursday, April 29, 2010.

The following is a post made to a thread on the Irish Economy Blog: Thinking the Unthinkable

1. The credit boom enabled many countries to live beyond their means; that scene has changed and the growth of the leading emerging economies will put further downward pressure on advanced country living standards, as conventionally measured.

In the US, the top 1% incomes captured half of the overall economic growth over the period 1993-2007. In the economic expansion of 2002-2007, the top 1% captured two thirds of income growth. The bottom 25% of the American population is poorer than they were 25 years ago.

In Japan, the household savings rate has fallen to almost 2% from about 15% in 1990; more than one-third of the workforce are temps earning less than the Irish minimum wage. Even the big companies such as Toyota hire a large number of temps on low wages and no pensions.

2. Most of the 16 Eurozone countries were prudently governed during easy money days and the ones under siege are authors of their own misfortunes.

3. Germany can be easily demonised by those with a begging-bowl mentality.

Eurostat reported yesterday that in March this year, Germany was the only EU27 economy to have lower unemployment than in March 2009.

It went through a painful reform process in the early years of the last decade and the SPD has paid a big political cost.

It has a large number of world class companies and mid-size family owned machine tools companies, many dating from the 19th century.

Germany became a net exporter in food and during in 2008 for the first time in the modern era.

In 2008, Germany exported to Greece goods worth €8.3bn. Germany was the biggest purchaser by far of Greek exports, accounting for nearly 10% (€1.9bn in 2008) of the total. The most important Greek exports to the Germany are textiles, petroleum products, tobacco, olive oil, fruit, cement, tomato products and aluminum. The principal Greek imports from Germany include motor vehicles, machinery and other technical products, petroleum and petroleum products, foodstuffs, as well as raw materials.

4. In 2009, the total value of Greek goods exports totaled €14.4 accounting for 6% of Greece’s GDP; imports fell to €48.1 from €60.7bn. Greece shipping accounts for about 60% of the EU shipping total and total exports were €55bn in 2008 or 23% of GDP; the current-account deficit is currently 13% of net national income.

5. Greece requires significant reform; tax evasion is extensive and 20,000 teachers are without classrooms. It needs to get serious about inward investment.

6. It is better to leave the issue of debt restructuring until the end of the 3-yr adjustment period when Europe can better handle it and Greece will likely be in better shape; to consider it now could trigger further pressure on other PIIG countries.

7. Greece has received €44bn in EU structural funds since 1994 and total EU transfers have exceeded 3% of GDP in recent years.

7. In the US, there is no bailout mechanism for states and no intergovernmental loans.