Fake Diploma? Be Ecuador's Next CenBank Chief!

Ah, Ecuador...the archetypal banana republic. For a country that supposedly loathes the United States via its leader Rafael Correa and his assorted (dubious) leftist stylings, it is pitiful that Ecuador has no real monetary policy of its own since it has adopted the US dollar as its currency. Call me naive, but I think thundering about the evils of capitalism and Western imperialism falls flat when you choose to keep the United States' currency as your own. Dollarization is not compatible with anti-imperialism in my books. Towards the end of last year we received even more outlandish news about fraud and fakery in Ecuadorean monetary circles. True, there isn't much for you to do as the central bank governor of a dollarized economy alike being in charge of Marian devotion at a Protestant church.

So little is there to do that it turns out that Correa's cousin Pedro Delgado--I guess Ecuadorean socialism like the Cuban variant does away with Marxist abhorrence of patrimonialism--became central bank governor with a fake college degree:

It seems in every family there are secrets and lies. On Wednesday afternoon, Pedro Delgado, the cousin of Ecuador’s President Rafael Correa, and the Andean country’s central bank president, stepped down after confessing that he did not hold a university degree in economics. “I submit my irrevocable resignation as head of the central bank… and I do it because I made a grave mistake 22 years ago,” Delgado said.

He has been facing accusations in recent weeks in the local media, so he finally admitted that in order to be accepted at a business school to read for an MBA, he “presented a document with no value that certified that I had a degree that I did not hold. And I kept that in secret.”

Does anyone really care if you have a fake degree as the chief of a fake central bank while propounding fake socialism? The plasticity of it all is astounding. A grave injustice has been done to a truly representative man of modern-day Ecuador.

PS: Trivia buffs will appreciate that Delgado was ranked the world's worst central bank governor before resigning.

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Islamic EconoFundamentalism: Egypt's FX Rationing

Is sound money management a normative activity? I would tend to think so since depreciation, inflation and so on tend to have widespread negative effects on the population's well-being. However, it comes as no real surprise that the Egyptian central bank has taken what are arguably steps on the road to a full-blown economic crisis, namely: (a) rapid currency devaluation and (b) foreign exchange rationing. For our dear Arabic readers, the press release is up on the Central Bank of Egypt website--an, er, exciting place to work in there ever was one.

Reuters has the pertinent details:

Egypt's central bank said it would start foreign currency auctions on Sunday to conserve reserves that have fallen to a critical level, pointing to a deepening economic crisis as President Mohamed Mursi tries to calm political turmoil. The announcement was posted on the bank's website on Saturday just two hours after Mursi used a major policy speech to declare the economy was showing signs of improvement [if this is an improvement...]

The central bank has spent more than $20 billion in foreign reserves to support the pound since a mass uprising against Hosni Mubarak in early 2011 chased away tourists and foreign investors...Violent street protests and political wrangling over the last month have prompted a rush by investors and ordinary citizens to switch their Egyptian pounds into foreign currency on concerns the government might devalue or bring in capital controls. The bank allowed the pound to weaken to an eight-year low of 6.188 to the U.S. dollar on Thursday. On Saturday it urged Egyptians to "rationalise their use" of foreign currency and not speculate against the pound.

I would like to wish our Egyptian friends a Happy New Year, but I am afraid that the conditions that have led to this state of affairs are only likely to worsen in 2013. The constitution ramrodded by the fundamentalist leadership is deeply divisive, causing many of the natives to go restless. In turn, widespread turmoil at home is hardly conducive to attracting much-needed FDI or tourists. While the new currency controls may partially be aimed at staunching capital flight, I don't think they will deter those who want to park their money in safer places alike the Dubai.

There is debate about the meaning of FX rationing so late in the game. It may mean that Egypt does not expect its purported $4.8B IMF bailout deal to be cemented by January, causing it to prepare for the worst. OTOH, it may be the Central Bank of Egypt--still de jure independent the last time I checked--signalling to the fundamentalist crew that things are getting really, really bad. Morsi mentions that Egypt's reserves have been buoyed in recent months, but that's largely down to Arab states lending it some money to tide it over until...the IMF lends it money too? One can only hope.

It's bad news all around...unless you're Morsi's spin doctor, that is.What a shining success, this Arab Spring. As I've said before, more pragmatic sorts will legitimately question if this parlous state of affairs is an improvement in any tangible sense over the Mubarak years.

1/1/2013 UPDATE: Government foreign exchange auctions have not prevented the Egyptian pound from sliding to all-time lows. Market participants can smell Egypt's desperation.

1/3/2013 UPDATE: Still sliding to a new record low of 6.42 to the US dollar.

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Back in America: Is "Reshoring" Overblown?

There's an interesting feature over at The Atlantic on how more American manufacturers are moving back to the United States since expected savings from moving more production to the likes of China didn't materialize. To be sure, the world economy has also changed since the offshore fad peaked (see this earlier post on why offshoring and outsourcing are not synonymous--and why the article should have been entitled the "reshoring boom" instead of the "insourcing boom" to be more accurate). How has the world changed? They given the following bullet points:

• Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
• The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
• In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
• American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
• U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.

These are all to an extent true--especially the one about the excesses of American organized labour being reined in. Moreover, as the article does state, there isn't much logic in sending production half a world away if you're mainly just going to service the US market. (Mexico makes more sense for that, though the hardest core reshoring fanatic would consider going across the Southern border a step too far unless you are again using the land of El Tricolor for an entry to point to increasingly lucrative Latin American markets.)

At any rate, (American) firms thinking of moving to China at this point--you're kinda late, buddy--can play around with the "Total Cost of Ownership Estimator" provided by Harry Moser's Reshoring Initiative. While I would naturally suspect the output is skewed towards staying bank in the US of A, freight information and whatnot are readily obtainable for those actually making this kind of decision. You also have to factor in cultural, linguistic and time zone issues--although these kinds of transaction costs are not readily computable I believe. Anyway, Moser is mentioned in the article as one of the champions of this movement in the article, and the calculator provides...

Most companies make sourcing decisions based on price alone, resulting in a 20 to 30 percent miscalculation of actual offshoring costs. With the Total Cost of Ownership Estimator, users account for all relevant factors when determining their total cost of ownership including overhead, balance sheet, corporate strategy and other external and internal business costs.

Once your unique data is input into the calculator, you will receive your total cost of ownership analysis complete with:

• Calculations of each source’s cost
• An accumulation of all costs into cost categories
• A grand total cost
• Line charts showing each source’s current price, total cost of ownership and 5-year forecast
• Line charts showing your cumulative cost by category

Have a look and see. Me? I am generally agnostic about location as a sometime consumer as long as the product is of good quality and is readily accessible when needed, so more power to those who "reshore" if improves either or both for American consumers. Still, the emphasis here is probably too Amerocentric for truly multinational firms that are neither American nor serve a largely continental US market.

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South Korea as the Catholic Church's Asian Tiger

Long lay the world in sin and error pining...

The Roman Catholic Church is savvy enough to know that its game is for the most part up in Western Europe. Lip service to a "Catholic revival" in that part of the world aside, we all know a declining market when we see one. Its resources are not really being used to fight a rearguard motion for a European reconquista. While there are some holdouts alike Poland, it's obviously in Eastern Europe. Nosediving church attendance, skyrocketing rates of illegitimacy and all the rest of it tell the tale. I fear that a Catholic revival in Europe is as much a lost cause as a surplus-running United States. At this rate, it will not be long before Catholic voices will start wondering why their headquarters remain in such an unappreciative continent when there are many other places where the Church would receive a much better reception. That is, what is the cost-benefit calculation of losing the "Roman" bit?

A thrill of hope the weary world rejoices
For yonder breaks a new and glorious morn...

But, the Good News is that the Church still manages to gain adherents in developing parts of the world alike Africa and Asia, with the number of priests increasing to meet new demand. Just like any old business, the Catholic Church appreciates that this is a game of numbers--albeit its concern is saving the most souls as opposed to more temporal concerns alike ROI. Moreover, its "investment" in the developing world is more likely to pay dividends given the more promising demographics there of followers yet unborn. That said, Asia is a funky place to promote religion. Just as China is famous for its intellectual property, er, lapses, so is it known for its habit of ordaining fake bishops. Since the Communist Party regards all other possible sources of authority with suspicion, it is hard to imagine the world's most populous nation gaining many more converts.

South Korea, meanwhile, is highly atypical in many respects. It is an OECD member and thus considered by most as a developed country. Its population is comparatively small as well at under 50 million. Alike other Asian tigers, it has among the world's lowest fertility rates. You would think increasing affluence would render more Koreans less religious and its demographic profile less attractive to the Church, but surprise, surprise: In South Korea, Roman Catholicism has spread like wildfire in recent years. Unlike Europe that could certainly use an opiate for the masses given its less-than-stellar economic fortunes, the still-rising Koreans have turned to the Gospel. Fr. Pierro Gheddo of the Pontifical Institute for Foreign Missions lays out the landscape:

There may be no other country in the world that over the past half century has seen growth as sustained as that of South Korea, including conversions to Christ. From 1960 to 2010, the number of inhabitants went from 23 to 48 million; per capita income from 1,300 to 19,500 dollars; Christians from 2 to 30 percent, of which about 10-11 percent, 5.5 million, are Catholic; there were 250 Korean priests, today there are 5,000.

I first went to South Korea in 1986 with Fr. Pino Cazzaniga, a missionary of the Pontifical Institute for Foreign Missions in Japan, who speaks Korean. Even back then it was a Church with many conversions, and it is still so today. Every parish has from 200 to 400 baptisms of converts from Buddhism each year. Most of the converts are city dwellers. Each year there are 130-150 new priests, one for every 1,110 baptized. In 2008, the proportion of Catholics exceeded 10 percent of South Koreans, and grows by about 3 percent each year. In 2009, the number of baptized reached 157,000, and 149 priests were ordained, 21 more than in 2008. More than two thirds of the priests are under the age of 40. "Over the past ten years, the Catholic Church in Korea has gone from three to five million faithful; in Seoul we are 14 percent," Cardinal Nicholas Cheong Jin-suk, archbishop of Seoul, has said in an interview.

It is certainly contentious to relate Europe's economic decline with its spiritual one so I won't even go there, but in South Korea's case you can make the opposite argument that secularization does not necessarily accompany economic progress. It appears increasingly prosperous Koreans have sought to find meaning beyond material well-being. As long as the Roman Catholic Church provides answers that are meaningful to them, it's a win-win proposition. Even for a centuries-old institution, it appreciates like pretty much everyone else that the future belongs to Asia.

And that is your religious political economy instalment for New Year's Eve 2012. A Merry Christmas to one and all from the IPE Zone...

...O night, O Holy Night, O night divine!

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