Like Dracula, the IMF Sucks
Germany's Biggest Chemical Firm Hit by Auto Crisis
Power Production Keeps Contracting in China
South Korea's Shipbuilders and Automakers See Collapse in Output
From Volume 7, Issue 48 of EIR Online, Published Nov. 25, 2008
Global Economic News
Nov. 17 (EIRNS)—To London's great glee, more countries are being forced to line up to be sacrificed at the IMF abattoir.
One of the latest is the tiny nation of Iceland, which, yesterday, made the concessions necessary to get a $2.1 billion IMF loan, including agreeing to compensate individual British and Dutch depositors for their personal losses in the collapse of the Internet bank Icesave, which will cost Iceland some $5 billion. That's right: Iceland shells out $5 billion, in exchange for $2.1 billion! Iceland may also get Dutch and British-financed EU loans, if it behaves. Next on the agenda could be Iceland joining the EU and possibly the eurozone.
Pakistan is also being bled by the IMF ... and the Afghanistan war. Since 2004, the "war on terror" has cost it over 2 trillion rupees—about $33 billion—the Ministry of Finance reported yesterday. Pakistan is a nation of 165 million people, of whom two-thirds lives on less than $2 a day—the official definition of "poverty." Inflation is now 25%, and the IMF is demanding more taxation, including on agriculture. The rupee has fallen 23% to the dollar this year, sending the costs of oil and other imports sky-high. Pakistan is slated to get a pathetic $7.6 billion from the IMF between this year and next, primarily to help the country meet external debt payments by February.
Serbia is also scheduled to get a $4 billion loan from the IMF, in return for government budget cutbacks. The Stockholm daily Svenska Dagbladet today warned that the Serbian GDP could collapse by 50% next year.
Belarus is in a tug-of war with the IMF, threatening to pull out of the Fund if it refuses to grant it a $2 billion loan. President Aleksandr Lukashenka told the Wall Street Journal: "We survived without IMF loans before, during the severest of times.... If they deny it now ... why should we cooperate?"
Nov. 20 (EIRNS)—BASF, the world's biggest chemical firm, will reduce its global production by 20-25% (temporarily, as the management put it), 80 plants will be closed completely, and another 100 plants will cut back on production. About 20,000 workers are affected by this, 5,000 at the main plant in Ludwigshafen.
BASF CEO Jürgen Hambrecht said that, "in particular, customers in the automotive industry have cancelled orders on short notice," adding that the company was getting prepared for "tough times." The world slump in demand for oil and gas products is another reason for BASF's latest problems. After the Hambrecht announcement, the company's stock shares plunged by nearly 16.8% in afternoon trading, making it the worst performer on the German stock index, the DAX, yesterday.
Meanwhile, crisis news from the automobile industry and related sectors in other European countries came in, yesterday. For example, the British petrochemical firm Ineos (highly indebted) demanded better credit conditions; many other chemical firms are expected to lower their profit margins, and a dramatic worsening of the situation is expected. British auto and jet engine producer Rolls Royce announced plans to lay off up to 2,000 workers, or 4% of its 39,000 global work force, next year.
In Italy, Fiat CEO Sergio Marchionne demanded that all carmakers in Europe receive aid. Marchionne reacted to the German government decision (without asking the EU Commission for permission, beforehand) to support Opel, but his reaction reflects Eurocratic thinking, namely, that it should be a EU policy instead of national government initiatives. But Marchionne is confronted by reality. The EU cannot do anything, and he should turn to his national government. In Italy, the government is confronted with yet another problem: The textile industry, which is the largest in Europe, is warning that 30,000 jobs are immediately threatened.
Nov. 17 (EIRNS)—For the first time in almost ten years, China's power consumption fell 3.7% in October, compared to the previous year. This was the first year-on-year monthly decrease in power consumption since 1999, Xinhua reported. Total electricity generated also contracted, down 4% from October a year ago, the China Electricity Council announced. The Council reported today that "power generation was dragged down mainly by a 5.2% year-on-year decrease in coal-fired power supply, which accounts for about 80% of China's total power." Chinese economists are warning that the fall of power generation is an indication of more industrial contraction to come.
Nov. 15 (EIRNS)—About half of some 300 small South Korean shipbuilders are expected to go belly-up through the first half of next year, unless bailout steps are taken, according to industry analysts.
Large shipbuilding firms, they claim, will ride out the current difficulties, as they have ample cash holdings and enough orders for the next several years. But smaller ones are in serious trouble, as it has become almost impossible for them to borrow money from financial companies amid deteriorating global business conditions.
The Korean government and creditor banks are now moving to put the small and medium-sized shipbuilders through drastic restructuring. It has become almost impossible for small shipbuilders to obtain refund guarantees (RG), which they need to receive orders from shipping companies, from banks, because domestic lenders are reluctant to extend credit to small firms. Banks currently only provide RG to cash-rich large shipbuilders. However, creditor banks could end up with massive non-performing loans unless action is taken to help struggling small shipbuilders.
Meanwhile, GM Daewoo has lengthened its previously announced December shutdown of manufacturing and assembly facilities, from two weeks to four. Recently, Korean carmakers have been facing difficulties selling small cars overseas, as market conditions in the U.S. and Europe worsen, and sales of Korean cars there have fallen by 10 to 20% since last year. Renault Samsung is rumored to be stopping production soon, also.