“AP IMPACT: E. Timor Aid _ Where Did Billions Go? - CBS News” plus 4 more

AP IMPACT: E. Timor Aid _ Where Did Billions Go? - CBS News
A Radical Solution for America's Insolvent Financial System - Seekingalpha.com
European Stocks Rise for Third Day; Cadbury Jumps on Kraft Bid - Bloomberg
UPDATE 2-Nigerian cbank completes audit of more banks -source - Reuters
Gabon recovering from postelection violence - Boston Globe

AP IMPACT: E. Timor Aid _ Where Did Billions Go? - CBS News

Posted: 07 Sep 2009 08:43 AM PDT

Photo
(AP)

(AP) A decade after tiny East Timor broke from Indonesia and prompted one of the most expensive U.N.-led nation-building projects in history, there is little to show for the billions spent.

The world has given more than $8.8 billion in assistance to East Timor since the vote for independence in 1999, according to figures compiled by The Associated Press from the U.N. and 46 donor countries and agencies. That works out to $8,000 for each of East Timor's 1.1 million people, one of the highest per person rates of international aid.

But little of the money, perhaps no more than a dollar of every 10, appears to have made it into East Timor's economy. Instead, it goes toward foreign security forces, consultants and administration, among other things.

In the meantime, data from the International Monetary Fund, World Bank, World Food Program, U.N. Development Program and others show the money has done little to help the poor. In fact, poverty has increased. Roads are in disrepair, there is little access to clean water or health services, and the capital is littered with abandoned, burned-out buildings where the homeless squat.

"The international intervention has preserved the peace, which was always its primary objective," said James Dobbins, director of the RAND International Security and Defense Policy Center. "Its success in promoting political reform and economic development has been more limited."

East Timor was once seen as the poster child for U.N. nation-building.

After a bloody 24-year occupation by Indonesia that left 174,000 dead, the people of this predominantly Catholic former Portuguese colony voted overwhelmingly in a U.N.-managed referendum on Aug. 30, 1999, to separate. The vote triggered a rampage by Indonesian soldiers and proxy militias who killed more than 1,000 people and destroyed much of the infrastructure.

A provisional U.N. administration restored basic services, repaired buildings and resettled hundreds of thousands of people who had lost their homes. With greater powers than any previous mission, the U.N. was supposed to help create the pillars of a new country, virtually from scratch.

The vastness and complexity of the job became apparent in early 2006, just as the U.N. was pulling out its last staff members. Fighting broke out between rival police and army factions, killing dozens and toppling the government. Then, last February, President Jose Ramos-Horta was nearly killed by rebel gunmen in an ambush.

Timor still faces grave challenges:

_ Between 2001 and 2007, the number of Timorese living in poverty jumped nearly 14 percent to about 522,000, or roughly half the population, according to the World Bank.

_ Children make up half of the poor, and 60 percent of those under 5 suffer malnutrition, the World Bank and World Food Program found.

_ The Norwegian Agency for Development Cooperation concluded in a 2007 report that very little aid was channeled into "productive activities, including private sector development."

_ The unemployment rate for 15- to 29-year-olds in the capital, who make up the vast majority of the national work force, was more than 40 percent in 2007, according to the IMF and the state.

Atul Khare, who has headed the U.N. operation in East Timor since mid-2006, dismissed the World Bank and IMF figures as "absolutely incorrect" and not representative. He said the country has made "considerable progress" since 1999, and the U.N. East Timor mission has been effective and successful.

"All these figures are a cause of concern, but they are extrapolations, they are not the real figures, and I would not rely on those figures for making assessments," he said. "In the last 10 years, with their own efforts ... assisted by the international community, this country has largely, yes, been a success."

"Were you here in 1999? If you were not here, you cannot gauge."

Khare cited increased fetility rates, among the highest in the world, new buildings and fewer potholes in Dili as positive signs. He said accurate numbers will emerge after 2010, when the next national census is held.

But groups that study East Timor have concluded that a mere fraction of aid money is trickling into the economy _ just 10 percent of about $5.2 billion, estimates La'o Hamutuk, a respected Dili-based research institute. Its figure excludes more than $3 billion in military spending by Australia and New Zealand.

The rest went to international salaries, overseas procurement, imported supplies, foreign consultants and overseas administration, the institute said. About 20 percent of pledged aid was never delivered, it said.

Another group, the Peace Dividend Trust, concluded that as little as 5 percent of the U.N. mission budget trickled into East Timor's economy between 2004 and 2007.

The U.N. spent $2.2 billion on missions in East Timor between 1999 and 2009. Roughly $3 billion in donor aid _ the bulk of it from Australia, Japan, the European Union, the U.S. and Portugal _ was channeled through 500 not-for-profit groups and institutions like the World Bank and Asian Development Bank.

The World Bank has expressed concern that too much is being spent on consultants, but could not provide a comprehensive figure. High-level Timorese government officials told the AP that millions of dollars have been wasted on projects that overlapped or were not completed, donor rivalry, mismanagement and corruption. They asked not to be named for fear of a backlash from donors.

President Ramos-Horta, a Nobel peace laureate, said the world needs to rethink its aid model.

"Where has this money been invested? That is the question the donor community needs to ask itself," he said. "If that money were to have been spent mostly in Timor, it would have transformed this country, economically and socially."

Much of the money has gone toward security, for which the impact is difficult to measure. An AP tally shows that $3.6 billion was spent in the past 10 years on troops from Australia and New Zealand, who make up the bulk of a foreign intervention force.

Timor's leaders and most experts agree that without outside help East Timor would have been at risk of becoming a failed state. Thousands of foreign soldiers, U.N. police officers and staff remain across the country, but will start departing early next year.

Today, East Timor's streets are calm. The economy is starting to grow under a new government that took over in 2007 after peaceful elections and is tapping into a $5 billion petroleum fund from oil and gas fields. The fund will be exhausted by 2023, and analysts say if the non-oil economy is not stable by then, people will starve.

Under the current government, compensation has also been paid to a third of the armed forces who deserted in 2006. Pensions payments have also started for the generation of guerrilla fighters who battled Indonesian troops in the mountains for more than two decades.

In the meantime, the people are still waiting for help.

Domingos Pereira, a 40-year-old street vendor, lost his father, siblings and other family members in the fight for independence, and his house was destroyed in riots in 2006. He now supports his wife and six children by selling sodas, cigarettes and candy.

"My expectation was that when East Timor became an independent country, small people like me would see an improvement in our lives," he said. "But after 10 years of our independence, I don't have it yet."

Duarte Beremau sleeps in a two-room, dirt-floor shack with eight family members, including four unemployed adult children. The shelter is cobbled together from rusting sheet metal and has no water, electricity or sanitation.

Beremau, who is illiterate and doesn't know his age, earns $10 a week from a coffee factory, part of which he bets on a Sunday afternoo cockfight in the dusty back streets of the capital, Dili.

"Nothing has changed my suffering," he said. "My life is still like it was."

Associated Press researchers Julie Reed and Randy Herschaft in New York, writers Yu Bing in Beijing, Jae-Soon Chang in Seoul, Robert Gillies in Toronto, Foster Klug in Washington, Slobodan Lekic in Brussels, Ray Lilley in Wellington, Rod McGuirk in Canberra and Tanalee Smith in Adelaide contributed to this article.

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A Radical Solution for America's Insolvent Financial System - Seekingalpha.com

Posted: 07 Sep 2009 08:29 AM PDT

A plan for the resolution of the insolvency of the U.S. banking system:

The core problem of the U.S. banking system (and maybe the world's banking system) is not liquidity but insolvency. The liabilities of the U.S. banking system exceed the value of its assets. The issue is not only the toxic assets (toxic mortgage backed securities, toxic commercial real estate loans, sub-prime mortgages, alt-A loans, adjustable loans likely to go bust, increase in prime mortgage default rates, etc) but also off-balance sheet liabilities (such as expected, huge-unaccounted-for future derivatives losses).

This means that bailouts are just beginning and will require bigger and bigger sums of taxpayer money as time goes on. The government will resort to borrowing more and more and eventually to printing money when treasury debt auctions start failing. The end result of this path is a currency collapse and probably total chaos as expected by gold bugs.

One other way to deal with this issue is to stop the bailouts and let the dominoes fall. Defaults and cross-defaults will cause many, many depository institutions (even very large ones) to collapse, leading to an extreme decrease in money supply as bank deposits are destroyed. Deposits of failed banks cannot be used to pay bills, make purchases and/or service debts.

Which will probably lead to even more defaults as unemployment increases and debtor's are unable to service their debts. This process will probably cause extreme deflation as businesses lower prices in a bid to survive. This will also lead to wage cuts, increased unemployment and a deflation spiral and much chaos. But probably less chaos than a currency collapse.

Is there a better way?

Here is my idea:

1) We essentially need an orderly bankruptcy and liquidation of the U.S. financial system.

2) I suggest we create a government owned bank and transfer all deposits of the private commercial banking system to the new government owned bank. This "transfer" is really just new money creation. This new money will be digital cash (electronic version of physical paper cash). Very much like reserves at the Fed.

3) Note that the plan will not create net new money since we will be destroying all deposits of the commercial banking system in the process.

4) All assets of the commercial banking system will be transferred to the government and auctioned off in an orderly manner over the next 10 years. The proceeds from the sale would go the United States treasury and not the commercial banks. The assumption here is that commercial banks deserve nothing since the entire industry would have been most likely destroyed any way. Even good banks would have been destroyed due to bank runs and defaults if the government had allowed the dominoes to fall. Of course bank shareholders, bank bond holders and counter parties of bank derivatives would not receive anything.

5) After the transfer FDIC protection will be removed for any private bank which wishes to remain in business or any new private depository institution or bank. From that point on the government should make it absolutely clear that there will be no more bailouts and no more conversions. This will discourage (but not completely eliminate) fractional reserve deposit banking and private money creation that results from pyramiding of government created money. This will also limit debasement of the currency that results from fractional reserve deposit banking. In fact, we can have "free banking" from that point on and not even have reserve requirements or capital requirements. All depositors who use private banks will be fully at-risk. The industry will have to set the interest rate high enough to attract depositors.

6) The new government bank will act as an electronic "piggy bank" only. All deposits will be 100% reserve and it will make no loans. Loan making will be left to the private banking system (with no deposit insurance or a possibility of a future bailout). The new government-owned bank exists only as a "safe" money storage and a payment clearing system so the public does not have to carry around physical paper cash to make purchases and pay bills.

6) Of course this plan is not without pain or cost. Cost of funds for banks and borrowers will probably rise as bank deposits are a source of very low cost money for the banks. Nothing is free. We are just exchanging higher cost of funds for removal of systemic failure risk. Economically we are recognizing that when money is loaned there is always credit risk.

7) We are just separating the payment and clearing transaction system which is absolutely necessary for day-to-day commerce (no credit risk) from the loan banking and investment system (has credit risk).

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European Stocks Rise for Third Day; Cadbury Jumps on Kraft Bid - Bloomberg

Posted: 07 Sep 2009 08:29 AM PDT

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Sept. 7 (Bloomberg) -- European stocks rose for a third day as a resurgence of merger speculation boosted food and beverage stocks and mining companies and the Group of 20 nations agreed on steps to shore up the global financial system. Cadbury Plc ...

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UPDATE 2-Nigerian cbank completes audit of more banks -source - Reuters

Posted: 07 Sep 2009 07:39 AM PDT

* No infractions on scale of first five banks

* More CEO sackings seen unlikely

* Full audit due to be completed this month

(Adds details, background)

By Nick Tattersall

LAGOS, Sept 7 (Reuters) - Nigerian central bank examiners have found some infractions during an audit of 11 more banks but not on the scale of those at the five rescued in a $2.6 billion bailout, a source close to the regulator said on Monday.

The central bank injected 400 billion naira ($2.6 billion) into Afribank (AFRB.LG), Finbank (FIBP.LG), Intercontinental Bank (INBK.LG), Oceanic Bank (OCBK.LG) and Union Bank (UBNP.LG) on Aug. 14 and sacked their top management, saying they had become so weakly capitalised they posed a systemic risk.

Five other banks were given the all clear but central bank examiners have since been auditing a second batch of 11.

"There are infractions here and there, but not on the magnitude that we saw at the five ... there is nothing that will warrant similar action," the source said, asking not to be identified.

The examiners' report, which is still being compiled, must be considered by senior central bank officials including Governor Lamido Sanusi before its conclusions are made public.

The bailout, the subsequent arrest of banking executives by anti-corruption police and the publication of a list of debtors including some of Nigeria's biggest corporate names sent shockwaves through sub-Saharan Africa's second biggest economy.

Between them the five institutions accounted for 40 percent of banking sector credit in Africa's most populous nation and the executives removed included members of Nigeria's corporate aristocracy, long seen as almost untouchable.

Sanusi has said the regulator tackled the banks considered to be most at risk first. He told Reuters in an interview last month that it was unlikely that any more bank chief executives would be sacked. [ID:nLL313408]

The five institutions accounted for almost 90 percent of exposure to the central bank's expanded discount window, a facility which allows financial institutions to meet their short term obligations by borrowing central bank funds.

That suggests other Nigerian banks were not facing as serious liquidity concerns as the rescued five, whose aggregate non-performing loans stood at more than 1.14 trillion naira ($7.6 billion), according to the central bank.

Executives from the five banks have been charged with offences ranging from recklessly granting loans and failing to keep proper accounts to share price manipulation and failing to ensure compliance with capital adequacy requirements. [ID:nLV394255] Continued...

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Gabon recovering from postelection violence - Boston Globe

Posted: 07 Sep 2009 07:39 AM PDT

Evidence of the chaos was still ubiquitous in Port Gentil, the country's oil hub and second-largest city, which bore the brunt of the rioting. Torched shops scarred many neighborhoods, and, with public services still on hold, trash lay in heaps on the sides of roads and debris was strewn in the street.