Wednesday, November 9, 2011

Alabama, Jo'burg in liquidity crunch, Eurozone's existential crisis, India refineries' coffers run dry, 100 years of Delhi as India's capital

1 New York Times on Alabama’s bankruptcy filing. Last-ditch efforts by the governor of Alabama to prevent a record-breaking municipal bankruptcy in his state broke down on Wednesday, as the Jefferson County Commission voted 4 to 1 to declare bankruptcy on roughly $4 billion of debt. After the vote, lawyers for the county filed a Chapter 9 petition in federal bankruptcy court in Birmingham, Ala. At $4 billion, Jefferson County’s bankruptcy eclipses the $1.7 billion bankruptcy filing by Orange County, Calif., in December 1994, the previous record. Jefferson County’s debt grew out of poorly conceived efforts to finance a court-ordered rebuilding of its decrepit sewer system. The county used a complicated combination of debt instruments and derivatives that was supposed to save money, but it failed in 2008, leaving it with more debt than it could repay.

2 Johannesburg Times reporting that its home city is in cash crisis. The City of Johannesburg - South Africa's industrial and economic hub - is facing a liquidity meltdown that could see it fail to meet its short-term liabilities in a matter of days. Municipal finance spokesman in Johannesburg, Patrick Atkinson, said any unforeseen crisis in the municipality could result in the council failing to pay creditors. Atkinson said: "National Treasury has indicated its deep concern about Johannesburg's liquidity position. Treasury's requirement is that all metros hold three months in cash and cash instruments to ensure that they can meet their short-term liquidity requirements and pay creditors. Johannesburg has 12 days' worth of cash cover." For the past two years, the city has been unable to bill residents correctly because, it says, of the failure of its R580-million Project Phakama - an IT system which was intended to integrate all municipal services accounts into one billing database.

3 BBC’s Robert Peston on eurozone’s existential crisis. The eurozone faces an existential crisis following alarming increases in the interest rates that Italy would have to pay to borrow. Every single maturity of Italian government bond, from one year up to 30 year, closed at a yield well over 7%. On any new borrowing, Italy would now have to pay well over 7% and if that rate were applied to its entire 1.8tn euros of debt, well it would cripple Italy's economy, which in turn would make it impossible for Italy to repay its debts. What's the solution? Well the creation of a stable government in Italy with credible policies for easing the burden of debt would help to reassure investors that lending to Italy would not be throwing good money after bad. But Italy's political history does not augur well for the establishment of a strong government able to make tough economic decisions. Reason dictates that Germany will put up the necessary money because the alternative, Italy being unable to repay its debts, would cause economic misery in Europe and beyond, and could fracture the eurozone.

4 Straits Times report that Steve Jobs was the most used name in media in 2011. 'Arab Spring' and 'Royal Wedding' were on Wednesday deemed the top phrases of 2011, while late Apple co-founder Steve Jobs is the year's top name, according to a global survey of the English language. 'Occupy' - be it Iraq or Wall Street - and 'deficit' were the two single top words of the year in a list that reflected global turmoil.

5 The Economic Times on India’s impending energy crisis. India is staring at an energy crisis after December as state-run refineries will start shutting down because they will run out of money to import crude oil, Indian Oil Corp chairman RS Butola said after declaring the company's biggest quarterly loss. IOC posted the second successive quarterly loss because it has not been compensated for selling kerosene, cooking gas and diesel below market rates. This is forcing IOC to buy crude oil with borrowed money, but banks cannot endlessly support this as the company's borrowings have surged to over Rs 730bn and it is unable to raise prices of fuels. Oil companies are trapped between the government's political and economic compulsions, which are blocking moves to pay subsidy or to raise fuel prices: The government is under strong political pressure to freeze fuel rates while the finance ministry, which is struggling to meet its fiscal targets, is looking for ways to raise revenue and reduce expenditure on subsidies. Butola said the company had reported its "worst ever" loss of Rs 74.86bn in the second quarter of the current fiscal after the government did not pay it a penny to compensate its Rs 117.57bn revenue loss.

6 Kiran Karnik writing in The Times of India that India’s nuclear deal is beginning to look like an increasingly bad idea. Despite repeating 'Open Sesame' many times over for three years, the door that was to usher us into the nuclear club remains tightly shut. No genie to grant our wishes magically appears even after endless rubbing of the lamp. Were we taken for a ride and sold a dud lamp? We were to be chaperoned into the nuclear club, to presumably sit at the high table, by our chosen mentor, the US. This was to be India's 'reward' for signing the nuclear deal. The agreement itself, signed in the face of strong opposition from the Left parties, saw the government staking its survival on this issue.

It is now clear that the benefits of signing the nuclear deal no longer exist and the gains are, at best, minimal. Yet, the cost - especially in terms of strategic space and manoeuvrability - remains high. Is it time, then, to revisit the agreement? Given India's standing and reputation, there is no question of repudiating the agreement. However, there are other ways of effectively annulling it and extracting ourselves from the self-imposed constraints. Formulation of appropriate domestic laws - which override international agreements (emulating how the US denied us fuel for Tarapur) - is one way.

7 Mint on Delhi celebrating a 100 years as India’s capital. December marks the hundred years of Delhi being designated as the capital of India. It was at the Delhi Durbar of 1911 that King George V announced that the capital was moving to Delhi from Calcutta. Now one could argue that Delhi was the capital of several monarchies and empires before that. Delhi famously sits on the remains of seven Delhis before it, starting with that of the Tomar dynasty established in AD 736. But it is reasonable to assume that Delhi became the national capital, in the sense we know it today, a 100 year ago. (The Wall Street Journal also carries interesting reports on the Delhi Durbar of 1911.)

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