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BRICS joint action at G20 summit may be wishful thinking
7/19/2013 5:02:55 AM
By Alonso Soto
BRASILIA (Reuters) - Plans by the world's leading emerging economies to join forces to battle the latest bout of global financial turbulence could remain on the drawing board once again at the G20 meeting in Moscow this week.
An exodus of capital from Brazil, Russia, India, China and South Africa prompted by an expected scale-back in U.S. monetary stimulus has raised fears about the health of their economies, which are already losing some of their lustre.
The reversal of the "monetary tsunami" - as Brazil called the flood of cheap money from developed nations - prompted the South American nation's president, Dilma Rousseff, to phone her Chinese counterpart in June to discuss "coordinated action" to offset the sharp appreciation of the U.S. dollar.
Indeed, there are reasons for the BRICS to worry. Massive capital outflows have weakened most of their currencies, raising inflationary pressures and forcing Brazil and India to tighten liquidity at a time when their economies are underperforming.
This week's meeting of the 20 leading world economies was supposed to be the stage for the BRICS to discuss and propose joint measures to limit the fallout of a stronger greenback.
However, unlike their wealthier counterparts at the G7 group, the BRICS are still far from either coordinating monetary policy or jointly intervening in forex markets.
The BRICS surprised many by starting work on a $100 billion reserve fund and a joint development bank to reshape the global financial architecture long dominated by rich nations. These new institutions will still take some time to materialize.
Russia's Finance Minister Anton Siluanov acknowledged in an interview with Reuters that talks for measures to shield the BRICS from global headwinds are moving slowly.
Another BRICS official currently at the G20 meeting in Moscow put it more bluntly; "There are no discussions inside the BRICS about measures to battle a stronger dollar ... We just want to secure what we had agreed on previously."
Beyond promises to speed up the creation of the BRICS bank and a reserves fund, the five nations will again have little to show during the G20 meeting.
At their last summit in South Africa earlier this year, the BRICS, which make up a fifth of the global economy, disappointed many with what appeared to be lack of conviction to create the new institutions.
BRICS officials have shrugged off criticism saying that it takes time to build solid institutions. Some analysts point to disagreements inside the widely-diverse group as the cause for the delay. The reserves pool is expected to be formally launched at a BRICS summit in Brazil next year and the bank could take years to start lending money.
Brazil, one of driving forces behind the projects, did not send its finance minister to the G20 this week so he could focus on domestic problems instead.
BRICS STARDOM FADES
The group, which traces its origins from a term coined by a Goldman Sachs banker in a 2001 research note, has emerged as a possible counter balance to the hegemony of the United States, Japan and Europe on the global economic stage.
Until recently the group provided the main engines of growth for a global economy rattled by back-to-back crises in the developed world. The BRICS are now seeing their own economies fade somewhat.
In its latest health check of the world economy, the International Monetary Fund warned that the BRICS economies are running into speed bumps. The IMF cut its 2013 growth estimate for Russia to 2.5 percent from 3.4 percent and sees Brazil growing also 2.5 percent. Three years ago Brazil grew 7.5 percent.
That slowdown could further dim BRICS' hopes of joining forces to influence the global economy, analysts say.
"The BRICS will only persevere as a group ... if these countries continue to grow," said Marcos Troyjo, a former Brazilian diplomat who is co-director of Columbia University's BRICLab in New York.
"Because individually the situation in each of the BRICS countries is different the amount of coordinated efforts that can actually come to fruition is very thin."
Expectations of a withdrawal of U.S. monetary stimulus has further deteriorated their economies, sparking a sell-off in emerging-market markets as investors return in mass to safe-haven assets.
Emerging market stocks <.mscief> are down more than 9 percent this year - with Brazilian stocks losing a whopping 21 percent. The South African rand, India's rupee and the Brazilian real have been some of the world's worst performing currencies this year with losses reaching nearly 15 percent.</.mscief>
Not all their economic woes can be blamed of dwindling global liquidity.
Most BRICS failed to make the structural reforms needed to shield their economies after a decade of cheap money, gushing foreign investment and high commodity prices.
"There were some mistakes made along the way. We are not yet at a stage where the BRICS can change the fate of the world economy together," said a BRICS diplomat posted in Brazil. "But we are showing that we are on the way there."
(Additional reporting by Lidia Kelly in Moscow; Editing by Anthony Boadle and Andrew Hay)
Detroit raced to file bankruptcy ahead of move to block it
7/19/2013 4:31:03 AM
By Deepa Seetharaman and Karen Pierog
DETROIT (Reuters) - Detroit's historic municipal bankruptcy filing on Thursday came less than 10 minutes before lawyers for the city's pension funds and retirees had rushed to another court to try to block it.
The bare bones bankruptcy petition, which came at 4:06:22 p.m., blindsided everyone in the room, according to two lawyers who were in state court in Lansing, Michigan, at the time. Even the lawyer representing the governor and the judge were caught unaware.
"I think everybody was surprised," said Bill Wertheimer, an attorney for a group of current and retired Detroit city workers who filed a lawsuit early this month to try to block any bankruptcy.
"The attorney general, he claimed to know nothing about it, like he was deaf, dumb and blind," said Wertheimer, who is paid by the United Auto Workers. "The judge was clearly taken aback."
The largest-ever municipal bankruptcy in U.S. history puts at risk the future of retiree pension and health benefits for thousands of city workers.
Although city retirement benefits are enshrined in Michigan's constitution, Kevyn Orr, the city's state-appointed emergency manager, outlined a plan for creditors that would include significant cuts in pension payments.
In a bid to safeguard the benefits of Detroit retirees, workers and pension funds filed lawsuits challenging the authority of Republican Governor Rick Snyder to authorize a bankruptcy proceeding.
Even after the bankruptcy filing had popped up on a federal court website, Ingham County Circuit Court Judge Rosemarie Aquilina still issued a temporary restraining order on any further action by Snyder and Orr in the bankruptcy case pending a hearing, according to a copy of the order obtained by Reuters.
That hearing could come as soon as Friday, according to Aquilina's law clerk.
In the hours following the bankruptcy filing, officials for the UAW and other unions said Snyder and Orr had falsely conveyed the impression a filing would not come soon. UAW general counsel Michael Nicholson said papers filed in Ingham court earlier in the week suggested bankruptcy was not imminent.
In that filing on Monday, the state had said an effort to prevent a bankruptcy filing was "premature, overbroad and constitutionally infirm." The state added that concerns a bankruptcy could wipe out their pensions were "not ripe" and based on events "that may or may not occur."
"The bottom line is the governor is being duplicitous," Nicholson said. "You can prove that by looking at what they filed at court."
Orr disagreed with the assessment, telling reporters during a press conference Thursday that he had negotiated "in good faith."
"Quite frankly, I've bent over backward in the past three plus months to, as I said initially in this very room (on my) first day, to offer an olive branch, to reach out to constituencies," Orr told reporters Thursday.
Under a 2012 Michigan law, the governor must approve a Chapter 9 municipal bankruptcy filing for a local government if that move is recommended by the state-appointed emergency manager running that government.
A hearing had been scheduled on Monday in Ingham County Circuit Court on the city workers' and retirees' challenge.
But attorneys for the Detroit's pension funds caught wind of a possible bankruptcy filing and on Wednesday sued Snyder and Orr to prevent them from filing for bankruptcy protection. They asked Judge Aquilina for an emergency hearing Thursday afternoon, Nicholson said.
The judge granted the order barring Snyder from authorizing or supporting the bankruptcy -- but it came minutes after the bankruptcy was filed.
"At the same time, we have Detroit having filed for bankruptcy," Wertheimer said. "Almost simultaneously we have a state court judge issuing an order telling the governor not to authorize the bankruptcy and not to do anything to support anything that is filed."
The state court order may be too late, according to W. Clark Watson, an attorney at Balch & Bingham LLP, who co-wrote a municipal bankruptcy guide for public finance attorneys.
"I think that a state court order enjoining the proceedings in a federal bankruptcy court would be extraordinary, at best," Watson said, adding that federal bankruptcy would trump state law.
He added that Detroit's Thursday filing likely came down to "a race to the courthouse" as the city initially filed only a petition that lacked the reams of documents that usually accompany a filing on the day it reaches court.
"That is not necessarily any disadvantage to the city; just not the orderly process that its lawyers would have otherwise preferred," Watson said.
(Additional reporting by Joseph Lichterman in Detroit and Jonathan Stemple in New York; Editing by Ken Wills)
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