Military Juntas of the Twenty-First Century: Guinea

The leaders of the coup in the West African nation of Guinea plan to hold elections in 2010. A group of junior officers, led by Captain Moussa Dadis Camara, took power after the death of "President" Lansana Conte on December 22. Camara's junta has moved to consolidate power, "demoting" 22 generals, using force to intimidate powerful allies of the old regime, and threatening to execute anyone engaged in corruption. Guinea under Conte was named one of the ten most corrupt countries by Transparency International. Despite widespread support for the coup within Guinea, the new government was immediately shunned by the African Union and regional West African groups ECOWAS and the Mano River Union.

So there's a military coup in some little African country named after a flightless bird, or perhaps a unit of British currency...so what?

So... Guinea has the world's largest deposits of bauxite, the ore used to make alumina, which is then processed into aluminum. To illustrate the importance of Guinea to the international alumina market: during disturbances in 2007, the price of alumina jumped 76%. The country also has large deposits of iron ore, gold, and diamonds. Several multi-national corporations have multi-billion dollar extraction and processing projects planned, and other projects are already operating. There is a lot riding on control over these resources.

Gasps of horror as the junta announces, soon after seizing power, that it will be "cancelling all mining contracts". Interested parties include:

-Rio Tinto (British and Australian, world's 2nd or 3rd largest mining company), interested in building a $6 billion dollar iron ore project at Simandou (video). Their license to mine there, granted in 2006, was rescinded in August 2008, most likely because they were unwilling to pay additional bribes demanded by the Conte regime. Rio Tinto also owns Canadian aluminum company Alcan (the world's largest aluminum company) who has a stake in the Guinean national bauxite mining company (CBG), and is exploring its own alumina refinery. Rio Tinto has said the Simandou project, undertaken in concert with World Bank, has the potential to generate $10 billion dollars per year, and they had already spent more than $300 million to develop it. The value of this project was essential to Rio Tinto resisting a hostile takeover by BHP Billiton -- which leads us to our next interested party.

-BHP Billiton (Australian and British, world's largest mining company), co-majority stakeholder (33.3%) in the Guinea Alumina Corporation (which is 100% foreign-owned), as well as several other bauxite opertions. They had plans to build a $4.8 billion dollar alumina refinery. As noted above, they are attempted a takeover of Rio Tinto which would make their dominance of the mining industry unparalleled.

-United Company Rusal (Russian, world's second largest aluminum company), owns the Friguia Alumina Refinery, the purchase of which it was forced to renegotiate earlier this year by the Conte regime. The company is owned by Russian billionaire magnate Oleg Deripaska, who has faced some recent financial difficulties after being sued in British court by former Russian/Israeli business partner Mikhail Chernoy/Michael Cherney over shares in UC Rusal. Deripaska also had his visa revoked by the US State Department, and had ties to former Presidential candidate John McCain.

-Alcoa ( American, world's third largest aluminum company), owns a large stake in CBG (Rio Tinto Alcan and Alcoa both have a 45% stake in the Halco consortium, which in turn owns 51% of CBG - the Guinean government owns 49%). In July 2008, just before they extorted Rio Tinto over Simandou, the Conte regime replaced the existing Alcoa management of CBG.

-AngloGold Ashanti (British, South African, Ghanaian, large international gold miner), owns the Siguiri gold mine. The company was accused by Human Rights Watch of supporting a murderous group in the DR Congo in order to access a gold-rich area in that turbulent country.

-Benny Steinmetz (Israeli billionaire, invested in diamonds, real estate, and mining engineering projects through Bateman Engineering), several weeks before the coup claimed to have been granted half of Rio Tinto's Simandou area by the Conte regime.



check back for more later...

Military Juntas of the Twenty-First Century: Bangladesh

The secular Awami League, led by Sheikh Hasina, has won the recent Bangladeshi parliamentary elections in a landslide. Although the opposition Bangladesh Nationalist Party, led by Khaleda Zia, has challenged the election, the results seem clear and the elections were declared free and fair by international obeservers. This new parliament is set to take control of the impoverished nation from the military junta which had ruled for two years. The military junta (benignly known as the "caretaker government") began in early 2007, after the previous electoral battle between the Awami League and the BNP turned into a bloody and chaotic street war.

The results of 2008 are a big shift from the results of the last standing election in 2001. That election saw the right-wing BNP win 193 seats to Awami's 62, and the main Islamist party take 17 seats. In contrast, the 2008 elections see the Awami-led coalition take more than 260 to BNP's 31, and the Islamist party "almost wiped out". Note that there are 300 seats in the Bangladeshi parliament.

Between floods, poverty, cyclones, and military intrusions into politics, it seems unlikely that Bangladesh would be able to sustain democracy. And there certainly remains a possibility that the opposition parties will cause a ruckus and incite more violence. Hopefully the will of the people will be respected, and the "caretakers" will step aside as planned.

Hot off the presses: Uh-oh.



Bangladeshis line up to vote (courtesy of the CBC)

Ecuador Drops the D-Bomb

Ecuadorean President Rafael "The Mentalist" Correa announced Saturday that his country will be defaulting on an upcoming payment for "illegitimate" loans made by previous administrations. Ecuador was supposed to be making a $30 million dollar interest payment (and you thought your API was bad!), mostly to international banks and foreign governments. The power to default on foreign loans was given to El Presidente by the massive, Chavez-style referendum which was approved (64%) by the voters back in September. Correa made it clear that despite the global economic ice storm, Ecuador retained enough capital to make these payments -- but that it chose not to, based on a recent internal audit which found that these loans were illegitimate under Ecuadorean law.

This was a minor story carried by most MSM under the auspices of the global economic ice storm. However a story from everyone's favorite journalistic go-getter, McClatchy Newspapers, points out that this is the first time a country has defaulted on foreign debt simply out of choice. This is certainly a significant step towards a more level playing field in international debt financing. I believe Correa's action here fits under the general theme of the Great Financial Finger-Pointing of 2009. In this economic crisis, villains are easy to cast, and Correa has cast his finger, rightly so, at the Global South loan-peddlers and their financial enablers. Other countries and foreign affairs blog editors may also take this time to default on loans. It's like karaoke Thursday at the local bar -- everyone's already drunk and singing Marvin Gaye songs off-key, so what the hell, give me the microphone and shot of cheap whiskey.

Correa is already pretty popular, and this D-bomb can only add to his appeal. He will encounter problems if the price of oil keeps dropping, as this industry represents a good chunk (around 40%) of his economy. For now foreign investors will probably resort to some pushy lawsuits and threats to cut off foreign financing. These tactics are nearly moot. Correa has already contracted the massive Boston law firm of Foley & Hoag (Fox News "expert" talking point #1: Foley & Hoag also represents some detainees at Guantanamo Bay) to sue some of the original investors in the "illegitimate" loans. Threats to cut off foreign financing are basically toothless at a time when insolvency is the new black for practically every international financial institution -- the money's not coming, whether it's "cut off" or not.

Interesting soap-opera side note: The same day Correa made his announcement, his foreign minister resigned. Maria Isabel Salvador had only been in office for a year. Are these events related, or is her family just that cool?

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Addendum (12/16/08)

The collective mouth of the Western financial world opens in shock and horror. A Third World country defaulting on foreign loans -- and this time it's not because their coffers have been licked dry by a corrupt banana dictator! A puny wanna-be socialist telling Wall Street bankers he's got better things to do with his money then pay them exorbitant interest rates! What nerve! We must teach him a lesson!

The Fitch Rating Agency slaps Ecuador with an across-the-board investment downgrade. Portfolio.com declares Correa "idiotic". Seeking Alpha ties the decision to an anti-imperialist 'Bolivarian' ideology. So this default decision was short-sighted and lacked pragmatism...right?

Wrong. Rafael Correa is no short-sighted populist. He has a PhD in Economics from the University of Illinois. His new foreign minister, Fander Falconi, has a doctorate in economics from la Universidad Autonoma de Barcelona. These are not men who lack awareness of the consequences of their actions. Correa's administration has been threatening to default on this "illegitimate" debt for over a year, and specifically included the power to do so in their September referendum. Everyone agrees the country retained, and retains, the ability to make these payments, as they have been doing for decades under both leftists and military juntas.

The debt default is part of a well-planned and forward-thinking economic policy. One goal of this policy seems to be the end of dollarization in Ecuador. Ecuador has used the dollar since 2000, when its local currency, the sucre, spiralled out of control. The dollar is no longer the monetary heavyweight it once was, and Ecuador is not alone in trying to escape the Dollar Zone. Another part of this policy is the assertion of a precedent in international North-South lending: Don't make deals with illegitimate governments, because those deals can be thrown out later.

I think Correa is also betting on a lot of the investors to bite on debt renegotiation. This debt has already been renegotiated twice before. However many of these investors are short on capital given the current climate, and Ecuador's ability to pay make renegotiation, even on very pro-Ecuador terms, much more attractive than any attempt to seize assets through the courts. So in this way Correa can take advantage of the economic glo-pocalypse to rid himself of burdensome debt servicing, set a strong precedent for poor debtor nations weaning themselves off the Washington Consensus, and all the while increase his local and regional popularity.