America the petrostate China meets Taiwan Activist shareholders are back The new biotech boom
FEBRUARY 15TH– 21ST 2014

Towards a better condom

The parable of Argentina
What other countries can learn from a century of decline

5 The world this week Leaders 7 Government The parable of Argentina 8 Shareholder activism Corporate upgraders 8 Geopolitics The petrostate of America 9 Central banks Fixing forward guidance 10 Britain’s ?oods Canute Cameron On the cover Argentina’s century of decline holds lessons for too many of its peers: leader, page 7. In 1914 its economy had grown faster than America’s for four decades and its people were richer than the Germans. What went wrong? Pages 17-20 Letters 12 On car safety, Cyprus, the NHS, Pete Seeger, beauty, food, trains, Congress Brie?ng 17 The tragedy of Argentina A century of decline Asia Pakistan’s economy The Urdu rate of growth Politics in India Warm-shouldering Running Aceh Laying down God’s law Malaysia’s Sarawak Last of the rajahs Japan’s cuisines Acquired taste Banyan America loses its rebalance 32 Health policy Obamacare delayed 32 Charter schools Killing the golden goose 33 New Orleans politics Countertop corruption 34 Lexington Florida pensioners and pork The Americas 35 Governing Mexico All the president’s men 36 Brazilian energy Rain-checked 36 Canada’s budget Something doesn’t add up 37 Bello Time to hug a Cuban Middle East and Africa Zimbabwe’s economy Sliding backwards again Central African Republic Sectarian slaughter Nigeria’s image in Africa Big country, thin skin Syria’s Palestinians No more a haven The Arab lands’ Jews They lost out, too

The Economist February 15th 2014 3

America the petrostate The fracking revolution is good for the country and the world. The bene?ts would be even bigger if Barack Obama got his energy policies right: leader, page 8. The economics of shale oil, page 29. America’s economy has been hit hard by unemployment, page 63

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Volume 410 Number 8874
First published in September 1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress." Editorial o?ces in London and also: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Hong Kong, Johannesburg, Los Angeles, Mexico City, Moscow, New Delhi, New York, Paris, San Francisco, S?o Paulo, Singapore, Tokyo, Washington DC

China 27 Cross-strait relations Symbolism as substance 28 Academic freedom Don’t think, just teach 28 The trade balance A number of great import United States 29 The economics of shale oil Saudi America 31 New Republican ideas Hell, maybe 31 How to date a supermodel The curse of misleading headlines

Europe 43 Putin and the media Dreams about Russia 44 Censorship in Turkey Web conspiracies 45 French reforms Taxi wars 45 Dutch angst We need to talk about Europe 46 Protests in Bosnia On ?re 46 The Cyprus problem A glimmer of hope 47 Charlemagne Switzerland’s crossbow

Taiwan and China O?cials from the two sides meet, for the ?rst time, page 27. A crackdown on China’s free-thinking academics, page 28

Britain’s ?oods They are not David Cameron’s fault: leader, page 10. Extraordinary weather has made people better neighbours, page 49

1 Contents continues overleaf

4 Contents

The Economist February 15th 2014 66 South Korea’s housing market Lumping it 67 Credit-card fraud Skimming o? the top 67 Western Union Finance in purgatory 68 Free exchange Central-bank co-ordination Science and technology 73 Condom technology Sheathing Cupid’s arrow 74 Automated construction ’Bot the builder 75 Cancer Secondary goals Obituary 76 Hillary Clinton Ladies ?rst 77 The lift, a life Upside 77 America’s ?rst subways Boston loves NY 78 New pharma Times a-changing 78 Caryl Churchill? Top girl 79 Yves Saint Laurent Top boy 84 Economic and ?nancial indicators Statistics on 42 economies, plus a closer look at housing starts Obituary 86 Shirley Temple A walk on the bright side Next week We publish a special report on companies and the state. Their relationship is becoming increasingly antagonistic, says Philip Coggan. But the two sides should not overdo it: they need each other

Britain 49 The ?oods High water everywhere 50 Interest rates Forward progress 52 Bagehot The British Vikings International 53 Medical tourism Médecine avec frontières 54 Online drug-dealing The Silk Road, reborn 54 Valentine’s Day Love’s enemies Business 55 Corporate governance Anything you can do, Icahn do better 56 Biotechnology Fever rising 57 Aircraft-manufacturing in Indonesia On a wing and a prayer 58 Carmaking in Australia Driven away 58 Cable television All-conquering Comcast 59 The circus business Sunstroke 60 E-commerce in China No pro?ts, we promise 61 Schumpeter Boardroom English Finance and economics 63 Unemployment in America Closing the gap 64 Buttonwood Growth and returns 65 German courts and the ECB It isn’t over 65 Investment banks Europe and America

Activist shareholders Investors like Carl Icahn have changed. So should the rules that constrain them: leader, page 8. The pressure on companies from activist shareholders continues to grow, page 55

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Biotech boom There are reasons to hope that this one will not be followed by another bust, page 56. How the pharmaceutical world is evolving, page 78

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The world this week
seated at a function between Barack and Michelle Obama, who declared “we love our French friends.” After a breakdown in negotiations 18 months ago, the Greek-Cypriot and TurkishCypriot leaders at last started talking again at a UN compound in Nicosia about how to end the island’s division, in place since 1974. To the delight of populists and the horror of the European Union, Switzerland voted in favour of quotas for EU migrants. The referendum was passed by a thin margin, but means free movement for EU citizens into Switzerland is no longer guaranteed. It also puts into question Swiss access to the EU single market. Germany’s foreign minister, FrankWalter Steinmeier, criticised the vote, and said that “cherrypicking with the EU is not a sustainable strategy”. Britain’s immigration minister resigned after it emerged that he employed a cleaner at his London home who is not entitled to work in the country. Mark Harper had spearheaded the government’s campaigns to crack down on illegal workers and to deter legal European migrants from coming to Britain. Scotland’s Nationalists accused the three main political parties in Britain of “bullying” as they formally ruled out a currency union should Scots vote for independence in September’s referendum. Campaigning on the prounion side has stepped up markedly over the past few weeks, amid concern that the pro-independence movement is gathering steam (though it is still behind in the polls). Fran?ois Hollande, the president of France, was welcomed warmly on a state visit to America. Previous grievances, such as France’s opposition to the Iraq war, were not mentioned. Mr Hollande ?ew solo following his break-up from Valérie Trierweiler. He was

The Economist February 15th 2014 5
At least two people died during an anti-government demonstration in Caracas, the capital of Venezuela. Violence also marred protests in other parts of the country, as discontent grows with the regime of Nicolás Maduro, the country’s president. Canada’s ruling Conservatives unveiled a budget that would cut the de?cit further in the 2014-15 ?scal year and yield a surplus the following year. Stephen Harper, the prime minister, has made balancing the budget a priority in advance of elections in 2015. factory” that radicalises ordinary inmates. The UN reported that Afghan civilian casualties rose 7% last year, to 3,000. Yoichi Masuzoe cruised to victory to become governor of Tokyo. He was backed by Shinzo Abe, Japan’s prime minister, and favours restarting Japan’s nuclear reactors, which have been shuttered since the 2011 earthquake and tsunami.

The long haul Another round of talks involving representatives of Syria’s government and opposition took place in Geneva. Little progress was visible, though hundreds of civilians were evacuated under a recent truce from the rebel-held and long-besieged part of the city of Homs.

A brave man

It’s taken only 65 years… China and Taiwan held their ?rst high-level talks since the end of the Chinese civil war in 1949. The two most senior cross-strait o?cials from each side met in the Chinese city of Nanjing in what is widely seen as a con?dence-building exercise. In the past, all talks have gone through quasi-o?cial organisations.
Thailand’s constitutional court rejected an opposition request to annul the general election that was held on February 2nd. The opposition, which wants Yingluck Shinawatra to resign as prime minister, disrupted the election and then claimed the poll violated the constitution because it was not completed in one day. Voting is scheduled to be held in April in constituencies where polling was thrown into disarray on February 2nd. Senior diplomats from North and South Korea held talks, hastily set up at the North’s suggestion. They got nowhere, but promised a second round of discussions. John Kerry, America’s secretary of state, visited South Korea amid protests from the North about the South’s forthcoming military exercises with America. America criticised Afghanistan’s decision to release 65 prisoners from the high-security Bagram prison, alleging that some of them were hardened terrorists. Afghanistan says Bagram is a “Taliban-making

Sectarian mayhem in the Central African Republic persisted, prompting a French general recently in charge of the peacekeeping force there to say it should be much reinforced if it is to have a chance of restoring peace.

John Boehner, the Republican Speaker of America’s House of Representatives, helped push through a vote to raise the federal debt ceiling, which passed without any conditions attached. The bill was supported by 28 Republicans and was notable for avoiding the Tea Party-infused dramas that have marked negotiations over the federal debt since 2009. America’s Justice Department issued an edict to its sta? to recognise same-sex marriage “as broadly as possible” under federal law. The policy will give gay couples the same rights as straight ones, so that, for example, gay spouses can refuse to testify against their husbands or wives. Robert Ho?man, a former cryptology technician in the American navy, was sentenced to 30 years in prison for attempting to sell secrets to FBI agents posing as Russian operatives. Ray Nagin, who was mayor of New Orleans when Hurricane Katrina struck in 2005, was found guilty of accepting bribes from contractors. He is the ?rst mayor to be convicted for corruption in New Orleans, which has a reputation for 1 ?amboyant graft.

Open to suggestions The EU agreed to launch talks on a new trade-and-investment deal with Cuba. The talks may begin next month and are partly designed to encourage the island’s reforms and promote human rights.
Leaders of the Paci?c Alliance countries—the trade bloc’s members are Chile, Colombia, Mexico and Peru—signed an agreement scrapping the bulk of tari?s on goods and services traded between them. The deal reinforced the contrast between the Alliance and Mercosur, Latin America’s other big trade group, which is far more protectionist.

6 The world this week
Carl Icahn, a renowned activist investor, ended his campaign to get Apple to buy back more of its shares, after an investment consultancy advised against it. Mr Icahn had wanted Apple to spend $50 billion on repurchases; it has stumped up only $14 billion. Opinion is divided over the role of Mr Icahn (and activist investors in general). Some see his interventions as undermining long-term performance; others see them as an essential check on entrenched and imperious managers. After six months of speculation Comcast emerged as the winner in the battle to take over Time Warner Cable. The deal to combine America’s largest and second-largest cable-TV providers will come under intense scrutiny from antitrust regulators.

The Economist February 15th 2014
A political row erupted in Australia about Toyota’s decision to shut its operations in the country in 2017. That will bring an end to Australian carmaking: Ford and General Motors’ Holden division are also closing down. The government pointed to carworkers’ demands, but Toyota said it never blamed the union, and instead cited other factors, such as the strength of the Australian dollar. It emerged that Britain’s Serious Fraud O?ce had searched several addresses in London and arrested two people in relation to its investigation into alleged bribery by employees of Rolls-Royce. In 2012 the aerospace company provided information to the SFO about “allegations of malpractice in Indonesia and China”. Nestlé, a Swiss food group, sold back 8% of the 29% stake it held in L’Oréal to the French cosmetics company. As part of the deal Nestlé gains full control of Galderma, which makes treatments for skin conditions. This will become the core of a new subsidiary, Nestlé Skin Health, that will focus on the growing business of “nutricosmetics”. Starbucks did not see the funny side when a television comedian opened Dumb Starbucks, a co?ee shop in Los Angeles that mimicked the original in close detail, but inserted the word “dumb” in front of various items on the menu and gave beverages new names, such as Wuppy Duppy Latte. It was promptly shut down because it did not have a permit to sell drinks. Other economic data and news can be found on pages 84-85

Mark Carney, the governor of the Bank of England, dumped the “forward guidance” that connected decisions on interest rates to Britain’s unemployment rate, which has dropped much faster than the bank forecast. Facing down criticism of his policy, Mr Carney said that forward guidance is “working” and that “uncertainty about interest rates has fallen.” The bank will consider a broader range of indicators in its future guidance. It is not expected to raise rates for at least a year.

Tokyo yo-yo
Bitcoin price
Mt.Gox exchange, $ 1,200 1,000 800 600 400 200 0

Steady as she goes Markets responded positively to Janet Yellen’s ?rst testimony to Congress as chairman of the Federal Reserve. She defended the Fed’s “tapering” of its asset-buying programme with con?dence and predicted it would continue throughout the year, though she was “surprised” by weak recent data from the labour market. Employers added just 113,000 jobs to the payrolls in January, far below expectations.
Portugal’s latest sale of longterm bonds at auction was almost three times oversubscribed. Portugal hopes to follow Ireland and make a clean exit from its bail-out programme this year. Barclays was criticised for increasing its bonus pool by 10%, despite reporting a 32% drop in annual pre-tax pro?t, to $5.2 billion. Antony Jenkins, who took over from Bob Diamond as chief executive promising a new era, defended the bonuses as necessary to retain talent in a highly competitive market. Pro?t at its investment bank fell by 37% last year; bonuses rose by 13%. Barclays is shedding thousands of jobs. BNP Paribas said it had found “a signi?cant volume of transactions” over the years that may have broken the rules under American sanctionspolicy. The French bank set aside $1.1 billion for potential ?nes in its quarterly earnings.



Making Hay The success of Supercell, a Finnish developer of games for mobile devices, was underscored when its annual pro?t soared 810%, to $464m. Supercell has published just two games, “Hay Day” and “Clash of Clans”, that are free to download but charge users who want to increase the pace of play. It is launching a third game, “Boom Beach”.

Bitcoin’s reputation as the virtual currency of the future was further dented when Mt. Gox, an online exchange based in Tokyo, halted withdrawals, saying it had detected a glitch that suggested someone had hacked into its system to make transactions disappear. A few days later two European Bitcoin exchanges reported a similar “transaction malleability” issue.


The Economist February 15th 2014 7

The parable of Argentina
There are lessons for many governments from one country’s 100 years of decline CENTURY ago, when Harrods decided to set up its ?rst overseas emporium, it chose Buenos Aires. In 1914 Argentina stood out as the country of the future. Its economy had grown faster than America’s over the previous four decades. Its GDP per head was higher than Germany’s, France’s or Italy’s. It boasted wonderfully fertile agricultural land, a sunny climate, a new democracy (universal male su?rage was introduced in 1912), an educated population and the world’s most erotic dance. Immigrants tangoed in from everywhere. For the young and ambitious, the choice between Argentina and California was a hard one. There are still many things to love about Argentina, from the glorious wilds of Patagonia to the world’s best footballer, Lionel Messi. The Argentines remain perhaps the best-looking people on the planet. But their country is a wreck. Harrods closed in 1998. Argentina is once again at the centre of an emerging-market crisis. This one can be blamed on the incompetence of the president, Cristina Fernández, but she is merely the latest in a succession of economically illiterate populists, stretching back to Juan and Eva (Evita) Perón, and before. Forget about competing with the Germans. The Chileans and Uruguayans, the locals Argentines used to look down on, are now richer. Children from both those countries—and Brazil and Mexico too—do better in international education tests. Why dwell on a single national tragedy? When people consider the worst that could happen to their country, they think of totalitarianism. Given communism’s failure, that fate no longer seems likely. If Indonesia were to boil over, its citizens would hardly turn to North Korea as a model; the governments in Madrid or Athens are not citing Lenin as the answer to their euro travails. The real danger is inadvertently becoming the Argentina of the 21st century. Slipping casually into steady decline would not be hard. Extremism is not a necessary ingredient, at least not much of it: weak institutions, nativist politicians, lazy dependence on a few assets and a persistent refusal to confront reality will do the trick. All through my wild days, my mad existence As in any other country, Argentina’s story is unique. It has had bad luck. Its export-fuelled economy was battered by the protectionism of the interwar years. It relied too heavily on Britain as a trading partner. The Peróns were unusually seductive populists. Like most of Latin America, Argentina embraced the Washington consensus in favour of open markets and privatisation in the 1990s and it pegged the peso to the dollar. But the crunch, when it came in 2001, was particularly savage—and left the Argentines permanently suspicious of liberal reform. Ill fortune is not the only culprit, though (see pages17-20). In its economy, its politics, and its reluctance to reform, Argentina’s decline has been largely self-in?icted. Commodities, Argentina’s great strength in 1914, became a curse. A century ago the country was an early adopter of new


technology—refrigeration of meat exports was the killer app of its day—but it never tried to add value to its food (even today, its cooking is based on taking the world’s best meat and burning it). The Peróns built a closed economy that protected its ine?cient industries; Chile’s generals opened up in the 1970s and pulled ahead. Argentina’s protectionism has undermined Mercosur, the local trade pact. Ms Fernández’s government does not just impose tari?s on imports; it taxes farm exports. Argentina did not build the institutions needed to protect its young democracy from its army, so the country became prone to coups. Unlike Australia, another commodity-rich country, Argentina did not develop strong political parties determined to build and share wealth: its politics was captured by the Peróns and focused on personalities and in?uence. Its Supreme Court has been repeatedly tampered with. Political interference has destroyed the credibility of its statistical o?ce. Graft is endemic: the country ranks a shoddy 106th in Transparency International’s corruption index. Building institutions is a dull, slow business. Argentine leaders prefer the quick ?x—of charismatic leaders, miracle tari?s and currency pegs, rather than, say, a thorough reform of the country’s schools. They are not the solutions they promised to be Argentina’s decline has been seductively gradual. Despite dreadful periods, such as the 1970s, it has su?ered nothing as monumental as Mao or Stalin. Throughout its decline, the cafés of Buenos Aires have continued to serve espressos and medialunas. That makes its disease especially dangerous. The rich world is not immune. California is in one of its stable phases, but it is not clear that it has quit its addiction to quick ?xes through referendums, and its government still hobbles its private sector. On Europe’s southern fringe, both government and business have avoided reality with Argentine disdain. Italy’s petulant demand that rating agencies should take into account its “cultural wealth”, instead of looking too closely at its dodgy government ?nances, sounded like Ms Fernández. The European Union protects Spain or Greece from spiralling o? into autarky. But what if the euro zone broke up? The bigger danger, however, lies in the emerging world, where uninterrupted progress to prosperity is beginning to be seen as unstoppable. Too many countries have surged forward on commodity exports, but neglected their institutions. With China less hungry for raw materials, their weaknesses could be exposed just as Argentina’s was. Populism stalks many emerging countries: constitutions are being stretched. Overreliant on oil and gas, ruled by kleptocrats and equipped with a dangerously high self-regard, Russia ticks many boxes. But even Brazil has ?irted with economic nationalism, while, in Turkey, the autocratic Recep Tayyip Erdogan is blending Evita with Islam. In too many parts of emerging Asia, including China and India, crony capitalism remains the order of the day. Inequality is feeding the same anger that produced the Peróns. The lesson from the parable of Argentina is that good government matters. Perhaps it has been learned. But the chances are that in 100 years’ time the world will look back at another Argentina—a country of the future that got stuck in the past. 7

8 Leaders Shareholder activism

The Economist February 15th 2014

Corporate upgraders
America should make life easier, not harder, for activist investors F YOU want a friend on Wall Street, get a dog,” Carl Icahn once quipped. At the time his habit of buying shares in a company and picking a ?ght with management had got him ostracised as a “corporate raider” and “greenmailer”. Oliver Stone borrowed the canine quip for Gordon Gekko, the coldhearted protagonist of the ?lm “Wall Street”. Today, Mr Icahn does not need the dog: his conduct is applauded by such pillars of the establishment as the head of the Securities and Exchange Commission, the main regulator of America’s ?nancial markets: Mary Jo White believes that shareholder activism has lost its “distinctly negative connotation”. That is partly because rule changes have made activism easier and therefore more commonplace. Nor is it restricted to America: shareholder activism is gaining in popularity around the world, in places such as Japan and continental Europe, where it was once unknown. Not everybody is pleased. Managers, who seldom like investors trying to push them around, mutter about dirty tricks, to do with short-selling and rumour-mongering: those must be proved in court. A better criticism is that activists, who tend to hold shares for relatively brief periods and then pocket the pro?ts of their intervention, force managers to drive up their share prices in the short term at the expense of their ?rms’ long-term health. There is a push to roll back recent rulechanges that have increased the opportunity for shareholders to vote, and ?erce resistance to proposals to allow shareholders to nominate or vote against individual ones. For sure, activist shareholders are not always right. Bill Ackman of Pershing Square did J.C. Penney, an enfeebled chain of clothing stores, no favours when he chivvied it to adopt his ill-


fated plan to revive it. But recent academic studies suggest that, by and large, activists are good for companies. An analysis of around 2,000 interventions in America during 1994-2007 found not only that the share prices and operating performance of the ?rms involved improved over the ?ve years after the intervention, but also that the improvement was greatest towards the end of the ?ve-year period. The ?rms activists targeted tended to be underperforming relative to their industry. These results hold true for the two sorts of activism that tend to be criticised most: actions designed to increase a ?rm’s leverage, such as taking on more debt or using cash to buy back shares, and actions that are especially hostile to a ?rm’s current management. Recent high-pro?le cases support the academics. Activist investors led to new management being brought in at Yahoo, whose share price has since doubled, and encouraged the departure of Steve Ballmer from Microsoft, whose share price is higher than at any time since the dotcom bubble burst. Mr Icahn forced Apple to hand back to investors some of its $160 billion cash pile. Even Tim Cook, the company’s boss, now admits that the ?rm does not have enough decent investment opportunities to absorb it. Stop taking the tablets Rather than making life harder for activists, America’s regulators should make it easier. They could adopt Britain’s practice of allowing activists to call a shareholder meeting at which individual board members can be voted out. “Poison pills” that are triggered when activists buy shares should be banned. On the whole, Mr Icahn and his imitators help to improve corporate performance by stirring up much-needed debate about strategy and leadership, just as in democracies the government of a country is improved by the existence of an e?ective opposition. That is a respectable calling. 7


The petrostate of America
The energy boom is good for America and the world. It would be nice if Barack Obama helped a bit ISE early, work hard, strike oil.” The late oil baron J. Paul Getty’s formula for success is working rather well for America, which may already have surpassed Russia as the world’s largest producer of oil and gas (see page 29). By 2020 it should have overtaken Saudi Arabia as the largest pumper of oil, the more valuable fuel. By then the “fracking” revolution—a clever way of extracting oil and gas from shale deposits—should have added 2-4% to American GDP and created twice as many jobs than carmaking provides today.


All this is a credit to American ingenuity. Commodities have been a mixed blessing for other countries (see our leader on Argentina). But this oil boom is earned: it owes less to geological luck than enterprise, ready ?nance and dazzling technology. America’s energy ?rms have invested in new ways of pumping out hydrocarbons that everyone knew were there but could not extract economically. The new oil?elds in Texas and North Dakota resemble high-tech factories. “Directional” drills guided by satellite technology bore miles down, turn, bore miles to the side and hit a target no bigger than a truck wheel. Thousands ofgallons ofwater are then injected to open hairline cracks in the rock, and the oil and gas are sucked out. From the point of view of the rest of the world, the new 1

The Economist February 15th 2014
2 American petrostate is useful. Fracking provides a source of

Leaders 9

energy that is not only new but also relatively clean, cheap and without political strings. It should reduce the dependence on dirty fuels, such as coal, and extortionate suppliers, such as Russia. Moreover, fracking is unusually ?exible. Setting up an oil rig in the Gulf of Mexico can take years. But America’s frackers can sink wells and start pumping within weeks. So if the oil price spikes, they drill more wells. If it falls, they let old ones run down. In theory, fracking should make future oil shocks less severe, because American producers can respond quickly. Fracking all over the world Some foreign-policy wonks argue that this dramatic change in America’s fortunes argues for a fundamental change in the country’s foreign policy. If America can produce its own oil, they argue, why waste so much blood and treasure policing the Middle East? Yet even if it were politically sensible for America to disengage from the world—which this newspaper does not believe it is—the economic logic is ?awed. The price of oil depends on global supply and demand, so Middle Eastern producers will remain vital for the foreseeable future. It is in the superpower’s interest to keep Gulf sea lanes open (and not to invite China to do the job instead). Although America’s foreign policy should not change, its energy policy should. Its ban on the export of crude oil, for instance, dating from the 1970s, was intended to secure supplies for American consumers. But its main e?ect is to hand a windfall to re?ners, who buy oil cheaply and sell petrol at the global price. Barack Obama should lift it so that newly fracked oil can be sold wherever it makes the most cash. And he should ap-

prove the Keystone XL pipeline, which would carry oil from Canada’s tar sands to American re?neries; an exhaustive o?cial study has deemed the project environmentally sound. America does not ban the export ofnatural gas, but it makes getting permits insanely slow. Fracking has made gas extraordinarily cheap in America. In Asia it sells for more than triple the price; in Europe, double. Even allowing for the hefty cost of liquefying it and shipping it, there are huge pro?ts to be made from this spread. The main bene?ciaries ofthe complicated export-permit regime are American petrochemical ?rms, which love cheap gas and lobby for it. Mr Obama should ignore them. Gas exports could generate tankerloads of cash. To the extent that they displace coal, they would be good for the environment. And they could pay foreign-policy dividends, such as o?ering Europeans an alternative to Russian gas and so reducing Vladimir Putin’s power to bully his neighbours. Allowing exports might cause America’s domestic gas prices to rise a little, but it would also make American frackers pump more of it, cushioning the blow. A world in which the leading petrostate is a liberal democracy has much to recommend it. But perhaps the biggest potential bene?t of America’s energy boom is its example. Shale oil and gas deposits are common in many countries. In some they may be inaccessible, either because of geology or because of environmental fears: but in most they go unexploited because governments have not followed America’s example in granting mineral rights to individual landowners, so that the communities most disrupted by fracking are also enriched by it. Become a champion of a global fracking revolution, Mr Obama, and the world could look on America very di?erently. 7

Central banks

Fixing forward guidance
The Bank of England is doing a better job at explaining its intentions than the Federal Reserve EW central bankers have more faith in the power of % their own pronouncements 8.5 United States than Mark Carney and Janet Yel8.0 7.5 len. Both the smooth-talking goBritain 7.0 vernor of the Bank of England 6.5 and the new chairman of the 2012 13 14 Federal Reserve are strong advocates of “forward guidance”—the idea that central banks can in?uence monetary conditions today by making commitments about how they will behave tomorrow. Mr Carney pioneered the approach while he was head of the Bank of Canada. Before her promotion, Ms Yellen pushed for ever clearer public statements about the Fed’s future actions. Today both are grappling with an awkward problem: the strategy they have championed is not working as expected. So far, Mr Carney is doing a better job of dealing with the consequences. To prop up lacklustre recoveries, both central banks adopted an unusually explicit form of forward guidance. They promised not to consider raising short-term interest rates until unemployment fell to a speci?c threshold: 6.5% in America and 7% in Britain. When these pledges were made (in December 2012 and August 2013 respectively), the jobless rate in both places was far higher and expected to fall slowly. Forward guidUnemployment rate


ance was, in e?ect, a promise to keep rates low for a long time. Reality did not oblige. For di?erent reasons—oddly poor productivity growth in Britain and large numbers of workers dropping out of the labour force in America (see page 63)—the jobless rate has tumbled unexpectedly fast on both sides of the Atlantic. As a result, both central banks are within a whisker of their thresholds, even though in?ation is falling, wage growth is ?at and the recoveries in both countries are fragile. So neither central bank is about to raise interest rates. But instead of clarifying their intentions, the unemployment thresholds are now muddying them. Going forward The pair have responded in di?erent ways. The Fed has downplayed, but not abandoned, its magic number. Its monetarypolicy committee now says that rate rises will not be considered until well after joblessness is below 6.5%. In her ?rst testimony to Congress this week Ms Yellen said she would also take into account other measures, such as the number of longterm unemployed and the share of workers who wanted fulltime jobs but could not ?nd them. But she o?ered no details on what would constitute an adequate improvement. Mr Carney, in contrast, wheeled out a whole new framework on February 12th. “Forward guidance II” scraps the un- 1

10 Leaders
2 employment threshold. Instead, there is an extensive new ex-

The Economist February 15th 2014

planation of the central bank’s plans (see page 50). He says there is still “spare capacity” in the British economy (some 1-1.5% of GDP). Mr Carney’s goal is to get rid of this slack within the next two to three years. Interest rates will not start to rise until the economy is running closer to full tilt, and when they do rise it will be slowly, ending up below 5%. Which approach is better? The vagueness of Ms Yellen’s position has defanged her critics; the absence of numbers means she can claim the Fed’s policy is still intact. By contrast, Mr Carney’s much starker volte-face has been condemned by some as a credibility-sapping shambles. After failing miserably with his unemployment measure, the complaint goes, the governor has adopted a notion of “spare capacity” which will probably mis?re too (and which the man on the street will not understand anyway).

This newspaper begs to di?er. The ?rst iteration of forward guidance in Britain did not fail. Even ifMr Carney’s economists forecast the jobless rate poorly, the guidance itself convinced businesses and investors that rates would not rise soon, despite the recent acceleration in Britain’s growth rate. Financial markets now expect interest rates to start rising in April 2015. Without forward guidance they would have expected a move far sooner. The Bank of England’s new framework sends a clearer message to the markets than the Federal Reserve does, largely because it is much more detailed. Investors now have information about the likely scale and speed of rate rises in Britain, both areas on which America’s central bank is now less specific. In the longer term that clarity should be an advantage for Mr Carney—providing, of course, that this time his forecasters have got their sums right. 7

Britain’s ?oods

Canute Cameron
The prime minister’s response to the ?oods has been patchy; but it is wrong to blame him for them IBLICAL”—that is how David Cameron described the ?oods spreading misery through southern England. Thousands of hectares of farmland have been under water for weeks and over 5,000 houses abandoned. Local railways are damaged and their services in chaos. Soldiers have been deployed to leafy Thames-side suburbs, where looters were rumoured to be splashing through abandoned stockbrokers’ palaces. The prime minister was scarcely exaggerating; yet his recourse to scripture also invited the uncomfortable question of who, exactly, is to blame. The question matters to Mr Cameron. His reputation for competence underpins his party’s electoral chances. He may be able to brush o? the councillor from the UK Independence Party who saw the ?oods as divine retribution for the prime minister’s successful campaign to legalise gay marriage. But British newspapers are full of semi-submerged people blaming his government for their plight: 73% of Britons support a Daily Mail campaign to divert money to ?ood victims from Mr Cameron’s unloved foreign-aid budget. There is even an echo of the opprobrium thrown at George Bush for his useless response to Hurricane Katrina. Some ofthese recriminations are justi?ed. In 2009 the Environment Agency, which is charged with keeping water in its proper place, requested an annual increase in spending on ?ood defences. This was not unreasonable: more people are living in ?ood-prone areas, and global warming is likely to lead to more extreme weather. The agency’s budget for capital expenditure has instead been cut by 28%. The extra cash now promised must be spent on repairing damaged defences, not investing in new ones. It was a failure characteristic of a government that has too often sacri?ced long-term spending on infrastructure to the exigencies of short-term belt-tightening. The government’s initial response to the disaster was also poor. Mr Cameron implied the ?ooding on the Somerset Lev-


els, an area of land below sea-level, had been exacerbated by a decision to stop dredging the man-made rivers that drain it. That suggested the last, Labour, government was to blame. Yet dredging would at best (and at huge expense) have mitigated the ?ooding only a bit. The Environment Agency is right to give low priority to protecting farmland. Towns are more valuable. Torn between con?icting desires to appear in control of the calamity and blameless for the su?ering, other ministers blathered. Eric Pickles, the communities secretary, sniped at the Environment Agency—which is led, not coincidentally, by Lord Smith, a Labour Party grandee. Other Tories unconvincingly blamed their usual bogeys: the European Union, on the basis of one directive or other, and the Liberal Democrats, their main rival in the south-west. For a government that takes pride in its e?ciency, this was a shambles—and one seized on not just by Labour but by Mr Cameron’s many enemies in the press and his own party. It never rains but it pours How much this will hurt Mr Cameron electorally is unclear: most of the ?ooded areas are safe Tory seats. But the scale of the opprobrium is wildly unfair. That is partly because Mr Cameron has got his act together, promising the acceleration of insurance payouts, giving a?ected companies more time to meet tax obligations and stopping the ministerial blather. But the bigger reason is simple: in this instance virtually all the blame should fall not on the government but on that other British bugbear, the weather. Recent weeks have been the wettest in a century. A giant storm surge and some of the biggest waves on record have contributed to a triple whammy of ?ash ?oods, waterlogging and burst riverbanks. Even if Mr Cameron had the wisdom of Solomon and the wealth of Croesus, he could not have prevented the ?ooding. With climate science indicating that future inundations are more likely, Britons will therefore have to assume more responsibility for their own property. Anyone tempted to build or buy a house on a ?oodplain or low-lying sea front should think again. And on this subject, at least, they should stop blaming Mr Cameron. 7


Car protection SIR — Your leader on what to do about the rise in road deaths in the developing world was wrong to suggest that “strict vehicle standards are pricey” (“Reinventing the wheel”, January 25th). Vehicle safety is a?ordable and more achievable than ever before. The UN has a framework of minimum safety standards, including front and side crash tests, that are not costly to implement: the frontal-impact standard can be passed simply by adding an airbag on the driver’s side. It is now also far less expensive to provide car-body shells that will protect passengers in a crash at the standard test speed of 56kph (35mph). These improvements are achievable at unit costs of less than $100 and will become even cheaper as economies of scale are gained in a globalised industry. Frankly, it is scandalous that any new cars are being built below these standards, but this is all too common in rapidly motorising developing countries, where the UN regulations are often not applied. Our partner car-assessment programmes in Asia and Latin America continue to ?nd substandard “zero-star” cars in their independent crash tests. Hopefully by the end of the UN Decade of Action for Road Safety all new passenger cars will meet the minimum crashtest standards. That really will help to reinvent the wheel. DAVID WARD Secretary-general Global New Car Assessment Programme London SIR — Kenya piloted a low-cost scheme that placed stickers in the country’s ubiquitous matatus, or minibuses, urging passengers to speak up against reckless driving. Vehicles that were o?ered the stickers saw a 50% reduction in total accidents compared with a control group. There was an even larger fall of 60% in accidents that cause injuries or fatalities. This intervention o?ered extraordinary value for money. Measured by the cost per year of healthy life saved it was cheaper than childhood immunisation. The increase in road deaths requires a broad range of responses; passenger empowerment should de?nitely be among them. JAMES HABYARIMANA WILLIAM JACK Georgetown University Washington, DC Talking about Cyprus SIR — The recent letter from the Greek-Cypriot high commissioner left me dismayed (February 1st). There is an obvious disagreement between the two sides in Cyprus about the interpretation of historical events. Turkey did not invade Cyprus, but exercised its rights and obligations under the 1960 Treaty of Guarantee to protect the Turkish-Cypriot people and to stop the annexation of the island to Greece. It is disheartening that the GreekCypriots are addressing Turkey and putting it under the spotlight rather than trying to resolve disputed issues together with the Turkish-Cypriots. Had the Greek-Cypriots voted yes for the Annan Plan, as the Turkish-Cypriots did, all the issues, including the opening of Turkish ports and the solution for Maras/Varosha, would have been resolved a decade ago. But it is never too late. Turkey and the Turkish-Cypriots are committed to a comprehensive settlement. We urge the Greek-Cypriots to concentrate on the negotiations and address the issues there, rather than stipulating preconditions and trying to resolve issues away from the negotiating table. OYA TUNCALI Representative of the Turkish Republic of Northern Cyprus London A role for private provision SIR — Bagehot rightly highlighted the “una?ordable rising demand” on Britain’s National Health Service (January 18th). However, the politics of the NHS is preventing a crucial extra step towards a?ordable health care: independent health-care ?rms

The Economist February 15th 2014
working with the NHS to generate capacity and investment and relieve pressure on the health service. The latest Care Quality Commission report found that private, not-for-pro?t and charitable health-care institutions supply high quality, safe, innovative care to patients. The huge challenges that lie ahead for the NHS can only be met through creative thinking and by taking bold decisions. FIONA BOOTH Chief executive Association of Independent Healthcare Organisations London A man for all seasons SIR — You made much of Pete Seeger’s slowness to condemn the Soviet Union (“Bolshie with a banjo”, February 1st). His politics were of the far left, but he was primarily a musician who fought for civil, racial and labour rights, all of which I am sure you would agree fell on the right side of history. He was hardly a coldwar warrior. I don’t recall your report on the death of Milton Friedman giving any weight to his failure to condemn Pinochet’s brutal regime in Chile (“A heavyweight champ, at ?ve foot two”, November 25th 2006). DAN LILOT Mountain View, California Political beauties SIR — The Economist has a record of lookism, describing Nelson Mandela as “handsome”, praising Enrique Pe?a Nieto’s “boyish good looks” and Justin Trudeau’s “good looks”. In 2007 you told us that Ségolène Royal, the Socialist candidate for president in France, “has the press drooling” and called her “dazzling” and “radiant”. Yet you got all tetchy about “beauty-pageant style condescension” directed towards Cathy McMorris Rodgers, a Republican congresswoman, even taking o?ence that John Boehner, the Speaker of the House, described her as “most importantly, a mom” (“More than a mom”, February 1st). However, her o?cial biography emphasises that she has three children and brags that she is the only woman to have given birth three times while serving in Congress. Being a mother is vital to her personal and political identity. Modern women insist on being able to de?ne themselves. So it is Mr Boehner who is the real feminist for describing her the way she wants to be described. PHIL CHRISTENSON Washington, DC Where’s the beef? SIR — “Hail, the Swabian housewife” (February 1st) mentioned Maultaschen, a dish adapted from “Italian ravioli”. There is an interesting legend behind the food. It is said to have been created by monks in an e?ort to hide meat (inside the pasta parcels) from God’s eye on meatless Fridays and in particular on Good Friday. Hence its colloquial name Herrgottsbescheiberle in Swabian: “little God-cheaters”. KILIAN STRAUSS Tübingen, Germany Train of thought SIR – I was encouraged to read in the executive-focus advertisement section in your January 25th issue that the ?rst skill required for the job of executive director at the European Railway Agency is a “proven track record”. PHILIP CURRAH Vancouver On another planet SIR — I see that NASA spent $3m studying Congress (“Dr No retires”, January 25th). Did it ?nd any sign of intelligent life? DANIEL OLIVE London 7
Letters are welcome and should be addressed to the Editor at The Economist, 25 St James’s Street, London sw1A 1hg E-mail: Fax: 020 7839 4092 More letters are available at:

Executive Focus
Be part of the growth
Recruitment of a Managing Director
The National Social Security Fund (NSSF) is National Saving Scheme mandated by Government through the National Social Security Fund Act to provide social security services to private sector employees in Uganda. NSSF is also licensed by the Uganda Retirement Bene?ts Regulatory Authority as a Retirement Bene?ts Scheme. NSSF is the largest social security services provider in Uganda covering all employees in the private sector working in enterprises that have ?ve or more workers who are not covered by the Public service pension scheme. NSSF’s membership is now over 1.3 million members. The Pension sector is going through major regulatory changes which will lead to a signi?cant impact on employees working with NSSF. NSSF has positioned itself as a dynamic and customer-centric company to continue delivering quality services to the standards of the private sector. Growing at Ugx 50 billion a month plus current assets standing at Ugx 3 (three) trillion and with opportunities that the new social security legislation will present, the Fund is positioning itself to remain the leading social security provider of choice. It is in this regard that NSSF is now searching for an exceptional leader with the right competencies and high levels of proven integrity to manage the fund and drive it towards achieving its strategic objectives. NSSF is looking for a leader who is highly capable of managing change and transformation. The position to be ?lled is the Managing Director.


Job Title: Managing Director Reports to: Board of Directors
Job Summary:
To drive the strategic direction of the Fund, managing all aspects of the Fund, and create and oversee the successful implementation of the Fund’s long and short term strategic plans aimed at delivering increased value to the members. Key responsibilities ? Provides overall business strategic leadership and execution to achieve sustainable growth and pro?tability of the Fund; ? Plays a leading role in coordinating and communicating all business activities; ? Directs the Fund’s management of ?nancial and operations systems, procedures and controls; ? Provides strategic direction on new investment, business opportunities and initiatives over the long run; ? Advises the Board on business plans and operational issues and communicates and lead implementation of the Board’s decision; ? Directs and monitors performance of the Fund’s operational areas against agreed performance targets; ? Maintains and develops organisational culture, values and reputation with all staff, customers, suppliers, partners and regulatory bodies; ? Augments relationships with local and global business partners; ? Promotes sound corporate governance and ethical standards at all levels within the organization; ? Develops and manages complex relationships with all stakeholders, including government, regulatory authorities and employers; ? Acts as a catalyst for change with speci?c accountability for ensuring the development of sound business development strategies and structures that support the Fund’s corporate and strategic objectives; ? Provides overall leadership for the Fund, motivates and inspires Heads of Departments to deliver best value and manage their service area, people and budgets; ? Promotes performance, risk and ?nancial management culture in order to drive the continuous improvement in corporate governance and service delivery, ef?ciency and value for money; and ? Promotes effective people management and provides developmental mentoring and coaching for his/her direct reports.

? Strong knowledge and hands on experience of ?nancial products, including mutual funds, hedge funds, derivatives, swaps and other structured products; ? Familiarity with the current global and local regulatory environment for investment funds as well as a demonstrated ability to keep on top of developments in the pension sector globally; ? Ability to analyse complex statistical data and present information, both verbally and in writing in a clear and concise manner; ? Good and resilient negotiator with sound judgement and a demonstrated understanding of corporate governance and ethics; and ? Evidence of ability to interact, relate to, work with and support the activities of the fund’s highly quali?ed staff and Board members is desirable. We are looking for a candidate who holds a Bachelors degree in Commerce, Accounting, Finance, Business Administration, or any other related discipline from a recognized university plus a Masters degree in a Business management related ?eld. A professional quali?cation in any of the above related ?elds with a recognized body will be an added advantage. The candidate must have not less than 10 years’ working experience at a Head of Department or Directorate level in a large ?nancial services related organisation of international repute, 5 of which should be at CEO level. Senior management experience in managing investment and implementing investment systems and procedures will be desirable. Experience in managing large and complex business organisations with a big workforce whose skills are diverse, familiarity with the current global and local regulatory environment for investment funds as well as a demonstrated ability to keep on top of developments in the pension sector globally will be desirable. The successful candidate shall have proven moral character, integrity and well demonstrated leadership skills. If you believe you ?t the required pro?le, please send your application in con?dence to the address below by close of business Friday 7th March 2014. Please send your curriculum vitae (by post or email) containing details of your quali?cations, experience, present position, current and expected remuneration as well as copies of professional/academic certi?cates. Include day and evening telephone numbers, e-mail address, names and addresses of three references to: The People and Change Division PricewaterhouseCoopers Limited 1 Colville Street P.O. Box 8053 Kampala, Uganda E-mail: Only short listed candidates will be contacted.
? 2014 PricewaterhouseCoopers Limited. All rights reserved. PricewaterhouseCoopers refers to the network of member ?rms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Person speci?cations The successful candidate will have:
? High level of strategic and leadership abilities, con?dent and capable of leading and developing teams of experienced professionals; ? Strong organisational and time management skills; ? High levels of change and transformation skills; ? Proven track record of delivering results in an organization of a comparable size, scope and complexity;

The Economist February 15th 2014


Executive Focus

The Economist February 15th 2014

Executive Focus


The Economist February 15th 2014

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Brie?ng The tragedy of Argentina

The Economist February 15th 2014 17

A century of decline

One hundred years ago Argentina was the future. What went wrong?


HEN the residents of Buenos Aires want to change the pesos they do not trust into the dollars they do, they go to a cueva, or “cave”, an o?ce that acts as a front for a thriving illegal exchange market. In one cueva near Florida Street, a pedestrian thoroughfare in the centre of the city, piles of pesos from previous transactions lie on a table. A courier is getting ready to carry the notes to safety-deposit boxes. This smallish cueva handles transactions worth $50,000-75,000 a day. Fear of in?ation and of further depreciation of the peso, which fell by more than 20% in January, will keep demand for dollars high. Few other ways of making money are this good. “Modern Argentina does not o?er what you could call an institutional career,” says one cueva owner. As the couriers carry their bundles around Buenos Aires, they pass grand buildings like the Teatro Colón, an opera house that opened in 1908, and the Retiro railway station, completed in 1915. These are emblems of Argentina’s Belle ?poque, the period before the outbreak of the ?rst world war when the country could claim to be the world’s true land of opportunity. In the 43 years leading up to 1914, GDP had grown at an annual rate of 6%, the fastest recorded in the world. The country was a magnet for European immigrants, who

?ocked to ?nd work on the fertile pampas, where crops and cattle were propelling Argentina’s expansion. In 1914 half of Buenos Aires’s population was foreign-born. The country ranked among the ten richest in the world, after the likes of Australia, Britain and the United States, but ahead of France, Germany and Italy. Its income per head was 92% of the average of 16 rich economies. From this vantage point, it looked down its nose at its neighbours: Brazil’s population was less than a quarter as well-o?. It never got better than this. Although Argentina has had periods of robust

growth in the past century—not least during the commodity boom of the past ten years—and its people remain wealthier than most Latin Americans, its standing as one of the world’s most vibrant economies is a distant memory (see chart1). Its income per head is now 43% of those same 16 rich economies; it trails Chile and Uruguay in its own back yard. The political symptoms of decline are also clear. If Argentina appeared to enjoy stability in the pre-war era, its history since then has been marked by a succession of military coups. The ?rst came in 1930; others followed in 1943, 1955, 1962, 1966 and 1976. The election of 1989 marked the ?rst time in more than 60 years that a civilian president had handed power to an elected successor. It is now more than 30 years since the end of military dictatorship, but democracy has not yet led to stability. Argentines reach for the metaphor of the “pendulum” to describe the swings of the past three de- 1
1 Brazil Italy Japan Britain OECD average* Germany Australia France US 500 400 300 200 100 0

The wrong trajectory
Argentina’s GDP per person as % of GDP per person in:













Source: Maddison Project

*Of 16 OECD countries: Australia, Austria, Belgium, Britain, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Sweden, Switzerland, United States

18 Brie?ng The tragedy of Argentina

The Economist February 15th 2014

Steady as she goes
Argentina’s GDP





10 5


5 10 15 80 90 2000 10 13*









Sources: Maddison Project; IMF

2 cades: from loose economic policies in the

1980s to Washington-consensus liberalisation in the 1990s and back again under the presidency of Néstor Kirchner and now his widow, Cristina Fernández de Kirchner. But the image of a pendulum does not do justice to the whiplashing of the economy (see chart 2)—the repeated recessions of the 1970s and 1980s, the hyperin?ation of 1989-90, the economic crisis of 2001 and now the possibility of another crisis to come. Argentina is a long way from the turmoil of 2001 but today’s mix of rising prices, wage pressures and the mistrust of the peso have nasty echoes of the past. Internationally, too, Argentina has lost its way. It has shut itself out of global capital markets, although negotiations are under way to restructure its debts with the Paris Club of international creditors. Brazil, hardly a free-trade paragon, is pressing Argentina to open its borders; once it would have been the other way round. “Only people this sophisticated could create a mess this big,” runs a Brazilian joke that plays on Argentines’ enduring sense of being special. One hundred years of ineptitude The country’s dramatic decline has long puzzled economists. Simon Kuznets, a Nobel laureate, is supposed to have remarked: “There are four kinds of countries in the world: developed countries, undeveloped countries, Japan and Argentina.” Other countries have since managed to copy Japan’s rapid industrialisation; Argentina remains in a class of its own. There is no shortage of candidates for the moment when the country started to go wrong. There was the shock of the ?rst world war and the Depression to an open trading economy; or the coup of 1930; or Argentina’s neutrality in the second world war, which put it at odds with America, the new superpower. There was the rise of Juan Domingo Perón, the towering ?gure of 20th-century Argentina, who took power in 1946. Others reckon that things really went downhill between 1975 and 1990. No one theory solves the puzzle. “If a guy has been hit by 700,000 bullets it’s

hard to work out which one of them killed him,” says Rafael di Tella, who has coedited a forthcoming book on Argentina’s decline. But three deep-lying explanations help to illuminate the country’s diminishment. Firstly, Argentina may have been rich 100 years ago but it was not modern. That made adjustment hard when external shocks hit. The second theory stresses the role of trade policy. Third, when it needed to change, Argentina lacked the institutions to create successful policies. Take each in turn. The ?rst explanation is that Argentina was rich in 1914 because of commodities; its industrial base was only weakly developed. Filipe Campante and Edward Glaeser of Harvard University compared Buenos Aires before the ?rst world war with Chicago, another great shipment hub for meat and grains. They found that whereas literacy rates stood at 95% in Chicago in 1895, less than threequarters of porte?os, as residents of Buenos Aires are known, knew how to read and write. The landowners who made Argentina rich were not so bothered about educating it: cheap labour was what counted. That attitude prevailed into the 1940s, when Argentina had among the highest rates of primary-school enrolment in the world and among the lowest rates of secondaryschool attendance. Primary school was important to create a sense of citizenship, says Axel Rivas of CIPPEC, a think-tank. But only the elite needed to be well educated. Without a good education system, Argentina struggled to create competitive industries. It had bene?ted from technology in its Belle ?poque period. Railways transformed the economics of agriculture and refrigerated shipping made it possible to export meat on an unprecedented scale: between 1900 and 1916 Argentine exports of frozen beef rose from 26,000 tonnes to 411,000 tonnes a year. But Argentina mainly consumed technology from abroad rather than inventing its own. Technological innovation needs not only educated people but access to money. Argentina’s golden age was largely foreignfunded. Half of the country’s capital stock

was in foreign hands in 1913, further exposing it to external shocks. Low levels of domestic savings can in part be explained by demography: large numbers of immigrants with dependent children spent money rather than saving it. Traders of the lost past Argentina had become rich by making a triple bet on agriculture, open markets and Britain, then the world’s pre-eminent power and its biggest trading partner. If that bet turned sour, it would require a severe adjustment. External shocks duly materialised, which leads to the second theory for Argentine decline: trade policy. The ?rst world war delivered the initial blow to trade. It also put a lasting dent in levels of investment. In a foreshadowing of the 2007-08 global ?nancial crisis, foreign capital headed for home and local banks struggled to ?ll the gap. Next came the Depression, which crushed the open trading system on which Argentina depended; Argentina raised import tari?s from an average of 16.7% in 1930 to 28.7% in 1933. Reliance on Britain, another country in decline, back?red as Argentina’s favoured export market signed preferential deals with Commonwealth countries. Indeed, one way to thinkabout Argentina in the 20th century is as being out of sync with the rest of the world. It was the model for export-led growth when the open trading system collapsed. After the second world war, when the rich world began its slow return to free trade with the negotiation of the General Agreement on Tari?s and Trade in 1947, Argentina had become a more closed economy—and it kept moving in that direction under Perón. An institution to control foreign trade was created in 1946; an existing policy of import substitution deepened; the share of trade as a percentage of GDP continued to fall. These autarkic policies had deep roots. Many saw the interests of Argentina’s food exporters as being at odds with those of workers. High food prices meant big pro?ts for farmers but empty stomachs for ordinary Argentines. Open borders increased farmers’ takings but sharpened competi- 1

20 Brie?ng The tragedy of Argentina
2 tion from abroad for domestic industry.

The Economist February 15th 2014
Presidents have a habit of tinkering with the constitution to allow them to serve more terms: Ms Fernández was heading this way before poor mid-term election results last year weakened her position. Property rights are insecure: ask Repsol, the Spanish ?rm whose stake in YPF, an Argentine oil company, was nationalised in 2012. Statistics cannot be trusted: Argentina was due this week to unveil new in?ation data in a bid to avoid censure from the IMF for its wildly undercooked previous estimates. Budgets can be changed at will by the executive. Roberto Lavagna, a former economy minister, would like to see a requirement for parliamentary approval of budget amendments. The next century First, Argentina has to get out of its mess. Keen to husband its stock of foreign reserves and to close the gap between the of?cial and uno?cial exchange rates, the central bank allowed the peso to slide last month. To prevent the depreciation from fuelling in?ation expectations, it has raised interest rates. But further tightening will be needed. Rates remain negative in real terms; upcoming wage negotiations will be a test of how serious the government is about controlling spending. Ms Fernández will probably struggle on until the 2015 presidential election, which optimists see as a turning-point. Economic wobbles before the election may discredit Peronism’s claim to be the party of strong government. But Peronism is a remarkably plastic political concept, capable of producing both the neoliberal policies overseen by Carlos Menem in the 1990s and the redistributive policies of the Kirchners. The idea of a party that pays the price of bad policies does not seem to apply. Short-termism is embedded in the system. Money is concentrated in the centre, and the path to power goes via subsidies and splurging: the Kirchners are only the latest culprits, turning a ?scal surplus of 2% of GDP in 2005 into an estimated 2% de?cit last year. “We have spent 50 years thinking about maintaining government spending, not about investing to grow,” says Fernando de la Rúa, a former president who resigned during the 2001 crisis. This short-termism distinguishes Argentina from other Latin American countries that have su?ered institutional breakdowns. Chile’s military dictatorship was a catastrophic fracture with democracy but it introduced long-lasting reforms. Mexico’s Institutional Revolutionary Party governed steadily for most ofthe 20th century. “In Argentina institution-building has taken the form of very quick and clientilist redistribution,” says Daron Acemoglu of the Massachusetts Institute of Technology. It will take an unusual politician to change Argentina’s institutions, especially if another commodities windfall eases the pressure to reform. The country’s Vaca Muerta (“Dead Cow”) shale-oil and gas?eld is estimated to be the world’s thirdlargest. If Argentina can attract foreign capital, the money could start ?owing within a decade. “Vaca Muerta gives us huge capacity to recover and huge opportunity to make mistakes,” says Mr Lavagna. Argentines themselves must also change. The Kirchners’ redistributive policies have helped the poor, but goodies such as energy subsidies have been doled out to people who do not really need them. Persuading the population to embrace the concept of necessary pain will be di?cult. That is partly because the experience ofthe 1990s discredited liberal reforms in the eyes of many Argentines. But it is also because reform requires them to confront their own unprecedented decline. No other country came so close to joining the rich world, only to slip back. Understanding why is the ?rst step to a better future. 7

The pampas were divided up less equally than farmland in places like the United States or Australia: the incomes of the richest 1% of Argentines were strongly correlated with the exports of crops and livestock. As the urban, working-class population swelled, so did the constituency susceptible to Perón’s promise to support industry and strengthen workers’ rights. There have been periods of liberalisation since, but interventionism retains its allure. “One-third of the country—the commodities industry, engineers and regional industries like wine and tourism—is ready to compete,” says Sergio Berensztein, a political analyst. “Two-thirds are not.” The divide between farmers and workers endures. Heavy export taxes on crops allow the state to top up its dwindling foreign-exchange reserves; limits on wheat exports create surpluses that drive down local prices. But they also dissuade farmers from planting more land, enabling other countries to steal market share. The perverse e?ects ofintervention have been amply demonstrated in the Kirchner era: according to the US Department of Agriculture, Argentina was the world’s fourth-largest exporter of wheat in 2006. By 2013 it had dropped to tenth place.?“The Argentine model of100 years ago—producing as much as you can—is the one others now follow,” laments Luis Miguel Etchevehere, the president of the Rural Society of Argentina, a farmers’ lobby. Distribution centre Some commodity-rich economies have resolved these tensions. Australia, for example, shared many of the traits of early 20thcentury Argentina: lots of commodities, a history of immigration and remoteness from big industrial centres. Yet it managed to develop a broader-based economy than Argentina and grew faster. Between 1929 and 1975 Australian income per person increased at an average annual rate of 0.96%, compared with 0.67% in Argentina. Australia had some big advantages: the price of minerals does not a?ect domestic consumers in the same way as the price of food, for instance. But it also had the institutions to balance competing interests: a democracy in which the working class was represented; an apprenticeship system; an independent Tari?Board to advise the government on trade. Argentina had not evolved this political apparatus, despite an early move to universal male su?rage in 1912. The third theory for Argentine decline points to the lack of institutions to develop long-term state policies—what Argentines call política de Estado. The constant interruptions to democracy are not the only manifestation of this institutional weakness. The Supreme Court has been overhauled several times since Perón ?rst changed its membership in 1946.

Yesterday’s news


The Economist February 15th 2014 21 Also in this section 22 Indian politics 22 Indonesia’s Aceh province 23 Malaysia’s Sarawak 24 Japan’s cuisines 26 Banyan: America loses its rebalance

For daily analysis and debate on Asia, visit

Pakistan’s economy

The Urdu rate of growth

Slowly, the lights may be coming on again


VEN the swankiest chandelier is not much use these days without electricity. Just as Shahbaz Sharif explains Pakistan’s new energy policy, his Lahore home plunges into darkness, brie?y hiding him, his oil paintings and a ?ne china tea set. Has Punjab’s chief minister staged a blackout for dramatic e?ect? Laughing, he denies it: power cuts are routine. City dwellers endure as much as ten hours of cuts a day; villagers are usually without power for much longer. On occasion, supply has fallen 40% short of national demand. Chronic electricity shortages vie with some heavyweight contenders to top the list of Pakistan’s biggest problems. Mr Sharif’s brother is the prime minister, Nawaz Sharif, who won a general election last year promising to ?x the country’s electricity mess. Without reliable power, Pakistan will struggle to lift a dismally low rate of economic growth—just 2.9% a year on average for the past ?ve years, not much more than the 2% annual growth of the population, now 186m-strong. Thanks to a stagnant economy, millions of young Pakistanis are without jobs or regular incomes, especially in the burgeoning cities. Poverty and bleak prospects must surely be contributing to the extremist violence that daily rocks the country. Fixing the mess means cutting through immense and intertwined problems. Private power ?rms produce much less than they could, because the state purchaser

does not always pay them. In turn, electricity consumers, among them the federal and provincial governments, do not pay the state purchaser. It creates a “circular debt”, which reached $5 billion at its peak. The government last year said that it had, in e?ect, cleared that debt. But the IMF, for one, warns that it can build up again. Shahbaz Sharif, who has a national role helping the prime minister on economic policy, says that many consumers continue to pilfer electricity and gas. Some, such as some madrassas (religious schools), refuse to pay even a fraction of their bills, con?dent that no one would dare cut them o?. Lique?ed natural gas (LNG), a growing portion of Pakistan’s energy mix, sells at a sixth of its import price. A plan to raise resi-

Not so energetic
GDP per person, current $, ’000 Sri Lanka India Pakistan Bangladesh 3.5 3.0 2.5 2.0 1.5 1.0 0.5 ** 1995 2000 05 10 14?
*Estimate ?Forecast


Source: IMF World Economic Outlook

dential electricity tari?s was scrapped in October after judges objected. That ruling may be revisited now that a populist chief justice has retired. Consumers might be keener to pay if only they got more in return. State-run generation and distribution companies are so ill-managed that the Punjabi cities of Gujranwala and Faisalabad run at 10% capacity. The government’s response is to order the urgent sale of 31 energy and other businesses. Fixing dysfunctional energy ?rms would do most to unleash the country’s economic potential, says Mohammad Zubair, the privatisation minister, parachuted in from IBM. Management by state ?rms is “a disaster”. He talks of gross oversta?ng, incompetent engineers and poor ?nancial control. Combined annual losses at all state-run companies have reached $4.7 billion, equivalent to a third of all tax revenue. Private investors must be found to take over, Mr Zubair says, because “the government can’t spend more”. The biggest task, however, is to change the country’s ill-judged energy mix. About a third of its electricity comes from oil-?red power stations. Many were commissioned in the late 1980s, when crude oil was cheap. With oil now over $100 a barrel, they are desperately expensive. Pakistan spends over $14 billion a year importing oil and other energy products, a big hard-currency bill. Another third of energy comes from gas, much of it also imported. Reliance on imports will certainly grow. Three new LNG import terminals are to be built by 2016, raising capacity by half. And the government this week again con?rmed grand plans to bring in natural gas across the border from Iran (and perhaps, in turn, to export some of it to India). But that will remain a pipe-dream for as long as the United States, Pakistan’s biggest donor, is 1

22 Asia
2 opposed to it. In any case a major pipeline

The Economist February 15th 2014
city of18m; understandably, there are worries about safety. New plans for solar parks and more hydropower are also trumpeted. Nothing will ?x Pakistan’s energy problems quickly. Long blackouts are certain when temperatures rise again this summer, but gains could show in about three years—in time for the next election. Muhammad Mansha, an industrialist and Pakistan’s richest man, is optimistic that the government’s attempts to grapple with the power sector will boost business con?dence and the economy more widely. Chinese investment in the garment industry is a shot in the arm, as is the removal of import tari?s on Pakistani garments going to the European Union. The EIU, a sister company to The Economist, predicts annual GDP growth of nearly 4% a year until 2018. Mr Mansha sees other hopeful signs, particularly in Pakistan’s abysmally skimpy trade with India. His cement company’s exports of 700 tonnes a day to India are up from 300 tonnes a year ago, and he expects that to double again. On February 14th India’s commerce minister, Anand Sharma, was due in Lahore for a joint announcement to open the land border to cargo for 24 hours a day and to allow container transport—though he cancelled the trip at the last minute. Currently the border is open only during daylight, and—astonishingly—much is unloaded and loaded onto fresh lorries on the backs of porters. If the myriad restrictions went, a Delhi thinktank says, bilateral trade could quickly rise tenfold, from just $2.6 billion a year. One day cross-border trade in energy could follow. Hydropower in disputed Kashmiri territories, for example, would be best exploited if India and Pakistan cooperated. India has o?ered to extend its electricity grid across the border in Punjab and to arrange gas imports for Pakistan, though so far nothing has come of it. Pakistan, in turn, could export coal to India, a hungry consumer of the stu?. Huge mutual gains in energy co-operation are to be had—if only the two countries were serious about achieving them. 7

would be vulnerable to violent groups, including Baluchi separatists and the Taliban out?ts increasingly active in the south. Other options exist. Billions of tonnes of coal reserves sit in Sindh province, yet coal accounts for a tiny part of electricity generation. A new plan orders several new coal-?red stations, with Chinese money and help, but even then fuel would be imported from Malaysia. China is also lending money to expand the civil nuclear programme. In November the prime minister inaugurated a $10 billion, 2200MW nuclear plant to be built by 2019, for Karachi, a

Indian politics


More accommodation of a controversial but rising ?gure


T WAS almost a Valentine’s day date. On February 13th America’s ambassador to India, Nancy Powell, visited Narendra Modi, the chief minister of Gujarat, at his home in Gandhinagar. He gave her roses. It got political classes gossiping. No more will diplomats isolate the divisive leader of the Bharatiya Janata Party (BJP). America had been most outspoken in pinning on Mr Modi responsibility for sectarian riots in 2002 that killed over 1,000 people, mostly Muslims. In 2005 it rescinded his visa to travel to the United States. Western ambassadors long coldshouldered the Hindu nationalist. O?cially, what has changed is that a court in December cleared Mr Modi of possibly the last legal challenge over the riots. America is now ready to engage him with talks on doing business in Gujarat. But what matters is national politics. The ruling Congress is a busted ?ush. A general election is due in May,

Modi is coming up roses

and everything points to the BJP doing best. It makes sense to adjust to Mr Modi now, as the BJP's candidate to be prime minister. Envoys from Britain and the rest of Europe ended their uno?cial boycott of him over a year ago. Other long-term critics of Mr Modi have also been making accommodations. In the past few months a few prominent critics, such as the former editor of the Hindu newspaper and a columnist with a news magazine, were eased from their jobs. Journalists in some television newsrooms say that the wider corporate interests of their owners preclude strong attacks on the man who may soon be prime minister. It is not clear whether similar logic explains why Penguin India, after four years of defending itself in civil and criminal cases, this week reportedly decided to pulp all copies of a controversial book about Hindu culture. “The Hindus”, by Wendy Doniger, an academic at Chicago University, had provoked Hindu nationalists in India and an increasingly angry and outspoken diaspora in America. They claimed her psychoanalytical approach was ?awed and voyeuristic, and had somehow hurt the feelings of hundreds of millions. Yet the book had earned decent reviews. The author herself blames Indian law for making religious o?ence a criminal rather than a civil matter. She also warns that the incident bodes ill for free speech in a “worsening” political climate. Too few politicians defend liberal values consistently, preferring to court the votes of supposedly o?ended members of a particular caste or religious or regional group. Those who campaigned against “The Hindus” now say they want other books by Ms Doniger withdrawn, and school textbooks rethought. 7

Indonesia’s Aceh province

Laying down God’s law

Politics, as much as faith, is behind a harder line


CEH, at the far west of the Indonesian archipelago, is proud of its reputation for piety. In 2001 it became the only province in Indonesia authorised to introduce sharia Islamic law as part of “special autonomy” aimed at ending a long-running separatist war. The provincial parliament passed laws against drinking, gambling and “seclusion”—being alone with someone from the other sex. An Islamic police force modelled on Iran’s “vice and virtue” patrols started to round up women for not covering their heads or for wearing trousers that were too tight. The ?rst public caning took place in 2005. Now Aceh has taken another controversial step, by telling everyone to follow sharia—Muslim and non-Muslim alike. This all follows from a criminal code which Aceh’s outgoing parliament passed back in 2009, increasing the number of offences under sharia and introducing much 1

The Economist February 15th 2014

Asia 23
sessions on Borneo, Sabah and Sarawak, joined the new federation of Malaysia in 1963 (together with Singapore, which dropped out two years later). Ever since, east Malaysia has supplied the oil and votes that the BN needs. Oil revenues have fuelled the country’s breakneck development, while the votes have kept the coalition’s stranglehold on federal power even as its share of the vote has dropped steeply over time in peninsular Malaysia. Gerrymandering by the BN means that Sabah and Sarawak, largely rural and sparsely inhabited, ?ll almost a quarter of the federal parliament’s seats, out of all proportion to their populations. Mr Taib has secured the vote every time. The 25 seats out of a possible 31 that his own political machine, allied to the BN, won in the general election last year was, with the seats that the BN’s allies won in Sabah, the di?erence between the coalition holding on to power and electoral humiliation. His electoral muscle has given Mr Taib disproportionate political clout. He has run Sarawak single-handedly, with little accounting to anyone. His supporters credit him with presiding over an era of unparalleled development, transforming a disease-ridden backwater into a relatively modern state and well-known tourist destination. He has also used his clout with the central government to insist upon an impressive degree of local autonomy for Sarawak, thus preserving its special ethnic and religious make-up in the federation. In Sarawak Malays are only the thirdlargest ethnic group. About 40 ethnic groups make up the largest proportion of the population, of which the indigenous Iban is the biggest. The second-biggest group are ethnic Chinese. Mr Taib himself comes from the Melanau, accounting for about 6% of the population. Sarawak also boasts a variety of religions, and there are more Christians than Muslims. While preserving this diversity, Mr Taib has also mastered and exploited ethnic divisions to build his political base, a process greased by cash at election time to persuade people 1 to vote the right way.

Here come the seclusion-exclusion police
2 sti?er penalties, such as death by stoning

for adulterers. Aceh’s then governor, Irwandi Yusuf, refused to sign the code. But in December the present governor, Zaini Abdullah, signed into law a revised version. This month the local authorities sent it to Jakarta, the capital, for approval. Although legislators watered down the original code—dropping the death-by-stoning penalty, for example—they insist it must be followed by everyone in Aceh, regardless of religion. Non-Muslims who are charged with o?ences not criminalised by national laws will be tried by sharia courts. Aceh is a far cry from, say, the Taliban’s brutish former rule in Afghanistan. Amnesty International counted at least 45 canings in 2012—still relatively few in a province of 5m. And those ?ogged in Aceh are fully clothed, providing them with some protection. But the province is enforcing sharia more strictly as religious conservatives become more powerful, says Andreas Harsono of Human Rights Watch. Meanwhile, town mayors and district chiefs are passing more sharia by-laws, which often discriminate against women. Religious minorities face growing persecution, too. Forcing Christians and followers of other non-Muslim faiths to abide by sharia seems to ?y in the face of Islamic teachings. Even the secretary-general of Aceh’s own clerics association, Faisal Ali, says it shows that legislators have a poor understanding of Islam. Moreover, the code seems at odds with Indonesia’s constitutionally enshrined precept of “unity in diversity”. The 1945 constitution guarantees freedom of religion for six o?cially recognised faiths. The home ministry in Jakarta has 60 days to accept or reject the code. Politics as much as religious conviction plays its part. Indonesia holds a parliamentary election in April and a presidential one in July. The ?ve-year term of Aceh’s

own parliament also ends this year. Mr Abdullah and local legislators may hope to consolidate their positions by presenting themselves as pious Muslims standing up to Jakarta, the old adversary in Aceh’s 29year separatist struggle which ended in 2005. It would not be the ?rst time that politicians have exploited religion for their own worldly ends. 7

Malaysia’s Sarawak

Last of the rajahs

A powerful chief min does he?

ister bows out or


EW of Asia’s elected leaders have enjoyed the power of Abdul Taib Mahmud, the chief minister of Sarawak. For 33 years he lorded it over this Malaysian state on the island of Borneo, once densely forested and still rich in oil. Mr Taib was an appropriate successor to generations of the British Brooke family, who ran the territory as their own monarchy for a century from 1841. They were known as the White Rajahs. Their 77-year-old, white-haired modern equivalent, Mr Taib, will o?cially retire on February 28th, passing the job to a hand-picked successor, Adenan Saten. Mr Taib, though, will probably get another comfortable job himself, retaining much in?uence. Few have contributed more, for better and for worse, to the course of modern Malaysian history. Mr Taib has played a crucial role in keeping the Barisan Nasional (BN) coalition in power—it has ruled ever since Malaysia won independence from Britain in 1957. The two former British pos-


Kuala Lumpur

SARAWAK Singapore






1,000 km



The Economist February 15th 2014




Speaking for Europe
A Language Policy That Increases Legitimacy and Unity by Russell Blair ? 2013

To advertise within the classified section, contact: United Kingdom Martin Cheng - Tel: (44-20) 7576 8408 United States Sabrina Feldman- Tel: (212) 698-9754 Europe Sandra Huot - Tel: (33) 153 9366 14

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The Economist February 15th 2014

Republika e Kosov?s
Republika Kosova-Republic of Kosovo
Agjencia p?r Menaxhimin e Komplekseve Memoriale t? Kosov?s Agencija sa Upravlanje Memorialni Kompleksa Kosova Agency on Management of Memorial of the Complexes of Kosovo


Request for Expression of Interest
Agency for Management of Kosovo Memorials (AMKM), hereby invites all domestic as well as foreign companies or consortium companies which have professional, operational, managerial capacities for drafting the conservation project with complete ef?ciency to express their interest in performing services such as: Drafting of the Project for Conservation of Resistance’s facilities in Memorial Complex “Adem Jashari” Prekaz – Skenderaj. MC “Adem Jashari” Prekaz – Skenderaj is one of the priorities of the Republic of Kosovo, which has been declared as an area of special interest, and as such this Complex within itself, has the symbol of sacri?ce, heroism, war for freedom and independence of Kosovo. The Memorial Complex is declared as ASI in an area of 450 ha. The facilities which need to be conserved are: Three houses of the legendary commander “Adem Jashari” and his shelter – bunker, the house of Sahit and Musa Jasharit, as well as the house of the martyr Smajl Jashari. We possess the necessary material for this part – Projecting assignment and conceptual plan of this area. The project is foreseen to be completed during this year, and initially must be intervened in those facilities which are damaged and in danger of destruction. One of the priority tasks for the year 2014 is also drafting of the Project for Conservation of Resistance’s facilities of the legendary commander Adem Jashari, which have been damaged during the war, and are in danger of destruction. In case this happens, it means that we have lost major war values, and in order to preserve these values, it is necessary to draft the main conservation project during this year and within a short period of time to enable the direct interventions on conservation works. Potential bidders must submit their pre-quali?cation documents until 21st of March 2014, in accordance with the requirements that are set out in the memorandum for expression of interest, on the 4th of February 2014, which is available to the Agency for Management of Kosovo Memorials (AMKM). Explanatory visit will be organized in the place where the project will be done, in the memorial complex “Adem Jashari” Prekaz – Skenderaj, on 10th of March 2014 at 11: 00 o’clock in Prekaz-Skenderaj. The withdrawal of documents as well as additional information can be found on the Web page of –contract notices, we kindly ask you to send your of?cial request in a written form or via email to the below mentioned address.

Invitation to Submit an Expression of Interest for the MSSO Tender
The International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) is considering a Call for Tender in 2014 for the contract for the MedDRA Maintenance and Support Services Organization (MSSO). In 1999, ICH released MedDRA, the Medical Dictionary for Regulatory Activities Terminology, as its standardised medical terminology. Since then, the maintenance and support of MedDRA has been contracted to a MSSO. ICH’s decision to now consider a Call for Tender represents interest to conform with good business practices and does not re?ect on the performance of the current contractor. In order to acquire feedback on interest and approach, and to use the feedback to inform next steps, ICH is ?rst conducting a Call for Expression of Interest. Full details, including instructions on the format and content of expressions of interest, can be found on the ICH website Interested parties are invited to submit their expressions of interest by March 12, 2014. Responses written in English should be sent by both email and courier to the following coordinates and marked for the attention of the ICH Call for Tender Working Group: ICH Secretariat Chemin Louis-Dunant 15 P.O Box 195 1211 Geneva 20 Switzerland

For information, please contact:
Procurement of?cer; Naim Gjoshi Agency for Management of Kosovo Memorial Complexes Kosovo Assembly Building, Of?ce no N - 310 Telephone: +381-38 211352 Email:

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The Economist February 15th 2014


Economic and ?nancial indicators
Economic data
% change on year ago Gross domestic product latest qtr* 2013? United States China Japan Britain Canada Euro area Austria Belgium France Germany Greece Italy Netherlands Spain Czech Republic Denmark Hungary Norway Poland Russia Sweden Switzerland Turkey Australia Hong Kong India Indonesia Malaysia Pakistan Singapore South Korea Taiwan Thailand Argentina Brazil Chile Colombia Mexico Venezuela Egypt Israel Saudi Arabia South Africa +2.7 Q4 +3.2 +1.9 +7.7 Q4 +7.4 +7.7 +2.4 Q3 +1.1 +1.7 Economic data +2.8 +2.8 +1.8 Q4 +2.7 +1.7 +1.9 Q3 Statistics +0.5 -0.4 -0.3 Q3 starts +2.5 +0.4 +0.7 Q3 +1.7 +0.2 +0.9 Q4 -0.5 +0.2 +0.2 Q3 +1.3 +0.5 +0.6 Q3 na -3.6 -3.0 Q3 -0.1 -1.8 -1.8 Q3 +0.8 -1.0 -0.4 Q3 +1.2 -1.2 -0.1 Q4 +0.9 -1.4 -0.3 Q3 +0.5 Q3 +1.5 +0.4 +1.8 Q3 +3.6 +0.8 -0.7 +1.3 +1.1 Q4 na +1.5 +1.9 Q3 +1.2 Q3 na +1.5 +0.3 Q3 +0.3 +0.8 +2.1 +1.9 +1.9 Q3 na +3.9 +4.4 Q3 +2.3 Q3 +2.3 +2.4 +2.9 Q3 +2.1 +3.1 +4.8 Q3 +16.5 +4.9 na +5.6 +5.7 Q4 +5.1 Q4 na +4.8 +6.1 2013** na +6.1 +4.4 Q4 -2.7 +3.7 +3.7 +2.7 +4.0 Q4 +2.9 Q4 +10.1 +2.2 +5.2 +3.0 +2.6 Q3 +5.5 Q3 -0.7 +4.9 -1.9 +2.2 +2.2 Q3 +4.7 Q3 +5.4 +4.2 +5.1 Q3 +4.5 +4.3 +3.4 +1.2 +1.3 Q3 +1.1 Q3 -0.8 +1.6 na +2.3 +1.0 Q3 +2.4 Q3 +2.3 +3.3 +3.8 2013 na +2.9 +1.8 Q3 +0.7 +1.9 Industrial production latest Current-account balance Consumer prices Unemployment latest 12 % of GDP latest 2013? rate, % months, $bn 2013? -398.7 Q3 +188.6 Q4 +34.4 Dec -94.9 Q3 -59.9 Q3 housing +279.2 Nov +9.6 Q3 -12.6 Sep -42.0 Dec +267.6 Dec +1.3 Nov +17.1 Nov +83.6 Q3 +10.3 Nov -3.4 Q3 +23.9 Dec +3.1 Q3 +61.0 Q3 -7.9 Dec +33.0 Q4 +34.3 Q3 +79.9 Q3 -60.8 Nov -51.3 Q3 +5.4 Q3 -76.9 Q3 -32.1 Q3 +11.7 Q4 -4.0 Q4 +49.8 Q3 +70.7 Dec +56.3 Q3 -2.8 Q4 -3.5 Q3 -81.4 Dec -9.5 Q3 -12.6 Q3 -24.9 Q3 +6.9 Q3 -4.5 Q3 +3.3 Q3 +139.3 Q3 -22.1 Q3 -2.4 +1.9 +0.9 -3.6 -3.1 +2.0 +2.5 -1.3 -1.9 +6.8 +0.6 +0.5 +9.8 +0.8 -0.6 +5.8 +2.0 +12.8 -2.1 +2.3 +6.1 +11.8 -7.5 -3.0 +1.9 -3.1 -3.9 +4.9 -1.4 +20.4 +4.6 +10.8 -1.6 -1.2 -3.7 -3.7 -3.4 -1.6 +3.2 -2.6 +1.5 +18.0 -6.6

The Economist February 15th 2014

Budget Interest balance rates, % % of GDP 10-year gov't 2013? bonds, latest -4.1 -1.8 -8.2 -6.7 -3.0 -2.9 -2.9 -3.0 -4.1 +0.1 -2.2 -3.3 -3.5 -7.2 -2.8 -0.3 -3.0 +13.0 -4.0 -0.5 -1.4 +0.2 -1.2 -3.1 +1.8 -5.0 -3.3 -4.2 -8.0 +2.1 +0.9 -2.3 -3.1 -3.3 -2.7 -0.6 -0.8 -2.5 -10.4 -13.8 -3.2 +6.7 -4.8 2.76 4.38§§ 0.61 2.93 2.48 1.72 2.03 2.37 2.31 1.72 7.53 3.75 1.92 3.56 2.30 1.75 5.98 2.83 4.53 8.22 2.26 1.04 10.10 4.22 2.27 8.81 na 4.15 12.60??? 2.45 3.54 1.62 3.71 na 13.35 5.00 7.10 7.75 12.77 na 3.73 na 8.58

Currency units, per $ Feb 12th year ago 6.06 103 0.60 1.10 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 20.3 5.49 227 6.12 3.06 34.8 6.45 0.90 2.18 1.11 7.76 62.1 12,085 3.32 105 1.27 1,063 30.3 32.6 7.81 2.41 551 2,030 13.3 6.29 6.96 3.52 3.75 11.0 6.23 93.1 0.64 1.00 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 0.74 18.8 5.54 216 5.49 3.11 30.1 6.36 0.92 1.77 0.97 7.75 53.9 9,646 3.10 98.1 1.24 1,091 29.7 29.9 5.00 1.97 472 1,783 12.7 4.29 6.72 3.69 3.75 8.93


+3.7 Dec +1.5 Dec +1.4 6.6 Jan +9.7 Dec +2.5 Dec +2.6 4.1 Q4§ +7.3 Dec +1.6 Dec +0.3 3.7 Dec +1.8 Dec +2.0 Dec +2.6 7.1 Oct?? Nov Jan at +2.6 +1.2 Decplus +1.0 42 economies, a closer7.0 look +0.5 Dec +0.7 Jan +1.4 12.0 Dec -0.9 Nov +1.9 Dec +2.1 4.9 Dec +5.9 Nov +1.1 Jan +1.2 8.4 Dec +0.5 Dec +0.7 Dec +1.0 10.8 Dec +2.9 Dec +1.3 Jan +1.6 6.8 Jan +0.4 Dec -1.7 Dec -0.9 27.8 Oct -0.7 Dec +0.7 Jan +1.3 12.7 Dec +1.8 Dec +1.7 Dec +2.6 8.5 Dec +3.5 Dec +0.3 Dec +1.5 25.8 Dec +9.3 Dec +0.2 Jan +1.4 8.6 Jan§ -0.7 Dec +1.0 Jan +0.8 5.6 Dec +4.6 Dec +0.4 Dec +1.7 9.1 Dec§?? +1.3 Dec +2.3 Jan +2.3 3.5 Nov?? +6.6 Dec +0.7 Dec +1.1 14.0 Jan§ +0.8 Dec +6.0 Jan +6.8 5.6 Dec§ +0.1 Dec +0.1 Dec +0.1 7.5 Dec§ +0.7 Q3 +0.1 Jan -0.2 3.2 Jan +6.9 Dec +7.8 Jan +7.5 9.7 Oct§ +2.7 Q3 +2.7 Q4 +2.4 6.0 Jan -0.9 Q3 +4.3 Dec +4.3 3.2 Dec?? -0.6 Dec +8.8 Jan +10.1 9.9 2012 +0.6 Dec +8.2 Jan +7.0 6.3 Q3§ +4.8 Dec +3.2 Dec +2.1 3.4 Nov§ +3.4 Nov +7.9 Jan +7.7 6.2 2013 +6.2 Dec +1.5 Dec +2.4 1.8 Q4 +2.6 Dec +1.1 Jan +1.3 3.5 Jan§ +5.1 Dec +0.8 Jan +0.8 4.1 Dec -6.1 Dec +1.9 Jan +2.2 0.7 Nov§ -5.4 Dec — *** — 6.8 Q3§ -2.3 Dec +5.6 Jan +6.2 4.3 Dec§ +2.3 Dec +2.8 Jan +1.8 5.7 Dec§?? +0.2 Nov +2.1 Jan +2.0 8.4 Dec§ -0.3 Dec +4.5 Jan +3.8 4.8 Dec +0.8 Sep +56.2 Jan +40.6 5.6 Dec§ -18.1 Dec +11.3 Jan +9.5 13.4 Q3§ -4.1 Nov +1.8 Dec +1.5 5.8 Dec na +3.0 Dec +3.5 5.6 2013 +2.6 Dec +5.4 Dec +5.8 24.1 Q4§

Source: Haver Analytics. *% change on previous quarter, annual rate. ?The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ?New series. **Year ending June. ??Latest 3 months. ??3-month moving average. §§5-year yield ***Official number not reliable; The State Street PriceStats Inflation Index, December 23.38%; year ago 25.98% ???Dollar-denominated bonds.

The Economist February 15th 2014

Economic and ?nancial indicators 85

% change on Dec 31st 2012 Index one in local in $ Markets Feb 12th week currency terms United States (DJIA) 15,963.9 +3.4 +21.8 +21.8 China (SSEA) 2,208.4 +3.8 -7.1 -4.5 Japan (Nikkei 225) 14,800.1 +4.4 +42.4 +20.1 Britain (FTSE 100) 6,675.0 +3.4 +13.2 +15.5 Canada (S&P TSX) 13,900.5 +2.5 +11.8 +1.3 Euro area (FTSE Euro 100) 1,018.5 +4.5 +18.9 +22.6 Euro area (EURO STOXX 50) 3,094.9 +4.5 +17.4 +21.0 Austria (ATX) 2,655.1 +4.4 +10.6 +14.0 Belgium (Bel 20) 2,959.5 +3.9 +19.5 +23.2 France (CAC 40) 4,305.5 +4.6 +18.2 +21.9 Germany (DAX)* 9,540.0 +4.6 +25.3 +29.2 Greece (Athex Comp) 1,278.2 +3.1 +40.8 +45.1 Italy (FTSE/MIB) 20,145.0 +5.6 +23.8 +27.6 Netherlands (AEX) 397.4 +3.9 +16.0 +19.5 Spain (Madrid SE) 1,029.0 +3.1 +24.8 +28.6 Czech Republic (PX) 1,018.1 +3.3 -2.0 -7.9 Denmark (OMXCB) 619.7 +4.0 +36.9 +41.1 Hungar y (BUX) 18,062.2 -1.5 -0.6 -3.2 Norway (OSEAX) 606.5 +3.1 +23.6 +12.5 Poland (WIG) 53,231.4 +4.2 +12.2 +13.4 Russia (RTS, $ terms) 1,353.2 +2.7 +1.0 -11.4 Sweden (OMXS30) 1,330.0 +2.9 +20.4 +21.4 Switzerland (SMI) 8,402.4 +3.6 +23.2 +25.1 Turkey (BIST) 64,513.7 +3.3 -17.5 -32.5 Australia (All Ord.) 5,319.8 +4.5 +14.0 -1.0 Hong Kong (Hang Seng) 22,285.8 +4.8 -1.6 -1.7 India (BSE) 20,448.5 +0.9 +5.3 -7.1 Indonesia (JSX) 4,496.3 +2.6 +4.2 -16.9 Malaysia (KLSE) 1,825.6 +2.2 +8.1 -0.5 Pakistan (KSE) 26,677.3 -0.3 +57.8 +45.7 Singapore (STI) 3,035.5 +2.5 -4.2 -7.5 South Korea (KOSPI) 1,935.8 +2.4 -3.1 -2.3 Taiwan (TWI) 8,510.9 +3.0 +10.5 +5.9 Thailand (SET) 1,314.1 +2.6 -5.6 -11.4 Argentina (MERV) 5,884.2 -0.7 +106 +29.8 Brazil (BVSP) 48,216.9 +3.4 -20.9 -32.7 Chile (IGPA) 17,850.2 +4.8 -15.3 -26.4 Colombia (IGBC) 12,419.8 +3.3 -15.6 -26.5 Mexico (IPC) 40,690.1 +2.0 -6.9 -9.1 Venezuela (IBC) 2,758.8 -2.1 +485 na Egypt (Case 30) 7,571.4 +3.1 +38.6 +26.7 Israel (TA-100) 1,210.2 +0.9 +15.4 +22.2 Saudi Arabia (Tadawul) 8,912.6 +1.4 +31.0 +31.0 South Africa (JSE AS) 46,425.1 +4.4 +18.3 -8.7

Housing star ts Housing starts are a leading indicator of economic activity. For several of the world’s biggest developed economies, recent ?gures show signs of recovery. Orders for new homes in Germany are above their ten-year average, as rising employment, low borrowing costs and immigration fuel demand. In March and November last year housing starts in America rose back over 1m (at an annual rate), from a low of 478,000 in early 2009. Government schemes have boosted new home construction in England. In contrast, French housing starts, which held up better than most during the recession, are falling. With unemployment at a record high, construction is unlikely to pick up this year.

Q1 2000=100, four-quarter moving average 140 France 120 100 Japan England 80 60 Germany* 40 United States 2000 02 04 06 08 10 12 13 20

Source: Thomson Reuters

*New orders received

Other markets Other markets
Index Feb 12th United States (S&P 500) 1,819.3 United States (NAScomp) 4,201.3 China (SSEB, $ terms) 248.2 Japan (Topix) 1,219.6 Europe (FTSEurofirst 300) 1,326.8 World, dev'd (MSCI) 1,637.7 Emerging markets (MSCI) 953.3 World, all (MSCI) 401.3 World bonds (Citigroup) 919.2 EMBI+ (JPMorgan) 650.2 Hedge funds (HFRX) 1,226.9§ Volatility, US (VIX) 14.3 CDSs, Eur (iTRAXX)? 74.5 CDSs, N Am (CDX)? 65.3 Carbon trading (EU ETS) 6.4

% change on Dec 31st 2012 one in local in $ week currency terms +3.9 +27.6 +27.6 +4.7 +39.1 +39.1 +0.8 -1.4 +1.4 +4.9 +41.8 +19.6 +4.3 +17.0 +20.6 +4.2 +22.4 +22.4 +4.0 -9.7 -9.7 +4.1 +18.1 +18.1 -0.4 -2.7 -2.7 +0.5 -8.5 -8.5 +1.0 +6.8 +6.8 +20.0 +18.0 (levels) -9.3 -30.0 -27.9 -10.4 -23.7 -23.7 +4.4 -4.3 -1.4


The Economist commodity-price index
The Economist commodity-price index one one
Feb 4th 163.5 184.4 141.7 150.6 138.0 Feb 11th* 165.0 185.6 143.6 154.0 139.1 182.1 150.0 1,289.8 99.9 month +0.4 +2.4 -2.2 -0.9 -2.8 +0.2 +0.5 +3.1 +8.0 % change on year

Dollar Index All Items Food Industrials All Nfa?

-11.5 -9.6 -13.9 -10.5 -15.4 -15.9 -12.8 -21.8 +2.5

Sources: Markit; Thomson Reuters. *Total return index.?Credit-default-swap spreads, basis points. §Feb 11th

Metals Sterling Index All items 182.5 Euro Index All items 150.5 Gold $ per oz 1,251.2 West Texas Intermediate $ per barrel 97.4

Indicators for more countries and additional series, go to:

Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional ? Non-food agriculturals.



The Economist February 15th 2014
Her face was on the Wheaties box. It was also on the special Wheaties blue bowl and pitcher, greeting people at breakfast like a ray of morning sunshine. Advertisers adored her, from General Electric to Lux soap to Packard cars. After “Stand up and Cheer!” dolls appeared in her polkadot dress, and after “Bright Eyes” the music for “On the Good Ship Lollipop” was on every piano, as well as everyone’s brains: “Where bon-bons play/ On the sunny beach of Peppermint Bay.” Too much of all that meant (pretty pout) a tummy ache! A toss of those curls Her parents did not tell her there was a Depression on. They mentioned only good things to her. Franklin Roosevelt declared more than once that “America’s Little Darling” made the country feel better, and that pleased her, because she loved to make people happy. She had no idea why they should be otherwise. Her ?lms were all about the sweet waif bringing grown-ups back together, emptying misers’ pockets and melting frozen hearts. Like the dog-star Rin Tin Tin, to whom she gaily compared herself, she was the bounding, unwitting antidote to the bleakness of the times. She was as vague about money as any child would, and should, be. Her earnings by 1935 were more than $1,000 (now $17,000) a week, and by the end of her career had sailed past $3m (now $29m). But when she found out later that her father had taken bad ?nancial advice, and that only $44,000 was left in the trusts, she did not blame him. She remembered the motto about spilt milk, and got on with her life. Things appeared to dive sharply after 1939, when her teenage face—the darker, straighter hair, the troubled look—failed to be a box-o?ce draw. She missed the lead in “The Wizard of Oz”, too. She shrugged it o?; it meant she could go to a proper school for the ?rst time, at Westlake, which was just as exciting as making movies. By 1950 she had stopped making ?lms altogether; well, it was time. She couldn’t do innocence any more, and that was what the world still wanted. Her ?rst husband was a drunk and a disaster, but the marriage brought her “something beautiful”, her daughter Linda Susan. The second marriage, anyway, lasted 55 years. She lost a race for Congress in 1967: but when that door closed another opened, as an ambassador to Ghana and Czechoslovakia. Breast cancer was a low point, but she learned to cope with it, and helped others to cope. “I don’t like to do negatives,” she said. “There are always pluses to things.” In the ?lms, her sparkling eyes and chubby open arms included everyone; one toss of her shiny curls was an invitation to fun. Her trademark was, it turned out, that rare thing in the world, and rarer still in Hollywood: a genuine smile of delight. 7

Shirley Temple
Shirley Temple Black, actress and diplomat, died on February10th, aged 85


HERE had to be a dark side to Shirley Temple’s life. Biographers and interviewers scrabbled around to ?nd it. The adorable dancing, singing, curly-haired moppet, the world’s top-earning star from 1935 to 1938, surely shed tears once the cameras were o?. Her little feet surely ached. Perhaps, like the heroine of “Curly Top”, she was marched upstairs to bed afterwards by some thin-lipped harridan, and the lights turned resolutely o?. Not a bit of it. She loved it all, both then and years later, when the cuteness had gone but the dimples remained. Hadn’t her mother pushed her into it? No, just encouraged her, and wrapped her round with affection, including ?xing her 56 ringlets every night and gently making her repeat her next day’s lines until sleep crept up on her. Hadn’t she been punished cruelly while making her “Baby Burlesks”, when she was three? Well, she had been sent several times to the punishment box, which was dark and had only a block of ice to sit on. But that taught her discipline so that, by the age of four, she would “always hit the mark”—and, by the age of six, be able to match the great Bill “Bojangles” Robinson tap-for-tap down the grand staircase in “The Little Colonel”. To some it seemed a stolen childhood, with seven feature ?lms to her name in

1934, her breakthrough year, alone. Not to her, when Twentieth-Century Fox (born out of struggling Fox Studios that year on her glittering name alone) built her a little bungalow on the lot, with a rabbit pen and a swing in a tree. She had a bodyguard and a secretary, who by 1934 had to answer 4,000 fan-letters a week. But whenever she wanted to be a tomboy, she was. In the presidential garden at Hyde Park she hit Eleanor Roosevelt on the rump with her catapult, for which her father spanked her. The studios were full of friends: Orson Welles, with whom she played croquet, Gary Cooper, who did colouring with her, and the kind camera crews. She loved the strong hands that passed her round like a mascot, and the soft laps on which she was plumped down (J. Edgar Hoover’s being the softest). The miniature costumes, especially her sailor out?t in “Captain January”, in which she could side-step and jump even better, thrilled her to bits; as did her miniature Oscar in 1935, the only one ever awarded to somebody so young. Grouchy Graham Greene mocked her as “a complete totsy”, but no one watching her ?ve di?erent expressions while eating a forkful of spinach in “Poor Little Rich Girl” doubted that she could act. She did pathos and determination (jutting out that little chin!), just as well as smiles.

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