Thursday, January 16, 2014

‘Fragile Five’ falls short as tapering leaves more exposed - Financial Times



http://www.ft.com/intl/cms/s/0/a245c70e-7e0c-11e3-95dd-00144feabdc0.html?siteedition=intl#axzz2qbcwnb3C


January 15, 2014 8:39 pm

‘Fragile Five’ falls short as tapering leaves more exposed

By James Kynge
Fallout from loss of easy money leaves more emerging markets exposed
Forget the “Fragile Five”, the newly minted alliterative grouping of emerging markets at risk. The list of countries exposed as central banks tighten monetary policy is longer than the moniker suggests.
The big worry for investors, as highlighted by the World Bank on Wednesday, is of a repeat of last year’s turmoil in emerging markets after Ben Bernanke, the chairman of the Federal Reserve hinted in May at plans to taper the Fed’s monthly asset purchases. If the adjustment to tapering proves “disorderly”, financial flows to developing countries could decline by as much as 80 per cent for several months, the World Bank warned.

Vulnerable emerging markets

Forex reserves compared
When judged by their perceived ability to repay short-term foreign borrowings the countries particularly exposed to the fallout of tapering are South Africa, Turkey, Brazil, India, Indonesia, Hungary, Chile and Poland, data processed by Schroders and the Financial Times show.
This expands on the “Fragile Five” grouping, a commonplace coinage of the last six months, which incorporates the first five and broadly links vulnerability to current account and fiscal deficits. The expanded list is derived more from fears over short-term debt.
Craig Botham, emerging markets economist at Schroders, says the catchy labels risk blinding investors to broader risks. Market focus is shifting to those countries most reliant on outside finance, particularly those with high short-term refinancing requirements, he said.
“This focus is underpinned by the fear of a ‘sudden stop’, where capital flows halt or even reverse. If this happens, the impact on indebted corporates can be devastating, with knock on effects for banks.”
One metric increasingly adopted to assess emerging market vulnerability compares the size of a country’s foreign exchange reserves to the sum of its short-term external debt and its current account deficit, called the gross external financing requirement (GEFR).
This shows that in the second half of last year, Turkey, South Africa, Chile, India and Indonesia had sufficient reserves to cover around just one year of their respective GEFRs, according to the Schroders’ research. Hungary, Brazil and Poland are less exposed, with reserves to cover around two years of GEFR.
In addition to the eight countries that are vulnerable to tapering, Ukraine, Venezuela and Argentina – which rating agencies rank among the least creditworthy nations – are also seen as exposed. But their weaknesses stem primarily from domestic economic and political uncertainty rather than the effects of tapering.
In its report, the World Bank identified its most likely scenario as a smooth adjustment for emerging markets to tapering that would lead to only a modest reduction in capital inflows. However, it sees long-term interest rates in the world’s largest economies rising by as much as 200 basis points.
The crux for many emerging market borrowers – both sovereign and corporate – is that sharp recent depreciations in their national currencies have inflated the local currency values of their hard currency debt, straining repayment capacities. In some cases, the trend of currency softness has yet to run its course, with the South African rand falling to a five-year low of R10.85 to the US dollar on Tuesday.

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Obama’s Path From Critic to Overseer of Spying - New York Times

http://www.nytimes.com/2014/01/16/us/obamas-path-from-critic-to-defender-of-spying.html?nl=us&emc=edit_cn_20140116&_r=0

By PETER BAKERJAN. 15, 2014




    Christopher Gregory for The New York Times

    Obama on Surveillance Through the Years


    Throughout his political career, President Obama has expressed a range of views on balancing national security needs with personal rights and freedoms.
    WASHINGTON — As a young lawmaker defining himself as a presidential candidate,Barack Obama visited a center for scholars in August 2007 to give a speech on terrorism. He described a surveillance state run amok and vowed to rein it in. “That means no more illegal wiretapping of American citizens,” he declared. “No more national security letters to spy on citizens who are not suspected of a crime.”
    More than six years later, the onetime constitutional lawyer is now the commander in chief presiding over a surveillance state that some of his own advisers think has once again gotten out of control. On Friday, he will give another speech, this time at the Justice Department defending government spying even as he adjusts it to address a wave of public concern over civil liberties.
    The journey between those two speeches reflects the transition from the backbench of the United States Senate to the chair behind the Resolute Desk in the Oval Office. Like other presidents before him, the idealistic candidate skeptical of government power found that the tricky trade-offs of national security issues look different to the person charged with using that power to ensure public safety.

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    In ’07, then-Senator Obama spoke disapprovingly at the Woodrow Wilson International Center for Scholars about spying. Stephen Crowley/The New York Times
    Aides said that even as a senator, Mr. Obama supported robust surveillance as long as it was legal and appropriate, and that as president he still shares the concerns about overreach he expressed years ago. But they said his views have been shaped to a striking degree by the reality of waking up every day in the White House responsible for heading off the myriad threats he finds in his daily intelligence briefings.
    “When you get the package every morning, it puts steel in your spine,” said David Plouffe, the president’s longtime adviser. “There are people out there every day who are plotting. The notion that we would put down a tool that would protect people here in America is hard to fathom.”
    At the same time, aides said Mr. Obama was surprised to learn after leaks by Edward J. Snowden, the former National Security Agency contractor, just how far the surveillance had gone. “Things seem to have grown at the N.S.A.,” Mr. Plouffe said, citing specifically the tapping of foreign leaders’ telephones. “I think it was disturbing to most people, and I think he found it disturbing.”
    Yet it is hard to express indignation at actions of the government after five years of running it, and some involved in surveillance note that it was Mr. Obama who pushed national security agencies to be aggressive in hunting terrorists. “For some, his outrage does ring a little bit hollow,” said a former counterterrorism official.
    All of which leads to worries by critics of government surveillance that he will not go far enough on Friday. “If the speech is anything like what is being reported, the president will go down in history for having retained and defended George W. Bush’s surveillance programs rather than reformed them,” said Anthony D. Romero, executive director of the American Civil Liberties Union.
    Mr. Obama first confronted the questions of national security and privacy during his 2004 campaign for Senate, taking aim at the Patriot Act for “violating our fundamental notions of privacy” and declaring that “we don’t like federal agents poking around our libraries.”
    Once elected, Mr. Obama took an interest in curbing surveillance. “He would ask me about various issues that relate to the topic of the day — how do you come up with policies that make sure that security and liberty are not mutually exclusive?” recalled Senator Ron Wyden, Democrat of Oregon and a leading critic of surveillance policies then and now.
    Mr. Obama was a sponsor of a bill in 2005 to raise the standard required for federal agents using administrative subpoenas known as national security letters to obtain business records without court order. He joined other Democrats fighting the renewal of the Patriot Act until it was amended to address civil liberties concerns, then voted for its extension in 2006 after a compromise, breaking with Mr. Wyden who voted no.
    Mr. Obama’s 2007 speech at the Woodrow Wilson International Center for Scholars came after the revelation that President George W. Bush had authorized warrantless surveillance in terrorism cases without permission from the Foreign Intelligence Surveillance Court. A presidential candidate, Mr. Obama criticized Mr. Bush’s “false choice between the liberties we cherish and the security we provide.”
    But as a former Obama aide put it recently, “The rhetoric was probably sharper than his votes.” By summer 2008, with the Democratic nomination secured and the White House now a real possibility, Mr. Obama voted for legislation essentially ratifying Mr. Bush’s surveillance programs. Mr. Obama realized he would “take my lumps” from the left and said it “was not an easy call for me,” but he argued that putting the programs under the jurisdiction of the intelligence court restored accountability.
    As a result, after he won the election, surveillance issues were off his agenda; instead, he focused on banning interrogation techniques he deemed torture and trying, futilely, to close the prison at Guantánamo Bay, Cuba. “There wasn’t really any serious discussion of what N.S.A. was up to,” said a former intelligence official, who like others did not want to be named describing internal conversations.

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    President Obama, in Raleigh, N.C., on Wednesday, will speak on Friday at the Justice Department on government spying. Stephen Crowley/The New York Times
    Mr. Obama was told before his inauguration of a supposed plot by Somali extremists to attack the ceremony, what David Axelrod, his adviser, called a “welcome-to-the-N.B.A. moment before the first game.” Although the report proved unfounded, it reinforced to Mr. Obama the need to detect threats before they materialized. “The whole Somali threat injected their team into the realities of national security in a tangible and complicated way,” recalled Juan C. Zarate, the departing counterterrorism adviser to Mr. Bush who worked with the Obama team on the threat.
    So while instituting additional procedural changes, Mr. Obama undertook no major overhaul of the surveillance programs he inherited. “He’s sitting on the other end of the pen now,” said the former Obama aide. “He has more information than he did then. And he trusts himself to use these powers more than he did the Bush administration.”
    Just weeks after the inauguration, Judge Reggie B. Walton issued a secret ruling reprimanding the N.S.A. for violating its own procedures. But when Mr. Obama was briefed, the case did not stir consternation. The president’s team instructed the Justice Department to fix the problem, but “this was not a central concern and he was very quick in knowing how to deal with it,” said a former administration official.

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    The calculus had shifted enough that Mr. Obama began presiding over a record number of leak prosecutions. When civil liberties advocates visited to press him to do more to reverse Mr. Bush’s policies, Mr. Obama pushed back. “He reminded me that he had a different role to play, that he was commander in chief and that he needed to protect the American people,” recalled Mr. Romero of the A.C.L.U.
    That was brought home even more starkly at Christmas in 2009 when a Nigerian man tried to detonate explosives in his underwear aboard an airliner. At a meeting at the White House afterward, an agitated Mr. Obama “was extremely firm” with intelligence officials, saying that he “expected us to do better,” recalled one who was in the room.
    “We hadn’t had a major attack in a number of years and the fact that this guy came as close as he did — basically the detonator didn’t work — and the fact that we hadn’t detected it in advance really came as a shock to them,” said John E. McLaughlin, a former deputy C.I.A. director who participated in a review of the incident for the administration.
    Feeling little pressure to curb the security agencies, Mr. Obama largely left them alone until Mr. Snowden began disclosing secret programs last year. Mr. Obama was angry at the revelations, privately excoriating Mr. Snowden as a self-important narcissist who had not thought through the consequences of his actions.
    He was surprised at the uproar that ensued, advisers said, particularly that so many Americans did not trust him, much less trust the oversight provided by the intelligence court and Congress. As more secrets spilled out, though, aides said even Mr. Obama was chagrined. They said he was exercised to learn that the mobile phone of Chancellor Angela Merkel of Germany was being tapped.
    Mr. Obama appointed a panel to review the programs. “The point we made to him was, ‘We’re not really concerned about you, Barack, but God forbid some other guy’s in the office five years from now and there’s another 9/11,’ ” said Richard A. Clarke, a former White House counterterrorism adviser who served on the panel. He had to “lay down some roadblocks in addition to what we have now so that once you’re gone it’ll be harder” to abuse spying abilities.
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    On the other hand, Mr. Obama was acutely aware of the risks of being seen as handcuffing the security agencies. “Whatever reforms he makes, you can be sure if there’s another incident — and the odds are there will be in our history — there’ll be someone on CNN within seconds saying if the president hadn’t hamstrung the intelligence community, this wouldn’t have happened,” Mr. Axelrod said.
    Benjamin J. Rhodes, a deputy national security adviser working on Friday’s speech, said Mr. Obama saw the issue as two separate questions — abuse of government power and extent of government power. With the 2008 legislation setting a new structure, the president had focused on avoiding abuse until the latest revelations. “At this point, we’re looking more systematically at these programs to ensure that we’re taking into account both technological advances and also the need to inspire greater public confidence,” Mr. Rhodes said. “We have an ability to do essentially anything technologically. So do we have the appropriate legal and policy overlay to ensure that’s focused?”
    That will be the question Mr. Obama tries to answer in the speech.
    Correction: January 15, 2014 
    An earlier version of this article misstated the month in 2007 that Mr. Obama made the speech at the Woodrow Wilson International Center for Scholars. It was in August, not October.



    On Spying, Obama’s Woes Echo Those of Past Presidents

    http://www.nytimes.com/2014/01/17/us/politics/on-spying-obamas-woes-echo-those-of-past-presidents.html?nl=us&emc=edit_cn_20140116

    By JOHN HARWOODJAN. 16, 2014
    WASHINGTON — In his first Inaugural Address, President Obama stirred liberals by proclaiming that “we reject as false the choice between our safety and ideals.”
    Five years in, the presidency has taught Mr. Obama that the choice he rejected is not so false after all. Ever since the disclosures about the extent of National Security Agency surveillance, leading to the changes that Mr. Obama plans to announce in a speech on Friday, a chastened president has embraced “balance” between competing imperatives of security and civil liberties.
    History shows that is what the Oval Office does to everyone who occupies it. The grinding reality of governing the country nearly always gives the lie to the facile, I-can-square-the-circle formulations that winning candidates carry with them into the White House.

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    Obama’s Path From Critic to Overseer of SpyingJAN. 15, 2014

    Those formulations typically stem from candidates’ attempts to please all sides in contentious debates by acknowledging the concerns of opponents without surrendering their own principles. But it is rarely that easy.
    A tour through recent history shows Mr. Obama with plenty of company.
    When John F. Kennedy was campaigning for the White House and trying to counter concerns about his youth and inexperience as compared to his opponent, Richard M. Nixon, the two-term vice president, he ran as a fierce Cold Warrior who would close a “missile gap” with the Soviet Union. Once elected, he vowed in his Inaugural Address to “pay any price, bear any burden, meet any hardship, support any friend, oppose any foe” in the nation’s defense.
    Within three months, Kennedy had begun to distance himself from the idea that the missile gap even existed. (Intelligence showed that the United States was much better armed.) And he had, to his own and the nation’s embarrassment, withdrawn air cover for American-trained Cuban exiles seeking to overthrow Fidel Castro at the Bay of Pigs.
    Four years later, President Lyndon B. Johnson tried to calm turbulence beneath the surface of postwar America while pursuing an ambitious civil rights, health care and antipoverty agenda. “The day and the time are here to achieve progress without strife, to achieve change without hatred, not without difference of opinion but without the deep and abiding divisions which scar the union for generations,” he said.
    Johnson achieved much of the progress and change he sought, but with steadily escalating strife and divisions that persist today in America’s polarized political system.
    In 1968, Nixon won as a candidate hard-nosed enough to calm riotous streets. But while promising “decent order” in his first inaugural address, he also sought to blunt his reputation as “Tricky Dick” by citing “the better angels our nature” — words from Abraham Lincoln’s first Inaugural Address — as an answer to the nation’s “crisis of the spirit.”
    Five years later, Nixon resigned in disgrace over the Watergate scandal.
    President Ronald Reagan insisted that he could cut taxes and the deficit at the same time, but he accomplished the former as deficits ballooned. His successor, President George Bush, pledged to curb the deficit while preserving Mr. Reagan’s tax cuts, but he ended up abandoning his no-new-taxes pledge to achieve a budget deal with congressional Democrats.
    President Bill Clinton vowed to “invest more in our own people” while also cutting “our massive debt.” He left office with a budget surplus for the first time in a generation, but Congress made him set aside many of the investments.
    As a self-described “compassionate conservative,” President George W. Bush advocated tax cuts while at the same time describing antipoverty work as a biblical imperative. “When we see that wounded traveler on the road to Jericho,” Mr. Bush told his first inaugural audience, “we will not pass to the other side.”
    Mr. Bush proved far more successful on tax cutting than poverty fighting, and the attacks of Sept. 11, 2001, soon transformed Mr. Bush’s agenda into that of a wartime president.
    The controversies accompanying Mr. Bush’s emphasis on security — the Iraq war, the detainees held at Guantánamo Bay, the Abu Ghraib prison scandal and the National Security Agency’s surveillance — ignited strong Democratic opposition. But while Mr. Obama capitalized on the backlash against Mr. Bush’s security policies when he ran in the 2008 election, Mr. Obama also needed to assure Americans he could keep them safe.
    In practice, Mr. Obama has continued and in some cases expanded many of the previous administration’s security policies, from striking foes with drone aircraft to maintaining the Guantánamo facility to preserving far-reaching N.S.A. surveillance.
    If that represents a source of satisfaction to conservatives like former Vice President Dick Cheney, it has angered Mr. Obama’s liberal base as well as a rising band of libertarian Republicans, among them Senator Rand Paul of Kentucky.
    Mr. Obama’s position reflects the lesson that Johnson alluded to in his memoirs. His father had told him no man could understand parenthood until becoming a parent, Johnson wrote, and he came to think of the presidency the same way.

    “Presidents are always going to grow and evolve because of what they learn,” said the presidential historian Michael Beschloss. “A president who does not do that is someone you probably don’t want as president.”