Re: [A-List] Europe/US rivalry: Monbiot gets it

["Michael Keaney" <michael.keaney@xxxxxx>]

I'm not sure if he talked to Mark, but I do beleive a Mr. Monbiot contacted
me back in mid-March to discuss my essay on Iraq.  I gave him some good
links, and he mentioned possibly writing about this issue.  Interesting
world we live in...

-----

Monbiot was subscribed to the A-list for a while, but left. Mark's
uncensored comment at the time can be found at:

http://archives.econ.utah.edu/archives/a-list/2002w45/msg00057.htm

Maybe Monbiot has been having second thoughts.

Thanks also for your link to the Bloomberg article. I'm going to reproduce
it in full, since there is no guarantee it will stay up otherwise.

----

Indonesia May Dump Dollar; Rest of Asia Too?: William Pesek Jr.
By William Pesek Jr.
Tokyo, April 17 (Bloomberg) -- Pertamina, Indonesia's state oil company,
dropped a bombshell recently. It's considering dropping the U.S. dollar for
the euro in its oil and gas trades.

With war unfolding in Iraq and a mysterious pneumonia spreading around Asia,
few noticed. News that Indonesian government officials favor the euro also
fell through the cracks. Yet it could have major implications for the
world's biggest economy.

Other Asian countries may not be far behind any move in Indonesia to dump
the dollar. The reasons for this are economic and political, and they could
trigger a realignment that undermines U.S. bond and stock markets over time.

Indonesia's rationale: The dollar may be the world's reserve currency but it
has become too volatile. ``One thing is for sure, the adoption of the euro
as an alternative means of payments could be an effective solution to
speculative dollar-oriented dealings,'' Indonesia's Vice President Hamzah
Haz said last month.

Conspiracy theorists can rest easy. None of this has anything to do with the
fact Indonesia is home to the world's largest Muslim population. Rumors of
Southeast Asian Muslims and Arabs banding together and dumping dollars to
stick it to the U.S. ignore the very real economic justifications for it.
This also isn't necessarily about Iraq-related tensions.

Last year's accounting scandals shook many Asians' trust in the U.S.
economy. The view here is that little has been done to reform the system.
News that a unit of Halliburton Co., formerly run by U.S. Vice President
Dick Cheney, already won a post-Iraq war contract has Asians buzzing about
American-style crony- capitalism -- much like the U.S. used to complain
about Asian cronyism.

A U.S. Funk?

Folks here also worry the U.S. has fallen into a Japan-like funk. The
Federal Reserve's moves to cut interest rates to 40-year lows haven't
boosted U.S. growth the way Asian leaders and companies expected. One of the
most commonly asked questions here is this: ``What if the U.S. can't right
itself?''

War in Iraq has added to the dollar's woes. The U.S. currency has lost more
than 18 percent against the euro over the last 12 months; it's down more
than 8 percent versus the yen.

Perhaps the biggest risk for the dollar, at least in the eyes of some
analysts in Asia, is uncertainty surrounding U.S. foreign policy. Now that
war in Iraq seems to be wrapping up, Asian markets are wondering if the U.S.
will pursue regime change elsewhere. In recent days, for example, the Bush
administration has had to deny it's planning to attack either Syria or Iran.

Here in East Asia, most of the focus is on North Korea. While war is
unlikely, ``a miscalculation, a misunderstanding or a hawkish assessment of
North Korea's intentions by the U.S. could lead to an incident that could
escalate,'' says Steve Vickers, chief executive of International Risk Ltd, a
risk management consultancy.

A Question of Uncertainty

For Indonesians, questioning the dollar is less about political backlash for
war in Iraq than genuine uncertainty. Geopolitical and economic concerns
have Indonesian officials and companies wondering if the dollar will become
even more volatile. What if, for example, the U.S. began setting the stage
for another pre-emptive attack in the Middle East or East Asia?

Even so, there's no ignoring Asia's desire to reduce U.S. influence in the
region. Leaders here wonder if scrapping the dollar might expedite the
process. Last September, Asian and European leaders formed a task force to
help Asia boost euro currency reserves, issue more euro-denominated debt and
use the single currency to settle trade bills.

One reason leaders like Mahathir Mohamad of Malaysia favor the euro: It
lacks a domestic agenda. Washington has proven quite adept at steering the
dollar up and down depending on economic needs. In the early 1990s, a lower
dollar was favored to boost growth. Later in the decade the White House
favored a rising currency to attract foreign capital.

Euro Volatile, Too

Since 12 countries use Europe's single currency, it may be less susceptible
to unpredictable political agendas. Also, the European Central Bank, not
politicians, manages it. In a perfect world, the Japanese yen would be
Asia's preferred currency. Tokyo's active manipulation of currency markets
makes the yen about as appealing as the Russian ruble.

That's not to say Indonesia or other Asian economies are rushing to rid
their vaults of dollars. Asian policy makers are cognizant of the euro's own
track record for volatility. When, or if, the U.S. economy recovers,
officials will have a better idea of how seriously to take the euro's gains.

Still, the long-term prospects for the dollar as the undisputed champion of
trade and finance have dimmed along with the economy. It's not clear what
Washington can do about all this, but it's a dynamic that could lead to
tectonic shifts in markets everywhere.

Last Updated: April 16, 2003 15:31 EDT