Other countries eagerly await U.S. immigration reform

Apple harvest
They design our electronics, harvest our food, staff our research labs and care for our children. Immigrants -- legal and illegal, skilled and unskilled -- by all accounts are vital cogs in the wheel of the U.S. economy, and the money they send back to their families improves the quality of life throughout their homelands.

GlobalFocusSo why, when both sending and receiving countries benefit, is the quest for comprehensive immigration reform in the United States so politically divisive and often pushed to the legislative back burner?

Immigration policy experts say the caustic partisan debate over who can stay and who must go has been ratcheted up by the lingering joblessness inflicted by the Great Recession and the searing spotlight of Campaign 2012 that illuminated only candidates' points of contention rather than those of convergence.

Now that the election is over and President Obama purportedly is beholden to the 71% of Latino voters who helped propel him to a second term, the more sober analysts of immigration dynamics are predicting that lawmakers of all political stripes will make a priority of devising more fair, efficient and mutually advantageous practices for integrating foreign labor.

"Immigrants operate on supply and demand, like everyone else. If there is a huge supply of jobs, they will come to the United States and look for them. If, as the case has been recently, there is not a huge supply of jobs or work opportunities are declining, then they either don’t come here or they go back," said S. Lynne Walker, vice president of the Institute of the Americas and an immigration policy analyst for more than 20 years. She pointed to a Pew Hispanic Center report in April that tracked the steady decline of undocumented workers, who have been kept at bay by the recession.

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China, U.S., Europe battling over a shrinking global-trade pie

Chinese container ship bringing goods to Port of Long Beach
In polite, diplomatic language, China this week accused Eurozone leaders of piling up debts that threaten a global economic crisis, and the Europeans countered with complaints that Beijing manipulates its currency to unfairly skew trade in its favor.

GlobalFocusThe subtle verbal shots fired on the fringes of the Asia-Europe Summit in Vientiane, Laos, echo a theme raised during the U.S. presidential election, when Republican challenger Mitt Romney vowed to take up the gauntlet of a trade war he said had been thrown down by China.

 Both battles reflect the fear and uncertainty confronting the world's biggest economies in this fifth year of stalled growth and persistent recession, trade experts say. And with little hope on the horizon for revving the main economic engines any time soon, the rhetoric and posturing are likely to grow sooner than the rivals' bottom lines.

The European Union is China’s largest trading partner, and the sovereign debt crisis afflicting the 17 nations that use the euro common currency has been cutting into Europeans’ ability to buy Chinese goods. On Monday, Chinese Premier Wen Jiabao told the European delegates that they needed to come up with “a clear and reliable" plan for resolving the debt crisis that is stifling growth and trade.

French President Francois Hollande countered with a swipe at China’s artificially suppressed currency value, which makes Chinese products cheaper than they should be and contributes to the trade imbalance favoring Beijing.

"Europe has always trusted the market on condition that the rule of reciprocity is the same for everyone," Hollande said, alluding to the artificially set value of the Chinese yuan, also known as the renminbi. "We need to have equal exchange. We believe in an open market system."

Trade and economic analysts say China has moved some distance to correct currency distortion over the last few years, with the yuan exchange rate improving from more than 8 to the dollar to 6.29 on Tuesday. That’s close to a 25% appreciation, most of it in the last four years, noted Perry Wong, director of research for the Milken Institute and a frequent visitor to China.

Some economists set the actual value at closer to 5 yuan to the dollar, but full correction cannot be accomplished overnight, Wong said.

"Transformation in China will take time. In terms of structural change, for them to rely less on exports and import more goods from foreign countries, and to promote the quality of labor in China, will take years," Wong said. Most countries intervene to some degree to "more fully accommodate their own domestic economic agendas," he added, including the U.S. Federal Reserve Board policy of quantitative easing.

Wen Jiabao at Asia-Europe Summit in LaosChina’s alarm over the European debt crisis is justified, as it could portend a coming period of global economic upheaval, said Bruce Abramson, a partner with the Rimon Law Group and an expert in valuation, intellectual property, trade and competition.

"The Eurozone crisis is likely to spread into a global monetary crisis. It’s a testament to the Eurocrats that they have held it together as long as they have," said Abramson, predicting a five- to 10-year period of recession or feeble growth on the continent, in the United States and potentially in China. Growth this year in China's economy is pegged at 7.4%, down from 10% to 12% only a few years ago.

The persistent pressures presage more friction over trade rules and practices, Abramson said.

"Economic growth is a necessary prerequisite for peace, tolerance, acceptance -- all kinds of good things. But when the pie is shrinking, everybody, whether local, individual or national, worries about how to hold on to what they already have."

When you’ve got 10 people vying for control of only nine things of value, "you either learn how to make more things or how to have fewer people," he said. "More things is economic growth. Fewer people is war."

Jamie Metzl, a senior fellow at the Asia Society, said voices within China's centrally planned economy are gaining strength in their calls for structural reforms that would boost wages and social services for Chinese workers and find a better trade balance by allowing the currency to float to its actual exchange value.

"China is making preliminary steps toward making its economy less oriented toward exports, but the economy is still massively oriented toward exports," Metzl said, pegging the share of its output sold abroad at 70%.

That imbalance will persist as long as the yuan is undervalued and workers are underpaid, Metzl said.

"Certainly recession in Europe and sluggish growth in the United States are harming China’s ability to export. But unless China undertakes significant structural reforms, growth in China is very likely to continue to decelerate because of the inherent problems and imbalances," he said.

China’s communist government also plays "way too strong a role in the domestic economy," he added, which stifles innovation in the private sector that would make Chinese products more competitive and foster a healthier global trade environment.

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Photo: A China Shipping Container Lines Co. vessel enters the Port of Long Beach this week. The U.S. Census Bureau is scheduled to release trade balance data on Thursday. Credit: Tim Rue / Bloomberg

Insert: Chinese Premier Wen Jiabao arrives at the Asia-Europe Summit in Vientiane, Laos, on Tuesday. Credit: Barbara Walton / European Pressphoto Agency


Billions for Japan tsunami recovery went elsewhere, reports find

Japan  reconstruction
TADANOUMI, Japan -- Billions of dollars meant to help Japan recover from its devastating tsunami went to government projects that had little or nothing to do with the disaster, a new spending review shows.

Japanese politicians have questioned why millions went to a factory that makes contact lenses, or why money was spent to fend off  environmental activists opposed to whaling, or other projects in areas far removed from the tsunami. Local media have dug up numerous  examples of dubious spending, from renovating government buildings outside the disaster zones to job training in  prisons.

All in all, government documents show roughly one out of every four dollars budgeted for reconstruction went to unrelated projects, and more than half has not been allocated at all, the Associated Press reported Tuesday. An outside analysis by recovery expert Yoshimitsu Shiozaki found the same pattern of spending on projects outside the disaster zones.

PHOTOS: Japan hit by magnitude 9.0 earthquake

The funds were originally earmarked solely for the stricken areas, but the government ultimately loosened the rules, saying the money could also be used to bolster the economy and prepare for future disasters nationwide. The reconstruction money was up for grabs at a time when government agencies were downsizing, making it a tempting spigot of cash.

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Mexico's Senate approves bill to fight money-laundering epidemic

Cash seized

MEXICO CITY -- Mexico’s Senate on Thursday unanimously approved an anti-money laundering bill in  hope of stemming a multibillion-dollar tide of illicit cash that flows from the nation’s powerful drug cartels and has seeped into nearly every corner of the Mexican economy.

The bill, which was approved this year  by the lower chamber, has been under consideration for more than two years in the Mexican Congress and could help the struggling nation in its fight against the narco gangs. Although  the outgoing administration of Felipe Calderon has managed to kill or capture more than two-thirds of the country’s most-wanted drug capos, it has struggled to hit them in their bank accounts.

Calderon, who leaves office in December, has long supported a stronger anti-laundering statute, and on Thursday -- a day when Amnesty International was criticizing him for failing to have taken more effective action to stem human-rights abuses committed in his six-year fight against the narcos -- the president sent a tweet congratulating the legislators.

“This will allow us to cut the economic resources of organized crime,” he wrote. “This is big news.”

The bill, which now heads to the president's desk for his signature, establishes a new specialized prosecution unit to go after money launderers and lays out a number of new reporting requirements for major transactions. Casinos will have to report big-money bets, and charity groups will have to inform the government of particularly generous donations. The sale of expensive boats, cars,  airplanes and jewelry also must be reported.

Among other things, the bill will prohibit the use of cash in many real-estate transactions, require banks to flag big credit card bills and force Mexican notaries, who handle most real-estate deals here, to report suspicious activity.

U.S. officials estimate that Mexican drug cartels send $19 billion to $29 billion in ill-gotten cash from the United States to their home country every year, and some Mexican officials have put the annual  of laundered money at $50 billion, representing a staggering 3% of the legitimate  Mexican economy.

As with many reform efforts in Mexico, passing a law will \help only so much. To make a real dent in the drug trade, it also must be enforced. Observers have suggested that the government has neglected to crack down hard on money laundering for fear that it would damage the rest of the economy.

Mexico approved an asset-forfeiture law in 2008 similar to ones in Italy and Colombia that made a big difference in their fights against organized crime, allowing the governments to seize and sell ill-gotten properties. But Mexican prosecutors have used the 2008 law sparingly.

-- Richard Fausset and Cecilia Sanchez

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Photo: Soldiers carry a table loaded with seized U.S. dollars at a media presentation in Mexico  City last year. The cache of $15.3 million found in a car in downtown Tijuana is believed by authorities to belong to members of the Sinaloa drug cartel. Credit: Eduardo Verdugo / Associated Press

 


Sanctions, currency chaos igniting unrest in outcast Iran

An Iranian shopper pays a fruit seller with 50,000-rial banknotes
Soaring prices at Tehran's cavernous Grand Bazaar have ignited violence this week as money traders and vendors clashed with riot police over the plummeting value of the Iranian currency, which is being gutted by international sanctions and mismanagement by the Islamic regime.

GlobalFocusWhat for most Iranians has been an abstract political dispute between their leaders and Western countries concerned about Tehran's nuclear ambitions has suddenly hit them in their wallets and pushed them to lash out. The rial has lost 80% of its value against the U.S. dollar in the last year, a decline accelerated by tightened U.S. and European Union sanctions now depriving the regime of half the hard currency it was earning from oil exports.

Iranian President Mahmoud Ahmadinejad blamed the deepening economic chaos on foreign enemies, contending there is "no economic justification" for the public scramble to dump rials in favor of dollars, euros and gold. Supreme leader Ayatollah Ali Khamenei also struck a defiant pose, reasserting Tehran's right to enrich uranium and vowing that Iranians "will never surrender to pressure."

But Iranian exiles and scholars see the angry outbursts in the marketplace as a sign that ordinary Iranians are finally fed up with a regime that has brought them isolation, insecurity and eroding living standards. They see a population, resentful of a crackdown on dissent three years ago, now edging toward rebellion.

The unrest also demonstrates that the U.S. policy of letting sanctions and diplomacy undermine popular support for the regime is having the desired effect, confronting Tehran with its gravest challenge since Islamic clerics came to power in a  1979 revolution, the experts say.

The street value of the rial has dropped by half in the last two months and plunged 18% on Monday alone. The unofficial exchange rate for the dollar -- more than 35,000 before back-alley trading halted -- is almost three times the official rate of 12,260. But that subsidized exchange rate is available only from state banks to a limited and shrinking number of key importers.

Money traders stopped selling dollars Tuesday, confused over how to price the swiftly deteriorating rial. Some vendors closed their shops in protest of the government's failure to intervene and prop up the currency; others boosted prices beyond what many shoppers can or will pay.  

Before harsher sanctions kicked in three months ago, Iran's government had been using a sizable share of its $100-billion annual oil earnings to subsidize dollar-denominated food and consumer goods, to keep prices stable and placate the population, said Abbas Milani, a Tehran-born academic who directs Iranian studies at Stanford University.

Milani said he suspects the government was initially using the economic downturn brought on by the sanctions to put an end to the costly dollar subsidies. But he now concludes that the regime has been forced to let the rial tumble because it has run out of the hard currency needed to stop the slide.

Riot police block Tehran's Grand Bazaar"We're not talking about a billion dollars or 2 billion to stabilize a currency that has gone down so far. The government would have to find enormous sums of money to pour in, and if they had it they would have done it by now," Milani said.

"I don't think the regime can survive this one," he said, unless Khamenei does the unthinkable and meets Western demands that Iran cease enriching uranium beyond levels needed for civilian nuclear programs.

Tehran officials recently told the International Monetary Fund that they had $50 billion on hand, enough to see Iran through the sanctions bite for at least four or five months, Milani said. He calculates that the regime should have saved about $300 billion in a rainy-day fund over the last eight years. That no intervention in the currency crisis has been forthcoming tells him that much of the oil windfall has been squandered or siphoned off into private accounts of the Revolutionary Guards and government leaders.

"Social and political cohesion in Iran will be deeply disturbed by this economic crisis," predicted Alireza Nader, senior policy analyst on Iran for Rand Corp. "And it's not just the economic crisis -- you saw Iranians take to the streets in 2009 for a number of reasons, and those tensions have been simmering below the surface. We see them coming up now."

Nader pointed out that protesters at the bazaar this week have shouted denunciation of the regime's politics as well as soaring inflation. Shouts of "Leave Syria alone and think about us!" could be heard in clandestinely shot video footage of the angry crowds, he said.

 The Iranian government has been the sole regional supporter of Syrian President Bashar Assad and his brutal suppression of a rebellion now in its 19th month.

"Eventually this is going to put enormous pressure on the Iranian government to concede on a number of issues, not just the nuclear programs but domestic political issues as well," Nader said. "It's already gotten to the point where people's livelihoods are at stake and they're not going to tolerate that situation. We can definitely expect to see more unrest in the coming months."

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Photo: An Iranian shopper on Wednesday pays a fruit seller at the Grand Bazaar in Tehran with 50,000-rial banknotes. The sanctions-battered Iranian currency has lost 80% of its value in the last year, spurring inflation and social unrest. Credit: Abedin Taherkenareh / European Pressphoto Agency

Insert: Riot police block an approach to the Grand Bazaar on Wednesday after arresting money traders and dousing fires lighted in protest of the falling rial currency. Credit: European Pressphoto Agency


Latest threat to the Eurozone: Catalonia independence quest

Catalonia National Day demonstration
Just when it seemed stability was on the horizon for the tumultuous Eurozone, with Spain getting a grip on its debt financing and a plan to bail out insolvent banks, a fresh threat to the common currency has emerged with Catalonia's reignited drive to secede from the Spanish kingdom.

GlobalFocusMore than a million residents of the country's most prosperous region rallied for independence in a protest of historic proportions on Sept. 11, Catalonia's National Day. Some  estimates put the crowd as high as 2 million, or more than a quarter of the 7.5 million who live in the northeast region including Barcelona. This week, after Madrid rebuffed Catalonia leader Artur Mas’ demand for more control over his region’s tax revenues, the regional parliament set a Nov. 25 date for polling Catalans on "self-determination."

Spain’s constitution doesn’t empower the regions to call votes on sovereignty and questions of national integrity. But Mas has said his region will go ahead with a referendum without the central authorities’ approval to address what Catalans consider a grave injustice: They pay as much as $20 billion more into national coffers each year than they get back in public services.

The prospect of a national breakup, no matter how remote and fraught with procedural complications, spurred Spanish King Juan Carlos into rare action on a political matter.

“In these circumstances, the worst thing we can do is divide our forces, encourage dissent, chase chimeras and deepen wounds," the king warned in a letter posted on a new palace website, the daily El Pais reported. It was an apparent allusion to the nationalist stirrings that spurred the Spanish Civil War in the 1930s and a dictatorship under Gen. Francisco Franco that endured until his death in 1975. It was the first time the Spanish monarch weighed in on a political issue in more than 30 years.

Other influential Spaniards have also stepped forward to propose compromise, such as a looser federal structure that would give rebellious regions like Catalonia more autonomy without fracturing a country that has also dealt with a Basque separatist movement for decades. Juan Luis Cebrián, media mogul and author, warned last week that all the secession talk threatened to unleash the “wild beast” of right-wing nationalism that shackled Spain’s development for much of the 20th century.

Catalonia secession is neither a sure thing nor an imminent one, analysts note. Catalans for centuries have been bandying about the idea of independence for their thriving bastion of manufacturing, shipping, tourism and culture. The conservative government of Spanish Prime Minister Mariano Rajoy has made clear that it opposes Catalonia’s bailing on the rest of the kingdom, and it holds what  essentially could be a veto if the region envisions moving into statehood and taking its Eurozone membership with it. By charter, the Eurozone’s 17 members would have to unanimously approve induction of any new euro currency user.

Mas may be stirring the secession quest to force Madrid to cede more power to Catalonia over its own finances. But in an environment of deep public spending cuts, the second bout of recession in four years and unemployment afflicting 1 in every 4 Spaniards, the notion of sheering off the northeastern corner flanked by Andorra, France and the Mediterranean Sea is clearly appealing to many. Catalonia accounts for 20% of the Spanish gross domestic product and a quarter of its exports.

Catalonia secession has long been part of the political landscape in Spain and has just entered a more active phase because of the tough living conditions resulting from European Union austerity measures demanded to keep euro users' national deficits in check, said Fabian Zuleeg, chief economist at the Brussels-based European Policy Center.

"This is potentially more serious, as it reflects a real conflict between the national and regional levels," Zuleeg said. "The way Catalonia sees it, they've been paying in excessively into the national coffers and, because they have their own deficit, they have to go cap in hand to the Spanish government," only to be denied latitude to keep the regional economy on track.

The 2013 budget unveiled Thursday requires all regions to cut back further on already pared public spending and to generate more tax revenue to service staggering national debts. The piled-on austerity measures are fomenting unrest throughout the country, as seen this week in angry protests demanding job creation and investment in growth, which had to be dispersed with tear gas and mass arrests.

The Catalans' reignited campaign for independence "is an escalation but by no means the last act," said Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace. "But it's another source of tension in Spain, a complicating factor and another way that things could unravel."

Hit by bailouts, failing banks, unsustainable interest rates and mounting public resentment of the severe belt-tightening across the European periphery from Ireland to Greece, the common currency is at risk, Dadush said, of "death by a thousand cuts."

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Photo: More than a million supporters of independence for Catalonia rallied in Barcelona and other cities on Catalonia National Day, Sept. 11, pressing secession as a means of controlling their own finances and preserving their language and culture. Credit: Stefano Buonamici / Bloomberg


Deepening recession heats up talk of Greece exiting Eurozone

European Central Bank President Mario Draghi

When the euro hit wallets and bank accounts on New Year’s Day a decade ago, champagne and fireworks greeted the Europeans' embarking on what was touted as an irrevocable course for prosperity and economic integration.

GlobalFocusOver the years, though, as the economies of Greece, Spain and other Eurozone nations became mired in debt, expectations of a happy commune of affluence have given way to thoughts of breaking off the laggards to save the herd. What the Economist and other journals have referred to as a kind of "Hotel California that you can never leave" now looks to some to be exactly the hellish trap evoked by the Eagles in their 1970s ballad.

Greek officials disclosed this week that their economy shrunk 6.2% from April through June and that unemployment is close to 24% and rising. The shaky coalition government, confronted by strikes and protests against earlier austerity measures, has yet to identify the last $5 billion or so in budget cuts it must make to qualify for the next tranche of bailout funds due in September.

The bad news came as little surprise to the Eurozone’s better-off members, Germany first among them, which have complained for months that Athens has repeatedly failed to demonstrate the will to pare its bloated government payroll and get serious about collecting taxes.

A delegation of the so-called troika of creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- visited Athens last month and is expected to issue a critical report on the Greek balance sheet in September. That has shifted the conversation from whether Greece will exit the Eurozone to how many other common currency users might follow.

Even Greek analysts have become dubious of the country’s prospects for living up to the commitments made to get triple-digit billions in bailout funds. They have been issuing gloomy forecasts of an inevitable Greek exit -- or Grexit, as it has come to be called -- perhaps preparing the public for an eventual return to the drachma.

“The political system once more showed how counterproductive it is. Instead of designing a workable state, it tries to reproduce the one that already exists,” the Greek daily Kathimerini’s columnist Paschos Mandravelis groused Monday. In his analysis, titled “On another planet,” he accused the government of protecting well-connected allies and unproductive state jobs.

A week ago, Greek Finance Minister Yannis Stournaras said the government was still looking for about a third of the $15 billion in cuts to the 2013-14 budgets demanded by the troika in exchange for vital cash infusions. Debt inspectors are due back next month for a final review of whether Athens has gotten its finances in order, a judgment expected to be negative unless the government forces through deeply unpopular budget cuts and privatization plans in the final few weeks.

Elsewhere in the common currency club, the mood has changed from one of steadfast commitment to keeping the 17-nation Eurozone intact to mounting resignation that at least Greece will have to go.

Athens’ potential departure "has long since lost its horrors," German Economy Minister Philipp Roesler told ARD television recently. Luxembourg Prime Minister Jean-Claude Juncker, who chairs Eurozone finance ministers’ meetings, observed last week that a Greek exit would be “manageable.” On Monday, when German Chancellor Angela Merkel returned from a hiking vacation in the Italian Alps, she was confronted with even more dismissive comments by her coalition partners.

“An example must be made of Athens that the Eurozone can also show teeth,” Markus Soeder, Bavarian finance minister and member of a conservative sister party to Merkel’s Christian Democratic Union, told the Bild am Sonntag newspaper. He contended that Germany can ill afford to keep bailing out spendthrift euro members and that “further help to Greece is like pouring water into the desert.”

In the Economist cover story this week, a mock memo to Merkel on a possible Plan B advises her to consider two options to her current course of scrambling to hold the Eurozone together. One envisions Greece's departure, which alone could cost the euro area $398 billion in debt write-offs and transitional aid. The other scenario, in which Portugal, Ireland, Cyprus and Spain would also leave, could cost the rump Eurozone $1.4 trillion but halt the slow bleeding of bailouts to the struggling periphery, the respected London-based publication calculated.

Charles A. Kupchan, a professor of international affairs at Georgetown University and former European affairs director on the National Security Council under President Clinton, attributes the growing Grexit talk to an emerging consensus among economists that Athens' departure is a question of when, not if.

"Behind the scenes the European Union is making preparations for a Greek exit to contain the damage," he said of the latest assessments of the Eurozone's integrity.

Grexit would be manageable because of Greece's small economy and the fact that its finances are unlikely to ever meet Eurozone standards, Kupchan said. But he sees other departures as potentially destabilizing for the whole monetary union experiment.

"When you start talking about the Spanish or the Portuguese or the Irish leaving, that's a new ballgame," he said. "That's not a controlled exit of a member or two; it's a complete overhaul of the Eurozone."

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Photo: Mario Draghi, president of the European Central Bank, has pledged to do whatever it takes to protect the euro common currency. But mounting debts and persistent recession in some of the peripheral countries of the Eurozone have turned the conversation to managing the departure of Greece, instead of preventing it. Credit:  Hannelore Foerster / Bloomberg


U.S. looks to Belize for alleged ties to Sinaloa drug cartel

MEXICO CITY -- The U.S. government’s effort to dismantle Mexico’s powerful Sinaloa drug cartel is a war with multiple fronts. The latest is the tiny tourist jewel of Belize.

On Tuesday, the U.S. Treasury Department's Office of Foreign Assets Control announced it was freezing the assets of three Belize residents alleged to be drug traffickers and “key associates” of the Mexican drug trafficking group. The Treasury Department has also prohibited U.S. citizens from doing business with the suspects or their companies.

The focus on Belize — a polyglot, 327,000-resident wedge of the Yucatan just south of Cancun — is the latest evidence of the overwhelming influence of the south-to-north movement of drugs through Central America.

The U.S. government has estimated that up to 90% of the 700 metric tons of cocaine headed from South America to the U.S. wends its way through Central America, and every nation in the region is on the U.S. list of “major drug transit or major illicit drug producing countries.”

Belize, along with El Salvador, was added to that U.S. “blacklist” of 22 nations in September in a presidential memorandum that noted numerous recent drug and weapons seizures on the Mexican side of the Mexico-Belize border, as well as the presence of Mexican cartels including the Zeta gang, the ruthless rival to the Sinaloa cartel.

The three suspects targeted Tuesday are John Zabaneh, described by U.S. officials as a “critical figure” with ties to Colombian suppliers and Mexican buyers; his nephew Dion Zabaneh, and a “close associate” named Daniel Moreno.

The Treasury Department also designated as off-limits a number of companies either owned or controlled by Moreno or John Zabaneh, including a building contractor, a resort and marina company, a pharmaceutical firm, a supermarket company, and a banana farm called Mayan King Ltd.

The bigger target, however, is the Sinaloa cartel, and its billionaire fugitive capo, Joaquin “Chapo” Guzman. Treasury officials say the Belizeans are associates of Guzman and other members of the cartel, the most powerful organized crime group in Mexico and perhaps the most powerful narcotics ring in the world.

“John Zabaneh’s drug trafficking activities and his organization’s ties to Colombian sources of supply and Mexican buyers make him a critical figure in the narcotics trade,” Adam J. Szubin, director of the Office of Foreign Assets Control, said in a statement. “By designating Zabaneh, OFAC is disrupting those activities and continuing its efforts, alongside those of our law enforcement partners, to expose operatives of Chapo Guzman and the Sinaloa Cartel, including their businesses.”

The Treasury Department has the ability to “designate” foreign businesspeople with suspected drug ties under the Kingpin Act, which was signed in to law by President Clinton in 1999. Since then, U.S. officials have designated more than 1,100 businesses and individuals linked to 97 drug kingpins, according to government figures.

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-- Richard Fausset

 


Confidence teetering in Eurozone, economists warn

German Finance Minister Wolfgang Schaeuble and Treasury Secretary Timothy Geithner
It's been more than two decades since the Iron Curtain fell and Europeans embarked on an ambitious mission to build a powerful economic, political and social union in place of the Cold War divide. And for more than two decades, Germans have been footing most of the integration bill.

GlobalFocusCompassion fatigue set in long ago among the continent's most prosperous people, and the mounting costs of keeping the Eurozone intact a decade after the common currency was introduced have all but exhausted Germans' generosity toward their needy neighbors.

In this summer of economic discontent that is rattling financial markets worldwide, commitment to the 17-nation Eurozone has been a hard sell for German politicians whose constituents see only more expense and uncertainty with the wobbly fiscal union. Investors, too, seem to have increasing doubts about the euro's future and European Union leaders' ability to forge a viable plan for managing collective finances.

All eyes are on the European Central Bank this week following the vow of its president, Mario Draghi, to do whatever is necessary to keep Spain and Italy in the Eurozone despite skyrocketing interest costs for servicing their massive debts. The bank is constrained by European Union treaty provisions from loaning money directly to governments, and Germany has staunchly opposed proposals for funneling bank funds to needy member states through mechanisms meant to provide strictly supervised bailouts, not to bankroll loans.

The ECB “is ready to do what it takes to preserve the euro. Believe me, it will be enough,” Draghi assured investors last week, bringing about a short-lived reprieve in the interest rates demanded by lenders for 10-year bonds to finance Spanish and Italian debt.

"After Draghi's comments, expectations are quite high that the central bank will take action Thursday. But at the end of the day, the ECB cannot solve this problem," said Keith Savard, senior managing economist at the Milken Institute in Santa Monica.

The ECB can fiddle with collateral requirements and the refinance rate for some short-term relief, but what is needed to restore confidence in the euro is coordinated fiscal strategy and collective guarantees that new loans will be repaid, Savard said. It will take years, he noted, to execute the necessary legislation and treaty revisions once agreement is reached, which appears far from imminent as Germany and other Northern European euro users resist exposing their own good credit to the dodgy finances of some of their neighbors.

Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace in Washington, sees some progress -- "glacial," he said -- toward stabilizing the euro since May, when Greeks voted out the political coalition committed to the euro. Greeks managed to seat a pro-euro government in a second election in June, but they have yet to adopt the belt-tightening measures needed to get vital bailout funds due in August.

"There is urgency -- you see this in the volatility of the markets. But is catastrophe imminent? I don't think so. People know the ECB is there and, when push comes to shove, that the ECB will intervene," said Dadush.

Despite the barriers to direct lending to governments by the central bank, Dadush said it has managed to buy up at least $246 billion in government bonds at below-market interest for heavily indebted euro countries.

"Rules are there to be broken once the politicians decide this is what needs to be done," he said.

German resistance may also be broken, if the crisis escalates and threatens to further damage the market for Germany's cars, technology and other exports, said Fabian Zuleeg, chief economist at the European Policy Center in Brussels.

He is critical, though, of the German government's failure to make a strong case to its citizens about the benefits of preserving the currency union and moving forward with deeper financial integration.

"It's not a very positive way of engaging your citizens when you are scaring them into a situation where you say they don't have a choice," Zuleeg said.

All three economists interviewed Tuesday observed that Washington could help stabilize the euro if it were to buy the bonds of struggling states, demonstrating confidence in the currency that would inspire China, Japan, Brazil and other big economies to do likewise. They also agree there is virtually no chance that will happen, given the United States' own debt issues and a presidential election underway.

U.S. Treasury Secretary Timothy F. Geithner in effect confirmed Tuesday that the euro crisis would be left to the Europeans to resolve.

"This is completely within their financial ability to solve," Geithner said at a Los Angeles World Affairs Council event, although he  acknowledged that the politics of the problem may be a more difficult sell.

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-- Carol J. Williams in Los Angeles

 

Photo: German Finance Minister Wolfgang Schaeuble, left, meets Monday with U.S. Treasury Secretary Timothy Geithner at a vacation home on the North Sea island of Sylt, where they discussed the outlook for tackling the Eurozone debt crisis. During a Los Angeles visit Tuesday, Geithner made it clear that the euro woes were a matter for Europeans to resolve. Credit: Philipp Guelland / Associated Press


Taxes? In the Cayman Islands? New budget could tax foreigners

Cayman

The Cayman Islands have long been known as a paradise boasting brilliant blue water, pristine sand -- and absolutely no corporate or personal income tax. That last perk has made them famous as a global tax haven, luring financial companies and investments.

But now the economic downturn has hit paradise too. Tightened belts on the Caribbean islands have led Premier McKeeva Bush to go where the Caymans have never gone before, proposing a 10% payroll tax on foreign workers who make more than $20,000 a year.

Dodging the T-word, Bush called his plan a “community enhancement fee” solely for foreigners who hold work permits, saying the islands would lose at least 500 public workers without it.

To keep foreigners keen on doing business in the islands, Bush said, foreign employees wouldn’t need to chip into the pension system, as they do now.

“Fiscal responsibility has always been the hallmark of my government and always will be,” Bush said Wednesday in a lengthy statement announcing the plan.

The idea has spurred a fervent opposition campaign from both Caymanians and expats who contend that such a tax would drive away foreign business and investment. Some complained it was wrong to impose the tax only on foreigners; others argued that the high cost of living and lower salaries in the islands made a new tax unthinkable for anyone and warned of a slippery slope.

“Instead of making a difficult decision in an election year and finding other ways to reduce expenditure, the government will take what they mistakenly feel is the ‘easy’ option and tax those that are not on the electoral list,” one column on the Cayman News Service website said.

Tax opponents are planning a protest Monday before Bush holds an informational meeting.  A newly created Facebook group called Caymanians & Expats United Against Taxation  had more than 8,800 members as of Friday afternoon. But not all posts on the web page backed its motto.

“McKeeva is doing what he sees as the only recourse to stimulate revenue! Would you Caymanians prefer he tax us all? Wake up!” islander Marilyn Whittaker wrote in defense of the proposal.

Gov. Duncan Taylor cautioned the budget was still in the works, but said the British Foreign and Commonwealth Office had insisted that the islands balance their budget with both savings and new revenue. As a British overseas territory, the Cayman Islands must have their budget approved. The foreign office has yet to weigh in publicly on the plan.

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-- Emily Alpert in Los Angeles

Photo: Rum Point on Grand Cayman Island. Credit: Cayman Islands Department of Tourism


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