Amer throws the ball into Egyptian banks’ court

Thursday, November 3 dawned as another regular day for banker Hisham Ezz Al Arab, the long-serving chief executive of Egypt’s biggest non-state bank, Commercial International Bank. At around 8am, Hisham was at home with his usual workaday routine: showering and dressing before a quick breakfast and a look through his mail and the overnight markets, his car waiting outside for the 10 minute drive to the office in Giza. Across the Nile, at the Central Bank of Egypt’s heavily defended fortress in Cairo’s old financial district, the CBE governor of just one year’s standing, Tarek Amer, had already been at work for hours with his team, about to enact a policy no Arab central banker has done before him – to release his nation’s currency to the vagaries of the free market.

Full article:

Israel and Palestine – the practical partnership

The conference setting is stunning and fitting too; a sumptuous spa on Jordan’s Dead Sea shore, with magnificent views overlooking the West Bank.

Corralled by the Union of Arab Banks, delegates come from across the Arab corporate mainstream; bankers (central and commercial), businessmen and officials, to talk banking in Palestine and do some power networking.

Over three cold and clear winter days at the end of January, they carouse, kiss the cheeks of old friends and break bread with new ones. They get some deals done, all the while expressing solidarity with Palestinian colleagues, who have travelled long hours, negotiating checkpoints through what they frequently call “our Israeli-occupied homeland”, to attend from homes and offices just a few kilometres away.

And there is plenty to talk about. A day earlier, the Trump administration has decreed bans on travel to the US by nationals from seven Muslim-majority countries, while provocatively flagging that Washington could move its embassy in Israel from Tel Aviv to contested Jerusalem.

Mostly in furious agreement, delegates also bat around topics including ‘The reality of the banking sector in light of the economic strangulation,’ and ‘The importance of investing in Al-Quds,’ as Jerusalem is known in Arabic.

But first there is the customary denunciation of Israel. Opening the conference, speaker after speaker lines up to condemn Israel. Mohammad Al Barghouti, chair of Palestine’s Association of Banks, laments “Palestine’s partial freedom”. Mohammad Al Rabie, long-time secretary-general of the Cairo-based Council of Arab Economic Unity, denounces the “vicious Israeli occupation”, while other bankers rail at Palestine’s “Israelization” and “Judaization”.

Conference co-host Ziad Fariz, central bank governor in Jordan, which has long had diplomatic relations with Israel, also chimes in to attack the “Zionist Israeli occupation” of “our Palestine”. Such is the anti-Israel fervour, by the time delegates sit down to lunch on day one, the conference is already two hours behind schedule.

Israel has not been invited to this conference. “The Arabs don’t see Israel as a partner in strengthening Palestine,” a Palestinian conference delegate tells Euromoney.

But all is not what it seems.

In a meeting room on the conference sidelines, the leadership of Ramallah’s quasi-central bank, the Palestine Monetary Authority (PMA), has gathered to articulate a different reality of the relationship between Israelis and Palestinians, an often artful one in tough circumstances, one where cross-border central banking gets done by WhatsApp.

It is a version not likely to make this conference’s agenda. But it is a reality where, against the odds, PMA technocrats in Ramallah and their counterparts at Jerusalem’s central Bank of Israel are in frequent contact and respect and even like each other.

“Ah, my favourite people,” says PMA governor Azzam Shawwa of his counterparts at the Bank of Israel. “We know each other well enough by now that we can handle things by WhatsApp.”

“I like him, he’s my details man,” Shawwa says of a senior BoI official that he is in near daily contact with. “He is details, details, details, and after that he will tell you there are still more details. But he’s doing it because he is a professional, not because he wants to complicate things as an Israeli.”

“And she is excellent,” he says of another senior BoI official. “They have a good heart, very professional. They both handle issues away from the disputes and the political areas.” And it is not just Palestinians confounding the conventional wisdom.

At the BoI’s headquarters in nearby Jerusalem, there is a similar genuine warmth for their PMA ‘colleagues’ just 20 kilometres away, albeit through Israel’s myriad walls and checkpoints. “PMA-BoI relations are warm because of the mutual respect and the joint aim to focus on doing business while leaving the politics to our governments,” says one Israeli official. “This feeling comes from the trust that both central banks see in each other.”

PMA deputy governor, Riyad Abu Shehadeh, has been with the PMA since its inception in 1994. “We always meet their payments people, their legal advisers,” he says. “I meet with IMPA [Israel’s anti-money laundering authority under the Justice Ministry].” When Shehadeh meets his Israeli colleagues, he speaks to them in English, Hebrew and Arabic. “I let them practice their Arabic.”

Their mutual respect and contact goes back years. Before current governor Karnit Flug took over the central bank in 2013, the BoI was run (from 2005) by the high-profile Stanley Fischer. He is now a vice-chair of the US Federal Reserve in Washington, but while in Israel, his counterpart at the PMA in the mid-2000s was Palestinian economist, George Abed. Before Fischer and Abed became governors of their respective institutions, they were long-time colleagues at the IMF in Washington, senior executives of the fund during the reigns of Michel Camdessus and Horst Köhler.

For all the regard, it is a relationship that frequently faces big obstacles. Palestinians are severely restricted from entering Israel, a curb that can also extend to PMA staffers needing to go to nearby Jerusalem or Tel Aviv for a meeting with the BoI.

Getting Israeli travel approvals is often tedious and bureaucratic for Palestinians; the BoI’s influence through Israel officialdom extends only so far. “Often it can boil down to the whim of an individual down the line,” grumbles a PMA official.

PMA officials in their capital, Ramallah, relate many stories of being granted permission to enter Israel for official business only to be turned away en route or delayed for hours at checkpoints by Israeli soldiers because the permissions have not filtered through the system.

When work is to be done, or an immediate crisis looms, BoI and PMA officials get around these barriers by connecting via smartphone, most commonly with WhatsApp.

It is central banking by social media and text message, but that, too, can be tricky for a Palestinian official on the move. Mobile data access in Palestine is severely restricted by Israel. Open WiFi signals are widespread across the West Bank and it is common to see Palestinians gathering in knots outside hotels and public buildings, waving their smartphones to catch a signal.

The glue that binds the BoI and the PMA springs from geography, economic necessity and security. The two monetary authorities, which both claim independence from politicians, are compelled by realities on the ground to put enmities aside.

The 4.5 million people of the Palestine Territories – 1.9 million in the Mediterranean-facing (but blockaded by Israel) Gaza Strip and 2.6 million living in the landlocked West Bank – are separated by Israel, the region’s economic powerhouse.

Under terms derived from the landmark 1993 Oslo Accords, which delivered limited self-rule to the Palestinian Authority, three currencies are official tender in the two territories: the dollar, Jordan’s dinar and the Israeli shekel.

Today the Palestinian Authority government, Palestine’s biggest employer, pays its thousands of staff in shekels, as does the PMA, which regulates 15 banks operating in the West Bank and Gaza. Palestine may have a central bank of sorts but the PMA, founded in 1994, does not issue or administer its own currency.

A potent symbol of independence, a New Palestinian Pound was forbidden under the so-called Paris Protocol of 1994, an adjunct to the Oslo Accords. The Paris Protocol covering the Palestinian economy were only supposed to last five years, as peace and development supposedly advanced, ultimately to Palestinian statehood.

But 23 years after ratification, they remain in place. Palestinians favour the dollar and the dinar for savings and so-called ‘stored-value’ transactions such as property. But, overwhelmingly, the shekel is in daily use for up to 70% of everyday transactions, which pass through Palestinian banks regulated by the PMA and, eventually, are cleared by the BoI. Estimates vary of the total shekels circulating in Palestine, ranging from 10% to 25% of the currency issued by the Bank of Israel.

For many years the economy of Palestine was donor-supported, and the PMA lacked the capacity to administer its own currency. But a year into his initial four-year term as governor, Shawwa says that is no longer the case, as he prepares to move into new headquarters in Ramallah.

“Of course, I want Palestine to have a currency,” he says. “We have the expertise to manage it. I don’t mind seeing my signature on the pound. They [Israel] would not have these worries about their currency because the currency would not be crossing the border. When it’s the time to do it, I’m going to do it. We are much more self-sufficient now.”

Politically, that goal remains a long way away; Israeli and Palestinian central bankers have to manage the complex issues of Palestine having the shekel as legal tender.

The practical engagement between the central banks in Ramallah, Jerusalem and Tel Aviv might be something of a model for cooperation in these troubled parts but it is no less sensitive for it, particularly from the Israeli side.

The PMA is happy to talk openly about its relationship with the BoI, but the Israelis are rather less so. The BoI was initially reticent about the relationship between the two banks. “We are usually not that generous in providing information on the issues of the Palestinian economy, as they are very sensitive,” an official told Euromoney.

After we informed the BoI that a cooperative PMA was willing to speak, BoI handlers insisted on draconian terms before even considering a briefing about its side of the relationship with the PMA. Any background conversation, should the BoI even agree to one, would be conditional on the names of the BoI staffers whose job it is to liaise with the PMA being left out. The BoI as an institution could not be cited as a source in any way.

The sensitivity, an Israeli official confided, was as much about blowback from Israeli hardliners unhappy about the extent of the BoI’s contact with Palestinian colleagues in Ramallah as it was about ‘normal’ cross-frontier sensitivities.

The PMA, too, has tricky local issues to navigate. As PMA insiders describe it, the authority is obliged to work with the Israelis to keep the Palestinian banking system functioning and the wider economy lubricated. But getting too close to Israel risks credibility issues with Palestinians, particularly with the Hamas hardliners who control Gaza, where West Bank-based Palestinian banks have operations under purview from the Ramallah-based PMA.

“You cannot avoid politics but I’m not in a political position. I’m a technocrat. I would like to handle issues in that manner,” Shawwa tells Euromoney. “My two [BoI] counterparts, the governor Karnit [Flug] and the deputy governor also handle the issues away from the disputes and the political arena,” he says. “They are independent. They don’t have to do things they don’t believe in. That way they do their job much better.”

The shekel’s primacy in Palestine, along with Israeli control over Palestinian entry points, means that Israel and Palestine are effectively bound into a customs union, albeit one seen by many Palestinians as economic colonization.

Palestinian activists have also protested that Israel earns seigniorage from distributing its shekels in the Palestine territories. But the BoI rejects this charge, citing the current climate of near-negative inflation and interest rates it sets. In January, the BoI maintained its benchmark interest rate at a negligible 0.1%. “These days it’s the other way around, it costs a lot to produce and maintain the currency and you get nothing,” says an Israeli official.

Many Palestinians claim that the Israeli economy is dependent on Palestine, but that is also disputed by Israeli authorities, who point out that Palestine’s GDP is around 5% of Israel’s. Trade between the two sides is low-level and low-tech, extending little beyond basic foodstuffs and supermarket items. About 70% of Palestinian imports are from Israel, which buys about 80% of Palestinian exports. By contrast, Palestine accounts for less than 10% of Israel’s total trade. The Bank of Israel has estimated that around 90,000 Palestinians work in Israel, legally and illegally, and are paid less than guest workers from elsewhere.

The BoI likens its relationship with the PMA to the eurozone before 2014, where member state central banks have a supervisory role over their own local banking system, albeit one with a common currency. By treaty, Israel’s shekel is Palestine’s primary currency, but Israel has no formal regulatory authority over the Palestinian banks that handle it.

This division of regulatory responsibilities between the BoI and the PMA can throw up oddities, such as Palestinian bank branches located inside frontiers manned by Israeli security forces but administered by the PMA. By contrast, the BoI administers Israeli banks operating in contested Israeli settlements inside the West Bank.

But the shared interest in the shekel is such that each central bank expresses near identical anxieties – and often to each other – each time an unexpected external event occurs. That might involve the political elevation of a hardliner, a terror attack, military escalation, a withholding of taxes or political tensions over new settlements – anything that might threaten common cause.

“The focus has tended to be on the problems rather than on what works,” notes an Israeli official.

Security concern Israel’s primary concern is its own domestic security. The Israeli official says: “The system worked perfectly fine for decades and then things started to go wrong.”

He is referring to Gaza, separated by Israel from the West Bank and separated from mainstream Palestine by its politics since 2005, when Hamas prevailed in elections. Gaza is internationally recognized as notionally under the wing of the Ramallah-headquartered Palestinian Authority.

But since the ‘Battle of Gaza’ opposing Fatah and Hamas in 2007, the region has been controlled by Hamas. Fatah retained control of the West Bank. Committed to Israel’s destruction, Hamas is proscribed by Israel, the US and EU among many others as a terrorist organization. Israel bans its banks from dealing with more than 200 international groups and individuals, citing terror sponsorship or activities.

“For every truck that enters Gaza from Israel with, say, flour for bread, the most basic humanitarian goods, there is a guy from Hamas 200 metres from the checkpoint who takes a customs tax,” says an Israeli official. “Every transaction is financing Hamas.”

For the BoI, Hamas’ takeover of Gaza was a turning point in its relationship with the PMA. Hamas in Gaza has threatened and intimidated PMA officials and seized some of their assets. When the PMA moved to close Hamas-related accounts, a bank branch was bombed, while another had a hand grenade attached to its door.

PMA officials in Ramallah also have to cross Israel to regulate Palestinian banks operating in Gaza. Although born in Kuwait, PMA governor Shawwa is of Gazan background, which he says helps in his administration there.

But Hamas’ takeover of Gaza immediately became a problem for Israeli banks, which until then had maintained normal commercial accounts for Palestinian banks, clearing around NIS40 billion ($10.8 billion) annually for customers in both Gaza and the West Bank.

“Israeli banks don’t want to do business with Gazan banks, because they can be sued in the US, where they also have business,” explains an Israeli official. Israeli banks such as Bank Hapoalim and Discount Bank have progressively pulled back from these Gaza connections, doing business only with Palestinian accounts in the West Bank, under PMA control.

But that has excluded vast numbers of Palestinians transacting normal business and led to a dramatic slump in the already anaemic Gazan economy. Hapoalim and Discount have both found themselves facing allegations that they had violated US anti-money laundering and countering the financing of terrorism (AML-CFT) laws by allegedly providing a financing channel for Hamas.

In 2007, Jordan’s Arab Bank, which itself had been facing similar allegations in the US since 2005, filed a countersuit against the two Israeli banks, claiming that they too had been dealing with Hamas. The two Israeli banks denied the claims. The PMA has also been subject to legal actions in the US by the families of terror victims.

The threat of lawsuits heightened the Israeli banks’ concerns over links to Palestine and led them to refuse to clear transactions related to accounts based in Gaza. They also baulked at accepting cash, because of doubts about its provenance.

Spooked by international risk, particularly from US authorities, the Israeli banks lobbied to exit their Palestine business. According to an Israeli official, it became a question of balancing profit against risk: “It’s small business with a lot of risk. It’s half a million cheques a year, the value is not particularly large and the fees they take are small, but they are thinking each time one of those cheques could bring them a lawsuit, into a danger zone.”

According to deputy governor Shehadeh, these boycotts create problems for the Palestinians, who have excess shekels and a need to deposit them at their accounts in Israeli banks to keep basic trade ticking over.

Gazans, starved of an outlet for their shekels, moved to open accounts in the West Bank, which still had links to Israeli banks. With the risk, as they saw it, simply shifted, Israeli banks responded by progressively withdrawing from West Bank business, too.

“They weren’t sure of the provenance of the money, or the destination very often,” says an Israeli official.

But with no Israeli bank willing to accept Gaza-generated shekels, the BoI stepped up, agreeing to accept a portion of the mounting shekel pile. In 2009, Bank Hapoalim extended its Gaza ban to stop accepting cash from all Palestinian clients. As shekels stockpiled in Palestine, the BoI became the outlet and forwarded cash to the Israeli banks.

Palestinian banks maintain active accounts with Israeli banks to facilitate trade and business with Israel and beyond. But the ‘de-risking’ ban by Israeli banks soon saw stockpiles of up to NIS400 million a month accumulating in Palestinian banks.

The upshot of this de-risking is that Palestine has progressively been cut off from the international financing system, with a resultant impact on its economy. As Bank of Palestine’s CEO Hashim Shawa sees it, that is a problem for Palestine, but also for Israel. “A strong Palestinian economy is in the interest of both sides,” he tells Euromoney. “It’s jobs, it’s hope, it’s self-respect, it’s trade.”

The BoI seems to agree. “It’s a much more severe problem for the Palestinians,” says an Israeli official close to the central bank. “The Palestinian businesses don’t have an outlet to pay their importer who is sitting in Germany or whatever.

For Palestinians, it’s their daily activity which is impacted because they use the shekel. And the Middle East in general is affected.” The PMA’s deputy governor Shehadeh asks: “What is the alternative? How would we pay for our imports from Israel? “I say [to the Israelis] this is your currency, this is your shekel, your legal tender. When you issue a currency and it floats to our economy, you have to take it back,” he says. “I cannot ship it to India, I cannot ship it to Australia.”

The BoI found itself on the sharp horns of a dilemma. Its responsibility is to regulate – and respond to – Israeli banks that want to sever Palestinian connections, which generate little business. But BoI-issued currency is, by treaty, the main tender in Palestine, which gives the BoI a de facto say in keeping the Palestinian economy lubricated. “We have been between a rock and a hard place,” says the Israeli official.

“The reason why there is such high sensitivity of maintaining the relationship is because this would be dramatic for the Palestinian economy. And if it’s dramatic for the Palestinian economy, this would probably have a security impact on us.”

Adding to this combustible mix is the pressure applied on Israeli commercial banks from two directions: by Israeli hardliners who want to cut all contact and by Israel’s pragmatic centre to keep it going for fear of the security risk if the Palestinian economy implodes.

“There has been pressure on them for 10 years not to cut the relationship,” the official says. “They’ve stayed in the game very reluctantly, and there’s no foreign banks willing to step up and take their place.” On January 15 this year, there was a breakthrough.

Faced with a possible economic collapse in Palestine, the Israeli government decided to issue letters of immunity to legally indemnify Israeli banks. The decision followed a 10-month study by a working group led by Israel’s finance ministry with input from the defence, justice and foreign ministries, Israel’s intelligence bodies, as well as the PMA.

The decision came just days after a Palestinian from East Jerusalem drove a truck into a group of Israeli soldier cadets, killing four. But urged on by Israeli finance minister Moshe Kahlon, the panel recommended that Bank Hapoalim and Discount Bank be provided with full indemnity for two years should they face foreign legal action for dealing with Palestinian banks. The arrangement has the backing of US and EU authorities.

PMA governor Shawwa insists to Euromoney that the PMA adheres to the strictest observance of international AML-CFT laws, as do the Palestinian banks on his watch. He says the IMF and US Treasury have also advised the PMA to ensure strict international norms are followed.

“We have to present and defend the Palestinian banking system correctly,” he tells Euromoney. “That is extremely important for us and also for Israel. “That’s how trust builds up, and they [the BoI] are very confident we follow international best practices.”

As for the PMA’s ongoing contact with their Israeli colleagues, the PMA’s ‘resident encyclopaedia’, Shehadeh ranks current relations as close to warm as they have ever been.

“I would say eight (out of 10). “I always say: ‘Don’t speak politics to me; speak AML, CFT, Basel standards, international best practices.’ That’s it. I don’t accept anything below that. “Leave politics to the politicians,” he says.

“We are here to do business.”

Cuba’s unlikely banking pioneer

Urbane and well-groomed, career banker Dave Seleski is an unlikely revolutionary. Tiny by US standards, with assets of around $3 billion, Seleski’s Stonegate Bank has found itself in the extraordinary position of being the only US bank to be authorized by both Washington and Havana to do business in Cuba. The nimble Seleski has, for the moment at least, an effective monopoly on US banking with Cuba; his reward for resolving an issue that had threatened to derail Washington’s diplomatic rapprochement with the Castros.

Full article:

Ashraf Wathra ushers in a new era for Pakistan

Ashraf Wathra is a different choice as head of the State Bank of Pakistan. An outsider brought in to the inner sanctum of monetary policy, he is keen to promote market-based reforms, boost the banking sector and break the reliance on the IMF. Can he profit from the new positivity about Pakistan and cope with his critics?

Full article:

Mulyani rides to Indonesia’s rescue (again)

Indonesians well remember the moment when their popular finance minister Sri Mulyani Indrawati unexpectedly resigned her post in 2010, defeated by the country’s venal money politics, her reform work unfinished. It was a dark time, as Indonesians fretted that their most trusted public official had been crushed and, with her demise, so too their hard-fought struggle to reform after generations of kleptocratic dictatorship. Bruised and, for that moment at least, bowed after losing a brutal battle with the country’s powerful oligarchs, Mulyani responded in time-honoured local style. She sang. Bound for a consolation job at the World Bank in the US, Mulyani crooned a version of ‘New York, New York’ on her last day at the ministry. But what moved Indonesians most was her heartfelt rendition of a local folk song ‘Ke Jakarta Aku Kan Kembali’ (To Jakarta I will return) that ministry staffers still…

Full article:

Shades of Kafka in Castro’s new Cuba

Franz Kafka, who wrote about European bureaucratic labyrinths, would have found much inspiration in Cuba officialdom’s Soviet-inspired maze.


Euromoney had hoped to see some of the state-owned Cuban banks during our visit to Havana in August, but multiple requests failed to gain any response.


The Banco Central de Cuba’s public affairs officer says she can’t help with access because “these banks are legally independent of us”. She says we need to go via the foreign press centre at Cuba’s Foreign Ministry, which controls media visits to the island.


But our minder then tells us access to Cuba’s banks are the BCC’s purview. We explain this Catch 22 situation in person to BCC vice-governor Irma Martínez Castrillón, hoping she can help open some doors. “You will not be able to have an interview with any of them,” she declares. “They are not available now.”


Her resistance may simply be because we haven’t followed the central bank’s requested dress code for our interview. The BCC’s public affairs officer asks us to wear a ‘light-coloured shirt’ to the Martinez meeting because, she explains, the central bank’s receiving room is dark, and she wants to photograph the encounter for internal publicity. Unfortunately, Euromoney only has a dark shirt freshly laundered that day.


But as we try to plumb deeper into Cuba’s economic bureaucracy, the surreal moments only multiply. For our arranged meeting with two senior finance ministry officials, our press minder has asked repeatedly for advance questions. We arrive for the meeting, only to be told apologetically by the press centre’s co-ordinator, our usual handler’s boss, that it has suddenly been cancelled.


Ashen-faced, she says that one of the officials has been in a “car accident”, and goes into considerable detail about the incident. We offer sympathies and ask when the new meeting will be. The next day, our foreign ministry press handler telephones. There wasn’t any car accident involving any finance ministry official, he admits.


But his boss described the incident and injuries quite extensively, we say. There has been a “misunderstanding”, he replies. The proposed meeting is now considered “inconvenient” and won’t be rescheduled.


As for our questions to the finance ministry, which have been rejected by the BCC as outside its brief, he says the ministry won’t answer them either because they pertain to the BCC. But several of our questions are about tax collection, Euromoney replies, and we have been advised that one of the officials attending would be José Carlos del Toro, Cuba’s general director of tax policy.


Banks at the heart of Cuba’s existential battle for reform









“We don’t have banks in Cuba!”

The taxi driver helming a splendid 1957 Pontiac Pathfinder clasico off the taxi rank at Havana’s Hotel Nacional snorts with scorn.

Euromoney has asked him to drive us to a rare meeting at the Banco Central de Cuba (BCC), one of his country’s most important institutions. But the cabbie neither knows what a central bank is, nor where his country’s own is located. Euromoney tells him the address, in Havana’s crumbling old town, along what was once Cuba’s raffish version of Wall Street at a time when his car arrived on this famously feisty island.

He knows the street, but that’s all. “Are you sure it’s a bank?” he asks.

It’s a reasonable question.

Fidel Castro’s communist command economy advantages its ruling military elite but pays most of its workers around $25 to $30 a month. Though five years into an erratic embrace of free-market reforms of their sclerotic Soviet-styled economy, most Cubans don’t yet have much call – or money – for banking services.

The cabbie is wrong, but he’s kind of right too. There are no formal capital markets in Cuba. There are some domestic banks, but in the island’s primitive financial system, they bear little resemblance to banks elsewhere. As for confidence in the island’s socialist system, ask a Cuban where they keep their cash, particularly those in the peppier tourism sector, and they’ll indicate under the proverbial mattress at home or gesture across the sea to Miami.

It wasn’t always like this. Before Castro nationalised Cuba’s banks in 1960, a year after his fabled revolution, some 49 banks serviced the island, including six foreign banks operating with full licences. Such was their acclaim that a 1957 edition of American Banker listed two Cuban-owned banks in a Latin America top-10 list, second in the region only to Brazil’s top banks of the day.

Today, BCC lists nine domestic banks, eight of them owned by the state. Moving about the capital, the only bank with any retail visibility is an occasional branch of Banco Metropolitano, largely created from the commercial side of Cuba’s old central bank, Banco Nacional de Cuba (BNC) in the 1990s and mostly serving Havana’s handful of diplomats and foreign firms. One of Metropolitano’s branches was once the majestic neoclassical head office of Canada’s Bank of Nova Scotia before the revolution, just three blocks from the central bank.

The ninth bank with a local licence is also state-owned, but by Venezuela. Banco Industrial de Venezuela opened with immediate access to the local market in 2005 after a visit by the late Hugo Chavez, then Venezuelan president and Fidel’s fellow ideological traveller. But the BCC’s list of local banks needs updating. The Venezuelan bank was shuttered in Caracas earlier this year after a succession of corruption scandals and massive losses.

A Havana banker says Cuba’s local banks “function as departments of the central bank. Bank credit to the business sector is practically zero”.

But now the Cuban government says it wants to transform its banks, to make them compete with each other. Where they’ve been traditionally run as the financial arms of ministries, there are plans to turn them into more universal banks, offering products like mortgage loans, hitherto largely unknown in Cuba. Banks here lend for basic household items or home improvement, but not for outright property purchases.

Banco Internacional de Comercio (BICSA) and the military-owned Banco Financiero Internacional (BFI) have traditionally dominated Cuba’s foreign trading. As the most outward-looking of Cuba’s banks, they have an eye on the fast-expanding private entrepreneur ‘cuentapropista’ class that has been unleashed by reforms.

Likewise, the traditionally Havana-focussed Banco Metropolitano (BM) and the nationwide savings bank Banco Popular de Ahorro (BPA), which operate the bulk of Cuban bank accounts, want exposure in trade finance and business. Bank account penetration among Cubans, usually via state-issued debit cards for salary, is no more than 20% to 25%.

That Cuban banks need capital might provide an opportunity for a foreign joint venture or takeover in a reformist economy that legally does not bar them. Despite the notionally liberal law, Havana economists say the market is effectively closed to outsiders.

For the foreign financiers that once revelled here, Cuban law officially does not restrict foreign banks from operating on the island. And there are four more listed by the BCC in Havana today than the six present up to 1959/60; Spain’s BBVA, Bankia and Sabadell, Canada’s Scotiabank and National Bank, Republic Bank of Trinidad and Tobago, Lebanon’s Fransabank, BPCE of France and the defunct Venezuelan bank that the BCC deems local.

“Generally, the foreign banks that come here tend to be provincial in their home markets, not the leading bank, and so they’re looking for opportunities,” says a Havana-based foreign banker. “There’ll be some dominant alpha male at head office who says: ‘We’re going to do Cuba’.”

There’s a 10th foreign bank registered with the BCC, the little-known London-based HavinBank, the former Havana International Bank, the Cuban state’s only foreign-domiciled bank. HavinBank is 86% owned by the BCC, with minority stakes held by Cuba’s Bank of Investment, Popular Savings Bank and Bank of Credit and Commerce.

Regulated by the UK’s banking agencies, HavinBank claimed assets of £177 million in 2015, mostly “loans and advances to banks and other financial institutions”, generating a modest £1.22 million profit. HavinBank boasts an eclectic board. Its members include UK Labour party peer Baron Triesman, an under-secretary in the Blair-era Foreign Office and a one-time British Communist Party member, who once ran that bastion of new wealth, the English Football Association.

HavinBank’s chairman is Gustavo Roca Sanchez, who the BCC website lists as a vice-president of Cuba’s central bank. Cuban dissidents claim HavinBank enables a network of international assets controlled by the communist party’s elite, particularly its military top brass. They cite repeated reports and academic studies that claim the Castro brothers, regarded as ‘Castro Inc’ by many Cubans, are some of the world’s richest national leaders.

Indeed, Cuba’s international bankers and business fixers in the UK, Spain and Switzerland have often been subject to US government sanctions. But last year, amid warming relations between Washington and Havana, the US Treasury department removed various people associated with HavinBank and Cuba’s central bank from its sanctions blacklist.

In Havana, local bankers regard a stint at HavinBank’s Canary Wharf office as an international finishing school, a chance to learn about international finance and earn some extra money. HavinBank’s 2015 annual report reveals one director, believed to be the BCC’s monetary policy specialist Guillermo Gil Gómez, last year earned the equivalent of around Ps50,000 (depending on which version of the Peso you use, that’s either $50,000 or $1,900), in contrast to the Ps600 annual salaries the BCC is currently offering banking specialists.

Far from the extensive branch network and market access that foreigners from Scotiabank, Chase Manhattan and a Taiwan-owned Bank of China enjoyed before Castro, today foreign banks in Cuba are mostly confined to an ambassadorial representative desk, perhaps dabbling in some modest trade financing.

With the US economic blockade of Cuba still formally in place, foreign banking in Cuba has been fraught. France’s BNP Paribas shuttered its Havana office in 2014 after huge fines for busting US sanctions. ING Bank did likewise in 2009 after penalties, while liquidating the Netherlands Caribbean Bank joint venture it had with Cuba’s BPA and the state shipping company Acemex. Deutsche Bank, Crédit Agricole and Société Générale have also been fined or investigated by Washington over their Cuba dealings. Spain’s BBVA dodged a bullet by scaling back its Cuban activities when it started buying in the US, notably Alabama-based Compass Bancshares in 2007.

“At the end of the day,” says a foreign banker in Havana, “you had to decide if Cuba was worth it when you wanted more to be in New York.”

It can also be tricky to be in Cuba itself. The expatriate community is littered with horror stories about foreign businessmen who unwittingly found themselves on the wrong side of revolutionary justice, for something as innocent as incentivizing local staff, or saw their painstakingly formed joint ventures mysteriously wrenched from them by powerful local players, sometimes accompanied by a stint in prison.

Now that is all changing. Cuba’s reforms and a US softening toward Havana have got foreign bankers looking more meaningfully at Cuba. Various Spanish and German banks were in town for exploratory look-see inspections when Euromoney was there.

In July, Cuba’s central bank, with the Florida International Bankers Association, hosted a landmark Havana conference of US and Cuban bankers. The US Federal Reserve even made a presentation, unthinkable barely a year earlier. One of the attendees was Raul Faldes-Vauli Jr, CEO of Florida’s Professional Bank, whose family had owned Banco Pedroso that had been seized by Castro decades earlier. Another delegate was David Seleski, CEO of Florida’s tiny Stonegate Bank, which recently became the first US bank authorised by the BCC to use its debit MasterCards at 10,000 outlets in communist Cuba. Seleski tells Euromoney he believes US-Cuban banking joint ventures will soon follow.

]Ten dollars and five minutes in the Pontiac later – Havana cabbies can make more money in a morning than Cuba’s state doctors and scientists do in a month – and we are in tumbledown Old Havana’s one-time financial district. It’s very evocative, but anything vaguely resembling a booming business district seems a very long time ago. The banks and buildings that once crackled with commerce here had their chambers divided into tenements and outposts for the official ‘defenders’ of Castro’s revolution. Sepia-toned alleys that in a previous Havana might have heaved with bars of suits dealmaking over mojitos today house occasional kiosks offering shoddy local goods to Cubans with little cash. A few streets away is Calle Obispo, once the pounding heart of commercial Cuba. It’s also charmingly photogenic for tourists, but it’s not Oxford Street.

A gold plaque struck by Cuba’s National Association of Economists and Accountants on a wall outside the central bank informs passers-by that here on November 26, 1959, 11 months after dictator Fulgencio Batista fled the island, the guerrilla hero Ernesto Guevara ‘took possession’ of the then central Banco Nacional de Cuba.

Che, as he’s lovingly known, was central bank governor for 15 months, serving concurrently as finance minister too. (A tale oft-told by Havana-based bankers describes how Che got the posts. After taking power, Fidel Castro canvassed volunteers for a ‘good economist’ to lead the central bank. Che raised his hand, believing that Castro had wanted a ‘good communist.’ Apocryphal or otherwise, Che was appointed.)

Though the BCC admits on its related BNC website: “Guevara was not an expert in economics or anything like that”, his pecuniary legacy lives on in Cuba’s unwieldy dual currency system, his image illustrating the three convertible peso note used primarily in the tourism sector, and its local three peso note, valued at 1/25th its convertible counterpart.

Che’s plaque is opposite the BCC, occupying a building that doesn’t so much dwarf its low-rise neighbours as out-renovates them, one of Old Havana’s few structures to have benefitted from restorative masonry or a post-revolutionary coat of paint.

If the central bank’s 510-odd functionaries, 63% of whom are women and 89% university graduates, need any reminder as to why they toil, a mural opposite the main entrance reminds them of ever-vigilant revolutionary heroes Guevara, Camilo Cienfuegos and Juan Almeida, and epic depictions of the 1959 uprising.

It’s not just on Cuba’s banknotes and walls where the spirit of Che lives on. Irma Martinez Castrillon, the BCC’s first vice-president and a former BNC president before its central bank functions were absorbed by the BCC, tells Euromoney that Che’s “inspiration” infuses the central bank today.

“How is it not so?” Martinez asks. “For us it’s very important to follow and know that Che’s spirit and his political and economic policy thinking is present in all the work and all the policies of our central bank.”

When Martinez arrives, she’s tapping into an iPad, a device rarely seen in Cuba. One of the country’s most powerful officials, the formidable Martinez is a Moscow-educated 50-something lawyer who has been at the bank for six years, having moved across from BNC, where she also was president.

The economic reforms announced in 2011 by president Raul Castro, Fidel’s 85-year-old younger brother (by five years), uncorked a free market genie after decades of Soviet-inspired central planning. Today, as many as 450,000 self-employed entrepreneurs have emerged, kickstarting an embryonic private sector.

These so-called cuentapropistas are transforming the tourist sector, making it the most dynamic part of the otherwise moribund military-run economy, opening bars and restaurants in atmospheric spaces and guest houses in their homes, turning private cars into cabs and rejuvenating basic services that had ossified under state control.

According to economists, Cuba now allows private operators in around 200 types of businesses, which in turn employ around 20% of the Cuban workforce, and are steadily tilting salaries away from state control.

Though the economy remains firmly under the wing of military conglomerates, ordinary Cubans now have more of a say in its direction. They can now sell their homes and cars, travel abroad (where many keep bank accounts), import goods, stay in what were once foreigner-only hotels and own mobile phones, though internet data services are either not available or prohibitively expensive.

Despite the advances, Martinez is most comfortable ploughing through safe ideological ground, describing almost by rote the history and legal remit of the central bank. “We have the same function as any central bank in the world,” she claims. She cites the law and date – May 28, 1997 – when the BCC was incorporated, and says its role is to supervise local banks, to issue and safeguard the peso, and manage Cuba’s national reserves. “It should contribute to the economic balance and orderly development of the economy,” she intones. “Our philosophy is based on building an efficient banking system.”

Euromoney asks Martinez about the bank’s independence in implementing policy, citing foreign examples where central banks operate separate of government. “It is not like that here,” she says. “We have comprehensive contact in order to avoid contradictory policies. We don’t respond to the entities and companies of the state.” But “given the peculiarities of the Cuban economy,” she says, key decisions such as monetary policy and interest rates “are discussed and approved with other instances of macro coordination.”

So far, so doctrinaire and formulaic and, perhaps, so revealing too, a contrast to the meeting with another powerful Cuban bureaucrat, Deborah Rivas Saavedra, the dynamic general director of foreign investment at the Ministry of Foreign Trade and Investment. At her Vedado office in a building that was once a showroom for General Motors’ cars, Rivas enthusiastically maps out a vision for her country that could well be Singaporean; of foreign investors being able to hire and fire staff as they see fit, of tax holidays, full repatriation of profits and 100% ownership of Cuban subsidiaries.

Educated in Cuba and Sweden, Rivas worked for years at the state sugar monopoly, the country’s biggest exporter. “We are trying to increase the GDP to 5% to 7% annually,” Rivas says. “We don’t have internal savings, so we have to attract foreign savings in order to invest, and to increase the (savings) rate to 20%. Now we achieve not more than 10%.”

The economic and political challenges confronting Cuba today are starkly, and unwittingly, evidenced in a July post on the Banco Central de Cuba’s own Facebook page, advertising jobs at the central bank. The BCC (above) solicits a range of ‘banking system specialists’; compliance officers, bank inspectors, specialists in finance and economic law, bookkeepers, accountants and computer scientists. Tertiary qualifications are a prerequisite. But few Cubans have the facility to access the BCC’s social media activity, or any sort of online information, even were they inclined to. The Castro government severely limits internet access for Cubans, or makes the few – grindingly slow – connections that are available prohibitively expensive for public use. The more pressing issue for communist Cuba 57 years after a revolution few Cubans today have any profound connection to, are the salaries the BCC offers for highly qualified people to fill its vacancies, especially when compared with what Cuban entrepreneurs can now make working for themselves. A banking specialist at the prestigious BCC will be paid Ps315 ($13.50) a month. A senior bank inspector or lawyer specializing in monetary and economic law will receive Ps415 ($17.90) a month. There’s the ‘incentive’ of a Ps180 ($7.70) monthly top-up, plus a 21 convertible peso ‘stimulus’, making the highest monthly take available, for a highly educated computer scientist or principal banking inspector, around Ps1,100 ($49.50). By comparison, a cuentapropista (who doesn’t need a university degree) taxi taking foreign passengers to and from Havana’s international airport charges 50 convertible pesos (around Ps1,200). One privately owned Havana restaurant, La Guarida, serves around 1,000 covers a week at an average of $50 a diner. It’s very popular with Havana’s communist nomenclature.

Rivas continues: “We don’t want to depend anymore on anyone. We used to depend on Spain, then the US, then the USSR because of the US blockade and now we have some dependency on the oil from Venezuela. “Our main goal is not to depend. That’s why our foreign investment law is so open.”

The discussion with Martinez turns to Cuba’s economic reforms. But the career apparatchik seems at odds with the very term, perhaps reflecting what diplomats and other Cuba observers say is a thorny ideological struggle inside the bureaucratic establishment about what sort of Cuba should emerge after the Castro brothers pass, about how far Castro’s market opening should go or, as far as the doctrinaire Martinez thinks, whether they should even be regarded as reforms at all.

“What do you mean ‘reforms’?” she asks. “We are not implementing reforms. What we are doing is updating the economic management model in Cuba. One of the main tasks that we are performing today is contributing to the transformation of the economic environment. We cannot say we are following a specific model. We cannot lose sight that our economy is a planned economy.”

Euromoney raises Cuba’s dual-currency dilemma. President Castro has committed to unifying them, with primacy to the peso (the weaker CUP), over the convertible peso (CUC) that shadows the US dollar, and which is 25 times stronger than the CUP.

Economists say there are huge structural issues in combining the two pesos, what they call ‘Day Zero,’ not least the inflation implications for ordinary Cubans operating outside the CUC universe, and devaluation issues for those within it.

While economists say the simplest method would be an abolition of the CUC alongside a newly floating and convertible CUP, the US blockade and Cuba’s inability to call readily on multilateral financing makes even that ‘big-bang’ approach problematic.

Cuba has made a number of stop-start attempts to combine its currency, making the CUP convertible and balanced against a table of international currencies, including the euro, yuan and dollar. There was also a brief experiment to introduce CUC1/CUP10 exchange rates in the state sector but that proved too disruptive, and extension to the wider economy didn’t proceed.

Local bankers describe ‘peso piles’ at banks like BPA, which it’s estimated has as much as Ps15 billion on its books, but an unconvertible currency few want to touch. One banker describes currency union as a “ticking time bomb”, particularly with private, CUC-touting cuentapropista entrepreneurs becoming more prominent in the economy. “Everyone wants CUCs now, and you don’t know how much of them are covered by reserves.” Another banker says: “The right time to join the currencies is when the US embargo is lifted.”

Euromoney asks Martinez if the CUC economy is bigger than the CUP economy, as should be indicated by the BCC’s supply of both currencies. She bristles. “This information is not available for you. We don’t share those indicators outside of the bank.”

But she relents, admitting that the BCC has been working on currency union since Raul Castro urged action in 2011. “It has been said publicly that one of the clearest examples of how complex the process of implementing the (market reforms) guidelines is precisely this topic.” “We must do it without shock therapy, without it having a direct impact on the population,” she says. “It’s a complex process. There will not be a magical solution to all the problems of the economy.”

Asked if this is the biggest challenge on her desk, Martinez says a greater problem is Washington’s continuing financial blockade of Cuba, despite the improving diplomatic relationship. We ask about Cuba’s foreign reserves and import cover, some of the most basic information a central bank can make publicly available.

“(That is) even less (available),” Martinez says defiantly. “It is information we consider very sensitive.” To stress the point, she repeats three times: “We do not share this information.” She continues: “I believe that we are transparent, (but) certain information could be used against the national interests of our country.” She breaks into English as if to underline how seriously she regards the matter. “Everybody likes to know.”

What is her take on the economy? “This is a question for the economy ministry, not the central bank,” Martinez says, referring us to speeches made at the recent communist party congress and the state statistics agency. Discussion of Cuba’s ambitions at the World Bank and IMF are also off-limits, because they are “political matters”.

Euromoney runs Martinez’s defensive responses past foreign bankers in Havana. “It’s an artless old-school Soviet reply,” says one. “She could score a political point by revealing the number, which we think would probably be around $10 billion, and say the reason it’s so low is because of the US blockade.” Says another banker: “I doubt very much that they would actually know. Their data is hugely unreliable.” Another says: “They won’t go very far with this kind of reasoning. The market wants disclosure. Yes, there is a US blockade, but a lot of other countries that have not blockaded need to do business in Cuba.”

Robert Feinberg, a former national security adviser in the Clinton presidency, and professor at the University of California’s School of Global Policy and Strategy, agrees, saying: “Investors want to know what the capital account looks like, what’s the reserve levels, the monthly coverage, the basics and they tell you that’s a state secret?”

He adds: “If they really want to attract meaningful foreign investment, they have to create a business climate, and a business climate means at least some degree of transparency.” Feinberg has just published ‘Open for business’, a book on the recent Cuban reforms. “They’ve got to come to grips with this transparency if they really want to open to the global economy and eventually join the international financial institutions. They are facing a serious foreign exchange crisis and I bet in their heart of hearts they’re thinking: ‘Oh boy, wouldn’t it be great if we could go to the IMF and World Bank and borrow a couple of billion’,” he says. “But that’s not going to happen until they at least show some cracks in this non-transparency mode they’ve been in for decades.”

As for Cuba’s banking system, Martinez says it needs strengthening to be more efficient. “We should focus on financing, not only the state companies, but also the new forms of management which are non-state. We are hoping to have a banking system that is in accordance with international standards, as a necessary element of long-term growth.”

Martinez says that the banking sector is open to foreign investors “but we suggest they start with a representative office…. and so long as they are within the regulatory framework”. She says she has travelled widely, an opportunity not readily given to the bulk of her countrymen for years, until it was included in Raul Castro’s 2011 reform package. She cites study tours of central banks in China, Vietnam and Mexico.

“I cannot say that I am impressed by one central bank in particular as a model for us,” she says. “We review all of them and try to take the best experiences out of all of them.” She continues: “Some central banks have shared their experiences in similar processes to the one we are now involved in, this updating of our economic model. We try not to repeat those actions which did not work in those cases.

“We are not like any other central bank.”



Ukraine: The perils of PrivatBank

Assailed by conflict and politics, Alexander Dubilet admits that the task of running Ukraine’s biggest bank is complicated. But he insists that PrivatBank can cope with the loss of large parts of its network and dismisses rumours about secret loans and the need for state support.  “How’s business?” Euromoney asks of Alexander Dubilet, a man with one of the most challenging jobs in international banking. He is chief executive of Ukraine’s biggest bank, PrivatBank. The question, of course, is loaded. Ukraine is at war, its economy close to dysfunctional. Members of PrivatBank’s staff have been kidnapped and held hostage, its branches firebombed and its network is under near constant siege from hackers. Also constant is a nasty whispering campaign about the bank, some of the rumours plausible, most of them not, but any of them liable to set off panic. If all that wasn’t enough, since 2014 PrivatBank has lost as much as 20% of its branch territory, the outlets in the seized Crimea and across Ukraine’s contested eastern flanks. And then there’s its divisive owner and Dubilet’s boss, the oligarch Igor Kolomoisky, whom Russian president Vladimir Putin has called “a…

Full article:

Ukraine: Yulia’s tale: serving clients amid hostage-taking and betrayal

July 7, 2014 loomed as a normal business day for Yulia Vyalova, PrivatBank’s branch network boss in Ukraine’s eastern Luhansk region. Normal that is, inasmuch as circumstances allowed Vyalova and her charges to do their job, staffing the 155 PrivatBank branches around Luhansk after war had erupted three months earlier across this industrial city of 500,000, just 40 kilometres from the Russian frontier. With neighbouring Donestk, the Moscow-leaning ‘Luhansk People’s Republic’ had wrenched itself from Ukraine in April, exploiting the chaos of Kiev’s pro-Europe ‘Maidan’ revolution, and then Moscow’s seizure of Crimea. The clashes between separatists and the Ukrainian military unnerved Yulia, as did the mines laid around besieged Luhanks that occasionally exploded, sometimes only metres from PrivatBank’s office.

Full article:

Njoroge stresses need for Kenya banks to innovate

Patrick Njoroge, governor of the Central Bank of Kenya, is reflecting on the topic of weight. But it is not the balancing of fiscal levers or the appropriate spreads for Kenya’s $7.2 billion in foreign reserves that is concerning him. No, for this recent arrival – he took over the CBK last June after 20 years at the IMF – the subject is more personal: his own girth, or lack of it. Euromoney has asked if Njoroge is enjoying his new role. A tall, trim man who looks more mid-40s than his actual mid-50s, Njoroge consults the My Fitness Pal app on his smartphone. On June 8 last year, he explains, a week after being nominated for the CBK role by president Uhuru Kenyatta, Njoroge weighed 180.4 pounds, around 82kg….continued

Kenya: central bank governor Njoroge: Calling it as he sees it

Patrick Njoroge has spent much of his career outside Kenya, mostly in Washington at the IMF as a senior economist. Two decades in that role took him around the world, occasionally as its ambassador, more often in a team of firemen fixing damaged economies. As for central banks, he has met and advised many. “I know them all,” Njoroge says, his eyes brightening. “I can tell you every single governor in the world, just about; I’ve pretty much met them all.” He says the CBK is a good central bank “relative to our peers in East Africa.” But that is not enough for Njoroge. “We are thinking [we should be] world-class. “My legacy plan is very simple. What I want is a strong, world-class central bank in a vibrant financial sector, that’s my vision for the my-work-is-done moment. Then I can fade into the sunset,” he says. “But it’s more than just practices, it’s bank supervision, robust systems, internal procedures, the way we relate, the way we communicate, all those things should be world-class, our people too, transparency is essential….continued

Technology: Traditional banking is Finn-ished

A conversation with Dr Tom Dahlström of Finland’s OP Group, the ubiquitous financial services firm, is like having one’s own TED talk about banking. Firstly there’s his ‘doctor’ thing. Not many banking executives can claim to be one – Dahlström’s doctorate is for economics, which he got in Helsinki after post-graduate studies at London’s LSE. Then there’s his title: chief strategy officer. Such deal-spotting jobs are increasingly commonplace at banks but, after 15 years at the decidedly Nordic OP Group, Dahlström functions more as an in-house boffin, with a mandate to research, think and divine trends as to where and how OP can extend its reach….continues..



Kenya: Patrick Njoroge, corruption-fighter

Patrick Njoroge, governor of the Central Bank of Kenya, is reflecting on the topic of weight. But it is not the balancing of fiscal levers or the appropriate spreads for Kenya’s $7.2 billion in foreign reserves that is concerning him. No, for this recent arrival – he took over the CBK last June after 20 years at the IMF – the subject is more personal: his own girth, or lack of it. Euromoney has asked if Njoroge is enjoying his new role. A tall, trim man who looks more mid-40s than his actual mid-50s, Njoroge consults the My Fitness Pal app on his smartphone. On June 8 last year, he explains, a week after being nominated for the CBK role by president Uhuru Kenyatta, Njoroge weighed 180.4 pounds, around 82kg. By July 17, barely three weeks into his term, he weighed just 170.2 pounds, or 77kg. “And I wasn’t doing any exercise,” this enthusiastic jogger insists. As he describes it, things were grim and getting grimmer. “When I got the offer, I couldn’t even go back to Washington to wind up my affairs,” he says. “This place was burning, inflation was surging, the exchange rate was dropping like a stone, there were pressures on the current account. It was a mess and somebody needed to deal with it. It was triage situation, an emergency room. “When I come in in the morning, I am concerned about various things,” he says. “But I’m also concerned that I do not want to make a mistake because the stakes are very high. This requires a lot of work. “The point is there is a lot of stress. And when I get stressed, I lose weight. So, you ask, do I enjoy it?” Six months on, the answer would seem to be yes, just. Another tap on his phone confirms it. “Yesterday, I was 171 pounds. “But it’s enjoyable. Why is it enjoyable? Not because I enjoy pain; it’s because I can see the prospects. If we get things right, this economy will just rocket. We have a substantial unique responsibility fixing the financial sector. If that happens, the sky’s the limit.” Optimism Njoroge’s optimism about an under-achieving country ravaged by chronic corruption brings to mind that old aphorism about Brazil, India and Russia that they are countries of the future… and always will be. Njoroge knows the line, but shakes his head. “No, that does not apply to Kenya,” he says, citing a GDP forecast for 2016 projecting a stabilised Kenya as an emerging East African powerhouse growing at 5.5% to 6.0%. This estimate is “very conservative,” Njoroge says, but points out that it is substantially higher than what his former employer, the IMF, predicts for the wider sub-Saharan African economy, which it downgraded in October from 4.5% growth to 3.75%. The IMF, which recently had a team in Kenya, is tipping the country to grow at 6% in 2016. The government gets a tick for economic management, he says. Macroeconomic stability has returned, and policy direction has been encouraging. “They just need to execute it now,” he says. “We cannot rest on our laurels, we cannot be complacent.” An athletics obsessive, he cites Kenya’s recent record at the Olympic Games as a warning. “We are the best runners in the world,” Njoroge says. “I mean it’s in my passport, right? I’m Kenyan, I’m a marathon runner right? But what happened to us in the marathon?” Favoured to win both the men and women’s events at the London Olympics in 2012, Kenyans disappointingly only managed silver in both. “We get complacent and we lose the race,” he says. “One day we are the most dynamic, and then, boom, others will be more nimble, maybe innovate faster. They will just accelerate and leave us in the dust.” Njoroge’s appointment as the ninth governor – and eighth Kenyan – since independence was something of a watershed. An economics graduate of the University of Nairobi, Njoroge and his family had virtually no profile among Kenyans. His career was outside the bank and, as he proudly points out to Euromoney, “I didn’t have any political connections whatsoever.” He grew up in a village on Nairobi’s outskirts, one of eight children in an academic family. His father was a career civil servant in the education ministry and his mother a primary school teacher. In the late 1980s, Njoroge won a scholarship to study for a PhD in economics at Yale University, where he was lectured by the Nobel economics laureate James Tobin, a noted advocate of decisive government intervention in the economy. After Yale, Njoroge returned to Kenya and served two years as an economist at the finance ministry, helping stabilize an economy reeling from the Goldenberg export scandal, which had ravaged the Daniel arap Moi presidency and the central bank. In 1995, Njoroge joined the IMF, where he worked for 20 years, starting out as an economist and leaving, last year, as senior adviser to deputy managing director Mitsuhiro Furusawa and arguably the most senior African at the fund. Transparency The deeply religious Njoroge has eschewed the perks of the governorship – the limousines, the official house in Nairobi’s leafy Muthaiga district – for a modest VW Passat from the CBK fleet and near-monastic house sharing with fellow members of the Roman Catholic Opus Dei organization. His press adviser quietly points out that Njoroge donates “a decent share” of his salary to charity. Njoroge says his selection process was “100% transparent, so far as I’m aware.” He goes further by claiming that the transparency of his appointment – an open interview, the subsequent vetting by parliament, the presentation of vetted candidates to the president – was the first time an African central banker had been appointed in such a manner. “It’s not like I had it in my plan that one day I would come back and do X or Y, or build my retirement home by the sea or whatever else. I lived one day at a time, my planning horizon was a year.” While in Washington, there were regular visits back home to see family but, as per IMF home-country rules, Kenya was not part of his brief in Washington. “I maintained contact with the country, and obviously Kenya has always been home and has done so much for me. I kept up like any person in the diaspora would, but I wasn’t trying to second guess what everyone else was doing here. “I had a lot of other countries to worry myself about professionally, countries that were in deeper crisis, in Europe, the US, those were major financial crises. “I never felt like one day I had to go back and fix Kenya. I never felt that. I was always open to coming back. I could have continued my career at the IMF and retired to anywhere in the world – New Zealand seems to be a great place for people to go. And then this job came along.” Uhuru Kenyatta-350 Uhuru Kenyatta, president of Kenya Njoroge says he was not headhunted or handpicked, he simply applied from Washington. He had no history with any of the political decisionmakers. “It became clear that the time of the [previous] governor was coming to an end… And I said to myself: ‘Oh you know, I have unique experience’. Looking at all of them [the other prospective candidates], none of them had had the experience that I have. I mean I’ve been working with two thirds of the central banks of the world, so it wasn’t just experience working with just one bank.” Once he threw his hat into the ring, then came the profile. “I found it curious that some people said of me: ‘You’ve never really worked in the financial system’, when I had worked in around 200 – and helped fix a good number of them.” He was then criticized for not being ‘political enough,’ that he lacked political connections, which he sees as a virtue. He says he did not know Kenyatta and had only met him in Washington when Kenyatta had visited the IMF as minister of finance in the late 2000s. “He was very amiable… but it’s not like there was any deal cut in a smoke-filled room.” Lifestyle choices Then came the vetting. Six months later, Kenyans are still talking about Njoroge’s appearance before Kenya’s parliament. No matter that at the time Kenya’s economy was struggling, it seems that Njoroge’s candidacy balanced more on his marital status than his impressive CV. In a God-fearing society where the average marrying age is 26, local lawmakers were puzzled as to how a then 54 year-old Kenyan man could be single. One member of parliament insisted his interrogation of Njoroge and his personal life was valid because he, the MP, knew a fellow parliamentarian whose sister was single. Njoroge was calm. “I am single by choice and I am comfortable that way,” he told MPs. “There is nothing sinister with that. I am sure this committee has done its due diligence on what sort of a person I am.” Njoroge then patiently explained how the central bank is structured, revealing a decided lack of understanding among MPs. Then they quizzed Njoroge, who had lived outside Kenya for much of his career, as to why he had no assets in Kenya. “Yes,” he agreed, “I don’t have a single asset here in Kenya and this is where I am at this point. But it doesn’t mean that this is how it will be for ever, and I subscribe to being very deliberate about that. This is my economic model and it may be, years after retirement, I would want to invest in other things. That should not mean I have any financial inabilities. It comes with the profession,” he said, insisting that “it’s not that I don’t have faith in the economy. I do.” Kenya’s robust media was furious, and Njoroge’s parliamentary grilling became the touch paper for a spirited debate among Kenyans about the quality of their public officials. Nairobi’s Daily Nation newspaper fumed that in dwelling on Njoroge’s “lifestyle choices,” lawmakers had wasted an opportunity to set an economic agenda. “While worrying about the lack of title deeds in the proposed governor’s name, MPs probably did not notice how clear and independent-minded (Njoroge) was on crucial issues and how easily he articulated positions contrary to those taken by the government and MPs,” the newspaper wrote. Looking back, Njoroge smiles at the fuss. “In terms of technical ability, the technical questions, let’s just say I would have been very surprised if I was asked a question that stumped me. So from that perspective I was very comfortable. I mean I’ve spent 25 years worrying about these things, and then you ask me a question that floors me?” He laughs. He says he felt most exposed over political matters, which he says he has had less experience of in his career. The personal stuff floored him, but it did not show. “I was a bit embarrassed,” he admits, “I tend to be very private, and nobody enjoys having their private life paraded in public over TV and radio. On the other hand, there is nothing to hide, so if you have a problem with that, there it is. What you see is what you get, and I think that’s how the people responded.” For a person who claims to possess no political skills, his handling of the vetting process was a masterstroke, if an unwitting one. “It became even more amusing when people started to offer me a wife, this sort of thing. I explained who I am, what makes me tick, in the end they need to know this.” Njoroge’s tight IMF connections could help if things turn bad in Nairobi. Kenya can reportedly access a special IMF $700 billion-strong fund if need be. Although his appointment has been well-received by Kenyans, Njoroge’s governorship is beginning to grate on some Kenyan bankers, who note a tendency to lecture and, they say, dabble outside his mandate. Njoroge makes no apology for his style. “The bankers, the financial sector, they cannot be stuck in the 20th century, or even worse the 19th century, so they need to innovate. There are some things in the financial sector that need to change… and it’s our job to midwife the thing.” “It’s not the job of a central bank governor to tell bankers how to run their banks, but to compel them to run them prudently within the law,” grumbles one senior banker. Njoroge disagrees: “It’s my job to tell them that they need to innovate even more, lower their cost, produce products that are relevant to the people… So when they say: ‘We have a new product’, I say: ‘Who do you have in mind?’ My biggest question is how are you dealing with entrepreneurs and small and medium-sized enterprises?” Imperial Bank Since coming to the chair, he has set down a decisive marker, seizing control of struggling mid-sized Imperial Bank on grounds of “irregular lending”, while forcing the smaller Dubai Kenya Bank into receivership. At Imperial, Njoroge also called in Washington-based forensic auditor FTI Consulting, best known for its work on the Bernie Madoff scandal and the Lehman Brothers wash-up. As the Imperial case continues to ripple around the system, Njoroge’s own colleagues have not escaped censure. “This in a sense shows there may be some blind spots in the way we operate,” Njoroge said, after moving on Imperial. “We will do our own in-house introspection and see why did we miss this. There is no doubt in my mind that if indeed there was something [wrong] there will be consequences. “We are very much wedded to market-based solutions,” he tells Euromoney. “We are not going to deviate from market discipline.” After his moves on Imperial, Njoroge says, “now it’s clear that when a problem takes place in any area, whatever, we have made it very clear how we will approach those things, and it will be credible.” More moves may come. Njoroge says he would like to see consolidation in Kenya’s banking sector, where 45 banks vie for business in a market where perhaps 15 would be sufficient. Finance minister Henry Rotich also has consolidation on his mind, telling Euromoney he intends to introduce legislation to raise capital thresholds that smaller banks would be unlikely to meet. Njoroge is pushing for a moratorium on new bank start-ups.

Zeti ups the ante in fight with 1MDB

Malaysia’s formidable central bank governor Zeti Akhtar Aziz endured quite a month in October. It began with her contemplating the fresh lows that her beloved ringgit had plumbed on September 30, having lost 40% of its value in a year to become Asia’s worst-performing currency, and taking much of her carefully-tended reserves nest egg with it. While in Lima networking at the annual IMF-World Bank meetings, she stood up to Malaysia’s prime minister Najib Razak to defend the independence she had so painstakingly won for Bank Negara Malaysia (BNM), the country’s central bank. On October 9, BNM said it would pursue criminal prosecution of Malaysia’s controversial sovereign fund 1Malaysia Development Berhad (1MDB) for breaching Malaysia’s exchange controls…..continues

Malaysia: Zeti’s last stand

Alas poor Zeti Akhtar Aziz, Malaysia’s embattled central bank governor. At 68, and after 15 years in the job, she is due to retire next April. But it is not certain whether she will make it that far. Her beloved ringgit has collapsed to its lowest level in 17 years, further than even during the crippling Asian financial crisis. The foreign reserves she carefully accumulated above $140 billion have fallen below $95 billion in the ringgit’s defence in 2015. But for what?

Full article:

Zeti tries to rise above Malaysia’s creeping crisis

For Zeti Akhtar Aziz, the venerable governor of Bank Negara Malaysia (BNM), the country’s central bank, these should be the best of times. Deep into her last year of what will be, by her retirement next April, 16 years at the helm of BNM, it should be a period of reflection for the magisterial Zeti, to accept the congratulations of a grateful nation to this 68 year-old trailblazer of modern Asia’s economic miracle.

Full article:

Byambasaikhan offers Mongolia a fresh exchange of ideas

In doing the rounds of Ulaanbaatar, it doesn’t take long to encounter someone who used to work at the Mongolian Stock Exchange. Former MSE staff seem to be deposited most everywhere across the narrow universe that is Corporate Mongolia; at its handful of banks, its few private equity firms, the central bank and the state-owned mining houses. With five chief executives and myriad board members since 2010, the MSE is virtually a local version of LinkedIn, a transit lounge of talent.

Full article:

Sri Lanka: Showdown at the central bank

Vendettas waged by government bureaucrats never look good but, in Sri Lanka, such higher-minded considerations seem to have evaded two powerful men who should know better. Arjuna Mahendran and Ajith Cabraal, the current and former governors of the Central Bank of Sri Lanka, have been at each other’s throats over all-too-common allegations on the Indian Ocean island – corruption and insider dealing.

Full article:

Bankia’s Alvarez: Saving the bank that didn’t exist

In early 2013, Jose Sevilla Alvarez, the then newly appointed chief executive of Spain’s Bankia, sat down with his chairman, the storied Spanish banker Jose Ignacio Goirigolzarri, to have a critical conversation about where Bankia was going. Outside, the atmosphere in Spain was as toxic as the rancid bank they were tasked with fixing. The country’s financial crisis that had begun in 2008 seemed unending, and at 27% – 50% for under-25s – Spain was besieged by the social and political consequences of Europe’s highest unemployment levels.

Full article:

Jho says it ain’t so: Malaysian tycoon denies role in 1MDB ‘heist of the century’

Low Taek Jho’s high-rise lair in Hong Kong is the stuff of thrillers, appropriately enough for a young Penang-born tycoon cast by his countrymen as a mysterious villain whose shadowy dealings have exposed the secrets of Malaysia Inc. The intrigues are felt the moment one steps inside the stylish foyer of Jynwel Capital, his family’s private equity investment house based in downtown Central. A receptionist purrs that “Mr Low is expecting you” as a wall magically slides aside to reveal a minimalist ante-room framed by a panorama of the city’s harbour and the promise of China beyond.

Full article:

Mugur Isarescu: Romania’s central figure

THE soaring walls and revolving doors of Romania’s communist-era finance ministry on Bucharest’s Constitution Square expose a deeply rooted instability that hampers one of Europe’s more volatile economies. Portraits of former ministers are displayed around the walls of the ministry’s foyer, their faces looking beyond those doors to the pompous People’s Palace, one of the world’s largest buildings, that dictator Nicolae Ceausescu had built for him before he was toppled during the revolutions that swept eastern Europe in 1989. Ministers must have departed office before their depictions go up here, and on the foyer’s southern panels, it’s getting rather crowded. This side displays Romania’s finance ministers since 1989, since Bucharest embraced democracy, capitalism, the European Union and, by 2019 as envisaged here, the fiscal disciplines demanded of its euro aspirations. When Euromoney visited the ministry in mid-December, near 25 years to the day since Ceausescu fell, there were 20 portraits on the post-1989 side of the building. That’s a new minister every 15 months, a record few other nations can, or would want to beat. By comparison, Romania had just six finance ministers during Ceausescu’s 32 years in power. We were in Bucharest to speak to Romania’s 21st finance minister since 1989, Ioana Petrescu. At 34, Harvard-schooled Petrescu was the youngest incumbent finance minister of an EU state. Appointed with much fanfare because of her youth and apparently impeccable education, she had been in the job since March, promoted by prime minister Victor Ponta from being his economic adviser. When we saw Petrescu late on a snowy Sunday, she seemed somewhat harassed. She had endured weeks of arm-wrestling cabinet colleagues, the World Bank, Brussels and an austerity-insisting IMF, which bailed out Romania in 2009 with a €20 billion package, to produce a budget that was already a month overdue, and that Romanians were impatient for. The starting point was an accounting department, a cashier and a personnel department, that’s all. [The rest], monetary policy, research, supervision, regulation, a payments system, the culture – everything was built Mugur Isarescu Outside, rumours swirled that Petrescu would not be long for the ministry. She told Euromoney she hoped to stay in office until her work is completed. “I’m a technocrat, not a politician,” she said, pointing out “there are serious reforms needed across the economy.” She cited the state’s inefficient domination of key enterprises, a hangover from communist times, as one of many. Few doubt that, but any prospects she might have had to implement them didn’t seem to be helped by the man who appointed her, the PM Ponta who Euromoney had interviewed a few days earlier. When Euromoney asked him about Petrescu’s future, he said he “hoped” his youthful charge would keep her job. His assurance had all the sincerity of a football club owner insisting his win-less team’s manager had the full support of the board. And so it proved. A few days after an unremarkable interview with Petrescu, that southern panel of post-1989 ministerial portraits would get another portrait – hers – as Romania’s 22nd finance minister in 25 years, Darius Valcov, the budget minister, took over. Of course, managing complex capitalism is trickier than communism’s command economy. But neighbouring Bulgaria, which rivals Romania as the EU’s weakest member, has had just 11 finance ministers since it tossed out communism in 1989. The eurozone’s ‘sick man’ Greece, though never part of the former socialist bloc, has had 16 in 25 years – and eight of them since 2008. By contrast, Europe’s undisputed wirtschaftsmeister Germany has seen just five finance ministers in 25 years, only two more than it has had chancellors in that period. In Bucharest, that revealing ministry wall may soon become even more crowded with ex-ministerial portraits. The new minister Valcov is widely seen as an unexceptional member of Ponta’s cabinet, and is not expected to last long in office while Ponta is being squeezed by the country’s new president Klaus Iohannis. Under Romania’s French-style cohabitation system, Ponta’s government is constitutionally in office until 2016. But momentum politics is against Ponta after his presidential bid was soundly defeated by Iohannis in a November poll. Iohannis became Romania’s first ethnic German leader, a victory seen as a comprehensive cut with Romania’s corrupt and cronified politics, its oligarchical tentacles reaching back to the Ceausescu era, mostly via Ponta’s Social Democratic Party. Romania may offer a lucrative career for the country’s portrait artists, but such has been the tortured progress of its transition from communism, the finance ministry’s revolving doors tell a story of chaos, corruption and bungling in this ‘twixt-‘n-tween’ nation at the EU’s southeastern extreme, a tale of myriad missed opportunities to catch up with its more prosperous European partners. Defining figure The political part of Romanian economic policymaking might be in chronic flux, but there’s another side that’s anything but. Since 1990, Romania has had one reassuring constant who the country and its multilateral supporters in Brussels, Frankfurt and Washington repeatedly turn to whenever economic gloom descends – its central bank and its 65 year-old governor Mugur Isarescu. In the absence of effective political leadership on the economy, Isarescu has been a defining figure in securing Romania’s shift to the market. Having stepped into the National Bank of Romania chair less than a year after the revolution, he modestly jokes of “sometimes making it up as we went” in building a functioning central bank from communism’s ashes. “The process was incredibly complex,” he recalls. “No theoretical approach was correct, there was no text book. To build market institutions in one or two years was almost impossible. We started virtually from ground zero.” Romanian governments are not traditionally renowned for their sagacious decision-making. In 1917, against the advice of Bucharest bankers, the government of the day dispatched the nation’s horde of gold, precious stones, art and religious icons – worth billions by today’s valuation – to Moscow for safekeeping and away from the German-led Central Powers of WW1 descending on Romania. Mugur_Isarescu-529 Early on in his reign, Mugur Isarescu established the NBR’s independence from the government to execute policy As every Romanian knows, Moscow has never returned the trove and it’s become a perennially irritating pebble in relations between Romania and Russia. Some historians have opined it has even influenced Romania’s westward tilt to Europe’s embrace, and has become a long-standing ritual of the NBR chairmanship. Any new incumbent has not properly assumed office until he is solemnly handed the dossier of sealed documents proving both claim and contents of the ‘Romanian Treasure.’ Isarescu has been the custodian of that dossier – and of Romania’s modern monetary treasures – since September 1990. Discounting a brief absence in 2000, he is one of the world’s longest-serving incumbent central bank governors. (Sir Kenneth Dwight Venner has run the Caribbean monetary authority amalgam, the Eastern Caribbean Central Bank, since 1988.) In a nation repeatedly disappointed by its politicians and civil servants, scandal-free Isarescu can lay strong claims to being Romania’s most trusted public official. He has been, by considerable measure, the most important decisionmaker involved in the Romanian economy, his job in large part to limit and often repair the effects of ministerial mismanagement during that time. Early on in his reign, he established the NBR’s independence from the government to execute policy. And the continuing chaos at the finance ministry has clearly helped Isarescu do his job and keep the NBR’s professional distance from government, says banking analyst and economist Dragos Cabat. “We can genuinely say we are one of the most independent central banks in the world,” says Cabat. Offered to rank the NBR on an increasing one to 10 scale of independence, Isarescu says “perhaps nine.” He says the Bank of England once ranked international central banks on a 1-100 scale based on the operational scope of functions; the more tasks performed such as supervision, note-issuing and so on the higher the rating. Isarescu’s NBR rated 92. Having so many finance ministers and governments (18) during his term has meant, Cabat explains, that no one minister stays around long enough to get the better of him. “They come and go so frequently,” Cabat says, “I doubt he’d even bother with them if they did call.” But ministers do call, Isarescu says. “Because I am senior and they are junior, they ask to come here.” He smiles. “Now… hmm… when they call, it’s something like that they try to have an interview with me.” Through the 1990s it was different. Isarescu says governments would implore him to attend their cabinet meetings, to ask his advice and for money too. He put a stop to this practice when he became prime minister in 2000. “I made a rule then that the central banker will not be in the cabinet room,” he says. “Never! For ever!” Critics Isarescu is not without his critics. Prominent economic commentator Radu Soviani says some of Isarescu’s ‘misjudgments’ on currency markets have cost Romania billions. Isarescu admits he’s made “a lot” of mistakes during his governorship. Inflation, never an issue in the state-set pricing of the communist era, had been a persistent blot on Isarescu’s record that also took years to break, peaking above 300% through 1993/4. It has been steadily brought down to under 2%, helped in no small part by the rigours set by the European Central Bank. The historically-unstable leu has been tamed, its managed float bringing it in line with preparations for Romania’s anticipated entry to the euro in 2019. “The confidence in the national currency has returned,” he says. “Borrowing in leu now means there is no exchange-rate risk. There is more confidence to invest.” Foreign reserves are just over €32 billion, around six months’ worth of import cover. It’s curious, he adds, that the closer Romania gets to adopting the euro, “the market share of the national currency is getting higher and higher, not lower and lower as perhaps one would expect.” In 2014, according to ING Bank research, the leu depreciated by a minimal 0.5% against the euro, compared to the Polish zloty (off 4%) and the Hungarian forint (off 8%). However, the recent currency gymnastics by the Swiss central bank have spooked markets in Bucharest. It comes a month after the mid-sized Banca Transilvania acquired the local unit of Austria’s Volksbank, which had led a mid-2000s push for low-interest Swiss franc loans in Romania. Those loans are now around double in leu terms. Periodically dubbed the ‘Tiger of Eastern Europe,’ usually after Bucharest adds another confidence-securing club membership such as Nato (2003) and the EU (2007), Romania hit a wall in 2009, when the IMF stepped in with a €20 billion bailout. As the 2008 post-Lehmann crisis gathered globally, Isarescu went on TV in an attempt to explain and calm public anxieties. He told Romanians there was a “psychological” danger of contagion, but there was no actual toxic exposure in the system. Several years on, Isarescu is relieved if not proud that Romania has not needed to bail out any ailing local bank or suffered any big financial scandal, unlike, say, Bulgaria. Today, he claims systemic risk is limited, with the leading six banks comprising as much as 60% of the market, with the biggest, BCR, at around 17%. And all of them, save the state-owned CEC Bank run by Radu Gratian Ghetea, are foreign-controlled, with capital adequacy levels higher than the Basle requirements. It is an irony that a part of society is complaining that there are too many rich [people] and too many poor, and they look back to the old times Mugur Isarescu As austerity has kicked in, so have Romania’s euro membership aspirations been set back, from an initial 2010 to 2012, which then pushed out to 2015. Even that has proved ambitious. With the euro in turmoil, Isarescu says it is better for Romania to stay outside the euro, while still aiming to meet the convergence criteria disciplines. Romania currently meets five of the seven entry criteria, with work still needed on legislative harmony with eurozone states. Romania will also need to spend a few preliminary years on euro trainer-wheels, entering the leu into the euro-fixed exchange rate mechanism, ERM II, something that’s not yet on the near horizon. It’s painstaking going, but prime minister Ponta told Euromoney that euro membership remains a central policy plank of his government, while new president Iohannis is also strongly pro-EU and pro-euro. Isarescu says that while political consensus has been near impossible to obtain in Romania, there is agreement on the euro, he says. The euro, he says, will be a “very profound cultural change” for Romania. Aside from recent euro adoptees Slovakia and Slovenia, he claims that Romania, once the laggard of the enlarged EU’s five post-communist members, “is now the sole EU member which fulfills entry criteria. It’s incredible.” The 2019 entry target is necessary as an “anchor for the economy, to keep the country on track, and a catalyst for further structural reforms,” he adds. Euro membership represents a critical milestone for Romania, as well as for Isarescu. A nationally popular figure – he even has a coffee blend named in his honour – he was urged by many Romanians to bid for the presidency in the November poll but chose instead to accept a sixth five-year term as NBR governor until 2019. He’ll be 70 by then, not only one of the world’s longest-serving governors but also among its oldest. If Romania does qualify for euro membership by 2019, the country’s economic history since 1989 suggests it will be in so small part because of the NBR’s technocratic hand stewarding the national till. As monetary policy is ceded to the European Central Bank, the next five years will likely see Isarescu effectively managing himself out of his long-held job, and Romania from a critical aspect of its economic sovereignty. (Unless policy is dramatically changed at the ECB, euro membership will also mean a reversion for Romanians to unpopular paper banknotes. Romania has been using Australian-style plastic or polymer notes since 1999, an Isarescu innovation.) Sharp contrast Today, as Isarescu surveys the magnificence of his domain on Lipscani Street, the old neo-classical finance ministry in downtown Bucharest, the impression of the NBR is of a calm, self-operating machine, in stark contrast to the turmoil within Romania’s economy ministries. It is also in sharp contrast to the old NBR that Isarescu took over in 1990. In Ceausescu’s time, the NBR functioned as a de facto commercial bank, or at least something that tried to pass for one in what was then a command economy. “There were 6,000 employees,” he recalls. “But the only central bank function it did back then was to print money. There was no monetary policy made here, no supervision, everything was central planning under the control of the finance ministry, and the NBR was like a department where ‘banking’ was simply to send money to the central planners.” Isarescu’s post-revolutionary task was to create a central bank from scratch. First, he hived off the commercial function to become what is today Romania’s biggest private bank, Banca Comerciala Romana, after it was privatised by the state to the World Bank’s International Finance Corporation and the multi-lateral European Bank for Reconstruction and Development and, later, to Austria’s Erste Group of Sparkassen fame. BCR is now part of one of eastern Europe’s biggest banking networks. Further reading Klaus Iohannis_R-large Romania risk falls after surprise election result The BCR separation left Isarescu with an office and an administrative rump of just 500 employees, the bare bones of a central bank. “The starting point was an accounting department, a cashier and a personnel department, that’s all,” he says. The rest, he recalls, “monetary policy, research, supervision, regulation, a payments system, the culture, everything was built. “I had no hesitation to ask the IMF and other central banks to come here and advise,” he says. He hosted delegations from the central banks of France, Italy, Belgium, Austria and the US Federal Reserve. “The Bank of Norway gave us our first personal computer,” he remembers. With Romania among the last of the eastern bloc nations to transition, Isarescu says he had the advantage of being able to examine the experiences in Prague, Warsaw and Budapest to decide what worked, and what didn’t. These were crazy times, he says. Out in the street, Romania’s economy was fast becoming an unregulated free-for-all, particularly its nascent finance sector. “People were opening new banks like they would open a bar,” remembers Raiffeisen Bank Romania’s chief executive Steven van Gronigen. Isarescu plucked bright graduates from economic research institutes and trained them to be bank inspectors, “supervising grumpy old guys from the communist system.” Trained up, some of them would leave to start and join commercial banks. The extent of NBR’s independence from Romania’s near-anarchic politics was also up for debate. This was 1990, Isarescu was getting help from western central banks when, as he recalls, “the only real independent central banks back then were the Bundesbank and the Fed.” He recalls a fateful occasion in 1990 at the annual gabfest the Kansas City division of the Federal Reserve Bank hosts at Jackson Hole in Wyoming. The hot symposium topic of the day was central banking in the ‘new’ eastern Europe, and Romania was represented by Decebal Urdea, who’d been NBR chairman in Ceausescu’s last year and had somehow survived the transition. Urdea was a rusted-on party hack, a member of Ceausescu’s central committee. He also couldn’t speak English so he outsourced his presentation at the conference to an economist-translator temporarily stationed in Bucharest’s embassy in Washington to learn Western central banking: Mugur Isarescu. Soon, Urdea was out and Isarescu would return home to Bucharest to implement the plans he’d proffered in Wyoming. Carte blanche In the revolutionary atmosphere of the time, Isarescu was given carte blanche to create the type of central bank he wanted. “I said the Bundesbank, it was an inspiration.” It was the right call. By 1992, the then European Community’s Maastricht treaty mandated that the central bank of member states must be independent. That mandate was translated into Romanian to become law, one of the first post-1989 occasions where Bucharest was aligning its statutes with the emerging European Union. Though the Bundesbank was Isarescu’s general working model, sometimes critical decisions were made on the hoof. Isarescu had the option of keeping bank supervision outside the NBR purview, as it was at the Bundesbank. It was decided the NBR would retain a supervisory role, for the simple reason that there weren’t suitable offices at the time to house any such body. He laughs, as if he’s unburdening himself of a long-held secret. “It was simply that. It’s good to be able to say this after 25 years.” Corruption remains a persistent sore, which he says appeared in “an avalanche of crooks in the 1990s”. It’s a problem of culture, “perhaps related to our historical tradition close to the Orient” and of “perseverance to maintain the independence of the justice system.” He believes euro entry could help reduce corruption on cultural grounds, that its embrace by Romanians, who polls say are about 70% in favour of adoption, is seen a modernising device, “to encourage good entrepreneurship.” Isarescu has travelled a remarkable journey. He graduated as a Marxist economist in 1971, then worked for years at the Institute of International Economics, the country’s only body that tracked economic developments in the west, informing superiors negotiating the terms of what minimal external trade Romania had beyond the Comecon group. His loyalty to the state assumed, he had privileged access to different publications and influences forbidden to other Romanians. He has read Euromoney since the early 1970s so as to track developments in international banking and finance. He remembers the rationing and austerity of the 1980s when, as one of the few communist members of the IMF, Ceausescu exported the bulk of Romania’s output to pay back loans and build his pompous palace in central Bucharest. “It was incredible, Bucharest was in total darkness. A banknote was called a lottery note back then,” he recalls. When the communist regimes of eastern Europe began to fall, he was one of the few Romanians able to track events elsewhere, by virtue of a Reuters terminal in his institute. So, after 25 years of the market and as the critical economic policymaker of the country, does this one time Marxist economist believe the aspirations that fired the 1989 revolution have been delivered for Romanians? Yes, he says, “and fulfilled quickly after the revolution because shortages disappeared and Romanians suddenly had choice. They could hold foreign currency and speak with foreigners without needing a permit or being detained, and read what they wanted, and travel. “But then other dreams appeared, a new generation, and it is an irony that a part of society is complaining that there are too many rich (people) and too many poor, and they look back to the old times. “Of course, there are a lot of dreams which are not fulfilled.”Full article:
Visit for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.

Artistic licence in Romania

When Euromoney visited the hulking headquarters of Romania’s finance ministry in Bucharest in December to interview Ioana Petrescu, the then occupant of that prestigious office, we were taken by the portraits in the entrance foyer that honoured those who had served before her. There were 20 portraits – and that was only since 1989, when Romania threw off communism. A few days after we saw her, Petrescu herself would become the 21st to be interred in oils, a victim of Romania’s rancid politics. Now, her replacement, the unremarkable ruling party hack Darius Valcov, has become the 22nd. That’s because he’s facing corruption allegations, after investigators found a Renoir, gold bars and a swag of cash in his safe. He maintains his innocence. Valcov was ditched in March, after three months. With the field of candidates clearing narrowing, prime minister Victor Ponta replaced Valcov – with himself. website analysis report Euromoney isn’t allowed to make investment recommendations but if we were, there would be worse punts than backing Bucharest’s extremely busy official artist.

Full article:
Visit for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.

Turkey: The Battle for Bank Asya

Turkey’s president has tried to kick of one of the country’s largest banks into touch, through public attacks and behind-the-scenes pressure. Despite becoming a political football, Bank Asya is still in the game. Can Turkey’s reputation in the west as a place to do business survive Erdogan’s continued, politically-motivated vendetta?
Just six years after the most devastating banking crisis since the Great Depression, a calamity that forced governments to spend trillions to rescue financial systems and save ‘too-big-to-fail’ banks, it’s surely inconceivable that a national leader should openly badmouth one of his country’s leading banks to bankruptcy. Not in Recep Tayyip Erdogan’s Turkey.


Downfall of a dynasty: The last days of Ricardo Salgado and Banco Espírito Santo

Bankers in Lisbon say the demise of BES is a watershed moment for the country: the turning point when old Portugal became new Europe. Ricardo Salgado tried every trick he knew to save his empire, but found that the Portuguese establishment could not – or would not – save him.



Early summer along the charming cobbled pavements of Rua Barata Salgueiro, Lisbon’s leafy financial quarter, is usually a leisurely affair.



As the heat kicks in, deals – those precious few to have exercised Portugal’s decimated banking community since it succumbed to the post-2008 eurozone malaise – start winding down, and bankers start thinking of their holidays; of the Algarve, the beach, of golf and lazy afternoons devouring plates of the delicious sardinhas grelhadas much prized by the loafer set.



But this summer was different in Lisbon, and not because of a sudden surfeit of late-spring business.



Getaways were temporarily put on hold and local restaurateurs reported a steady, later-than-usual traffic of suits into their eateries. And far from the sober occasions business lunches have been these lean recent years, bottles of alvarinho were broken out, and even champagne was spotted. Unusually for the mild-mannered Portuguese, large helpings of Schadenfreude were also on the menu.



“It’s been too exciting to go away,” one banker tells Euromoney on a hot, late August day. “Usually we don’t drink at lunch but these are special days. This has been the biggest and best thing to happen to us in years.”



The reason for all this celebration? That would be the dramatic failure of the closest thing Portugal has to an oligarch, Ricardo Espírito Santo Silva Salgado, and with him the demise of the bank that bears his family’s storied name across 20 countries.



Portugal’s biggest privately-owned bank and second only in industry terms to the state-owned Caixa Geral de Depósitos, Banco Espírito Santo (BES) fell 145 years after it was founded by his great-great grandfather when, on August 2, the Banco de Portugal stepped up with Brussels’ backing to make a €4.5 billion rescue of BES.



That’s about the same amount that seems to be missing from the wider accounts of Salgado’s Espírito Santo group, in a scandal that at one point forced Portugal perilously close to systemic failure and, as Brussels briefly fretted, possibly Europe with it.



A few weeks on, and BES is no more, its solvent bits shuffled off under BdP supervision into a newly-constituted entity called Novo Banco, which is seeking a major shareholder to pay back the bailout funds that the central bank’s Resolution Fund temporarily ‘lent’ Portugal from the €78 billion that Europe provided in 2011 at the depths of the eurozone crisis. The central bank has appointed BNP Paribas to assist with the sale of Novo Banco and hopes to have a deal done “within a few months,” a source close to the central bank tells Euromoney. “There is a very good chance to sell Novo Banco in a couple of months. It’s an attractive asset. It’s not exactly life as usual but very close to it.”



The BES bailout would guarantee the funds of thousands of BES depositors and, so far at least, has prevented a systemic meltdown that regulators feared would again afflict Portugal – and possibly the still shaky eurozone with it – with a new viral strain of financial contagion. As Portugal wobbled yet again, President Anabel Cavaco Silva warned that “if some citizens, some investors, suffer significant losses they may delay investment decisions, or some of them may find themselves in very big difficulties. We cannot ignore that there will be some impact on the real economy”.



BES’s bad parts, mostly comprising its catastrophic exposure to Salgado’s largely unregulated and unaudited Espírito Santo Group, have been sectioned off out of further harm’s way, with the big losers being Salgado’s fellow travellers along the tumultuous BES journey; his wider family, France’s Crédit Agricole, Portugal’s state-owned Caixa Geral de Depósitos and BES shareholders, which include many of Portugal’s wealthiest people.



The credibility of the Banco de Portugal and its governor Carlos Costa has been called into question over the collapse of BES. But a source close to the central bank says: “Our solution was well received in the political arena, and amongst our international peers and by Portuguese bankers. To have a public backstop is not luck”



Meanwhile, investigators in at least six countries – Portugal, Switzerland, Venezuela, Panama, Luxembourg and Angola – pore over bank documents, transfers and deals, trying to make sense of Salgado’s last days battling to keep his empire afloat. In Lisbon’s elite circles, they are referring to the Salgado collapse as “Portugal’s Madoff”.



As allegations of fraud, tax evasion and money laundering swirl around Salgado and his now defunct empire, there are few tears about his sudden removal from Portuguese banking. “They had tentacles and conflicts everywhere, in big companies, in politics, in the civil service,” a local banker says. “They were very close to the government, every government and so they would stand in the market as the de facto official bank of the system.”



A senior Portuguese investment banker echoes this view. “Because they had helped a ministry here, and another there, you know that this system would just continue when you stood in the market bidding for a deal. “This is the real cleansing of Portuguese banking,” he says, referring to the ‘half-completed’ clean-out that followed the European Union/IMF/European Central Bank-led rescue of the Portuguese financial system in 2011. “The end of the Espírito Santo group is the real restructuring of the Portuguese economy, it’s what the troika didn’t do. It was forced but it had to happen. Ultimately it is good, the cold shower after a hangover.”


From the commanding heights of Salgado’s 15th floor eyrie in BES’s head office at the end of Rua Barata Salgueiro, the 70 year-old backroom networker had a ruthless knack of inserting himself, often uninvited, into nearly every corner of Portugal Inc – telecoms, property, tourism, hotels, construction and, of course, the financial sector. Overcoming dictatorship, revolution, exile and Portugal’s modern transition to democracy, Salgado seemed to regard the nation as his personal fief, Portugal’s ‘Last Banker’ as a recently-published and none-too-flattering unofficial biography dubs him.


To his countrymen and competitors, he was part-godfather, part-oligarch. If people wanted to think he was an aristocrat that was fine. But to most, Salgado was a man known simply as DDT, ‘Dono Disto Tudo’ – Portuguese for ‘Owner of Everything’.


“They had contacts, they had friends and they knew all their secrets,” says a competitor banker still reluctant, despite Salgado’s demise, to go public with his observations. “Salgado didn’t let anyone fall,” he says. “There is always a safety net. They might go to work in the government, and then they return to BES…knowing something (useful). They always had some kind of lever to pull to get the deal. They knew where the proverbial bodies were buried because they helped bury them.”


The business media too were courted. Espírito Santo was famous among Lisbon’s media for inviting favourite journalists to go on Swiss skiing holidays and other exotic locales, where they would make a corporate presentation or announcement that would justify these trips. According to another senior Portuguese banker, also a competitor to BES, Salgado didn’t operate on the level playing field Portugal was supposed to have become under European rules. “There are lots of former BES people around the government and the civil service, placed in strategic jobs,” he says. “BES is a bit like an old boys’ network, one with political power.”


Hindsight is a wonderful thing in business, and as Lisbon’s post-Salgado banking community hails his terminal eclipse, there seems to be a lot of reflection about those triumphant mid-summer business lunches, as bankers recall myriad ‘I-knew-it’ signs that all was not well at the Espírito Santo group.


There were the discreet word-of-mouth suggestions dropped around town by BES lieutenants that various Salgado assets might be for sale; a trophy hotel here, a telco stake there, a private hospital or perhaps a share of the family’s much-coveted 12klm-long coastal retreat at Comporta, south of Lisbon. And the now notorious golf day earlier this year at a family-owned resort where Lisbon’s great and good were invited to a lavish day out on Espírito Santo’s coin, downtime presented as a no-frills goodwill junket to treasured clients and associates that unexpectedly turned into a hard-sell of Espírito Santo commercial paper on easy terms over post-dinner coffees.


Commercial paper came to play a key, and costly, role in the downfall of Salgado’s empire. Despite the Banco de Portugal’s specific instructions to Salgado from 2013 not to blur the lines between BES’ business with that of his family empire, post-collapse revelations in the media describe undeclared deals with institutions like Venezuela’s state oil company for it to buy $400 million worth of bonds in the family business.


Goldman Sachs also reportedly loaned money, as much as $835 million, to BES just weeks before the central bank took it over. The terms of the merger of Portugal Telecom and Brazil’s Oi also had to be revised after it was revealed that Portugal Telecom had built up a €847 million holding of short-term debt in commercial paper issued by Rioforte, a private holding company for some of the Espírito Santo family assets. Banco Espírito Santo had a 10% stake in Portugal Telecom.


But one of the more revealing windows into Salgado’s mindset during his 11th hour scrambling that marked the last months of the Espírito Santo regime came from Professor Joao Duque, a former director of Portugal’s securities market regulator, the Comissão do Mercado de Valores Mobiliários (CMVM) and now a senior professor of Lisbon’s prestigious School of Economics and Management.


In January this year, Duque received a call “out of the blue” from Salgado, who invited him to lunch at BES’s private dining room. Salgado was, according to Duque, his ‘golden’ self. “It was a very nice lunch, lots of sweet words,” Duque recalls. “He was charming.”


But soon came the rub. “He wanted me to do some research, to write a paper in order to support something he was doing,” Duque says. “One of his companies was issuing zero coupon bonds, commercial paper based on the value of their assets.”


The Salgado company, the professor explains, was listed on the Lisbon exchange and thus its assets should have been valued in its books according to their market price, which he says is “normal international practice”. “But they (Espírito Santo) were not doing that,” Duque recalls. “They were valuing (the assets) using discounted cash flow, which gives a different value about, let’s say, 10 times the actual value of the market price. He wanted me to write a paper saying that not only was this possible but that it was appropriate.”


Duque says Salgado offered to pay him for this service. If Duque understood correctly, it seemed that Salgado wanted to avail of the professor’s stellar academic qualifications to legitimise the inflated valuations of Espírito Santo group assets, for a modest fee, of course. Duque says he diplomatically told Salgado that he could not do it because he did not have the appropriate qualifications. “The issue had two components,” he explains. “One was based on market prices and the second was an accounting issue. I told him that I couldn’t write the paper in full alone because I’m not a licensed accountant, I’m not an academic in accounting and that meant that my paper on the subject would be easily destroyed.”


Duque chuckles at the memory: “Luckily, I didn’t do it.” But the professor found Salgado a fascinating host, and told him so. At the end of the lunch, Duque says: “I told him ‘look, you have an appearance of someone who, regardless of the time of the day, it seems as if you just came out of the shower. You look so clean and fresh, so nice, so fluffy.’” Duque says: “He just laughed.” Salgado may have appeared to Duque to be unruffled, but his request for help could have been prompted by an article in the Wall Street Journal just a month before the lunch.


On December 12 last year, the WSJ published a story headlined ‘Espírito Santo engages in financial gymnastics to survive crisis’. The article detailed how, following the international bailout of Portugal in 2011 and with the capital markets closed to Portuguese issuers, Espírito Santo had sold around €6 billion of its own debt into one of its own investment funds, ES Liquidez. At one point, around 80% of ES Liquidez’s assets consisted of commercial paper issued by the Espírito Santo group or its affiliates.


The article revealed that in 2012 Espírito Santo had valued its 33% stake in BES at €1.55 billion, when the stake had a market value of closer to €365 million. The valuation might have “strictly followed regulatory rules”, as Espírito Santo claimed at the time, and was justified by the illiquidity of the shares and the holding company’s control premium. The inflated valuation meant that Espírito Santo International’s debt did not exceed the value of its assets.


According to data provider Dealogic, various parts of the Espírito Santo network continued to issue commercial paper in size right up until the end. On July 15 and 16, Espírito Santo plc issued €300 million in two trades. July 15 was the day Rioforte failed to repay its debt to Portugal Telecom.


A fued between Salgado and a the head of another Portuguese business dynasty, headed by industrialist Pedro Queiroz Pereira (known locally as PQP), also played a key role in BES’s downfall. Pedro Queiroz Pereira Pedro Queiroz Pereira That row was fuelled by Salgado’s clandestine attempts over the course of a number of years to build stakes in some of PQP’s core and profitable businesses, notably the construction company Semapa.


Insiders say Salgado was looking to take over the cash-rich Semapa and absorb it into the Salgado holding company to shore up the Espírito Santo group’s balance sheet. Says Salgado biographer Maria Joao Babo: “If the holding company absorbed Semapa it would give it more strength. Everything was collapsing so if you put it in there, he could consolidate.” The feud simmered into 2013, amid saucy leaks from all sides to friendly media.


Here were two great clans at each others’ throats, as if, in US terms, the Vanderbilts and the Rockefellers were fighting to the death. Says one banker: “It was nasty, very un-Portuguese but very entertaining. We are more like the English than the Spanish. We are gentlemen.”


Incensed at the now permanent rupture Salgado had created in one of Portugal’s premier dynasties, as well as the damage of a whispering campaign, PQP commissioned grandee Lisbon lawyer Jorge Bleck and a crack 15-strong team of analysts to pore over the entrails of the Espírito Santo empire. PQP was now playing a very hard ball, seemingly intent on nothing less than Salgado’s destruction.


He deployed old shareholdings he held in the Espírito Santo group dating from happier times, so his team could legally demand information and previously-unseen documents. A dossier was prepared and, according to those who have seen it, it was damning. But rather than go public with the material en masse, on September 24 last year the PQP-commissioned report was handed to Pedro Duarte Neves, the vice-governor in charge of supervision at the central bank.


Through October and November, extra material was added, as the PQP-Salgado war intensified. (Duarte and Bleck did not respond to Euromoney’s requests to be interviewed). Last November and December came the denouement. For Portugal Inc, this was monumental. Under terms negotiated between Lisbon banker Fernando Ulrich, the CEO of Banco Português de Investimento who was representing PQP, and Francisco Cary of BES’s investment bank representing Salgado and PQP’s breakaway sisters, the ancient shareholding links connecting the two clans, dating from the 1930s, were comprehensively severed.


All legal fireworks ceased and, as the fascinated onlookers of Rua Barata Salgueiro saw it, PQP and those who travelled with him had triumphed. Salgado really brought himself down but that probably wouldn’t have happened if it weren’t for PQP.


PQP wasn’t to know at the time, but he was able to extricate himself from lifelong holdings in BES and Salgado’s wider Espírito Santo group six months before it collapsed. PQP had managed to maintain control of his wider Semapa and Portucel interests within his grip while, more importantly for him, keeping them well away from Salgado.


Outwardly, Salgado had exited with what appeared to be a profit but what the market didn’t know then but would fatefully come to know six months later, was that the exit deal was a disaster for him. As would be revealed in July and August this year, he had failed to get access to the liquidity lifeblood that would help keep his empire afloat.


“Salgado really brought himself down but that probably wouldn’t have happened if it weren’t for PQP,” says a banker. “It was ruthless, and PQP is the winner.”


When Banco de Portugal moved on BES this August, it didn’t take long for followers of the PQP-Salgado brawl to muse that PQP had led his demise, that the central bank had been led by the analysis contained within the Pereira dossier.


But the central bank vigorously denies this, claiming it was already aware of and was investigating ‘dangerous’ irregularities in the relationship between BES and the Salgado holding companies. The source close to the central bank says it was ahead of the Quieroz Pereira report by a year “by a different means…when it started to make questions of ESI (Espírito Santo International).”


Those questions, the source says, were not linked to a specific investigation of BES but were instead part of the EU-driven asset quality reviews. More than a year ago, under European directives from the 2011 bailout it began asset quality reviews at BES and other banks.


But the source close to the BdP admits: “There is not such a thing as a stress test that detects all the problems of a bank. If the accounts of a bank under review are fraudulent or incorrect, there is no way to detect it.” On July 30 this year, the annual accounts of BES were publicly released. Salgado’s bank had lost €3.6 billion.


“Losses were extremely high,” the BdP source says, “and some provisions were made but much of it was not. The solvency ratios were on the very low side and there were signs of increasing pressure on the bank from investors and depositors and therefore it was necessary to take a decision…we had to take action pretty soon. We understood there would not be any private solutions in the foreseeable future to handle such a problem.”


The BdP source is keen to portray matters in the dry, methodical manner of a technocrat, but he is essentially describing a big systemic bank that’s primed to explode. Things had now dramatically changed. After months, if not years by some accounts, of his desperate paddling below the surface to keep BES and his family business afloat, the tide had risen too high for the drowning Salgado.


The BdP source says “we were expecting that private investors would step up” to bail out BES, notably the Salgado family interests. He says the central bank was receiving “endless” offers of interest elsewhere but, in the event, no-one actually did step up, least of all the Salgado interests.


The central bank source is at pains to point out that we “were very well prepared” to move on BES. “That’s how we could decide (what to do with BES) in a couple of hours. This was the best way to protect financial stability. Our depositors have been extremely resilient and calm.” The source points out, sleeplessly, that it has been a summer of office Sundays at the central bank.


“Our solution was well received in the political arena, and amongst our international peers and by Portuguese bankers. To have a public backstop is not luck. If you do not have a backstop, you don’t have anything credible to show that if you have a problem you have a way to get it sorted out.”


Some bankers are not convinced. “How come a regulatory alarm bell didn’t go off in Lisbon somewhere?” asks one. “This has been going on for a long time. How come someone at the Banco de Portugal didn’t ask? Someone has to take the fall for that.” Another banker says: “The problem is now that people have less trust in the central bank. People are worried about the credibility of the regulator. BES passed the stress tests but these tests, they should also relate to shareholding structures. This is not part of the troika’s remit, not anyone who looks at banks.” Their name was the door opener everywhere. It provided the confidence of people to give them money, the most-trustworthy name in banking here, but now that name is worthless. There is no coming back.”


So, what now for Salgado, Portugal’s now one-time billionaire, the ‘owner of everything,’ friend of plutocrats and kings, a man feared and admired in near equal measure? He has been arrested for tax offences as investigators pore over his and family’s affairs. His empire has been accused of fraud by no less an authority than Carlos Costa, governor of the Banco de Portugal, who only weeks earlier had been persuaded by Salgado that BES – and Salgado – had enough reserves to prevent the very action that the state later took.


Across several continents, investigators and regulators have launched forensic examinations of the Espírito Santo realm, including earlier declarations and filings to corporate authorities. The market regulator CMVM is also investigating market manipulation. “They will come with something and almost certainly it’s going to be bad for the Espírito Santo family,” a banker says.


As for Salgado himself, he has been spotted in the grounds of the glorious Hotel do Palácio in Cascais, the resort community west of Lisbon and a retreat popular among Portugal’s elite, alone save for a detail of Israeli-trained bodyguards engaged, his associates say, to protect him not because he fears reprisals from grumpy Portuguese who have been broken by him, but from Angolan interests who have lost a collective €4 billion in the wider BES wash-up.


Euromoney attempted to speak to Salgado through his appointed lawyers and media advisers, and posed detailed questions about the circumstances of the fall of BES and his own role leading up to its filing for bankruptcy. Salgado’s advisers declined to comment on our specific questions, and instead reiterated the public statements that Salgado made in July and August.


These say: “Ricardo Salgado reiterates its willingness to co-operate in establishing the truth, as he has done under the process for about two years. [He] believes that truth and justice will ultimately prevail.” Additionally, Salgado has said: “Ricardo Salgado is awaiting the findings of the forensic audit report on the accounts of Banco Espírito Santo, for the first half of 2014, which is being made by the Bank of Portugal and by PwC, and reserves the right to comment on them. When time and context allow for an objective and calm analysis of what precipitated the abrupt fall in the value of the BES and the consequent intervention of the state, Ricardo Salgado will pronounce on what, in his perspective, provoked this crisis and its outcome.”


As for Portugal, BES and Salgado have failed but the country has soldiered on, scarred but undimmed. Unlike Spain’s experience with the crisis fallout and myriad allegations of collusive corruption between business and the political elite, Portugal has seen no mass demonstrations and spontaneous displays of people power in the wake of the BES failure.


“We are not like that,” says Salgado biographer Babo. “The people who have lost money are shareholders, who are seen as being able to afford their losses. Maybe it would be different if it was depositors.”


So is there any chance of a comeback for a determined corporate tap dancer who has proven over 70 action-packed years that no obstacle, no regulation can’t be overcome? “No,” insists a competitor, one of Portugal’s leading bankers, “he is finished, the family is defeated. They will not come back from this.”


“It was always about their name,” says another Lisbon banker. “Their name was the door opener everywhere. It provided the confidence of people to give them money, the most-trustworthy name in banking here, but now that name is worthless. There is no coming back.


“People always thought of Espírito Santo as a great banking house, and there were many family members working in many connected businesses based on their name, and living well on their dividends from the bank, and suddenly they are nothing.”


Will Salgado go to jail? “I doubt it,” says Duque at Lisbon’s School of Economics & Management. “Ricardo is a specialist at hiring and ‘touching’ people, a great networker,” he says. “He’ll do something.” And besides, Duque says, noting the lack of public outrage at the large-scale fraud and corruption allegation surrounding the Espírito Santos, “we don’t kill the bull here”.


A senior banker and one-time rival of Salgado says: “Out of crisis comes opportunity. The country will reinvent itself, regenerate, and for the better. A cancer has been removed. The world has changed, this is new Europe now, not old Portugal.”


Espírito Santos and Queiroz Pereiras: Duel of two dynasties

Ricardo Salgado went to war with a rival pillar of the Portuguese business establishment in his frantic efforts to shore up Espírito Santo group. But Pedro Queiroz Pereira had the last laugh….

For a man steeped in family honour, there is a rueful irony in the fact that it was a dynastic feud that ultimately proved instrumental in bringing down Ricardo Salgado and the Espírito Santo name.

In 2001, one of the country’s leading businessmen and a long-standing associate of the Espírito Santo clan, the industrialist Pedro Queiroz Pereira, first became aware of intriguing movements in the share registers of companies around his family’s corporate jewel, Semapa, which dominates Portugal’s pulp, paper and concrete industries.

‘Pequepe’ or PQP, as he is known to the Portuguese, had noticed that a stake in a key holding company of his empire was acquired by what appeared to be a Luxembourg shelf company called Mediterranean, which was represented in official filings by a nominee company owned by Ricardo Salgado’s Banco Espírito Santo.

The Espírito Santos and the Queiroz Pereiras have long been the titans of Portugal Inc. They have a shared history over decades of doing deals, and often with each other, at the intoxicating nexus where business acumen meets proximity to power, most significantly as the financiers and builders of dictator Antonio de Oliveira Salazar’s Estado Novo regime, which ruled Portugal from 1932 beyond Salazar’s death in 1970 to the toppling of his successor Marcello Caetano in the Carnation Revolution of 1974.

Once vigorous competitors in Portuguese banking, the two families became partners in the early Salazar years of the 1930s, where they became the regime’s favoured business clans and erstwhile allies. There were few transactions either family would turn down when the junta showed up to deal. For example, in the late 1940s, when Salazar decided he wanted a world-class hotel to host visiting dignitaries and the international investors who would modernise his regime, he turned to the two families to finance and build the Hotel Ritz.

Now the Four Seasons Lisboa, the hotel holds prime position over the capital’s most prestigious address, the magnificent Marques do Pombal Square named for the 18th century ruler who rebuilt modern Lisbon after its devastating 1755 earthquake. Today, the square is home to the headquarters of businesses at the heart of Portugal Inc, many of which find themselves uneasily tangled in the messy tentacles of the Espírito Santo scandal.

But the two clans’ formative deal came in 1937 when they merged their respective banks, Banco Espírito Santo and the Banco Comercial de Lisboa to form Banco Espírito Santo e Comercial de Lisboa (BESCL). Though crossholdings were maintained despite disagreements between the clans through the 1950-60s, BESCL would later become Banco Espírito Santo, as if to underline the Espírito Santo family’s paramount role in the merged bank, and in Portuguese finance.

Finding themselves somewhat eclipsed, the Queiroz Pereiras developed their empire in industry, where they dominated the cement and pulp and paper sectors. When the Salazar-Caetano dictatorship was toppled in 1974, various regime cronies were arrested by the new democrats, and their empires nationalised.

The Queiroz Pereiras were among them, their businesses seized as various family members fled to exile in France and Brazil, including the young Pedro Queiroz Pereira, the clan’s presumptive heir but better known as an aspiring rally driver. The Espírito Santos’ BESCL bank was also seized but Ricardo Salgado, then a rising 35 year-old executive in the family bank, slipped detention to exile himself abroad as well, moving between Brazil, the UK, Switzerland and Luxembourg, where he set up Espírito Santo International Holdings, the family’s new corporate vehicle. Portugal’s post-dictatorship democracy matured through the 1980s, and the economy normalised under the wing of European benevolence.

By the early 1990s the Espírito Santos and Queiroz Pereira clans were back in business in Lisbon, and with a new generation – PQP and Ricardo Salgado – at the helm of each clan and determined to restore – and exceed – their families’ former glories. PQP was back in the cement business, creating Semapa – which would eventually take over the old 1950s family holdings – while Ricardo Salgado took the helm of Banco Espírito Santo, which he had bought back in a sweetheart deal from the state.

A veteran Lisbon banker explains: “At the time the Portuguese government felt it owed something to the Espírito Santo family because the government had seized it in the past. There was a kind of guilt complex from the state. The family bought the bank and the insurance company (Tranquilidade) with zero equity. Everything was leveraged, the finance provided. The government made some of the other Portuguese banks lend them money.”

The Espírito Santos had made some influential – and wealthy – international contacts from their time in gilded exile. People like the Rockefellers in the US and France’s venerable Crédit Agricole also stumped up cash to help Salgado buy back the family jewels. So did the Queiroz Pereiras, renewing a business relationship between the rival families from the 1930s. And that’s the way things stayed for the best part of the 1990s and into the 2000s.

By now a liberal democracy, Portugal had joined the European Economic Community, the forerunner of today’s European Union, in 1986 and through the 1990s enjoyed the fruits of Brussels’ largesse, booming with huge investments in infrastructure, industry and tourism.

These were golden times for the two business clans, with Semapa pouring much of the cement of this fast-track development while Banco Espírito Santo financed it courtesy of Ricardo Salgado’s assiduous networking of Portugal’s new political class, much as his father and grandfather had done back in Salazar’s day.

By the mid-2000s, both Semapa and BES would be ranked in the top 20 of Portuguese businesses. By all accounts the two patriarchs, PQP and Salgado, enjoyed a cordial relationship, if not as close as that of their fathers and grandfathers. The straight-talking PQP has a reputation as a doer, a no-nonsense builder of assets in contrast to the profile of the elusive, the charitable say charming, Salgado, who effected a more aristocratic air and whose best work was done out of view.

Then came the activity in PQP’s Semapa empire, which Salgado observers today believe was an early signal that the Espírito Santo empire wasn’t as solid as Salgado would have the market believe. Says one banker: “He never created much value over time and it wasn’t much shared with minority shareholders.” Another banker describes Salgado’s modus operandi as ‘skimming’.

By all accounts a personally charming man, Salgado gave the impression of effortless outward calm; aristocratic, ambassadorial and distinguished when the reality was, certainly in recent times, of frenetic activity just below the surface, the family enterprise barely solvent if at all.

His high water mark came in 2007, just before the Portugal’s eurozone crash, when BES shares peaked, making him a notional billionaire. A family insider says this was the only time over the last 20 years “when the family was in the black”. By then a Luxembourg-based entity called Mediterranean was accumulating shares in various companies associated with PQP’s Semapa group.

This niggled at PQP. Banco Espírito Santo was cited in official filings as its representative and, naturally, PQP asked his old sparring partner, BES chairman Salgado, what he knew of it. Nothing, came the answer. PQP declined to speak to Euromoney but a close associate who recently dined with him picks up the story he was told by PQP himself. Portugal Inc can be messy.

In common with many corporate dynasties, crucial shareholdings in the Queiroz Pereira empire are spread across various members of his family, where 65 year-old PQP holds court as the patriarch rebuilding the family empire. His family, in turn, have links to Salgado’s Espírito Santo clan via residual business and personal connections dating back to the two families’ eight-decade long relationship, not least the 1991 funding of Salgado’s re-entry to the bank his ancestors built from a modest lottery and forex stall in 1869.

“There are connections everywhere,” says the PQP associate, “that’s one of the big problems with Portugal, we’re too small, there’s not enough of us.” Over the years, various cash-strapped PQP relatives had sold their interests in the Semapa-based empire, but usually with PQP’s knowledge and blessing.

But there were also stakes which PQP did not know had been sold on, and his suspicions coincided with the appearance on company registers of this undisclosed Luxembourg entity, Mediterranean, notionally clients of Salgado’s BES. Through the 2000s, whenever the holding edged up, PQP repeatedly inquired of BES, only to be constantly reassured it was a long-term investment by “very private Norwegian and British interests”. BES, he was guaranteed, was simply a “postbox”.

By 2011, these ‘private investors from Luxembourg’ had built a stake variously measured at between 15%-20%. Crucially, at the same time, tensions were simmering between some of the Queiroz Pereira relatives. The patriarch PQP suspected they were selling to this secretive Luxembourg player.

Family matters would come to a head in early 2012 when ‘Mediterranean’ moved to have a representative appointed to a key Semapa-related board. Soon after, in June, the Espírito Santo group announced that it, in fact, was the owner of ‘Mediterranean’.

PQP’s instincts had been sound. Salgado and the BES group had been building the stock all along, in a move that appeared to be aimed at forcing a merger between the two clans, the Salgado financial empire and the cash-heavy Queiroz Pereira industrial interests.

Says a banker: “Looking back, this was very strange because Salgado was a money man. He had no real experience about how to run a factory.” Says the PQP associate. “It’s now clear that he (Salgado) was trying to get hold of the cash flow, so he could kick the can down the road.” Though Espírito Santo had initially portrayed the holding as a recent purchase, it became increasingly clear to many in Lisbon that this was an attempt at a creeping takeover of Semapa by Ricardo Salgado.

As PQP saw it, one of Portugal’s most famous business clans was under siege by another. If inter-clan relations had been strained over the years, they were now positively poisonous. Once Salgado’s tactics became known, Pereira lawyered up, hurling legal volleys at Salgado by dusting off his clan’s long-standing position as a shareholder in the Espírito Santo entities, positions dating from that fateful bank merger of the 1930s, and the friends-and-family round of the Salgado’s BES repurchase 60 years later.

Salgado also got hostile with PQP, hiring lawyers while – most galling of all for PQP – making one of the backroom manoeuvres he was famous for, recruiting PQP’s own share-owning sisters as allies in the takeover battle, splitting the Pereira clan. “He decided to go to war,” says Salgado’s biographer, Maria Joao Babo. “He needed to, but that war was expensive.”

Ashraf Ghani, Afghanistan’s new president: Death and Taxes (from 2004)

Shortlisted for the 2005 British Business Journalist of the Year Award (Economics)

Death and Taxes in Kabul

Finance Minister Ashraf Ghani is battling warlords, cabinet colleagues, indifferent global donors and stomach cancer as he struggles to salvage Afghanistan’s ravaged economy. If he fails, the world could pay an enormous price. Eric Ellis reports from Kabul

DEATH haunts Ashraf Ghani. A gaunt 55-year-old who constantly fingers his prayer beads, the Finance minister of Afghanistan consumes three meals in as many hours during a recent visit, to provide constant sustenance to his cancer-ravaged body. “I only have about 2 percent of my stomach left,” he explains matter-of-factly as he devours a breakfast of rice and bananas while his chef prepares another helping.

Nearby, four bodyguards carrying Kalashnikovs scan the grounds of Ghani’s modest villa in the leafy Wazir Akbar Khan district, where Kabul’s elite live and work, barricaded against car bombs. From overhead comes the nonstop buzz of NATO helicopter gunships. Barely a week goes by without at least one senior Afghan official being assassinated.

“This job is one of the worst on the face of the earth,” sighs Ghani, whose cancer, at least, is in remission. His job is certainly one of the most challenging. A former World Bank technocrat with a Ph.D. in anthropology, Ghani’s brief is to do nothing less than rebuild Afghanistan’s wrecked economy. He must accomplish this, moreover, as a member of President Hamid Karzai’s transitional government, which controls the dusty, high desert capital of Kabul — with the aid of 20,000 U.S. and NATO troops — but only patches of the rest of the country, where most of the people live.

As if this weren’t daunting enough, the Taliban, the fanatical group that turned Afghanistan into an extreme Muslim theocracy until it was ousted by the U.S.-led invasion three years ago, has issued what amounts to a death warrant on Ghani. An Islamic scholar, he in February 2001 used an ancient Arabic insult — jahil, meaning pre-Islamic and therefore pre-enlightened — to suggest the Taliban were uncivilized. The Taliban, though routed, remain a significant presence throughout Afghanistan. Remnants of al-Qaeda also lurk in the rugged mountains on the Pakistani border.

Powerful provincial warlords, hardened by brutal civil war, oppose ceding power to, or even sharing resources with, the weak, foreign-backed government. As Ghani acknowledges, “I am a force for modernization and moderation, and I know that offends many people in this country.”

For their part, many ordinary Afghans are angry about the government’s slow progress in  addressing economic, security and political needs.

“Normalcy is what the people of this country crave,” Ghani says, fingering his omnipresent worry beads. “They want to be able to get into a bus, sit next to a stranger, a foreigner preferably, to talk to who they want, to go home and be guaranteed that their houses will be there when they do. Afghans want a routine that moves their lives forward. We don’t want helicopters, and we don’t want bodyguards.”

The Finance minister, who spent 25 years in the U.S. before returning to his homeland at Karzai’s behest in February 2002, adds, “If we can achieve that, then my work will be done.”

If Ghani fails, however, the consequences could be dire not only for Afghanistan but also for the West, notably the U.S. Afghanistan, with its difficult mountainous terrain, could readily revert to being a terrorist haven, but for sustained foreign military intervention on a large scale.

What’s more, Ghani points out, Afghanistan, once one of the world’s biggest exporters of dried fruit, today depends on opium to sustain its economy. The raw ingredient of heroin netted about $2.2 billion for the country in 2003, or the equivalent of half its legal economy. Making a pitch for foreign investment, Ghani says that the global private sector isn’t doing its part in fighting terrorism and drugs in Afghanistan. Foreign companies invested just $100 million in the country last year. Ghani tells Institutional Investor that Afghanistan must attract $15 billion in foreign private sector investment to create a modern economy.

The Finance minister, though, has a more immediate priority. On October 9 the economic rebuilding campaign of Karzai and Ghani faces a crucial test: Afghanistan’s first-ever elections. Although the U.S.-backed Karzai is considered the favorite, he faces an unexpectedly large number of opponents; 18 candidates have registered — including a few warlords, such as the feared Uzbek leader Abdul Rashid Dostum. The Taliban, meanwhile, have been seeking to disrupt the United Nations’ surprisingly successful efforts to register Afghan citizens (some 90 percent of the country’s estimated 9.6 million eligible voters have signed up). And insurgents have become increasingly bold in attacking U.S., NATO and Afghan troops. One disturbing sign: In July, Doctors Without Borders pulled out of Afghanistan after 24 years; five of its staffers had been killed the month before, and the government couldn’t guarantee protection for the others.

A distinct possibility now exists that Karzai won’t receive the majority of votes he needs to avoid a debilitating runoff with the second-place finisher. And even if the president does prevail in a runoff, his government could be badly weakened.

Indeed, the legitimacy of the foreign-sponsored Karzai transitional government — and, in a real sense, of Afghan democracy itself — is at stake in the forthcoming election. If Karzai wins at least 51 percent in the initial vote and the elections pass reasonably peacefully, Ghani can push forward with his program of restoring the Finance Ministry’s capabilities and authority so that it can streamline the country’s messy fiscal processes and create a national budget. In the unlikely, but not inconceivable, event that Karzai is supplanted by a warlord opposed to the concept of a strong national government, Ghani could well be out of a job. The Finance minister will accept whatever happens. “If you want to get results,” he says, “you have to take the risks.”

Ghani, through his wide contacts in the international aid community, has been able to keep Afghanistan’s lifeblood — foreign assistance — flowing. Aid organizations, including the World Bank and the International Monetary Fund, have provided $2 billion and pledged a further $8 billion through 2007.

“If I say no to Ashraf, he calls George Bush or [World Bank president] Jim Wolfensohn because he knows he can — I didn’t have that issue in Ouagadougou,” says the World Bank’s country chief in Afghanistan, Jean Mazurelle, who arrived in Kabul from a posting in Burkina Faso.

“Ghani is a visionary,” says Allan Kelly, the Asian Development Bank’s representative in Afghanistan. “He knows the development community, he knows what the community wants, he knows what he wants, and he has the intellectual rigor to demand it. He’s also very committed, he’s charming, and at times one sees — how best to put this? — a mercurial edge that can be used strategically.”

To Ghani that $10 billion from the IMF and World Bank is a start but “won’t be enough.” He estimates that Afghanistan will need $28 billion to $30 billion in foreign aid and private investment over the next six years to rebuild roads, schools and hospitals, and on and on.

Afghanistan, after being invaded by superpowers twice in the past 25 years (the Soviet Union in 1979, the U.S. in 2001) and engaging in fierce internal wars of its own — on top of which it has suffered a series of devastating droughts — is in shambles. This onetime regional trading center has a skeletal transportation system and hardly any power infrastructure. Not far behind opium as the biggest driver of the economy is spending by foreign advisers. Without these two sources of revenue, GDP per capita would be far less than the U.N.’s estimate of a meager $700 (based on purchasing power parity).

ON THE MORNING OF SEPTEMBER 11, 2001, GHANI was working at his desk at the World Bank on H Street in Washington when hijacked planes ripped into New York’s World Trade Center and the Pentagon in Washington. He was horrified by what he saw on television. But he also recognized that the disaster might provide a serendipitous chance for Afghanistan to make a new beginning. After most of his colleagues had left for home that day, he says, “I sat in my office for three hours, and I thought through the strategy for transition in Afghanistan. I knew absolutely, instinctively, that horrible though that day was for many people and also for humanity, that the Taliban and al-Qaeda were finished and that there was an opportunity for this country that we had to grasp.”

Ghani had been waiting for 25 years for a chance to come to his homeland’s assistance. From the aristocratic Ahmadzai nomadic clan from Afghanistan’s south — his brother Hashmat is a national leader of the nomadic Kuchis — Ghani spent the early 1970s at Beirut’s prestigious American University. Initially enrolled in the engineering school, he switched to political science. It was at American University that he met his wife, Rula, a Lebanese Christian who also studied political science and has held a variety of jobs, including being a journalist, over the years. She has joined her husband in Kabul and works with several organizations that help local children.

While at school, Ghani made influential friends. One of his former classmates is Anwar Ul-Haq Ahady, head of Afghanistan’s central bank. Ahady, who was a year behind Ghani, remembers him as a “very serious student.” Another ex-classmate is Zalmay Khalilzad, the U.S. ambassador to Afghanistan, whom some consider the most powerful person in the country because of his sway over Washington’s deployment of aid and his influence in local politics.

Ghani returned to Afghanistan in 1974 and taught Afghan studies and anthropology at Kabul University before winning a government scholarship to study for a master’s degree in anthropology at New York’s Columbia University. As he was preparing to leave for the U.S. in the summer of 1977, Afghanistan was already experiencing what would turn out to be protracted political upheaval. Four years earlier King Mohammad Zahir Shah had been ousted in a coup, while visiting Italy, by his cousin, Lieutenant General Mohammad Daud. Daud installed a military government, but in early 1977 he returned the country to nominal civilian rule — with himself as president.

Afghanistan’s economy was at this point self-sustaining. The country was a net exporter of farm products. Connoisseurs deemed Afghan dried fruits and nuts the best in the world. Kabul and Kandahar were popular spots along the hippie trail across Asia, drawing college-age kids to a laid-back lifestyle that featured plenty of hashish and opium. Now-defunct Pan American Airways owned a 49 percent stake in local flag carrier Ariana Afghan Airways (which still flies old Pan Am Boeing 727s).

But within a couple of years of Daud’s proclaiming himself president, Afghanistan was spiraling out of control. His strong-arm tactics, which included purges, had antagonized everyone from warlords to local politicians to Islamist fundamentalists, known as the mujahideen. In 1978, Daud and several members of his family were murdered by pro-Soviet leaders. The mujahideen and many ordinary Afghans resisted the effort by Soviet puppets in Kabul to impose Communist-style central control. Moscow sent some 80,000 troops into Afghanistan in December 1979 to secure a client buffer state in the heart of Islam and placate the Soviet Union’s own restive Islamic republics.

Ghani found himself stuck in New York. “I left with the intention of only being away for two years,” he says. “It ended up being a very long stay.” His ancestral village of Sorkhaab was one of the first that the Soviets bombarded. The male members of his family were imprisoned and later fled the country. “Our nationalism was being systematically destroyed,” he recalls.

The mujahideen fought the Soviets with massive assistance from the U.S., including ample supplies of state-of-the-art weapons. The costly but ultimately successful resistance lasted nine years, until early 1989. About 2.5 million of Afghanistan’s 25 million citizens died in a bitter struggle that has been likened to the U.S. war in Vietnam. Some 5.5 million Afghans fled the country, almost all to Pakistan and Iran. Many are returning, but many others remain abroad.

Today Ghani must contend with political critics who say that he and other wealthy, well-educated Afghans abandoned their country during its time of need. He briefly considered joining the mujahideen, he says, but concluded that “the space of operation was not for me.” The Finance minister, who maintains joint U.S.-Afghan citizenship, explains that his “resistance was done in a different theater — building contacts outside Afghanistan that I hoped would be fruitful at some point” rather than by taking up the armed struggle.

After completing his doctorate in anthropology at Columbia, Ghani taught at the University of California, Berkeley, and then, in 1983, joined Johns Hopkins University’s anthropology faculty. He lectured on social theory and political economy from an Islamic perspective. Ghani became a frequent commentator on Afghan political affairs for the BBC’s Pashto and Dari language shortwave service, beamed to his homeland.

After the withdrawal of the Soviets, Ghani made a brief visit home and contemplated staying. But with no common enemy to fight, Afghanistan’s religious and tribal factions had already become embroiled in brutal civil wars that would last for a decade. So he decided to remain abroad. In 1991, Ghani left academia to join the World Bank as its head anthropologist; his mission was to give advice on the human dimension of economic programs. He would stay at the Bank for the next 11 years, living in the comfortable Washington suburb of Bethesda, Maryland, with Rula and their children, Mariam and Tareq, while advising governments in China, India, Pakistan, Vietnam and — ironically — Russia. He regards assisting the country that did so much to destroy his own as a “very good test for a true international civil servant,” adding, “I volunteered for the job.”

After the U.S.-backed Northern Alliance, the mostly ethnic Tajik resistance movement, had kicked most of the Taliban and al-Qaeda out of Afghanistan following 9/11, World Bank President Wolfensohn gave Ghani a one-year leave to become a media analyst on Afghanistan for America’s Public Broadcasting System. In late November and early December 2001, he attended the Bonn conference where Afghanistan’s first workable post-Taliban administration took shape. Ghani became Karzai’s financial adviser. The Ghanis had gotten to know the Karzais at the latter’s Baltimore restaurant, Helmand, a popular spot for Afghan-Americans.

From Bonn, Ghani headed directly to Afghanistan, arriving at the U.S. air base in Bagram, north of Kabul. It had been a decade since his short visit and more than 24 years since he had left for New York. He made straight for his home in the province of Logar, the mostly Pashtun region that borders Kabul to the south, where his family has lived for 400 years. Ghani, like roughly four out of ten Afghans, is Pashtun.

He couldn’t believe what he found in Logar. “It was absolutely devastated; the land had gone back to the Genghis Khan era, the combination of drought, terror and war, and oh, the people, the people were so emaciated,” he says. “They had all been reduced to bone. You could literally see that people were at the last phases of their ability to cope.”

Ghani had planned to work in Afghanistan on an interim basis, but he resigned from the World Bank on February 14, 2002, and was named Finance minister four months later. His appointment took place at a loya jirga, a grand council of clan leaders, in Kabul. Karzai, who had returned to Afghanistan a few months before September 11, 2001, from exile in Pakistan and the U.S. to help foment armed insurrection against the Taliban, was chosen president. “I did not know I was going to be Finance minister,” Ghani says. “Karzai had asked me five times to be Interior minister, and five times I refused. I wanted to be president of Kabul University.” Ghani accepted the finance job because he knew his World Bank experience gave him unique qualifications and thought the appointment would provide at least some continuity from his brief advisory work.

He had also been devastated by the world’s neglect of Afghanistan after its victory — a grievance his countrymen share. “We won the cold war,” he says vehemently. “The world does not understand that. It’s an extremely important thing, and we feel it very deeply. We sacrificed two and a half million of our people, every third one of us became a refugee, and then ten years of abandonment. The world saw the consequences of that on September 11.”

WHAT DOES A BACKGROUND IN ANTHROPOLOGY have to do with finance? In Afghanistan, quite a lot, surprisingly, as the events of Monday, June 2, 2003, illustrate. On the previous Friday, the Islamic holy day, Ghani had boldly journeyed to the western city of Herat, a desert oasis near the Iranian border, to meet Ismail Khan, a much-feared warlord. Khan has gotten immensely rich by having his militia exact tolls and tariffs, often at gunpoint, from the Iran-Afghan road trade.

“I talked to him for hours and hours,” Ghani remembers. “I told him that under the rules of this country, I am the minister of Finance and he is a provincial governor and is subject to my authority.”

Three days later two white Toyota Land Cruiser 4x4s guarded by a light security detail pulled into the gated courtyard of the ramshackle Finance Ministry in Kabul and unloaded dozens of bags of money — about $20 million in U.S. and Afghan currency. Ghani had flown back from Herat with the money in sacks and then had it transported from the airport. As word spread that a huge cache of money had arrived, a big crowd surrounded the SUVs. Says Ghani, “Our civil servants got paid” as a result.

“It was a memorable day,” recalls Michael Carnahan, an economist who had been on loan as a budget adviser to Ghani’s ministry from Australia’s Ministry of Finance for two years until July. Carnahan recorded the delivery of the money with a digital camera. “Ashraf didn’t show it, but we all knew he was pretty pleased,” he says.

Ghani’s mission to Khan’s stronghold was an exercise in grassroots democracy (and economics) and a start at building a cohesive, centrally funded state. “I went to seven districts of Herat and explained to the people who I was and what I was doing, that I was the custodian of the public purse,” he says. “I explained this on a Friday, in the mosques, in the presence of Governor Ismail Khan. I explained that under the Islamic theory of governance, I was responsible to the people and that every penny of the public’s money had to be properly accounted for.”

Ghani says he wasn’t worried about Khan’s reaction. “Our tradition of governance, our Islamic theory of governance, is older than all of us and will endure long beyond me or Ismail Khan or any of us,” he explains. “You have to maneuver within a cultural system of norms. Every place I have gone, I have taken myself to the ordinary people and explained what it means to be the minister of Finance, what knowledge I have and what I do not have and how they can help. Our people are very wise.”

Khan has continued to remit taxes to the ministry, and Ghani has begun to collect at least some state taxes from other warlords, though the gap between the tariffs they record and those that they collect can still be sizable. Nonetheless, for the first time in years, Kabul is regularly meeting the payroll of its 17,000 employees. Ghani’s ambitious goal is to make the government (excluding the military) self-funding by 2007. The Finance Ministry has calculated that tax collections this year will rise by roughly $100 million, to $309 million, or enough to meet half of the government’s operating budget.

(The Taliban, by contrast, were notorious for walking into Afghanistan’s central bank and demanding cash at gunpoint. If none was available, the bank printed more.)

“When I first came to the Finance Ministry, there was nothing here,” says Ghani. “It didn’t have any controls, the processes were broken, the people were dispirited, it didn’t have the autonomy to function, so it required a very firm hand.”

Carnahan recalls that the ministry had no workable phones or Internet access and only about four hours of power a day. His laptop was one of just two computers in the ministry, and it kept going down because he had to wait for power to come back on to recharge its batteries.

There were bigger problems, however. The currency, the afghani, was trading at 50,000 to the dollar, and some warlords had taken to issuing their own money. Corruption and inflation were both rampant. People were exchanging sacks of cash for food smuggled over the Khyber Pass from Pakistan because there were no border patrols to stop them. Despite the Taliban’s promise to ban opium, much of its revenue reportedly came from a 20 percent levy on the drug business, which may have employed as many as 1 million people. The Taliban’s annual budget for government spending (excluding military expenditure), however, has been put at all of $100,000.

At the Finance Ministry processes and procedures, insofar as they existed at all, were archaic: a confusing mélange of creaking British Raj­era bureaucracy, leftover Soviet central planning and Taliban anarchy. Carnahan recalls seeing “sacks and sacks” of pay chits for ministry employees that had to be pored over by an army of low-level clerks and approved by higher level officials. “It took weeks to go through them, and then another lot would arrive,” he marvels. And as time-consuming as the procedure was, it didn’t ensure that employees would get paid.

Ghani plunged in to straighten out the mess. He toured the ministry’s offices around the country. “I asked the oldest employees who among their peers were the most knowledgeable and honest, and then I asked these people who were the most corrupt,” he recalls. “I asked them to name names, and they were not shy about it. It was remarkable how much of a consensus there was.”

Ghani fired those deemed untrustworthy. Those let go “badmouthed me for a while, but then they were gone,” he says. “It was established that we could — and would — act on corruption.” The firings have eradicated about 60 percent of the corruption in the ministry, he contends, and, he adds, “I have a good idea where the other 40 percent is.”

Ghani has found support for his reform crusade in unexpected places. In March 2003 he traveled to Uruzgan, one of Afghanistan’s poorest provinces and the home of Taliban leader Mullah Omar. There the new minister met some 300 community leaders to solicit advice on how to fix the country. He recounts what happened: “They laughed at me. I was puzzled and asked why, and they said, ‘We know your voice from the radio — we haven’t invested all this time and money and faith in you for nothing. Just go get it done.'” For Ghani, “it was quite humbling.”

Not everything has gone so smoothly. The dismissal of the allegedly corrupt employees gave Ghani a reputation for high-handedness and stoked divisions within the ministry. Following the corruption purge in the ministry’s treasury department last year, some remaining staffers were beaten up, while others received so-called night letters, or death threats. One senior adviser in the department admits that the shake-up was necessary but says that it was handled “very, very badly.”

Ghani makes no apologies. “Management style is a device that must be suitable to the circumstances where one lands,” he argues. “But now things are changing here. We are fixing this ministry, and now I am much more a chairman of the board rather than the autocratic chief executive officer. We are getting there.”

Three deputy ministers, none of whom has formal training in finance, now oversee much of the day-to-day operations of the Finance Ministry. Jelani Popal is responsible for revenue and customs collections; Abdul Salam Rahimi handles budget, treasury and bank-related issues; and Tareq Formoli manages the administrative, auditing and accounting functions.

The ministry’s treasury functions have been computerized, and a hodgepodge of government accounts have been put in order and streamlined. “The Ministry of Finance is possibly in the Stone Age when comparing it to the West, but it’s light-years ahead of the vast majority of ministries here,” says Ghani adviser Richard Bontjer, who is on leave from the Australian Treasury to assist the Finance minister in preparing next year’s budget.

The ministry, in conjunction with the central bank, has done a remarkable job of restoring credibility to the beleaguered afghani. Over several months the two institutions withdrew the previous currency and replaced it with new notes in a smooth transition. The new afghani has held steady at about 48 to the dollar since its launch early last year. The stability is all the more striking in that Afghanistan doesn’t have a full-fledged economy or huge central bank reserves to speak of. The hastily exiting Taliban had to leave behind $90 million in gold bullion in Kabul, and the New York Federal Reserve Bank holds some $250 million in formerly frozen funds on the country’s behalf. Otherwise, what has been keeping the afghani afloat is billions in foreign aid, the political support of foreign governments and Kabul’s strict no-deficit fiscal policy. “We do not issue checks on the central bank if we don’t have the cash,” Ghani declares.

Deputy Finance minister Popal is making headway in starting a tax collection system — considered by Ghani to be the most critical job in the ministry. “There is still a lot of smuggling,” concedes Popal, who is seen as Ghani’s likely successor. “Of all the [taxable] money coming into our country, we are getting about 50 percent. But last year it was 30 percent, so we are making progress.”

The ministry’s target of funding Kabul’s administrative budget entirely out of domestic revenues within three years assumes spending then of $800 million, versus $600 million this year. That’s no small order: Kabul takes in only about $300 million in taxes now, the $300 million budget gap being filled by foreign aid. Taxes on earnings — Popal’s next order of business is to institute an income tax system from scratch — are expected to make up the lion’s shares of the extra revenues required. “This is the biggest tax haven in the world,” he half jokes. “But that’s about to end.”

The additional tax proceeds are desperately needed, Ghani says, to pay the salaries of government employees. “It’s extremely mundane, but mundane is what is at the heart of legitimacy,” he explains. “It’s all about being a normal country, and normal countries pay their government officials adequately, promptly and regularly, on time and in full.”

TO WALK THROUGH THE RAMSHACKLE FINANCE ministry is to be reminded of how far Afghanistan remains from normalcy. The dull Soviet-era building fronts Kabul’s Pashtunistan Square, where five streets full of buses, taxis, carts and four-wheel drive vehicles intersect and usually overwhelm hapless traffic police. Ministry offices are sandbagged against bombs and mortar attacks. Sullen guards in fatigues who tote Kalashnikovs patrol nearly every corridor.

“Finance ministers don’t win popularity contests anywhere,” observes Australia’s Carnahan. “But at least in Washington or Canberra or London when someone hates you they tend not to send a hit squad of assassins around.” (Ghani has been threatened with death, but no attempts on his life have been made.)

Yet as Ghani well appreciates, the enemies of reform in the new Afghanistan aren’t just the Taliban or al-Qaeda. Some of his fiercest opponents occupy Karzai’s cabinet. “The cabinet does not yet have a common vision,” Ghani says euphemistically.

The president split bitterly with his own vice president, Mohammad Qasim Fahim, in late July when Karzai didn’t select him as his running mate for the upcoming election. By making an enemy of this prominent Northern Alliance commander, who was both vice president and Defense minister, Karzai has added a new measure of uncertainty to the polling. His moderate Foreign minister, Abdullah Abdullah, has tossed his support to Fahim, Abdullah’s former commander and fellow Tajik. Uzbeks and Tajiks make up about one third of the population, Karzai’s and Ghani’s Pashtuns just under one half.

Will Ghani serve in the next government if asked, regardless of who wins? “It depends on the next government, and it depends on the degree of alignment within the cabinet,” he says guardedly. Pausing to sip his beloved Starbucks coffee (he has the beans flown in from the U.S.) and click his worry beads, he adds half hopefully and half resignedly: “I’d love to go back to teaching, but I’m committed to serving Afghanistan, to paying back my debt of education. My time in the U.S. is over — my future is this country.”

Ghani: ‘A narco-mafia state is very possible’

In December 2001, 25 years after leaving Afghanistan to do graduate work at New York’s Columbia University, Ashraf Ghani returned warily to his homeland. Only a month before, Afghan and foreign forces led by the U.S. had ousted the fanatical Taliban regime, which had brutally imposed a radical Islamic theocracy on the country — and played host to al-Qaeda. Ghani, who in his years as an expatriate had earned a Ph.D. in anthropology with an emphasis on Islamic culture and taught college before becoming the resident anthropologist at the World Bank, was named his country’s Finance minister in July 2002 by Afghanistan’s new president, Hamid Karzai. The job is a daunting one. Afghanistan’s economy has been shattered by more than two decades of war and unrest. Yet Ghani has already launched a new currency, framed new budgets and begun to collect taxes — even from provincial warlords. More important, he has played a key role in extracting aid from foreign donors, like his old employer, to help rebuild the country. In June the 55-year-old Finance minister, who is recovering from stomach cancer, spoke at his modest Kabul villa with Institutional Investor Contributor Eric Ellis about what Afghanistan needs to do if it is to recover.

Institutional Investor: Do you have an economic model for Afghanistan?

Ghani: We are trying to develop a liberal economy. I admire the South Korean and Chinese economies. The Chinese have managed to unleash their latent economic dynamism. We have a similarity with the Chinese. We are traders, fundamentally entrepreneurial: It’s our calling.

How do you see your economy evolving?

Our future is to become the land bridge from Europe and the Middle East to Central Asia and the Indian subcontinent. Afghanistan’s agenda for the next 20 years is going to be economic. It will be at the center of our national focus. It’s absolutely paramount. Aid is a temporary phase. It cannot be sustained here.

One reason Afghans spend so much time on politics is that they are not occupied elsewhere, on economic matters. Economic creativity releases energy, but here our efforts have been diverted to war and hatred. We need to generate a different type of politics that focuses on alleviating poverty, on building the economy.

Is the best way to combat the power of the warlords to encourage them to become Russian-style oligarchs?

This is one possible route. They must become stakeholders in Afghanistan. There are a lot of stakeholders who have a vested interest in not reforming. But their money and power must be directed toward productive activities. They could make enormous money legitimately. The money they are making from extraction — crime, highway taxes, rent — is petty money. It is pathetic compared to the really big money they could make in legitimate activities, in partnerships, in investment in agriculture.

How do you defeat the drug economy?

As a cash crop, cotton does not compete with poppies, but a T-shirt produced in a textile factory would compete. There needs to be a wholesale change in culture, a move away from agriculture to light industry; change will come with industrialization. I have warned that a narco-mafia state is very possible. That is unprecedented for a Finance minister to say. This would be as destabilizing as an Afghanistan that was taken hostage by terrorists. It would kill more people than any September 11.

Afghanistan is one of the world’s biggest recipients of foreign aid. Is it being properly disbursed?

No, the technical assistance part of the global aid program [hundreds of foreign advisers serve in key ministerial positions] is in need of radical reform. In terms of overall effectiveness, technical assistance is the least satisfactory. It is not transparent as to how this [foreign aid] money is disbursed. It needs fundamental reform: Aid must become effective. This is globally precious money, and we are all stakeholders in eradicating poverty globally. Part of my agenda here is to address these discrepancies.

What about the 50 or so foreign advisers within your ministry and the central bank?

They are not my advisers. I only have two advisers, Clare Lockhart and Michael Carnahan. [Lockhart, an economist who worked with Ghani at the World Bank, and Carnahan, who was on loan from Australia’s Ministry of Finance but left Kabul recently because his two-year stint was up, are budgetary experts.] I coordinate them; I decide what they do; I direct them; I tell them what to do. It’s a constant battle, but the leadership of the government has been accepted by the donor community and their representatives.

Are there too many advisers in Kabul?

Advisers’ accountability cannot be evaluated, because they are not implementers. Some work with obscene salaries, which brings a structural inequality that undermines the heart of the aid effectiveness. They lead to a false economy, lead to resentments, and undermine one’s ability to push forward the agenda of global engagement, which is the whole reason why they are here.

Suppose all the advisers were to leave. Would your ministry be able to function?

Absolutely. The three deputy ministers are extremely capable. Without them the ministry would not function. I did not know a single one of them before September 11 or July 2002 [the month he was appointed]. But they are integral, and I defend them with my life. Each one of them is cabinet material.

Would you like to be president?

No. What I can do as minister I would not be able to do as president.


Inside Ukraine’s Economic Crisis

When Euromoney penetrated the economy and finance ministries in Kiev in late May, as well as the central bank, it found an atmosphere of unease and uncertainty. A supposed dream-team, which in reality is a collection of talented and driven novices, has a battle on its hands to keep Ukraine’s economy afloat. Can Kubiv, Schlapak and Sheremeta make the transition from protest to pro-growth?Full article:
Visit for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.
When Euromoney penetrated the economy and finance ministries in Kiev in late May, as well as the central bank, it found an atmosphere of unease and uncertainty. A supposed dream-team, which in reality is a collection of talented and driven novices, has a battle on its hands to keep Ukraine’s economy afloat. Can Kubiv, Schlapak and Sheremeta make the transition from protest to pro-growth?Full article:
Visit for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.

Inside Ukraine bigger envelope

When Euromoney penetrated the economy and finance ministries in Kiev in late May, as well as the central bank, it found an atmosphere of unease and uncertainty. A supposed dream-team, which in reality is a collection of talented and driven novices, has a battle on its hands to keep Ukraine’s economy afloat. Can Kubiv, Schlapak and Sheremeta make the transition from protest to pro-growth?

Spain: Laboral flies the co-op flag

Jon Emaldi Abasolo surveys the remains of Spain’s devastated banking landscape and scratches his head. He’s genuinely confused. “We know how we manage our bank,” says Abasolo, a director of the Basque savings bank Caja Laboral Kutxa, part of the Mondragon group of co-operative businesses (MCC), “and we know that it is managed properly. And we ask ourselves if it could be any better managed than it is if we paid ourselves 10 times more?” He answers his own question: “I don’t think so.” It’s a question that may well be asked of the British enterprise regarded by many as the grandfather of co-operative banking. Once seen as a global model for community banking and business, the Manchester-based Co-op has become a byword for notoriety, capped last month by losses of £2.5 billion ($4.2 billion), mostly accumulated at the Co-op Bank, revealed by its parent, The Co-operative Group after what the group admitted were “fundamental failings in management and governance at the group over many years”. Jon Emaldi Abasolo Jon Emaldi Abasolo, Caja Laboral Kutxa Abasolo’s musings come as he leafs through industry comparisons matching Laboral with competitor banks in Spain, including its main rival in this prosperous part of Spain, the Bilbao-based and privately owned Kutxabank. Unlike many of their competitors, such as the giant Bankia, still sputtering through Spanish banking’s prolonged crisis, neither Kutxabank nor Caja Laboral have needed – or sought – to be rescued by Spanish or other European taxpayers. And both have been healthily profitable in not doing so. In the past calendar year, Kutxabank made €108.3 million in profit. Caja Laboral, headquartered an hour’s drive east from Bilbao in the small mountain town of Mondragon, made €104.3 million. These banks have been fortunate to be primarily operating across the prosperous and heavily industrialized Basque region, which has been only slightly dented by Spain’s crisis because, many Basque nationalists argue, their homeland is not really Spain. Abasolo says hard work is an entrenched part of Basque culture, equating it to the British cliché about Scots being thrifty. But that’s where the comparisons end. Kutxabank’s senior managers achieved those results with average annual salaries of just over €400,000, low by recent standards in Spain, where bankers routinely award themselves €1 million-plus remuneration packages, running high-risk banks that would ultimately vanish during the crisis. At the Caja Laboral co-operative bank, executives managed to achieved its solid numbers while taking home an average annual salary of €88,000, a positively parsimonious number many bankers wouldn’t bother getting out of bed for. But, surely, given industry norms, Laboral’s labours must be ballasted by a generous share options and bonus package? No, insists Abasolo, who’s worked at Laboral and its Mondragon associates for the best part of three decades. He’s a part owner of Laboral, as are thousands of his colleagues through the Mondragon network, and owns stock worth about €150,000. Abasolo says the volume of business and productivity generated by staff at both banks is very close. His point is a simple, though unstated one: bankers pay themselves too much. He says that when he sees articles in the international business press about the gigantic salaries and bonuses of bankers elsewhere “we do tend to think they are a bit crazy”. The broader incentive Laboral executives work for is to do good for their community, he says. This community of purpose is more compelling to nationalist Basques banding together for the common cause than it is to get rich, he insists. “If you are personally ambitious, or if you became a banker to get rich, you won’t find your career here at Laboral,” Abasolo says. He adds: “You can be ambitious in wanting to reach a high post in a bank. Yes, you can do that here, but it won’t be to make a lot of money for yourself. We are a unique bank in Spain, and probably the world, because 90% of the employees are owners of the bank.” It’s clear that Laboral is not like other banks. With an asset base of €25 billion, outwardly Laboral operates as a normal retail bank, a traditional Spanish caja with its emphasis on housing and community. Its main retail business is centred in Spain’s northwest, bordering France, with some 380-odd branches through the Basque country and neighbouring Navarre region and around 20 in Madrid and Barcelona. In its home region, Laboral has filled the meat-and-potatoes retail niche largely abandoned by Spain’s traditional community-oriented cajas in their rush over the past decade to corporatize and transform themselves, often with catastrophic outcomes, into sharp and slick commercial banks. The caja branch network across Spain has fallen by more than a fifth since the crisis. As Spain roared, cajas like Laboral looked quaint and old fashioned in eschewing the big corporate borrowers, the proverbial tortoise to the impatient hares being reinvented in faster, sexier climes elsewhere. But by 2011/12, that strategy, if that’s what it was, looked prudent as scores of Spanish cajas-cum-banks crashed, were forced into mergers and begged for bailouts. Abasolo says Laboral watched as the world changed around it, but was precluded by Mondragon’s co-operative principles from joining the party. “We wouldn’t have been able to keep up even if we had wanted to,” he says. Mondragon, the Basque region’s biggest commercial enterprise, is better known as the world’s largest co-operative. Operating across manufacturing, finance, retail and education, it doesn’t have employees but ‘members’, around 80,000 of them and most of them – around 85% – owners of the businesses they work for. And they direct them too. Management at Mondragon is organized in linear structure, with power flowing from the bottom up. Via a series of assemblies and formal consultations, worker-members choose their executives – and can fire them too – and have the authority to make the critical decisions of the enterprise they work for. It’s the precise opposite of how power flows in conventional capitalism, with executive decisions handed down the power pyramid from executive board to factory floor. “The key word here is consultation, at every level,” says Abasolo. He says that every management conversation about risk and investment at the bank is underpinned by a firm belief in and adherence to the co-operative’s values. Abasolo’s point about salary and designs on accumulation of personal wealth is also well made. At Mondragon, executive salaries are restricted to just 6.5 times the lowest-paid workers’ salaries. The Mondragon Corporation lays claims to have virtually reinvented capitalism. It was founded in the early 1940s by a Catholic priest from a tiny Basque village – Father José María Arizmendiarrieta’s bust is proudly displayed in the Laboral lobby – at a time when Spain was still smouldering in the ashes of the civil war that had ravaged much of the Iberian peninsula. Jobs and security were needed and Arizmendiarrieta’s vision was a self-sustained and community-based bank, focused less on profit than on humanism. With a casual atmosphere that’s more university campus than Wall St, religion is absent from Mondragon’s guiding philosophy, Abasolo says. “When bankers talk about social responsibility, they are really talking about this,” he says. “I think our priest was 40 years ahead of his time.” Transparency at Laboral, explains Abasolo, means sharing everything within the reasonable boundaries of commercial discretion. “Some people who have dealt with us have said we are too transparent, that there is too much information.” Because of Laboral’s tendency to debate and decide via committee, it has been criticized as being too linear in its management style, and time-consuming in its careful, perhaps even over-analysed, decision-making. “Yes, this is a criticism that we have faced,” Abasolo concedes, “but when the crisis comes, there are no complaints about our speed. Not at all.” He sees it as maintaining a “special care” in customer relationships, almost to a degree familiar in private banking. “We are still here.” More than 50% of Laboral profits are ploughed back into Mondragon for reserves, as well as job creation and social goals, while 10% goes to various charities and community groups, including NGOs such as Amnesty International. Laboral also sponsors the region’s premier basketball team, Saski Baskonia, based in the nearby Basque capital, Vitoria, and a leading team in Europe’s peak basketball Euroleague competition. Given the huge imprint that the Mondragon co-operatives have over the Basque region, it is unsurprising that members have been elected to posts such as the Mondragon mayoralty and as head of the Basque regional government. But unlike the cosy politician-banker nexus that has developed elsewhere in Spain over the past decade, Abasolo insists neither were placemen of the co-operatives in seeking office. “We do not have politicians involved in Caja Laboral.” Politically, he says MCC employees tend to be “very nationalist”, which in this historically restive region has tended to means pro-Basque independence. “They have been left-wing in terms of independence from Spain,” he says, “but not necessarily in terms of their social commitment.” Euromoney asks Abasolo, a one-time lecturer in economics, if business Mondragon-style equals capitalism as it is conventionally understood and practised. He pauses for thought. “It’s a good question. It is market capitalism in the sense that the interchange of products and services takes place in the market, and the market here goes according to capitalist principles. But within the business itself, capitalist rules don’t apply up to quite a level.” That’s because, under Mondragon’s founding charter, workers participate in the ownership of their corporation’s assets, profits and management. “This is something that our group [of co-operatives] stresses.” Abasolo says the “most difficult one is the democratic management rule” in which MCC’s utopian principles need to give way to a more workable pragmatism, lest chaos reign. Given the banking-is-broken sub-text of much of the discussion surrounding global banking since the 2008/09 trans-Atlantic meltdown, and in wounded Spain in particular, it’s intriguing that the Laboral model has been put forward in corporate academic circles as a workable alternative to the sharper practices that contributed to banking’s fall, a return to a genuinely customer-focused relationship of years past. The curiosity is all the more so given that it is neither Wall Street, The City, nor even Madrid’s Azca district outside Laboral’s windows, but a small town in rural Spain, an hour from any city of size. Despite its politically restive reputation for independence, the Basque region has traditionally been healthier, economically, than the rump of Spain. Unemployment in Spain has reached 27%. In the Basque region, it is around 15%. Rusted-on Basque nationalists like to say that’s because their heavily industrialized homeland, which they call Euskadi, isn’t really Spain; that the region functions with a different mentality to the rest of a country that’s still reeling from the economic crisis, with its deep recession, crippling unemployment and collapsed property market. Laboral’s Abasolo laughs, and adds with a wink. “I wouldn’t say so, even if I think it.” But there is no doubting Laboral, and indeed the MCC, takes its Basque cultural identity very seriously, as evidenced by the distinctive works of the late and celebrated sculptor Eduardo Chillida, regarded as a national treasure in the region, whose large sculptures surround the Laboral buildings. (Indeed, in the culture battle waged alongside the violent 50-year terror campaign by Basque extremists, Chillida’s style was often copied by such groups so as to underline their nationalism.) txomin garcia Txomin Garcia Txomin Garcia has been Laboral’s executive chairman since 2009, coming to Laboral from industry, not banking. And it has been an eye-opener. “The losses in the system, with provisions and so on, have been equal to the total capital of our banking system as at the beginning of the crisis. We have lost 25 banks. Just disappeared,” says Garcia. “But the situation here at Laboral is very different. We didn’t have a real estate boom like the Mediterranean coasts. The different thing about the Basque region is that the industrial base is more than double that of other parts of Spain.” Despite the recent Brussels-directed clean-out, Garcia foresees further restructuring of Spanish banks, citing the crisis-merged Bankia among others as needing to be sold or merged into stronger entities. Garcia says the main reason why the Basques have been able to dodge the worst of the crisis that has beset the rest of Spain is because the local government administrators, who operate autonomously from Madrid, are more efficient. “We are much better regulated and managed,” he says. Industrialization has also helped. The region’s economy has a manufacturing and exporting base that is 10% higher than the Spanish average. He cites Laboral’s non-performing loans, compared with the overall bad debt in the Spanish banking system. He says that by the end of 2014, NPLs are expected to account for 14.3% of all loans in the Spanish system, up from 10.4% in 2012. But it’s a different picture at Laboral, with NPLs measured at 7.9% at the end of June last year, as against the national average of 12%. Moreover, Laboral says around a third of what it classifies as NPLs are actually functioning and serviced. “It is just that we apply a very conservative rule to our portfolio.” In common with many Spanish banks, Laboral had bonds from Lehman Brothers, amounting in its case to €162 million. It absorbed a €70 million hit in 2008 when Lehman failed. Such numbers haven’t escaped the notice of the ratings agencies. In October last year, Moody’s measured Laboral as a Ba1 risk, one of the highest of the Spanish banks it follows. Moody’s said “the confirmation of the ratings reflects the bank’s ongoing resilience to the challenging operating environment, as evidenced by the very moderate asset-quality deterioration in Q2 2013, significantly better than the Spanish banking system average.” Fitch too was complimentary. In ascribing a BBB rating to Laboral, the same as the Spanish treasury itself, just shy of the BBB+ plus it afforded to big Spanish banks Santander and BBVA, but better than the BBB- of Madrid and EU-assisted Bankia, Fitch noted that Laboral’s “conservative risk management prior to the crisis has resulted in fairly low exposure to troubled real-estate developers and relatively low impaired asset books. In Fitch’s view, Laboral’s impairment reserves appear strong.” Things were even better a year earlier, before the conservative Laboral embarked on a rare expansion. In November 2012, Laboral took over the smaller Basque caja Ipar Kutxa, based in nearby Bilbao, which had failed to seal a 2011 deal with France’s Crédit Agricole and its Basque-based Bankoa operation. Laboral had been following negotiations closely, and when the French demurred, distracted by worsening numbers back home, Laboral stepped up. Abasolo says Laboral knew Ipar Kutxa well, and was close to it in culture and co-operative philosophy. Although Ipar Kutxa was a fifth the size of Laboral and easily absorbed, the merger helped earn the combined entity a ticking off from Moody’s. The ratings agency noted that Ipar Kutxa appeared to be more exposed to the struggling commercial real estate sector, making the merged bank “more vulnerable to scenarios of further economic deterioration”. Although Moody’s said it believed Laboral’s strong retail franchise would help the bank fiscally weather any drama that might arise, it was enough to earn a downgrade to “Ba1, outlook negative”, the level it maintains. Abasolo says Laboral has been growing an average 5% annually in the savings market over the past decade, despite the wider national catastrophe. He says savings have been stable because the bank took a conscious decision at the outset of the crisis not to participate in the price war that Spanish banks embarked on in a desperate bid to win new business to offset loan losses when the national property bubble burst through 2008/09. He says that decision meant a slowing of new business after 2011, as the fuller extent of the meltdown gripped Spain, but that period has now passed. “We don’t share the view that the crisis is over,” he says. “From a technical point of view, yes, but not measured by demand and confidence, the view of the man in the street.” The recession will break in the last quarter of 2014, he predicts. At Laboral, lending to property developers accounts for less than 6%, while mortgages to first-home buyers are around 75% of its loan portfolio. “We have a basic rule: no speculation,” Abasolo says. But he says it’s a rule that is leading to a loss of opportunities, as asset classes have tumbled in price to attractive investment levels. “We didn’t decide not to invest in real estate. We did, but did it fairly late and we saw it as a business that was not worth the risk and without community benefit. “It is not a question of having our type of values, but a question of the way we manage our bank.” The current debate at Laboral, as Spain’s trashed economy shows signs of recovery, is whether or not Laboral should invest in nascent SMEs seeking start-up credit. “We tend to think we need to provide more loans to SMEs,” Abasolo says. “We will continue to be extremely conservative in capital markets, whereas in SMEs we are a bit less conservative.” All this prudent prosperity is supposed to guarantee job security, seen as one of the guiding principles of the Mondragon ethos. Indeed, in the town of Mondragon and its surroundings, where MCC provides about half the jobs, unemployment is largely nonexistent, a stark contrast to the 26% being suffered elsewhere in Spain. Indeed, such is its reputation that the region has been a magnet for jobseekers from other, crisis-stricken parts of Spain. Still, there is no such thing as corporate utopia, as a rudimentary protest in the centre of Mondragon village betrays. A crude sign locals never thought they would see asks: “MCC? Sabeis lo que significa de la palabra co-operativismo? – Do you know the meaning of the word co-operative?” That it is written in Castellano, or conventional Spanish, and not the Basque Euskera that’s commonly – and controversially – spoken in these nationalistic parts. It makes the protest message more eloquent, implying that Mondragon’s predicament isn’t simply a local drama; it’s a national crisis. The protest has been prompted by the €1 billion-plus bankruptcy of MCC’s main business unit, the big Spanish domestic appliances maker Fagor, the Mondragon flagship. There has also been the less than edifying sight of a sit-in at industrial estates around Bilbao, where Fagor has long been a big employer. At one visited by Euromoney, about 200 staff gather around winter log fires in a rolling vigil in what ordinarily has been a Fagor distribution and despatch bay. “They’ve abandoned us,” says one protestor. “They say they will place us in other companies, but there has been nothing yet. They are liars.” Another complained that the worker-members have not been given a say in Fagor’s plight, and that management has trashed the business. Fagor has been the victim of a perfect storm, and partly of Mondragon’s own corporate principles. As a leading appliance maker, competing with Philips, Ariston et al, Fagor has seen its competitors maintain price-effectiveness by sending manufacturing offshore, particularly to low-cost China. That’s an anathema to Mondragon and its community-first ethos. But if that was a tough strategy in maintaining low costs, the economic crisis made it a struggle too far. Sales at Fagor slumped from €1.7 billion in 2007 to €1.2 billion in 2011. As the parent co-operative kept bailing it out, debt piled up, eventually reaching more than €1 billion before Mondragon pulled the plug. Former Mondragon executive Adrian Zelaia, who now runs an economic think-tank for the Basque region, says Fagor ignored basic business principles in not investing in product development and seeking new markets. “It thought it could get by with being a big supplier in Spain and France,” he says. Fagor’s failure has shocked Mondragon, leading to criticism that the co-operative is little more than a fair-weather friend. Abasolo says he understands the outrage, adding that it’s natural that when people lose their jobs they look to the co-operative for protection. But he says the co-operative system is not a safety net. “We are not the government, providing the shelter of a nanny state. That is absolutely impossible in this economy,” he says. He says the community is riven by a debate as to why MCC has decided not to put more money into saving Fagor, its flagship business. “We have lost a lot of money [at Fagor],” says Abasolo. “There comes a moment when it’s no longer possible to go on. You should find another way to develop your business.” Mindful of the dramas besetting Fagor, Abasolo is keen to point out that loans to other parts of Mondragon amount to just 3.2%. “We are not the private bank of Mondragon,” he insists. Despite the dramas at Fagor, Mondragon’s plight is a long way from the crisis and scandals that have beset the UK’s Co-operative Group in recent months. Abasolo says a posse from the Co-op visited Mondragon in the late 2000s to seek help in developing what Abasolo describes as a “better equilibrium” between its members. They also came looking for investment. “They thought our model was sounder,” Abasolo says. “We made some steps, but it was not possible at that time. Our interests here are more calibrated. We don’t have problems with trade unions. We have a different culture.” Is being Basque the key defining point, Euromoney asks? He’s diplomatic, saying that the Co-op Bank’s struggle in the UK springs from the fact that it operates on a national scale, whereas Laboral’s more nationalistic focus is as an alternative bank for the prosperous Basque region. “If they were focused on Manchester, it would be a completely different profile.” “When we have gone outside the Basque country [Laboral opened 30 branches in Spain’s Zaragoza region just before the onset of the crisis], it worked only up to a point. Ten branches were subsequently closed. “It’s very important to be relevant in the market. The Co-operative Bank has this problem. They are spread everywhere and they are not really relevant. “Who goes into a Co-operative Bank? Someone who is politically interested, who is left-wing. But that is not enough.”





Indonesia: Flight of the Navigator

Muhammad Chatib Basri is not a big fan of bureaucracies. “One of the reasons so many Indonesians have become religious,” jokes Indonesia’s 48-year-old finance minister, Jakarta’s ninth in 16 years, “is because they have to deal with the government.” Citing a common gripe of his 250 million compatriots – and international investors too – “you submit a document and you never know when it will be completed. So you wait for everything. And you need to pray for the day they contact you and say everything is settled.” His gentle jest about Indonesia’s notorious bureaucracy betrays a truism about operating in this often-trying country, east Asia’s only G20 economy, one that many investors, local and foreign, invariably fall in and out of love with at regular intervals. It’s a widely aired riff that echoes in such places as Brazil, India and large tracts of developing Africa: that Indonesia is a nation of enormous economic potential – and always will be. A country with a history of mediocre administrations that succeeds in spite of its government, not because of it. Chatib Basri knows the criticism all too well. So his mission as a minister is to make government easier to navigate, in a country where such navigation is notoriously difficult. He cites his experience from his previous job running Indonesia’s Investment Coordinating Board, the body overhauled by the current administration of president Susilo Bambang Yudhoyono (SBY) under Chatib’s predecessor, the former JPMorgan country head in Jakarta, Gita Wirjawan, to be a one-stop shop facilitating inward investment. The BKPM, as it is known in Bahasa, is the reformed ministry behind those ubiquitous soft-focus “Invest in remarkable Indonesia” advertisements that blanket the world’s news and business TV channels. Its business-and-foreigner-friendly image has been instrumental in helping quadruple foreign investment in Indonesia since 2009. Although the exponential jump in foreign direct investment, from $4.8 billion in 2009 to $19.6 billion last year, obviously can’t entirely be attributed to Chatib’s reform efforts, the smoother bureaucracy so coveted by investors here doubtless helps. So he’s introducing something similar at his new job at the finance ministry, by trying to reform Indonesia’s taxation procedure and increase what has been an anaemic collection regime. A new procedure called kring pajak – literally ‘tax call’ in Bahasa – is designed to make it easier to pay tax, to simplify what has traditionally been a laborious and often corrupt procedure here. Although the largest economy in Asean, and the region’s only G20 member, Indonesia struggles to collect tax revenue, partly because of an inefficient bureaucracy, as well as a reluctance by many Indonesians to volunteer taxes, in protest against sub-standard services and official graft. Tax authorities here collect around 12% of the optimal estimated take, compared with around 15% in Malaysia, 18% in Thailand and 25% in Vietnam. The aim is to bump that number up by 2020. “Our tax revenue-to-GDP ratio is around 12%,” Chatib says. “This country should be getting around 19% to 20% of GDP in tax. I needed to be very pragmatic, do something smart. I needed to come up with a policy that does not require many people or a lot of knowledge.” Indonesia’s tax apparatus has been very inefficient; Chatib cites a random example that a commonplace Rp100,000 (about $9) refund can take three or four months to process. So he has sought to do away with cumbersome low-level investigations bureaucracy by imposing a 1% flat tax on small village-level enterprises. “Yes, it’s very small, the collection in the past three months is only Rp450 billion (around $40 million), but before it was zero. “And you pay once a year instead of once a month, so you save 12 times on manpower. It’s a start. And you need to start reform on something like that; once there is success, you capitalize on it.” He says he’s “not a big fan of using state-owned enterprises” as a source of budget revenue for the state. “We need to treat SOEs as a company. If you rely on them as a source of income, then you cannot expect them to play as a normal company. If they need more capital, then let’s do it. I always prefer privatization.” Susilo Bambang Yudhoyono’s presidency has provided plenty of excitement for Basri Susilo Bambang Yudhoyono’s presidency has provided plenty of excitement for Basri Indonesia is coming to the end of an important era – with a democratically elected leader leaving office after two full terms. So, in Chatib’s view, what’s going to happen to Indonesia beyond the 2014 elections? Is the relative stability of SBY’s safe hands as good at it gets for Indonesia? There are many Indonesians and foreign analysts who agree that SBY’s ability to serve out his full term is his greatest achievement and yet an indictment of his presidency. They argue that he had a mandate to press much harder with deeper reform, but baulked at crucial moments, dogged by chronic inertia. “Whoever becomes president, he or she will need to provide jobs in order to reduce poverty, otherwise they won’t gain political support,” Chatib says. “If you want to add jobs, you need to grow the economy by 6.5% to 7%, about 38% to 40% investment over GDP. There is no way you can achieve this if you are not open to foreign investment.” This view is contrary to electioneering by the front-running party, Megawati Sukarnoputri’s Democratic Party of Struggle, known as the PDI-P, which has endorsed the popular Jakarta mayor, Joko Widojo, as its candidate for the July poll. In early March, the PDI-P raised eyebrows among the business community in its economic manifesto for the election season in stating that Indonesia “needs to stand on its own two feet” and that “we are facing a situation where our economic sovereignty and policies are being dictated by foreign powers”. “National interests,” the PDI-P manifesto said, “have taken a back seat to foreign interests”, adding that Indonesia must limit foreign ownership in certain sectors, in particular banking. Local media splashed with the headline ‘Indonesia needs fewer foreign investors: PDI-P’, and Chatib picked up on the concerns buzzing around town, which most attributed to pre-election populism. “Whoever becomes president, even if previously they have shown an ultra-nationalistic view, once they are in power they will be constrained by the economic realities,” he says. “Otherwise they must be willing to accept 4% to 5% growth and it means they cannot provide jobs.” He says 6% in Indonesia equates to maintaining current employment levels, but “I believe this country should grow by even higher than 7%. If we focus on human capital, on infrastructure, we can achieve more than 8% growth.” Muhammad Chatib Basri, Indonesia’s finance minister Muhammad Chatib Basri, Indonesia’s finance minister Chatib was Jakarta-born, but earned a PhD from Australia’s National University in Canberra, one of three ANU graduates on the technocratic side of the Indonesian cabinet, alongside foreign minister Marty Natalegawa and former trade and now tourism minister Mari Pangestu. His home town, he jokes, is the “direct opposite” of the planned Australian capital where he studied. “Jakarta is a city without a plan, Canberra is a plan without a city,” he says. “Initially I wasn’t thinking to become an economist,” he says. “I like more literature rather than economics. I hated economics and politics. I studied economics simply because my parents asked me to do that.” Although he now says that he hated politics, in 1998 at the time of the turmoil surrounding the late dictator, Suharto, who had spent 32 years as a strongman leader, Chatib says he led the pro-democracy demonstrations of Indonesian students studying in Canberra. He was appointed finance minister last May by SBY to replace the former boss of state-owned Bank Mandiri, Agus Martowardojo, who moved to govern the central Bank of Indonesia (BI) and who, like his predecessor governor at the BI, is widely expected to tip his hat into this presidential race as a technocratic running mate to one of the emerging candidacies. Chatib is no stranger to Djuanda, the finance ministry’s modern headquarters named after an aristocratic former prime minister. He served on the prestigious presidential economic think-tank known as KEN (the National Economy Committee), after cutting his teeth as an adviser in the wake of the 1998 collapse of the Indonesian financial system. Later, he would work alongside post-Suharto Indonesia’s most celebrated – and longest-serving – finance minister, Sri Mulyani Indrawati, a former Euromoney finance minister of the year and now a Washington-based managing director of the World Bank. Chatib was Mulyani’s close aide through much of her five years to 2010, including managing the 2008/09 spillover crisis from the sub-prime storms of the US. “I knew the territory,” he says of the finance ministry. “Half of my career I spent dealing with economic crises.” Eugene Galbraith, the American co-chief executive of Indonesia’s biggest private-sector bank, Bank Central Asia, rates Chatib’s finance portfolio as the most efficient of the ministries BCA has to deal with: “I find him very impressive, and he understands the type of environment the market needs to function efficiently.” If the academic-cum-administrator Chatib has brought corporate-style smarts to a creaking bureaucracy that’s because he’s done his time on the other side. Rare for an Indonesian state technocrat, he’s been a director of the Malaysian government-controlled regional telco Axiata and a commissioner of some big Indonesian corporations, such as auto distributor Astra International and government-owned cement producer Semen Gresik. He has also consulted for the World Bank, Asian Development Bank, OECD and various international aid agencies. Chatib’s first year in office as finance minister has not been without its dramas too. Last summer Indonesia was swept by the financial squalls that buffeted the emerging market darlings of global investment, as it has been for much of the Yudhoyono presidency. Far from becoming the extra vowel in Brazil, Russia, China and India’s roaring Bric club, Indonesia was suddenly relegated by Morgan Stanley to sit among its “fragile five”, along with Turkey, Brazil, South Africa and India – G20 developing economies that, it said, were rushing economic growth. This coincided with some of the first signs of recovery in the trans-Atlantic western economies, which induced warm money to swing out of the once-fashionable emerging markets such as Indonesia, and which hiked interest rates to defend their currencies. Looking for justification, analysts seized upon Indonesia’s current-account deficit, which had swollen to a record $10 billion by mid-year, around 4.4% of GDP. In Indonesia’s case, Morgan Stanley’s description was at odds with a widely held view of a generally rosy decade – that rambunctious Indonesia has been too conservative in stoking growth, that it could have gone faster, more in keeping with China-style expansion. Indonesia’s then central bank governor, Martowardojo, initially defended the currency, a strategy in keeping with other big developing economies now being sold off. But by August/September last year, that support policy appeared to have been abandoned. As Bank Indonesia stepped back from the market, the rupiah went into a mini free fall, slumping 15%. Several months on, it seems to have had Chatib’s desired effect, to narrow Indonesia’s current-account deficit. Encouraged by the cheaper currency, the deficit had halved by the end of 2013 and the rupiah has turned around, holding at around 11,000 to the dollar. The stock market also rallied. Chatib says his policy direction is to focus on the short term first. “We choose stabilization of our growth… so we decided to slow down the economy; it was by design.” GDP growth at the latter end of 2013, which had briefly threatened to look alarmingly anaemic, came in at a respectable 5.7% in the fourth quarter. Still, the annualized 5.78% rate for 2013 was Indonesia’s slowest in four years. Chatib explains: “Bank Indonesia raised interest rates by 175 basis points, then we adjusted the fuel price by 44% so we had policy tightening by a cycle. As a result we were able to lower the current-account deficit… to make the overall current-account deficit in 2013 to become 3.2% of GDP.” But he does not think this is enough. For sustainable growth, he says Indonesia is “aiming to achieve the current account at 2.5% of GDP by the end of 2014. Don’t expect too strong a growth this year. Because we choose stabilization of our growth, the economy may grow 5.8% to 6%, not over 6%.” Chatib is pragmatic about recent events, saying the global economy has been going through a necessary period of normalization. “We are no longer living in a world driven by quantitative easing,” he says. “For the past four years we have been living in an abnormal world.” Warming to his argument, he cites Indonesian sovereign bonds, which were yielding around 9% to 10% through 2008/09, and now returning around 8%. The rupiah, he says, was around 12,600 to the dollar in 2008 and is now trading in the 11,000-12,000 range, having traded as high as 8,400 in mid-2011. Asked if he is happy with the currency’s level today, he dodges the question by saying he is more focused on “smoothing the volatility,” while deferring to the notionally independent central bank. These policies will take Chatib through to the elections, when SBY stands down and his finance minister is expected to follow suit. Except that he might not. With the upcoming election season upon this untidy nation – there are two, the parliamentary poll in April and the more closely watched presidential election in July – Jakarta swirls with political intrigue and gossip – some of it centring on whether or not the technocratic Chatib can hold on to his job in the new government. That would be an Indonesian first. Only one Indonesia finance minister has served two presidents – Frans Seda in the transition between the Sukarno and Suharto dictatorships in the mid-1960s – but it was meaningless as Suharto had effectively overthrown Sukarno in a military coup and appointed his own cabinet, with Sukarno briefly serving as a powerless figurehead. Indeed, in the modern Indonesian era known as reformasi (reformation), when Indonesia developed a democracy, the finance ministry has become something of a revolving door. Nine ministers have served four presidents over the 16 years since Suharto was ousted, four of them during the 10-year term of SBY. Chatib is aware of the speculation about his future, but dismisses it. “I’m not a politician,” he says, reminding Euromoney that he’s not a member of any political party. But he offers a politician’s answer to Euromoney’s pressing him if he would like to remain as finance minister in the post-SBY era. “After this I would like to go on vacation with my family,” he says, smiling. “I’m a technocrat, so my job is really to ensure that whoever becomes the president and the next minister of finance, she or he, doesn’t have any problems with the fiscals. “What I am doing now is to ensure as much as possible that we focus on stabilization this year. We have taken the stern action on macro policy, on fiscal tightening to let the next administration have some room for growth. If you don’t provide this, the next administration will be in trouble.” As for the SBY era that’s now drawing to a close, he says he prefers to offer a judgement as an Indonesian instead of as a government minister. “One thing that is very new is that this is the first time that a directly elected president can fulfil two full terms,” he says. “If you are a policymaker, you really need political stability. President SBY has set the tone for political stability of the last 10 years. I think there is a lot of improvement.” The next stage for Indonesia, he says, is to “expand the supply side, improve the infrastructure”, which he agrees needs much work; Indonesia’s creaking roads, airports and ports are falling far behind its fast-developing neighbours. “Not all is perfect, I can see a lot of shortcomings, to improve infrastructure, land procurement procedure, the issue of corruption,” he says. New infrastructure is sorely needed. This is a country where no new railway line has been constructed since the end of Dutch colonial rule in 1947. Last November, the government announced plans for $35 billion in new infrastructure to ease bottlenecks, but economists said those plans don’t go far enough. “Indonesia could absorb $50 billion in infrastructure and you still wouldn’t notice much change,” says a foreign banker and infrastructure specialist. “Ten times that amount and now you are talking…” It isn’t just ground infrastructure that needs work. First Media, one of the country’s few broadband cable providers, offers consumers a subscription at claimed, but rarely reached, speeds of 100MBps for a staggering $265 a month. But internet connections are so unreliable – web forums are full of disgruntled users – that businesses are forced to subscribe to back-up providers. Many foreign e-commerce outlets refuse to deliver to Indonesia because items simply disappear, often in the sclerotic and famously corrupt customs system. With commutes for Jakarta middle-class office workers as much as seven hours a day, Chatib says the problem is an “out-of-touch political class who live in Menteng” – Jakarta’s most prestigious suburb, adjacent to the capital’s administrative quarter – “and get chauffeured to the office and helicoptered to the airport.” On corruption, Chatib says the “genuinely independent” anti-corruption agency KPK has been one of the success stories of the SBY decade. “There is no such thing as a perfect institution, but it is very important to have this institution like KPK, to set the tone, to send a signal.” That’s a hotly debatable point in Indonesia. Founded in 2002 but given more muscle when SBY came to power, KPK does not yet appear to have had a deterrent effect among Indonesians, who complain it has pulled its punches. Chronic corruption continues to plague the nation. In 2004, Indonesia was ranked 133rd of 145 nations on Transparency International’s corruption index. Ten years on, it has marginally improved its standing to 113, or “highly corrupt”. The local media carry dozens of colourful stories daily about the latest transgression of, say, a district governor and his or her well-oiled political machinery, often revolving around a local dynasty. Ex-finance minister and independent presidential candidate Rizal Ramli says post-Suharto Indonesia is little different to Russia in that it has a bunch of oligarchs monopolizing the business/politics nexus. Ramli says: “While Indonesia enjoys plaudits from the international community for being one of the largest democracies in the world, I would argue that beyond the right to vote in elections there are few other reasons to wax eloquent about our particular brand of freedom. “So while we may be categorized as an electoral democracy, there is another sobering reality that needs to be addressed: although Indonesians have the right to vote, their votes have only brought them what is best described as a ‘criminal democracy’. What this means for the average citizen is that the system is only successful at increasing the wealth of crony businessmen, executive officials and legislators.” Rare in Indonesia as a popular and trusted institution, the KPK has been hit by its own corruption scandal. Through 2009/10, its chairman, Antasari Azhar, was tried and convicted of ordering the murder of a prominent businessman who, it was claimed, was blackmailing him over Azhar’s affair with a female caddy from his golf club. When he was a state prosecutor, Azhar was notorious in Jakarta for his lax treatment of Suharto’s disgraced son, Tommy, who had earlier been found guilty of paying hitmen to kill a judge who had convicted him of graft. Last month, the KPK struck at the heart of Indonesia’s economic decision-making by citing the entire Bank Indonesia board of governors as being involved in “malfeasance” in approving the controversial state-funded bailout of the ailing Bank Century in 2008. Among those slated by the KPK are current vice-president Boediono, the BI governor, and the current head of Indonesia’s new corporate regulator, the Financial Services Authority, Muliaman Hadad. Amid the impatient clamour of today’s Indonesia, Chatib urges investors to have patience and perspective. “We cannot compare Indonesia with Malaysia, Korea and Thailand,” he says. “Because none of them changed the political system from authoritarian to democracy in one night. None of them changed from centralization to decentralization in one night. So what Indonesia has achieved has been quite remarkable.”

Emerging Europe: A free market for Georgia?

By the seasoned standards of the world’s finance ministers, Georgia’s Nodar Khaduri, aged 43 and just over a year in the slot, is a relative babe in arms.

Take Euromoney’s last five finance ministers of the year. Our 2008 winner, China’s Xi Xuren, was the oldest, at 61, while, at 51, the 2010 winner, Alexei Kudrin of Russia, was the youngest. Last year’s winner, Singapore’s Tharman Shanmugaratnam, is 56. Globally, the IMF boss, Christine Lagarde, is 57, while 54-year-old Jim Yong Kim runs the World Bank.

The average age of these recent award recipients is an experienced 58, which is arguably part of the reason they warranted our prestigious gong – their vintage suggesting they know their way around the fiscal and political block.

Age is not an issue for Khaduri. “I have a long history of public service,” he tells Euromoney during an interview in his ministerial office in Tbilisi.

But by the urgent measure of Georgia’s newly elected government, Khaduri is virtually a grandee. His prime minister, Irakli Garibashvili, is a fresh-faced 31 year old. His cabinet colleague at defence is 40 and the police minister is a stripling 28. The justice minister is 38 and the energy minister, a former star footballer-cum-businessman, is just 35. Three years younger than David Beckham, he put his boots away as national captain only two years ago. Georgia’s president, Giorgi Margvelashvili, is 44, a year older than finance minister Khaduri.

If that’s a young team, consider that Georgia’s four most recent finance ministers before Khaduri all served in their early to mid-30s. And that the country’s recently departed president, Mikheil Saakashvili, toppled Eduard Shevardnadze during Georgia’s popular 2003 Rose Revolution when he was an impatient 37, stepping down in November after serving eight years and two terms.

All this youthfulness might seem odd, given Georgians’ reputation for extreme longevity, a legend that perhaps had much to do with a famous 1970s American TV commercial for Danone yoghurt that portrayed the then Soviet republic as a bountiful fountain of youth.

But today, 22 years after the collapse of the USSR, the freshness of Georgia’s administrative ranks is mostly about careers not being contaminated by Soviet-era practices, as Khaduri is quick to point out to us.

“I graduated from university after the Soviet era and my career has also been after the Soviet era,” he says. Indeed, if Georgia’s finance minister is ideologically influenced by anything, it’s more likely to be those who inspired the Thatcher era. “I am definitely not a technocrat; that’s not my approach. I try to look for and follow logic, but it’s far from being philosophical even though I have a PhD in economics.

“We all have a legacy of Soviet times, where one institution decided where and what to sell and buy and produce, how many loaves of bread to produce, what kind, and so on.

“Our society was provided for at a basic level, everything was provided, and we see the need of people for the same basic needs to be met. But this needs to be changed – this mentality, these expectations.”



AFTER A YEAR IN OFFICE, KHADURI and his government colleagues have been characterized by some observers as neo-Thatcherite, as was the economic fashion in many states of the former Soviet orbit after it dissolved in 1991. True to type, one of the ruling centre-right Georgia Dream’s coalition members is the Industry Will Save Georgia Party, led by outspoken industrialist Gogi Topadze.

Khaduri is reluctant to sign up for any defining economic philosophy for his year-old ministry, but he notes that Milton Friedman was an adviser to Thatcher. “He was one of the more successful economists,” he says, admiringly. “I don’t agree with him on everything, but I agree with him absolutely that there should be less government intervention and involvement in business.

“We should do more to make businesses understand and feel that they are free. We are very keen to have open, free markets in our country and it’s very important that the authorities perform. It should not be artificially declared, but genuine and real.”

This would likely be music to the ears of Khaduri’s former boss and political patron, the oligarch Bidzina Ivanishvili. He is Georgia’s richest man, with a $7 billion fortune, equal to about 40% of Georgia’s GDP. Ivanishvili made his money in post-Soviet Russia in telecoms, property and banking, returning to his native Georgia to set up the Georgian Dream coalition of parties to topple Tbilisi’s darling of the west, Mikheil Saakashvili, who had been president since the 2003 revolution.

Ivanishvili’s new Georgian Dream coalition won parliamentary elections in 2012 and the billionaire became prime minister, promptly appointing former executives of his business empire and private foundation in key ministerial posts. Khaduri isn’t one of them – he spent most of the Saakashvili years as an academic and occasional consultant – but Ivanishvili did tap him to be finance minister.

For a year, Ivanishvili’s team governed in an uneasy cohabitation with Saakashvili until the presidential election last October, when constitutional term limits forced Saakashvili to vacate office. The poll was won in a landslide by Giorgi Margvelashvili, an academic who had been Ivanishvili’s education minister.

Ivanishvili spent only a year as prime minister, resigning in favour of Irakli Garibashvili, a young businessman widely regarded as the billionaire’s right-hand man and who had been an executive in Ivanishvili’s Cartu Bank and his private charitable foundation.

Since notionally resigning from power, Ivanishvili has set up the Georgian Co-Investment Fund, with $6 billion of investment from regional heavyweights including the UAE’s royally connected Abu Dhabi Group and Turkey’s Calik Holdings, whose CEO is Berat Albayrak, the son-in-law of Turkish president Recep Tayyip Erdogan.

Ivanishvili will reportedly commit $1 billion to the fund, which has raised worries among civil society campaigners in Georgia about potential political and business conflicts. Some have said that Ivanishvili, who has a reputation for philanthropy in Tbilisi, wants to effectively own Georgia. (Euromoney approached Ivanishvili and his new fund for input but neither responded.)

Khaduri dismisses such concerns, referring to Ivanishvili only as the “former leader” and as a “high-net-worth individual” who has no role in the government.

“I have not seen him since his resignation,” Khaduri claims. “And I have not talked to him on the phone either. But if there is an opportunity, I would be willing to ask for his advice.

“He has very good experience and is a very good manager. He will be monitoring the process as a member of civil society… he’s humanitarian and charitable. He has spent $3 billion on charity.”

He’s referring to an open letter Ivanishvili wrote to Georgia shortly after resigning as prime minister. In the letter, Ivanishvili says: “My business was always exemplary and transparent. My opponents made great efforts, including the foreigners, to find black spots in my business, but I have never violated law, I have never breached a contract. Moreover, I have never broken my word.”

He denies being involved in the selection of the new government. “Each member of my team was absolutely free and I never forced them [to do] anything. Every minister was very free; I respect way of discussions and I respect common sense. This is the way I work. I never control from backstage. It’s a fact that I had never expressed an intention to control them from behind the scene. I had no other interest but the progress and European development of my country.”

Khaduri knows well the details of Ivanishvili’s new fund, which he hopes will be a magnet for much-needed foreign direct investment in Georgia’s sluggish economy. “We are not a government that intends to intervene in private-sector investments. We create the environment to make Georgia attractive.”

Euromoney asks: “Are you your own man? If the president or prime minister calls and says: ‘Do this’ and you don’t agree with that policy, can you say no?”

Khaduri replies: “Of course! That’s what I do. Under the previous PM [Ivanishvili] we actually had great autonomy and we had no need to clear things with him. But we are one team, we have the same ideology, the same vision, so we wouldn’t want any friction within the team.”



KHADURI FIRST JOINED GEORGIA’S civil service in 1996, after graduating in macroeconomics from Tbilisi’s prestigious State University, a breeding ground for so many of Georgia’s post-Soviet generation of politicians.

A young economist with student ambitions of being a geologist – he has rock samples on his ministerial desk – Khaduri served through the sclerotic Shevardnadze period, rising to become deputy finance minister and manager of the ministry’s official engagement with parliament. He also kept up his links with his alma mater, lecturing in the economics faculty he had once attended.

Critics such as Gia Jandieri of the Tbilisi economic think-tank New Economic School claim his time as a senior civil servant was unremarkable, served as the country descended into corruption and lawlessness under Shevardnadze, who had returned home to Georgia after many years as the Soviet Union’s foreign minister.

“He was invisible,” says Jandieri. “When he was appointed, few Georgians had really heard of him. He had a very low profile.”

The late 1990s were turbulent times in Georgia. Graft was careering out of control, the mafia ruled the economy and Russia, as it often has in Georgian history, glowered covetously from Moscow.

Khaduri remembers it as a “tough period for the country”. The three-year civil war of the early 1990s led to years of instability. “There was a state of emergency, transport blockades, inflation peaking at 17,000%, and a collapsing economy,” he recalls.

Through 1998-2000, Georgia was battered by the knock-on effect from Russia’s economic crisis. The black market overtook the formal economy and, at one point, the state was collecting, at best, about half the revenue it was due. In 2002, the IMF suspended its funding of a Georgia that was unable to meet agreed targets. Impatient young reformers such as Saakashvili, Shevardnadze’s one-time justice minister who broke with him in 2001 over corruption in government ranks, were loudly agitating for change.

By 2003, Shevardnadze, then 75, had run out of puff. In November that year, the old Soviet warhorse and reluctant reformer presided over sham parliamentary elections that led to massive protests across the country. Led by Saakashvili and other breakaways from Shevardnadze’s ranks, such as the parliamentary speaker Nino Burjanadze and the late Zurab Zhvania, Georgians crowded into Tbilisi’s Freedom Square demanding that Shevardnadze step down. As people power gathered, Shevardnadze meekly surrendered the presidency. In the democratic presidential election that followed in February 2004, Saakashvili won 97% of the vote. Tilting strongly to the west, with Saakashvili ruling as national salesman, Georgia suddenly seemed vital and energetic, a Western darling embarking on a massive building boom around the country (the remnants of which can be seen today in Tbilisi, in vainglorious state buildings and the shells of interrupted construction.)

The ousting of Shevardnadze meant uncertain times for Khaduri, as Saakashvili’s reformers swept through ministerial ranks and the civil service. “I was newly married and we were expecting a baby,” Khaduri recalls, “and suddenly my busy schedule of working at the ministry and lecturing at the university went to just a single engagement on Saturday, teaching economics. All other days I was absolutely free.”

Under,Shevardnadze, corruption became was rampant across Georgia. Oligarchs rose and the economy fell into deeper distress. At one point, the IMF withdrew state funding. Now back in office, Khaduri begs to differ.

“I personally did not deal with any case of corruption,” “ I did not even spot anyone in such malpractice. Assumptions of every single civil servant being engaged in corruption, is far from being true.”

“People who were at high positions back in those days have high integrity and I take pleasure in keeping close friendship with them.”

Khaduri says that he kept up his monitoring of the economy after his sacking, publishing papers and reports via NGOs and international monitors, highlighting what he describes as numerous policy mistakes and missteps. For a time, he worked as a consultant with the United Nations Development Programme. He was a lecturer in economics at the Tbilisi State University until August 2012, when he accused the Saakashvili-friendly university administration of sacking him because of his affiliation with Ivanishvili’s new party.

He harshly disses the “appalling” and “authoritarian” Saakashvili administration that he and his Georgian Dream colleagues replaced last year.

“Despite the fact that they claimed to have a libertarian approach, they actually had central management. That was the major mistake they made,” he says.

He claims that various ministry services were deployed as vehicles for state shakedowns on entrepreneurs not to the government’s liking. “They didn’t only shake them down, they would bring them to the point of bankruptcy. The challenge we had was that private property rights were violated.”

This counters one of the great achievements claimed by the Saakashvili administration and its western admirers: that it reined in the mafia and eradicated the rampant official corruption of the immediate post-Soviet Gamsurkhurdia and Shevardnadze governments. Under Saakashvili, Georgia introduced an asset declaration code for senior ministers and civil servants, to help counter official corruption. Khaduri’s declaration lists a modest apartment in Tbilisi, some land in the central Georgian town of Gori, a 2008 Nissan and assorted bank accounts and cash deposits totalling around $20,000, while claiming annual income of around $30,000.

“Before Saakashvili, corruption was widespread and more people were involved,” he says. “When the reforms were carried out, lower and middle levels were eradicated or flattened out, but instead we had a pyramid of elite corruption. There was corruption and racketeering from the government.”



POLITICIANS PLAY POLITICS AND, OF course, it’s a universal sport for incoming governments to trash those they’ve replaced. But to hear Khaduri tell it the Saakashvili government were Soviets in drag, and it’s his team who are the genuine transitional reformers two decades after the end of the command Soviet economy.

“We ended up with a situation where everything was centralized and management was done at the very centre. We ended up having the same thing as Soviet times but it was packaged and labelled differently. We had a ruling party that controlled everything.”

The Saakashvili era was a boom time for a reborn Georgia. GDP growth averaged 10% through 2004-07, peaking at 12.3% in 2007. Inflation was reined in and unemployment fell steadily as Saakashvili tilted the economy strongly westward.

But in 2008, the Georgian economy was besieged by two crises, Saakashvili’s brief war with Russia over the breakaway Georgian province of South Ossetia and the trans-Atlantic banking crisis, which adversely affected remittances from the Georgian diaspora and foreign investment. Growth was checked in 2008 to just 2.3% and in 2009 it felt the full brunt of the previous year’s drama, receding by a crippling 3.8%. Through 2010/11, GDP rebounded sharply to grow by 6.3% and 7% respectively.

Statistically, Khaduri’s first year in the chair has been unremarkable. After the boom Saakashvili years, Georgia’s vital statistics have dropped off. GDP growth has struggled, the economy expanding by just 1.8% in the first half of 2013, down sharply from 6.1% growth in 2012 before Georgian Dream came to government. Analysts from the World Bank to the European Bank of Reconstruction and Development agree 2014 is looking better, with growth forecasts varying from 4% to 6%.

Eric Livny, executive director of Tblisi State University’s International School of Economics, believes Georgia is on the verge of a boom, as the infrastructure and construction sectors quicken. Khaduri says he is hoping for 6% growth next year.

Foreign direct investment will need to improve. It peaked at $2.01 billion in 2007 and averaged about $1 billion over the seven years of Saakashvili’s government. One year since Georgian Dream took power, FD has, at best, been maintained. This year, Khaduri’s first as finance minister, FDI is expected to come in at between $900 million and $1 billion, about the same as the last Saakashvili years, which were still shaky from drop-off in 2008/09 when investors were spooked by the South Ossetian conflict.

“Although reforms have been made and red tape reduced,” Khaduri says, “we cannot be proud that we yet have high FDI numbers, despite being in the top tier of the global ease-of-doing-business index.

“We are very efficient, we have the one-stop-processing-shop principle, we can incorporate a business within 15 minutes, but this is not having an impact on FDI.”

He rules out a radical privatization programme. There are no plans to sell off strategic assets, such as the railways or Georgia’s share of the critical cross-continental oil and gas pipeline connecting Asia to Europe across the country. “But we cannot own everything, we have to draw a line. We know our limitations.”

He says Georgia’s tax regime is now low and uncomplicated by world standards – and tax revenues are constitutionally restricted from exceeding 27% of GDP, with state expenditure limited to 30%. The economy, he claims, is very liberal on paper. “We will not make any artificial interventions in the market. Pay taxes, be legal and you’ll sleep well at night.”

Tax-wise, he says that the state collects 97% of declared taxation, adding, with a smirk, “that I cannot imagine a person in any country of the world who would be prepared to declare every single penny and who would be accurate in his declarations”.



eastern extremes of the Black Sea and geographically farther east from Brussels than Jeddah and Beirut, under Saakashvili Georgia became the most ardently pro-European country of the former Soviet republics, arguably more so, rhetorically at least, than even the three Baltic states – Latvia, Lithuania and Estonia – that would become members of the European Union and Nato.

Underlining its western tilt, Georgia became – and remains – the third-largest contributor of troops to the US military campaign in Afghanistan, the highest per capita of the 48 nations with a military presence there and the largest non-Nato contributor.

It wasn’t just the French-, German- and Spanish-speaking Saakashvili stamping his fervour for the west. Post-Soviet Georgia’s nod to Europe began during Shevardnadze’s presidency when, in 2001, Georgia became the G in the pan-regional Guam Organization for Democracy and Economic Development alongside Ukraine, Azerbaijan and Moldova. The Guam group’s stated aim is to deepen integration with Europe.

Saakashvili was desperate for Georgia to become an EU member state. Today, wandering around official Tbilisi through its renovated ministry buildings and parliament, one could be mistaken for being in an enthusiastic European capital. The blue EU flag is unmissable, flying proudly alongside Georgia’s red-and-white ‘five cross’ banner. Saakashvili famously appeared with the EU flag on every possible occasion, most provocatively – to the Kremlin – during the 2008 war with Russia over South Ossetia. The European flag, as once lavished by Saakashvili, “is Georgia’s flag as well, it embodies our civilization, our culture, the essence of our history and perspective, and our vision for the future. Georgia is not just a European country, but one of the most ancient European countries. Our steady course is towards European integration.”

He speaks as hundreds of thousands of people gather in protest in neighbouring Ukraine to press their government to develop closer ties to Europe. Georgians are watching the demonstrations closely, mostly to see how Russian reacts. Although nearly all Georgians speak Russian – and Russia is home to Georgia’s biggest community of expatriates – Cyrillic script is noticeably less evident than English. As, indeed, are Russian diplomats after Tbilisi severed diplomatic relations over the South Ossetia war.

A week earlier, president Margvelashvili was in Vilnius to initial an association agreement with the EU. (It was Ukraine’s failure to sign one that prompted the Kiev protests.) The previous evening, Georgians rallied outside their parliament building in Tbilisi in pro-Europe solidarity with the Kiev demonstration. A few days later, former president Mikheil Saakashvili showed up in Kiev, telling protesters: “I am Georgian, I am Ukrainian, therefore I am European. Georgia’s fate is also being decided here. We can’t remain passive observers.”

Although the post-Saakashvili administration remains as committed to a European destiny, if not as outwardly enthusiastic, some Georgians worry that Georgian Dream has a hidden agenda that will lead the country back to Moscow’s embrace. They note that Ivanishvili, the party’s oligarch financier and éminence grise, made his billions and spent most of his adult life in Russia, where he is known as Boris and is regarded as well networked in Vladimir Putin’s power circle.

Khaduri dismisses such suggestions, confirming that Georgia will complete the technical preparations agreed with the EU in Vilnius and formally sign the association agreement on schedule in September. He points out that in 2008, before the South Ossetian conflict, four out of five Georgians voted yes in a non-binding referendum to join Nato if and when formally asked, a result that infuriated Moscow.

“We went through what Kiev is experiencing already,” he says, referring to Ukraine’s power play with Russia over Europe. “The Georgian economy is less dependent on the Russian economy at present times than Ukraine. In terms of energy we are not at all dependent on Russia. Since 2006, we get our supplies of natural gas from other countries.

“We have different expectations of Europe than Ukraine, in terms of territorial integrity and security. Economically it is vital to be part of Europe.” He says Georgia is “unambigously going to Europe. Absolutely.

“Despite being on the edge of Europe and Asia, Georgians perceive themselves as being Europeans historically. We have very clear expectations. One day we will become part of a huge market.”

Schapelle Revisited..

The trials of Schapelle

There are braying reporters, dozing judiciary members, colourful lawyers and assorted hangers-on basking in the limelight and baking in the Indonesian heat. Centre stage, an Australian woman’s life is at stake..

Judgement in Denpasar
The Bali expats and intelligentsia are disgusted by Australia’s racist reaction. The other 230 million Indonesians ask, “Schapelle who?”

The Whingers of Oz

Eric Ellis on the weeping, xenophobic hysteria in Australia over the conviction of Schapelle Corby for smuggling drugs into Indonesia

SCHAPELLE Corby, the 27-year-old daughter of a fish-and-chip shop proprietress from Queensland, is not your usual Australian heroine. She is a drug smuggler, and was last month sentenced by a court in Indonesia to 20 years in prison. Back home, however, they won’t hear a word against her. According to the polls, something like 70 per cent of Australians are either members of her fan club or keenly sympathetic to her. One can understand the sympathy — 20 years does seem a bit rough — but the hysterical and uncritical adulation is bewildering, and very Old Australian..

Law of the Bling

AT 27, SCHAPELLE CORBY IS probably a bit too young for Warren Zevon but, given her present predicament, she would doubtless appreciate the American singer’s sentiments. Which are surely appropriate now that Jakarta’s most flamboyant lawyer, Hotman Paris Hutapea, has stepped into her troubled life, well practised as he is in law, guns and, particularly, in money.

When Indonesians lament their legal system is the best money can buy, possibly it is advocates such as Hotman, a 46-year-old Australian-educated Sumatran with an impressive mullet, that they have in mind

What China’s Off-the-Books Figures Mean for Australia

Last September, a small news item in China’s official media, that in less skittish economic times might have sailed through unremarked, revealed a disturbing truth about this suddenly most essential of nations – that too often its official statistics are bogus.

Portents and truths sprung from China in recent times include the New York Times’ coverage, and our own story in collaboration with the International Consortium of Investigative Journalists (ICIJ) which exposes the ill-gotten fortunes of China’s faux-communist leaders. But among the more revealing of tales for anxious economic crystal-ball gazers is this one from China’s remote southwest.

In a rare, perhaps even unwitting, moment of candour, the state news agency Xinhua described how the good burghers running Luliang county in far-flung Yunnan Province had been very naughty. And dumb too, in being caught being naughty.

Xinhua explained how China’s official National Bureau of Statistics (NBS), an institution whose quality of bookkeeping hasn’t always enjoyed the most dependable of reputations among China watchers, had discovered a “serious case” of fraud among the economic statistics filed by Luliang officials to their masters in faraway Beijing.

So far so, well, so what? Since Mao’s Great Leap Forward, provincial mendacity about how well the boondocks are doing, and how communist party edicts made in Beijing backrooms are dutifully obeyed, has long been a national sport in China.

For ambitious apparatchiks anxious to be seen singing to Beijing’s hyper-growth tune, fudging the facts is a convenient tactic for getting noticed, getting promoted, perhaps even getting richer. And distant Luliang is a long way away from China’s main action, closer to Bangkok than to Beijing, nearer to Hanoi than even to Chongqing, the booming one-time bailiwick of disgraced party pin-up, Bo Xilai.

But even by the standards of China’s notoriously elastic official numbers, Luliang’s overstatement was a doozy.

Some 28 local companies had reported what appeared to be a healthy 6.34 billion yuan increase in industrial output over 2012, a stellar performance that Luliang county officials passed on to approving higher-ups. In the first half of 2013, another 25 companies booked 2.74 billion yuan worth of work, claimed Luliang.

For ambitious apparatchiks anxious to be seen singing to Beijing’s hyper-growth tune, fudging the facts is a convenient tactic for getting noticed, getting promoted, perhaps even getting richer.

In step with many other Chinese provincial counties, Luliang seemed to be thriving. Importantly, Beijing’s economic edicts were being out-performed. China’s spinners are happy to deploy such outlier heartwarmers to illustrate that prosperity isn’t just a city or coastal phenomenon, but that the party delivers its mandate of heaven for all Chinese.

But when a more assertive NBS decided to crunch the numbers around Luliang Inc, it turned out that the real figure for 2012 output was about 56 per cent lower than the county had officially reported. In 2013, Luliang’s fudge was even more outrageous – the NBS found that just 39 per cent of the officially recorded industrial output number was the grimmer reality.

Chinese outposts are also required to report their inward investment numbers, and it turned out that Luliang had faked those as well. Local companies described how they had been “coerced” by county functionaries to inflate their numbers, because if they didn’t “their reports would be returned by local government departments”. Far better for all, it seems, to nod off a dodgy report than a correct one; better numbers mean bank loans can more easily be secured.

Glossed-up numbers, easy bank loans, spiralling debt; at about this point, places like Luliang start sounding rather like Middle America circa 2007-08, just before the sub-prime loan meltdown kicked in.

Official window-dressing has been refined to a careerist art in China. China’s long-ruling Communist Party, with its 82 million-plus membership – near equal to the population of Germany – today resembles less an ideological movement than it does a chummy chamber of commerce to be navigated to personal advantage. The mendacious mandarins of Luliang simply did what has often come easily to too many Chinese officials – they made stuff up.

Indeed, as Xinhua wrote, “the National Bureau of Statistics did not specify the reasons behind the county’s faking of data but it is a well-known fact that local government leaders are assessed for their performances based on economic data”.

And lest one believe that such fabulism was a one-off, Xinhua put readers straight: “Nice-looking data sheets mean promotion opportunities,” it noted. Xinhua didn’t elaborate on what has become of Luliang’s perfidious penpushers, but one suspects a round of enforced “re-education through labour” may loom in their immediate future.

China’s one-party system, increasingly built on upstream patronage and personalities, doesn’t help to mitigate such practices. With uncommon exceptions, it sorely lacks the self-cleansing checks and balances of a sceptical media, of genuinely independent law enforcement and regulation protected by robust regional and national parliaments and institutions. Although bodies like the modernising NBS are developing teeth and steadily being reformed, the starting point – the current benchmark of transparency – is low. Even new Premier Li Keqiang once famously warned that China’s “man-made” GDP numbers should only be read “as a guide”.

This matters because of the many groups who rely on official Chinese information and must work with what’s served up to them — economic and business analysts and decision-makers of important trading partners such as Australia whose national forecasts, budgets and futures crucially depend on a China’s sustained economic health.

Local companies described how they had been “coerced” by county functionaries to inflate their numbers, because if they didn’t “their reports would be returned by local government departments”.

Perhaps more credulously, they are also expected to accept that after barely a generation of xiahai (to ‘jump into the sea’, meaning to go into business), China Inc follows world’s best practices for ensuring the accuracy of its official data, as filed in company prospectuses, as reported to stock exchanges, and as provided to the International Monetary Fund et al.

No-one likes a party pooper, though, and China’s rubbery figures mattered less while the wider global economy was motoring along, and everyone was getting richer. But times changed and the trans-Atlantic financial crisis from 2008, and Europe’s sustained stagnation since, is seeing the end of such magnanimity. China is now a crucial driver of global growth, and important people are starting to demand better standards.

A year ago the American Congress’s influential US-China Economic and Security Review Commission published an extensive study into China’s dodgy numbers, that was hardly complimentary. “The reliability of China’s statistics is also a crucial challenge for the world economy,” it wrote. “Because China is now the world’s second-largest economy, and is suffering from economic imbalances, the debate carries more weight than in the past.”

The commission noted that Beijing’s “attempts to conceal the poor quality of air in China’s largest cities, and the subsequent loss of public confidence in the government’s credibility, illustrate the pitfalls of official mendacity.

“China remains a very open economy heavily reliant on both exports and imports,” the US government study also said. “It is also the primary destination of foreign direct investment worldwide. Countless firms, not to mention their shareholders and creditors, depend heavily on accurate statistics to make decisions.”

But Geoff Raby, a former Australian ambassador to Beijing, cautions against getting too antsy about China’s official statistics.

“More importantly, the broader trend-line analysis is in the right order of magnitude,” he says, adding that Luliang-style fudges are immaterial in the wider national analysis. “I tend not to bother with provincial data. The simple self-evidently supportable fact is that the broader Chinese economy is twice the size as it was seven years ago and is tracking to double in size every decade. That’s what really matters to economies like Australia.”

Raby is now on the board of resources billionaire Andrew Forrest’s Fortescue Group, one of Australia’s biggest exporters to China. He admits he’s been “a self-confessed China bull for 30 years – and I’ve been right to be one”. Even so, as Australia’s man in Beijing, Raby often met with the NBS and with senior economic decision makers who were inquiring after the official numbers. “Much as many outside China like to talk it down, as if there is some national confidence trick underway, the people that matter are very much aware of what is going on, and they do their checking. It’s not like these people wander around with their eyes closed.”

He says China is “several diverse economies” taken as one. “People forget that China remains in many respects a poor developing economy.” In mature sub-economies such as Shanghai, for example, growth is around three to four per cent – levels more in keeping with advanced economies – while in backward areas, growth is ticking along in double digits. “The gaps are being filled in,” Raby says.

Since 2007, around the time Raby became ambassador, China has vaulted to the top spot on the league table of Australia’s export partners. In 2012, China bought 31.6 per cent of Australia’s exports; $84.635 billion in products, and some $78 billion of that designated as ‘goods’, which really means the iron ore and coal extracted by Rio Tinto, BHP-Billiton and Fortescue, among others. In 2007, a year former Australian Treasurer Wayne Swan refers to as ‘Mining Boom Mk I’, Australia sold $23.8 billion in goods to China, which was almost a fifth more than in 2006.



In 2012 China bought $78 billion of Australia’s ‘goods’, which really means iron ore and coal.

Today, China buys three times the value of Australian exports than it did six years ago. China’s increasing importance to Australia’s economic prospects broadly mirrors the period since the global financial crisis that felled the still-stricken Atlantic economies. Swan cites his massive fiscal-stimulus package of 2008-2010 as the panacea that shielded Australia from the GFC, but it was handy to also have a similarly stimulated China – ‘Mining Boom Mk II’ – booming into the national hip pocket.

But how much longer can Australia rely on Chinese demand? In recent months, it’s become de rigueur among international economists to predict the China bust – much as it was, just a year ago, to forecast when a thrusting China would take over from the US as the world’s biggest economy. Back then, the venerable magazine The Economist even turned China’s march to the top of the global economic table into a game, and challenged the bearish American economist Michael Pettis of Peking University to bet on when it would happen.

Now the experts are lining up to portend gloom. Billionaire investor George Soros argued last week that China has taken over from Europe as “the major uncertainty facing the world today”. Today, there’s more criticism of the country’s rotten stats as pundits fret about how China’s economy is unbalanced, with way too much emphasis on asset investment; and about the resultant alarming rise in official municipal debt, now massing around $3 trillion (some $1 trillion less than Beijing’s foreign reserves); and that too much of the country’s money is secreted off-the-books in China’s ‘shadow banking sector’, or concealed by unreliable numbers.

“[China’s] growth model responsible for its rapid rise has run out of steam,” Soros wrote.

The IMF warned last October that Australia’s was the most vulnerable economy, apart from that of China’s neighbour Mongolia, to a China slowdown. Australia got another reminder of its heightened exposure when Beijing claimed slightly lower growth in GDP of 7.7 per cent in 2013, almost its slowest year since 1999, which prompted the Australian dollar to tumble.

Nouriel Roubini, the New York University economist widely credited with having predicted the 2008 meltdown, frets about asset bubbles, while the well-followed former Morgan Stanley economist Andy Xie argues that a hard landing for the Chinese economy will ultimately be healthy. And that China will eventually overtake the US, just later than most had expected, if the numbers can be believed.

Swan and Raby, two of the Australians most intimately involved in monitoring China’s economy, agree that such gloom is mostly ill-founded – a “phase pundits are going through”, as Raby puts it.

Raby says the municipal-debt drama that has China watchers fretting is ultimately sovereign debt that is “more than covered by the state’s capacity”. The emergence of the shadow banking issue simply indicates how China’s conventional – Raby says conservative – banking industry isn’t responding to market demand.

Raby admits that if China’s slowdown does turn into a hard landing, Australia will be affected, and “our living standards could face a big cut”. But his view of the China horizon doesn’t include that. China is now Australia’s leading trading partner, and that’s irreversible, Raby says; “No country will ever replace China at number one in economic importance to Australia.”

Raby adds that China’s challenge now is to nail its re-balancing between investment and domestic consumption as its economic driver and, yes, smarten up its books.

Australia’s best defence against a future, sputtering China, he says, “is to make China as dependent on us as possible”.

ASIO Took It – But Was It Timor’s or Australia’s?

Apparently in international law as in life, the most important things get hidden in plain view.

And so it was that on Tuesday in The Hague, an International Court of Justice judge from Somalia – a tiny impoverished land that in recent times has come to know a thing or two about how people get away with nicking other people’s stuff – cut to the chase in the case being heard over Australia’s raid last month on the office of East Timor’s Canberra lawyer, Bernard Collaery.

Dr Abdulqawi Ahmed Yusuf’s question was clear and simple: “To whom did the individual items listed in the ASIO property seizure record of 3 December 2013 and their content belong at the time of the seizure?”

Posed amid the rarefied climes of The Hague’s Peace Palace, at the end of two long-winded days of submissions from a barristocracy reaching for all manner of arcane international precedents to support sharply polarised arguments, Judge Yusuf’s question was refreshingly uncomplicated, and almost naïve among ‘learned friends’ who make their living spouting hundreds of words when a few would suffice.

To an Australian ear, the innocence was made all the more so by Judge Yusuf spelling out the acronym for the Australian Security Intelligence Organisation as “Ay-Ess-Eye-Oh”, a moniker by which the organisation is unknown in Australia. Surely some ICJ legal intern could’ve told him our bumbling spooks are most commonly referred to as “Ayseo”, and sometimes “Arseo”.

But Judge Yusuf’s was the right question, and the polyglot judge could’ve asked it in any of his five official languages – Somali, Arabic, Italian, French or English. Basically, he was asking whether big, rich Australia had pinched stuff that belonged to tiny, poor East Timor.

The court gave the combatants the rest of this week to answer the Somali judge.

While East Timor will doubtless reiterate that Australia did pinch its stuff, Australia provided some idea of its response before Judge Yusuf had even asked the question.

“To place classified information in the hands of a foreign state is a serious wrong to Australia ”

Australia’s Solicitor-General Justin Gleeson had already told the court that East Timor may have perpetrated a little pilfering of its own, by allegedly obtaining Australia’s classified information from a rogue former spy from the Australian Secret Intelligence Service, ASIS, who has claimed that Australia bugged East Timorese officials during 2006 negotiations over oil and gas resources in the Timor Sea.

He said this had prompted ASIO’s December 3 swoop which is at the core of the matter, a raid which Gleeson said had been authorised in a well-considered “personal decision” by Australian Attorney-General George Brandis. “We do not believe in ambush,” Gleeson said.

“To place classified information in the hands of a foreign state is a serious wrong to Australia,” Gleeson told the court. “Timor-Leste may be encouraging the commission of that crime.”

It’s believed that the material – a laptop, USB-stored files and reams of documents – seized from Collaery’s office last month, details allegations heard in court that Canberra bugged and spied on Dili during the treaty talks.

Dili wants that 2006 treaty voided because, it claims, Australia obtained advantage by espionage. It brought that grievance before The Hague’s in camera Permanent Court of Arbitration (PCA) last month, but launched this more public case before the ICJ following the ASIO raid, which occurred two days before the related PCA case was to commence.

On Monday, East Timor’s counsel told the court it was concerned Australia would improperly use the seized material in any new negotiations between the two countries. But in yesterday’s lawyerly session that contrasted to Monday’s relative courtroom bonhomie, Australia yesterday dismissed those concerns as unfounded and, indeed, offensive.

Gleeson told the court that Brandis had made a new and broader undertaking overnight to contain the seized material, vowing he would not even read them himself. The documents and data, Gleeson claimed, would not be available to anyone in government for any purpose apart from the protection of national security.

Gleeson continued by saying that East Timor’s chief advocate, the British silk Sir Elihu Lauterpacht, had impugned Brandis’s integrity and conduct with his “inflammatory” questioning of Brandis’ sincere intention to abide by this undertaking over the seized documents. Sir Elihu’s remarks were, Gleeson claimed, “frankly, offensive”.

It would also be a “quantum leap” by the court, Gleeson said, to agree with East Timor’s assertion on Monday that ASIO’s seizing of the documents was akin to an invasion of sovereign territory.

As for Sir Elihu’s Monday observation that Australia’s sovereign regard for accepted international standards in law and behaviour had deteriorated dramatically since he worked as a lawyer for Canberra in the mid-1970s, John Reid, Australia’s formal agent before the court, said that assertion was “wounding”. Brandis, he said, had given the matter his “most conscientious attention”.

The case continues in The Hague on Wednesday, when both sides submit their second and final round of oral evidence in open court.

Ghosts and Memory Sticks: Court Hears East Timor Case Against ASIO Swoop

PERHAPS it was a glow emanating from the Mandela bust outside the court, or from the bronzed Gandhi next to it, but an unexpectedly gentile civility pervaded The Hague’s baronial Peace Palace on Monday, as the United Nations’ International Court of Justice (ICJ) began hearing a case that outwardly seems anything but civil.

Courtesies were evident from the outset in the matter of the Democratic Republic of Timor-Leste versus the Commonwealth of Australia, for this is no courtroom thriller of grandstanding egos and preening beaks – at least not yet.

As extravagantly robed judges from countries as diverse as Slovakia and Somalia filed in from the winter grey of a Dutch morning to take their seats, they discovered counsel and juniors, ministers, diplomats and aides from both sides of the case warmly and genuinely embracing each other as old friends, as doubtless they are in the common recent history of the two nations.

That would be the history before December 3 last year. On that date about a dozen agents of the Australian Security Intelligence Organisation (ASIO) raided the Canberra offices of East Timor’s lawyer in Australia, Bernard Collaery – who has also journeyed to The Hague this week – and carted off a laptop computer, legal documents and a USB memory stick. Australian Attorney-General George Brandis justified the swoop on the grounds of “national security”.

<p>UN Photo/CIJ-ICJ/Frank van Beek</p>

East Timor claims the material is crucial to a separate case it has brought before another international court in The Hague, over who has rights – and in what proportions – to the billions in oil and gas under the Timor Sea, which separates East Timor and Australia.

Dili wants the seized material back and has petitioned the ICJ to rule in its favour, to stop Australia using it; Timor contends that Canberra bugged its negotiators during the talks that led to the disputed 2006 oil and gas deal, and the ASIO-seized material may include details of a witness who would testify to that. The ghosts of Mandela and Gandhi may have been about, and amidst claims of espionage, a whiff of Snowden was also evident in the room.

This opening day belonged solely to East Timor putting its case – Australia will get its chance on Tuesday. The cordial tone was set on opening when Joaquim Fonseca, Dili’s ambassador, told the court how close Australia and East Timor are, how much East Timor appreciates the role that Australia played in the country attaining its independence from Indonesia in 2002 and what immense respect East Timorese have for Australians; he said he couldn’t imagine that this case, whatever its outcome, would change these feelings. The Australian bench, rather more numerous in its representatives – and portlier too – than the opposite side, graciously nodded back.

And then entered Sir Elihu Lauterpacht, the bewigged octogenerian Queen’s Counsel leading the Timorese team. At 85, he wasn’t quite a tour de force, but his performance was nonetheless arresting, as he scythed through the Australian actions.

Head theatrically bowed in sorrow, he first explained to the serried rank of robes in sitting judgment how profoundly disappointed he was to find himself arguing in a case against Australia, a country he said he bears a particular fondness toward.

It was in Australia, Lauterpacht once told a biographer, that he had spent “probably one of the best periods of my life”, the three years of the mid-1970s when the 40-something Elihu worked in Canberra as an international law specialist.

The Whitlam government – the same government that in 1974 told Indonesia’s President Suharto that Canberra wouldn’t oppose Indonesia’s seizure of what was then Portuguese Timor – had appointed him to represent Australia in international legal fora.

With a growing reputation as an expert in international law, Lauterpacht then fronted for Australia in bodies such as the UN General Assembly and at the Law of the Sea conferences that established maritime boundaries and protocols – rather like the treaty between Dili and Canberra over regional oil and gas spoils that East Timor now wants to tear up.

Indeed, Lauterpacht was on the Australian team in the first ever case Canberra brought before the International Court of Justice in The Hague. He fought Australia’s corner in 1974, as the country’s then diplomatic David sought to stop the French nuclear-testing Goliath, not long after Whitlam met Indonesian President Suharto in Java to tell him that “East Timor was too small to be independent.”

<p>UN Photo/CIJ-ICJ/Frank van Beek</p>

UN Photo/CIJ-ICJ/Frank van Beek

Australia’s legal delegation.

Four decades on, a rueful Sir Elihu told the court on Monday that in its raid on East Timor’s legal material, Australia has “fallen so far short of the standards” expected of a law-abiding nation that “it defies understanding”.

Sir Eli described the raid as “undoubtedly a violation of the national security of Timor-Leste”, and also argued that ASIO’s seizure of the documents was akin to an invasion of sovereign territory.

“What’s required is a clear, firm and severe condemnation of what Australia has done,” he said. The raid, he said, doesn’t just violate long-established diplomatic norms and international law but possibly Australian laws as well.

These documents, he said, are of the “utmost sensitivity” in informing a matter “crucial to the future of Timor-Leste as a state and to the welfare of its people”.

The matter continues Tuesday.

Morocco: Attijariwafa stakes claims south of the Sahara

It’s a steamy mid-September and l’atmosphere in downtown Casablanca could well be mistaken for a languid late summer in Marseilles.

In myriad chic eateries, Fashionable Young Things in oversized Jackie O sunglasses tap instant messages to each other into new iPhones over café au lait, while their male equivalents motor by in late-model Mercs and SUVs.

It’s a similar scene in the city’s southwestern beach suburbs at Africa’s biggest shopping centre, a complex that could have been transplanted from Singapore.

With its array of aspirational brands, the Morocco Mall has in the two years since its opening quickly become the weekend playground of Morocco’s expanding middle class.

And after Morocco’s weathering of both the European economic meltdown and the worst of the Arab Spring that has coursed through its Islamic fraternity, ‘Casa’ seems rather pleased with itself these days.

Although wounded by Europe’s protracted crisis – as many as 4 million Moroccans live in – and send remittances from – the continent – and so far dodging the sclerosis that came with the Arab Spring revolutions elsewhere in the region, the economy here has proved resilient. GDP grew 3.2% last year.

The biggest port and city in the Maghreb, and its commercial capital too, Casablanca has always been regarded as cosmopolitan, a city as much a draw for northern-bound Africans on the make as it is profoundly Moroccan with a distinct European vestige.

The lingua franca here is somewhere between the local Arabic-Berber tongues and the French of Morocco’s colonial masters, who provided Morocco with the basis of its financial and banking systems.

It all combines in a rising cultural and economic profile that suits just fine one Ismail Douiri, the polished chief executive of Morocco’s royal family-owned Bank Attijariwafa, as he pushes beyond the bank’s comfort zone at home into the challenging markets of sub-Saharan Africa.

In less than a decade, Attijariwafa – a product of a 2004 merger of Banque Commerciale du Maroc and Wafabank – has spent more than €400 million to establish a portfolio across 10 mostly francophone African nations.

But the big leap forward came in 2008, after taking out various French interests on the continent, notably Crédit Agricole’s west African network.

The deal-making Douiri now reaches as far south as Crédit du Congo in Brazzaville and east to Attijari Bank in Tunisia, and several leading local banks in between: Compagnie Bancaire de l’Afrique Occidentale of Senegal, Côte d’Ivoire’s Société Ivoirienne de Banque, Cameroon’s Société Commerciale de Banque, Mali’s Banque Internationale and Gabon’s Union Bank.

There are also Attijariwafa operations in Mauritania, Burkina Faso and Guinea-Bissau. It’s a reach that complements both Attijariwafa’s strong domestic franchise in Morocco, where it edges the government-owned Banque Populaire for cross-sector market leadership, and an existing pan-European network that serves the remittances of the Moroccan diaspora, one of Europe’s largest.

Indeed, Attijariwafa likes to say it now boasts Africa’s second-biggest banking network outside the continental superpower South Africa. “It’s a good portfolio,” says EFG Hermes analyst Elena Sanchez. “None of them are small players in their respective markets.”

Douiri explains: “We had a maturing market in Morocco, excess capital and a lot of skills. And we had a will from the board to continue investment. We have a team of 200 people who were involved with consultants and investment banks during the merger that created Attijariwafa bank, so we have been perfectly placed to conduct and transform acquisitions.” Douiri himself is ex-McKinsey.

“We were already a large player in a concentrated market that was going to grow only by economy-plus-inflation,” he adds.

For Attijariwafa, that meant a near-guaranteed 7% annual growth, “which is OK compared to developed countries, but it was not enough for our shareholders and for the market.”

Although only 43, US- and French-educated Douiri has totted up almost a decade at Attijariwafa, now as the operational chief executive answering to the bank’s executive chairman, Mohammed El-Khattani.

Douiri is cementing Attijariwafa in Africa just as the continent is beginning to mature as a legitimate investment destination.

Emerging market strategist Samir Gadio of South Africa’s Standard Bank – the continent’s biggest bank – says the expansion has been impressive. “Attijariwafa would now have one of the top-five networks in Africa,” Gadio, an Ivorian, says.

Attijariwafa puts its Africa-wise branch network at more than 3,040, up from 2,882 in 2012, which Douiri says is Africa’s first or second largest outside South African banking.

Attijariwafa’s expansion into Africa also comes as profits have weakened slightly in the bank’s domestic Moroccan stronghold.

In September, it reported first-half net profits of Dh2.2 billion ($256 million), 4.8% down. Return on equity, which had regularly been pegged at 18% and better, was measured at 16.1%.

Sub-Saharan Africa is not ordinarily the natural commercial habitat of Corporate Morocco in a continent that tends to be grouped by geographic axes.

But to Douiri and Attijariwafa’s main shareholder, the Moroccan royal family’s holding company Société Nationale d’Investissement, it makes sense from a cultural, linguistic and even religious point of view, not to mention to trade into the long-overdue New Emerging Africa story now catching on in financial markets.

Still, Attijariwafa’s thrust into Africa has not been without its tricky moments.

In Côte d’Ivoire, its 51%-owned subsidiary Société Ivoirienne de Banque was forced to close in early 2011 in the aftermath of a disputed presidential election that descended into civil war. Some 3,000 Ivorians were killed and many businesses were closed, virtually collapsing the economy.

That conflict ended a few months later with the forced ousting by French and UN troops of president Laurent Gbagbo, whose government owned the other half of the Attijariwafa unit. With a new government installed, a tentative peace has been restored and the Attijariwafa operation is back in operation and opening new branches.

Mali, one of the world’s poorest countries, has also been a challenge. Attijariwafa beat 19 bidders to pay $93 million for a 51% stake in Banque Internationale Mali in 2008 in what was then Bamako’s largest privatization deal.

Then, last year, Islamist rebels took control of northern Mali, prompting a military coup and intervention by French troops. Branches in Timbuktu and Gao were closed, but Douiri insists the investment is a core holding.

In Tunisia, Attijariwafa reluctantly found itself in the midst of the Arab Spring that would sweep through the region. In 2005, it had partnered with Spain’s Grupo Santander to take control of Tunisia’s Banque du Sud and set about restoring the bank.

Another important shareholder was Mohamed Sakher El Materi, the son-in-law of then long-time dictator President Zine el-Abidine Ben Ali.

Then one of Tunisia’s richest men, El Materi was notorious in Tunis for his lavish lifestyle and the caged tiger, known as Pasha, that he kept at his villa, which came to symbolize the excesses of the Ben Ali regime.

Come the revolution, El Materi fled to the Seychelles as the new authorities picked through his assets. The authorities were worried about capital flight and investigated foreign collaboration in transactions with the Ben Alis. Douiri admits that Attijariwafa bank had loaned money to family members, but he insists only for “legitimate businesses with clients and real activities”.

Sakher El Materi was notorious but Attijariwafa has been left ‘unscathed’ from its association with Tunisia’s ancien regime, says Douiri.

The Tunisian central bank sent a team to check the books and ultimately issued Attijariwafa with a clean bill of health. “We didn’t compromise with the big issues. All post-revolutionary suspicions of corruption proved wrong; everything was legal and above board,” says Douiri.

Despite the association with the Ben Ali’s regime, Douiri says: “I consider we went through this revolution unscathed.” As for El Materi, now being sought by the Tunisian authorities for extradition as well as the return of his ill-gotten fortune, Douiri observes that “his personal situation is probably very difficult for him”.

Morocco too has had its moments. The political tremors emanating from Tunisia and Egypt through 2011/12 were also felt there, when thousands of Moroccans spilled onto the streets in protest.

Douiri says he “felt uncomfortable” in the face of these demonstrations, and was worried in early 2011 as political tension built and there were “two or three weeks of incredible silence from the authorities”.

“Things ground to a halt as everybody watched and waited. New consumer loan disbursements stopped and people postponed payment of their installments, but eveything went back to normal after the King’s speech on March 9, 2011,” he says.

As King Mohammed VI moved to defuse tensions with unprecedented political reforms and pledges to limit his involvement in business, Douiri notes that although Attijariwafa is owned by the king’s investment company, Société Nationale d’Investissement, its branches were not targeted by anti-royal protesters.

“We had a few broken windows and Wafacash suffered some isolated looting, but none of it was directed symbolically at the royals.”

But it has been Algeria, the biggest Maghrebi economy, that has proved most vexatious for Attijariwafa and Corporate Morocco generally. “Culturally it’s exactly the same as Morocco,” enthuses Douiri.

Attijariwafa has had a banking licence application before the central Banque d’Algérie since 2005, but it has gone nowhere, as Morocco and Algeria spar politically over the disputed Western Sahara region.

While Morocco has bilateral relations across the continent, Rabat is not a member of the African Union, leaving after its predecessor movement, the Organization of African Unity, failed to recognize Moroccan sovereignty over Western Sahara.

“We’ve been told time and again our application is very good, that nothing more needs to be done,” Douiri says. Since then, a frustrated Douiri has seen non-Moroccan banks, such as France’s BNP Paribas, get the footholds in Algeria that he had expected for his own bank.

He puts the snub down to politics and, years on, the opportunity has dimmed and Algeria scores lower than it once did on his acquisition metrics. “Had we started at the same time [as Paribas] we would have done better. It’s a little bit irrational.”

He acknowledges that Africa can be prone to volatility and economic nationalism, sometimes related to corruption, but he says that rarely impinges when it comes to “the rational interests of the market.”

Douiri doesn’t regard his bank’s presence across Europe as part of its internationalization but rather an extension of its domestic Moroccan market. That’s mainly because these outpost branches, which Attijariwafa has mostly gathered under its wholly owned French bank, Attijariwafa Bank Europe, cater to expatriate workers and emigrants for remittances to support families back home.

Of the almost 5 million Moroccans living outside Morocco, around three-quarters are gathered in France, Spain, Belgium, the Netherlands, the UK and Italy. Remittance banking is one of the few sectors of Moroccan banking that Attijariwafa does not lead; that position is held by the government-owned Banque Populaire du Maroc, which often had branches inside Moroccan diplomatic missions (a positioning advantage for BPM that Douiri says he has lobbied its owners in the capital Rabat long and vigorously against).

“What we did instead is to open branches in front of consulates,” he says, with some satisfaction, “so that Moroccans could see our branch before they went in.”

BPM’s one-time 70% market share in remittance banking, measured by Morocco’s central Banque Al-Maghreb at between $6 billion and $7 billion annually, has fallen to under 50%, says Douiri.

Attijariwafa claims around a quarter of the remittance market via its 60 European branches, adding that 22% of the bank’s deposits are held by overseas Moroccans.

Indeed, it was partly the regulatory rigours that came by connecting its European presence to Morocco that has prompted Douiri and colleagues to push Attijariwafa to open a sub-Saharan frontier.

As Douiri explains, the 2008 Icelandic banking debacle, which snared foreign depositors from the Kent County Council to more than 100,000 average Dutch households in what proved an unsustainably high-interest grip, led to tighter pan-European control over transfers and remittances across the continent.

In operating a fully French bank, albeit one largely patronized by expatriate Moroccans, Attijariwafa faced extra costs from what Douiri now describes as “over-protecting”savings.

“It’s much more costly to operate like that than we used to do,” he says. Douiri says he supports appropriate regulation, but “we had to find additional revenue because of all those cost pressures you had as a bank in Europe. Now we are generating additional revenue by being a retail bank of the migrants.”

It is a model that he says is progressively being rolled out to feed into markets in Attijariwafa’s expanding African portfolio. The aim is to change Attijariwafa’s brand profile from -specific to incorporate and engage a new catchment market between Europe and new acquisitions in Tunisia, Mali, Congo and beyond.

“No bank in Tunis has been doing this efficiently,” he claims. “Even the French banks, well established in Morocco, have never been able to grab a good share of the migrants.”

He attributes this to “cultural discomfort” on the part of the French. “In our case we go to the mosque on Friday, we go visit the family when there is a death. There is a real sense of community.

“It’s additional synergies and mainstream business for the domestic operation, that channels into the mortgage market and so on – migrants buying second houses for vacation or their retirement. Immigrant banking is mainstream to the business of retail banking in Morocco.”

Getting the politics right is crucial in volatile Africa and part of Douiri’s due diligence was to assess the diplomatic relationship between Morocco and the target nation, and how close, for example, were the ties between government agencies, such as central banks and regulators.

Eventual EU-style regional integration is also hoped for. “The end result is that we are only in French- or Arabic-speaking countries,” he says. That doesn’t preclude expansion in other markets – Attijariwafa has been looking at anglophone Nigeria.

“Can we overlook Nigeria, with its 450 million people?” he asks. “It’s something we are looking at.”

Attijariwafa has also run a measure over a few Egyptian banks, notably Paribas’ offshoot there – although it’s not in the immediate timeline. “The aim is to be in the top three in each market, with full control over the affiliate, though that is not yet achieved everywhere,” he says.

“We need to capture economies of scale,” he says. “Each one of these markets is too small to support the fixed cost of a modern banking system.”

Right now, Attijariwafa is focused on introducing new services and products into its rebranded network. In Tunisia, it’s investing in corporate and institutional banking, advisory and risk management, while in Senegal it has rolled out a modern consumer credit operation based on its domestic Moroccan model.

In Côte d’Ivoire, it is extending a rapid cash-to-cash transfer system based on its Wafacash operation in Morocco, where it has 1,100 branches. Douiri notes that 53% of Moroccans have a bank account, while in its new African markets the figure is between 5% and 10%. “Everywhere else it’s a catch-up story. The size of the banking system will grow more than the economy.”

EFG Hermes’ Sanchez notes that in building its African portfolio Attijariwafa “hasn’t overpaid”, despite being quite aggressive in targeting acquisitions. She also likes the fact that though each of its acquisitions are among sector leaders in their respective national markets, none of them is big enough to unbalance the parent if things turn awry.

She notes that the biggest operation, in Senegal, comprises less than 3% of Attijariwafa’s overall asset base. “It’s not a big hit at the group level,” she says.

As Africa emerges and Morocco continues to reform, Sanchez believes Attijariwafa presents an attractive partnership opportunity for a big foreign bank light on African presence. Foreign partners are nothing new to Attijariwafa.

Santander owns 5.5% of the bank, after selling down from a 14.5% position in 2008 to confront the then emerging crisis in Europe. At various times, Italy’s UniCredit, Spain’s Caja Madrid and France’s Crédit Agricole boasted stakes in Attijariwafa.

Those interests have since been absorbed by the market as well as the king’s investment house, SNI. It owns 47% of Attijariwafa after it bought out the European minorities to support the bank.

As Europe smouldered, SNI and Attijariwafa were worried about an overhang in the market and SNI stood up as a buyer. Now SNI is regarded as a seller, expressing an interest in a more passive role at the bank, and its other holdings in Morocco – a recent example is Singapore’s Wilmar Group buying into SNI-owned sugar monopoly Cosumar.

Douiri says that SNI’s 47% stake in Attijariwafa “is not the natural long-term holding”.

EFG Hermes’ Sanchez agrees. “There’s a lot of scope here for a foreign player, so long as they bring something to the table,” she says.

In Singapore’s Shadows

From the late 1960s until last Sunday night, the closest Singapore has ever come to a race riot was in June this year when McDonald’s offered locals a Hello Kitty soft toy in blackface, with an order of burger and fries.

Bad idea.

The inner Singaporean was uncorked. Chaos reigned under the Golden Arches across this uptight island usually so obsessed with its international image. Spoilt kids screamed at parents, who sharpened elbows and boots, and jumped queues for tickets that got faster access to the Kitty litter. This being Singapore, a roaring secondary scalpers’ market emerged online for both tickets and Kittys. It’s perhaps instructive to note that the World Bank ranks Singaporeans as the globe’s third-wealthiest people, after Qatar and Luxembourg.

Images of The Ugly Singaporean, and there were many, were inevitably captured on phones, and quickly despatched to YouTube posterity: One grumpy dad railed at no-one in particular when a compatriot reached Hello Kitty utopia before he did. “Is this a human being?” he raged. “Is he a Singaporean? Is he educated? Does he deserve a ticket?”

McDonald’s should’ve known better, because it was involved in the previous pseudo-riot experienced by Singapore in 2000, also involving Hello Kitty. The Japanese-owned feline phenomenon was this time allured with wedding clobber. Stores were swamped and their plate-glass windows smashed, as were faces, by parental fists flailing in millennial mayhem.

Perhaps McDonald’s and Sanrio, Hello Kitty’s corporate owner, should consider rolling out a Mandela version of the cat, to get the global love flowing.

Not that there’s much chance of that happening in Singapore. Local strongman Lee Kuan Yew was among the many mourners lavishing treacle on Mandela’s legacy after Madiba’s recent death, doubtless not reflecting on the fact that Lee was responsible for the plight of Chia Thye Poh, a dissident who has been dubbed Asia’s Mandela. Chia was a political rival of Lee’s in the 1960s. Fingered by Lee as a communist, Chia was stripped of his citizenship and detained, without trial, by Lee’s government for 32 years – five years longer than Mandela endured.

There was little of Mandela’s famed forgiveness in evidence on Singapore’s Racecourse Road during last Sunday night’s very real riot, when workers from the subcontinent went on a rampage after one of their number was struck by a bus and died.

Earlier that day, the Lee family fief, the People’s Action Party (PAP), had been holding its annual convention, marking 54 years of uninterrupted power. The PAP passed an eight-point mission statement for Singaporeans. One of its points: the PAP would foster a Singaporean identity that allows different races, religions and backgrounds to “live harmoniously together, embrace one another as fellow citizens and work together for a better Singapore”.

The PAP passed its plan on Sunday, which happens to be the one day of the week that the million-odd low-wage foreign workers in Singapore – people such as 33-year-old Indian labourer Sakthivel Kumaravelu, who make up about 20 per cent of the island nation’s population – have as time off.

A few hours after the state-controlled Straits Times made public the PAP edicts, Singapore’s Little India was aflame; Sakthivel Kumaravelu had been killed while enjoying his holiday with friends, struck by a bus driven by a Singaporean.

The national Kumbaya moment hadn’t lasted long. Singapore’s police force describes what happened next. “A riot broke out involving a crowd of about 400 subjects where the subjects damaged several vehicles including 16 police vehicles. About 300 Police Officers, including those from the Special Operations Command and the Gurkha Contingent, responded to the scene. The accident victim, a 33-year-old Indian national, succumbed to his injuries and was pronounced dead at scene…. 22 Police Officers and 5 Auxilliary [sic] Police Officers have sought treatment at the hospital. The officers sustained injuries and lacerations. The driver of the private bus, a 55-year-old Singaporean, was conveyed conscious to the hospital. 27 subjects, aged 23 to 45, have been arrested in connection with the rioting incident. Out of the 27 subjects, 24 are Indian nationals, two are Bangladeshi nationals and one is a Singaporean Permanent Resident.”

Kumaravelu’s tragic demise wasn’t exactly mourned by Singaporeans. Indeed, his passing seemed almost a footnote to the story. It took a fair amount of digging into local news reports to determine what, in fact, had prompted the riot, the thrust of the attention being more on the rioters. On Singapore’s Channel News Asia, which likes to think of itself as Asia’s CNN, the anchor mentioned his death only in passing.

The riot set off the island’s barely concealed racial torchpaper, most conspicuously in the online comments section of the quasi-official Straits Times. “Cane these hooligans and let them rot in jail”, posted one reader. Posted another; “a lot of Indian and Bangla foreign workers arrested. Good … hang them all. The rest who watched and did nothing, send to Saudi Arabia as slaves … Problem solved!”

Noted yet another: “foreign trash are working over time … pappy [Singapore slang for the ruling PAP] ask us to be what, inclusive and more tolerant? Think these 2 words should stuff up into the spokesperson’s body where the sun don’t shine. That what you get when ICA [Singapore immigration] approve the work permits like toilet papers, in rolls. They allow the companies to employed CHEAP foreigners, so this is what you get.”



A police car flipped on it side and set on fire by rioters in Singapore’s Little India district.

When other posters pleaded for calm and rational discussion, they were swiftly condemned by the baying online mob. “Oh, I should be more caring, so one wrong word and they riot????? So why don’t you spend your time going down there now to comfort these trash or start a campaign IN PERSON to champion for these trash?”

For Singaporeans, race is a discussion that’s ordinarily out of bounds, a forbidden topic lying beyond what are commonly known as ‘OB markers’. The term derives from golf, a passion of the Singaporean elite – the so-called “cosmopolitan” regime insiders who lord it over less-advantaged heartlanders. The vast bulk of the Singaporean population, heartlanders have been agitated in recent years by the arrival in significant numbers of armies of foreign workers, people like the late Sakthivel Kumaravelu, to cheaply do the jobs most Singaporeans won’t.

OB markers aren’t so much formally codified by the state – though the former editor of the Straits Times once had a go, after his retirement. Rather, they have become understood by self-censoring Singaporeans, the boundaries usually determined after someone strays across a line and gets whacked back into suffocation by the PAP government – typically by public admonishment, the threat of punishment and, on occasion, lawsuits and detention.

For many Singaporeans, baiting foreigners is fair game, until someone important says it’s not. The anonymous trash-talking in social media about unfortunates, such as Sakthivel Kumaravelu allows Singaporeans to air irrational, even pent-up, racial grievances and still appear to stay inside OB markers.

OB markers mostly seem to surface around election time. What would pass for reasonable political debate in most countries tends in Singapore to be curtailed by OB markers; criticising the ruling party and the wealthy Lee regime is a good way to cop a crippling libel suit. Corruption and state wastage is another OB marker, as is discussion of the huge salaries politicians pay themselves, and the business activities of the ruling Lee family too. In recent years, examination of the nationally public business activities of the state sovereign fund Temasek Holdings, (run by Prime Minister Lee Hsien Loong’s wife Ho Ching), has become out of bounds.

OB markers also extend to foreign media. In reporting the story of Sunday’s riot, Forbes Magazine, which publishes Lee Kuan Yew as a contributor, was quick to point out that the weekend’s disturbances didn’t represent a race riot. Forbes is published in Singapore.

Race and its close relation, religion, are societal dynamite in Singapore, and in neighbouring Malaysia, which the island was once part of. The race riots of 1964 and 1969, in which mostly Buddhist Chinese and Muslim Malays attacked and killed each other – the ugliness held out by authorities as a dystopia no-one wants – strongly define the social character of modern Singapore.

But resentments simmer. Immigration over generations has made the indigenous Malay Muslim community a minority on their own soil — they now form only 12 to 13 per cent of the population and are the least economically advantaged of Singapore’s communities. Around 10 per cent of Singaporeans are of Indian, mostly Tamil, descent. The island’s authority and wealth lie overwhelmingly with the majority 74 per cent ethnic Chinese majority.

These racial ratios are rarely replicated in the strata of society. Malays are over-represented in the lower levels of the civil service and under-represented in government, business and the military, while Indians tend toward the professions and family businesses. Ethnic Chinese, led by the Lees, are the first among equals dictating the national political and corporate agenda, while nodding to an often-laboured national inclusiveness as Singaporeans.

Rising wealth and the recent construction boom has seen an influx of foreign workers onto the glistening island. They are well-visible being moved from building site to building site, rather like cattle, unsecured in the backs of trucks. Hailing from the impoverished backblocks of Bangladesh, Burma, Nepal and India, many of these people do dirty and dangerous jobs in construction and manufacturing. They muck out drains and public toilets, and keep Singapore’s public spaces famously immaculate. Women from Indonesia, the Philippines and Sri Lanka clean homes, hotels and offices for wages they are a fraction of what Singaporeans receive. Singapore doesn’t have an official minimum wage. The presence of cheap foreign labour in local households liberates Singaporeans from tiresome domestic chores, free to work and become even wealthier.

No matter that the average Singaporean wouldn’t even faintly countenance doing such work, the presence in numbers of unskilled foreign labour in Singapore sets off urban grumbles about jobs, cultural erosion and crime. The xenophobia hasn’t quite descended to the extremes of foreigners being blamed for freeway gridlock, as happened in Australia during the recent election campaign, but if Singapore’s flaming internet forums are any guide, that’s not far off.

The hate being spewed online prompted PM Lee to respond. Describing the rioters as an ‘unruly mob’, he urged Singaporeans to show restraint. “We must not let this bad incident tarnish our views of foreigner workers here,” said a post on his official Facebook page. “Nor should we condone hateful or xenophobic comments, especially online.” In Sunday night’s aftermath, as the government charged 24 Indian workers for rioting and banned alcohol sales in Little India next weekend, it said it found no evidence that foreign workers in Singapore were unhappy with their employers or the authorities.

The Singaporean charity, Transient Workers Count Too, says there are about a million low-wage migrant workers in Singapore, a good few of them off the books. Official Singapore-government statistics show that there are almost 1.3 million foreign workers servicing the Singapore boom, compared to 3.3 million Singapore citizens.

Transient Workers Count Too is a small but passionate voice trying to cut through a controlling Singaporean regime traditionally suspicious of NGO’S. “Migrant workers contribute immensely to Singapore society and our economy,” they say, “yet they often suffer unconscionable exploitation.”

It describes migrants’ working conditions, which Singaporeans wouldn’t tolerate. They include long shifts with few breaks, dismal accommodation and missed paydays.

But what’s not evident in official statistics or ministerial rhetoric is the grief many foreign workers have suffered working in Singapore, a supposed employment El Dorado where instead they can find themselves vilified and dehumanised by hosts who are deaf to their reasonable concerns. There are the upfront loan repayments to sponsors and employment-agency sharks back home, the intimidation and harassment of their families for money, the pent-up frustrations of the culturally displaced poor, some of whom hail from democracies where striking and public protest are lawful and commonplace, and who don’t quite get the notion of OB markers.

It all amounts to indentured labour, and sure, such matters can fall outside Singapore’s official control – that is, if the country much cared beyond its perennial need to meet a construction deadline.

The Brothers’ Grip

Meet Sumanadasa Abeygunawardena. He’s every saver’s dream come true – a bank director who can predict the future.

Abeygunawardena is the ‘working director’ of one of Sri Lanka’s biggest banks, the state-owned National Savings Bank (NSB) – that is, when he’s not being a celebrity soothsayer.

Abeygunawardena’s main claim to fame in Sri Lanka is as an astrologer. With his columns in government-friendly newspapers, a regular star-gazing spot on national television and a lucrative personal horoscope service delivered via SMS with the state telco, he’s one of the country’s most visible faces.

“World renowned” Abeygunawardena had no formal experience in banking before his “close family friend” Sri Lanka’s President Mahinda Rajapaksa – who is also Finance Minister – tapped him for the NSB board in 2007.

That was the year before the world’s financial system melted down, when a judicious bit of fortune-telling could have come in handy, for bankers and investors alike. Unfortunately, Abeygunawardena’s astrological skills didn’t seem to do NSB much good that year – profits fell by 32 per cent as times got very tough for bankers everywhere.

But what perspicacious predictions this seer has made elsewhere.

Myanmar’s Little Helper

Revolutions have a way of revealing inconvenient truths; the dictator is toppled, his cronies flee in haste while they can, and in the ransacked files of the regime’s abandoned palaces, the dark secrets of tyrants – and the hypocrisy of their embarrassed enablers, too – are revealed.

But sometimes revolutions are bloodless, the transitions managed. Triumphant revolutionaries who might have ravaged ministries are kept at bay, sparing tyranny’s enablers their blushes. The sleazy deals and the signatures of those who made them are kept private, to prosper another day.

In Singapore, which has for years been the Myanmar military junta’s little helper, the sighs of relief are almost audible.

Aung San Suu Kyi may have contemplated some of this during the past week, as she made her way among Singapore’s political and business leaders while on her first visit to the gleaming little city-state.

Her hosts were the same Singapore leadership that had helped one of the world’s most brutal military regime’s subdue Suu Kyi and her opposition National League for Democracy for years. Singapore sold the long-ruling junta many of the tools of repression that made Myanmar an international pariah until, in November 2010, it released Suu Kyi from 15 years of house arrest and embarked on a painstaking process of democratic reform.

Her hosts were also the same Singapore leadership that has long cracked down on any suggestion of political protest by Myanmar expatriates in Singapore itself, even expelling such protestors when they got too uppity for local taste. As Singapore has seen it, a lucrative business relationship with a military regime is not enhanced by providing a forum for its opponents.

Singapore has been Myanmar’s most valuable international ally during the decades Yangon (Rangoon) spent under international sanctions. In Myanmar, the stamp of Singapore is everywhere; stay in a smart Myanmar hotel, for example, and the management was inevitably Singaporean, as was the bank that processes your credit card when you check out.

<p>Suhaimi Abdullah/Getty Images</p>

Suhaimi Abdullah/Getty Images

Aung San Suu Kyi meets with Singapore Prime Minister Lee Hsien Loong in Singapore on September 23.

Singapore provides essential structural support to the Myanmar economy, which effectively functions as a branch office of Singapore’s financial system by enabling bank transfers and clearing transactions that international trade sanctions prevented Myanmar from directly undertaking.

Just three hours’ flight from Yangon, Singapore’s world-class hospitals keep Myanmar’s brass and their families healthy. Its private banks asked no questions as Singapore securely invested the ill-gotten fortunes of generals and their drug-dealing cronies. And the country’s private schools educated the advantaged children of Myanmar’s leaders, who parked their families there to function as Singapore-based proxies, so they could get around official business blockages that restricted people from operating out of Myanmar itself.

It’s been an everyone’s-a-winner relationship. Stridently arguing against the imposition of economic sanctions on Myanmar, tiny Singapore was able to extend its diplomatic influence in its backyard while making billions for its domestic economy by providing a comfortable bolthole for the junta if ever things got tricky for its members back home.

If any of this was on Suu Kyi’s mind in her five days in Singapore this week, she kept a diplomatic, even pragmatic silence. As close as she got to criticism was to remark that she thought Singapore “could learn from us, a more relaxed way of life, perhaps warmer and closer relationships. I want to learn a lot from the standards that Singapore has been able to achieve but I wonder whether we want something more for our country.”

As Suu Kyi toured Singapore, even taking in the Formula One Grand Prix, its political leaders – mostly untrammelled by genuine democracy in the 50 years their monolithic People’s Action Party have been in power in the city-state – clamoured to be photographed, beaming, with a dissident-democrat they had struggled to even acknowledge existed until recently.

Prime Minister Lee Hsien Loong even declared that Suu Kyi would be a “capable” president if she got elected in 2015, and that naturally Singapore would be there to help Myanmar economically if asked.

Singapore “helped” Myanmar economically after the junta cracked down on Suu Kyi’s democrats in 1988, when the generals ignored her election victory and would massacre more than 1,000 of her supporters when they rose in an ultimately failed rebellion. Government-owned Singaporean companies directly provided the junta with crucial surveillance equipment and weaponry, and acted as a middleman channelling such equipment from arms-length third parties. Singapore has also enabled a notorious Myanmar drug baron, Lo Hsing Han and his family, to prosper, showing extreme hypocrisy doing so, given Singapore’s take-no-prisoners approach to drugs.

<p>ROSLAN RAHMAN/AFP/Getty Images</p>


Campaigners opposite the entrance to the Myanmar embassy in Singapore in 2007, protesting against a bloody crackdown on dissent in Myanmar.

Much of this activity has been documented by the Australian academic Andrew Selth, now of Brisbane-based Griffith University’s Asia Institute.

Selth is a former staffer of Australia’s Office of National Assessments, the intelligence-gathering agency that is part of the Prime Minister’s Department in Canberra. Once a diplomat posted to Yangon, he has long written about Myanmar for leading international journals under the pseudonym of William Ashton, and is regarded as a leading international authority on Myanmar’s military, known as the Tatmadaw.

“Having developed one of the region’s most advanced armed forces and defence industrial support bases, Singapore is in a good position to offer Burma a number of inducements which other ASEAN countries would find hard to match,” Selth/Ashton has written in the prestigious Jane’s Intelligence Review. “It is highly unlikely that any of these shipments to Burma could have been made without the knowledge and support of the Singapore Government. By assisting with weapons sales, defense technology transfers, military training and intelligence cooperation, Singapore has been able to win a sympathetic hearing at the very heart of Burma’s official councils.”

Former Singapore diplomat Matthew Sim would seem to agree. As his country was extending its controversial corporate relationship with the Myanmar regime through the 1990’s, he wrote Myanmar On My Mind, a guide for Singaporeans doing deals there.

Of the many books written to help businesspeople successfully chart the supposed mysteries of corporate Asia, Sim’s tome may well rank as one of the more remarkable – and perhaps most revealing of Singaporean attitudes to its struggling neighbour – of the genre.

Published in 2001 by a Singapore government-linked media house, Myanmar On My Mind was written by diplomat Sim after he’d spent time posted in Yangon, where he managed his nation’s burgeoning trade relationship with the generals. Today, he’s a business lecturer at Singapore’s Temasek Polytechnic and consultant to some of Singapore Inc’s leading government-owned companies.

No matter that Myanmar’s barbaric regime was under international sanctions, and no matter either that Singapore has a famously hard line on corruption on its own pristine little island, Sim’s breezy book offered helpful hints for Singaporean investors sallying forth into Myanmar’s new corporate frontier.

Want to get a general to sign off on a much-coveted contract? Nothing some targeted prostitution wouldn’t fix, writes Sim, as he goes into intimate detail – no doubt obtained for research purposes only – about how to pay for sex in Myanmar.

“I have always said that women have their cosmetics while men have their money,” Sim writes. “With money, men who are old, fat and ugly can be instantaneously transformed into desirable creatures sought by young pretty women everywhere.”

Killing someone in a car accident in Myanmar would be unfortunate, but by Sim’s artful hand it need pose no impediment to deal-making. Sim devotes a chapter, Committing Manslaughter When Driving, to such a possibility, and offers two ways of evading prosecution in the event.

First, he writes, one should quickly hand the victim’s family some cash to dissuade them from pressing charges. If this gambit were to fail, you could fund an uninvolved Myanmar third party to shoulder the blame and officially declare themselves to have been the driver.

“An international businessman should not make the mistake of trying to argue his case in a court of law when it comes to a fatal accident, even if he is in the right,” Sim advises. “He highly probably will spend time in jail regretting it. It is a sad and hard world. The facts of life can be ugly.”

Confronted by a grasping official insisting on a large wodge of “tea money” to get a lucrative deal across the line? Sim’s bloodless advice is to go along with it. “One important factor to keep in mind is that gifts for VIPs must be easily re-saleable for cash, and the amount should reflect their rank.”

Matters are moving on in Myanmar from Sim’s advisories but as Suu Kyi reminded her Singaporean audience, Myanmar still isn’t a democracy and it still has a military regime of generals intimately engaged in the nation’s business affairs and remains very corrupt. As she told Singapore businesspeople: “I would like you to continue your investments. But make them as responsible as possible.”

Sri Lanka – Rajapaksa Calls “Bull Shit” On Global Mail Coverage

Last weekend, as a courtesy, The Global Mail emailed Sri Lanka’s unelected Defence Secretary Gotabaya Rajapaksa a link to our story on the nepotism among Sri Lanka’s powerful elite.

Gota, as Sri Lankans know him, is the country’s enforcer-in-chief. The former soldier is credited with having masterminded his presidential brother Mahinda’s 2009 victory over Tamil separatists and ending a 26-year civil war that killed more than 100,000 people – as many as 75,000 in its brutal last weeks.

He had chosen not to co-operate in our research, but we sent on this piece anyway, the third in a three-part series How Not To Win A War. The series examines how his tiny island is emerging from that war and why, four years on, so many Sri Lankans, particularly of its minority Tamil community, are risking their lives on leaky boats in the vain hope of starting new lives in Australia.

‘The Brothers’ Grip’, in particular, reported how Gota and his triumphant Sinhalese relatives and cronies are getting rich quick as they turn Sri Lanka into their family’s political and business fief, a ‘mafia state’ as some Sri Lankans even described it.

In overall numbers of serving personnel, Gota commands a military bigger than the German or British forces.

Since President Mahinda Rajapaksa came to power in 2005, his brothers, cousins and myriad relatives have been installed in highly paid and influential roles – which many Sri Lankans consider to have conflicting interests – in government, state-owned companies and the private sector. For example, four Rajapaksa brothers – Mahinda, Gota, Basil and Chamal – control as much as 80 per cent of the Sri Lankan government budget.

After sending the link to Gota’s Gmail account, at 16.14 GMT last Saturday, we received a response an hour later, which read ‘BULL SHIT’.

But The Brothers’ Grip’, once posted, lit up the Lankan Twittersphere and blogosphere, where it was devoured by local and diaspora readers unaccustomed, as the Colombo think-tank Centre for Policy Alternatives and others put it, to such focussed foreign examination of their island. Some readers helpfully pointed out other Rajapaksa relatives suddenly doing important jobs, whom we’d overlooked in our family tree.

The CPA and others said it was a description of the country’s leadership that Sri Lankans don’t get much of in their decimated home media.

Locals have despairingly watched as the island’s independent commentators have been harassed, censored, exiled and even murdered. In fact, Sri Lanka has become one of the world’s most dangerous places to be a journalist. Extraordinarily for a democracy, the country ranks 162nd out of 179 in the press-freedom index compiled by Paris-based Reporters Without Borders.

As for Gota’s military, far from being peaceably de-mobbed in the wake of its victory over the Tamil Tigers, today it is bigger and more powerful than ever.

Indeed, four years after war’s end, the Sri Lankan armed forces now have more personnel in actual numbers than nations with recent pasts as military dictatorships – Nigeria, Bangladesh, Spain and the Democratic Republic of Congo – and which have far greater populations than Sri Lanka’s 20 million people. In overall numbers of serving personnel, Gota commands a military bigger than the German or British forces. Syria, currently gripped by civil war, has a similar-sized population to Sri Lanka – and 15 per cent fewer soldiers.

<p>Ishara S.KODIKARA/AFP/Getty Images</p>

Lankan soldiers are also richer than they were four years ago. On Gota’s watch, as The Global Mail discovered and documented, Sri Lanka’s soldiers are cementing themselves into their nation’s economic mainstream. If its commercial interests were gathered together, Gota’s ‘Military Inc’ would be one of Sri Lanka’s biggest conglomerates, with investments in hotels and resorts, a hairdressing chain, catering, golf clubs, international cricket stadiums, a security company, even whale-watching tours and a pet shop.

Gotabaya Rajapaksa’s “BULL SHIT” take was mild, by his recent standards. At least he didn’t threaten us with death. Last year, celebrated Sri Lankan reporter Frederica Jansz inquired of Gota why a state-owned SriLankan Airlines flight from Zurich to Colombo had been re-scheduled, bouncing paying passengers. She was following up a tip that the change had been made so that the pilot boyfriend of his niece could personally fly a puppy from Switzerland, for her Defence Secretary uncle – Gotabaya Rajapaksa.

Jansz was then the editor of Colombo’s The Sunday Leader, an independent weekly the previous editor of which, Lasantha Wickrematunge, had been murdered in 2009, gunned down in central Colombo. (Wickrematunge had ominously written in his paper just days before his death that he would be killed by the government.)


Gotabaya confirmed Jansz’s tip, only to then threaten her, saying she would be killed if she published the story. But publish she did, in the next edition of The Sunday Leader, in a piece headlined ‘Gota Goes Berserk’.

A month later, a Rajapaksa crony bought the paper, and sacked Jansz as editor. She received a succession of death threats and sought asylum in Australia, which turned her down. Today, she’s alive, albeit living in exile with her children in a town outside Tacoma, in the United States, her investigative journalism much missed by many Sri Lankans.

Gota has a history of spitting out death threats. In 2010, he told the BBC’s Hard Talk program that Sri Lanka “will hang” General Sarath Fonseka. This commander had helped win Gota the war against the Tigers and later ran for the presidency against Gota’s incumbent older brother, Mahinda, only to lose and be jailed – though not yet executed – by the regime.

The Global Mail is not the only voice exposing the Rajapaksas’ Sri Lanka. Last Saturday, Navi Pillay, the UN’s High Commissioner for Human Rights issued an interim statement in New York about her findings on a recent mission to the island.

Many prominent Sri Lankans didn’t cover themselves in glory during Pillay’s week-long fact-finding tour.

As she points out in her August 31 statement, Rajapaksa propagandists in media, online and in government have described her as a “Tamil Tigress in the UN”, claiming she was being paid by the Tamils to do the now vanquished terrorist group’s bidding.

Gota has a history of spitting out death threats. In 2010, he told the BBC’s Hard Talk program that Sri Lanka “will hang” General Sarath Fonseka. This commander had helped win Gota the war against the Tigers and later ran for the presidency against Gota’s incumbent older brother, Mahinda, only to lose and be jailed.

Pillay, who has Indian Tamil heritage, is disgusted. “This is not only wildly incorrect,” she says, “it is deeply offensive. This type of abuse has reached an extraordinary crescendo during this past week, with at least three government ministers joining in.”

A former International Criminal Court judge, Pillay has been moved to point out that she is “South African and proud of it”. She notes that the only other time she’s been to Sri Lanka was to attend a memorial for a scholar who’d been killed by the Tigers in a 1999 suicide bombing. The Tigers, she says, were a “murderous organisation that committed numerous crimes and destroyed many lives”.

Pillay’s interim report on Sri Lanka is blunt and excoriating.

She describes, as had we, the post-war military grabs of Tamil lands, and the harassment and intimidation of civilians by security forces and government officials – even while she was in the country. She spoke of the uninvestigated ‘white van’ disappearances now commonplace in Sri Lanka, in which the regime’s critics and opponents are snatched off the street and bundled into unregistered vehicles, often never to be seen again.

“This type of surveillance and harassment appears to be getting worse in Sri Lanka, which is a country where critical voices are quite often attacked or even permanently silenced,” the Pillay statement says.

To this she adds, “Utterly unacceptable at any time, it is particularly extraordinary for such treatment to be meted out during a visit by a UN high commissioner for human rights.”

Pillay visited the war-torn Tamil north-east, to observe the appalling conditions endured by the island’s long-suffering Tamil community. She writes that she, “was extremely moved by the profound trauma I have seen among the relatives of the missing and the dead, and the war survivors, in all the places I have visited, as well as by their resilience.

“This was particularly evident among those scratching out a living among the ghosts of burned and shelled trees, ruined houses and other debris of the final battle of the war along the lagoon in Mullaitivu.

“It is important everyone realises that, although the fighting is over, the suffering is not,” she says.

Pillay also notes the rise, under Gota’s patronage, of the Buddhist extremist group Bodu Bala Sena, expressing “concern at the recent surge in incitement of hatred and violence against religious minorities, including attacks on churches and mosques, and the lack of swift action against the perpetrators.

“I was surprised that the Government seemed to downplay this issue, and I hope it will send the strongest possible signal of zero tolerance for such acts and ensure that those responsible (who are easily identifiable on video footage) are punished,” she says.

Pillay also expresses concern at how deeply Gota’s military is “putting down roots and becoming involved in what should be civilian activities, for instance education, agriculture and even tourism.

“Clearly, the army needs some camps,” she says, “but the prevalence and level of involvement of soldiers in the community seem much greater than is needed for strictly military or reconstruction purposes four years after the end of the war.”

Pillay also challenges Gotabaya Rajapaksa and his military commanders to install a policy of zero tolerance towards sexual harassment and abuse of women and girls by their soldiers.

After Gotabaya Rajapaksa wrote to say our reports about Sri Lanka were “bull shit”, we sent him the Pillay statement for his comment, asking him if he felt similarly about the findings of the United Nations.

He didn’t respond.

Sri Lanka Part Three – The Smugglers’ Prey

WHAT does a Sri Lankan would-be asylum seeker look like? Many look like this man. His name is Gnanaseelan. He’s 32. He’s a Tamil, though never a Tiger. A father. A widower.He lives in this desperate shanty outside the seaside hamlet of Mullaitivu, on Sri Lanka’s war-ravaged north-east coast, with nine relatives, six of them motherless children.Gnanaseelan and his family were caught in the crossfire of the last murderous days of Sri Lanka’s civil war between the Tamil Tigers and the mostly Sinhalese government forces in Colombo, which ended in May 2009 on a blood-soaked spit of sand about three kilometres from here.He was maimed when his leg was struck by a random shell. Four years on, Gnanaseelan is an itinerant, unskilled labourer, taking a day’s work whenever he can find one, which isn’t that often. His limp and his ethnicity are hard to disguise and the Sinhalese contractors building new roads around here, on deals from government friends in distant Colombo, prefer their labour to be able-bodied and of their own kind.

On the rare occasions that Gnanaseelan does snare some work, he’s paid some 1,000 rupees a day (around $A8.35), and a rice-and-curry meal if the employer is feeling generous.

Gnanaseelan – and thousands of Tamils like him – is an innocent victim of Sri Lanka’s lethal ethnic politics. Tamils have endured decades of misrule under the Tigers, a calamitous civil war, the devastating 2004 tsunami, the horrendous bombardment of 2008-09 and now post-war persecution by a menacing Sinhalese military. It’s hardly surprising that Tamils here have a fatalistic saying: “The dead are lucky.”

Unsurprising too, that the promise of safer harbours abroad beckons these people. Of course now, if Gnanaseelan somehow managed to gather the minimum $5,000 it costs to be smuggled on a rickety Australia-bound boat, his prospect would be for a life in Papua New Guinea, if he didn’t drown en route.

Indra Devi with Rajani on her knee, and his cousin standing close, sees the plight of the Tamils as ‘fate’.

Asylum seekers once looked like John Nguyen, the Australian Liberal Party’s election candidate for the middle-class Melbourne seat of Chisholm. In 1979, he and his grandparents fled persecution in Vietnam – by boat, in the wake of war. Nguyen’s boat landed him in Malaysia, before he was accepted by Australia.

Today, a generation and another Asian war on, Nguyen is hailed in Australia as a refugee success story, and has been re-born as an Australian politician – who’s now campaigning on his party’s hard-line ticket to “stop the boats” of refugees coming from places such as northern Sri Lanka.

Asylum seekers today might look like Rajani. That’s him sitting on the knee of Indra Devi, his aaya, or maternal grandmother. Rajani is five, about the same age Nguyen was when he fled Vietnam, and clings tightly to his aaya, perhaps much as John Nguyen clung to his own grandma on that terrifying boat journey in 1979.

Rajani’s lower left arm was blown off when he was just one, not even walking age, severed in the same shell attack that injured his father, the same shelling that killed his mother Asintha, who he doesn’t remember. Asintha’s husband and mother remember her – she was 26 years old when she was killed and “a beautiful woman” says her widower, Gnanaseelan.

Asintha’s mother, Indra Devi, recalls how, in early 2009, the family had retreated to a bunker on that now notorious killing field called Mullivaikal, after the Sri Lankan military swept through their village. Asintha was breastfeeding Rajani when a mortar struck the shelter, blasting her from behind. She died instantly, her body ripped apart, and Rajani was maimed.

The family’s nightmare continued for months as they became one of thousands of Tamil families caught between the last stronghold of the Tigers’ ruthless leader Velupillai Prabhakaran and the surging government forces desperate to kill him.

Indra Devi says that more than 2,000 Tamil civilians had gathered in the immediate area around their bunker. Gnanaseelan estimates there were about 150,000 people massed on the narrow sand spit.

Asintha was one of eight people killed by that single shell, and Indra Devi says it was impossible to tell which side fired the mortar because “both were fighting”. When the shelling stopped, Gnanaseelan, Indra Devi and little armless Rajani were allowed leave. They subsequently spent months being screened and ‘de-Tigerised’ in massive government camps before being allowed back to their devastated village, where this modest shack was built with foreign aid. Four years on, Indra Devi regards her family’s desperate plight as “fate”.

On the rare occasions Gnanaseelan does leave his family, he passes by the home of his neighbour, another Sri Lankan Tamil who could also be an asylum seeker.

HIS NAME IS RAVI CHANDRAN, and what you can’t see from this photograph are the two prosthetic limbs that replaced his legs, which were blown off at Mullivaikal.

A Christian charity provided 35-year-old Ravi with his prostheses, and built Ravi the rudimentary house he and his family moved into last year, but couldn’t provide water, sanitation or power – responsibilities that the Rajapaksa government, now advancing new casinos and a Formula One racetrack in the victorious Sinhalese south, hasn’t yet fulfilled here.

No Tiger either, legless Ravi is even less employable than Gnanaseelan. He makes a few rupees selling eggs from the chickens clucking about his plot. Ravi doesn’t want us to hang around. He’s scared because he says Sri Lankan army intelligence has a camp near here, and will find out he’s been talking to suddos, as foreigners are known in Sinhala slang, and intimidate him, or worse, simply because they can around here. He didn’t ask us to visit him, and he’s genuinely worried that we’re here. He allows us to quickly photograph him if it will help get him that coveted freshwater well.

About a kilometre from here, by the main road that connects Mullaitivu to Colombo, 340 kilometres away, an Australian government billboard has toppled over. It’s one of the 41 signs that Australian taxpayers have paid to erect up this way; its purpose, to discourage Tamils like Gnanaseelan and Ravi from coming to Australia.

The number of Sri Lankans getting on illegal boats has jumped about 25-fold since the war ended. But with an Australian election looming, a poll which will inevitably be fought on the asylum-seeker issue, Canberra has taken a tougher stance. Starting in July 2013, a new “no visa” campaign has spread across Sri Lankan print, radio and television, to discourage asylum-seeker departures, and to break the smugglers.

But the steady procession of boats  leaving from beaches here suggests it’s money poorly spent.

In a land of desperate people, people smuggling is a lucrative trade, and there’s no certainty that Rudd’s PNG solution will much change things. As Dr Paikiasothy Saravanamuttu of the Colombo-based think tank, the Centre for Policy Alternatives (CPA), says, “It’s not really about where people are going, it’s what they are wanting to leave.”

“You are talking about people, call them political refugees, call them economic refugees, the bottom line is they have no faith in what the hell is going on where they are, and they obviously feel the grass is greener on the other side,” he says.

“It’s an indictment on the government policy that economic development is [touted as] the panacea for reconciliation and [it’s claimed] that everything is more or less hunky dory in the north, and in particular that’s not the case.”

The Global Mail asked Renuka Marshall of TBWA-TAL, the Colombo advertising agency that designed the anti-smuggler billboards for Australia’s Customs and Border Protection Service (ACBPS), about their effectiveness. She had been warned off speaking to media by Canberra, and said she had to refer our questions to the ACBPS, which responded in Canberra-speak: “The Australian Government is committed to providing people in Sri Lanka with up to date information on Australian Government policy in this area.”

We saw five of Marshall’s signs on our travels through the Tamil region and, at the very least, the billboards that remain erect provide shady relief from the scorching tropical sun for local cops soliciting pagawa (bribes).

PERHAPS CANBERRA’S CASH would be better spent “providing up to date information” to military brass at Trincomallee, where the Sri Lankan Navy has a big base and training academy, and at military headquarters in Colombo, which is ruled by one of President Mahinda Rajapaksa’s brothers, Gotabaya.

Gota, as he’s known, is the regime’s much-feared enforcer. He has further image problems up here, not least the widespread perception that the military is rotten, and possibly that his relatives are as well. This stretch of coastline has long been rife with rumours of official involvement in people smuggling, or of the navy sailing the other way as another refugee boat hits the high seas.

While we were in the north-east, we heard myriad stories of precarious passages to Indonesia and beyond, of 200 people cramming into a fishing boat built for 20, of berths costing as much as $US10,000 per passenger – money paid to shady agents with government and military connections.

On August 17, Sri Lankan media reported that four Sri Lankan navy signalmen had been arrested on suspicion of organising a boat voyage for a group of 111 asylum seekers, 46 men, 20 women and 45 children. Some 108 of those caught on board a fishing vessel said to be headed for Australia were Tamils from civil-war-affected areas. This follows repeated emphatic denials by the Sri Lankan Navy of the complicity of its personnel, if not its officers, in people smuggling; its defence in the face of such accusation previously has been ‘lack of proof’.

The CPA’s Dr Saravanamuttu says the waters of the north-east are now so tightly controlled, it’s almost inconceivable that an unofficial vessel could leave Sri Lanka without being detected. “You cannot get out of territorial waters without the navy letting you out,” he says. “It just can’t be done.”

Indeed, there are suspicions that the boat convoys are operated like a spigot, to be turned on and off by officials in Colombo at their political whim — the valve is opened whenever tiny Sri Lanka wants to punch above its international weight, and send a back-off message to Australia should it dare criticise Colombo.

Which might explain why successive Australian administrations – unlike their Western counterparts in Washington, the United Nations, Ottawa and across Europe – have been reluctant to point fingers at the Rajapaksas’ handling of the war and their half-hearted reconciliation with the country’s Tamil community.

In Canada, Prime Minister Stephen Harper has, by way of protest, ruled out attending the 2013 Commonwealth Heads of Government Meeting (CHOGM) to be held in Colombo in November, while Britain’s deputy Prime Minister Nick Clegg told the House of Commons there will be “consequences” for Sri Lanka if “despicable human rights violations” are not addressed by the Rajapaksa regime.

But, as a Tamil leader in Trincomallee put it, “Our people aren’t getting on a boat for Canada or the UK, they are heading for Australia, and the government here knows there’s soon going to be an election there.”

“Australia has behaved in a peculiar fashion,” says Saravanamuttu. “The government here is very much aware of what the pressing election issues are in Australia.”

A smooth CHOGM is essential to the Rajapaksas, he adds, because then, “They can show they are not international pariahs and that the international community endorses them.”

Australia seems anxious to help. One diplomatic insider in Colombo told The Global Mail how Australia’s Foreign Minister Bob Carr, during his visit to Sri Lanka last December, was “told in no uncertain terms what havoc the Rajapaksas could wreak on Australia if they wanted to”.

Saravanamuttu has been picking up the same message. “When Carr came here, I think he was told directly or indirectly that the numbers could increase,” he says.

Since Carr’s visit, a succession of Australian officials, such as shadow foreign minister Julie Bishop, shadow immigration minister Scott Morrison and shadow minister for border protection Michael Keenan, have made sanitised tours of Sri Lanka, and have come away in unanimous agreement. “Since the end of the war things have been vastly improving,” Keenan told the Australian Broadcasting Corporation in April.

“The government’s plan post-war is to make sure the Tamils become a negligible minority.”

Which is not how resident Tamils, such as Jaffna lawyer and civil-society activist Kumaravadivel Guruparan of the Forum for Social Empowerment, see it.

“Structural genocide,” says Guruparan, is the Sinhalese-led government’s “very well-calculated generational plan … to de-Tamilise the community”. He believes, “The government’s plan post-war is to make sure the Tamils become a negligible minority, so that the things that identify Tamils as a collective are eliminated.”

Guruparan says Tamils are constantly intimidated and harassed by authorities. He cites military land grabs and says that in the four years since the war ended the general social conditions of Tamils have become “definitely worse than [in] the 1970s” – the tumultuous period that gave rise to the Tigers and to Tamil militancy.

“None of this was present in the 1970s,” says 28-year-old Guruparan, an Oxford-educated lawyer. “There was never an army presence like this. My parents say they weren’t exposed to the army as much as I have been.”

A TAMIL POLITICIAN HANDS us this map of the Jaffna peninsula, Sri Lanka’s Tamil heartland.

Pat Armstrong / The Global Mail

“This is the reason why Tamils are getting on boats,” he says. “They [the military] are stealing their property.”

The map, which we have reproduced to protect the source, purports to illustrate how much land has been taken over for ‘security reasons’ by the mostly Sinhalese military – it amounts to around 20 per cent of the region. Tamil activists say more than 100,000 Tamils have been displaced since the war ended, adding to the estimated 150,000 already displaced by fighting during the 26-year conflict and who still live in refugee shanties around Jaffna. It also shows the military bases that have sprung up in the area – at least 60 of them.

“There is one army soldier for every 11 people here,” says Guruparan. That’s one of the highest soldier-to-civilian ratios in the world, notes the CPA analyst Dr Saravanamuttu.

We send the map to Gotabaya Rajapaksa, Sri Lanka’s Defence Secretary and mastermind of the military victory over the Tigers, for comment, but he does not respond. The military presence in the north is sensitive, and it seems the locals are not completely subdued. in July 2013, Colombo announced it was shutting 13 army camps around Jaffna and returning the land to its original owners who, it insisted, had been paid rent while the sites were occupied. The army claimed the move had nothing to do with provincial elections scheduled for September – the first in 25 years – that are expected to be swept by the opposition Tamil National Alliance.

North of Jaffna, around the town of Kankesanturai, lies the military’s biggest ‘high-security zone’ (HSZ); it stretches along 30 kilometres of coast and six kilometres inland. This is the part of the island’s far north that is closest to India, the regional superpower. Tamil sources told The Global Mail that the Rajapaksas are secretly building a lavish “official residence” here, close to Palaly, Jaffna’s airport. They say the President will fly Commonwealth leaders here for a retreat during the November CHOGM, to show off, “the crowning glory of the Sinhalese victory in the war”.

The Global Mail bluffs its way into the heavily armed HSZ. Restricted in where we can go, we don’t see any lavish presidential piles under construction, but we do visit a military-owned beach resort that shows Sri Lanka’s soldiers are also keen for their share of the post-war economic spoils. Little wonder, perhaps, that under Gotabaya Rajapaksa, the Ministry of Defence is now combined with the country’s Urban Development Authority – soldiers as property developers?

Saravanamuttu says his research indicates that 16 of the Sri Lankan army’s 19 brigades are now stationed in the north-east. That means there are more than 100,000 troops in the mostly Tamil Jaffna Peninsula and adjacent Vanni region, with its combined civilian population of around 1.3 million (of the nation’s total of nearly 21 million people).

The government’s plan, says the Jaffna academic Guruparan, is more “Chinese in Tibet” than the Israeli efforts to re-settle the mostly Occupied Territories. It started with a massive ‘land grab’ by the predominantly Sinhalese military. On the coast north of Jaffna, Guruparan says that, under the banner of ‘national security’, the military has seized 6,000 acres of property since the war. And the military is settling soldiers and their families here, in order for them “to become a more normalised part of the population over generations”.

He tells how Sri Lankan soldiers are being ordered to marry female former members of the separatist Tamil Tigers.

He tells how Sri Lankan soldiers are being ordered to marry female former members of the separatist Liberation Tigers of Tamil Eelam, the Tamil Tigers. He describes the case of one woman he has legally represented, a former civilian administrator in the Tigers’ civil service when this area – which covers about 15 per cent of the island’s landmass – was their de facto state, Eelam.

The woman’s husband was a ranking commander in the Tiger navy, the Sea Tigers, and died in battle in 2008. Since the war ended, a year later, she has been constantly harassed by army agents, Guruparan says: “She was told that for her to lead a secure life, she would have to re-marry an army soldier.

“These are the kind of subtle ways in which Sinhala Buddhists, these extremists, this hegemony, is taking place – what I call the normalisation of abnormalcy,” he says. “This is what the government means by ‘time and space’ and ‘reconciliation’.” He says such examples are now being used in school seminars in former LTTE-controlled areas to illustrate what ‘reconciliation’ means.

Talk of such matters does not go over well among the Rajapaksas in Colombo. As an articulate advocate in middle-class Tamil civil-society circles, Guruparan says he has also been harassed, and that his vice-chancellor at the state-funded University of Jaffna was warned by military intelligence about his activism.

Guruparan says the government is suspicious of anyone who had any sort of contact with the Tigers, and in the north-east, that includes just about everybody. The Tigers were, for decades, the administrators here. They forcibly conscripted soldiers from among the families of the region, often under the threat of death. “There is no family who doesn’t know someone, who was a friend or a relative [who was a Tiger]. This was a movement that touched everybody in some way,” Guruparan says. That history gives Colombo carte blanche to harass and intimidate anyone on “national security grounds”, part of what activist Tamils see as their de-culturalisation by Sinhalese authorities.

“The Tamil people are being told that no-one is going to help you, the international community is not going to come in, this government is not going to change, so you have to learn to live with the army.” Guruparan says.

Guruparan is concerned that, “people will learn ways to cope with living with the army, that this will become normal, as it is clear the army has no intention of going away”.

The streets of Jaffna, traditional Tamil territory in Sri Lanka’s north-east, where now there is reportedly one army soldier for every 11 people.

THE TIGER’S FORMER PROPAGANDA ‘MINISTER’ (or one-time official spokesman), Daya Master, meets with me in Jaffna. In April 2009, a month before the war ended, Daya Master walked out of the jungle to surrender to government forces in what was one of the conflict’s most spectacular defections. A month later he was back in battle, this time helicoptered into the kill zone by the government to identify the corpse of Velupillai Prabhakaran, the feared Tiger leader. Daya Master was one of the few surviving Tigers close to Prabhakaran who could have made the identification.

“There was no purpose in fighting,” he says. “The LTTE was weakened, no arms, no shells, no manpower. It was finished.”

Today, Daya Master has been rehabilitated as a candidate for Sri Lanka’s ruling party in upcoming northern provincial elections. “I think I have a chance,” he says. “I want to help the people, the only way to help them is in the government. The people supported the LTTE for their political rights. Then the war finished. What is the alternative? The government is the only alternative.”

Daya Master joined the Tigers in the 1980s (Master is an honorific which has stuck from his original qualification as an English teacher) and became the go-to guy for foreign officials and press visiting Eelam. Now he claims he was “just” an employee, and only became a formal member of the Tigers in 2005. I had met him previously, in the Tigers’ capital Kilinochchi, in 2003, when the Tigers and the government were in uneasy peace talks after an oft-broken Norwegian-brokered ceasefire.

Today, he’s a free man working as the ‘news director’ of a government-friendly TV channel broadcasting to Tamil communities, a propaganda position near identical to the one he performed for the Tigers for decades. “Yes, same job, different organisation, different way,” he says.

Daya Master leafs through a gallery of photographs I took in Eelam in 2003. There are shots of the Tigers’ myriad ‘martyrs’ cemeteries where fallen soldiers were buried, and the house where Tiger leader Prabhakaran was born, which had become a shrine. After the war, the government bulldozed them all.

“All these destroyed,” he says. “Gone … all gone.”

He instantly recognises the old Tiger headquarters in Kilinochchi, which is just south of Jaffna. “This is my bunker!” he exclaims. There’s a photo of his assistant, a young man wearing the cyanide-filled suicide capsule necklace all Tigers were required to wear. “My boys!” he says “Gone, gone.”

“The LTTE fought for the Tamil people’s rights, that is no doubt, but time to time their strategy should have changed.”

“It was futile, no? It was a mistake,” he says, albeit one that took him 30 years of profound involvement and a frightening month of bombardment to realise. “We lost many lives. What was the outcome of that? Nothing … for 30 years …100,000 people we lost, no achievement, nothing. There were so many dead bodies lying on the ground – innocent people, not all Tigers.” He confirms that at the war’s end some 300,000 to 400,000 people were caught in the crossfire with no proper water, food or protection.

And what of ‘Prabha’, the Tiger supremo? Was he the mad tyrant, portrayed by government propaganda? Even today, Daya Master seems reluctant to condemn his former leader. “If only he changed his way from time to time …”

I ask who killed Rajiv Gandhi, the much-loved Indian Prime Minister assassinated in 1991 by a Tiger suicide bomber in retaliation for India’s entry into the civil war. I’d asked him the same question in 2003, when he steadfastly denied any Tiger involvement.

Ten years on, with the Tigers vanquished and Daya Master angling for political office among the forces that defeated his once-beloved LTTE, he still struggles to answer, pausing before positing, “The Tigers?”

I tell him that the reason I’m asking is to see whether his spin has changed. He cackles with laughter, “That’s the difference!”

And what happened to the Tigers’ international business empire – which included mobile-phone companies and petrol stations, all estimated to be worth $3-4 billion and generating $200-300 million a year for the organisation’s war machine? The Tigers even had a central bank – the Bank of Tamil Eelam – which in 2005 boasted foreign reserves of $500 million. Rumours have swirled in Sri Lanka that government officials privately purloined the assets in the end-of-war chaos, or that the money has been used to form the basis of a new fighting fund for a re-emergent Tiger army among the Tamil diaspora. Some have pointed an accusing finger at the slippery Daya Master.

“The money-handling people at the time, they vanished with the money,” he says.

I ask him why his fellow Tamils are getting on boats. “Our political leaders,” he says, “so far they have not given the hope of prevailing peace here … Our politicians so far have not shown a good way to them. They are losing this opportunity to peace.”

Sri Lanka Part Two – The Monks’ Army

Sri Lanka’s raffish capital, where we begin our series, is in economic catch-up mode. Colombo is replacing the colonial-era roads and railways built when Churchill was a boy and ‘Ceylon’ was a languid tropical afterthought for the British who ruled the plantation island.Though it took its time – 10 years – to be completed, a sparkling new tollway to the beachy Rajapaksa heartland in the south has cut the journey from Colombo from a congested three-to-six hours to just one.In the conflict-ravaged Tamil north, Indian engineers are re-connecting the war-severed train line that once carried passengers from Colombo to Jaffna.In the mostly Sinhalese ‘deep south’ of the island, President Mahinda Rajapaksa’s home region of Hambantota is being lavished with the country’s biggest infrastructural project, a US$1.5 billion stampede of white elephants that’s giving the town a new port, international airport and cricket stadium – all named after President Rajapaksa – and a convention centre and even an alternative Bollywood complex.

Beijing is the main player behind all this construction, as it adds yet another stronghold to its string of pearls – China’s network of strategic boltholes around the Indian Ocean intended to counter Western commercial influence in the region. Beijing financed most of the Hambantota projects and shuttles Chinese workers in to build them; this in a region suffering crippling unemployment.

In Colombo, work has started on a Dubai-style ‘Port City’ – replete with de rigueur Formula One circuit – to be built on land Chinese companies are reclaiming from the sea. In November this year, all this will be flaunted in a diplomatic coup for the Rajapaksa regime – Colombo is hosting the biennial Commonwealth Heads of Government Meeting (CHOGM).

Colombo may still be one of Asia’s poorest capitals, but its Rajapaksa-linked business community is re-arranging the skyline on borrowed money. It is studded with the new skyscrapers of hip hotels and soaring towers in various states of completion, which they hope will be filled by the ambitions of international tycoons. Australia’s James Packer, for example, has teamed with a Rajapaksa crony to build a US$350 million casino complex here.

But of the many towers now poking through Colombo’s fast-fading colonial vista, few have gone up as fast or been fêted with as much official attention as the Sri Sambuddhathva Jayanthi Mandiraya, a massive temple and office complex now soaring over the capital’s leafy southern suburbs.

Opened in 2011, just two years after the war ended, the complex claims to be the world’s biggest repository of Buddhist texts. Its modern foyer has the air of a busy library, criss-crossed by orange-hued tourists and locals in search of their inner Gautama. Less advertised, however, is that an adjacent wing is home to the headquarters of a shadowy ultra-Buddhist activist group called Bodu Bala Sena, which was formed in July 2012.

That translates as the “Army of Buddhist Power”. Patronised by senior government officials, the BBS was born after militant fringes of the main religious party in Sri Lanka, the Jathika Hela Urumaya (JHU), or National Heritage Party, broke away because they felt the JHU was too moderate.

Since then, the BBS has emerged as the self-proclaimed true protector of Buddhism on the island, and many say it chooses to see anti-Buddhist demons where none exist. Sri Lanka may be at peace, with Sinhalese Buddhists in command and a pious and powerful practising Buddhist in the presidency, but to hear the BBS hierarchy tell it, Buddhism and Sri Lanka have never been more at risk.

Part vigilante group, part religious police, partly a Sri Lankan Tea Party, the BBS has been behind many of the attacks on Muslim practices and businesses here, and on Christian groups too, often encountering little police intervention. BBS members make mostly unchallenged claims, on scant evidence, that Muslims dominate Sri Lanka’s business community and foment religious fundamentalism, and that Muslim doctors secretly sterilise Sinhalese women. The group has also taken aim at Christians, warning churches against expanding their flocks by converting Buddhists.

Secularist Sri Lankans are alarmed. Social Integration Minister Vasudeva Nanayakkara has described the BBS as “extremist”. Prominent Sri Lankan diplomat Dayan Jayatilleka labels it as an “ethno-religious fascist movement from the dark underside of Sinhala society”, while the island’s most prominent Buddhist intellectual, the Venerable Professor Belanwila Wimalaratana Anunayake, has dissociated Sri Lanka’s sangha, the mainstream Buddhist clergy, from BBS extremism.

Tamil leaders are also concerned. “I think this is a game that they are playing,” says Kumaravadivel Guruparan, law lecturer at Jaffna University and civil-society activist in the war-ravaged north-east. “We thought you can’t get more Sinhala Buddhist-extremist than this government,” but then groups like the BBS suddenly emerged on the government side – “so now they [the Rajapaksa regime] start looking like a moderate”.

The post-war rise of militant Buddhism in Sri Lanka, which mirrors similar activism in reformist Burma and elsewhere in South-East Asia, has particularly sinister overtones here.

One of Sri Lanka’s most controversial post-colonial dynastic leaders, Solomon Bandaranaike, was assassinated in 1959 by a Buddhist monk who felt betrayed that Bandaranaike’s pro-Sinhalese policies – which many Sri Lankans believe sparked the separatist Tamil uprising in the north-east – didn’t go far enough to advantage the Sinhala-speaking majority. (There is another view that the assassin, who converted to Christianity before his execution, was hired by a senior monk avenging the loss of business opportunities.)

The BBS’s layman chief executive and program co-ordinator of its Buddhist Leadership Academy, Dilanthe Withanage, met The Global Mail at the group’s nerve centre, a bland suite of offices that wouldn’t be out of place in the new corporate Sri Lanka.

A nuggety man in his 40s, Withanage wears civilian garb, in contrast to the orange-robed monks drifting through the office. He speaks English and Russian – by virtue of his Soviet-era-sponsored education in Georgia.

According to Withanage, the BBS came into being because “we felt that Buddhism is not protected in this country and Buddhists face a big danger locally as well as internationally”. This despite the fact that as many as 75 per cent of Sri Lankans identify themselves as Buddhist Sinhalese.

Many Sri Lankans believe that the BBS is a creation of the government, in particular of President Rajapaksa’s brother Gotabaya, Sri Lanka’s unelected Defence Secretary, a former soldier and the mastermind of the 2009 victory over the mostly Hindu Tamil rebels. Gotabaya has denied any involvement in the emergence of the BBS.

The BBS seems to be a Lankan re-run of India’s ethnocentric Mumbai-based Shiv Sena movement; and of the Rashtriya Swayamsevak Sangh, the National Patriotic Organisation of Hindu extremists, which shadows India’s nationalist Bharatiya Janata Party.

Withanage rejects such comparisons. “We don’t have any political influence,” he claims.

But if the president’s powerful brother is not an architect of the BBS, Gotabaya Rajapaksa seems at the very least to be a patron of the organisation. In March, he officiated at the opening of a BBS outpost in the southern port city of Galle, which has a big Muslim community centred on its ancient fort.

But that’s not quite how the “German fellow”, a Buddhist called Michael Kreitmeir, sees it. He told The Global Mail his ‘Meth Sevena’ retreat outside Galle, set up in 2007 as part of his interfaith charity, Little Smile, had recently become embroiled in an ownership dispute. He said he had approached the Buddhist Cultural Centre in Colombo for co-operation, but was “most surprised” to discover it had “some connection” with the BBS, and that Gotabaya Rajapaksa then showed up to open his project. “Meth Sevana is not and will never be a centre of Bodu Bala Sena,” Kreitmeir says.

Earlier this year, when Milinda Moragoda, an erstwhile presidential advisor and leading figure in Colombo’s civil society lobby, brokered a cross-religious community deal over cattle slaughter and the halal certification of food products, Buddhist and Muslim leaders linked hands in a public display of unity.

But the Moragoda deal fell short of the blanket ban on halal labelling demanded by the BBS. Outraged, the BBS then accused Moragoda of creating “an unholy inter-religious alliance, and attempting to destroy our learned monks [who were] now in the grasp of infidels”. These monks, the BBS lamented, “were pseudo Buddhist leaders who never stood against Muslim extremism and Christian fundamentalism”.

For his part, Morogoda told The Global Mail, “as a practising Buddhist … in my view, true Buddhism is all about the Middle Path, moderation and tolerance. That is the Buddhism that I follow. Extremism is antithetical to the teachings of the Lord Buddha who preached moderation and tolerance. There is no need for self-proclaimed protectors of the doctrine.”

“RELIGION is a private thing,” Withanage tells The Global Mail. And many conflict-weary Lankans would agree.

But in recent months Withanage’s group has chosen to make some very public religious protests.

In January, the BBS hierarchy got hold of an event-planning document for a dinner that was to be hosted at a resort hotel south of Colombo. The hotel is much favoured by French tourists and owned by Sri Lanka’s biggest company, John Keells Holdings.

Keells is a sprawling enterprise, straddling interests in IT, banks, plantations, hotels and retail, and is as yet outside the expanding corporate grasp of the ruling Rajapaksa clan. Businessman Susantha Ratnayake is chairman of Keells, and also chairs the Ceylon Chamber of Commerce (CCC), which had helped to broker the inter-faith halal deal with Moragoda and the various religious lobbies. Ratnayake and the CCC have since been in the BBS’s crosshairs, because the BBS claims they “fail to safeguard” Buddhist business interests on the island.

The Keells document that fell into BBS hands discussed the theme the hotel staff had planned for the dinner; it described the meal as “nirvana” with a “cosy Buddha Bar lounge” feel. Intended for French holidaymakers, this function seemed intended to evoke the Parisian music and food phenomenon fashionably fused by French-Tunisian DJ Claude Challe, which became the chill-out soundtrack of the 2000s for hipsters from Bali to Budapest.

But the BBS response was anything but chilled. An orange army of militant monks led by the group’s secretary-general, Galagoda Aththe Gnanasara, stormed the hotel and succeeded in having hotel management carted off by the police on a charge of “hurting religious feelings”.

The BBS moved on the hotel, Withanage told The Global Mail, “because of the alcohol, the dancing, the behaviour”.

When asked whether the BBS is against people having a good time, Withanage railed: “Why do they use the menu ‘Nirvana’? The name Buddha should be used appropriately. We should respect any religion. The context is different, it’s not appropriate to use in a hotel, in the evening party.” He adds that calling a drinks venue “the Jesus Bar” might similarly be deemed hurtful by Christians.

Although a self-appointed guardian of public morals, the BBS is oddly unfussed by the plethora of casinos in Sri Lanka. Many of these are owned by business associates of the Rajapaksa clan, including the government-approved $US350 million development planned by local tycoon Ravi Wijeratne and Australian James Packer on a prime downtown Colombo site, which happens to be adjacent to Colombo’s oldest Hindu temple.

“Lord Buddha is not against anything,” says the BBS executive Withanage, when asked about this apparent moral inconsistency. “He never asked kings to stop things.”

“In Sri Lanka, there are a couple of casinos. No-one protested about them,” he says. “But when this Australian guy wanted to start, they all talk about casinos. What we [the BBS] said was if we attack that person, we should attack the other parties also.

“If we want to stop casinos, it’s everybody,” Withanage says. “We should not attack only one casino because that turns us into being against investment. If you’re against casinos you should be against all casinos in the country.”

“Personally, I think it is better that we don’t have gambling but we [BBS] don’t have any problem with it,” he says.

The BBS would, however, like Buddhism to be Sri Lanka’s official state religion. The current constitution, passed in 1978, holds that Sri Lanka is a secular state guaranteeing its citizens freedom of religion, with Buddhism holding the “foremost place”. There is no mention of Hinduism, Islam or Christianity in the document.

The BBS claims Buddhism was the island’s state religion before the British colonised ‘Ceylon’ in 1815 after deposing its Kandyan aristocracy. “We think whatever we had before the British should come back,” says Withanage.

Hinduism has been practised by large numbers on the island for millennia, and today as many as 15 per cent of the island – Sri Lanka’s Tamil communities – lay claim to being Hindu. Its presence on the island is even mentioned in the epic Hindu poem, the Ramayana, which dates from around the 4th century BC. Hinduism was also the state religion of the Jaffna Kingdom in the north of the island that fell to Portuguese invaders in 1624.

But that doesn’t seem to factor in the BBS’s version of history. Withanage rules out Hinduism as a co-state religion in Sri Lanka, and any official recognition for Islam and Christianity too. “Before the British came into this country, Buddhism was the state religion so therefore Buddhism should be the state religion … provided all other religions have due respect and freedom to practice.”

A tall 40-something man in a luxuriant vermillion robe and furiously tapping at an iPad joins us. He exudes authority, and Withanage stops mid-sentence to genuflect to the newcomer. I recognise him as Galagoda Aththe Gnanasara, secretary-general of the BBS and one of the group’s founders.

Withanage introduces him and they continue railing about the real or imagined threats to Sri Lankan Buddhism. I ask them why they see their faith as under threat on an island where ethnic Sinhalese Buddhists comprise around 75 per cent of the country’s 20 million people – leaving Sri Lanka’s other ethnic and religious groups clearly in the minority – and given that the president is a very publicly devout Buddhist and a vocal champion of the faith.

It’s not just Sri Lankan Buddhism that the BBS is campaigning for, Gnanasara explains, but for others in the Buddhist world too. He cites the recent banning from circulation of an issue of Time magazine in Sri Lanka, because it described the outbreak of Buddhist militancy in nearby Burma as ‘The Face of Buddhist Terror’.

I ask about recent attacks on Muslim interests blamed on the BBS. The men deny that the BBS attacked a prominent Muslim-owned clothing chain, Fashion Bug, in suburban Colombo, as was widely reported in Sri Lanka, even in the government-owned media.

Gnanasara turns very angry at the mere mention of Muslims and Islam, which is hardly the demeanour one expects of a pious Buddhist monk. Withanage’s previous, more moderate explanations of BBS activism now pale before a bilious Gnanasara who seems to rail at the notion of anyone who isn’t a Buddhist.

“Don’t talk with us,” Gnanasara yells. “Any Muslims, they are very bad people here. They are creating all problems here.”

All Muslims? I ask.

“Yes, all Muslims same!” Gnanasara yells. “No chance here! We want to stop this extremist work of Muslims. They are not going to destroy our culture. Buddhist people are very peaceful.”

Withanage chimes in, insisting that Sri Lanka’s Buddhists have been very tolerant despite what he sees as the cultural provocations around them: “Muslims are living peacefully, Muslims have all facilities here. The mayor of Colombo is a Muslim,” Withanage declares. “Do you allow in your country a Muslim to be a mayor?”

Yes, I answer, Australia has a number of elected public officials who are Muslim.

But Withanage is unconvinced. “The governor of this province is a Muslim so you can’t say Muslims can’t live peacefully?” he says.

I remind him that I didn’t say that, but that his boss, the BBS secretary-general Gnanasara, did barely a minute earlier, insisting that all Muslims were bad. I ask Gnanasara about Hindus? Christians? Foreigners? Does the BBS have any problems with them?

“We are against only extremist groups, and fundamentalists,” he says.

What about Buddhist fundamentalists, I ask?

“Where?” Gnanasara asks.

“Maybe here?” I suggest. I cite the remarks of various prominent Sri Lankans in civil-society circles, such as the diplomat and intellectual Dayan Jayatilleka and the politician Milinda Moragoda who negotiated the halal compromise. Both have publicly condemned BBS extremism.

“They are mad people,” he says. “Very bad people. They get funding from various people, Christian and other groups, to speak against Buddha, with NGOs.”

I cross-check, asking: So Jayatilleka, a career diplomat and Sri Lanka’s former UN ambassador, and former Minister Moragoda are mad?

“A very bad man he is,” snarls Gnanasara. “They are funded. You look at their background. Are they Buddhist? There are some groups created by the church and they want to destroy Buddhist culture. His [Jayatilleka’s] background is not Buddhist, Milinda is not Buddhist.”

Moragoda, however, had said: “As a practising Buddhist it would be improper for me to directly comment on a statement attributed to a member of the Buddhist clergy.”

President Rajapaksa charms them at the astrology centre.

Is President Rajapaksa a good Buddhist? I ask Gnanasara. And what of his brother Gotabaya, the Defence Secretary?

Gnanasara pauses, and smiles. “Yes, yes,” he says, his anger suddenly dissipating. “His [President Rajapaksa’s] wife is a Catholic, no?”

I think so, I say. Is that a problem?

“Very good,” he offers. “No problem.”

Translating Gnanasara’s Sinhala into English, Withanage says that Western media and other foreigners “like to attack Sri Lanka because we are a poor people, we are a small country, threatened by international pressures. And media, because you have money, you can travel. We would also like to come and interview your Prime Minister, but we don’t have money and you have enough money to do that.

“International media … have an agenda to destroy Buddhism and show the world that Buddhists are extremists, but when your prime minister talks about extremist ideas in Australia no-one talks about these things. Please fund us, so we can show that.”

“We don’t trust the foreign media,” adds Gnanasara, via Withanage. “Most of you come with hidden agendas. A lot of false information about BBS is spreading around the world.”

The latest media report to upset the BBS leaders came from Xinhua, the Chinese state news agency. China has essentially kept the Rajapaksa regime afloat since 2005, financing huge infrastructure projects in the President’s home region of Hambantota, and providing much of the military matériel used by his military to conquer the Tigers.

But on July 8, Xinhua reported that BBS had demanded a ban on the wearing of the Muslim hijab in Sri Lanka.

Withanage says the Chinese are wrong. Citing similar laws in Europe, he says the BBS isn’t seeking a specific ban on the wearing of hijab in Sri Lanka, but a general public ban on anyone covering their faces. “We also don’t need that here,” he insists.

The fact that pretty well the only Sri Lankans culturally inclined to cover their faces on the island are members of its Muslim community is incidental, he claims, a mere coincidence. “This has nothing to do with religious matters,” Withanage insists. “We never talk about the hijab. We don’t have any problem with that.”

I ask Withanage why the BBS is staging regular mass protests outside the Indian High Commission in downtown Colombo.

“Because India should protect Buddhist heritage,” he says.

What hasn’t India done? I ask.

Withanage cites the July 7 bombing attempt at the holy site in Bodhgaya, in the Indian state of Bihar. Without any compelling evidence, South Asian politicians have variously blamed the bombing on Islamists from India and Pakistan, extremist Hindus and India’s militant Maoists. Sri Lanka’s Prime Minister himself has pinned responsibility for the bombing on diaspora remnants of Sri Lanka’s defeated Tamil Tiger separatists.

“This is the birthplace of Buddha,” Withanage says of the Bodhgaya site. “And it should be protected.”

There’s a problem with his assertion, a possibly revealing anomaly, given that the BBS styles itself as Sri Lanka’s true protector of the Buddhist faith. Even the humblest Buddhist would know that Bodhgaya isn’t Lord Buddha’s birthplace. It is widely agreed that Gautama was born in present-day Nepal. Religious archaeologists have cited a number of other possible locations in India and Nepal as his birthplace, but none in Bihar.

To Buddhists, Bodhgaya is where Gautama attained enlightenment. The holy site in Bihar may be regarded as the place where Buddhism was founded, but that’s a very different thing to the BBS’s position, and Withanage’s justification for the disruption outside the Indian mission.

I ask Withanage whether Tamil, the mother tongue of the island’s Hindu Tamil and Muslim communities, should continue to be an official language alongside the Sinhala spoken by Sri Lanka’s majority Sinhalese Buddhists. It was the Sinhala Only Act of 1956, enacted soon after what was then Ceylon attained independence from Britain, and which failed to officially recognise the Tamil tongue spoken by around 25 per cent of the population, which many Lankans believe led to the long-running separatist war in the Tamil north.

Four years after fighting ended, and with Sinhalese nationalism rampant, the language issue has again reared its head. There are indications that the Rajapaksa regime wants to dilute the so-called ‘13th Amendment’ of the constitution which currently guarantees Tamil equal status with Sinhala as an official language.

Gnanasara fudges an answer. “I think you need to understand history … you can’t just ask questions like this.” Withanage pipes up again: “We don’t have any issue with Tamils. Next month we will organise a large number of rallies in Tamil areas. The Tamil people want us there.

“We have never killed Tamils. We killed terrorists.” Withanage doesn’t elaborate on who the ‘we’ that he’s referring to are.

The monks wind up the interview. I prepare to leave, and Gnanasara barks brief and urgent instructions to Withanage in Sinhala. Withanage catches me up on my way out.

“When he said that all Muslims are bad …” explains Withanage “… that was a joke. We don’t have anything against Muslims.”

He then claims Gnanasara’s remark that “all Muslims are bad” was my fault, because I, the embodiment of the despised foreign media – as painted by the BBS – raised the subject.

Sri Lanka still has a long way to go before it can claim to be Paradise.

Sri Lanka Part One – How Not To Win A War

FOUR years after its brutal victory over Tamil Tiger rebels that ended a 26-year-long civil war, Sri Lanka’s Sinhalese-led government is at pains to persuade the world that it has at last brought peace and unity to this troubled island. And the captain of the flag-carrying SriLankan Airlines flight 423 from Bangkok seems keen to do his national bit.


Easing his Airbus over the tea-studded plantations of the island’s central highlands for the approach into Colombo, the pilot primes those on board for landing.


“A warm welcome to Paradise for all our passengers….” he cheerfully intones in a voice as rich as the coconut curries ‘Mother Lanka’ is famous for. “That is, welcome to Paradise Regained.”


Which Sri Lanka certainly is if you’ve holidayed on its hedonistic beaches – arguably Asia’s most divine. It’s also been a political Shangri-La for the many members of the triumphalist Rajapaksa clan crowding government ranks, led by President Mahinda Rajapaksa and three of his brothers. They’ve ruled Sri Lanka since 2005 and, in South Asia’s dynastic style, are now positioning the family for yet another generation at the top. Ditto for the ruling brotherhood’s business cronies and military chums, as they pile into cosy government sinecures and the lucrative reconstruction deals that are spurring a modest economic surge now that the guns have been silenced in the Tamil north.


But, as The Global Mail examines in this series on post-war Sri Lanka, the notion of paradise is moot for many on the island, particularly those who aren’t tourists, or lavishing at the Rajapaksas’ teat. Nor is post-war Sri Lanka a reconciled arcadia for many in its Muslim and Tamil communities.


War’s end has unleashed a rampant Sinhalese nationalism that has many of the country’s Tamils – a community numbering around 15 per cent of the 21 million population – fearful that they are being subjected to a generational ethnic cleansing, a “structural genocide” as one Tamil community leader puts it, by a Sinhalese Buddhist regime they believe wants to breed centuries of Hindu-Tamil culture off the island.


Across the Tamil north-east, Colombo’s intimidating military has established scores of new military bases on seized lands. Australian government-sponsored billboards here warn desperate locals from fleeing on boats, but it’s a tough sell. There’s no certainty that Kevin Rudd’s “PNG solution” will much stem the exodus, amid suspicions that Colombo regulates the boat convoys like a spigot — opening the refugee valve whenever the Rajapaksas want to send a back-off message to their foreign critics.


There’s anxiety also among Sri Lanka’s Muslims, who make up 10 per cent of the population. Tamil-speakers who descend from Arabs who traded and settled here from the 7th Century, they’ve been a neutral voice of moderation in island affairs, caught between Sinhalese and Tamils in the decades of conflict. But many Sri Lankan Muslims now feel victimised, threatened by an outbreak of base chauvinism they believe has been unleashed by the Rajapaksas, who draw their support from the semi-literate rural poor of the Buddhist Sinhalese south. Buddhist-led hate groups are also proliferating online, while organised mobs have attacked Muslim targets, as in the August 10 assault on a Colombo mosque. More than 30 attacks by militant Buddhists on Muslim interests have been reported in the past two years.


As the Rajapaksas muzzle dissenting voices in civil society, and the media too, which has seen independent newspapers neutered, and journalists intimidated, forced into exile and even killed, Sinhalese moderates and intellectuals fret that the values and liberties of their unique multicultural ‘masala society’ are being eroded – that South Asia’s only uninterrupted post-colonial democracy is being turned into a dynastic ‘mafia state’.



Greetings Singaporeans

You’ve likely arrived here because of the recent fuss after the airing of some inconvenient facts about the corporate history and possible conflicts of Foreign/Law Minister Shanmugam, that seemed to have stirred him (and his followers)

Whenever one writes about Singapore, I  get many emails from Singaporeans asking why it takes them reading the foreign media to learn more about how their own country works than their own state-controlled media reports and analyses.

I usually send them this, 12 years old now but clearly still relevant, if the torrent of received emails is any indication

This may help as well..

All best..

Out Of The Haze, A Singapore Spring?

When you are Singapore’s Lee family, and your clan has exercised absolute and uninterrupted control over its swanky specklet of Asia for 54 years, fellows like Kasiviswanathan Shanmugam are handy to have within your power court.

K. Shanmugam, as he’s less tongue-twistingly known, may have escaped the attention of those unfamiliar with the cosy connections that hold Singapore’s power elite together — a warm, clubby embrace that has kept them very wealthy.

But 54-year-old Shanmugam is a bigwig on the tiny island, which is currently being suffocated by pollution from the periodic burning of millions of hectares of palm oil plantations that have trashed the equatorial habitat of neighbouring Indonesia. That pollution from the illegal fire-clearing of these plantations has swept on eastward winds from Sumatra in massive clouds of smoke and ash to shroud and choke Singapore, southern Malaysia and large tracts of western Indonesia.

Call it blowback. Many of these plantations are owned by people with intimate connections to that same power court in Singapore, who helpfully provide them all manner of metropolitan usefulness, banking their billions and domiciling their empires while discreetly looking past, er, indiscretions that may have been perpetrated elsewhere.

Singapore has 101,000 millionaires officially resident on the island, their assets tucked safely away in the nation’s banks, property and share markets. Plenty of these plutocrats are normal Singaporeans who’ve done well in business. But many are not, like corrupt Indonesians on the run, or Burmese generals seeking safe haven. Singapore’s plutocratic ranks have been swelled in recent years by Europeans and Russians seeking relief from tax and the prying regulators of home, these exiles spending just enough time and money in Singapore to qualify for residency.

This, to many, is the useful point of Singapore, where Shanmugam – born in 1959, the very year Lee family patriarch Lee Kuan Yew began his three decades as ruler – has been an MP since 1988 for the Lees’ ruling People’s Action Party (PAP).

Shanmugam’s story, and there are many like it in Singapore’s political circles, neatly illustrates how power flows in Singapore, via an apparatus ironically made more visible by the haze crisis.

There have been five parliamentary elections since then in Singapore’s almost-democracy, three of them relatively leisurely affairs for Shanmugam; he and his PAP friends were untroubled by any other candidates in their constituency, Sembawang, an area perhaps best known for its US naval facility.

But Shanmugam’s selfless devotion to public service – Singapore MPs receive a basic annual allowance of around US$200,000 – hasn’t hindered an even more lucrative career, in law and business. He’s one of Singapore’s most formidable litigators, a leader of the army of Lee-loyalist lawyers who’ve helped win their legal system a contentious reputation as a jurisdiction, most notably in defamation.

Singapore is one of the world’s libel capitals, and its litigants – many have been colleagues of Shanmugam, leaders of the ruling PAP – have won record-setting damages for defamation by their political rivals and the international media.

What would pass as the normal buffeting of election debate in most genuinely pluralist democracies has been, in Singapore, a device of oppression. Here, sensitive politicians and officials, famously led by the Lees themselves, have shown an enthusiastic inclination to sue opponents into penurious legal submission. Singaporean officials, it’s often said, can imagine libel and slander in a harsh glare.

All of which helps explain why MPs like Shanmugam don’t always encounter combatants when they run for election. Indeed, this absence of opposition has meant that there’s only been three parliamentary elections in Singapore in the five since 1988 in which the PAP wasn’t returned to office on nomination day – the actual poll being largely irrelevant as to decide who runs the country.

Shanmugam doesn’t mind highlighting such powerful connections in his sparkling official CV, now for the Nee Soon electorate in Singapore. This biography describes a storied student who became a ‘star litigator’ for Singapore’s biggest law firm, a lawyer who has represented prime ministers past and present.

And, busy man, Shanmugam has also served on some illustrious boards while being MP and lawyer-at-large, his biography reveals. For example, he’s held a long and lucrative directorship at one of Singapore’s state-controlled blue chips, Sembcorp (a post he shared with strongman Lee Kuan Yew’s daughter-in-law Lee Suet Fern, whose husband ran Singapore Telecommunications for 12 years), and another on Singapore’s state media regulator, among other establishment posts.

Now Shanmugam has been Singapore’s Foreign Minister since 2011, and Minister for Law since 2008, his official salary now somewhere north of $US1 million. He’s the senior official entrusted by his Prime Minister, Lee Kuan Yew’s son Lee Hsien Loong, to go after the polluters they believe are responsible for the life-threatening haze, now too thick to ignore, which has engulfed their region.

“If any Singapore companies are involved,” thundered PM Lee last week, “or companies which are present in Singapore are involved, we will take it up with them.”

Indeed, Jakarta has helpfully identified as many as 14 companies it believes responsible for the muck, while reminding Singapore that many more Indonesians are suffering its effects than inhabitants of the look-at-me island nation.

Two of the companies fingered by Indonesia are its Widjaja family’s Sinar Mas Agro Resources and Technology (SMART), which has long been a target of environmentalists, and Asia Pacific Resources International (APRIL), controlled by the Indonesian-born Singaporean tycoon Sukanto Tanoto. Both are based in Singapore, where SMART’s parent company is the locally listed Golden Agri-Resources.

And this is where Lee’s Foreign and Law Minister K. Shanmugam comes in again.

Two of the directorships that don’t appear in Shanmugam’s glittering CV are his former stints as a director of Golden Agri-Resources and Asia Food and Property Ltd.

Both are Singaporean companies controlled by Indonesia’s controversial Widjaja family. In the early 2000s, while Shanmugam was on these boards, the Widjajas had the dubious honour of owning the notorious Asia Pulp and Paper, which would come to be responsible for the biggest bond default in corporate Asian history.

What transpired at APP was a US$13 billion fiasco, a scandal largely unearthed by the pesky foreign media, and which exposed Singapore as something other than the squeaky-clean financial centre its government likes to internationally promote itself as. Transferring public company funds through a murky family-controlled bank in the tax haven of the Cook Islands was a sleight of hand much favoured by the Widjajas.

No-one involved with the APP scandal was ever prosecuted or brought to legal book anywhere. Those foolish enough to have invested with the Widjajas absorbed huge hits. Most of APP’s debts were effectively written off and, like so many dodgy Indonesians and Singaporeans of that era, the Widjajas regrouped to do business another day – to pollute again.

As for Shanmugam, after firing off a few threatening legal salvos at the time to anyone who too publicly mentioned his connection to the Widjajas, he later resigned his directorships and resumed his legal and political career.

The Global Mail isn’t suggesting that Shanmugam was in any way party to the financial scandal that then engulfed the Widjaja empire. Indeed, all reports at the time suggested he was embarrassed by his links to the Widjajas. Nor are we saying that he is involved in the haze outrage that now engulfs them. And, despite being identified by Jakarta as a polluter, Golden Agri insists “there are no hotspots or fires” at its Sumatran plantations.

Should this assertion of innocence be proved wrong, Shanmugam, now as a minister, would at least know who to call when asked to bring miscreants to book; that is, if he doesn’t first recuse himself from official involvement given his one-time close links to the controversial Widjajas.

But that doesn’t seem likely. Last weekend, Shanmugam reportedly joined his PM and other government colleagues in handing out some of the million-odd facemasks Singapore has bought to distribute to low-income Singaporeans affected by the haze.

<p>Chris McGrath/Getty Images</p>

TGM emailed Mr Shanmugam a series of questions about his former links to the Widjaja’s Golden Agri but did not receive a response.

Singapore’s respiratory crisis has also shone a spotlight on some other local companies with interests in the controversial palm oil sector. One of them is particularly close to PM Lee, at the core Singapore’s politics-meets-business power apparatus: Temasek Holdings, Singapore’s influential state-owned investment company, which controls companies such as Singapore Telecom, Singapore Airlines and Australia’s Optus, also holds big stakes in myriad international businesses.

One of those investments is in CTP Holdings, Temasek’s Singapore-based joint venture with the US agricultural group Cargill. CTP operates oil-palm plantations in Indonesia. Last week, CTP was quick to say its holdings are well away from the current hotspots that have so polluted the Singapore environs. In any event, CTP’s backers claim their plantations operate a strict no-burn policy, and Temasek and Cargill have been keen to distance CTP and themselves from any environmental outrage.

Which is not how the US environmental lobby Rain Forest Network sees CTP’s operations in Indonesia’s Kalimantan region, to Singapore’s east; the group accuses CTP of clearing rainforest without permits, destroying watersheds and burning forests.

That Temasek was moved to publish a press release on the palm oil crisis at this time is itself instructive. It speaks to the rising opposition to Singapore’s Lee-led establishment, which revealed itself most eloquently in the last parliamentary and presidential elections, in 2011, in which the opposition not only fielded a record complement of candidates but made genuine gains against the PAP-dominated system.

Amidst the tumult from Tahrir Square and the tragedy of Syria, this ‘Singapore Spring’ hasn’t registered internationally with quite the impact of the Arab prototype that inspired it. But to the 5.3 million Singaporeans now coughing through yet another haze outrage blown in from Indonesia, their spring has arrived in the increasing accountability they demand of Singapore’s once impervious courtiers in running national affairs.

In a town where ‘normal’ political activity is deemed off limits, Temasek’s management has been a proxy political tool the opposition can fulminate about – Temasek as the symbolic vehicle of PAP patronage and performance.

Temasek and its likewise state-owned sister fund, the Singapore Government Investment Corporation, officially invest Singaporeans’ money. Like the more transparent sovereign wealth funds of democratic Norway and East Timor, and those more opaque in the Gulf monarchies, these two companies are national nest eggs owned by all Singaporeans, and in which every Singaporean notionally has a say.

Temasek, which by some measures has an interest in as much as 60 per cent of the Singaporean economy, has been run by PM Lee’s wife, Ho Ching, since 2003. And her patchy investment record would likely have seen her removed, had she performed similarly in any Western company. That record has increasingly been the subject of rational analysis, by academics and aspiring Singaporean politicians such as Kenneth Jeyaretnam, who would like to see these funds broken up and privatised.

Such transparency has been refreshing for Singaporeans, but other things don’t change. It remains out of bounds in Singapore to debate if Madame Ho got – and kept – her job because she’s a member of the Lee family. The last voice to publicly do this was a well-followed local blog, the Temasek Review Emeritus, which was swiftly threatened by one of the Lees’ notorious legal onslaughts en route to being forced into a grovelling apology. Today, it’s a rare Western media outlet – those with corporate interests or circulation in Singapore are particularly reticent – that will examine the Temasek record as they might similarly influential corporations elsewhere, such as Apple, Shell or BHP Billiton.

For media reporting on Temasek’s activities, official Singapore has insisted that it be accurate in its facts, and that it refer to Temasek as an “Asian investment company”. For good measure, Temasek would also prefer that any reference to Madame Ho as the PM’s wife be expunged. Singapore’s pliant media does what its told but foreign press is less observant of local sensitivities.

But the media, indeed anyone with cause to analyses Temasek, such as credit rating agencies and banks, can’t fulfill the latter requirements without noting the former.

Accuracy and investment decisions demand that Temasek be properly identified as being owned by the Singapore government. And there’s no avoiding the fact that Madame Ho, who often very publicly travels with her husband on state tours abroad, is Mrs Lee, a very powerful and wealthy Mrs Lee, if not always a particularly astute investor of her compatriots’ nest egg.

For all the putridness that the clouds now defiling Singapore and beyond are depositing, they may yet come with a silver lining, of more transparency for one Asia’s most rigid societies.

Wendi…back by popular demand…

“Cheers to Wendi! Gan bei! Drink the cup dry!”

It’s 8 pm on a freezing night in Xuzhou, and we’re having a jolly time in the Overflowing Fragrance dining room of the Sea Sky Holiday Hotel, an oddly named establishment given that this grim industrial city of 10 million people is 500 kilometres west of the Yellow Sea, and no place for a vacation. We’re toasting a thriving Chinese export, a girl born of modest means in nearby Shandong in December 1968 and given a politically correct name – Wen Ge, shorthand for ‘Cultural Revolution’ – as was the imperative for parents in that dark era. And what a remarkable journey to celebrate: catapulting herself from the anonymity and austerity of communist China to the family, and the family trust, of one of the world’s most powerful and wealthy men, and all by the age of 30……



CIC, Thaksin and BlackRock: how PCP tried to pull other investors into Mansour’s part of the Barclays deal by Clive Horwood, Eric Ellis Euromoney can reveal that advisers to Sheikh Mansour were courting other strategic parties to invest in Barclays at a time when the bank was marketing the importance of the cornerstone Abu Dhabi investor, raising questions about market confidence and disclosure. The revelations also shed light on the frustrations of China Investment Corporation about the transaction and the fund’s approach to dealmaking. Further reading Revealed: The truth about Barclays and the Abu Dhabi investment How David Mellor fought Staveley for his slice of the Barclays pie Barclays needs to come clean about its Gulf investments Euromoney’s article reveals for the first time the misleading information that was given out about the actual ownership of the securities that Sheikh Mansour was supposedly investing in during the Barclays capital raising. But the documents seen by Euromoney also show that a number of other investors were almost dragged into the deal by PCP and Staveley – for reasons that are not clear, and that there were discussions about which Barclays might have had little or no knowledge. Thaksin Shinawatra, former Thai prime minister, pictured with Mansour adviser Khaldoon Al Mubarak It appears that negotiations between Barclays, Mansour and PCP began in earnest in mid to late October 2008. On October 26, Barclays’ head of corporate legal counsel, Matthew Dobson, emailed Staveley and Eadie with a detailed schedule for the capital raising, on which due diligence was due to be completed on October 28 and an RNS announcement two days later. Dobson also circulated draft term sheets for the MCNs, the RCIs and the warrants. Within a week, PCP had sent out the documentation to a host of other potential investors. On October 27, PCP emailed its ‘Project Mandolin’ presentation to Pairoj Piempongsant, a key aide of the former billionaire Thai prime minister Thaksin Shinawatra, who was then exiled to Dubai after being ousted in a 2006 military coup in Bangkok. Pairoj had been intimately involved in the September 2008 sale by Thaksin of football club Manchester City to Sheikh Mansour, on which Staveley had also advised. The well-connected Saudi banker and royal fixer Abdulaziz Barakat Al-Hamwah was also emailed Staveley’s Barclays dossier on the same day. A day later, Staveley’s Barclays proposals were sent to Ken Griffin, the president of BGR Capital & Trade, which he had set up in 2008. BGR C&T is part of the leading US lobby group BGR, which was established by Ed Rogers and Haley Barbour in 1991. And on November 5, the Barclays material was sent to Larry Fink, head of New York-based investment house BlackRock. Larry Fink, head of BlackRock It is not clear why Staveley sought out these investors. Given there were, at the time, apparent doubts about the ownership of the PCP Gulf Invest vehicles through which the investments would be made, and which Staveley and Eadie were the official owners of, she might have been concerned about the possibility of not having sufficient funding in place. Or it might simply have been that Mansour and his advisers were, at that stage, unsure if they wanted to make a commitment for the whole £3.5 billion to Barclays, no matter what statements had been made publicly around the capital raising. It also raises questions about market practice and confidentiality. Sensitive market information was sent out to third parties before the official announcement of the deal eventually took place on October 31. Did Barclays know this information was being spread? And what steps were taken to ensure that people receiving it did not act on the information? BGR’s Griffin was certainly quick to pick up on a potential opportunity. A week later he contacted Staveley with his own take on the Barclays transaction. In this version, BGR Capital & Trade would be “allocated up to 50% of Sheikh Mansour’s pending investment in Barclays to resale [sic] to targeted investors”. For this, BGR would earn a 1.5% commission on £750 million of RCIs; and 3% commission on £1 billion of RCNs. PCP would pay these commissions to BGR, which could also charge investors an additional 1% to the fees earned from PCP. BGR “would endeavour to place units in slices valued at £100 million or more”. That meant big-name investors. In the post-financial crisis world they do not come much bigger than China Investment Corporation. And CIC wanted in on the deal. Porter Bibb, managing partner of US merchant bank MediaTech Capital Partners, contacted Fei Zou, managing director of the equity investment department at CIC in Beijing, on December 4 to say: “Because it was more than a little difficult for Amanda and PCP to put together [the deal] with Barclays, Sheikh Mansour, and the Qatar Investment Authority, it has taken longer than expected to firm up. She is in Dubai, sorting out which pocket the securities will come from, but will call you as soon as possible with confirmation of your request for £500 million of 14% RCIs plus warrants and details regarding costs and closing.” But this wasn’t the news that Zou wanted to hear, and clearly it did not go down well with his bosses. On December 5 he wrote to Staveley: “As expected, the senior management who were previously briefed on the potential deal with Sheikh Mansour and QIA regarding Barclays were more than frustrated by the current outcome. As an organization that is already over-weighted in the financial sector, our primary motive to entertain this potential opportunity is very simple – trying to establish strategic relationship with our counterparts in the Gulf region. We believe [,] in a world that is in desperate need of capital, our alliance will prove to be powerful and profitable. “The sequence of how things developed since we were first approached proved to be troublesome. From our perspective, the entire engagement is more about relationship than economics or profit maximization. Although we were offered to take on the entire allocation of the 750 million pounds of RCI and attached warranties for free, we only considered to take a portion of the allocation from the beginning. I believe the reason why you decided to approach us was also for long-term relationship. However, if we let things sit where it stands today I am afraid it will have serious long-lasting negative impact to the relationship between CIC and the organizations you are representing. That will be worse than if we never had any contact with each other.” Zou delivered a tough parting shot: “As the highest profiled investment organization out of China, and an organization with a deep pool of capital and unmatched connection in China, we take credibility seriously, and we only value people and organizations what [sic] think and behave alike.” Griffin advised Staveley that the “situation can be repaired if done with gentle tact and charm”. That only seemed to buy a little time. By December 14, Zou had written to Staveley’s PCP colleague, Jonathan Mowatt – who told Zou that Staveley was unavailable with “visa issues” at the time – to express strongly that matters had been handled inappropriately, and that on December 16 CIC would pull out of the investment if it had not yet been completed.



Revealed: The truth about Barclays and the Abu Dhabi investment by Clive Horwood, Eric Ellis Amanda Staveley earned an astonishing £30 million fee for her role in helping to secure Abu Dhabi’s £3.5 billion investment in Barclays in 2008, a deal on which Sheikh Mansour made a profit of more than £3 billion. Euromoney reveals the extraordinary tale behind that trade, the battle for £110 million in fees paid by Barclays to Mansour, and just how close-run a deal which saved the bank from part-nationalization was – which is currently the subject of an investigation by the Serious Fraud Office. Further reading Barclays needs to come clean about its Gulf investments How David Mellor fought Staveley for his slice of the Barclays pie CIC, Thaksin and BlackRock: how PCP tried to pull other investors into Mansour’s part of the Barclays deal Barclays’ Qatari capital-raising timeline Lunchtime on April 30 2009, and Amanda Staveley’s private banker on the Isle of Man has just emailed her with confirmation that a sum of £29.5 million ($45.7 million) has been deposited into her account. The note from Douglas might have provided a bitter-sweet moment for the Dubai-based Staveley, the Yorkshire-born dealmaker building a reputation gladhanding high-octane deals in the Gulf, after a hectic few months helping arrange one of the defining transactions of the 2008 global financial crisis: Abu Dhabi’s £3.5 billion investment in Barclays Bank six months earlier. Sweet because she had finally received a commission for the Barclays deal that she’d been sweating on Gulf potentates paying for a long time. But bitter because the amount received was some way short of what she’d initially hoped to garner for her role in the Barclays rescue, a deal dubbed ‘Project Mandolin’. The disclosure of the fees paid to Staveley and her firm PCP Capital Partners – revealed in a dossier of documents relating to the transaction and seen by Euromoney – will also stir mixed emotions among Barclays shareholders. At the time of the capital raising, many were up in arms at the highly generous terms offered not just to Sheikh Mansour bin Zayed Al Nahyan, the Abu Dhabi royal and UAE deputy prime minister, whose participation Staveley had helped arrange, but also to Qatar Holdings, one of neighbouring Qatar’s sovereign wealth funds. Euromoney’s disclosures cast the first light on what happened to the £110 million in fees paid by Barclays – and its shareholders – nominally to Sheikh Mansour, but in reality to a cast of advisers, associates and family members, of which Staveley was a big beneficiary. The documents seen by Euromoney – a collection of business exchanges, and emails written or sent by Staveley, her colleagues and her contacts from 2008 to 2009 – also show how public disclosures about the Mansour investment masked the realities of how close run the deal was, and how complex – and arguably misleading – the nature of the capital injection from Abu Dhabi was. They provide a fascinating insight into how the west meets the Middle East when it comes to doing business for eye-watering sums of money, as well as how frantic attempts to secure the money for the Barclays investment were, pulling in a range of some of the biggest names in the financial markets, from the US to China. The entire round of capital raisings by Barclays in 2008 – first a £4.5 billion injection in June by existing shareholders, principal among them the Qatar Investment Authority and Challenger, an entity representing Qatari prime minister Sheikh Hamad bin Jassim bin Jabr Al-Thani, followed by the £7.3 billion injection by Mansour and the Qataris in November – have been shrouded in rumour, mystery, intrigue and speculation. They are also the subject of investigation. Barclays has disclosed that the UK’s Financial Services Authority and Serious Fraud Office are looking into commercial agreements between Barclays and Qatari interests and if these were related to the two Barclays capital raisings in 2008. There is also an investigation by the US Department of Justice and the US SEC into whether or not Barclays’ relationships with third parties that assist Barclays to win or retain business are compliant with the US Foreign Corrupt Practices Act. Both investigations are cited in the independent review of Barclays written by Anthony Salz, a vice-chairman of Rothschild, published at the beginning of April this year. The Barclays transaction was Amanda Staveley’s ticket to a £30 million fee and a place among the Middle East’s elite In the review, Salz says that Barclays disclosed that “commissions, fees and expenses for the October/November capital raising amounted to £300 million, payable primarily to Qatar Holding, Challenger and HH Sheikh Mansour bin Zayed Al Nahyan… In view of the continuing investigations into these capital raisings, we have not considered issues concerning the sufficiency of disclosure or the commercial arrangements.” Barclays has already, and embarrassingly, been pulled up for the poor quality of its disclosure. When shareholders were given the chance to vote on the capital raising on November 24, they were told unequivocally that the investment was being made personally by Abu Dhabi’s Sheikh Mansour himself. The following day, the small print of regulatory disclosures showed that the £3 billion injection was actually in the name of the International Petroleum Company (Ipic) of which Mansour is chairman. The 2008 annual report, published in 2009, continued to refer to Mansour as the owner of the stake. Barclays says that it made amendments as soon as it was made aware of them, and that the annual report was a drafting error. But the bank was left with egg on its face when these errors were disclosed in a BBC Panorama documentary about Barclays in March this year. In fact, the documents seen by Euromoney reveal that the nature of Mansour’s investment was much more complicated than the drafting error revealed, involving a series of shelf companies called PCP Gulf Invest 1, 2 and 3 first set up in Staveley’s name and that of her partner at PCP, Craig Eadie, that were then transferred into Abu Dhabi’s beneficial ownership. But not in Mansour’s name. The transfer was into the private company of his close colleague, Khadem Al-Qubaisi, the managing director of Ipic and one of the most prominent businessmen in the Gulf. A filing posted to the UK authorities on July 8 2009 states in relation to a notification regarding a block of Barclays shares: “The option has been granted to KAQ, which is wholly owned by HE Khadem Al Qubaisi. The option is to acquire, at any time, the entire share capital (and not a portion only) of Kadin Holdings Ltd. (‘Kadin’). Kadin wholly owns PCP Gulf Invest 3 Limited, which, in turn, owns warrants exercisable into 758,437,618 ordinary shares in Barclays PLC at an exercise price of 197.775p. The expiration date of the warrants is 31 October 2013.” Staveley also claimed that she had arranged protection for Mansour against a further deterioration in Barclays’ position, and the potential for further capital raisings in that event – in effect, a well-paid free bet. A letter to Mansour from PCP, dated January 21 2009 and seemingly sent by Staveley, reveals: “When I negotiated the terms for your investment in Barclays last October, I anticipated that there might be instability in the price of the shares of Barclays and the other banks during the next few months, before the markets finally stabilised. I therefore required Barclays to give you a seven-month protection period for your £2 billion of ordinary shares, ending on 30 June 2009. During this period, any further issue of shares by Barclays, whether in the market or to the UK Government, at a lower price than the price we agreed last October for your shares (153p), will reduce the price you pay for each of those ordinary shares to that lower figure and thus increase the number of shares you receive for your original investment. An aide to former Thai prime minister Thaksin Shinawatra (pictured here with Mansour adviser Khaldoon Al Mubarak) was among third parties sent details of the Mansour investment before its announcement “The result is that if Barclays does have to issue new shares at a price which is (for example) half our agreed price, then you will automatically get twice as many ordinary shares for the money you have already invested. Your ordinary shares are thus fully protected against any issue of shares at a lower price during this time, down to a minimum price of 25p. “If this provision comes into effect, you could end up owning significantly more of Barclays Bank at no extra cost. The current UK market conditions for bank shares may therefore represent an important opportunity for you.” That wasn’t all. As Barclays was looking to secure the investment from Mansour, which it had publicly announced, Staveley and PCP were hawking the investment opportunity around to a number of other high-profile, potential investors. These were the head of the world’s biggest fund manager; the Chinese sovereign wealth fund; and the adviser to one of Thailand’s wealthiest individuals. More worrying still for Barclays shareholders was what happened to the £110 million ostensibly paid to Mansour as a fee for his participation in the deal. There is no question that the sum and calculation of this commission was properly disclosed by Barclays. In its regulatory filing at the time, Barclays said that the three principal investors – Qatar Holding, Challenger and Mansour – would each receive a 4% commission of the principal amount of the £2.8 billion of mandatory convertible notes (MCNs) for which they had respectively subscribed. Mansour’s share of this pot was £80 million. Additionally, both Qatar Holding and Mansour would receive a commission of 2% of the principal amount of the reserve capital instruments (RCIs) to which they had subscribed. Mansour’s share of this tranche was worth £30 million. The commissions would be payable even if the proposed resolutions were not passed by other shareholders at the general meeting. Contrast these sums with the figures received by the lead managers on the deal. Credit Suisse and JPMorgan Cazenove received a fee worth 0.75% of the MCNs, around £11.3 million. Their fees for the RCIs were just £900,000 each. At the time, shareholders questioned if the fees paid were appropriate, especially in light of the eye-popping interest rates that the three main investors would receive on the deal. The MCNs paid a coupon of 9.75%. And the RCIs paid 14%. At such levels, why did these already super-rich investors need further remuneration? The answer, in the case of the Mansour investment at least, was that he didn’t. Staveley was just one of a number of advisers to benefit, but at no point was it disclosed by Barclays that the fees it paid to Mansour would be passed to third parties. And these fees directly hit Barclays’ shareholders. The £110 million was withheld by the Mansour parties from the capital injection, meaning that the sum raised by Barclays was actually well short of the £3.5 billion the bank said it raised from Abu Dhabi. Shareholders might also consider exactly what Staveley did to deserve her almost £30 million bonanza, compared with the far smaller payouts received by the lead managers. Or they might compare it with the £1.1 million Barclays chief executive John Varley took home in 2008, having waived his bonus. And all of this should be taken in the context of the huge sums that Mansour and Ipic are said to have made from the transaction. Of course, Mansour should receive credit for making a savvy investment in Barclays at the bank’s lowest ebb. Barclays made it through the crisis without direct government support; its purchase of Lehman Brothers in the US was inspired; it returned to profitability; and its share price soared from its distressed lows. By June 2009, the Barclays share price had soared and it was time for Mansour to sell his MCNs. These converted into Barclays stock at £1.53; at the time, they were trading at over £3. In February 2010, Mansour reportedly exercised 626 million of his 758 million warrants at a purchase price of 197.7p when the share price was £3.02. He is understood to have exercised the final warrants in October that year. Industry estimates suggest Mansour made around a £1.5 billion profit on the sale of the MCNs and at least £750 million on the RCIs. But even these returns do not match the numbers that Staveley later claimed in an undated presentation showing the credentials of PCP Capital Partners. This document boasts: “On June 2nd 2009, Sheikh Mansour sold a large majority of his holding and generated a profit of c.GBP3.1bn, prompting the press to qualify his investment in Barclays as one of the ‘best structured and negotiated deals of the last decade’.” A handsome reward, and one for which it is traditional in the financial industry to reward your advisers. Staveley clearly made a great deal for her client, Sheikh Mansour. But the question remains: why were she and others effectively paid for that advice by Barclays, and not by Mansour? When contacted by Euromoney, a Barclays spokesman said: “In light of the ongoing investigations surrounding certain aspects of the 2008 capital raisings, Barclays is not able to comment on these matters at the moment.” Amanda Staveley and PCP Capital Partners were given several opportunities to respond to the facts in this story before publication, but failed to do so. For the then 35-year-old Staveley, the April 30 funds might have afforded her a moment of rueful reflection on what might have been if she had conducted things differently during the turbulent six months since the Barclays deal. Since arriving in the UAE in the mid-2000s, Staveley had handled a few deals while building a contact base, notably among the Abu Dhabi elite. The former Newmarket café owner, model and ex-girlfriend of the UK’s Prince Andrew had proved a skilled networker in her own right, artfully inserting herself inside the inner circles of various Gulf royals as she reinvented herself as a financier after the failure of a technology venture in Britain in 2002. But it was the Barclays transaction that signalled her arrival as a player in the region. Euromoney has learnt that the £3.5 billion Abu Dhabi investment in Barclays was no sure thing. It was a deal consummated as the UK financial system tottered; a transaction involving a key UK bank and crucial to the continuing health of the UK economy yet mostly arranged outside the reach and scrutiny of UK regulators who feared yet another taxpayer-funded bank bailout after the Lloyds, RBS and Northern Rock crises of the 2008 global banking meltdown. In the months following the Mansour deal, many in the City, Fleet Street and around the Gulf gushingly portrayed Staveley as a rainmaking superwoman, the “toast of Abu Dhabi” who had pocketed anything from £40 million to that £110 million in fees – reward for a tough year of power schmoozing, cajoling, jet-setting and seat-of-the-pants negotiating of the Barclays transaction. None of it was denied by the publicity-conscious Staveley. But the fact was that until that email from her private banker, Amanda Staveley hadn’t knowingly received anything much at all for Barclays, except perhaps the ego-boosting promotion. In fact, she and Craig Eadie were close to open warfare with the Mansour interests over the division of the Barclays spoils. Indeed, Staveley should perhaps count herself fortunate that she got anything at all for the Barclays deal. Through late 2008-early 2009 – crucially, after the Barclays/Mansour relationship had been secured – her relations with the Mansour camp had deteriorated to such a degree that as Christmas approached in 2008, Staveley was given a deadline to accept just £5 million or get nothing at all. At the heart of the argument over the fees paid to Staveley and PCP appears to be not just the advisory role that she and her company played, but also the fact that at one point her firm – or at least the special purpose vehicles set up within it – were acting as principals in Mansour’s investment in Barclays. Before the completion of the investment, David Forbes, a senior adviser to Ipic, emailed Staveley to tell her: “Further to our email of yesterday, Khadem has just confirmed that he does not envisage any requirement for PCP to be an equity investor in Project Mandolin.” Khadem is Forbes’s boss, the head of Ipic. Also addressed in the email was Ali Jassim, a close associate of Sheikh Mansour. The problem was that the three vehicles – PCP Gulf Invest 1, 2 and 3 – were originally registered in the names of Staveley and Eadie, rather than in Mansour’s. This issue appeared to be addressed in a draft letter seen by Euromoney, seemingly on behalf of KAQ Holdings – the personal holding company of Khadem Al Qubaisi. In it, KAQ offers Staveley and Eadie an aggregate fee of £5 million “in connection with your involvement in the investments to be made by PCP Gulf Invest… in Barclays as part of its capital raising exercise”. As part of the agreement, Staveley, Eadie and the company would promise not to “describe, or allow others to describe, yourselves or PCP or any entity in which you have any interests as agents of representatives of… the PCP entities”. These included KAQ Holding, Ipic and Sheikh Mansour. Nor could Staveley and Eadie “hold out… to have had any authority in relation to the PCP entities”. Finally, and in perhaps a prescient paragraph relating to Staveley’s cultivated media presence, the documents prevent her from making “any announcement whatsoever or enter into any discussions with any person, or give any interview, in any media form, to any person in relation to the transaction”. Khadem AI Qubaisi’s personal investment company, KAQ Holdings, ended up holding Mansour’s Barclays securities In all of this, the role of Craig Eadie can look confusing. Forsters, where he was a solicitor and partner, acted as legal adviser to PCP on many of its dealings. Eadie was also a founding partner of PCP. In September 2009, he left Forsters to join PCP full time. A torturous round of negotiations followed. At one point PCP offered to accept a fee of £25 million from KAQ Holding; but at the same time, it was claiming to be entitled to a fee of £41.7 million. In March 2009 and four months after Mansour’s Barclays investment, Staveley’s office prepared supporting material in advance of a rare audience with the elusive sheikh to secure the commissions she believed owed to her. Emails circulating her office describe the ill-feeling over who was paying PCP what and when. “To date we have received NO FEES regarding (the) Barclays transaction completed on 27th November 08,” her PCP adviser, Omar Hassanieh, wrote to Staveley as part of an email outlining the documents they would take to the meeting. If the reply of Staveley’s PA, Jo Mills, is anything to go by, PCP was ready for a fight: “We are going to go armed and we will get this fucking money,” she said. Eventually a compromise was reached. An agreement was made between the key players: on one side, the PCP parties, comprising PCP Capital Partners, Staveley, Eadie and former UK MP and government minister David Mellor. And on the other side the KAQ parties: KAQ Holdings, the three PCP Gulf Invest vehicles and Ipic. At no point is Sheikh Mansour himself mentioned as a party to the transaction, even though he had been presented as the ultimate investor in Barclays. The fee agreed, on the basis that all future claims against KAQ parties as well as Sheikh Mansour were dropped, was £30 million. A month later, that money less £500,000 entered Staveley’s account. The row never went to trial. It was certainly not in Staveley’s interests for it to do so; a public dispute over money with a figure as important as Sheikh Mansour would have damaged her ability to do business in the Middle East, where discretion is so highly valued. As it stands, Staveley’s position as a dealmaker to the Gulf elite is intact. Most recently, she has been looking to invest in the London property sector – in April, she revealed a near £300 million-plus bid by PCP Capital Partners and Qatar First Bank for a property in the exclusive Grosvenor Square. Staveley continues to gain attention in the media. A profile in the Daily Mail, published last September as the SFO investigation was launched, ran with the headline: “How this former waitress went on to ‘save’ Barclays…and is laughing all the way to the bank”. How close she came to real legal action against Mansour is unclear. However she did, in November last year, launch proceedings against Ukrainian oligarch Gennadiy Bogolyubov over an alleged failure to pay a £2.3 million success fee for his purchase of One Trafalgar Square. What remains least clear of all is what happened to the other £80.5 million in fees that Barclays paid to Mansour in November 2008. All the indications are that the £110 million fees were divided up on a rough-and-ready basis between Sheikh Mansour’s associates and advisers, once the fees from lawyers and bankers had been deducted. At one point, it was suggested that the remaining money be divided up between four of them equally: Staveley; Khadem Al Qubaisi; Al Jassim; and one Said, whose role or identity is not clear. The figure they had in mind? £20.7 million. Staveley, in the end, received considerably more than that.



How David Mellor fought Staveley for his slice of the Barclays pie by Clive Horwood, Eric Ellis Euromoney reveals how former British politician David Mellor, adviser to Amanda Staveley’s PCP Capital Partners, agitated for his cut of the Barclays fee, and the role of the former head of the CBI Digby Jones. Further reading Revealed: The truth about Barclays and the Abu Dhabi investment CIC, Thaksin and BlackRock: how PCP tried to pull other investors into Mansour’s part of the Barclays deal Barclays needs to come clean about its Gulf investments The British financial system teetered alarmingly through 2008 and 2009, threatening the collapse of one of Britain’s systemically important banks and the potential ruin of millions of Britons, but for some, Barclays was a chance for serious income. David Mellor, the former UK politician Among them was the former UK politician David Mellor. An erstwhile adviser to Amanda Staveley’s firm, PCP Capital Partners, when the £29.5 million hit Staveley’s account in April 2009, Mellor had already been pestering her office for a while over his presumed cut of the Barclays fee pie. Staveley, Mellor had claimed in an insistent email to her office a few weeks earlier, “always insisted that I should stick with her, and large sums of money would come my way… on a number of transactions, but most notably Barclays, I was promised a share of the upside.” Mellor was strongly hinting at legal action if she didn’t pony up as much as £5 million he claimed she’d promised him. “Throughout the 15 months I spent with Amanda, extravagant promises were made about money, not tied to any specific outcome on transactions, as against my being available to provide all manner of services to her, which I did, intensively, at great cost to myself in terms of time and effort, and of course instead of doing other remunerative things.” Digby Jones, the former head of the CBI Staveley also enlisted the help of another pillar of the UK business establishment: the ennobled former head of the CBI, Digby Jones, to recover her monies from the Barclays deal. In an email to Jones on January 8, Staveley asks him to “take those measures you feel necessary to facilitate the return of monies owed to me in relation to the Barclays transaction. I believe that you are working with David Mellor on this matter and that he has briefed you of the situation. PCP is keen to remunerate you and your team for your hard work, and I would welcome the chance to discuss my thoughts in relation to your fees.” Later, Jones’s role came to include dealing with an irritated Mellor. As the latter says in his email of April 1 to Craig Eadie: “When Digby Jones was being briefed by her [Staveley], the sum of £1 million was volunteered to him as the amount I was due on Barclays.” On May 5, Mellor wrote to Eadie again. This time he was complaining that the VAT on his fees had not yet been paid. Mellor wrote: “I relied upon you to deal with this not only on the basis of a debt due from Amanda, but a commitment given by your firm.. I want to draw a line under all of this, and so, I thought did you. So where is the cash?” The fees, it seems, had been paid. A ledger from PCP International shows a payment of £500,000 on April 29 relating to “DMC fees”. The name of Mellor’s business? David Mellor Consultancy. David Mellor was given several opportunities to respond to questions put by Euromoney, but failed to do so.




Oranges and Lemons: The Royal Houses of Europe

TODAY in Amsterdam, the Dutch royal family will perform something their ennobled Spanish cousins further south in Europe aren’t much inclined to publicly do these days – their job.

Admittedly, today’s majestic jollies at Amsterdam’s 15th century church, Nieuwe Kerk, are unavoidable if one’s privileged station is to bestride the Dutch kingdom, or the Koninkrijk der Nederlanden as it is formally known.

For it’s the day when leadership of the House of Oranje-Nassau, Europe’s most expensive to maintain, is invested with a new monarch. The throne will be passed from the matronly septuagenarian Queen Beatrix to her eldest son Willem-Alexander, a florid 46-year-old whom the Dutch like to call ‘Prince Pils’ because of his fondness for fun.

The throne will be passed from the matronly septuagenarian Queen Beatrix to her eldest son Willem-Alexander, a florid 46-year-old whom the Dutch like to call ‘Prince Pils’ because of his fondness for fun.

In keeping with this reputation, the event promises to be a massive party for most of the populace. Their new king’s investiture has been arranged to coincide with Koninginnedag, the annual Queen’s Day holiday when Nederlanders contract a 24-hour virus of oranjegekte. That is, they adorn most everything and particularly themselves with all things orange, the royal hue; it is the one time when the Dutch pocket their determined egalitarianism to hail their elite, and with much national gusto.

Indeed, if the investiture has a soundtrack, it’s not so much the ‘imbecilic’ official ditty, Koningslied (the ‘King’s Song’) – penned for the occasion but so unpopular it’s desperately in search of His Majesty’s first royal pardon – but rather the relentless doof-doof booming from party boats navigating Amsterdam’s canal zone.

Willem-Alexander’s is just the third accession to the throne in more than 120 years – Dutch royals having shown themselves to be impressively durable.

And despite the cost of maintaining this reigning family – almost €40 million annually – they are hugely popular, enjoying nearly 90 per cent approval by one measure. And among them, few are more popular than the comely Maxima, the new king’s blonde and big-haired wife, soon to be Queen.

Rather like Australian-born Crown Princess Mary of Denmark, Maxima has the advantage of being a novel foreigner, a professional woman – an investment banker before that calling became toxic – and one who mastered a relatively obscure language with chirpy acuity.


But unlike Our Mary of Hobart and her Scottish academic father, Maxima bears the inconvenience of being Argentinian, and of having a politician for a padre whose hands, if not dripping with blood, had certainly clasped a few that were when he was a minister in one of the world’s most brutal military dictatorships.

Maxima’s father, 85-year-old Jorge Zorreguieta, wasn’t welcome at the Nieuwe Kerk when his daughter married Prince Pils in 2002, and there’ll be no place for him today either when she becomes Queen.

It helps their popularity ratings that Dutch royals do appropriate things and that they aren’t politicians – for whom the Nederlanders reserve great derision. Rather, Willem-Alexander is said to be passionate, if that’s the right word, about water management, a big deal for a new king when around a fifth of his realm is below sea level.

It’s also expected that he will nod toward republican demands that the perks Dutch taxpayers provide their royals be slashed. In February, the Dutch economy slipped back into recession; a gentle one compared to the Club Med basket cases, but these are austere times in a country that has come to expect plenty.

Republicans want Willem to slash his pay by 80 per cent. He won’t go that far, but it’s expected he’ll do the royal thing and make concessions in that general direction.

The Dutch royals are not seen as so terribly out of touch as many modern monarchs. Maxima is a persuasive campaigner for immigrant, and lesbian, gay, bisexual and transgender (LGBT) rights; while Beatrix has often deployed her lacquered hairdo and handbag to useful effect in crafting government coalitions – and all the better, she believes, if they don’t include the divisive Islamophobe Geert Wilders with whom she is engaged in near open warfare. And there is genuine affection among the Dutch for the plight of Beatrix’s middle son, Prince Friso, now in his 15th month of a coma after being buried in an avalanche while skiing in Austria last year. It was Friso’s accident that is said to have hastened Beatrix’s abdication after 33 years as monarch.

But Dutch royal powers have nonetheless been eroded. Parliament last year voted to deprive the monarch of any role in forming governments and a wedge of lefty MPs will not make the customary pledge of loyalty at today’s ceremony.

Though there’s been much belt tightening among the ordinary citizens of crisis-wracked Europe, the continent still maintains a dozen monarchies. Some monarchies, such as Liechtenstein, are rich, but many, such as Spain, are struggling. And that’s led some to question their worth. Can a Europe contemplating an ever tighter union afford, or even need, royals?

From Scotland to Spain, from Norway to The Netherlands, as Europe struggles through a state of near-permanent economic crisis, tradition-confronting events like the Utøya massacre and a continent-wide backlash against immigration, Eurotrash royals are learning, painfully, to pull in their collective head and do what taxpayers pay them to do – play national symbol and dollop out liberal portions of cultural comfort food.

In Brussels, the Belgian royals are feeling the strain of political impulses that threaten to divide the country between the Dutch-speaking Flemish and Francophone Walloons. Likewise in The Netherlands, where Wilders is waging a pitched battle with the royals over who best articulates ‘Dutchness’: is it Wilders’ dog-whistling anti-immigrant, anti-European populism or Beatrix’s entreaties for Dutch tolerance and multi-culturalism?

In Oslo, Norway’s King Harald V has won new admirers for the sincerity of his family’s compassion in the wake of the Breivik massacre, and for his reiteration of Norway’s liberal and transparent values. In Copenhagen, it has taken the arrival of the Australian princess to revitalise a dysfunctional royal family widely derided for its fatal tendency to produce trashy toyboys and bad marriages. Likewise, Sweden’s King Carl XVI Gustaf recently cited “precisely the strength of the monarchy that the king can be an impartial and uniting symbol… [for] new Swedish citizens”.

But deeper European political integration threatens to render the continent’s royals as quaint museum pieces with no power or status, titular or otherwise. Some institutions, such as Britain’s Windsors, have responded with uncharacteristic nimbleness and pragmatism in reminding their subjects they’re still around, by being actively dutiful, or by marrying commoners – baby bumps on bland princesses help here.

It also helps the British and Dutch royals that their kingdoms are not Spain.

Spain, Europe’s fifth biggest economy, is doing its best to fast become its sixth. More than one in four Spaniards are out of work, near one-in-two for under-25s. And with Catalonia poised to vote for independence, there’s a very real prospect that the Spanish kingdom could break up. Re-installed by a dictator in the mid-1970s, Spain’s royals are discovering the hard way that being la familia real is no longer all fashionable vacations and soft-focus features in ¡Hola! Magazine. Indeed, its rare to see a Spanish royal much anywhere these days except in the scandal sheets.

“If there was a league table of European royal popularity, the Spanish royal family would be wooden-spooners,” says Scottish academic Professor Neil Blain of Stirling University, who in 2003 co-authored a book on the European royals, Media, Monarchy and Power.

Last year, King Juan Carlos disgusted Spaniards by tootling off to Botswana on a €50,000 safari – a trip that became a public-relations blunder por excelencia.

While on holiday, the 74-year-old king suffered a fall and had to undergo hip-replacement surgery when he returned. That required explanation, and La Casa Real provided only limited detail, spinning it with the aim of generating sympathy for his plight.

But details leaked from Africa that he had been on a hunting trip, an elephant-hunting trip moreover, and with pictures to boot, of Juan Carlos in hunting vest and rifle, proudly smiling beside the dead elephants and buffaloes he’d bagged.

If an expensive foreign jaunt wasn’t a good look for a royal in these austere times, when Brussels – and Germany – are demanding that Europe’s ‘garlic belt’ ingest some harsh economic medicine, then having a King who is, incidentally, the honorary head of your country’s World Wildlife Fund hunting pachyderm could only add national insult and ridicule to his injuries.

Never mind the titillation surrounding the ‘mystery blonde’ – Juan Carlos’s companion in Botswana – who was identified as Corinna zu Sayn-Wittgenstein, a 47-year-old German-Danish multi-divorcee. Amidst claims she’s been socially trading off her Zarzuela Palace connections, she’s now being portrayed as part Wallis Warfield Simpson, part Sarah Ferguson, part Caroline of Monaco.

Juan Carlos has form in this area, so the usually royally biddable Spanish media has also gone big-game hunting. It’s an open secret in Spain that Juan Carlos’s 50-year marriage to the Greek royal princess, Sofia, is a convenient sham. Spain has been titillated by a trashy bestseller, La Soledad de la Reina, The Solitude of The Queen, published last year, which documented the King’s alleged habitual infidelity, saying that he even once made a play for the late Princess Diana.

The House of Bourbon is still reeling from the King’s links to a financial scandal involving Iñaki Urdangarin, his favourite son-in-law. Urdangarin is married to the youngest royal princess, Cristina, and is, significantly, a Basque who lives in Catalonia, an embodiment of the two regions of Spain that have most vigorously agitated for separation, sometimes to the point – in the Basque region at least – of near civil war.

But the spivvy Urdangarin has outlived his national usefulness. He’s suspected of embezzling public funds, and the King has been embroiled, via documents that indicate he has vouched for his son-in-law in a series of dodgy deals.

A recent opinion poll showed republican support in Spain at 37 per cent – triple what it was 16 years ago – which suggests there’ll be no more African holidays for the lothario king, nor sympathy for his offspring any time soon.

Far better during these dark European days to be a Dutch king, docile and deferential.

Lite-Wing: Mellowing The UK Right For The Masses

IT’S just after dusk, ahead of a harsh winter’s night in Westminster. I’m inside Europe House, the European Union’s “embassy” in London, and Nigel Farage, one of its more controversial tenants, is late.

People with gravitas rush into the building, en route to a discussion of doubtless importance, on something about Europe’s future. But Farage, Member of the European Parliament and British politics’ New Big Thing, is not among them. He’s in the pub.

The mission’s sleek surrounds belie the fact that Europe is damaged. Britain is re-thinking its engagement with Europe and the world, and all reports have it that Farage, leader of the rising United Kingdom Independence Party (UKIP), believes the only direction the European Union is heading is down, and fast. Forty years after Britain joined the European Economic Community, predecessor to the EU, Farage reckons Europe is bust and wants his beloved motherland to be shot of it — and Britain’s porous immigration policy with it.

“All that happened is that we got cheaper labour, which is very good, but it’s not very good for the unemployed British people.”

And yet, since 1999 he has served in Brussels’ parliament in Strasbourg, as MEP for South-East England. You might expect an ideologue so virulently anti-Europe to choose, on principle, to be a million miles from its well-lubricated apparatus, but Farage the Euro MP seems to confirm the adage that it’s best to keep friends close, and enemies closer. His press officer Gawain Towler says: “We use the devil’s money to do God’s work in a sense. We stand in all elections. In the case of the European Parliament we stand because it is there, to not do so would be a dereliction.”

When Farage emerges from the gloaming, dapper in fedora and coat and trailing a fruity tang of beer and fags, I ask him what the meeting is about, that everyone has been hurrying to.

He neither knows nor cares, and his loathing is palpable. “They are always meeting about something or other, that’s pretty much only what they seem to do,” he says, adding a spiky “appalling lot!” that contradicts his otherwise hail-fellow-well-met joviality.

As Farage settles down to talk to The Global Mail, alongside the feisty Towler, he doesn’t mind admitting that he’s had a few quiet ones in the local. Now in the company of an Australian, he’s happy to talk about The Ashes and John Howard, the former Australian Prime Minister, whom he recently met with and much admires for having been tough on immigrants.

It all rather recalls that real or imagined country that the UKIP was formed to preserve, some 20 years ago: all Times and Telegraph and comfort food — well, maybe the occasional curry house; and good chums, preferably waspy regimental types, sharing a pint in cosy pubs by foreigner-free village commons where cricket and golf are sportingly enjoyed, the cream teas tended by womenfolk in sensible shoes, and nary a pinko in sight.

<p>Matt Cardy/Getty Images</p>

The first UKIP meetings, back in 1993, could always be identified “by the number of Bomber-Command ties in the room,” says Farage, a founding member. “This was the WWII generation who saw the Maastricht Treaty as a complete betrayal.”

Farage wants to change UKIP, to move it beyond a vent for protest. Mid electoral-cycle, he’s working hard to cement the party into the electable mainstream alongside the Conservatives, Labour and Liberal Democrats and give it a winning chance in 2015, when the next British election is due.

The UKIP battleground is Europe and immigration, which he sees as directly connected. Two decades on, and two years since he became UKIP leader for the second time, the populist Farage has deftly manoeuvred his party into the heart of this divisive debate. Europe’s economic eclipse, two British recessions in five years, even Margaret Thatcher’s recent death have all intensified the Eurosceptic tone, and Farage is flogging his newfound relevance for all its worth.

It also helps that Britain will soon be compelled under EU rules to open its labour market to arrivals from Romania and Bulgaria, who are among the poorest EU members, and now a useful bogey to exploit. On this point, UKIP has resorted to what many regard as scare tactics. The party recently sent an MEP, with the popular press attached, to Sofia, to tour some of Bulgaria’s appalling orphanages that house many Roma children. The implication was that the next stop for the poverty-stricken Balkan citizens, if they can make it over, is Britain.

“We think quite a lot might come,” he says. “The other side thinks nobody will come, but none of us know whether we’re right so why take the risk?

“We’re not just saying to people you can come and work. We’re saying, under EU rules, you can come and claim our benefits.”

“We want an Australian-style immigration system where we ask, ‘Have you got a skill to give us? Are you self-sufficient to a certain degree? Do you have a long-term, life-threatening illness? Have you got a serious criminal record?’ ”

But Farage is anxious to elevate UKIP above being a fringe single-issue protest party of “fruitcakes and loonies and closet racists”, as British Prime Minister David Cameron once famously described them.

“This isn’t a single issue… this is the biggest, most important constitutional question Britain has faced in 300 years. This is about, do we govern our own country or not? Already 75 per cent of our laws are made somewhere else.”

Farage — he prefers the à la française ‘farahzh’ pronunciation of his surname to the more Anglo ‘farridge’ — is particularly chipper after UKIP’s showing in the recent Eastleigh by-election in the English heartland of Hampshire. It polled 27.8 per cent of the vote, running a close second to the incumbent Liberal Democrats, and relegating the Tories to third.

Now Farage’s every move is documented by the national media — and by his political opponents too — and he rather likes the attention. He’s also getting international oxygen. His interview with The Global Mail is wedged between appointments with The Washington Post and Fox News.

“Things have changed a lot,” says the Kent-born former City commodities trader (among others, Farage worked for the notorious Drexel Burnham Lambert, infamous for its junk bond felon Michael Milken). “Five years ago, nobody in the national media would’ve picked up our point. They’d have thought we were away with the fairies,” says Farage.

No longer. On March 25, post-Eastleigh, PM Cameron made a tough landmark speech on immigration. Farage was duly quoted on the BBC’s Six O’Clock News as observing that the PM’s proposal to restrict entry had less to do with curtailing immigrants and all to do with UKIP’s poll numbers. Farage’s party has polled as high as 17 per cent nationally over the past month, pushing Cameron’s Liberal Democrat coalition partners into fourth position, behind Labour and the Tories.

“It’s remarkable that Cameron gives a speech on this major subject,” says Farage, “which he thinks is bold and tough and taking a risk. And it just bombs.”

Labour, too, has noticed, as have the LibDems. A week after Eastleigh, Labour leader Ed Miliband virtually apologised for Labour’s relaxed immigration stance during its 13 years in power. LibDem leader and deputy Prime Minister, Nick Clegg, then floated that “some migrants” from “high risk countries” could pay a £1,000 security deposit upon entry to the UK, a sum reimbursable on departure.

“They are all on the run,” Farage smiles, reflecting on his years at the obscure reaches of the political wilderness. “They’re scared and they’ve now all decided to come and join me on the football pitch. Oh, I do laugh to see them flailing around.

“They are in a state of hysteria about us,” he says, adding that “a large element of our vote in Eastleigh came from people who hadn’t voted for 20 years. That is a re-engagement.”

Labour-force mobility around Europe is a basic EU tenet, part of Brussels’ effort to equalise its 27-nation union. But the commotion stoked over Bulgarians and Romanians is similar to that of 10 years ago, when Poles, Czechs and the EU’s other new Eastern European members were first allowed entry to work in Britain.

A decade on, Polish builders and plumbers, Czechs serving lattes at Starbucks, and couscous at the Tate Modern are as much a part of the fabric of middle-class Britain as the sub-continental Patels and Iqbals, who opened corner stores that supplied Sunday papers and milk, became in the 1980s.

Moreover, Britons have discovered that the sun still rises over their elysian fields regardless of whether ‘Johnny Foreigner’ is tilling them for discount wages. And it’s an oft-heard refrain in England, that “Brits won’t do the menial jobs.”

Farage’s predecessor as the Brits-first UKIP leader, Roger Knapman — who, like Farage, is another Tory refugee — knows this only too well. In 2006, it was revealed that Knapman had hired Polish workers to cheaply renovate his historic Devon pile. Knapman claimed no British builders were available. Job-seeking British builders begged to differ.

“If pre-2004, [you thought] that the cabbages rotted in the fields and no plumbing got done, I would say rubbish,” says Farage. “All that happened is that we got cheaper labour, which is very good, but it’s not very good for the unemployed British people.”

He claims British youth unemployment was 600,000 when Poland joined the EU, “and today it’s a million. The correlation is very, very clear. You would struggle now in Lincolnshire to get a job picking fruit as an Englishman.”

Farage and UKIP are often portrayed as if they’d like nothing more than to march immigrants to the airport while billing them for the passage home. But he insists he is not anti-immigration. “I want a balanced, sensible immigration policy which takes account of the fact that in the last decade, we have absorbed more people than we have for 100 years.

“We should take people with the necessary skills and qualifications to fit in well with our society. Speaking English could be useful here, you know.” At this point, press officer Towler chips in to describe how his Australian doctor girlfriend, who is of Indian-Fijian descent, applied to work in Britain’s National Health Service and was forced under EU rules to take an English-language test; the test was conducted by a Pole who had lesser linguistic skills than Towler’s Commonwealth-raised and trained girlfriend. Farage shakes his head in disbelief.

Channelling former Prime Minister of Australia John Howard, Farage says, “we want an Australian-style immigration system where we ask, ‘Have you got a skill to give us? Are you self-sufficient to a certain degree? Do you have a long-term, life-threatening illness? Have you got a serious criminal record?’… I mean they’re the questions we should be asking.

“Ours is, ‘if you come from anywhere in Eastern Europe, come on down. You’re a career criminal? That’s fantastic, we’ll give you social housing. You commit crimes repeatedly? That’s alright, we’ll give you a few weeks in prison here and there but please stay, please go on committing crime…’

“We can’t say anyone can come, we have to apply some sense of balance… [be] rational, logical,” he adds.

Migration Matters Trust recently calculated that halting net migration, as UKIP demands, would cost every British taxpayer £137,000 extra over their working life. “We would turn into Greece.”

Farage pleads UKIP’s “liberal-democrat principles” in saying “this is not about scapegoating groups of people. I don’t blame them. Because of our commitment through the European Union, we can decide who comes here from Pakistan still, but we can’t decide who comes from Romania from next year. And that is insane.”

What is as insane, says immigration advocate Atul Hatwal of British cross-party thinktank Migration Matters Trust, is if Britain closes its doors to immigrants. He says UKIP is “whipping up panic” over immigration. “It simply captured an angry mid-term protest vote, nothing more. We see it time and again in politics, people pissed off with the main parties and lashing out to send a message.

“The immigration debate is solely seen through a negative prism, tapping into that fear of the other,” he says. But Hatwal himself is not beyond a bit of scare-mongering to get attention. He says Britain needs its current rate of immigration to keep the basic economy turning over, and to pay for the “demographic time bomb” of an ageing nation.

Citing the government’s own data, Hatwal’s MMT recently calculated that halting net migration, as UKIP demands, would cost every British taxpayer £137,000 extra, over the period of their working life. “We would turn into Greece,” he warns.

With UKIP support surging across Britain, Farage claims the clichéd white, 60-year-old ex-military chap is no longer typical of the party’s membership. Today’s UKIP champions, Farage says, are self-employed tradespeople, families from the lower-middle classes worried about their jobs and future, and angry that the established political parties don’t speak for them.

Farage describes UKIP’s “changing” membership as “most eclectic”.

“If you go to the bar at a UKIP conference, you’re likely to have the Duke of Rutland buying you a beer as you are a dustman from Gloucestershire.”

He claims that during the last European elections, UKIP had more candidates who were gay and from ethnic minorities than other parties. “We don’t separate groups,” says UKIP press officer Towler, “It doesn’t matter…”.

But if UKIP has reformed its “Bomber Command” profile, as Farage insists, this is not reflected by its 11 members elected to the European Parliament; these are all men, all white, and with an average age of 61. Towler says, “Those selections were made six years ago, a lifetime in UKIP years. Even so, at the time we had two women and the only ‘out’ lesbian elected.”

Farage says he sees little evidence of Islamophobia in UKIP’s support. He agrees there’s an element of Italy’s Beppe Grillo-style protest about their vote — “but not much”.

Indeed, Farage can sound at times more like an Occupy-movement-Grillo hybrid. “Big Business, Big Banking and Big Politics very actively works to defend itself and to defend a model that is failing. We are seeing a wholesale rejection of the career political class. We’re not just taking on the Tories, we’re taking on the entire establishment.

<p>THIERRY MONASSE/AFP/Getty Images</p>

“No, our enemy is over the road here,” he says, referring to the Tory-led government, “These gutless, chinless wonders who all go to the same school, the same Oxford colleges, none of them have ever done a proper job in their life, they’re career politicians. They’ve got no hobbies, no interests, they married each others’ sisters and these are the people running the country.”

I quip that they speak well of Farage too. He smiles. “I couldn’t give a damn. I don’t care. It doesn’t matter. We’ve got the bland leading the bland. It’s almost as if our politics is dead, on really big issues. It is irrelevant who gets into Number 10 Downing St.”

David Cameron is a “catastrophe” as PM says Farage, who adds that it’s presently a ‘score draw’ between Cameron and Edward Heath as to who is the worst post-war Conservative leader. He also doesn’t think Boris Johnson, London mayor and increasingly Cameron’s presumptive heir as Tory leader, will become PM.

As senior Conservatives fret about support leaking to UKIP, with some calling for rapprochement with the ex-Tory Farage, he doesn’t rule out an alliance with his old political cohorts, saying, “I don’t know what’s going to happen.”

But UKIP can’t quite shake the tag that it is the “lite-wing” of the extremist right British National Party, or “BNP in suits” as it’s frequently derided. Farage says “there’s not much of a meeting of minds with the BNP. They’re protectionist, we’re free trade, they’re island, we’re libertarian, they’re authoritarian, they’re socialist, we’re free market.”

Although it’s drawn from the right of the political spectrum — UKIP’s membership is littered with disaffected Tories like Farage — he also blanches at comparisons to the US Tea Party and its campaign to transform the Republican Party. “We’re not religious, we’re not a pressure group within a party to change a party,” he objects.

He likes his own comparison, that UKIP might be the new Reaganite-Thatcherites, with its appeal reaching across to the aspirational blue-collar vote. But that seems wishful thinking. UKIP’s surge has thrilled Britain’s Labour opposition — for its purposes, what could be better than a party whose 24,000-odd members see themselves as the truer heirs to free-market Thatcherism than Cameron’s ‘caring’ Tories? The Labour Party is polling at around 38-42 per cent to the Conservatives’ 28-30 per cent and though Farage is keen to spin it otherwise (claiming that the party is also drawing support from the Labour heartland), UKIP’s support comes primarily at Tory and LibDem expense.

He blanches at comparisons to the US Tea Party and its campaign to transform the Republican Party. “We’re not religious, we’re not a pressure group within a party to change a party.”

Under Britain’s first-past-the-post voting system, UKIP doesn’t hold any parliamentary seats and is unlikely to win any nationally if support remains at current levels. Though doing well in mid-term opinion polls, Farage knows UKIP needs to move on from being a protest vent, lest voters decide come election day that a vote for UKIP would be a waste. Despite his contempt for most things European, Farage would like to have a more continental-style – he favours Germany’s – voting system, of the kind that elected him to the European Parliament in Strasbourg, even though changes to Britain’s voting system were recently rejected in a referendum.

Britain’s system, which continually delivers government with less than half of the national primary vote, has fallen into disrepair, he says. “There is a big disincentive for people to vote at all.” Farage chose not to run in the Eastleigh by-election; to do so would’ve meant giving up his European seat — and its perks. “The irony is I’ve got a much greater reach where I am” as an MEP. “But we’ve got to break through under the first-past-the-post system,” he says.

As he prepares to embark on a whistle-stop campaign for the May 2 English county elections, leading into the European elections next year, he reveals he also intends to run in the British poll in 2015. “I’d have to,” he says.

Farage has worked hard to clean up UKIP and push it into the mainstream. UKIP’s constitution now forbids membership to supporters who have been associated with the BNP, the National Front, the English Defence League or other extreme nationalist organisations.

But UKIP can’t quite shake Cameron’s loony-right tag, and perhaps for good reason. One of Farage’s more prominent UKIP colleagues in the European Parliament is Godfrey Bloom. Over his years as a public figure, Bloom has claimed that the early onset of the European ski season is evidence that climate change is a furphy; he has grumbled that women “don’t clean behind the fridge enough”, and has claimed that he was elected to Strasbourg “to represent Yorkshire women who always have the dinner on the table when you get home”. He has admitted that he often frequented brothels when he worked as a businessman in Hong Kong; claimed that most prostitutes “do it because they want to”; and stated that “no small businessman with a brain would employ a woman of child-bearing age”. Oh, and he once had to be carried out of the parliamentary chamber by an intern after delivering a speech fuelled by a few strong refreshments.

One of Britain’s leading Europeanists, Richard Corbett has published a forensic examination of UKIP on his website. A long-time Labour MEP until he lost his Yorkshire-based seat in 2009, Corbett is now an advisor to European Council President Herman Van Rompuy, or ‘Rumpy-Pumpy’ as Farage calls him. Corbett has crossed swords with UKIP more than once, notably via his “25 Things You Didn’t Know When You Voted For UKIP” — a pamphlet that UKIP has unsuccessfully tried to shut down.

It’s a damning indictment of the party’s historic links with Holocaust deniers, the extreme-right National Front and the British National Party.

Such old friends can be unwelcome when a party is on the make. When the far-right racist English Defence League endorsed UKIP last week and urged Britain’s nationalist parties to lie doggo to give UKIP clear electoral air for the collective cause, Farage quickly distanced UKIP from the “abhorrent and stupid” EDL.

“There is no global warming. And there hasn’t been since 1995, so we have to get some sense and perspective on this.”

His press officer, Towler, is another divisive figure among some of the UKIP membership, who think him a loose cannon. He told The Global Mail that he was a fan of Australian Liberal leader Tony Abbott. But Towler’s admiration for prominent conservatives didn’t extend last year to the then co-chairman of the Conservative Party, Baroness Warsi, the first Muslim and only the third woman to run the Tory party machinery. While making a guest appearance during the BBC’s local election coverage last May, Warsi mused that the rise of UKIP support might be linked with the decline in electoral appeal for the far-right British National Party. Towler was quick to tweet “Warsi **** off. How dare you. Bitch” to his 1,700 followers, which set off a storm around Westminster and the Twittersphere.

As many called for his head, Towler apologised for his quickly deleted “out of order” tweet that Farage casually dismissed as much-ado-about-little. “One of my press officers said something he perhaps shouldn’t have said, but hey — anyone who watches The Thick Of It knows in politics bad language does get used,” he said. Towler told The Global Mail,My head is still attached to my shoulders, and she [Baroness Warsi] has been demoted, as you are aware.”

Farage may also have to rethink some of UKIP’s international party alliances in his push for the centre. UKIP is part of a Eurosceptic Europe of Freedom and Democracy bloc in the European Parliament. Its Dutch partner is the Bible-based Reformed Political Party, a hardline theocratic party which until recently opposed female membership in its ranks, and which closes down its website on Sundays. UKIP’s Slovakian ally is the ultra-nationalist Slovak National Party, often described as fascist and notorious for its attacks on Slovakia’s ethnic Hungarian and Roma communities. The Italian partner is the Lega Nord, Silvio Berlusconi’s erstwhile coalition partner, while its Bulgarian associate is Euro MP Slavcho Binev, who featured in a WikiLeaked cable, “Who’s Who in Bulgarian Organised Crime”, that was written in 2005 by the US Embassy in Sofia. It said Binev, who was a keynote speaker at UKIP’s annual party conference in Exeter in March, controlled a group whose “criminal activities include prostitution, narcotics, and trafficking stolen automobiles”. For his part, Binev told a Bulgarian newspaper he regarded the people on the embassy list as “blossoms” who were helping Bulgaria’s transition to capitalism.

He describes it as “a delicious bloody irony” that his London office is housed in what, for him, are the very familiar surrounds of 32 Smith Square, in the stately shadows of the Palace of Westminster. Since 2010, Number 32 has been Europe House, but for 45 years, until 2003, it was headquarters of Britain’s Conservative Party — Farage’s political mecca until he defected in disgust from the “dreadful” Tories after Maastricht, and joined UKIP on its foundation a year later.

As a European MP, Farage avails himself of official Europe’s many conveniences. The post provides Farage with an office close to Westminster, where his real work is done. Indeed, the generous European taxpayer-funded perks, privileges and pensions provided by Brussels to its MEPs, on top of a €91,980 annual salary, add up to a benefits package which one watchdog group has calculated to be as much as £1m over a five-year MEP term.

But for a man of such self-stated conviction, 49-year-old Farage seems nothing if not pragmatic. A supporter of press freedom, Farage’s communications were hacked by Rupert Murdoch’s journalists — he was one of thousands of Britons to have been targeted. “I didn’t like it, I wasn’t up for it… it wasn’t right,” he says. But where many other victims of phone hacking have contempt for the Murdoch regime and have been actively campaigning to rein in its command over British public life, Farage chose to dine with Rupert Murdoch at his Mayfair flat last month. The invitation came after Murdoch tweeted approvingly of UKIP’s second-place showing in the Eastleigh by-election, and of “new leaders emerging”. Farage described Murdoch “as a remarkable bloke” who he “enjoyed meeting enormously”. Indeed, he met Murdoch and John Howard in the same week. “It wasn’t bad, was it?” he laughs.

He says if Britain withdrew from the EU, it “would become Greater Switzerland — we’d just boom”. He points out that London is the world’s biggest foreign-exchange clearing house for euros despite — he says it’s because — the fact that the UK is not a member of the Eurozone.

“We need appropriate regulation… not an almost neo-communist attitude to free markets. These idiots in Brussels think the reason the euro is in trouble is because of evil speculators in New York and London. It’s all baloney.”

A ‘Brixit’ (British Exit) from the EU, he says, would also mean Britain could be free of Europe’s “excesses of this global-warming lunacy. We are directly closing down British manufacturing and sending them to India… because we’ve signed up to the [EU’s] 20/20 package”, which has pledged to reduce greenhouse gas emissions by 20 per cent compared to 1990 levels by 2020, among other initiatives.

“There is no global warming,” Farage insists. “And there hasn’t been since 1995, so we have to get some sense and perspective on this.

“I’ve always said I’m agnostic on whether CO2 emissions lead to global warming, although the more the years go on, the more I’m not sure I see the link with this.”

But Farage is most exercised by Europe. “I can’t really explain what it is about this whole European question,” he says. “Back in the ’90s… my business colleagues — people at the pub, at the golf club — they all thought, ‘Has he gone bonkers? What’s he been smoking?’… but right from the start I just knew I was right [about not joining the EU].

“My views have changed in one way,” he says. “When I was elected in 1999, dark-haired, shy” — at which point he laughs and adds, “and if you believe that you’ll believe anything” — “I took the view that Britain was a square peg in a round [European] hole.

“But where I’ve changed personally is that I used to think, ‘If south of Calais that’s what they want, they’re welcome to it.’ But I now don’t just want Britain out of the EU, I want Europe out of it too.

“Their flag, their anthem, and [European President] Herman Van ‘Rumpy-Pumpy’ — they’ve hijacked Europe, they’re claiming ownership of a continent and they haven’t got the consent or the legitimacy to do it.

“The EU is bust, not just financially but morally as well. I now believe that this is a project that is run by extremely dangerous people.”

Europocalypse Now

What’s that shocking smell wafting around Europe?

Well, if you were sniffing in a Netherlandly direction on Wednesday, you’d have caught an unmistakable tang of fear among the thrifty Dutch, who for a brief moment during a banking technical malfunction thought they’d become the latest Eurozoners to have their hard-earned whipped from their accounts by incompetent bureaucrats.

Across the nation, many customers of ING Bank, one of Europe’s biggest banks, logged on – that is, when they could get online – only to discover that their credit balances had inexplicably turned into rather serious overdrafts.

“Are we Cyprus?” a concerned client implored of no-one in particular but of everyone gathering at ING Bank’s fast-filling Harlemmerdijk branch, in Amsterdam’s Canal Belt. Hassled staff handed out free water in bottles hued in Dutch-orange, and tried to mollify us with assurances that all was well in Dutch banking and, no, Amsterdam had not suddenly turned into Nicosia.

As bank runs go, this one was pretty pathetic; in this branch it consisted of about 25 confused punters sucking their ING-sourced H2O while lining up to punch their PINs into ATMs that weren’t working anyway. And the Dutch are a trusting lot, at least they became more so after news sites summoned on smartphones revealed there had been no announcement of The Netherlands having morphed into a Mediterranean basket case. Or, more to the point, when the headlines from those same sites reported that the Paniek! was prompted by a bank cock-up – technical and not state policy. It wasn’t quite panic on Harlemmerdijk on Wednesday, but it was heading toward that side of the straat for a little while there.

<p>Yiannis Kourtoglou/AFP/Getty Images</p>

As things got fixed and Dutch banking returned to his staid old self as Germany’s branch office, by the end of this befuddling day, it served to confirm that old adage that when suspecting a conspiracy, it’s best to plump for a cock-up every time.

But if there was a particularly bad time for a major European bank to have technical malfunctions, that time would be now, barely a week after Brussels and Berlin spooked Europeans by demanding that Cypriots – and their Russian banking clients – accept the trimming of as much as 60 per cent from their deposits held in the island’s banks, instead of the usual state-funded rescue now commonplace elsewhere. Interestingly, it was a Dutchman, the country’s finance minister Jeroen Dijsselbloem, who had expressed the view that the Cypriot ‘bail-in’ provided a useful template for future financial rescues in Europe, until he was roundly slagged for doing so, and duly backtracked.

Meanwhile, tiny Cyprus continued to rage that it had been bullied by Brussels, because that’s what bureaucratic Goliaths do to would-be Mediterranean Davids when given a chance; and the Russian oligarchs and the mates of Putin who had turned Cyprus into an offshore banking centre (maybe because they don’t trust that their own banks won’t be looted) reckoned they’d been ripped off.

Comprising less than 0.2 per cent of the collective Eurozone economy, Cyprus is in no position to punch back, and will be even less empowered as its economy contracts by a forecast 8 per cent this year. But Russia, with its Europe-bound oil and gas, can. And doubtless will exact revenge at a time of its choosing. Watch this space.

With such a precedent set in Cyprus, spooked Europeans elsewhere fret that it’s potentially open season on their own savings, too, if their economies were to get stuck deeper into the Euromire.

So it’s not a lot of fun to be European right now?

Hardly. With such a precedent set in Cyprus, spooked Europeans fret that it’s potentially open season on their savings, too, if their economies were to get stuck deeper into the Euromire. It’s been an austerely long five-plus years since they were first confronted by this crisis, and there seems to be no end in sight.

If personal deposits are now directly threatened, economists worry that for more and more Europeans, those who have the funds and the know-how, it might be “Hello Singapore” and “Bye-bye Siena and Sevilla” for what’s left of their euros, and maybe “Hello Hong Kong” and “Vaarwel!” to the likes of the Harlemmerdijk branch of ING, with its orange bottles of placatory water.

Still worse news came in the form of the latest unemployment data from Eurostat, Brussels’ official gatherer of info on all things European. Joblessness across the 17-member Eurozone is now a record 12 per cent, ranging from the virtual full employment of Teutonic Germany and Austria to the staggering 26.4 per cent and 26.3 per cent out of work in hard-hit Greece and Spain, respectively. The Eurostats confirmed this was the 22nd consecutive periodic rise in Europe’s jobless, which would be political cancer if the Brussels-based commissioners running the continent were elected — which they are not.

Unemployment among school leavers and under-25s is particularly high. In Spain – 55.7 per cent of them can’t get jobs. And it’s so bad in Greece, where youth unemployment was measured at a staggering 58 per cent in December last year, that they seemed to have stopped counting. There’s much concern, not least among politicians, for the social unrest that might erupt from this lost generation.

And on Thursday, even more Euro-grief. The mighty German economy, which anchors (read rescues) all this mess, was revealed to have slowed to “near stagnation” in March, according to a closely watched factory-door survey which monitors manufacturing across Europe. That same Markit purchasing managers’ index also revealed that manufacturing in France, the Eurozone’s second biggest economy, had declined to its worst point in four years.

Surely things are turning around somewhere?

Hmmm… if money and credit are the lubricants that make economies motor, here’s a scary screenshot that suggests the Eurozone is in desperate need of another fiscal grease-and-oil change:

<p>Source: @finansakrobat on Twitter</p>

This is collated data from Eurostat and the US Bank of America Merrill Lynch. It shows how credit growth – lent money – has evaporated over the past two years in select Eurozone economies. Spain, which has always been grim on this front, has only grown grimmer – but look how Italian credit provision has slumped. And to think that Brussels has been telling Europeans that the worst is over.

So it’s no wonder national voters are flocking to political protest movements?

That’s right, in Greece, Spain and elsewhere but in Italy where the spiky former comedian Beppe Grillo’s Five Star Movement got 25 per cent of the vote in last February’s polls, railing against the ancien regime hasn’t yet done them any good. Two months since the regime change, pivotal Italy is as ungovernable as ever, making the euro as wobbly as ever. Asked to form a government by the outgoing president, the centre-left’s Pierluigi Bersani said he wouldn’t deal with the right’s Silvio Berlusconi, the three-time PM desperate for a fourth term. And finger-pointing kingmaker Grillo won’t do deals with anyone, correctly claiming they are all corrupt. “Only a mentally ill person [would wish to govern Italy],” harrumphed a disgusted Bersani as he exhausted his coalition options. So that leaves the technocratic Mario Monti in office, who collected only 10 per cent of Italians’ votes in February.

Italy, Spain, Portugal, Ireland, Greece… and now Cyprus is the latest nightmare. Who’s next?

If you take the fashionable view among economists and post-Cyprus Euro-fretters – that it’s preferable for a country’s banking system be broadly proportionate to its economic output, that banking assets should more or less equal the national widgets and services produced – then Europe has a chronic monetary migraine.

According to London-based economic research house Capital Economics, Cyprus had a banking system that was seven times the size of its economy — it was the no-questions-asked Iceland of the Med, as Russians saw it. There were similar stashes of cash in Ireland too, before the one-time ‘Celtic Tiger’ crashed in 2008.

Now Eurostat data shows Malta’s bank-assets-to-GDP ratio to be even higher than those of troubled Cyprus had, at more than 7.6 times. Of course, the Maltese government puts it at closer to three times, which makes everyone feel so much better.

Tiny Malta won’t crash the EU or the euro of itself, but another depositor ‘bail-in’ along the lines of Cyprus, if it comes to that in Valetta, will confirm what more important Europeans in bigger but risky economies such as Spain and Italy already suspect is Brussels policy. And any resultant capital flight in the Eurozone proper – say, a supersized version of what was nervously contemplated by some on Wednesday this week in Amsterdam – would surely sink the euro.

Many analysts also look gloomily to Slovenia, which is reported to have bad banking loans equal to one-fifth of its GDP.

And as analysts calculated its bank-assets-to-GDP ratio at a whopping 20 times, secretive Luxembourg – the discreet European plutocrat’s preferred retreat, and one of the six original EU members – was moved in a rare government explanation to insist that it wasn’t a Cyprus-in-waiting, because German banks are its biggest clients.

So that’s all right then. Except it’s not. Because this is Europe today, and neither the people nor the markets much believe those who lead them

Monte dei Paschi: Shaken to its foundations

Through late May and early June last year, an intriguing document suddenly appeared in the inboxes of those who make their living absorbed by the baffling intricacies of Italian banking. The paper was a challenge to anyone with a dodgy internet connection, a chunky 10 megabyte PDF file spread over 151 pages. When printed, it was about as big as a medium-sized book, not quite a felled forest but rather more than a casual weekend read for those who received it. It read almost as if it was an excellent piece of fact-based journalism – impeccably detailed and referenced to clear inside sources and informants. The report wasn’t journalism, but what would prove to be a prescient research paper from two London-based Italian analysts, Andrea Filtri and Antonio Guglielmi from Italy’s biggest investment bank, Mediobanca. The Mediobanca paper painstakingly documented what many observers of the Italian banking scene believe is a fundamental flaw in many of the country’s banks, and one that many analysts believe requires urgent reform if Italy is to progress out of its economic funk and develop a modern, transparent banking sector. The paper examined the control exercised over these banks by the regional authorities, Italy’s increasingly notorious fondazioni: supposedly charitable private foundations based on provincial municipalities that have morphed in many cases into vehicles of political patronage and influence. And, as if addressing the argument often made that a bank’s research department is a profit-chewing cost centre, Mediobanca’s ‘Italian banking foundations’ would prove an invaluable read for anyone who happened to be invested in Italy’s third-biggest commercial bank and the world’s oldest, Banca Monte dei Paschi di Siena (MPS). Were they so moved by the study’s conclusions that suggested some of these foundation-controlled banks were an accident waiting to happen and a sell, a few hours spent devouring the Mediobanca paper in June would, seven months later, save them millions as MPS delivered the murkiest scandal in Italian banking in years. The MPS drama came as a nasty new year’s surprise for Italy, against the dramatic backdrop of an excitable nation in full election mode and the first papal abdication in six centuries. Giuseppe Mussari, ex CEO at Monte dei Paschi. Is a politician and lawyer suitably qualified to run a bank? Giuseppe Mussari, ex CEO at Monte dei Paschi. Is a politician and lawyer suitably qualified to run a bank? In January, MPS suddenly teetered on the edge of collapse when it was revealed the bank had suffered €730 million in unexpected and undisclosed losses. The market never likes surprises, particularly nasty ones, and the MPS revelations were very nasty. Three long-standing, gone-wrong derivative contracts made years ago with Deutsche Bank and Nomura were discovered in a bank safe in Siena, their details undisclosed in the bank’s official accounts over several years. Then, on March 7, came a tragic turn. As Italian investigators plumbed the MPS accounts, the body of the bank’s communications director, David Rossi, was discovered on the street beneath the open window of his office at MPS headquarters in Siena, an apparent suicide. Rossi had primarily worked as ex-CEO Giuseppe Mussari’s spokesman, and while police said that Rossi himself was not under suspicion, friends had described him as very worried after his house and office had been searched by investigators. “The death of David Rossi is a terrible tragedy,” MPS has said. “This tragic event imposes first of all respect for his person, for the mourning of his family and for all of us, and calls on us to find the strength and the courage to go ahead and continue in our commitment.” The discoveries of the previously unaccounted Deutsche and Nomura transactions resulted in a hurried €3.9 billion government cash infusion arranged by the central bank, the Banca d’Italia, and would develop into a messy, continuing and typically Italian corruption scandal connecting complex layers of politics, bureaucracy and business. This being Italy, the Catholic Church was involved as well. As Italian investigators make arrests and widen their probe into the circumstances of MPS’s €9 billion deal in 2008 to buy Banca Antonveneta from Spain’s Santander group (which had bought Antonveneta for €6.6 billion just months earlier), the drama has again highlighted the opaque links between Italian banks and the cosy regional foundations that own them, and what happens when banks aren’t run by properly qualified professionals but fall into the grip of local authorities and the political parties that infect them. Seven months and the Banca MontePaschi scandal on, Mediobanca’s analyst Andrea Filtri feels that events have borne out the hard labour on his exhaustive study. “The market has responded to my paper very positively, that I did it with actual numbers and real analysis,” he told Euromoney. “But the foundations responded negatively to my conclusions. “The conclusion, and it’s an important one, is ‘you need to change’, and that means increasing the skills of asset and portfolio management in the boards, removing the political influence.” If Filtri’s paper read as if it was written by an insider, that’s because it was. Through 2009/10, before he joined Mediobanca in London, he was an executive at the Turin-based foundation Compagnia San Paulo, which was created in the 16th century and is today the largest shareholder of Intesa Sanpaolo, Italy’s second-largest bank after market leader UniCredit (which also has foundations as large shareholders). “I realized as an analyst that the market was unaware of these connections, in knowing what this foundation world was about and how the banks behave. There was an obvious opportunity for me to fill the gap.” Much of the data in the Filtri paper encapsulates events in and around Italian banking up to the end of 2010. “I did not need to go further to 2011 because the conclusions would’ve been the same, even more harsh,” he says. “It’s an inevitable conclusion you get to if you don’t change the current path.” Filtri is bemused by what transpired after his report was aired. “Officially all the foundations rejected it, but then in private they all agreed with me and invited me to private meetings to discuss their financial position and help them out in repositioning their portfolios. “The foundations tried to reject the conclusions, but they have not provided one single document to refute my conclusions that they don’t agree with. They have simply dismissed it without giving any documentation of why they should dismiss it.” He insists: “Italian banks are not a time bomb. Yes, the foundations need to reform, but the Banca d’Italia has been very tough on capital requirements, and they tend to be much safer than some of their European peers.” Siena is a famously beautiful town. Art lovers flock to its exquisite frescoes, most notably the 14th-century murals of Ambrogio Lorenzetti in the medieval town hall, the Palazzo Publico. The most celebrated among his work here is the six-series Allegory of good and bad government that contrasts the effect of good government – peace, prosperity, bucolia – to that of bad government – tyranny, drought, dysfunction. A metaphor for MPS. Ambrogio Lorenzetti’s Allegory of good and bad government In one striking fresco, Justice is held captive by a tyrant as characters depicting Pride, Greed, Deception and Fraud gather around. It’s an image many shocked Sienese now regard as an apt metaphor for the travails of their hometown bank, based for 572 years just metres away in the Palazzo Salimbeni. The MPS scandal has brutally exposed the connected networks that underpin Italian banking at a time when the wider economy is under particular scrutiny in a concerned Europe six years into economic sclerosis and obsessing about whether or not the euro has a viable future. Tuscany is at the heart of Italy’s ‘red quadrilateral’, a huge tract of central Italy also taking in the regions of Marche, Umbria and Emilia-Romagna that is a heartland of the left-leaning Democratic Party (PD), which sprang from Italy’s Communist Party. The Siena region is a PD stronghold, and the party has much influence over the Fondazione Monte dei Paschi di Siena, the largest shareholder of MPS. “The governance problem is a real issue for Italian banks,” says Tito Boeri, professor of economics at Milan’s Bocconi University, “and that is very much related to the issue of these foundations.” As was painfully evidenced in Siena as MPS imploded, politics infuses the decision-making at many of these foundations and the banks they control. Observers such as Italy’s finger-pointing political activist Beppe Grillo have described some of these banks as little more than slush funds positioned to finance the political party that controls them. “It’s not just a problem of the Democratic Party,” says Boeri. “Wherever you go it’s the same. The Lega [the right-wing Milan-based Northern League] is very much into this; the PDL [of former prime minister and billionaire Silvio Berlusconi] is also very much into this.” Boeri says: “The issue is local politics and of local politicians getting into banks.” He cites a famous tapped telephone conversation in 2009 made public when the Democratic Party grandee Piero Fassino was discussing Italy’s Banca Nazionale del Lavoro as an extension of his party’s apparatus. “We have a bank’ he said,” recalls Boeri. Boeri says less than 5% of Italian banks have “appropriate governance” and “genuine integrity” as banks. He says the MPS scandal has again highlighted the shortcomings of the foundation system, magnified by the surrounding election campaign because MPS is so intimately associated with the Italian left now jostling for power. “This is the thing of the local politicians, to have a bank, and in order to ‘have a bank’ you need to become a mayor of the town,” Boeri says. That becomes a governance problem, he says, for the effective running of mainstream banking business, because those who run them or sit on their boards are often not qualified bankers skilled in basic banking practice and procedure. At MPS, for example, Mussari, its now-ousted chief executive, was a lawyer and a PD luminary. “The foundations nominate their people into the banks; in some cases 20% to 30% of board members are politicians,” Boeri notes. “And then you have a lot of people with no background in economics whatsoever.” Boeri cites Mussari as a prime example at MPS. He also rose to be head of Italy’s banking industry lobby, ABI, the Association of Italian Banks. “He’s a lawyer and a politician,” Boeri says. Mussari stepped down from ABI in the wake of the MPS scandal, but Boeri says his replacement at ABI, Antonio Patuelli, “is the same – another lawyer and a politician”. Neither Mussari nor Patuelli made themselves available to be interviewed by Euromoney. Italian Democratic Party leader Pierluigi Bersani was undone at the polls by the MPS scandal Italian Democratic Party leader Pierluigi Bersani was undone at the polls by the MPS scandal The Banca Monte dei Paschi scandal reminds Italians how difficult financial sector reform can be. The bank is Italy’s third biggest, controlled by the foundation in Siena that’s most closely connected to Pierluigi Bersani’s Democratic Party. The fallout from the scandal almost certainly torpedoed any chance Bersani had of winning the February 24 election. Although his centre-left coalition led in primary votes, it was well short of what Bersani’s opinion poll numbers were showing before the election. Italians turned instead to the gadfly activist Beppe Grillo, voting his internet-based Five Star Movement as the biggest single party in the Italian parliament. Although a potential kingmaker, Grillo has refused to do deals with either Bersani or ex-PM Berlusconi. Grillo told Euromoney last year he wants “massive reform” of the Italian economy, and the foundation system is on his agenda. Mediobanca’s Filtri says prime minister Mario Monti, installed as a technocrat at the instigation of European Union powers in late 2011 to stabilize the then fast-deteriorating Italian economy, “agrees 100% with foundation reform”. But Monti polled poorly in the election in the anti-austerity voter backlash. Italy remains in political limbo, with new elections looming again to try to break the political deadlock. Italy’s many foundations are gathered under an umbrella interest group, the Association of Italian Foundations and Savings Banks, known by its Italian acronym Acri. After Italian banks were semi-privatized in the 1990s – a reform that was “half-finished,” says Boeri – to come under the control of these regional foundations, many would later merge or be taken over. Boeri says this process led to a critical dilution of influence for local players used to having their way around their regions and throwing their weight around Rome too. A national association, Acri, which Boeri describes as a “coalition or lobby group”, today boasts 88 bank-related foundations, controlling more than €50 billion in funds and assets. Observers such as Italy’s finger-pointing political activist Beppe Grillo have described some of these banks as little more than slush funds positioned to finance the political party that controls them Observers such as Italy’s finger-pointing political activist Beppe Grillo have described some of these banks as little more than slush funds positioned to finance the political party that controls them Acri’s long-time chair is Giuseppe Guzzetti, a 79-year-old back-room stalwart of the Christian Democrat party, which dominated Italy’s post-war politics until it imploded under the weight of the notorious Tangentopoli, or Bribesville, corruption scandals of the early 1990s. Guzzetti became Acri chair in 1997. Boeri describes Guzzetti as a “political powerbroker”. Some 20 years on, the result of this “politicization” of the foundations, Boeri says, is that whenever there have been calls for reform and modernization of the system, as has loudly been so in the wake of the MPS scandal, these calls meet resistance across Italian politics because there’s no appetite to reform both a source of party financing as well as a vehicle to finance public activities with a political hue. “Now if you say anything against these foundations you get people protesting all over the place across the political spectrum,” Boeri says. That creates potential issues for Italy’s place in a Europe pushing for reform and deeper transparency in its financial institutions. Traditionally one of Europe’s more xenophobic banking systems, Italy’s foundation regime is challenged, Boeri says, by the increasing push within the EU, led by Germany and helped by Brussels, to have a greater supervisory role and standardized regulation control over member nations’ economies and banking systems. “The problem will be reduced by Europe’s role but it would not completely sort out the problem,” Boeri says. He says the Banca d’Italia has a good supervisory regime, and adds that he doesn’t believe what happened in Siena was a failing of the central bank, but one of governance and procedure at MPS itself. “If you give powers to strengthen it or remove the boards [of conflicted banks], that may help. We will not solve the problem unless we reduce the share and the control of the foundations. That’s the condition.” He adds: “Banca MontePaschi is not an anomaly; given the governance structure of banks, this is something that could happen in any other place.” Neither Acri nor Guzzetti responded to Euromoney’s invitations to be interviewed. However, in an article published in the Financial Times on February 17, Guzzetti was quoted as insisting that the Banca MontePaschi drama was a one-off. He denied that the foundations controlled Italy’s banks, adding that their aim was solely charitable. “We are philanthropic organizations, and our grants help Italians with their social needs at a time when the government is having to cut back its support,” the FT quoted Guzzetti as saying. As for possible post-election reform of the foundation system, Mediobanca’s Filtri says he fears the outcome will not give anyone enough political confidence to tackle reform. “What happened to the Banca MontePaschi foundation is a disgrace, and there is strong public opinion in favour of reform,” he says. “But it needs bipartisan reform, and it’s a difficult thing to do.”


In Spain, Running With The Bullshit

THE A369 road south from Spain’s literary retreat of Ronda, the mountain town that so inspired Hemingway, Welles and amigos, meanders photogenically through Andalucia’s famous pueblos blancos, whitewashed villages punctuating one of Europe’s more spectacular mountainscapes.

With their architectural nod to Arabic neighbours, Andalucia’s charming white towns are daubed like splashed paint over verdant cork forests and russet olive groves. The region’s Rio Genal, which locals regard as the continent’s cleanest waterway, burbles through this stunning naturaleza to the Mediterranean’s gates near Gibraltar.

But for all its natural splendour, the A369 is also a corridor that tracks the epidemic of smalltown corruption that has crippled Spain — and Europe with it; a cancer infecting communities like these across this once-proud nation, Europe’s fourth-largest economy.

Negotiating the A369, it’s virtually impossible to find a municipality among the dozen or so through here that hasn’t been tainted by institutional graft; the petty thievery of ratepayers’ cash, the sleazy backhanders to get an illegal development approved, the tacky local follies sanctioned by dodgy mayors, and built by their relatives.

As scenic as it is, the A369 is a byway of bribery, a carretera of crookedness.

“There is so much corruption here,” says Jon Clarke, transplanted Englishman and editor of the Ronda-based newspaper The Olive Press, a local sheet that has done much to expose the region’s smalltown shenanigans.

“I would say [it’s] in 90 per cent of the town halls here. Sadly money talked and developers got their way by paying bribes, which were all too happily accepted in most towns.”

The A369’s corruption cancer starts in Ronda itself, where locals have been absorbed by the dramas that have engulfed former mayor Antonio Marin Lara, a charismatic local powerbroker known as Toti.

Toti is notorious in Ronda for his role helping the €200 million ($250 million) Los Merinos development, a massive luxury hotel and golf course of villas that had been approved inside a UNESCO-protected environmental zone near the historic town.

Developers had eyed the Los Merinos site hungrily for years but development finally took off during Toti’s four-year mayoralty from 2007, when credit was easy and Spain’s flashy property-led boom was at its most boisterous.

“It was an outrage and it was not being exposed locally as all the local press were in train to the developers.”

The Los Merinos project had been set up illegally, according to an exhaustive investigation by nearby Malaga University’s department of criminology. Still, this was the time where official papers and permits could easily be obtained if the right palms were greased.

Parading himself as the big man about town, Toti was a regional boss of the centre-left Partido Andalucista, which campaigns for nationalism in Spain’s most populous region. But when the PA ran out of usefulness for him and wasn’t able to deliver the mayoralty, he joined PSOE, Spain’s Socialist Party, which happily for Toti held power nationally.

Toti’s ayuntamiento, or town hall, was known by developers as an easy touch. But as Spain descended into economic mire, the party came to an end in late 2011 when the town hall was raided by federal police. Toti and six local officials were carted off as investigators levelled allegations of ‘‘economic crimes’’ — bribery, fraud, money-laundering being just a few of them.

Pointedly, the Toti raid was conducted by Spain’s crack drug and organised crime department of the national police force despatched from the capital. Madrid wasn’t taking any chances, essential in a febrile atmosphere when local cops are often part of the same problem.

Today, Toti cools his heels on bail, awaiting trial and protesting his innocence, one of 300-plus Spanish politicians facing corruption charges.

With such a staggering number of elected officials facing graft allegations in a country where more than one in four people are unemployed, it’s unsurprising then that a January 12 poll in Spain’s national El Pais newspaper showed 95 per cent of Spaniards believed official corruptors were protected and covered up within Spain’s two major political parties, PSOE and the ruling Popular Party.

If just 5 per cent of Spaniards remained of the view that their politicians were clean, they would have been in for a shock just three weeks later when it was revealed that leading officials of the PP, including Prime Minister Mariano Rajoy, had received undeclared payments averaging about €25,000 a year since the 1990s.

These funds, painstakingly doled out by the PP’s now disgraced treasurer Luis Barsenas, had been trousered by MPs and officials since the mid-1990s, their share of donations made by boom-time construction companies and parked in Swiss bank accounts. Rajoy, who denies the allegations, has only just survived the crisis, protected in part by the PSOE opposition, which has its own myriad skeletons.

But protected for how long? In Italy, popular disgust at the institutionalised corruption at municipal level was one of the factors that spurred the rise of Beppe “Pox-on-All-Their-Houses” Grillo’s activist Five Star Movement. After elections last month, 5SM’s ‘Grillinis’ are now the biggest single party in Italy’s Chamber of Deputies, spooking the political establishment in Rome. Spain has similar movements in embryo, mostly coalescing around the finger-pointing indignado protests, the periodic mass demonstrations that have been inspired by the Arab Spring uprisings. But no movement with Grillo’s electoral impact is evident yet in Spain, and grassroots corruption continues apace here.

At Los Merinos, building has stopped but its scars on the landscape, like so many of Spain’s crisis-interrupted developments, remain.

The long-running Los Merinos debacle was the catalyst for Britain’s former Daily Mail reporter Jon Clarke to set up The Olive Press in Ronda after he arrived in Andalucia a decade ago. “It was an outrage,” he says, “and it was not being exposed locally as all the local press were in train to the developers.

“We investigated it, published it and the story got followed up in the UK national press, then in the Spanish national press in return. To say we became persona non grata would be an understatement.”

Clarke says he and his staff received a succession of anonymous threats; a Spanish government minister described them as “mafia tactics”.

FROM RONDA, it’s a short drive south along the A369 through several more white villages. One village off the road, Juzcar, is no longer white but blue after painting itself for a Smurf movie publicity stunt and discovering that tourists liked it.

For Juzcar, a future steeped in sickly Smurf blue might have been a better option than another one it was facing; Libya’s late dictator Muammar Gaddafi owned thousands of hectares of land in these valleys, a repository for some of his corrupt oil-derived billions. And in December, Spain seized €28 million worth of luxury property owned by Egypt’s deposed ruler Hosni Mubarak, including seven villas on Andalucia’s Costa Del Sol, just south of here. Political successors are now pressing for these holdings to be turned over to the new governments in Tripoli and Cairo.

Most of the whitewashed towns along here have populations of little more than 500 people. But the administering of small communities is no impediment to mayors awarding themselves handsome salaries.

What would be ordinarily voluntary posts in most Western democracies are too often in Spain politicised honeypots to which you attach yourself to, and then your relatives, while there is an opportunity to do so. Spain’s small towns are a wellspring of political patronage that reach into national party ranks, on all sides of the Spanish spectrum.

Some of the mayors along here take home more than €50,000 a year, tasked with little more than attending council meetings and scrawling the occasional signature on a permit, legal or otherwise.

A recent study published in Spain’s El Economista business daily found that eight Spanish mayors earned bigger official salaries than the country’s Prime Minister, who earns €78,000 annually. Admittedly, some were the mayors of some of Spain’s bigger cities: Madrid, Barcelona, Valencia and Bilbao.

But some were not. After persistent national calls to limit the powers and perks of local officials, Rajoy’s government finally moved in December, upsetting all sides of Spain’s parliament. Many sitting MPs sprang from these mayoralties but meanwhile were keeping the home fires burning until they could possibly return, should affairs of state in Madrid take a nasty electoral turn.

Spain’s small towns are a wellspring of political patronage that reach into national party ranks, on all sides of the Spanish spectrum.

Rajoy’s decision to limit mayoral salaries to €68,000 a year meant that instead of eight Spanish mayors earning more than the country’s Prime Minister, it was now 20, some commanding cities with fewer than 100,000 people, some commanding rather unimportant suburbs of big cities.

A LITTLE FURTHER DOWN THE A369 is the town of Gaucin, with its floating population of about 2,000. It’s famous for its resident artistic community, and for the sturdy bridge gifted by Hitler’s Germany during the Spanish Civil War, (built by Berlin, it’s said, just in case it needed to move tanks and troops to lay siege to British-held Gibraltar).

Gaucin is infamous for the shenanigans in its ayuntamiento. The town has endured four mayors in six years as disgusted locals have turfed out one after another amid allegations of recidivist councillors’-hands-in-the-till and misuse of public funds that have virtually bankrupted the town.

There have been revelations of cash of unknown provenance deposited in Swiss accounts, of missing people and a mysterious death, of developments sprouting in areas regarded as rural zones, and apartment buildings on unstable land.

One notorious complex is known as “Landslide Villas”, built and precariously poised above the town’s primary school. Completed just as Spain’s economic crisis was worsening throughout 2008-09, it has remained mostly uninhabited since.

Gaucin is also famous for its glorious views, to Gibraltar and the Pillars of Hercules at the Mediterranean’s gate and, if the weather is clear, deep into Morocco. Africa and Europe are at their closest points near here, just 14 kilometres apart.

In the middle distance to the east, one can see the environs of Casares, another pueblo blanco of about 4,000 people. To get to Casares, one has to leave the A369 and take the A377. But it’s a road no less laced with corruption.

Last May, Casares’s colourful mayor, Juan Sánchez, was arrested by police and anti-corruption investigators in a sting now known as “Operation Majestic”, so named for the town’s Majestic development of 500 properties that was approved by Sánchez.

By small town standards, Majestic is one complex scandal. The now ex-mayor Sánchez is suspected of accepting payments and laundering money on behalf of the mafia in Russia and Eastern Europe.

Investigators have been probing the “unusual wealth” of Señor Sánchez. His wife has claimed she found five successful lottery tickets in his clothes while tidying up.

He started his political life as a member of Spain’s Communist Party, which had been virtually outlawed during the Franco era that ended upon the caudillo’s death in 1975. Sánchez first became Casares mayor in 1979 aged 25 and has been in and out of the town hall ever since, until his arrest.

Now he stands accused of playing financial footsies with the Russian mob, as investigators spread their probe across several countries, in what seems just another day in the life of a smalltown Andalucian mayor.

The Triumph Of The Pissed Off

From Brussels to Rome, his political opponents dismiss him — at their peril — as a clown, but Beppe Grillo, the Italian comedian-turned-activist movement, is nothing if not a man of his word.

When The Global Mail talked to him for a few hours last May, he told us his grassroots Five Star Movement (M5S), had just had its ‘Stalingrad’ moment, and that ‘Berlin’ was next.

At that stage M5S had just triumphed in Parma, where voters, disgusted by a huge scandal that had almost driven the region into bankruptcy, handed Grillo’s group 60 per cent of their ballots in the run-off for the mayoralty.

“We have a shared agenda in this project for the world.”

As the world is witnessing this week, Grillo’s war analogy was well-chosen; Stalingrad was World War II’s decisive battle, which saw tyranny pushed back all the way to Berlin.

By Berlin, Grillo meant Rome. But now that he’s all but taken the Italian capital — pulling 25 per cent of the vote in this week’s election –  could Berlin, which today runs pretty much all matters European via Brussels, be the next to blink?

In Berlin they see the euro rising and falling to the turmoil that Grillo and his political vigilantes have unleashed in the Eurozone’s third-largest economy. And titillated Europeans — anxious and marooned by austerity — would like to know what the nerve he’s touched in Italy means beyond.

The Grillo/5SM victory in last weekend’s Italian elections sends warnings about how politics is transacted everywhere. And it’s not just politicians he’s after, but the whole matey, conflicted, rotten construct that has accumulated around them; which includes the established media, the bureaucracy, the legal system, big business and, because this is Italy, the clerics, too.

Grillo believes the aims of M5S have application beyond Italy’s borders. As he told us, “We have a shared agenda in this project for the world,” he says. “We are like a laboratory for this type of movement.”

<p>Giorgio Cosulich/Getty Images</p>

Basta! Italians said, very loudly last weekend. Enough! His is a triumph of The Pissed Off, and Grillo, along with many in M5S don’t just want the bloated bad guys out of their comfy offices and state-provided cars, houses and pensions. They want them in prison.

5SM electoral bunting was conspicuous by its absence on Italian streets during the national campaign. This deliberate omission by the movement led its antedeluvian rivals to believe M5S was nothing more than background noise; a nonsense factor of little consequence to the election. That’s because all the noise that mattered was being made online — Silvio Berlusconi for one has admitted he doesn’t understand the internet — and the outrage was then transferred straight to the voting booth.

Grillo is on the verge of creating something very interesting. As he made very clear yesterday, he’s not interested in being a kingmaker; rather, he wants a total overhaul of democracy, to bring parliament and legislating directly back to the people, and to deal with matters issue-by-issue rather than by party machinery or bloc.

Grillo knows he risks alienating and losing his somewhat anarchic netizens if M5S does deals. But he also knows there’s another, more moderate push within M5S, which argues that with power in its grasp, now is the time to push the M5S legislative agenda. This division also opens ground for the established parties to exploit.

Grillo and many in M5S don’t just want the bloated bad guys out of their comfy offices and state-provided cars and houses. They want them in prison.

As a protest movement, M5S is part Occupy, part Pirate Party, and even part Tea Party, and then some. Labelled by the right and the commentariat as the leader of a leftist movement, Grillo has pointedly reserved the most stinging of his criticism for the old Italian left, describing the centre-led Democratic Party leaders as ‘political stalkers’ and ‘dead men talking’, and demanding they resign.

Grillo says M5S is not right, left or centre, or anywhere on the traditional spectrum, it’s primarily about being clean, and then it’s about direct, issue-by-issue consultation with Italians.

Grillo also believes M5S’s emergence on Italy’s political scene, at a time when the country was sliding into a crippling economic funk, has helped checked the rise of extremists such as Greece’s Golden Dawn, and Geert Wilders and imitators in The Netherlands and elsewhere. This is particularly poignant in Italy, the shores of which have proved to be a porous first-entry point for immigrants. Grillo told The Global Mail Europe’s political establishment “should thank us” for providing a valve for Italian frustrations, as unemployment has soared. A succession of political scandals has also helped focus grassroots outrage to him.

Ignored by the traditional media — which suited the net-savvy Grillo’s direct-democracy movement just fine — Grillo’s Parma victory was widely predicted by conventional commentators to have been a one-hit wonder. The consensus was that Parma would be the limit of the three-year-old M5S’s activism.

Then came last weekend’s poll, in which Parma voted for M5S in greater numbers than Italians did nationally. After M5S’s six months in the mayoralty — during which it has begun to restore the fortunes of one of Italy’s richest cities — it had won the trust of the locals, who clearly like what they’ve seen so far.

Labelled by the right and the commentariat as the leader of a leftist movement, Grillo has pointedly reserved the most stinging of his criticism for the old Italian left.

The movement’s effect has been similar in Sicily, where last October M5S became the island’s single biggest party after regional elections, having been just pipped to the post of actual power by a centre-left coalition. In the regional election, M5S polled 18.2 per cent, but last weekend, after four busy months helping to remake how politics is practiced in Palermo — cutting MPs’ perks for starters — M5S took 34 per cent of Sicilian votes in the national poll.

Because the Italian establishment is so rancid, it’s easy for Grillo to show the upside of change. One example, as he told The Global Mail, is that he wants to abolish Italy’s 110 provinces, to remove a superfluous layer of bloated government and patronage, and save Italians more than €10 billion a year. That would please budget-minded Brussels too.

The provincial posts he would nix have long been cosy little cabals for the established parties; a favour bank for vote-delivering cronies resistant to reform. Now, with M5S’s deputies in parliament pushing reform, woe betide the crippled institutional parties that resist — everyone is trying to chime in with the public mood that M5S has exposed.

Another big M5S idea is to reform Italy’s state pension system. It’s said that one million Italians live directly off the proceeds of politics; that thousands of former bureaucrats and retired politicians receive taxpayer-funded pensions of as much as €20,000 to €30,000 a month.

“Pensions above €3,000 a month should be abolished,” Grillo told The Global Mail. As this former auditor has in many Vaffanculo (‘fuck you’) rallies, told millions of Italians who accusingly raise their middle fingers toward Rome: “It’s time to take this wretched country back.”

The message from these fascinating Italian polls to Italy’s established elite is clear: the jig is up and we’re coming for you. What we’re seeing in Rome is only the beginning.

Fact-Checking The Geert Wilders Road Show

In the bewildering battle of ideas, ideology and spin, facts are important.

But the ugly confrontations that have marked the Australian tour of the extravagantly coiffed Dutch politician Geert Wilders — the Islamophobe whom Norwegian mass murderer Anders Breivik cited as an inspiration — have seen truth fall by the wayside.

Wilders’ trip to our shores was sponsored by The Q Society, an obscure group of “unhyphenated Australians” roused to halt the “further Islamisation of our Nation”. It spruiks its man with claims that the politician’s anti-Islam message has the support of “one million Dutch voters”. Muslims in The Netherlands number close to one million, around 5 to 6 per cent of the population, concentrated in cities such as Amsterdam and Rotterdam.

The Q Society also claims that since last September’s elections in The Netherlands, Wilders’ Freedom Party has “climbed to 25 seats in the polls and would likely be the second strongest party if elections were held now” — the ‘now’ being February 11, when the society published a press release promoting the Wilders tour.

That claim was amended from a more extravagant version of the same press release, in which the Q Society claimed that Wilders’ party “is currently [in early January 2013] the largest party in the polls”.

Even as the pompadoured Dutchman urges Australians to summon their ANZAC spirit to keep at bay marauding Muslims (who now number around 2 per cent of the Australian population), The Global Mail has learned in Amsterdam that none of the Q Society’s statements is quite correct.

Yet the Q Society’s claims about Wilders and his party’s standing in The Netherlands have been blithely repeated in Australian media reports, such as those written by Melbourne-based News Ltd polemicist Andrew Bolt.

While critics of the Wilders tour are being demonised as “un-Australian”, the devil, as is often the case, is in the details.

So how popular is Geert Wilders among the Dutch? Does he lead the most popular political party in The Netherlands, as the Q Society has claimed? Or even the second most popular, as it has also claimed? Is Wilders poised to sweep to power in The Netherlands on an Islamophobic ticket?

First, let’s take the Q Society’s ‘one million Dutch voters’ claim.

The PVV, as Wilders’ Freedom Party is known by its Dutch acronym, officially received just over 950,000 votes in last September’s elections, which is about 10 per cent of the national popular vote.

That’s 50,000 votes between claim and fact. The Q Society rounds the Wilders vote up to a more impressive sounding ‘one million’, which in The Netherlands could’ve meant more crucial representation in parliament. But on his party’s own website, Wilders thanked 950,263 Dutch voters for their votes. which won him the 3rd biggest bloc in parliament. After having helped create the Rutte government in 2010, he then blew it up by refusing to back its government austerity budget, forcing last year’s election that his party lost heavily. And he also lost in post-election power politics; despite still having 15 seats, no party would do coalition business with him, forcing the PVV to the margins.  The PVV vote slumped by one-third, from 1.454 million, or 15.4 per cent in the 2010 election, causing it instead to lose 9 of its previous 24 seats in the 150-seat Dutch House of Representatives.

Revealing his political opportunism, Wilders would abandon his anti-Islam platform in the 2012 election, and instead campaigned against the euro and the Dutch membership of the European Union, while also setting up a website that invited the Dutch to complain about Poles and other non-Muslim immigrants and workers from the EU’s eastern European member countries.

As we mentioned earlier, the Q Society also said last week that Wilders’ Freedom Party “had climbed to 25 seats in the polls and would likely be the second strongest party if elections were held now”.

Four days after the Q Society published that claim, an opinion poll from one of The Netherlands’ leading polling agencies, TNS-Nipo, showed that far from being poised for power or even close to it, Wilders’ Freedom Party was tracking at a marginal fifth. And that support had surged for a new party speaking for Dutch pensioners, among whom Wilders is supposed to have appeal.

But that’s just a single opinion poll. What about a broader sample?

The Global Mail consulted Dutch psephologist Dr Tom Louwerse of Leiden University’s Political Science Department, who manages a data project for the university called the Peilingwijzer, or the Polling Indicator.

It’s a poll of polls, tracking myriad Dutch opinion surveys and aggregating the results to provide a better measure of the national political mood.

Among the methods used by Dr Louwerse are the polling techniques of noted Australian political scientist, Dr Simon Jackman of Stanford University.

Dr Louwerse might well be the Dutch Antony Green (of Australia’s ABC fame) or perhaps its Nate Silver — the American pollster at, who correctly predicted who would win all but one state in the past two US presidential elections.

Dr Louwerse’s data has been a feature of election coverage on The Netherlands’ state broadcaster NOS, which is required by law to be impartial.

The Q Society frequently cites ‘polls’ as evidence of Wilders’ popularity in The Netherlands — the plural usage, repeated by the columnist Bolt as recently as two days ago.

According to Dr Louwerse, Wilders’ PVV has this year led in just a single opinion poll — that conducted by the Maurice de Hond survey agency in early January.

Even in the Maurice de Hond survey, PVV shared the lead with the governing People’s Party for Freedom and Democracy, the party of Prime Minister Mark Rutte — another detail the Q Society didn’t include in its ‘polls’ claim.

Dr Louwerse also points out that Maurice de Hond’s surveys, which he includes in his collated data, are “much criticised” for favouring the Wilders camp. He says that’s because of the self-selected polling techniques it deploys, which can advantage populist activism — a Wilders hallmark. Most Dutch voters, Dr Louwerse says, aren’t sufficiently exercised politically to regularly register their mood with opinion pollsters. “It can tend to be those wanting to send the government a message,” who respond to Maurice de Hond’s surveys, says Dr Louwerse.

As for the Q Society/Bolt claims that Wilders’ party ranks second in Dutch ‘polls’ now, in February, that’s not right either.

Leaving aside that single abovementioned TNS-Nipo poll of February 15, which places the PVV fifth, Dr Louwerse’s most recent poll of polls, collating all surveys taken around February 16, shows support for Wilders’ PVV “at that time was 12.6 per cent, with a plus-minus error margin of one percentage point.”

Louwerse’s data places Wilders’ PVV at fourth nationally, just ahead of that surging 50PLUS pensioners’ party and the centre-right Christian Democrats that held power in The Netherlands through much of the 1980s. But that’s neither first nor even second nationally, per the Q Society/Bolt claims — it’s fourth position, with fifth and sixth in sight.

Indeed, in Leiden University’s poll of polls, at no time over the past five months, since the Dutch voted in an election that denied Wilders a grab at even influencing a victorious coalition, has the PVV been first or even second in collated national opinion.

Wilders’ PVV has consistently tracked fourth during that time, briefly peaking at third through December. The peak occurred after Wilders publicly revealed what many Dutch privately suspected; that the teenage footballers who bashed to death a Dutch dad volunteering as a referee, after a dispute in a suburban football match, were of Moroccan descent.

That killing was a shocking event, and for many fair-minded Dutch, it represented the violent exception that proves the rule of their famously tolerant liberalism. Never mind that pragmatism and commercial advantage might be at the heart of this tiny, tourist-friendly port nation’s tolerance.

In all, the Q Society doesn’t let facts hamper its efforts to tout Wilders’ Islamophobic campaign. Regarded by many as a hate speech, it paints the picture of a dystopic Netherlands overrun by Islamists and poised to become the West’s first member of the Organisation of the Islamic Conference, Extremist Chapter (if such a chapter existed) — with a burqa-ed Australia following close behind.

But as the likes of Liberal Party Senator Cory Bernardi, whom Wilders reportedly described as an old friend, might agree, there’s nothing like a bit of gratuitous scaremongering — and a few dodgy numbers — to crank up one’s flagging political career. It works particularly well on unsuspecting overseas audiences — just dust off an old stump speech that those at home have long since grown weary of.

From Machiavelli To Berlusconi In 500 Years (Is This Progress?)

ISN’T there a general election coming up in Italy?

Yes, it’s to be held from February 24-25, and we know there’s a poll because, in this the 500th anniversary of Machiavelli’s The Prince — a kind of Lonely Planet guide to power — Italy is engulfed by a massive corruption scandal that titillates graft-weary Italians as it disgusts them.

Maybe Machiavelli was onto something when he said: “Of mankind, we may say in general they are fickle, hypocritical, and greedy of gain.”

Oh bella l’Italia … (sigh)… who stole what from whom this time?

It’s apt that in a post-Lehman world, where public regard for bankers isn’t that far removed from that for vermin, this particular corruption drama centres on the world’s oldest bank, the 541-year-old Banca Monte dei Paschi di Siena, where normal banking practice could seem secondary to its service as a spigot for the Italian left.

A €2 billion hole has been discovered in the MontePaschi accounts.

MontePaschi is Italy’s third-biggest bank and is based in Siena — deliciously in Machiavelli’s home region of Tuscany — at the heart of a bucolic area oft-known as Chiantishire, where many European bankers own glorious holiday piles.

A €2 billion (AUD2.6 billion) hole has been discovered in the MontePaschi accounts, a gap in the books derived from secretive transactions made with German and Japanese banks years ago that everyone seems to have tried to cover up. Two weeks ago, MontePaschi was forced into an embarrassing €4 billion bailout from a friendly Italian government, which can’t afford a bank collapse in the middle of its election campaign, not to mention an economy it was appointed in 2011 to clean up.

But a daily drip of revelations around MontePaschi has exposed Italy’s usual treacherous politicians, conflicted bureaucrats, dodgy bankers, incompetent officials and, because this is Italy, conniving clerics. (MontePaschi is also being probed by corruption investigators about the circumstances of a €9 billion deal in 2007 to buy rival Italian bank Antonveneta from Spanish group Santander; the Spaniards had paid just €6.6 billion for it, just weeks earlier. At the risk of getting a little Dan Brown here, these banks have links to the church’s secretive prelature Opus Dei.)

<p>Hulton Archive/Getty Images</p>


Indeed, about the only regular performer in the unending farce of Italian public life that hasn’t yet appeared in this circus is the Mob. That’s probably only because MontePaschi is Tuscan, and not Sicilian or from Naples. Still, it’s early days in the scandal and the Cosa Nostra will inevitably cameo at some point.

Siena? Where they run that famous horse race in the town square? Isn’t that where Machiavelli comes from?

The very same. The Prince was written in nearby Florence, where Machiavelli plotted to topple the Medicis. But, yes, it is famously home to il Palio, the medieval-era gallop around the town’s magnificent Piazza del Campo, an event long funded by, you guessed it, Banca MontePaschi.

Like too many Italian banks, MontePaschi is controlled by a fondazione, regional trusts jealously controlled by local worthies and, invariably, with shady church monsignori sticking their cassocks in too. Except, again because this is Italy, these foundations have become utterly politicised. The assets these fondazioni control, such as banks like MontePaschi, have been transformed into vehicles of matey patronage for political parties and vested interests.

Banca MontePaschi is an excellent example. Tuscany is the core of Italy’s quadrilatero rosso, the “red quadriliteral’’ that also includes Emilia-Romagna, Umbria and Marche. This part of central Italy has long been a stronghold of the leftist Democratic Party (PD), which has its roots in the Italian Communist Party. Siena is strongly PD, and that means the party effectively controls MontePaschi through the Siena foundation.

Now sacked after that mysterious €2 billion hole was discovered in his bank’s accounts, MontePaschi chief executive Guiseppe Mussari is an ex-communist lawyer and PD party hack. As Rome academic Guiseppe Ragusa told The Global Mail: “Actually being a banker is a skill too far for some of these foundations. A banking qualification isn’t really the point.”

And why is this important now?

Until this all blew up, the PD was virtually assured of outright election victory. It is the main anti-Berlusconi party — about the only one equipped with the political machinery to beat the disgraced 76-year-old billionaire and former prime minister — campaigning as the antidote to his corruption. But MontePaschi again reminds Italians that institutional cancer here isn’t exclusively the preserve of the right. But if Italian politics is true to form, a PD majority in next week’s election will likely mean that the MontePaschi scandal will be quietly despatched, unpunished, into the long grass.

Ah, the always entertaining Silvio! He was finito, no?

Certo, and that’s what weary Italians thought after the man Italians call Il Cavaliere, The Knight, was booted from office in November 2011 — he says by Germany Chancellor Angela Merkel — after treating Italy as his private fief for most of the past 20 years. As Machiavelli put it, “politics has no relation to morals’’, and Berlusconi brought Italy — and Europe — to the brink of collapse (though not his own business empire). Many thought he was finished, condemned (who could forget “Ruby” and “Bunga-Bunga”) and bound for prison. The sighs of relief from Brussels and Berlin were audible in Rome.

<p>ANDREAS SOLARO/AFP/Getty Images</p>

But in December the shameless Silvio decided he wanted power a fourth time. He withdrew his party’s support for Italy’s emergency government and started plotting. Italians treasure their democracy and this election will restore the vote briefly stolen from them when Mario Monti’s technocracy was installed a year earlier. Berlusconi has been quick to remind Italians that they actually elected him, as he touts a populist anti-austerity (read anti-EU, anti-Germany) ticket.

And he also delights in reminding that on the night last December after he forced the fall of the Berlin-backed technocracy (after pulling his party’s cross-parliament support for it), the toppled Prime Minister Monti attended the season opening at Milan’s storied La Scala opera house. The biggest event on the Italian cultural calendar usually opens, patriotically, with something from Verdi or Puccini, perhaps Rossini. But this season La Scala opened with (the German) Wagner’s Lohengrin. Among the glitterati in Milan was the EU Commission’s austerity-preaching president Jose Manuel Barroso. Silvio loved that too.

Because Italians seem to have short memories, the MontePaschi-PD scandal has rejuvenated Berlusconi’s poll numbers. As centre-left support erodes, Il Cavaliere is back with a real chance of winning at least a blocking vote next week. In Rome, one can almost feel the shudders from Berlin and Brussels at the very notion.

Beyond Berlusconi, MontePaschi has exposed deeper issues for Europe. The bank’s dodgy transactions occurred when Mario Draghi was governor of Italy’s central bank, the supervisor that’s supposed to check risky banking business. Draghi is the former Goldman Sachs executive anointed by Merkel to be governor of the mostly German-funded European Central Bank. That means he’s the custodian of the embattled euro; it’s not a good look as Europe’s crisis enters a sixth year.

Who is Berlusconi running against?

Well, there’s the 69-year-old acting incumbent Monti, the unelected economist installed 15 months ago to stave off an Italian flameout. He gets huge credit in Brussels and Berlin for stabilising the economy but precious little at home, where he’s seen as a taxer. After deciding to run, the colourless Monti has tried to patch together a centrist coalition for the election but as a career technocrat lacking a grassroots network, not to mention a personality, he’s tracking at 14-16 per cent, a poor fourth in opinion polls.

Berlusconi’s People of Freedom party is second in polls with 28-30 points, behind the PD led by the 62-year-old Pier Luigi Bersani with 34-35 points. Hailing from that “red quadrilateral”, the former communist Bersani was regional boss in Emilia-Romagna, based in Bologna. He’s unlikely to win outright, but could seek a post-poll coalition with Monti.

The wildcard is the pox-on-all-their-houses activist Five Star Movement of Beppe Grillo. He’s the internet-savvy former comedian famous for his vaffanculo, literally “fuck you’’, protest rallies when Italians sickened by their rancid political class come together in demonstration to tell their leaders, well, “fuck you”.

Grillo’s 5SM has polled as high as 22 per cent for a firm second behind PD and is now tracking third between 16-19 per cent. As yet another Italian political-financial scandal unfolds, the MontePaschi affair will have drawn support to Grillo, now on an end-of-poll “Tsunami tour’’ of Italy. 5SM’s internet-based activism has spooked the establishment parties into modernising their communications, and now they’re suddenly all over social media. Berlusconi’s Twitter feed is #fiducia, Italian for trust and, yes, he’s serious.

But perhaps minded of Machiavelli’s axiom that those who “act virtuously in every way necessarily come to grief among so many who are not virtuous”, Grillo’s raucous righteousness is also his Achilles heel. He wants nothing less than the wholesale cleanout of that establishment — with criminal prosecutions — and pledges he won’t make political deals with anyone. On polling day, Italians may decide a 5SM vote is a waste. Or they could prove so revolted that Grillo has power within his grasp.

The Pope’s just resigned. Will that have an impact on the election?

Apart from diverting the news cycle, likely not much. The church is broadly believed to support the (moral, church-going) Monti and then the PD. Bunga-Bunga kinda finished whatever allure the church had for Berlusconi.

What else are the parties talking about?

Grillo aside, an observer could be excused for answering “nothing”. In this not-so-divine comedy of Italian politics, there’s been lots of finger-pointing but little debate advancing policy of substance; little of immigration, Europe, education, foreign policy or the usual issues supposed to exercise voters.

<p>FABIO MUZZI/AFP/Getty Images</p>

But football matters in Italy and, desperate to secure his northern heartland, Berlusconi bought one of Europe’s most gifted players, Mario Balotelli, to bolster his AC Milan line-up. No matter that Silvio said last month that he didn’t want the striker at Milan because a “bad apple” infects the dressing room, Balotelli has proved an instant success for the Rossoneri. Political analysts believe the “Balotelli Effect” could bump Berlusconi’s numbers up as much as 5 per cent in northern Italy, proving crucial in this tight poll. What was it that Machiavelli said? Oh yes, “one who deceives will always find those who allow themselves to be deceived”.

Machiavelli said a lot. Didn’t he also write that “people also get the government they deserve”?

No, that line has been ascribed to either the 18th century thinker Joseph de Maistre or the 19th century French republican philosopher Alexis de Tocqueville. De Maistre was educated in Turin, in Italy, the country that elected Berlusconi to clean up the mess of the notorious tangentopoli crises of the early 1990s, the “Bribesville” scandal when Italians believed their corruption couldn’t get worse.

Who do you reckon first coined this?

“Whoever conquers a free town and does not demolish it commits a great error and may expect to be ruined himself.” Yep, that would be Machiavelli.

Germany: Inside Der Spiegel’s Tent

<p>Courtesy Der Spiegel</p>

BIG MEDIA is in crisis, this much we well know.

The internet is the Fourth Estate’s enemy, or possibly its saviour, if once-eminent titles such as Newsweek, which killed its 80-year-old print edition last month, and companies such as Australia’s ailing Fairfax Media, can deliver to a readership wielding smartphones, tablets and whatever the Next Big Thing is.

But a German publishing phenomenon, the country’s most respected news magazine Der Spiegel, may have the answer, and it’s achingly simple. That is, tell good, factually correct, society-serving stories; don’t treat readers like illiterate idiots and you’ll make money. Der Spiegel’s revenues in 2011 were €325 million ($410 million).

For 66 years Der Spiegel (The Mirror) has reflected Germany’s post-World War II renaissance as Europe’s biggest economy. Today, it has a thriving online presence, in German and English, and a well-watched TV channel. But it is the million-strong circulation of its print magazine, ubiquitous in a country of 81 million people, that continues to anchor its success. “The nation watches us to see how we think,” Der Spiegel’s managing editor, Klaus Brinkbäumer, says.

Der Spiegel’s achievements are captured in a simple exhortation: “Sagen, was ist” scrawled across the foyer wall of Spiegel-Haus, its edgy new headquarters in cosmopolitan Hamburg, traditionally the hub of German publishing.

<p>Patrick Lux/Getty</p>

“To say what is”, is the motto that exhorts Der Spiegel’s 1,200 staff to write and produce what is; to report, analyse and critique the world as it is, factually and faithfully, without fear, bias or influence.

“It is the program for Der Spiegel,” says the head of its legendary fact-checking department, Dr Eckart Teichert, a magazine institution after 29 years on staff. “We print the facts, whether friend or enemy will be pleased,” he continues. “And as a fact checker I add: the correct facts!” (True to form, Teichert points out that the aforementioned saying was first coined not by Der Spiegel’s sainted founder Rudolf Augstein, as many Germans believe, but by 19th century historian Leopold von Ranke.)

What Augstein did say was that he “never had difficulty being against something”, but rather “had more difficulty being for something’’.

It is an ethos that has been enthusiastically embraced by Germans.

Klaus Brinkbäumer is one of three editors stewarding the magazine, alongside 52-year-old Mathias Müller von Blumencron, and the German-Italian investigative journalist Georg Mascolo, 48, who has been editor-in-chief since 2008. Brinkbäumer describes the typical reader of this magazine that he says is run by 40-somethings and reported by 30-somethings:

“The nation watches us to see how we think.”

“I would love to say [it’s] a 22-year-old, very bright woman [but] it’s probably a male, in his 40s, a family man, a bit sceptical, professional, interested in politics, business and history, a bit sports-minded. A banker maybe, who has another language, most likely English and [is] fairly well-travelled.”

The polished Brinkbäumer may just have described himself. He’s 46, educated in Germany and the US and was a nationally ranked volleyballer and sailor. He’s worked at Der Spiegel for 19 years, originally hired as a sports writer. Over the past two decades, he’s also served on the features and foreign desks, and as a foreign correspondent, most recently in the US.

So is he his magazine’s typical reader? He smiles wryly: “I’m way too optimistic; our readers are sceptical.”

They are also internationally minded. A typical edition of Der Spiegel will have 30 to 50 pages of foreign coverage, as much as a quarter of the magazine, written by its own correspondents across dozens of bureaux. “Our readers want that,” says Brinkbäumer. “It’s expensive but we are not cutting our foreign correspondents.”

Ulf Armbrust, a Hamburg hotelier and former advertising executive, has read Der Spiegel “ever since I can remember.” Now 71, Ambrust says he misses the “sassy and irreverent tone” the magazine had in the ’60s and ’70s but adds that it has “at least prevented me from suffering from a one-sided view of the world’’. Armbrust still has seven binders of the editions he collected as a student in the radicalised West Berlin of the 1960s, when so many Germans of his generation railed against authorities. “I see Der Spiegel as part of what it means to be German,” he says.

IT’S JUST AS WELL Der Spiegel is a weekly because that’s about how long it takes to properly digest. Where one can inhale Time in minutes and absorb The Economist over a few studied hours, Der Spiegel’s detailed reporting takes days to fully appreciate. There’s so much to read, on Germany and on global topics. Der Spiegel supports more than 30 foreign correspondents on its staff, and it’s adding bureaux while other media organisations are closing theirs. The magazine’s writing is typically clear, concise and intelligent; the photography and art are compelling. Celebrity coverage is rare; trash and fluff, rarer still. The Economist once described it as “a thumping great glossy thing’’.

That same Economist graciously paid its competitor of sorts the following compliment when Augstein died aged 79, in November 2002, after he’d served for 55 years as editor-in-chief: “In a country where journalism, particularly in the past, tended towards the pompous and docile, it had the most lucid prose, the best investigative reporting, the widest foreign coverage, the sharpest political analysis, and the most insightful social commentary … the magazine often beat the rest of the German press combined.” As for Augstein, The Economist held that “he was usually right on the big things … he knew that relentless scrutiny of the rich and powerful was the way to make the country work better. It did.” Such is the national lustre surrounding Der Spiegel that when Augstein died, then-chancellor Gerhard Schröder didn’t just sign off on a perfunctory tribute noting his passing, he called an official press conference to pay due homage.

Originally called Diese Woche (This Week), Der Spiegel was set up in 1947 from the ashes of World War II, with professional input from Americans at Time and the official backing of the British occupation forces. It was viewed as an essential part of the nation-building of a new Germany. A 24-year-old soldier in the German Wehrmacht, Rudolf Augstein, was anointed as its first editor. (Another publishing licence was granted to Henri Nannen, founder of the racier Stern). Augstein had been an amateur journalist before being drafted, but it soon became apparent that if his British champions thought he’d cut them slack, they were mistaken. The magazine quickly turned its critical focus on the very institutions that set it up, reporting on Germany’s occupying forces — and the coverage was rarely flattering.

Der Spiegel has since claimed many scalps: a Bundesbank boss; myriad ministers and government officials, federal and state; errant tycoons and corporations, not least Deutsche Bank, the world’s biggest commercial bank and arguably Germany’s most powerful institution. Die Skandal-Bank, as Der Spiegel dubbed it, has been the subject of a cover story twice in the past year. Brinkbäumer says, “If the chairman of Deutsche Bank called and said, ‘Leave us alone, we are a national institution,’ we would say, ‘Well, you’d better take care of it.’

“Have politicians and companies tried to shut down stories?” asks Brinkbäumer rhetorically. “Yes, they have, but that has never stopped us from publishing. Even the threat of withdrawing advertising doesn’t, it has the opposite effect. Otherwise the whole reputation of the magazine would be gone and people know that in Germany. This reputation we have to protect. It has to be that way.”

Der Spiegel was one of five international titles — and the only magazine — to first air the WikiLeaks diplomatic cables in 2010, and the one most favoured by Julian Assange as he began to fall out with others such as The New York Times and The Guardian.

Willy Brandt, the late former Chancellor and hero of the German left, liked to call it a ‘‘Scheißblatt’’, literally ‘’shit paper’’.

But it was the bulldog of the German right, Konrad Adenauer’s Bavarian enforcer Franz Josef Strauss, who handed Der Spiegel its defining moment, and an international reputation for publish-and-be-damned independence.

That was in 1962 when Strauss, then Adenauer’s defence minister, tried to shut down the magazine after it exposed failings in the German armed forces. Strauss saw the coverage as treason and directed security forces to occupy the magazine’s Hamburg head office, while throwing editor Augstein and his senior colleagues in jail.

It was a serious test of Germany’s post-war democracy, 17 years after World War II had ended but with its democracy then far from secure. Germans rallied behind Der Spiegel. Augstein was released after 103 days. Strauss, on the other hand, then a towering figure in German politics, was forced from office, his reputation stained by a stand-off from which he never fully recovered. Many believe his attempt to silence the magazine eventually cost him the Chancellorship and the place in German history that his great rival on the right, Helmut Kohl, later assumed. Der Spiegel’s investigative reputation — and its circulation — soared. “It was all over the news, people started buying it,” Brinkbäumer says. “It’s where the culture of the magazine was cemented.”

‘‘Die SPIEGEL-Affäre’’ — Strauss’s raid on the magazine — was Der Spiegel’s watershed. On last year’s 50-year anniversary of the raid, Der Spiegel reproduced that same issue in commemoration (the proofs had been smuggled onto competitor-cum-accomplice Stern’s presses, with its headline “Sie Kamen In Der Nacht” (They Came In The Night). Could such a raid happen again? “I hope that is inconceivable,” Brinkbäumer says.

Few print products anywhere devote the same level of resources to journalists as does Der Spiegel. Brinkbäumer cites an assignment which took him across Africa and Europe, tracking where, how and why illegal immigrants then came to Europe — he travelled in their footsteps as if he were an immigrant himself. The editor of the day, Stefan Aust, told him the feature was “a great concept; whatever you need, whatever it costs, go and do it”. It took an arduous six months, and from it came a series which turned into a celebrated book. He’s one of many Der Spiegel journalists to have penned important tomes. “They sent me, they let me go, they trusted me and the pay-off was excellent. This is the sort of thing that builds trust in the magazine.”

Another Der Spiegel hallmark is its team reporting. Often packages can involve 25 journalists, exhausting every imaginable angle on a story over 10-15 pages. Such an approach might be used to dissect the fall of Lance Armstrong, compile the definitive guide to Angela Merkel or track Greece’s collapse, or investigating the euro; required reading in European capitals deciding its future. Brinkbäumer, sailor and volleyballer, enthuses: “I love team sports.”

Brinkbäumer says Der Spiegel’s is empowered by its corporate structure. No-one owns or controls the magazine, thus no-one can exert undue influence over editorial. Employees control 50.5 per cent of its stock through a 40-year-old mitarbeiter (employees’) trust. Another 24 per cent is held in an Augstein family foundation. “It creates a lot of loyalty,” Brinkbäumer says.

And security. This structure enables Der Spiegel to avoid the predicament which befell the late German media tycoon Leo Kirch, whose media empire, in 2002, fell foul of the very interests its journalists had criticised. Kirch’s heirs recently won a €2 billion lawsuit against the powerful Deutsche Bank which, it is claimed, led a conspiracy to bring down Kirch. “It’s almost impossible to buy Der Spiegel,” Brinkbäumer says, of the likelihood of a takeover. “Other publishing houses have tried but they couldn’t.” (Stern’s owner Gruner and Jahr controls a minority 25.5 per cent of Der Spiegel.)

TO PUT DER SPIEGEL’S CIRCULATION — and national impact — in context, it’s useful to view its reach alongside that of broadly comparable news magazines in other developed media markets.

Although it could never lay claim to the quality of Der Spiegel, Australia’s once-venerable The Bulletin was circulating, at a generous estimate, about 55,000 copies in its last months of life in 2008, when it was serving a national population of 21 million. This was about half its circulation when it was at its peak in the mid-’90s. In the US, which has a population of 314 million, Time circulates almost 3.3 million copies every week, and the magazine rarely runs to more than 60 pages. By comparison, Der Spiegel, all 200-plus pages of it, lands on about one million desks and tables every week, serving a heavily internet-wired German population of 81 million.

Der Spiegel may have a third the circulation of Time, but the US has almost four times as many people as Germany. And one should also consider that German newsstands boast three broadly similar news magazines, each of considerable heft and influence; Der Spiegel, Stern (circulation also about one million) and Focus (circulation 500,000-600,000).

FACT-CHECKING HAS BECOME an arcane — and increasingly rare — process in the world’s newsrooms. Der Spiegel, however, makes a virtue of its fact-checking department, which forms a crucial professional layer in the refining of text, separate from the usual editors and lawyers involved in the publication process. “It’s part of our selling point,” Brinkbäumer says. “It’s part of what makes us trusted.”

The department is headed by the formidable Dr Eckart Teichert,who was an academic before he joined Der Spiegel. He commands a 40-strong team of fact-checkers, about whom articles have been written, such is their regard in Germany and abroad.

“We are employed to be sceptical,” Teichert says of his department. “The first rule of our job is that nothing is correct until we can prove it to be.”

That means Der Spiegel has killed a lot of stories because they didn’t meet Teichert’s standards. Given the magazine’s elevated status in Europe, to publish something wrong could be corporate suicide. “We don’t want to have the catastrophe that happened to Stern.”

He’s referring, of course, to the Hitler Diaries scandal of 1983, when Stern was duped by German scammers Konrad Kujau and Gerd Heidemann into paying around $US6 million for what were purported to be Hitler’s journals, but which were in fact elaborate forgeries. (Rupert Murdoch also fell for the scam, ignoring warnings from his own staff against publishing the bogus diaries in his Sunday Times.) Stern’s reputation — and circulation — was smashed by the scandal and has never fully recovered. “It almost killed them,” Brinkbäumer says of his competitor’s disaster. “And it still hurts them. It was the biggest mistake in German journalism.”

Brinkbäumer says, “We haven’t had anything happen to us like [what happened at] Stern but can I say nothing [bad] is ever going to happen? No I can’t, nothing is infallible.” (He was proved right a few weeks later when his website briefly published an advance obituary of former US president George Bush Snr, who was then ailing in a Houston hospital. The mistake was hardly of Hitler Diaries proportions, but it severely embarrassed a magazine which takes the truth very seriously.)

Says fact-checking czar Dr Teichert: “The most satisfying thing about my job is knowing that every fact in an article is absolutely 100 per cent correct and the article has been published in a better condition than when the author wrote it.”

<p>Courtesy Ippolito Fleitz Group</p>SITTING IN HIS SLEEK HEADQUARTERS with its Scandinavian-inspired lines, as late-model Audis and BMWs emerge from the staff car park below, I ask Brinkbäumer if it’s fashionable, even cool, to work at Der Spiegel. Are they the grooviest guests at German dinner parties, leading discussion? He laughs. “You are not going to get that quote from me.” He seems aching to say ‘yes,’ but loyally opts for “I never want to leave” instead.

We speak the week before Christmas, as Newsweek’s print edition draws its last breath. Its editor, Tina Brown, has headlined a Twitter hashtag #LASTPRINTISSUE on the cover — a gesture that is part promotion, part finger-pointing and part obituary.

The death of Newsweek on paper symbolises the economic and electronic malaise affecting big media worldwide. Despite its solid economy, German media has plenty of Newsweeks of its own. A fortnight earlier, the Financial Times Deutschland, also published from Hamburg, was closed by its owner Gruner and Jahr, 12 years and €250 million after its launch. It had never made a profit, a point wryly noted in its last edition, which carried an all-black front page of just two words, Endlich schwarz (“finally (in the) black’’). Not even the FTD’s internet edition survived the shutdown.

<p>Patrick Lux/Getty</p>

And, a month earlier, the liberal daily Frankfurter Rundschau, one of Germany’s 10 largest national newspapers, became the first German newspaper in post-war history to go bankrupt.

Such turmoil has not gone unnoticed at Der Spiegel. “We are not so isolated, different to everybody else,’’ Brinkbäumer says. “We are losing advertising revenue to the internet. Everybody is.”

But Der Spiegel Online is making money, “one of the very few [online publications] of its kind in the world to do so”, Brinkbäumer says. And, he claims, it’s “not just barely profitable; they are making a lot of money”. Profits, he says, are derived primarily from advertising, supplemented by a paid app and, increasingly, paywalled content. Barely five per cent of the print magazine’s content is available online, a testimony to the quality of its journalism and a fiercely loyal following. “Advertising around the main part of our website is very expensive and lucrative for us,” he says. “The problem for us is print advertising, which has gone down, in volume and in value.”

Print circulation, he says, is less affected. “It’s slightly fallen, a little below a million. We are selling 40,000 iPad copies per week, and if you add those to the print circulation it almost evens out. I would say (circulation) is stable. There are others who have been worse affected than us.

“But we are not saying there’s not a problem,” he says. “There is a problem. We are lucky to be far from the position of Financial Times Deutschland and Frankfurter Rundschau, but our revenues are decreasing.”

I ask Brinkbäumer if Der Spiegel is clubby, or elitist, or blokey. There are a handful of aristocratic “vons” and plenty of Doktors on Der Spiegel’s masthead, and a distinct lack of women and cultural minorities. The 11 editors and co-editors of the magazine during its 66 years have all been male.

Brinkbäumer insists Der Spiegel is a meritocracy. Still, the magazine is a mostly white, male, Germanic place, unlike the liberated, increasingly kaleidoscopic Germany with its buoyant immigrant community that’s immediately evident in the bustle around Spiegel-Haus. “We are developing in that way,” Brinkbäumer says. “We always strive to reflect Germany in every way.”

Der Spiegel’s New Digs

The original Spiegel Cafeteria on the left, beside its successor in the new Spiegel-Haus.

Der Spiegel’s new headquarters in HafenCity, Hamburg’s redeveloped Elbe-side docklands, looks more like the home of a bank or insurance giant than that of a media company. Which is part of its point. Spiegel-Haus, completed in 2011, presents a huge silver wedge of solidity, symbolising a reassuring longevity for a wobbling industry.

The €250 million building is designed by Danish architects Henning Larsen of Copenhagen Opera House fame, and built in the heart of Hamburg’s emerging new financial centre. The building is solely occupied by the wider Spiegel group — the magazine and its offshoot publications, online operations and the popular Spiegel TV news channel.

There’s also a playfulness about Spiegel-Haus, evident in its café, which pays homage to the “Spiegel Cafeteria” in the magazine’s old headquarters. That café, the 1969 creation of the Danish colourist Verner Panton, became an international design icon — a Barbarella-esque riot of Pop Art psychedelic kitsch. It also was known as one of the best eateries in Hamburg. When the magazine moved, Hamburg’s government placed the legendary café under a preservation order, and parts of it are now being painstakingly recreated in the city’s arts and crafts museum. Hamburgers are reminded of Panton’s genius each time they pass the Spiegel-Haus and see the glowing orange orbs of the new building’s fifth floor café.

Writer Silke Burmester describes Der Spiegel’s culture of the 1960s and 70s as being “Mad Men of the Brandstwiete” (Brandstwiete is the historic street of Hamburg’s old town where the magazine was then based, with its famous café at the core). It was patronised, Burmester writes, by men “committed to shaping the republic with words, men fuelled by writing and alcohol in high percentage alliance”. Women, notes Burmester, “were primarily the secretary or the waitress”.

German Banking Gets a Spanking

<p>Hannelore Foerster/Getty</p>
Gott im Himmel! Corruption in Germany?

No matter that World War II ended 67 years ago, the jingoistic London publishers of the old British war comics Commando are going strong. And in Commando, lantern-jawed Germans still are always brutal, inhuman automatons, and most everyone else in Europe, particularly Brits, are valiant models of rectitude and probity.

Never mind trifling details such as Germany’s boisterous democracy, “the economic miracle”, Reunification (a Wall that inspired as it fell, arguably history’s most successful nation-building), and allied military boots on the ground in Afghanistan.

The hackneyed Commando-esque cliches are rampant still in English football too; Der Spiegel magazine’s former London correspondent Matthias Mattusek noted a few years back that the British continue to exhibit an “insatiable appetite for Nazi folklore and German-bashing”. However the Anglo-Deutsch ‘rivalry’ now exists almost entirely in English minds — Germany’s great sporting enemy is The Netherlands.

But the real world isn’t a comic. Germany is rich, chunky and successful; Europe’s largest — and the world’s fourth-largest — economy.

And a clean one, too. Germany ranks a laudable 13th on the latest Transparency International measure of global graft among 174 economies; the worthiest of the dominant G-8 economies that really matter to the world economy.

And where Brits sneer about Europe from the sidelines, Germany’s much-consulted taxpayers do the heavy lifting to keep the EU afloat. Indeed, if it weren’t for deep pockets of the Germans, the Union would’ve been kaputt long ago.

But wait, what’s this about corruption then?

This past week, the world’s biggest bank, Deutsche Bank (DB), has been embroiled in a huge corruption scandal. German investigators have fingered two of the country’s most influential businessmen — DB’s chief executive and chief financial officer, no less — in a drama that has Germany all Sturm und Drang.


German cops, some 500 of them, dramatically raided DB’s Frankfurt headquarters, and regional offices and private homes in Berlin and Düsseldorf, too. They carted off reams of papers and arrested senior executives, such as the bank’s head of legal, as they went.

DB’s CEO Jürgen Fitschen and his CFO Stefan Krause remain at liberty, but none of it is a good look for the bank that anchors Deutschland Inc and, by extension, Europe.

Authorities are probing DB for money laundering, tax evasion and obstruction of justice. Among other misdemeanours, they suspect DB of wilfully creating ingenious schemes to evade taxes on carbon emissions.

Potentially worse, the bank is facing claims in New York from a whistleblowing ex-employee. The former executive, Dr Eric Ben-Artzi, says the bank cooked its books, whitewashing away billions in dodgy transactions as the 2008 financial crisis deepened. DB deny it, but Ben-Artzi claims it was a fraud and has a high-profile whistleblowing American group by his side.

Why is this important?

Bad banks are bad news, wherever they fester — witness the revulsion directed at the banking industry after these one-time masters of the universe imploded America in 2008 playing pass-the-toxic-parcel with their subprime junk loans.

Hollywood loves a bad guy, and dubious bankers spawned a popular Hollywood genre in films like Inside Job and Margin Call. Today, there are BBC documentaries about rough-sleeping bankers, but not much sympathy for them.

But in Europe, Deutsche Bank’s travails matter because they are about taxes, money laundering and possible fraud — the stuff of much German finger-pointing at their fellow Europeans.

Real or imagined, it’s the cavalier attitude toward such things in errant EU states like Spain, Italy and Greece that particularly galls northern Europeans, who bear some of the world’s highest taxes. In return, they get a high standard of living, creating a standard Brussels would like the rest of Europe to embrace as it struggles to equalise economies.

But the 2008 financial crises that collapsed economies across Europe’s Club Med belt saw a sharp loss of income to its suddenly stricken governments. Companies failed, people lost jobs, and these states couldn’t be financed as they once were. And all this while official obligations — things like providing the dole and economic stimuli — soared.

Europe’s biggest economy — and one of the euro’s biggest trading beneficiaries — Germany stepped up, largely because no-one else was able to and because it had a market to support. Berlin has been quick — and stern — in lecturing Mediterranean miscreants about mismanagement of their public finances. Germany has even placed teams of bean-counters in Greek government offices, to make sure their EU-saving euros are appropriately handled.

But Berlin’s intervention hasn’t gone down well down south. Yielding to their own Commando cliches, angry Greeks have taken to calling their new Teutonic technocrats ‘Nazis’.

In Italy too, Il Giornale, a Milan newspaper owned by ousted ex-PM Silvio Berlusconi, who holds German Chancellor Angela Merkel responsible for his downfall, described Germany as ‘the Fourth Reich’, which is perhaps a bit rich coming from a darling of the Italian right seen by many, not least himself, as a modern Mussolini. Naturally, Il Giornale chose an unfortunate photo of Merkel waving to illustrate its anti-German invective.

Merkel has had to despatch jolly emissaries including politician Hans-Joachim Fuchtel to Greece, to calm things down. But that diplo-gambit also ended badly, after Herr Fuchtel told journalists that a German could do the job of three Greeks —  a remark that undoubtedly lifted the spirits of the drycleaner of Germany’s ambassador to Athens, Wolfgang Hoelscher-Obermaier, who copped abuse and any throwable item grumpy Greeks could lay their hands when caught exposed outside after Fuchtel’s indelicate remarks went live.

In Europe, Deutsche Bank’s travails matter because they are about taxes, money laundering and possible fraud — the stuff of much German finger-pointing at their fellow Europeans.

Tell us about Deutsche Bank…

Its very name says everything — German Bank, as if there is no other.

When German TV illustrates the usually dry economic and financial reports on the evening news, it does so with a stock image of DB’s iconic twin towers in Frankfurt, which Germans call Soll und Haben, literally debit and credit.

The lustre is evident in its famous ‘slash-in-a-square’ logo, Germany’s best-recognised brand; a dynamic forward slash, symbolising advancement, contained in a protective, stable box — a metaphor for Germany. (DB’s obsession with its logo has been subtly ridiculed this week in a damning cover story by Der Spiegel, which reverses DB’s famous slash so it slants backwards, highlighting its skandal.)

With more than 100,000 employees, DB commands a prominence in the country’s commercial life that few privately owned banks can equal. Boasting assets worth more than €2 trillion, DB is bigger than many national economies. It’s the premier institution that anchors and lubricates the efficient machine that is Deutschland Inc, owning influential tracts of major German industrial conglomerates, together a vast and powerful corporate octopus. Which makes it persuasive at opening doors — and having people like Germany’s well-connected former ambassador to the United Nations, Thomas Mattusek (brother of journalist Matthias above), as its main public affairs schmoozer also helps.

Despite the potential criminality implied by these current probes, DB likes to think itself in Germany as weißer than weiß. But whiter than white is not how Germans see it, as DB’s legal problems pile up on both sides of the Atlantic. DB is also being investigated in London for rigging interest rates. And last week, a Munich court found DB played a crucial role in bringing down one of Germany’s most powerful media empires, the Kirch Group, a DB critic which failed in 2002 in Germany’s biggest post-war bankruptcy.

So with all these DB problems back home, has Germany’s pot and kettle been blackened?

Absolutely. And Greeks are loving it. Which is all very well, but for all their schadenfreude, they’re still no better off.


Denmark: Inspiring Politics?

<p>Courtesy DR</p>

ADAM PRICE well remembers the moment one of modern television’s most celebrated series was conceived.

It was October 24, 2007 and the polymath Price — he’s a celebrity chef as well as an accomplished Danish scriptwriter — was working out in his Copenhagen gym. As he sweated, the gym TV flashed the news that Denmark’s 5.5 million people would soon be heading to the polls.

“I was standing next to a big muscular tattooed guy who I didn’t know, the two of us just watching the news,” Price recalls.

“And this big guy just looked at the prime minister making this important announcement about our nation, our future, and he uttered for me the now-famous words, ‘Fuck, count me out!’”

Five years and a global TV sensation later, Price still shakes his head, partly in disbelief and partly with disappointment. “We were almost the same age, we had grown up with these amazing events — the toppling of the Berlin Wall, Mandela’s release and the end of apartheid, Tiananmen Square — of people risking their lives for freedom, for democracy, and yet he was so disengaged from the process.

“We’d had democracy for 160 years in this very little, privileged country, and we don’t even bother to participate in it anymore. Why is it that way?” Price asks.

And within him, at that affecting instant, an entertainment phenomenon was born. It’s called Borgen — Danish for castle, the Danes’ vernacular term for their parliament that sits in Copenhagen’s Christiansborg Palace.

On the surface, Borgen sounds very much like an acquired taste, even for wonks; it’s an elongated series about the sausage-making of modern policy in a pleasant faraway land that has made an art form of consensus politics and national restraint. And with subtitles, too, for foreigners. Where could the drama possibly be in all that?

But Price, who’s descended from an English family that emigrated to Denmark in the 18th century, could hardly have foreseen that five years on from his gym date, his involved “little show” would be enthusiastically embraced around the world. Borgen’s absorbing twists and turns have become appointment viewing in living rooms across five continents — an intelligent antidote to this era of short attention spans, instant information gratification and junk TV.

<p>Mike Kollöffel/DR</p>

Price’s gym moment even found its way into an episode of Borgen’s first season, when a news-junkie journalist ditches her dishy but dopey gym instructor boyfriend in disgust because he fails to recognise a cabinet minister. Worse still for Price’s earnest character, Katrine Fønsmark, the boyfriend doesn’t even care. Mr Fitness might be sensational in the sack but, as the driven hack tells him, “Some things are more important than others.”

That scene is about as didactic as Borgen ever gets.

Reviewers often cite Borgen as “Denmark’s The West Wing”. But that would diminish the essential Danishness of Borgen, which is funded by Danmarks Radio (DR), Denmark’s equivalent of the British Broadcasting Corporation, with a similar chicken-or-egg charter to be Denmark’s cultural guardian, navigator, and prism too.

Unlike The West Wing creator Aaron Sorkin, whose characters can be earnest blowhards mega-phoning in the idealised America he’d like rather than the one that is, if Price has a political agenda beyond re-engaging Danes with policy, it is discreetly hidden.

If The West Wing portrayed the idealised, progressive White House America had lost, Borgen depicts a political culture Denmark didn’t yet have. Borgen’s charismatic Prime Minister, Birgitte Nyborg Christensen, becomes an accidental leader when her ‘Moderate Party’ unexpectedly emerges through the ruck to win an election because voters reject the rancid leaders at the polls.

As the series tracks Nyborg’s political career as PM, it takes a leaf from DR’s other international triumph, the police drama Forbrydelsen, or The Killing, in which Denmark’s dull winters are as much a feature as detective Sarah Lund’s brooding obsessions. Borgen’s characters are often darkly drawn, complex and as grey as a Copenhagen December. Where Sorkin’s goodies-and-baddies characters dramatically explode; Price’s intriguingly unravel their untidy dilemmas.

Price has often written the series from his kitchen table, and at all hours as inspiration arrives. It’s also where The Global Mail meets him, because today he is at home, nursing his four-year-old son who’s stricken with chicken pox — that’s what multi-tasking, 40-something Danish husbands do.

With its cats, kids and computers, the Price kitchen is quintessentially Danish; effortlessly modern, homey and warm. The Danes have a word for this much-craved domesticity — hygge — which they’ve refined into a cultural emblem.

Price emailed the final Borgen episode script from his MacBook to the producers at DR. “That’s it,” says the writer on the completion of his campaign to inspire the political interest of the populace. “There won’t be another series.” He is now exploring opportunities in British drama in the wake of the Borgen obsession ignited there.

Where The West Wing sprang from the entertainment-first rib of Sorkin’s 1995 feature The American President, Price was more civic-minded in developing Borgen.

Denmark’s spate of successful police series, such as his own Anna Pihl, and the well-watched The Killing, had the effect of attracting to the nation’s security service more candidates of a higher calibre. That got him thinking; if that could happen for policing, why not for politics? These shows had made policing cerebral. Could he, Price, make over the reputation of politics, given the decidedly arid personality of then PM Anders Fogh Rasmussen, who had won that fateful 2007 election. (Rasmussen is now NATO’s secretary-general in Brussels.)

<p>Mike Kollöffel/DR</p>

Deploying a laser smile, Borgen’s PM Birgitte, played by acclaimed Danish actress Sidse Babett Knudsen, would be the anti-Rasmussen. Price even gave his female PM a subtly aspirational name. The character’s family name is Nyborg, a common surname in Denmark but one also construed as telegraphing an end of era in Danish politics. Ny means new in Danish and borg is castle, that vernacular term for parliament. Did Birgitte Nyborg embody the new politics Price and his team at DR wanted for Denmark?

“My primary longing as a writer is to touch and move my audience,” insists Price, pausing before the inevitable but. “But I don’t want to move them party-politically, but in a way so they get more interested in politics.”

Price says he was a big fan of The West Wing and “almost everything Sorkin does because he’s a great writer and he loves dialogue. I am also very much in love with dialogue.

“I’m a Danish writer and we have a different way of communicating our message,” he says. “I like big speeches, but I also like to puncture them at the same time, to bash all the correct opinions also because that makes the world more edible and actual.

“I wanted to do something that wasn’t based on blue lights and dead bodies everywhere,” says Price. “Denmark had won three International Emmys in the police genre — Unit One, The Eagle and The Protector — and I wanted to do something different, something based on the power of an argument, on big ideas, about people who wanted to change the world.

“I wanted to move the audience in a way that will make them even a little more interested in politics — that was our big goal.”

It worked. Borgen’s second season peaked at 1.52 million viewers, an extraordinary number in a nation of just 5.5 million, around 20 per cent of whom are under 16. Only The Killing has out-rated Borgen, its final episode on November 25 attracting 65 per cent of Danish viewers, according to DR.

Critics sometimes gather Borgen and The Killing under a catch-all Nordic noir genre, also throwing in Henning Mankell’s Wallander, Stieg Larsson’s Millennium Trilogy, and the work of genre pioneers Maj Sjöwall and Per Wahlöö from Sweden, Norway’s Jo Nesbo, and Arnaldur Indriðason of Iceland.

But the DR programs’ arrival in Denmark is part of a wider flowering of cultural life, not as evident elsewhere in Scandinavia. It was led in the mid-1990s by a challenging cinematic revival called Dogme that coalesced in part around Denmark’s National Film School. Led by directors Lars Von Trier and Thomas Vinterberg, Dogme was a strict return to compelling no-frills storytelling, eschewing special effects and technology. Overnight, a film genre was born: dialogue-driven stories in the climate of an interior land that stays dark for large tracts of the year.

Denmark has long ranked as one of the world’s most equal societies, near the top of just about every human-development index that matters — health, longevity, gender, standard of living, services, infrastructure, the near absence of corruption — albeit with the impost of very high tax rates.

It’s a social contract Danes seem more than willing to accept, but now it comes with a bonus — that it’s hip to be Dansk. A nice, comfortable but outwardly rather dull nation seems to have blossomed overnight, inspiring Danes to make some of the world’s more stimulating films (Vinterberg’s Celebration, Von Trier’s pioneering The Idiots), must-see television (Anna Pihl, The Killing, Taxa), stunning architecture (Henning Larsen’s Opera House and Schmidt Hammer Lassen’s Black Diamond at the Royal Library), and superb food (NOMA, a portmanteau of Danish for Nordic and food, declared the world’s best restaurant the past three years by British magazine Restaurant, which is regarded as the industry measure).

WHEN DR announced to Danes in March 2009 that it would produce a political series called Borgen, Denmark’s extreme right-wing Danish People’s Party (DPP) was quick to jump into print to condemn it.

Writing in Politiken, Denmark’s leading broadsheet newspaper, DPP stalwart Søren Espersen decided he knew already what Borgen would be about, long before the first episode had been wrapped or even written.

Espersen had a robust spray at the “red hirelings” of DR’s “red master” Ingolf Gabold, DR’s long-time and widely celebrated head of drama who had green-lighted Borgen.

Gabold, Espersen wrote, was determined to manipulate Danish history by twisting the process of government itself. Borgen would surely be an expensive vanity project in which the right is portrayed as “power-mad, corrupt and without social responsibility, as insensitive climate deniers and racists”. The liberal left would be the “the opposite… fighting stubbornly and honestly… with sensitivity, love and often their lives”.

<p>Courtesy SBS</p>

These heroic left-wing politicians, Espersen wrote, will be protected by burly bodyguards against the evil right, whereas Denmark’s reality, he claimed, was that it was the leaders of the right who required protection for expressing the — disturbing, as the DPP see it — reality of multi-cultural, politically correct Denmark.

Espersen saw portrayed in Danish living rooms a pretty young Muslim female MP of the left who insisted on wearing the hijab in parliament while claiming bogus fealty to Denmark. Another white female politician would be a right-wing “calculating, cold witch… a nepotistic and corrupt populist… a cynic constantly finding ways to make the lives of immigrants so unbearable as possible”.

Espersen anticipated plot devices such as “an incorruptible party chairman struggling for a new government, a better environment, affectionate tolerance for strangers and a world without war”. He also foresaw a “tortured, former Guantanamo prisoner who now spends time creating dialogue between Christians, Jews and Muslims” and “a black preacher who thunders against Islam — and also beats his grandchildren”.

Borgen came to offer nothing of the kind, its plots richer and more complex and sometimes more mundane, too, than the obvious scenarios Espersen had prophesied. The evil party leader — depicted by much-loved ‘nice guy’ actor Peter Mygind — sprang from the left. About as malevolent as it got in the portrayal of the right — and this plot could just as easily have been ascribed to the left — was a gentle corruption scandal that ushered in the moderate Nyborg as PM.

Islam was largely absent; Borgen is mostly white and Christian, but then so is Denmark. The media is depicted as cynical and ruthless, conflicted and even buyable, rather than as idealistic. Civil servants are portrayed as dopey, noxious, loyal and calculating. And as for security breaches, the magnetic PM seductively deploys her winning smile on her driver as she rebounds from a separation with an unremarkable husband.

Espersen’s fears that Borgen would be expensive were also unfounded — the series paid for itself in unanticipated foreign sales.

The Global Mail contacted Espersen for his take, three years later, on a series whose international success had become a source of national pride. Declining to comment, Espersen said he was “busy” and found our inquiries “impertinent”.

But had Espersen been playing the canny pol in 2009, and getting in a pre-emptive shot across DR’s bows, so his controversial party would not be demonised? After all, his former party leader, Pia Kjærsgaard, is the most divisive politician Denmark has produced in recent times, a kind of nativist prototype given to remarks like “the Koran teaches Muslims it is acceptable for them to lie and deceive, cheat and swindle as much as they like” and that a “multi-ethnic Denmark… would be a ‘people’s disaster’”.

A Kjærsgaard-esque character would have been an easy target for a show aimed at re-engaging Danes with moderate and meaningful politics. If Espersen’s intent was to nip such a portrayal in the bud, it may have had some effect, but it didn’t do the Danish right, in power for 10 years, much good.

In elections in September last year, Helle Thorning-Schmidt’s centre-left coalition swept the polls, and Thorning-Schmidt became Denmark’s first female prime minister. She isn’t a moderate — Thorning-Schmidt leads Denmark’s Social Democrats — but when she told Danes after her victory that “we have the opportunity to change Denmark — that opportunity must be seized” she might’ve been channelling Borgen’s Birgitte Nyborg, in a case of life imitating art.

Price doubts Borgen would have been successful had the main protagonist been a man. “We have no shortage of accomplished women in this country, but here for the first time a woman was depicted as our prime minister, and people embraced that.” Most of the executives at DR responsible for Borgen and The Killing are female: they include head of drama and ex-Forbrydelsen producer Piv Bernth, head of fiction Nadia Kløvedal Reich, and Borgen’s chief producer Camilla Hammerich. DR’s director-general is prominent Danish lawyer Maria Rørbye Rønn.

<p>Agnete Schlichtkrull, DR</p>

Price diplomatically describes Espersen as a “very nice man” but snorts at his remarks. Still, he says, “DR felt it had to answer that criticism. We knew it was important to be very balanced and therefore we chose not to take any real party names. I made a rule in the writers’ room that we will not mention or depict actual political facts from recent Danish history within 25 to 30 years.” The closest Borgen comes to depicting the DPP extremists is via a corpulent minority party leader with a thick hillbilly-esque rural accent. Though the character is borderline cartoonish, Price says he wanted him to “always speak the truth even though it might be a truth we do not like”.

TRUTH IS, Price is not the only one to damn his generation for its lack of political engagement. He says they had been labelled as “the great consumers — good at investing in and consuming products and making big careers and not very much interested in revolutions.

“Yet great things have been part of my youth,” he argues. “In Denmark, this was part of our growing up and yet we didn’t want to revolutionise anything, we just wanted a bigger house than our parents.”

Denmark is a socially liberal country, a model of transparency in which it seems everything is open and up for debate. Everyone knows where Denmark’s first real female PM (who came into office after Borgen’s fictional Birgitte Nyborg) lives, but few much care.

Political leaders, and the royals, too, have discreet security but live at home and do their own shopping, washing and cooking. The Danish right wing might even be tagged as lefties in lesser democracies. This is the country in which the party that is literally called Left, Venstre, occupies the centre-right and whose most prominent recent leader, the ex-PM Anders Fogh Rasmussen, rose to power attacking Denmark’s famous welfare state, but while he was in power also approved gay marriage.

Is anything off limits in Borgen?

So far Islam has been only gently touched; Danish troops (in the series, and in reality) are in Afghanistan, and there’s the plot twist in which the Green Party, led by an integrated Muslim, joins Nyborg’s ruling coalition. But this seems almost denialist, in the land which spawned the Jyllands-Posten Mohammed cartoons controversy. And is Price ignoring that Islam is the biggest minority faith in Denmark, claiming almost four per cent of the population, a level that alarms many Danes? “Wait for the third series,” says the scriptwriter.

Another conspicuous absence from Borgen’s intrigues is the Danish royal family, Europe’s oldest continuous monarchy.

There’s a simple reason for that, says Price. “There isn’t really a discussion in Danish society about whether we should have the royals or not.”

He says they are “neutral subject matter” and therefore not (yet) the stuff of political thrillers.

“They are definitely not off limits, [but] they are not Fergie.”

One gets the impression that if the gamine Princess Mary were to transform herself into a duplicate of the indelicate Duchess of York, Price would be quick to notice. (In Borgen’s upcoming third season, Denmark’s near-absent republican movement gets a slight nudge when PM Nyborg’s Moderates decide to refuse to accept obligatory royal gongs for public service.)

Borgen ’s success abroad has astounded Price and his colleagues at DR. The series was written and produced for Danes. “We were told at the outset by management that this would not travel,” he says. “I mean, who would be interested in a show about, excuse me, Danish politics? The Swedes and the Norwegians might buy it out of politeness, as we do in Scandinavia, but that would be it.”

Now Borgen screens from South Korea to Estonia, with the American network NBC signed on to produce a re-make. “It is genuine astonishment on our part that the world has bought into this series.”

EU Crisis: All For One, And Everyone For Themselves

<p>Jasper Juinen/Getty Images</p>

Voters in Spain’s region of Catalonia gave secessionists a majority in November 25 regional elections. Why does Catalonia want to go it alone?

As Spain suffers its sixth year of economic crisis, ‘Why not?’ might actually be the grumpy Catalans’ more likely question.

Economic crises often create opportunities for long-simmering separatist movements to exploit. Think of what happened in the Baltic states as the Soviet Union unravelled, and in East Timor after the Indonesian economy collapsed in 1998. And consider the other Indonesian regions — Aceh, the West Papuans, the Christians of Maluku — that have tried to go it alone and could do so again next time Jakarta’s “Javanese empire” gets itself into money troubles.

As Spain’s richest region, Catalonia’s aspirations for independence have rarely been as passionately — and never as violently — expressed as those of the Basques on the other side of the Iberian peninsula.

After the dictator Franco died in 1975 (and poignantly, for many Spanish, not overthrown) to usher in a wobbly Spanish democracy, the 1980s saw Catalan extremists briefly flirt with the idea. They formed Terra Lliure, or Free Land, Catalonia’s equivalent of the Basque’s ETA (Basque Homeland and Freedom). Both groups wanted to install Marxist states in their respective regions, ETA more violently than the more business-minded Catalans, who prospered from Spain’s embrace from Europe.

Terra Lliure was never as confronting as ETA, and Madrid regarded it as a bit of a joke. ETA has killed more than 800 people in its five-decade war on the Spanish state, and remains an active, though much reduced, threat to Spain. Terra Lliure killed just once, a 62-year-old housewife who was accidentally slain in a botched raid on a judge.

So unremarkable has Catalonian separatism been that Madrid has probably never even considered waging a guerra sucia, or dirty war, against Barcelona’s splittists, as Spain’s first post-Franco democratic governments did when they marshalled death squads against the Basques.

In 1995, by which time Catalonia had become one of Europe’s richest regions, Terra Lliure had disbanded, but the rump of its members joined the Esquerra Republicana de Catalunya (ERC), Catalonia’s Republican Left party.

But Spain’s current economic demise has opened a door for Catalan secessionists.

Elections on November 25 gave the secessionist parties a majority in the Catalonian parliament, probably forcing the dominant centre-right Convergence and Union party into talks on how to advance independence.

And as they proudly wave their senyera, the striking Catalonian flag, as they enthusiastically dance the folkloric sardana piling high in ceremonial human castles, independence-minded Catalans will tell anyone who listens that it’s all about culture, language and identity. These conversations don’t take long to evoke the tyranny of Franco, as if he were still in power.

Except it’s actually about money. It may be Spain’s most industrious region, but Catalonia is going broke, it says, because the cash its economy generates is transferred to Madrid — which in its profligacy has wasted it. ‘Enough!’ cry as many as 70 per cent of Catalonians.

But the mechanics of how secession actually might take place mean independence will be a long time coming. The Catalan breakaways still want to be in the EU but, pressured by Madrid (and Paris too, which has its own Catalan region bordering Spain), Brussels has said that’s not a given. And its not clear how far an independent Catalonia would spread – south to Valencia and the Balaeric Islands too? Into France? All regions speak Catalan.

What’s Spain’s so-called ‘Red Effect’?

This was the feel-good nationalism that was expected to wash over Spain after its football team La Roja heroically prevailed on the South African veldt two years ago, for sport’s most-coveted trophy, the World Cup.

Until then, The Red — so named for the team’s fiery playing strip — had been international football’s chronic under-achievers. Commentators and pundits had mused that it was Spain’s political disunity — its grumpy Galicians, its cranky Catalans and, too often, its bombing Basques — that had turned the national team, drawn from one of the world’s strongest leagues in a football-obsessed land, into a dud.

And then La Roja won. The Guardian, CNN and others gushed about ‘How World Cup victory stirred Spain’s forgotten patriotism’ and that ‘Spain’s success puts nationalists in the shade’. We were assured that this Red Effect would elevate Spain from the deepening doldrums of its collapsed economy.

Except it did nothing of the sort.

Two years — and another football cup (Euro 2012) — later and Spain’s economy has plunged ever deeper. One in four Spanish is out of work, and more and more Catalans, Basques and even Galicians are itching to break away from a fretting Madrid, which relies on these regional economies to pay its mounting bills.

No-one can confidently predict when Spain’s once-tigerish economy will roar again. The best sensible estimate is 2014, which also happens to be when La Roja defends its title in Rio and also when Catalonia is likely to hold a referendum to decide if its seven million people will break clear of Spain.

If La Roja doubles up in Rio, doubtless Madrid will be pumping the Red Effect again for all it’s worth. But before it does, its politicians might wish to dig into the files to remind themselves of what Barcelona’s newspapers chose to put on their front pages the day Spain made its first World Cup final in history.

<p>Daniel Sastre/Getty</p>

True, with seven Barça players in the national team, 100,000 Catalans crowded Barcelona’s placas to celebrate La Roja’s magnificence; but as many as 1.5 million, about 20 per cent of Catalonia’s population, had come out a day earlier to protest Madrid’s winding back of its autonomy. It was the moment many Catalans today say crystallised their reborn independence movement — which carried last month’s regional elections.

But Spain’s crisis has evened out, no?

Not quite, but last week Spain finally made a start by accepting the reality that many analysts have long been banging on about — it must tackle the cancer in its toxic banking system. Though Spain’s property market first collapsed in 2008 in the wake of the US sub-prime drama, and has been tanking ever since, even banks that took billions in EU (read German) support were reluctant to swallow such harsh medicine onto their balance sheet. Write-offs of dodgy loans amounted to 25 to 30 per cent at best.

Now all that has changed. On November 28, the four stricken Spanish banks that had accepted state aid agreed to write their assets down by 60 per cent. With most of the problems in the property sector, that reflects the real level of real estate prices, which have been hammered by the massive glut of property across Spain.

But this is also a tricky topic for Madrid and Brussels — both desperate to keep their unions together. The write-down came with thousands more job losses at a time when neither administration can afford the resulting political impact of more unemployment. And it brought hundreds of branch closures too, denying enterprising Spaniards, who’d hoped to trade their way out of recession, the lifeblood of cash to help them do so. As if Spain didn’t have enough problems, last month revealed yet another as official unemployment reached a staggering 26 per cent.

You say 2014 might be when Catalans vote on independence? Isn’t that also when Scots vote in their independence referendum?

Yes, the Scottish will probably vote in October that year and, curiously, sport might also be a factor as nationalists, now well behind in the polls, crank up the rhetoric to get Scots fired up to leave Britain. But it won’t be football. Ranked at 70 on FIFA’s ladder, compared to Spain’s 1, Scotland isn’t likely to trouble the scorers in Rio, or even actually make it there. The vote will likely come a month or so after Glasgow hosts the Commonwealth Games, at which Scottish athletes are expected to do well. They won a disproportionately high seven of Britain’s 29 gold medals at this year’s London Olympics, almost 25 per cent of the tally from a land that comprises just 9 per cent of the UK’s population. And both sides, the unionists and the Scottish nationalists, claimed these efforts as their own, rather as Catalans celebrated La Roja’s 2010 win after cocking a snook at Madrid a day earlier.

But Madrid and London are dealing with their independence agitators in vastly different ways. UK Prime Minister David Cameron has agreed that Scots can have their referendum — not a bad gamble when support for independence runs about 40 per cent. In Madrid, Prime Minister Mariano Rajoy has denied Catalans the same privilege, claiming such a vote would be contrary to the Spanish constitution. That won’t much bother Catalans, some of whom are even contemplating a unilateral declaration of independence.

Scotland, Catalonia, the Basques… who else in Europe is angling to go it alone?

That would be, most embarrassingly for Brussels, the European Union’s capital, Belgium.

The unelected mandarins who run the EU can’t claim they don’t understand how their austerity demands are firing up opponents from Athens to Alicante, because it’s also happening in their own backyard. Belgians are embroiled in their own independence struggle. This momentum comes from Belgium’s Dutch speakers, the Flemish. They are represented by Bart De Wever’s centre-right New Flemish Alliance, the biggest party in the Belgian parliament, but not (yet) part of government.

De Wever is becoming well known in Belgium for his dramatic weight loss — the politician once pilloried as ‘The Waffleman’ this year lost 60kg of his 142kg, by going on a protein diet. But he is better known for his agitation for a separate Flanders. Though he may no longer personify Flanders’s famous frites, De Wever believes there’s no reason a Flanders independent from the Francophone Walloons should be excluded from the EU.

De Wever can appear to be the consummate European, and he is bringing more moderate Flemish voters into his party than the far-right Vlaams Belang, who occupies the more lunatic fringes of the Belgian debate.

Where else?

Who knows how far it could go in Europe’s race toward stable economies, jobs and incomes. Eurocrats fear that the momentum building in Barcelona, Brussels and elsewhere could spread quickly, rather like freedom caught on in Stalinist Eastern Europe after the Berlin Wall came down in 1989. And if Scotland goes it alone, what’s to stop semi-autonomous regions such as Wales and Northern Ireland from doing the same? Both already have powers devolved from London, and their own parliaments. Italy is a land of regions, so too is France. Bavarians in Germany can sometimes sound like Catalans when they start grumbling about Berlin getting all their hard-earned.

It all underlines how fragile the EU ideal is, in a Europe where the idea of gathering together distinct regions into a unitary state hasn’t really been around that long.


EU: Austerity, Brie, Merci

Okay, let’s first deal with the boring but important bit — money.

It’s Budget Time in Europe, and governments from London to Lisbon, from Rome to Riga are in a tizz over their commitment to the ailing European Union. On Thursday, a summit begins in Brussels at which Eurocrats — more than 50,000 of them —get to salivate over how much of the proposed €138 billion annual kitty they can get their mitts on. Importantly, these are not the funds used to bail out stricken members, as has become the Eurofashion, but the basic bucks for keeping the bureaucracy oiled, amounting to €1 trillion over seven years.

Some German diplomats have likened London to Statler and Waldorf, those two old duffers from The Muppets, snarking from the sidelines.

Of course, there are frictions, and serious ones, too. As winter looms, Europe is broadly split between the rich and chilly Calvinist north and the steamy, profligate, mostly Catholic south and east.

Britain, Germany, Sweden and The Netherlands want Brussels to keep its head for money, insisting on cuts in keeping with the recent EU mantra of austerity. Just about every other member country, including the Brussels bureaucracy, wants more cash to press its snout into.

Britain seems most vexed by its European membership. Conservative Prime Minister David Cameron wants cuts to the EU budget and better oversight on how it’s spent. That idea seems popular among Brits, most of whom don’t want to be in the EU anyway.

<p>Dan Kitwood-WPA Pool/Getty Images</p>

Dan Kitwood-WPA Pool/Getty Images

British PM David Cameron and German Chancellor Angela Merkel both want to force the EU to tighten its purse-strings, in keeping with the austerity mantra coming out of London and Berlin.

But Cameron’s Tories are also the party of Big Business which likes that Britain is in Europe.

And Cameron needs votes — he’s 7 to 10 points behind Labour in the polls. That’s about as many points as have leaked to the UK Independence Party, led by Eurosceptic Nigel Farage, a former Tory who left the party in 1992 when John Major endorsed the Maastricht Treaty that created the EU. After copping a bloody nose in Parliament last month when 53 Eurosceptic Tory rebels broke with him after a debate about the EU budget, Cameron can’t afford to soften.

Britain and Germany seem to be in broad budgetary agreement, but the Germans articulate Europe-wide exasperation at Whitehall’s constant sniping on Europe, saying it risks the entire European project, which is primarily financed by Berlin anyway. Some German diplomats have likened London to Statler and Waldorf, those two old duffers from The Muppets, snarking from the sidelines.

And let’s not forget propping up the lifestyles of grumpy French farmers — about a third of the EU budget goes on the Common Agricultural Policy.

What does the EU budget actually pay for?

The European Union’s main purpose is to equalise the bloc’s economies, a process which it calls cohesion. Funds are provided by member states, primarily the rich northern ones, and then dispersed by the EU to raise up the lesser regions, most often found in the continent’s east and south.

There are also countless civil society aid programs to support around the world, and myriad EU agencies to fund. And let’s not forget propping up the lifestyles of grumpy French farmers — about a third of the EU budget goes on the Common Agricultural Policy of huge subsidises that keeps European farmers tending their land — and woe betide the domestic political fortunes of any summit-going French president, particularly hero of la gauche François Hollande, who ventures to Brussels with plans to cut any more of the CAP.

Meanwhile, honest hard-working tax-paying Europeans in places like The Netherlands reckon the Brussels bureaucrats are just Moet-swilling papershufflers. Sacre bleu, claim these Eurocrats now agitating for a 5 to 6 per cent budget increase — and this,  remarkably, in the time of extreme austerity.

The fatcats insist there are some important projects to finance — such as the €50 million required to fund their own House of European History in Brussels, and the €300 million needed to build a new home for the European Council, the EU’s paramount secretariat.

Among the European national leaders — Merkels and Montis, Klauses and Kennys — in Brussels this weekend will be Thorbjørn Jagland from non-EU Norway. Jagland is a lifelong Norwegian Labour Party hack who heads the Council of Europe, which claims as its purpose the promotion of cultural co-operation, the rule of law and other noble undertakings — all of which are also done by the EU.

<p>Heiko Junge/AFP/GettyImages</p>

It’s not entirely clear what the Council of Europe is actually for, but it exists, a bureaucracy to be kept afloat for people like, well, like Thorbjørn Jagland, once briefly Norway’s PM, to slide into when the voters kick them out at home.

Though the Council of Europe, which costs €354.34 million annually to run, is strictly speaking not an EU institution, Jagland’s €261,570.48 annual salary and those of the CoE’s 2,139 employees are around 80 per cent funded by the EU and its member states.

(But it’s Jagland’s other job that has made him a very popular figure in the salons of Brussels. He’s also the chair of Norway’s five-strong Nobel Prize Committee, the crowd that hands out the annual Peace prize. Jagland is a career-long advocate of Norway joining the EU. He’s written books and campaigned in Oslo on the topic, but failed to make it happen. There is barely a more eloquent advocate of EU membership for Oslo than the 62-year-old Jagland. The high-minded Nobel committee that he chairs, as it never tires of reminding the world, is supposed to be above petty politics, or acting as a vehicle for Norwegian concerns. So where did the Jagland-chaired committee bestow its Nobel Peace prize this year? Why, it awarded it to the EU, the very same European Union that pays the bulk of Jagland’s salary. Perish the thought there may have been a conflict of interest — that would be very un-Scandinavian, very ig-Nobel.)

Spain’s troubled mortgages now equal a staggering 17.4 per cent of the national GDP. In 2007 it was less than two per cent.


How’s Spain doing? It was the dodgy one when we last looked.

It still is, although, Spain’s PM Mariano Rajoy this week declared the worst is over — becoming another voice in the chorus of Euroleaders to claim so. But his big credibility problem is that just as he made his claim, the central Banco de España revealed that the suspect property debts burdening Spain’s stricken banking system had hit new historically high levels.

Spain’s troubled mortgages now equal a staggering 17.4 per cent of the national GDP. In 2007, the last year in which the sun shone on the Spanish economy, it was less than two per cent. Rajoy is now in direct conflict with the Eurocrats keeping his country afloat. After years of recession, he says things ‘will be better’ next year, without offering specifics. But Brussels says Spain will be in recession at least until 2014, no laughing matter for the Tahrir Square-inspired indignados staging rolling protests across a land where one in four are unemployed.

To add to Rajoy’s woes, next Sunday, part of the country might vote to secede. Just as Europe’s bureaucrats are scheduled to conclude their budget summit, comes a regional election for Catalans that will effectively be a vote for Catalonian secession; a strong showing by the pro-independent parties will likely prompt a referendum to split this wealthy region from the rest of Spain, which it has been subsidising for some time. Brussels and other EU capitals fear that Catalonian secession could cause a ripple effect elsewhere in the EU — pushing Scotland, Wales, the Basque region, even ethnically divided Belgium itself to make the big leap.

Catalonian secession could cause a ripple effect — pushing Scotland, Wales, the Basque region, even ethnically divided Belgium itself to make the big leap.

Plus, Spain still has a huge property headache. As many as a million homes are surplus in Spain’s property market, so Rajoy has come up with a cunning plan — to rent out his country into China. Rajoy has directly propositioned Chinese mainlanders, asking them to invest just €160,000 for a house, with permanent residency of Spain thrown in as part of the deal.

At this price, selling a modest 150-square-metre apartment in China’s coastal Qingdao, Bilbao’s sister city, would do it. So would some average digs in the Sichuan capital Chengdu, which is officially chummy with Valencia. In Chinese terms, these are not expensive glamour cities like Beijing and Shanghai, where property prices are some of the world’s highest. Even flogging a tiny duplex in an unremarkable complex in industrial Shenzhen, near Hong Kong would yield permanent Spanish residency — aka a house — and €200,000 in change, for a tapa or two.

And what horrors to come?

Well, if you’d asked the venerable Economist magazine this week, the dramas engulfing Spain, Italy, Ireland, Portugal and Greece are nothing compared to what the ‘time bomb’ of France’s recent credit downgrade might have in store for the world.Mon Dieu!

And Greece? Where’s it at now?

Who could forget. Certainly not the Greeks, now turning in droves to the anti-immigrant, anti-EU, neo-Nazi party Golden Dawn. Germany has installed bureaucrats in various Greek regions to teach local mandarins how to run a budget, (Germany’s in the main, given that Berlin is largely funding the Greek bailout).For their trouble, Golden Dawn supporters have shown up calling the Germans Nazis and demanding they leave.

In the meantime, Eurozone finance ministers meetings in Brussels this week, failed to reach agreement with Athens over the terms of a second bailout. That failure prompted more hand-wringing and doomsaying, as is also the fashion among Euroleaders. As he grappled with a polity he doesn’t control, Greek Prime Minister Antonis Samaras noted that “it’s not only the future of our country, but the stability of the entire Eurozone that is at stake”.


Conrad: The New New Black

Convicted fraudster Conrad Black, who once lorded over Australia’s Fairfax newspapers in another less-disgraced life, has been peddling around London, hyping his new book with the velocity of a Lance Armstrong EPO-ed to the eyeballs. And, like Lance, flogging The Big Lie that he’s innocent.

Armstrong would have us believe that he’s as saintly as Mandela, as virtuous as Aung San Suu Kyi, and that it’s everyone else with the credibility problem.

Black goes even further in his delusion. He seems to think he is Mandela, another gift to humanity oppressed by a “venal and corrupt” legal system — in his case America’s — that he rates as lowly as North Korea’s. The US justice system is a “fraudulent fascistic conveyor belt” that persecuted him “half to death”.

His is a curious way of looking at his past decade. American justice and the fleeced shareholders of Black’s now-defunct Hollinger group view it differently; that he looted a public company to fund a billionaire’s lifestyle that he, as a mere multi-millionaire, couldn’t afford.

Mandela was incarcerated mostly because he was black. Black seems to believe he was villainised because he was Conrad Black. Mandela chipped limestone in hard labour on South Africa’s Robben Island for the best part of 27 years. Black did his porridge, some three years and change, in a low-security Florida facility American cons regard as a Club Med for Crims, denied little but permission to leave it of his own accord.

On his British book tour, Black has been near as ubiquitous as the paedophile Jimmy Savile, another criminal who’s been all over the box recently. But since Savile is dead, the most perilous place in Britain seems no longer a BBC dressing room but the space between the old Canadian-born crook and a TV interviewer.

His was more offensive than charm. Sparring on the BBC’s Newsnight with Jeremy Paxman, who deliciously introduced the Black segment as “Monsters Inc”. Black called Paxman “a priggish, gullible, British fool” while complimenting his own restraint in not belting Paxman on air. Black called Paxman an “asshole,” and was rude on Sky TV too, scrapping with “jackass” Adam Boulton, an interviewer “incapable of a civil syllable”. On BBC’s Hardtalk, he was civil, if impatient, but no less disabused of his criminality.

Black masochistically presented himself as well to the Beeb’s satirical flagship Have I Got News for You, where he proved stoic but ultimately roadkill for the show’s caustic regulars, the comic Paul Merton and Private Eye’s editor, Ian Hislop.

His schtick has been the same on each appearance. Everyone’s wrong except for Black and his fellow travellers; had his fraud case been heard anywhere but America he would never have been convicted, therefore he’s innocent globally. Like Armstrong, he’s guilty of nothing except choosing immoral business partners, unreliable directors and misjudging the zeal for corporate governance. He repeatedly claimed that he was never convicted for fraud, when the US Supreme Court — and his own book too — confirm he was. “I never cleaned the latrine,” he insists of his time in the lock-up. “It was a shower stall.” Which must be an important distinction for a convict.

Black affects an insouciance about his public image, that he doesn’t care what’s said about him. But writing in The Spectator (a magazine he once owned) after his media whirlwind, he assails London’s press as a “fetid and narcissistic infestation of self-obsessed, drearily-predictable, lazy, reckless self-exalted wits,” the “lowest mutation of human life” he’s ever encountered — except, of course, American prosecutors.

Not one adjective for the pleonastic Conrad when 10 are far better.

As for the politicians he once lavished in his books and on his boards, they now disappoint him. His request for a pardon from George W. Bush, which Black made via Bush’s father, was refused. Or as Black puts it “he didn’t reject it, he just didn’t act on it”. Now he’s trying to regain entry to the very same US that banned him for 30 years — when he’ll be 98 — the same US he ceaselessly slags, the same place he chose to headquarter his now-defunct empire, which was largely brought undone by an independent investigator (a former chairman of the US Securities and Exchange Commission, no less) his own board had appointed.

He’s also trying to restore his Canadian citizenship, the birthland which he once derided as a “Third World dump run by raving socialists”. He renounced his Canadian passport in 2001 to become Lord Black of Crossharbour, a peerage honour many Britons would now like withdrawn from Inmate 18330-424, as the US Federal Bureau of Prisons catalogues him.

Black says he’s doing the media rounds only to sell his new book, A Matter of Principle. Though his fortune has been pillaged by fleecing lawyers, he’s still a very wealthy man — worth USD80 million by one measure which he does not deny.

So if he doesn’t need the money, it’s presumably his ego and a craving for celebrity he’s trying to salve, or perhaps it’s to announce to his former social circle that he and wife Barbara Amiel are back, and that they still matter.

For a time, they were a hot ticket on the London circuit, but even at the peak of his powers — and excess — in the early 2000s, Black was never as publicly recognisable or notorious as British press czars such as Murdoch the “Dirty Digger,” porn baron Richard Desmond or that other fraudster, Robert “The Bouncing Czech” Maxwell. To the wider public, Black’s appearances in their living rooms this past week would likely be the first time they’ve ever heard of him.

A Matter of Principle is published by Encounter Books, which counts among its stable of authors the former US ambassador to the UN, John Bolton, British right-wing firebrand Melanie Phillips and Australian Keith Windschuttle, among other polemicists.

Black’s book is relentlessly self-absorbed, a riposte aimed at wresting the public record of his career back from Tom Bowers’ excoriating 2006 biography, Conrad and Lady Black: Dancing on the Edge, which Black describes as “the most artlessly libelous book since The Protocols of the Elders of Zion. Which is some claim when you consider that Protocols is the book many historians argue influenced Hitler to carry out the Holocaust.

A love letter to himself, Black’s book is at its most disquieting in describing prison life at Federal Correctional Institution Coleman Low in Florida, where — and parents, look away now — he even found child molesters, the lowest of the low of prison pond scum, agreeable company.

These ‘chomos’ were “quite pleasant and sometimes rather intelligent,” and quite possibly victims, like him, of America’s “corrupt prosecutocracy,” Black writes, questioning whether his chomo chums should’ve been behind bars at all.

“Some had huge collections of lewd photographs,” he writes. “I am not convinced that these are facts that justify imprisonment.” As for those who physically abused defenceless people, Black says they are “disgusting” but he also sympathises with them for the “maladjustment” that drove them to such “pitiful” acts.

A Matter of Principle is a register of floridly expressed fibs and score-settling, but no less entertaining for it. Its most diverting — and perhaps its most truthful — passages come at the end, when he discusses his one-time rival in British, Australian and North American print, Rupert Murdoch.

“The Real Rupert Murdoch” is Black’s dramatic coda. And he reserves his most intense vengeance for last.

The venom positively drips from the text. As widely reported this week, he describes Rupert as a “psychopath”, but this seems almost charitable compared with what follows. It’s almost as if Black blames the News Corp boss and his empire for his travails, because it’s clear in the preceding 500 pages — and perish the thought — the last person Conrad Black blames for those is himself.

First, there’s a generous preamble, praising Murdoch for corporate achievements that are “Napoleonic in boldness of concept and skill of execution”. Rupert, Black notes approvingly, cracked the British print unions, broke the American TV cartels, and pioneered satellite TV. With typical bombast, Black claims, “and no one has been more vocal or consistent than I in saluting [these achievements].”

But this is only the starter before Black’s main course, the punctuating breath presaging an inevitable ‘but.’

Then Conrad delivers the dish on his old friend, and then some. Rupert — whom Black says he supported when Murdoch flirted with bankruptcy in the early 1990s — has betrayed him in an “unspeakable assault … despite having assured me in writing that he would try to prevent excesses”.

In a passage penned the same week last year that Murdoch’s Wall Street Journal listed Black in a rogue’s gallery as one of five of history’s most monstrous of corporate criminals, Black says Murdoch “personally intervened” to “Madoffize” him, as “his vast media organisation swung into vitriolic defamatory mode”.

In what might be regarded as a pot-kettle moment for Black, he relishes the Murdoch empire’s recent descent into disgrace from its phone-hacking excesses, when “his companies’ skullduggery finally oozed out, sluggish and filthy”. Murdoch’s News has been “stripped naked as the lawless hypocritical organisation it has long been … engaging in wholesale industrial espionage.”

<p>Brian Kersey/Getty Images</p>

Black describes Murdoch’s “bumbling” appearance before British parliamentarians last year — “like a centenarian semi-cadaver, mumbling about humility. Behind his nondescript personality lurks a repressed destructive malice … [the proprietor of a criminal organisation”. Murdoch, writes Black, is “the great defamer … a tottering, cowardly supplicant and a prime candidate for criminal prosecution on at least two continents.

“In the extreme winter of his days, Rupert Murdoch’s failing hands have dropped the mask; he is a malignant force and it would be a good thing for the world to be done with him.”

Responding by Twitter to Black’s harangue, Murdoch said last week that one should never be surprised by Conrad’s language, adding that “despite [his] faults, [Black was] very gutsy to fight”.

Their exchange reveals much of both men.

Black’s bile lays blame for his failures on everyone but himself. But what about Rupert? However harsh the insults Black heaps upon him here, Murdoch seems gracious about a fallen former adversary.

Instead, Murdoch reserves scorn for those who continue to meaningfully confront him — such as the “celebrity scumbags” of the Hacked Off campaign that formed in the wake of the phone-hacking revelations, and which continues to expose criminality at News and elsewhere.

Conrad Black no longer poses any threat to Murdoch so it’s easy and even cheap to be gracious about a man reduced to near a figure of pity and ridicule.

But for someone so clearly adoring of his own syntax, words don’t seem to be that important to Black. After mercilessly traducing Murdoch in his book, all it took was a “friendly tweet” from Rupert for Black to offer, via a column in London’s Mail on Sunday, to “bury the hatchet.” One suspects that if he cared, Murdoch would take up Black’s proposal — and embed said blade between Conrad’s shoulders.

THIS correspondent had a bit to do with the then London-based Black, before and briefly after he bought into Fairfax. I was then in Fairfax’s London bureau for The Sydney Morning Herald and spoke often with him as his effort to buy Fairfax twisted between Canberra and his Tourang syndicate’s big end of town.

Black then owned the right-leaning London Daily and Sunday Telegraphs. When he began looming over Fairfax, horrified SMH lifers exhorted me to write a hatchet job, insisting that he was a recidivist interferer of Murdochian proportion in his papers’ newsrooms.

Problem for that argument was there was little evidence that Black actually did interfere, at his London papers anyway. The toffy Telegraphs were — and remain — the handbook of England’s affluent conservative shires. They embodied his world view long before he bought them in 1986, that the planet was best stewarded by a patrician establishment club, the more white, male and Anglophone the better (though gender exception was enthusiastically made for Margaret Thatcher), populated by trans-Atlantic types like, well, Conrad Black, a scion of one of Canada’s wealthiest business dynasties, destined to be ennobled by his peers.

Black didn’t need to interfere too much in Telegraph editorial. More often than not he was in furious agreement with his clubbable editors Max Hastings, Charles Moore and Dominic Lawson — the latter two had also been editors of The Spectator. This is different to Murdoch, who directs his empire’s groupthink as might a mafia don, commanding a legion of capos directing ciphers delivering the boss’ directives.

The occasional times Black wasn’t in accord with the Telegraphs, he would indulge himself onto their pages with a signed letter or commentary, most notoriously on New Year’s Eve, 1992 when a vast tract of the Daily Telegraph’s fashion pages was set aside for Black’s “personal offensive against the efforts of the long-skirt brigade to kill off the short skirt”.

This bizarre piece came just a few months after Black had married, after a brief affair, the Canadian journalist Barbara Amiel, who Vanity Fair once described as a “sleek, self-absorbed sex kitten”, a woman notorious among her Toronto Sun colleagues for once, when editor, coming to work in a loose trenchcoat revealing a black bustier, garter belt and stockings.

My brief encounter with Amiel was comical. Researching the biography piece in late 1991 as Black circled Fairfax, I rang around a few colleagues representing Canadian media in London to exchange gossip about him. One hack suggested I call Amiel, then a Sunday Times columnist, because “she knows more about him than any of us”.

I did, but rather than swap titbits, she swiftly blew me off, telling me it would be “inappropriate” to discuss Black. I was puzzled and a little miffed too, particularly when everyone else had been faultlessly Canadian; polite, easygoing, co-operative. Weeks later, long after I’d filed my piece, the Evening Standard’s Londoner’s Diary had an item revealing Conrad Black’s new squeeze — Barbara Amiel, a femme fatale who would later admit to Vogue that her “extravagance knew no bounds,” a profligacy Conrad happily enabled for his “magnificent” spouse — his second, her fifth.

If Black knew of my blithe bumbling around his then mistress, he didn’t show it, engaging whenever necessary to transmit his take on whatever twist and turn his play for Fairfax was taking in Sydney and Canberra. He secured control in mid-1992 but maintained a contact of sorts afterwards, sporadically calling but never to direct, more to gossip and know more of Australia, a land about which he claimed he knew little.

Always faultlessly courteous, he was perhaps the most revealing the last time we spoke. In mid-January 1993, I got into the bureau early one day to meet a deadline. The phone rang around dawn and the caller asked for me. It was Conrad Black, a friendlier-than-normal Conrad Black.

“Hello, mate,” he said, in that forced mimicry of the Australian vernacular foreigners deploy when seeking to ingratiate. “I was hoping you might have a copy of the Camilla story from Australia?” he asked. This was Camillagate, the transcript of an intimate telephone conversation illegally recorded three years earlier between Prince Charles and Camilla Parker-Bowles, which had been splashed in Australia overnight on the cover on Murdoch’s New Idea magazine.

It was news to me, but it was customary in those pre-internet days for the Fairfax bureaux to be faxed anything from Australia that needed follow up abroad. I went to the communications room, and there spilling from the fax was New Idea’s Camillagate.

I faxed it to Black, and he called back delighted that he’d got it probably before anyone in London. He explained that he was hosting a dinner that evening. The transcripts confirmed the open secret that Camilla and Charles, who was then still married to Diana, were an item. Then unpublishable in London during the ‘War of the Waleses,’ this would be the piece de resistance to produce at table, the hottest scandal of the time.

For all his verbosity and cerebral bluster, this man so profoundly enamoured of his own intellect — Paul Keating once described the choice between Kerry Packer and Black as that between a “900-pound gorilla and a fucking thesaurus” — was as down and dirty and gossipy as the next person.

For Black, as with other media moguls past and present, media proprietorship is an entry ticket to the Things That Matter. Flapping the Camillagate transcripts at his titillated dinner guests would remind them he was a global power player with a ringside seat on everything from trans-Atlantic machinations through Middle East intrigues (he also owned – and changed — the influential Jerusalem Post) to knowing before most in his elite social and business circle that the heir to the British throne imagined himself as a tampon.

My colleagues’ fears that Black would interfere would prove largely unfounded, and compared with the commercial turmoil Fairfax now endures, his was something of a golden era there. A vengeful Packer was mostly kept at arm’s length, technology was yet to dry up Fairfax’s classified advertising ‘rivers of gold’ and its newspapers did relatively well. Indeed, Black’s four years at Fairfax were among his more lucrative — and less larcenous — corporate adventures. He exited in 1996, frustrated by Canberra’s media regulations, which barred him from owning more, but with a $300 million profit on the investment.

Australia left him with mixed feelings. In his book, he writes that though he had a “happy commercial and personal experience” he found Australians “paranoid” about foreign investment and a place that encouraged “innovatively salacious foul-mouthed language”.

Paul Keating, the prime minister of the era, and with whom he tangled over media ownership law, was “an extremely entertaining and in some ways brilliant man, a likeable scoundrel” albeit one deficient of “Solomonic” judgement.

Dishonourable Australian political leaders on both sides had “flimflammed” him, and he blames them in part for his failure to become one of the world’s biggest media companies (when there are plenty who’ll testify — and did — that Black’s regard of his shareholders’ money as his own was a more compelling impediment to corporate expansion). He scowls at the Murdoch empire’s “constant Australian back-biting and chippiness”, which he says Rupert Murdoch “likes and promotes”.

About the only Australians to have Black’s unqualified approval are the “delightful” Barry Humphries and Bob Carr, whom he neo-colonially describes as the former “prime minister of New South Wales”. Carr, Black writes, is a “very accomplished man” and claims him as his best Australian friend since the 1999 death of the novelist Morris West.

It seems the love-in between Black and Carr is mutual. Carr wrote in August 2010 — prematurely as things turned out — of his pleasure to hear from his “favorite press proprietor”, noting that he’d won his appeal and had been released from prison in the US. A few months later, the US Supreme Court directed Black to prison to finish his sentence.

So where to next for the Black caravan? Australia? His good friend Bob Carr is, of course, now Australia’s foreign minister. In various columns, Black has advanced Carr as just the man to restore the international lustre – if it were ever thus — of the Commonwealth, to replace Germany-dominated Europe and the “erratic” US.

Any Australian plans for Black would raise questions of whether Canberra would allow entry to this convicted criminal. And Bob Carr is the ultimate arbiter for a visa should his mate Conrad the crook beg Australia’s pardon to flog a few of his books down under and, if his British sortie is any guide, spread some lies and bile too.


If The Water’s At Your Neck, It Pays To Be Pragmatic

A FUNNY thing didn’t happen to Dutch voters on their way to recent elections.

They didn’t debate climate change.

Which, in one of the world’s more vigorous democracies, strikes one as astonishing. In the febrile atmosphere that marks the climate-change debate elsewhere, the discussion inevitably reduces to money — specifically, whether the imposition of a carbon tax or equivalent environment levy is necessary and affordable. That being so, if any nation’s taxpayers had a pressing fiscal imperative to put climate change at the top of their election agenda, it would be the 17 million people of the Netherlands, where great swathes of land lie below sea level.

The Dutch taxpayers’ basic annual water bill starts at a collective €6 billion. And that’s just managing the infrastructure that already exists.

Then take in the anticipated cost of upgrading that infrastructure, to ‘future-proof’ the country against the anticipated ravages of global warming — anthropogenically-induced or otherwise — and the bill explodes exponentially to a planned €100-150 billion. This projected bill is contained in a report that has long been accepted and recommended on all major sides of the Dutch polity.

<p>Co Zeylemaker/AFP/Getty Images</p>

That’s a big ask for taxpayers at any time, and then one remembers these are austere times of economic crisis in the Eurozone, where everything seems to be on the table for budget cuts.

Yet, in the saturated Netherlands, no-one seems to blanch. The need to secure their future doesn’t allow the Dutch an alternative.

“We don’t have the luxury of a climate-change debate in this country,” says Peter Glas, chairman of The Netherlands’s national water authority. “If we make the wrong decision, we are finished.”

How the Dutch deal with global warming stands in sharp contrast to the polarised forums in other nations. In the Anglosphere, for example, the ‘discussion’ is often reduced to little more than a shouty cartel: on one side the bumptious Moncktons and Morgans and their fellow travellers; on the other, the disciples of the evangelical Hayhoes and Gores — where both sides seem determined to submerge common sense under a deluge of shameless attention-seeking.

Were such colossal budgets as the Dutch endure in the hands of global-warming denialists, it would be political party time. In Australia we’ve seen it from those who make capital from the rights or wrongs of the recently instituted carbon tax. In the northern hemisphere, there’s the ongoing arm-wrestle over whether to drill Alaska’s Arctic Refuge, and the argy-bargy over how fast, if at all, Greenland’s ice is melting.

If this were the US, or even Australia, there’d doubtless be a bit more hoopla for here is something worth venerating: it is Europe’s lowest point — at 6.76 metres below sea level.

To put the pull future-proofing has on The Netherlands’s finances in perspective, the Dutch government that unexpectedly fell in April — the event that prompted September’s elections — did so because it couldn’t agree where and how to slash a general €12 billion from the national budget, to meet crisis-gripped Europe’s austerity edicts from Brussels.

Across Europe, the Dutch endure a reputation for parsimony, even stinginess. Thrift stores like the many clothes-repair shops on any Dutch main straat attest to the fact that these are a frugal people who can begrudge spending a cent more than they have to. Many Europeans would say Holland is the land of deep pockets and short arms.

That basic €6 billion in water management raised from Dutch taxpayers maintains existing sea defences such as the Delta Works around Rotterdam and the Zuiderzee system in the north. These are the massive network of dikes and drainage complexes that the American Society of Civil Engineers deems one of the ‘seven wonders’ of the modern world. This figure also covers maintenance of the vast network of canals, dams and sluices that criss-cross this flat land.

The vulnerable half of the Netherlands critically hosts Europe’s biggest seaport, Rotterdam, and most of its economy. When scientists report that 3,000 km away across the North Atlantic, Greenland’s glaciers are melting at an ever faster rate, it’s big news here. The Dutch care about the planet as much as the next nation, perhaps more so if Greenpeace bumper stickers in middle-class Amsterdam are any measure.

Vulnerable specks of land such as The Maldives and Kiribati, or even more substantial conurbations such as Java’s sodden northwest coast centred on flood-prone Jakarta, could sink under the waves and the global economy wouldn’t much notice anything missing.

But, as Netherlanders like to point out in their cosy ‘brown cafes’ where water laps metres away in canals, if Holland disappears it’s tot ziens to the world’s 17th largest economy, and then some. It would disrupt efficient access to Germany’s industrialised Ruhr region, the heart of the world’s fourth largest economy, to much of wealthy northern Europe and to a large proportion of the world’s largest economic bloc, the wider European Union itself.

With so much at stake, and so much spent, why wasn’t climate change an election showstopper in Holland? It’s not as if the Dutch don’t value democracy or loudly exercise their right to free speech.

Indeed, the Dutch polity is one of the world’s most democratic, and sceptical voters here demand to be intimately consulted by their representatives, as was evidenced during the recent election campaign.

Prime time TV viewers sat through eight debates — eight! — before the September 12 poll. Some 20 party leaders — from the ruling People’s Party for Freedom and Democracy and the Islamophobe Geert Wilders, to the Green-Left and the Animal (Rights) Party — got virtually equal air time. (My favourite moment of the election season was when the re-elected leader of the animal rights party wore a bandolier of carrots over her military-style outfit to the opening of Parliament.)

They debated Europe’s ongoing economic crisis and the Dutch role in dealing with it was the front, centre and near only issue of the poll. Well after that came the usual domestic concerns, such as education and health. And then they debated Europe’s crisis some more. But not climate change.

The issue hasn’t exactly been front and centre of the US presidential campaign either, but for very different reasons than the Dutch poll. According to Professor Pier Vellinga, scientific director of the state-supported think tank Knowledge for Climate in Utrecht, the Dutch examined, weighed up and digested climate-change science long ago — because they had to.

<p>Courtesy Wageningen University, Alterra</p>

Professor Pier Vellinga

“The Dutch have a very intimate relationship with water,” says Vellinga. “We can see the direct threat to our lifestyle and livelihood on a daily basis, possibly more than anywhere else.”

Famously imbued with mercantile common sense that has made the Netherlands one of the world’s richest countries, the Dutch accepted it and all parties agreed to pay billions to be defended from it. And then, says Vellinga, pragmatically moved to create an industry from it. Today, Dutch companies are the world’s leaders in dredging and reclamation, in land-starved places such as Singapore and Hong Kong.

“Internationally,” says Vellinga, “protecting against climate change — climate proofing — is very popular now but reducing emissions is a bit less popular, whereas in The Netherlands in the late 1980s we really started absolute priority for reducing emissions.

“We are very environmentally aware,” he adds. “We are quite a few people in a small area and we are vulnerable to the water, which makes us sensitive to the environment.”

The Netherlands is also located in the heart of one of the world’s most industrialised zones and, as an entrepôt, has built an infrastructure— Rotterdam port and Schiphol airport — that is far larger than its specific national requirements demand. “We are in the eye of the tornado,” Vellinga says. “We have more multinational production companies than the size of our nation might suggest.”

The Netherlands has long been an international champion of climate change, generally ahead of EU decrees. “About 80 per cent of our political establishment accepts corrective measures,” says Vellinga, “and 70 per cent accept the science”.

“Wilders,” he says, referring to Geert Wilders, the firebrand Dutch politician better known for his anti-Islam rhetoric, “is the denialist, but even he has safety-first arguments.” Wilders’ Freedom Party has the Dutch parliament’s third largest electoral bloc, despite big seat losses in the recent poll. It was Wilders who in April brought down the coalition government he’d helped create in 2010, when he broke over government plans to adhere to Brussels’ austerity edicts for EU members.

“We kept a little bit quiet when Wilders was more active because we did not want to become a lightning rod for his activities. We are here to do good scientific research and we did not want to provoke these guys and become a distracting political issue,” explains Vellinga.

One of the founders of the UN’s Nobel Peace Prize-winning Intergovernmental Panel on Climate Change (IPCC), Vellinga isn’t without his enemies and sceptics. The Dutch magazine Elsevier has described him as “Number One climate alarmist of the Netherlands”, and he says he often gets hate mail from denialists.

But, he says, something deeper motivates the average person to concern for the environment here, where every district is covered by one of the world’s earliest forms of democracy, the famous waterschappen, or water authorities — elected bodies entrusted with maintaining the regional defences.

<p>Koen van Weel/AFP/Getty Images</p>

Koen van Weel/AFP/Getty Images

ONE of Pier Vellinga’s earliest memories is of the refugees his family housed at their home in the early 1950s. They were evacuees from the 1953 North Sea flood disaster, still today regarded as the seminal event in modern Dutch history, when more than 1,800 people were killed in floods that submerged a tenth of the country.

It was this tragedy which prompted the vast Delta Works program and, later, the Delta Commission, which was tasked with future-proofing The Netherlands specifically against climate change. The commission was chaired by Dutch politician Cees Veerman, a farmer and stalwart of the Christian Democratic Appeal party, a member of the current caretaker government.

Veerman says he didn’t approach his job at the Delta commission with any pre-determined view on climate change, not with how or even whether it was happening. “We were entrusted with investigating whether it would impact on the Netherlands, and then recommend what to do to protect ourselves,” he says. “We let the science and our investigations speak for themselves. We looked at all scenarios.” As for the colossal bill anticipated to future-proof the country with some of the world’s most sophisticated engineering, he says, “we see this as little more than an insurance policy”.

“We do business with the sea, and more often than not, the money stays inside the Dutch economy.”

Veerman says he’s both amused and alarmed when he observes foreign debates about global warming and the existence, or otherwise, of it. As a farmer, he sees the effects of climate change for himself on his land; in seasons beginning and ending at unusual times or in the unexpected patterns emerging among local animals, insects and plants.

Growing up through the 1950s and 1960s, Vellinga says it became commonplace for Dutch teachers to encourage the nation’s best and brightest toward ‘Delta work’, to a career devoted to protecting the nation from nature.

Vellinga was one of them. He studied as a civil engineer, and was exempted from military service because he was involved in maintaining sea defences. “I wasn’t the boy with the dike,” he smiles, “but I guess I was almost patriotically driven to this type of work.” Today, 100 PhDs work in his research centre in Utrecht; among them are climatologists, economists, demographers and social scientists.

“It’s not just defending the country but it’s developing ways to sell our expertise in this area,” he says. For example, he consults to the city of Venice on how better to manage its water issues.

“Water management is seen as a Dutch speciality,” he says. “Like if you want to specialise in kangaroos, it’s perhaps better that you be an Australian.”

Australia, he says, “is so vulnerable for climate change.

“When I was at IPCC we were always sceptical about statements on emission reduction from countries which produce lots of coal and oil, like Norway, like Australia, to some extent Canada and The Netherlands because they depend on these resources for export.”

“Australia is close to Antarctica, and all climate models tell us it will have major changes in climate, more so than North America and Europe. Its geographic position makes it more sensitive to changes in the global temperature and air circulation than probably any other country.”

The no-nonsense-get-on-with-it way the Dutch approach their battle with the climate is starkly evident outside the tiny the Dutch village of Nieuwerkerk aan den Ijssel, in Holland’s southwest.

If this were the US, or even Australia, there’d doubtless be a bit more hoopla, for here is something worth venerating: it is Europe’s lowest point — at 6.76 metres below sea level — in a land world-famous for being waterlogged, and overcoming it. If it were anywhere else there’d likely be a boisterous theme park — instead it’s mostly verdant polder.

To the expectant foreign eye it’s all rather disappointing. There’s a car park for just 10 vehicles — The Global Mail was the only visitor when we called in — and a brief four-paragraph explanation of what we are looking at; an unremarkable steel column embedded in a small pond.

Instead of inevitable snowdomes and the naff kiddy toys of tourist kitsch, this emblematic place is just metres from one of The Netherlands’ busiest freeways. There’s no sign pointing here or even an acknowledgment. Motorists rush between Europe’s two biggest commercial ports, Rotterdam and Antwerp, oblivious to the national symbolism here at the heart of Europe Inc.

Which would appear to be its point. The monument is Dutch, matter-of-fact and not to be trumpeted. Plain is good in The Netherlands, whose 17 million people have little regard for razzamatazz when there’s important trading to be done at Europe’s commercial crossroads. They just accept it, and move on without fuss.

Indeed, it’s rather how the Dutch confront the challenge posed by global warming.

Pyongyang Pastorale – Updated

Pedalling Propaganda by the paddy

(see updated correspondence below text)

October 14, 1994

It seemed an image of rural harmony in developing Asia – a woman riding a pushbike beside a paddy field where peasants were harvesting rice. But in communist North Korea, nothing is as it seems.

This cyclist had fitted to her bicycle two oversized loudspeakers blaring a jaunty revolutionary song: “Kim Jong-il, you are our supreme commander; with you we will win a great victory”. With the tune etched on to a crude metal tape, her revolutionary task was to ride up and down this one-kilometre stretch of road outside Pyongyang for eight hours a day, every day. The “Dear Leader”, Kim Jong-il, the man expected to take over as North Korean President after 100 days of mourning the death in July of his father, directs that the song spur the peasants on to greater productivity.

The speed of her pedalling was directly related to the tune of the song, like a dynamo powering a headlight. If she slowed, the song slurred, and in North Korea nothing is permitted to stop the revolution.

It is impossible to escape the mark of the Great and Dear Leaders in North Korea.

For example, I was proudly shown what I was told was a “typical” high school, the Pyongyang June 9 Senior Middle School – June 9 being the day in 1969 when the Great Leader apparently directed his education authorities to build a new school.

The main entrance is dominated by two-metre by two-metre portraits of the two men, flanked by oil paintings of their respective birthplaces, flanked again by etched writings of their fabled “on-the-spot guidance”.

The headmistress explained that the co-educational school’s main curriculum comprised the Revolutionary History of Kim Il-sung, the Revolutionary History of Kim Jong-il and Communistic Virtue.

Electronics and Biology are also taught, but even then not without the family’s touch.

In the electronics class, students were being taught the miracle of television, fiddling with the insides of a contraption that Logie Baird might have trouble recognising until they got a picture. An image appeared through the fuzz – of the latest Worker’s Party congress.

It’s a similar story in Biology, where students examine organ isms beneath crude microscopes. The subject is the cellular structure of the kimjongilia, the national plant created for and named after the Dear Leader.

(Fences are of wrought iron in the style of the kimjongilia and the kimilsungia).

Later, the school put on a show for me and a group of Chinese tourists from Tianjin.

The show opened with a little girl in a pink and purple tutu bursting into tears, crying that “with a filial mind we must turn our grief into strength and support the Dear Leader Supreme Commander Comrade Kim Jong-il”.

A band strikes up and so does she, into full voice, her colleagues swaying in the background: “Who gives us happiness? Dear Leader Comrade Kim Jong-il.

“Who gives us hope? Dear Leader Comrade Kim Jong-il.

“We are living a happy life of gladness in the bosom of the party and Dear Leader Comrade Kim Jong-il.”

In the Kim family’s North Korea, the Cultural Revolution has never ended.

It seems clear Kim Jong-il, a pudgy-faced man with a bad hair cut, will take over from his father, the late “Great Leader” President Kim Il-sung, after October 15, when the official 100-day mourning period finishes.

Diplomats in Pyongyang say he has spent the past three months shoring up military, intellectual and propaganda support for his rule.

“Kim Il-sung is Kim Jong-il,” Pyongyang Radio said last week, confirming that the world’s first communist dynastic succession seems to be proceeding smoothly.

“Whatever trials and difficulties may confront us, we’ll carry on with the great task of Juche (self-reliance) revolution, and complete it by upholding high the will of Kim Il-sung, and faithfully follow the ideology and leadership of Kim Jong-il,” the radio said.

In the Korean National Art Museum, the first works have begun to appear since Kim senior’s death. In splendid social-realism, they show grief-stricken Koreans comforted by an athletic Kim junior at the foot of his father’s giant bronze statue in central Pyongyang.

Another shows Kim junior astride a prancing steed rodeo-style atop a mountain overlooking the military demarcation line that separates North and South Korea at the Korean War truce village of Panmunjon. The sky on the north side is clear and sunny, on the south stormy.

However, diplomats say it seems that it hasn’t all been smooth sailing for the mysterious Kim Jong-il, about whom very little is known.

The true test of his accession to power will come when North Koreans start wearing his image on the little badges they are required to wear on their left side above their heart.

The badge they wear now is still that of the Great Leader, and diplomats say that attempts to issue Dear Leader badges were stopped after only three days about six weeks ago.

Koreans wear these badges with fear and pride.

Two attempts by this correspondent to buy one in back lanes, both times pressing $US1,100 – two year’s average salary – into people’s hands, were repelled. The first said nothing could separate him from the Great Leader; the second pointed to an adjacent building and gestured like a policeman.

Dr Han S. Park, a Korean-American scholar and President Jimmy Carter’s liaison man with the Pyongyang regime, has had higher contact with North officials than most in recent months, as he tries to broker a peace deal between Washington and Pyongyang over the nuclear stand-off.

Interviewed by The Australian Financial Review in Beijing after a week in Pyongyang, Dr Park said: “Kim Jong-il’s power base is more extensive than we are led to believe.

“Since his father’s death, he has consolidated his grip over the military and the intellectual side.

“His fate is dependant on the performance of the economy. I don’t think the system will collapse Eastern European-style. People are not prosperous but they are not starving. They are thoroughly brain-washed. Almost all Koreans think the rest of the world lives under the Great Leader’s philosophy.

“That’s why there are all those museums devoted to his teachings, with gifts from foreign so-called dignitaries.”

I visited the biggest of these museums, the International Friendship Exhibition centre, about three hours north of Pyongyang. In a huge eight-storey building in traditional Korean architecture, there are displayed 73,035 gifts to Kim Il-sung and 29,831 to Kim Jong-il as at 18 months ago. A new museum is being built alongside to house the new gifts.

Visiting the centre is a near-religious experience, a monument to bad taste, a shrine to the Kims and to the despots of the world. There are even a few Australian gifts.


POST SCRIPT: In 2012, a Briton I don’t know, someone called Tom Law, published this: – on his blog that purports to correct media wrongs. (I discovered it by chance when researching a piece I am writing, after receiving yet another inquiry about the Kim golf story)


Kim Jong-Il claims to be the world’s greatest golfer

In 1994 the North Korean propaganda machine reported that Kim Jong-Il had racked up 11 hole-in-ones during his first ever attempt at playing golf. His 38 under-par round at the Pyongyang Golf Course was verified by his 17 bodyguards.


It’s a great story, but there is no record of either the North Korean media or Kim Jong-Il ever making this claim. The origins of this ‘fact’ are from an International Herald Tribune article. It was an off-the-cuff comment made by a groundsman at the golf course during a chat to an American journalist called Eric Ellis.”

I ASKED Law to correct two of his assumptions he wrote above 1) that I am not an “American journalist” and 2)that the origins were in the IHT and not the AFR. He refused,  later saying he would do so only after the AFR  corrected my own ‘inaccurate’ reports – 18 years later, about a place he admitted he has never been.

This is the bizarre correspondence that followed, perhaps also titled as How to Ill-Advisedly Waste An Afternoon:

From: Eric Ellis <>
Subject: Re:
Date: 26 October 2012 12:24:18 CEST

And the original article, as appeared on P1 of the Australian Financial Review, the Australian FT/WSJ, of which I was Asia Corres at the time.

You amusingly asked if I ‘fact-checked’ my interlocutor’s anecdote. The answer is no, because his remarks were so clearly ludicrous, why would one bother? A round of 34 is about 24 under the established world record. It was more interesting – and revealing – as a vehicle for the lengths some very scared people felt/feel they have to go to deify the First Family. How do I know they are scared? Because I was there – its called journalism.

On 26 Oct 2012, at 12:04, Eric Ellis wrote:
The most honest and correct re-telling of the story, largely because he consulted me, which you didn’t. I’m not hard to find. You tap my name into Google and its usually the first result. Sometimes things aren’t as conspiratorial as they might appear to be, sometimes things are just banal.

On 26 Oct 2012, at 12:32, Tom Law wrote:

Point noted,

I’m genuinely interested in your look at how the Internet is liable to blur lines between opinion and fact.
But I would also ask you to look at your original artilcle in the same light.

One area that I was intrigued by, was this section:

“It seemed an image of rural harmony in developing Asia – a woman riding a push-bike beside a paddy field where peasants were harvesting rice. But the bicycle carried two oversized loudspeakers blaring a jaunty revolutionary song: “Kim Jong Il, you are our supreme commander; with you we will win a great victory.”
Her task was to ride up and down a single short stretch of road outside Pyongyang for eight hours a day, every day. The speed of the woman’s pedaling directly determined the tune of the song, like a dynamo powering a bicycle headlight. If she slowed, the song slurred, and in North Korea nothing is permitted to stop the revolution.”

What efforts did you make to check this or did you use your assumption?
Did you speak to this woman?
How do you know her task was to ride up and down – who told you?
Where did you get the eight hour figure from?
How do you know the lyrics to the song?
You’ve presented this as if the bike was specially rigged up to ensure the woman keeps pedalling as some kind of bizarre propoganda device.
Do you genuinely believe this is what was happening.

How much of this is factual and how much is your attempt to find a story where non-exists?


Eric Ellis wrote:
To address your questions;

I do not work on the basis of assumption.
I witnessed that particular anecdote – it  was – quite a common scene in rural DPRK. The details of that anecdote was happily and openly provided me by the two minders/government officials/guides who accompanied me on my tour. They did so not on the basis that this was unusual. To them it was commonplace, and quite normal. For memory, on this occasion, they pointed it out to me, as a point of pride. (This was also at a time of rumoured famine). I then asked questions, based on many years working as a foreign correspondent in China (which had provided something of a state information revolutionary template for the NKeans to expand) and they provided the answers. Despite what the headline (for which I was not responsible) says, this was not necessarily conventional propaganda. It was precisely as I reported it, the peasantry exhorting each other to work harder, in the interests of the collective/state, and that was that particular woman’s job.

Yes, I genuinely believed this happened, otherwise I would not have reported it.

As for your last remark, it doesn’t bear the dignity of a response. But I hope it made you feel better.

On 26 Oct 2012, at 13:09, Tom Law wrote:

Thanks for that.

So to go back to my questions:

What efforts did you make to check this or did you use your assumption?
(he answers himself) You assumed it from what the minder had told you.

Did you speak to this woman?
(again) No

How do you know her task was to ride up and down – who told you?
(again) You assumed it from minder

Where did you get the eight hour figure from?
(again) Presumably minder

How do you know the lyrics to the song?
(again) Minder?

You’ve presented this as if the bike was specially rigged up to ensure the woman keeps pedalling as some kind of bizarre propoganda device.
So you genuinely believe that throughout North Korea at the time of your visist the government was employing people to ride up and down roads on bikes which were specially rigged up so that they had to constantly pedal to play propoganda music?

You base this on something your minder said. You made no actual effort to check if any of this was true.
You didn’t bother to ask the woman herself – which you’d imagine would be a good place to start when checking if this was accurate or not.

You do not mention in the story that this is just something the minder said. You present it as fact.

You then allowed this to be published throughout the world and to portray North Korea as a deranged world of robot slaves forced by the state into carrying out this kind of insnae life sapping act. Which may or may not be  true.

What makes you think this is any more accurate that the golf anedote your were told?


On 26/10/2012 12:20, Eric Ellis wrote:
OK, mate, you’ve got me…I confess. I’m actually Jerrold M Post. I’ve succumbed to your penetrating interrogation. Well done you, surely a genuine konghwaguk yeongung medal is winging your way. But strangely, rather as I imagine the various doped-up Tour de France cyclists also feel, I’ve now been liberated from the burden of 18 years carrying these carefully-cultivated lies. (I wondered what all those CIA cheques were about) I’m calling Lance Armstrong immediately…

On 26 Oct 2012, at 13:37, Tom Law wrote:

Heh, heh, fair enough. I’ll get back in my box.

As you’ve pointed out – I’m no paragon of journalistic purity. Theres no big conspiracy and the reality is usually banal  – that’s why people aren’t particularly interested in it.

But I do think there’s something genuinely interesting in how a pretty throwaway comment written a long time ago has been appropriated over the years.

One last question.

Did you ever write a story about the fact that North Korea wasn’t suffering from a famine, surely that could have been considered as something of a scoop.

To have the journalistic guile to take a look inside a secretive country and find that some of the reports of famine etc were overexaggerated?

And did you feel your newspaper was looking for a certain angle in the coverage you provided?


On 26/10/2012 13:13, Eric Ellis wrote:
I didn’t write a story that it was not suffering a famine because I saw no evidence it wasn’t, and many suggestions that it might have been (people eating earth, drinking grass juice), but not enough to warrant writing a story that it was. Had I written there was no evidence of famine, I would’ve made a serious error as it later emerged there was a serious famine at the time, known as The Arduous March, a local term. It was admitted by the government, and the DPRK accepted international aid to help remedy it. Again, I suggest you do a little more reading before making assumptions.
And, no, my newspaper made no instructions to me.

On 26 Oct 2012, at 14:20, Tom Law wrote:

Thanks for the info.

In light of your comments, you might like to get that article you cite as being the most honest and accurate account revised:

“Ellis was really in North Korea to investigate famines that were rumored to be causing disturbances. This was just after the death of Kim’s father, Kim Ilsung, and before Kim ascended to power. Along the way he saw no evidence at all of famine. “I went to get one world scoop,” he says now. “And I ended up getting a completely different world scoop.”

From: Eric Ellis <>
Subject: Re:
Date: 26 October 2012 14:35:46 CEST
To: Tom Law <>

No, I shall not be doing that because – to go by your standards of what constitutes a fact – I saw occasional things consistent with famine, which is very different from ‘evidence of famine.’ To extend that literally, does the drinking of grass in a juice bar in, say, Islington suggest there’s a famine there? And I don’t know enough about Korean cuisine to conclude that earth wasn’t some sort of cooking ingredient. To write there is a famine based on those observations would be insufficient and irresponsible.

The only factual corrections I deem necessary here are those that provided my initial contact – your assumptions that I was American and that origin of the golf anecdote was in the IHT. As I have explained, that is not so. And, I note, several hours after I pointed that out, that you are still to correct your record.

On 26 Oct 2012, at 14:57, Tom Law <> wrote:

Why didn’t you ask your minder about the famine?

He was the reliable source you relied on to report that North Koreans are paid by the govenrment to drive up and down roads on specially rigged propoganda bikes.

Why didn’t you write an honest report of your experience – that you found nothing to suggest there’s a famine. Yes, there were signs of poverty but you didn’t see a country crippled by           famine in the way the West was portraying at the time.

In light of the evidence you’ve provided me I’m requesting that you take whatever steps are needed to correct your original article. It is wholly inaccurate to portray something as fact when it’s, at best, hearsay from a minder.

The article needs to make it clear that you’re purely repeating something a minder told you and that you made no attempts to establish if any of it is true.


On 26/10/2012 14:05, Eric Ellis wrote:
Mate…truly, get a life….if you want to revisit an 18 year article to complain to a editor who no longer works there that I didnt write that there wasnt a famine in North Korea when the state later admitted there was one, and there was much to suggest there was, well,knock yourself out…correct your “facts” that I originally asked and stay away from those funny cigarettes..

On 26 Oct 2012, at 15:39, Tom Law wrote:

When it was written is irrelevant. It’s published on the Internet and continues to be viewed.

Yes, I do want it changed because I think these things are important and so should you. You were obviously fairly indignant that I had details wrong, something which I’ll hold my hands up to and gladly correct.

You don’t seem to have the same enthusiam, however, when it comes to something which I consider a great deal more important.

As it’s relatively unusual for reports to come out of North Korea from Western journalists, your article obviously has had some influence, and continues to do so.

You went to report on a famine – which you didn’t find. Instead of giving an honest and balanced account saying that – you chose to write a misleading and innacurate report in which you present hearsay from a minder as fact.

My assumptopnm is that this was a journalist looking for scraps to justify the time and expense of an otherwise fruitless trip.

You used this article to create a general perception of a deranged country full of robotic slaves – again, this may or may not be true. But to use the propogandist cyclist to present this viewpoint is inaccurate and misleading when you completely failed to check it was true.

I would be obliged if you could provide me with any of the editorial contacts necessary for me to get this actioned.

On 26 Oct 2012, at 16:54, Eric Ellis wrote:

I shall humour you, for the last time…

You say “your article obviously has had some influence.” I suppose, inasmuch as you – a self-appointed media crimes campaigner – have been among the handful since who have seen fit to incorrectly cite it without bothering to consult me (that’s Journalism 1:01), an oversight which would seem to strongly at odds with your zeal in correcting the general media record. But it was about golf. It was not about famine. You are incorrectly – again – connecting the two. But, as you correctly point out, you are ‘no paragon of journalistic purity.’

As for famine or otherwise, consider this a free lesson in Journalism 1:02. No self-respecting professional journalist not going to write there is no famine when there are clear, albeit limited, suggestions of one, just as no self-respecting professional journalist is going to write there is a famine based on those same limited suggestions, when either perspective is virtually impossible to verify within the confines of a highly-controlled state-escorted tour that is only evident upon actually taking it (which you didn’t.) I suggest you re-read that passage above a few times, to take in its subtlety.

As things transpired, after I had left, there was a famine in the DPRK – a very serious one, which I later wrote about – a famine which had begun long before I got there, suggesting the incidents that I witnessed turned out to be proof of sorts, though still limited. So, on balance, at best I erred on the side of caution, at worst I missed the story. And yet – and have a long, long think about your logic here – you are demanding the record should be changed to reflect that there wasn’t a famine, 18 years on, when there, er, was one. That, my erstwhile interlocutor, I find seriously strange and I’m saddened for my industry if when you do undertake work for the media, you do so informed by such logic.

Given that you seem to struggle with logic, and basic journalistic procedure, I’ll put it another way to make it easier for you to understand. Armed with your logic, a journalist visits Nazi Germany in 1940 on a state-directed tour. He/she doesn’t get to see Auschwitz, ipso facto there must not be a Holocaust, despite the dwindling Jewish community insisting there is. But it turns out the Jewish community and others are tragically correct. But, 18 years on, that doesn’t satisfy you. In 1958, long after the Nuremburg trials, even as the Wiesenthal Centre goes after Nazi monsters, you demand the media of the day apologise/correct the record for not writing in 1940 that there wasn’t a Holocaust. That would make you a Holocaust denier, as well as ludicrous.

“Hearsay from a minder”….hmm, did I say that? That looks like another of your assumptions. Again, I don’t recall you being with me at the time, but minders are precisely that, they are there to officially provide information on behalf of the state, as they proudly did on this occasion. Some might call it propaganda (and not propoganda, as you routinely and incorrectly render it).

Fruitless trip? Again, I don’t recall you being with me. Among other activities, I had a very revealing round of golf, which brings me again to the reason why we have had contact today. I look forward to your correction. And, take this as another free Journalism 1:03 lesson, be careful not to make assumptions.

All of which leads to sadly conclude that you are at best illogical and bored, at worst a troll, and I don’t have any further time for either. Were I to put bored, illogical trolls in touch with my editor of the day, he would have strong grounds for suggesting I seek medical help, and I wouldn’t blame him. But feel free to undertake your own research, and make your complaint as you see fit.

Now, I’ve stupidly wasted too much of my day on you, so I ask you to be a nice little chap, please correct the two errors I have pointed out and darken my inbox no more.

In the interim, you might find common purpose with this crowd… And then look up the origins of the term ‘useful idiots’

On 26 Oct 2012, at 17:12, Tom Law wrote:

“But feel free to undertake your own research, and make your complaint as you see fit.”

Thanks, I will.

I’m not interested in the famine – purely in what you reported in that original article which is inaccurate and misleading. As you’ve confirmed.

One lesson you appear to have skipped in journalism school was the one which taught the importance of humility.


It must’ve been Revisit the Kims Day for I also received this, from Seoul..

On 26 Oct 2012, at 10:18, “Kim Young-jin, The Korea Times”  wrote:

From: Kim Young-jin, The Korea Times
Subject: Query from The Korea Times

Message Body:
Dear Mr. Ellis,

My name is Kim Young-jin; I am a politics reporter for The Korea Times in Seoul. I hope this finds you well.

I frequently cover North Korea issues, and I am looking into the oft-cited myth that Kim Jong-il scored 11 hole-in-ones during his first round of golf. I was told by a colleague that you might have the best perspective on this.

I would like to know how this story got started, and hear your thoughts on the situation.

Please let me know if you are willing to chat over the phone and if so, what the best times are to call. If email correspondence is preferable, please let me know.

Kim Young-jin
Politics Desk
The Korea Times

Dear Leader and The Golf War-Updated

Pyongyang, October 13, 1994

(see updated correspondence below text)

THE first hole at the Pyongyang Golf Club is a 340-metre dogleg par four, a severe test of skill even for Normans and Nicklauses.

But it was a mere cakewalk for North Korea’s “Dear Leader”, Kim Jong-il, when he gave “on-the-spot guidance” at the country’s only golf club recently.

“Dear Leader Comrade General Kim Jong-il, who I respect from the bottom of my heart, scored two on this hole,” said course “professional” Mr Park Young-man.

Clearly, the mysterious 52-year-old son of the late “Great Leader” Kim Il-sung, and the man the world expects to be anointed soon as President of the Stalinist “Hermit Kingdom”, is a hero of the golf course as well as of the North Korean people.

Hole by hole, Mr Park, who has never heard of Arnold Palmer, explains that the Dear Leader shot a 34, including five holes-in-one, and no hole worse than a birdie – one under par.

“He is an excellent golfer,” Mr Park said.

If North Korea is in the dire economic straits the world suspects it to be- and anecdotal evidence suggests it clearly is – the solution is obvious: launch the Dear Leader on the pro tour.

Just this golf outing illustrates the lengths North Koreans will go to deify the family that has ruled this country in the service of socialism for five decades.

Indeed, in the week this correspondent spent travelling with tour guides-cum-secret police, this was one of the milder feats they were responsible for.

Official propaganda has it that the two Kims are responsible for everything from the morning sun and harvest rain to world peace and the Mona Lisa. He is not responsible for the Moon landing. But nobody in North Korea yet believes there has been a landing on the Moon.

This is a land of roads without cars, restaurants without diners, chimneys without smoke, where every aspect of individual choice has been taken away by the state, or more correctly the Worker’s Party of Korea. Even the purchase of a toothbrush requires approval from a party cadre.

It is a regime where the Bo-Wee-Bu, the “security department”, is probably not necessary, because the notion of dissent seems superfluous in a land where even the dawn is the creation of the omniscient Great and Dear Leaders.

“THIS is the world’s last great arbitrage opportunity,” says Mr Paul Pheby, Seoul-based director of investment bank Peregrine, scouting Pyongyang for joint ventures.

We are speaking in the billiard room of Pyongyang’s Koryo Hotel, the main if not the only social focus for the few foreigners who venture to North Korea.

“This is a country of undervalued assets, 20 million cheap workers who will do what they are told, and everything separated from the world by an artificial line,” Mr Pheby says.

Peregrine, which likes its regimes rigid, is the latest of a lengthening line of hated capitalists scouting North Korea for joint ventures midst murky signs that it may at last be opening for foreign business.

Korean-speaking Briton Mr Steve Cox, one of the few Westerners resident in Pyongyang, claims that his Euro-Asian Business Consultancy represents 10 Fortune 500 companies sniffing around for opportunities.

Multinationals such as Royal Dutch Shell, DHL, Unilever, Ciba-Geigy and Asea Brown Boveri have recently sent delegations, mostly to study the prospects for the United Nations-backed special economic development zone to be fenced off in in the far north-east of North Korea, near the Chinese and Russian borders.

Australian diplomat Mr Ian Davies, who administers North Korea for the UN’s Industrial Development Organisation, believes “reformers” are pushing to the fore of the Worker’s Party and that an opening-up is necessary for the maintenance of the regime.

“They are watching very carefully what is happening in China,” he says. “It is early days, but they are looking to virtually copy the Chinese experience.

But China looks positively liberal compared to North Korea, where the economy has contracted by 4-5 per cent a year since 1990 and the country has an appalling history of welshing on its debts – including a $US1 billion syndicate headed by the ANZ Bank for a wheat deal. Australia’s TNT stationed an agent in Pyongyang for a year in 1992-93 for a $US200,000 state contract. The agency relocated to Beijing, the contract officially “dormant”.

Not least of the problems is North Korea’s monetary system. The economy has three currencies – green won for hard-currency use; a little-used red won for trade with communist brethren; and the brown won used by average Koreans the few times they venture to poorly stocked, rarely open state shops.

There is little obvious foreign influence in North Korea. Because of Kim’s doctrine of Juche, or self-reliance, Koreans have been encouraged to do it themselves.

The result is the shoddy output that communism specialised in, and not much of it.

The few North Koreans who know of the export successes of the booming southern economy – Daewoo, Hyundai, Samsung – describe Seoul as prostituting the Korean people, the “puppet regime” reliant on foreign trade to feed its people.

There are no foreign goods in average stores and even the privileged hard-currency stores, where foreigners and party potentates shop, Chinese goods are considered luxury items.

There is little obvious economic activity in North Korea, even in Pyongyang, the geometrically planned exhibition capital.

There is clearly a severe energy shortage. At 6.30pm, the lights of city apartments come on automatically, illuminating the portraits of the two Kims every household and public building is obliged to display. At 10pm, they go off.

Even in the dim Koryo Hotel, chambermaids switch off hallway lights after guests have moved through them. Pyongyang is a city without noise, without activity.


POST SCRIPT: In 2012, a Briton I don’t know, someone called Tom Law, published this: – on his blog that purports to correct media wrongs. (I discovered it by chance when researching a piece I am writing, after receiving yet another inquiry about the Kim golf story)


Kim Jong-Il claims to be the world’s greatest golfer

In 1994 the North Korean propaganda machine reported that Kim Jong-Il had racked up 11 hole-in-ones during his first ever attempt at playing golf. His 38 under-par round at the Pyongyang Golf Course was verified by his 17 bodyguards.


It’s a great story, but there is no record of either the North Korean media or Kim Jong-Il ever making this claim. The origins of this ‘fact’ are from an International Herald Tribune article. It was an off-the-cuff comment made by a groundsman at the golf course during a chat to an American journalist called Eric Ellis.”


I ASKED Law to correct two of his assumptions he wrote 1) that I am not an “American journalist” and 2)that the origins were in the AFR and not the IHT. He refused,  later saying he would do so only after the AFR  corrected my own ‘inaccurate’ report – 18 years later, about a place he admitted he has never been. I think the poor chap was missing his medication

This is the bizarre correspondence that followed, perhaps also titled as How to Ill-Advisedly Waste An Afternoon:

From: Eric Ellis <>
Subject: Re:
Date: 26 October 2012 12:24:18 CEST

And the original article, as appeared on P1 of the Australian Financial Review, the Australian FT/WSJ, of which I was Asia Corres at the time.

You amusingly asked if I ‘fact-checked’ my interlocutor’s anecdote. The answer is no, because his remarks were so clearly ludicrous, why would one bother? A round of 34 is about 24 under the established world record. It was more interesting – and revealing – as a vehicle for the lengths some very scared people felt/feel they have to go to deify the First Family. How do I know they are scared? Because I was there – its called journalism.

On 26 Oct 2012, at 12:04, Eric Ellis wrote:
The most honest and correct re-telling of the story, largely because he consulted me, which you didn’t. I’m not hard to find. You tap my name into Google and its usually the first result. Sometimes things aren’t as conspiratorial as they might appear to be, sometimes things are just banal.

On 26 Oct 2012, at 12:32, Tom Law wrote:

Point noted,

I’m genuinely interested in your look at how the Internet is liable to blur lines between opinion and fact.
But I would also ask you to look at your original artilcle in the same light.

One area that I was intrigued by, was this section:

“It seemed an image of rural harmony in developing Asia – a woman riding a push-bike beside a paddy field where peasants were harvesting rice. But the bicycle carried two oversized loudspeakers blaring a jaunty revolutionary song: “Kim Jong Il, you are our supreme commander; with you we will win a great victory.”
Her task was to ride up and down a single short stretch of road outside Pyongyang for eight hours a day, every day. The speed of the woman’s pedaling directly determined the tune of the song, like a dynamo powering a bicycle headlight. If she slowed, the song slurred, and in North Korea nothing is permitted to stop the revolution.”

What efforts did you make to check this or did you use your assumption?
Did you speak to this woman?
How do you know her task was to ride up and down – who told you?
Where did you get the eight hour figure from?
How do you know the lyrics to the song?
You’ve presented this as if the bike was specially rigged up to ensure the woman keeps pedalling as some kind of bizarre propoganda device.
Do you genuinely believe this is what was happening.

How much of this is factual and how much is your attempt to find a story where non-exists?


On 26/10/2012 11:52, Eric Ellis wrote:
To address your questions;

I do not work on the basis of assumption.
I witnessed that particular anecdote – it  was – quite a common scene in rural DPRK. The details of that anecdote was happily and openly provided me by the two minders/government officials/guides who accompanied me on my tour. They did so not on the basis that this was unusual. To them it was commonplace, and quite normal. For memory, on this occasion, they pointed it out to me, as a point of pride. (This was also at a time of rumoured famine). I then asked questions, based on many years working as a foreign correspondent in China (which had provided something of a state information revolutionary template for the NKeans to expand) and they provided the answers. Despite what the headline (for which I was not responsible) says, this was not necessarily conventional propaganda. It was precisely as I reported it, the peasantry exhorting each other to work harder, in the interests of the collective/state, and that was that particular woman’s job.

Yes, I genuinely believed this happened, otherwise I would not have reported it.

As for your last remark, it doesn’t bear the dignity of a response. But I hope it made you feel better.

On 26 Oct 2012, at 13:09, Tom Law wrote:

Thanks for that.

So to go back to my questions:

What efforts did you make to check this or did you use your assumption?
(Law answers himself) You assumed it from what the minder had told you.

Did you speak to this woman?
(again) No

How do you know her task was to ride up and down – who told you?
(again) You assumed it from minder

Where did you get the eight hour figure from?
(again) Presumably minder

How do you know the lyrics to the song?
(again) Minder?

You’ve presented this as if the bike was specially rigged up to ensure the woman keeps pedalling as some kind of bizarre propoganda device.
So you genuinely believe that throughout North Korea at the time of your visist the government was employing people to ride up and down roads on bikes which were specially rigged up so that they had to constantly pedal to play propoganda music?

You base this on something your minder said. You made no actual effort to check if any of this was true.
You didn’t bother to ask the woman herself – which you’d imagine would be a good place to start when checking if this was accurate or not.

You do not mention in the story that this is just something the minder said. You present it as fact.

You then allowed this to be published throughout the world and to portray North Korea as a deranged world of robot slaves forced by the state into carrying out this kind of insnae life sapping act. Which may or may not be  true.

What makes you think this is any more accurate that the golf anedote your were told?


On 26/10/2012 12:20, Eric Ellis wrote:
OK, mate, you’ve got me…I confess. I’m actually Jerrold M Post. I’ve succumbed to your penetrating interrogation. Well done you, surely a genuine konghwaguk yeongung medal is winging your way. But strangely, rather as I imagine the various doped-up Tour de France cyclists also feel, I’ve now been liberated from the burden of 18 years carrying these carefully-cultivated lies. (I wondered what all those CIA cheques were about) I’m calling Lance Armstrong immediately…

On 26 Oct 2012, at 13:37, Tom Law wrote:

Heh, heh, fair enough. I’ll get back in my box.

As you’ve pointed out – I’m no paragon of journalistic purity. Theres no big conspiracy and the reality is usually banal  – that’s why people aren’t particularly interested in it.

But I do think there’s something genuinely interesting in how a pretty throwaway comment written a long time ago has been appropriated over the years.

One last question.

Did you ever write a story about the fact that North Korea wasn’t suffering from a famine, surely that could have been considered as something of a scoop.

To have the journalistic guile to take a look inside a secretive country and find that some of the reports of famine etc were overexaggerated?

And did you feel your newspaper was looking for a certain angle in the coverage you provided?


On 26/10/2012 13:13, Eric Ellis wrote:
I didn’t write a story that it was not suffering a famine because I saw no evidence it wasn’t, and many suggestions that it might have been (people eating earth, drinking grass juice), but not enough to warrant writing a story that it was. Had I written there was no evidence of famine, I would’ve made a serious error as it later emerged there was a serious famine at the time, known as The Arduous March, a local term. It was admitted by the government, and the DPRK accepted international aid to help remedy it. Again, I suggest you do a little more reading before making assumptions.
And, no, my newspaper made no instructions to me.

On 26 Oct 2012, at 14:20, Tom Law wrote:

Thanks for the info.

In light of your comments, you might like to get that article you cite as being the most honest and accurate account revised:

“Ellis was really in North Korea to investigate famines that were rumored to be causing disturbances. This was just after the death of Kim’s father, Kim Ilsung, and before Kim ascended to power. Along the way he saw no evidence at all of famine. “I went to get one world scoop,” he says now. “And I ended up getting a completely different world scoop.”

From: Eric Ellis <>
Subject: Re:
Date: 26 October 2012 14:35:46 CEST
To: Tom Law <>

No, I shall not be doing that because – to go by your standards of what constitutes a fact – I saw occasional things consistent with famine, which is very different from ‘evidence of famine.’ To extend that literally, does the drinking of grass in a juice bar in, say, Islington suggest there’s a famine there? And I don’t know enough about Korean cuisine to conclude that earth wasn’t some sort of cooking ingredient. To write there is a famine based on those observations would be insufficient and irresponsible.

The only factual corrections I deem necessary here are those that provided my initial contact – your assumptions that I was American and that origin of the golf anecdote was in the IHT. As I have explained, that is not so. And, I note, several hours after I pointed that out, that you are still to correct your record.

On 26 Oct 2012, at 14:57, Tom Law <> wrote:

Why didn’t you ask your minder about the famine?

He was the reliable source you relied on to report that North Koreans are paid by the govenrment to drive up and down roads on specially rigged propoganda bikes.

Why didn’t you write an honest report of your experience – that you found nothing to suggest there’s a famine. Yes, there were signs of poverty but you didn’t see a country crippled by           famine in the way the West was portraying at the time.

In light of the evidence you’ve provided me I’m requesting that you take whatever steps are needed to correct your original article. It is wholly inaccurate to portray something as fact when it’s, at best, hearsay from a minder.

The article needs to make it clear that you’re purely repeating something a minder told you and that you made no attempts to establish if any of it is true.


On 26/10/2012 14:05, Eric Ellis wrote:
Mate…truly, get a life….if you want to revisit an 18 year article to complain to a editor who no longer works there that I didnt write that there wasnt a famine in North Korea when the state later admitted there was one, and there was much to suggest there was, well,knock yourself out…correct your “facts” that I originally asked and stay away from those funny cigarettes..

On 26 Oct 2012, at 15:39, Tom Law wrote:

When it was written is irrelevant. It’s published on the Internet and continues to be viewed.

Yes, I do want it changed because I think these things are important and so should you. You were obviously fairly indignant that I had details wrong, something which I’ll hold my hands up to and gladly correct.

You don’t seem to have the same enthusiam, however, when it comes to something which I consider a great deal more important.

As it’s relatively unusual for reports to come out of North Korea from Western journalists, your article obviously has had some influence, and continues to do so.

You went to report on a famine – which you didn’t find. Instead of giving an honest and balanced account saying that – you chose to write a misleading and innacurate report in which you present hearsay from a minder as fact.

My assumptopnm is that this was a journalist looking for scraps to justify the time and expense of an otherwise fruitless trip.

You used this article to create a general perception of a deranged country full of robotic slaves – again, this may or may not be true. But to use the propogandist cyclist to present this viewpoint is inaccurate and misleading when you completely failed to check it was true.

I would be obliged if you could provide me with any of the editorial contacts necessary for me to get this actioned.

On 26 Oct 2012, at 16:54, Eric Ellis wrote:

I shall humour you, for the last time…

You say “your article obviously has had some influence.” I suppose, inasmuch as you – a self-appointed media crimes campaigner – have been among the handful since who have seen fit to incorrectly cite it without bothering to consult me (that’s Journalism 1:01), an oversight which would seem to strongly at odds with your zeal in correcting the general media record. But it was about golf. It was not about famine. You are incorrectly – again – connecting the two. But, as you correctly point out, you are ‘no paragon of journalistic purity.’

As for famine or otherwise, consider this a free lesson in Journalism 1:02. No self-respecting professional journalist not going to write there is no famine when there are clear, albeit limited, suggestions of one, just as no self-respecting professional journalist is going to write there is a famine based on those same limited suggestions, when either perspective is virtually impossible to verify within the confines of a highly-controlled state-escorted tour that is only evident upon actually taking it (which you didn’t.) I suggest you re-read that passage above a few times, to take in its subtlety.

As things transpired, after I had left, there was a famine in the DPRK – a very serious one, which I later wrote about – a famine which had begun long before I got there, suggesting the incidents that I witnessed turned out to be proof of sorts, though still limited. So, on balance, at best I erred on the side of caution, at worst I missed the story. And yet – and have a long, long think about your logic here – you are demanding the record should be changed to reflect that there wasn’t a famine, 18 years on, when there, er, was one. That, my erstwhile interlocutor, I find seriously strange and I’m saddened for my industry if when you do undertake work for the media, you do so informed by such logic.

Given that you seem to struggle with logic, and basic journalistic procedure, I’ll put it another way to make it easier for you to understand. Armed with your logic, a journalist visits Nazi Germany in 1942 on a state-directed tour. He/she doesn’t get to see Auschwitz, ipso facto there must not be a Holocaust, despite the dwindling Jewish community insisting there is. But it turns out the Jewish community and others are tragically correct. But, 18 years on, that doesn’t satisfy you. In 1958, long after the Nuremburg trials, even as the Wiesenthal Centre goes after Nazi monsters, you demand the media of the day apologise/correct the record for not writing in 1942 that there wasn’t a Holocaust. That would make you a Holocaust denier, as well as ludicrous.

“Hearsay from a minder”….hmm, did I say that? That looks like another of your assumptions. Again, I don’t recall you being with me at the time, but minders are precisely that, they are there to officially provide information on behalf of the state, as they proudly did on this occasion. Some might call it propaganda (and not propoganda, as you routinely and incorrectly render it).

Fruitless trip? Again, I don’t recall you being with me. Among other activities, I had a very revealing round of golf, which brings me again to the reason why we have had contact today. I look forward to your correction. And, take this as another free Journalism 1:03 lesson, be careful not to make assumptions.

All of which leads to sadly conclude that you are at best illogical and bored, at worst a troll, and I don’t have any further time for either. Were I to put bored, illogical trolls in touch with my editor of the day, he would have strong grounds for suggesting I seek medical help, and I wouldn’t blame him. But feel free to undertake your own research, and make your complaint as you see fit.

Now, I’ve stupidly wasted too much of my day on you, so I ask you to be a nice little chap, please correct the two errors I have pointed out and darken my inbox no more.

In the interim, you might find common purpose with this crowd… And then look up the origins of the term ‘useful idiots’


Calling a Scumbag a Scumbag: Rupert Murdoch’s Revealing Twitter Habit

Isn’t it just grand that older folk have embraced the Internet with such gusto? Why, Gramps and Granny can now Skype with the far-flung grandkids, and bitter octogenarian megalomanic billionaires can tweet about all the “toffs”, the “scumbags”, and the “lying” who’ve tried to bring their media empires down.

Bitter octogenarian megalomanic billionaires like, well, Rupert Murdoch.

<p>Justin Sullivan/Getty Images</p>

He’s had a Twitter account since December 2011. And, what fun, he’s amassed 342,000 followers since then, tweeting on all manner of topics. But he reserves particular venom for those he perceives as enemies, traitors and anyone who stand in his way: the BBC, The New York Times, Australia’s Fairfax, Hugh Grant and other phone-hacking victims, the British Prime Minister David Cameron, the Obama administration, China.

He’s even deployed Twitter to have a crack at those News Corporation shareholders demanding better standards of morality and governance within the Murdoch fief, tweeting last Thursday that, “any shareholders with complaints should take profits and sell!”

Many of his 583 tweets seem to reveal more about the world’s most powerful media mogul than any number of biographies penned about his controversial career.

On one October weekend, he took aim at the “lying” White House, Vice-President Joe Biden and Washington’s UN ambassador Susan Rice, a China apparently “in crisis”, “scumbag celebrities” and David Cameron, and the BBC, while taking a glancing swipe at “millennials” — younger Generation-Y types “who don’t read or watch established media”.

In a flood of tweets over the weekend, did the cranky Murdoch have a good word to say about anyone? Yes, about the Afghan-Australian media tyro Saad Mohseni, for organising Afghanistan’s first post-Taliban soccer competition in Kabul. Mohseni is a Murdoch business partner.

Great day in Afghanistan. First football grand final founded by friend Saad Mohseni. Very popular. Taliban promised stay away. Go Saad!

It’s instructive to deconstruct some more of Murdoch’s recent tweets, like this one, sent in the midst of Uncle Rupert’s Excellent Trolling Weekend.

Told UK’s Cameron receiving scumbag celebrities pushing for even more privacy laws. Trust the toffs! Transparency under attack. Bad.

The “scumbag celebrities” that a graceless Murdoch refers to are all victims of News’s phone hacking — the actor Hugh Grant; the Welsh singer Charlotte Church (who sang, unpaid, at Murdoch’s 1999 wedding to Wendi Deng) and the British ex-policewoman, now crime TV presenter, Jacqui Hames.

The reference to toffs seems another barb aimed at David Cameron, Prime Minister and Old Etonian, and the clubby Oxbridge types that populate the British establishment.

Murdoch has long riffed on “toffs” in the class-encrusted UK — playing that he and his papers are at one with the downtrodden underdog, champions of the working class. Which is curious when you’re a billionaire named Rupert who was schooled at Australia’s Eton — Geelong Grammar — before reading PPE at Worcester College, Oxford, and then inheriting a newspaper.

Murdoch blames Cameron for needlessly advancing the Leveson inquiry into press standards — primarily an inquiry into News International — and the various criminal investigations targeting News.

Murdoch loves that London Mayor Boris Johnson seems to be angling for Cameron’s job as Tory leader and PM. No matter that Johnson is another Old Etonian/Oxonian who exudes even more entitled privilege than Cameron, the mayor and his office have dismissed the News phone-hacking “hysteria” as “codswallop” and weren’t afraid to host the pariah Murdoch at the Olympic pool in August.

As you do, Rupert paid Boris’s hospitality back with a tweet:

London in best shape ever. All overboard about the Olympics, brilliantly organized by Zeb Coe and Boris Johnson.

Murdoch has taken any opportunity to tweet revenge on Cameron, be it highlighting corruption in his party last March or his repeated support for Scottish independence and Edinburgh’s First Minister Alex Salmond — another of the rare politicians who’s happy to meet with Murdoch — and get his endorsement.

Murdoch can only be taking the proverbial when he cautions that “transparency [is] under attack”.

It’s true that the British media and its role as the fourth estate is threatened by proposals that could wind back freedoms once regarded as sacrosanct. But the reason why that’s happening stems largely from the unethical practices at the Murdoch newspapers in Britain, practices that have resulted in criminal charges.

Had there been no phone hacking, effectively sanctioned at News, there’d be no national revulsion over Milly Dowler, there’d be no Leveson and there’d be little need for Murdoch’s “scumbag celebrities” to meet the Prime Minister urging him to legislate for press reform.

Murdoch’s weekend hypocrisy so enraged Neil Morrison, a British expatriate language teacher in Japan, who follows Murdoch’s Twitter account, that he tweeted the following back at Murdoch:

Told UK’s Cameron receiving scumbag celebrities pushing for even more privacy laws. Trust the toffs! Transparency under attack. Bad.

@rupertmurdoch “scumbags”? And your journalists and executives are what? You are abso;utely fucking pathetic.

Morrison told The Global Mail, “it just pissed me off. I mean Murdoch is the real scumbag here.”

To Morrison’s surprise, Murdoch responded to his tweet:

@enem408 They don’t get arrested for indecency on major LA highways! Or abandon love child’s.

At this point, it’s perhaps useful to be reminded of the remark Murdoch made in some dudgeon to the Leveson inquiry, about the culture of lying. It was during an exchange with the inquiry’s lead counsel, Robert Jay QC, who quizzed Murdoch about the “perception” that he misuses his influence as a media baron in his dealings with politicians.

That was a myth, Murdoch snorted, telling Jay, “You know, after a while, if these lies are repeated again and again, they sort of catch on, and particularly if we’re successful, it sort of — you know, there are people who are a little resentful and grab on to them. But they just aren’t true.”

Knowing chortles ricocheted around the chattering classes. As prominent media commentator Roy Greenslade pointed out, “Isn’t this just what Murdoch’s newspapers have done to people down the years — perpetuating untruths through drip-drip-drip repetition and thus creating myths?”

Return to last weekend’s Twitter-fest, and Murdoch’s tweet to Morrison seems to reference both Hugh Grant’s 1995 dalliance with the Hollywood prostitute Estella Thompson, aka Divine Brown, and that Grant became a father last year.

The problem with Murdoch’s tweet is that it is wrong. Rupert’s mindset, revealed at Leveson — “after a while if these lies are repeated again and again, they sort of catch on” — seems to betray his Twitter tactics.

The fact is that Grant — another posh Oxonian, usefully for Murdoch’s anti-toff riff — wasn’t, as Rupert exclaimed, “arrested for indecency” by LA police on “major LA highways”. He was arrested in his car, in flagrante delicto certainly, while parked at the corner of Hawthorne and Curson Avenues, one of the quietest and least trafficked residential neighbourhoods of West Hollywood.

Notwithstanding what transpired in Grant’s car between consenting, single adults, the police version — also known as the truth — is a very different account than the titillating version the well-followed Rupert put about on Twitter last Sunday.

As an LA police statement of the day described it, Grant had picked Brown up on Sunset Boulevard and “they drove a short distance to a residential street and engaged in an act of lewd conduct. Vice officers walked up to the car and observed the act.”

Maybe Rupert is still grumpy about the fuss Grant’s actions caused at the time. When Grant had his proverbial collar felt, he was in LA promoting the only movie he’s ever made for Murdoch’s Fox Studios — the eminently forgettable Nine Months.

As for Murdoch’s suggestion that Grant is a deadbeat dad abandoning his “love child’s”, (sic), well, that’s not true either.

Grant has admitted he had a fleeting affair with Chinese actress Tinglan Hong, which resulted in the unplanned birth last year of baby Tabitha. But, until Rupert’s weekend tweet, no-one had suggested that Grant has been anything other than a supportive and happy father.

His publicist said the day after Tabitha’s birth, “I can confirm that Hugh Grant is the delighted father of a baby girl. He and the mother had a fleeting affair and while this was not planned, Hugh could not be happier or more supportive.”

As Grant himself told The Guardian last March, “I’m absolutely thrilled to have had her, I really am. And I feel a better person.” And to the US talk show host Ellen DeGeneres a month later, “Now that I have a child, it is life changing. I recommend it!”

Doubtless Rupert would be the first to insist that words and facts are important, so let’s look at some of Murdoch’s other tweets to see what sort of example this powerful media mogul sets for his 50,000-plus staff.

There’s his weekend take on the BBC, long Murdoch’s Enemy Number One in Britain:

Saville- BBC story long way to run. BBC far the biggest, most powerful organization in UK.

Murdoch is referencing the scandal now engulfing the BBC: the appalling evidence of paedophilia and molestation by one of its most popular presenters, the late Jimmy Savile. British police are pursuing 340 lines of inquiry as new victims reveal daily how they were abused by the predatory Savile.

The revelations about the once-loved Savile have shocked the nation, prompting prominent media lawyer Mark Stephens to tweet:

Moral dilemma of the day: would it have been ok to phone hack Jimmy Savile to get evidence and expose his child abuse and grooming?

For Murdoch, Savile presents a rich seam to mine via Twitter. Mark Thompson recently became chief executive of another of Murdoch’s great nemeses, The New York Times, after eight years as BBC director-general in London. Like the string of BBC bosses before him, Thompson claims to have known nothing of Savile’s evils, committed at the enterprise Britons like to call ‘Auntie’.

Murdoch’s already had a little crack at Thompson-NYT over Twitter:

Look to new CEO to shake up NYT unless recalled to BBC to explain latest scandal.

But as for Murdoch’s description of the BBC as the “biggest, most powerful organization” in Britain, that’s not true either.

There’s the government, the Trades Union Congress, the Anglican Church — all way bigger and, arguably, more powerful than the BBC. In fact, the BBC is a relative minnow when compared to, well, News Corporation. The BBC has 22,000 employees and operates on revenues of just over £4 billion. News Corporation has more than 50,000 staff and last year generated revenues of £20.99 billion — which makes it around five times the size of the BBC. Yes, the BBC is watched by more Britons than Murdoch’s BSkyB’s 11 million subscribers, but the BBC doesn’t also own near 40 per cent of Britain’s newspaper market.

There’s another area in which News outstrips the BBC; in former staff arrested for phone hacking and bribing police — more than 40 at last count, including its former chief executive in Britain and two former editors. That compares with none at the BBC.

From the thumbs of another person, Murdoch’s tweets might be ignorable hyperbole, lost among the 400 million tweets made each day.

But it’s not another person, it’s Rupert Murdoch, whose clan and camp followers have waged a relentless, bitter war against the mostly license-funded BBC, its imitators (such as Australia’s ABC) and supporters. They’d like nothing more than for the BBC and its culture to be broken up, providing clear air for further BSkyB expansion and influence.

When Murdoch slags the BBC, he seems to be implying that the “big and powerful” BBC will get through the Savile saga legally and politically unscathed. But the Savile saga is barely a week old and, as the BBC hierarchy painfully examines itself to discover how and why a Jimmy Savile was able to operate there, undetected, for 40 years, it’s far too early to make any judgment as to its outcome. Yet, almost dog-whistling, Murdoch’s tweets echo the victim culture cultivated by News in relation to the phone-hacking drama — that he’s hardly done by, whereas the well-connected toffs will get off scot-free.

When Murdoch and son James appeared before British parliamentarians investigating phone hacking in July last year, he started proceedings by claiming it was the “most humble day of my life”. Notwithstanding the persuasion of lawyers seated behind him, he seemed sincere. And many of us even felt sympathy for Murdoch Sr when that idiot cream-pied him.

That was then. It seems that Rupert’s humility, if it were ever thus, only lasted as long as it took him to start a Twitter account.

Ground Zero Kuta – The Bali Bombings Revisited, 10 years on – Part 1

October 17, 2002

As dawn broke on the chaos that was Kuta Beach, Eric Ellis searched for survivors of Australia’s worst terrorist outrage….

HE WAS tanned, a bit paunchy, late 40s; a handsome man with short hair. He was a solid bloke and very clearly an Australian. The bare feet and boardshorts – all that he was wearing – marked him out.

As we approached each other on the fourth floor of the Hard Rock Hotel on Kuta Beach last Sunday night, barely a block away from the Sari Club where our countrymen had perished in terror not even 24 hours earlier, I scoped him in that split second one spends assessing fleeting strangers. An old footballer on an end-of-season tear in Bali with the younger charges he’s now coaching back home? Or, just as possible, an ageing surfer on a nostalgic trip revisiting breaks he carved on the ’70s hippy trail through Asia?

And then he stopped, almost collapsing, grabbing the wall of the corridor for support and smothering his face with his right hand in a gesture of anguish.

“You all right, mate?” I called out. “No, mate, I’m not all right thanks,” he replied, almost impatiently. And then he broke down and wailed: “I’ve just lost … I’ve just lost … me daughter! I’VE JUST LOST ME BLOODY DAUGHTER.”

He said it twice but it didn’t need emphasising. I instinctively embraced this bloke I’d never met before, grabbing his neck and pulling his head into my shoulder as he sobbed uncontrollably.

“You poor, poor bastard.” It seemed such a pathetic thing to say. “I am so, so sorry.” He cried for about 10 seconds, contained himself and pushed free. Muttering his embarrassed thanks, he shook my hand and continued down the corridor, steadier this time. “Thanks, mate, I’ve got to find my wife.”

And that was it, a very human moment during a day when not much humanity was on offer. And perhaps even a very Australian moment when too many Australians, like this stranger, had lost loved ones. I didn’t get his name – it didn’t occur to ask.

IT WAS the hundreds of bags of crushed ice that first suggested something was very wrong at Denpasar’s Sanglah Hospital on Sunday. You saw the ice trucks lined up as you approached the clinic, the refrigerated ones borrowed from Bali’s five-star resort hotels, while the local Kijang trucks turned the dusty approach street into a muddy creek as the equatorial air quickly melted their cargo. Once inside the hospital compound, you could see – and smell – the urgent need for the ice.

A 20-man human chain had formed to ship the bags hand-to-hand from the parked trucks to the foyer. When the chain reached the foyer, a team of hospital orderlies, their white jackets spattered with blood and black ash, were casting the cubes on rows of charred bodies that had been piled up one on top of another.

It was a gruesome sight. People, mostly foreigners, gingerly picked through the remains. One victim, his mouth agape, was clad in what looked like a burnt sleeveless jumper in the black and red of Melbourne’s Essendon Football Club. Someone had the BBC World Service going on a short-wave radio. Alexander Downer was quoted saying only three or four people had been confirmed as being Australian. But it was obvious standing here, from the victims’ clothing and their loved ones’ accents, that the situation was going to be much worse. And then you remembered they were ferrying bodies to four other clinics around Denpasar.

At Sanglah, the ice was doing its job, for the moment. “We don’t have a big enough morgue to cope with this,” said one frantic orderly, Gede, as he doled out the ice. “There’s nowhere else to put them so we have to put them here.”

Gede was right. The tiny morgue was already full.

At one end of the corridor, covered by a roof but both its sides open to the air, a team of carpenters was hammering in a flimsy plywood wall. It seemed designed to stop onlookers from wandering in off the street, a job the stunned local police and soldiers weren’t doing. But this is Indonesia and already the shoddy wall was coming apart even as it was being hastily assembled, straining under the weight of hundreds of people – hysterical relatives, media, medicos and rubberneckers – craning for a peek.

Sanglah Hospital, Bali’s main public medical facility, is in Denpasar’s suburbs. The other end of the 25m-long main corridor backs onto a suburban street, blocked off from houses and the street by a 3m concrete wall. Balinese – as many as 200 – had pushed through the outside police perimeter and had now taken up vantage points on the wall separating someone’s house from the clinic.

They could see directly over the makeshift corridor morgue where grief-stricken relatives and friends pulled back charred fragments of Mambo shirts and Quiksilver jackets – more telltale signs of Australian­ness – to reveal identities that the firestorm might have allowed.

Over by the hospital wall, a foreign girl in her 20s, wearing T-shirt, skirt and thongs, was vomiting into an open drain, comforted by a woman who looked old enough to be her mother, herself sobbing into a tissue. Gede the orderly told me they’d just identified her brother – and perhaps her son – among the dead not 5m away in the corridor. He didn’t exactly know where they were from. “I think Australia,” he said.

There were plenty of Australians inside the un-airconditioned main ward of the hospital; middle Australians, not the $600-a-night Bali spa set but ordinary working people from the big-city outer suburbs and country towns.

The numbers of dead and injured bounced and bandied from bed to bed: 100, 120, 150, as high as 210 dead by some reports. And 300 injured. The word around the hospital was that about half the dead and injured were Australians but, if the patients provided a guide, that percentage seemed more like 80%. There’s an Italian who says six of his friends are missing and a distressed French teenager looking for his girlfriend. Of the 50-odd beds, only four or five are occupied by Balinese. But this was overwhelmingly an Australian ward, an Australian tragedy.

One uninjured man, an Australian in his 50s, had appointed himself ward leader, probably because no one from the overwhelmed hospital seemed to be in charge. Moving from bed to bed, crisis to crisis, he was trying to clear the room of everyone but the few hospital staff, their patients and relatives. A fight broke out between journalists and the man, who was calling the media “vultures”.

As they argued, a photographer was pushed into a bed where a Balinese boy no more than 12 was swathed in bandages, only his face white-red with burns visible through the swabbing. His family suffered the foreigners’ unseemly arguments silently while a young Balinese girl worked the room soliciting foreigners with a donation plate.

Another Australian woman, a volunteer who lives in Bali, opined rather too loudly to a journalist that: “It was OK for the Australians – they’re insured. The Balinese have got nothing.” She, too, copped an earful.

Amid the pandemonium, Val from Perth was bearing up well enough, she said, “considering”. “I’ve got three here in Bali,” Val explained. “I’ve got my son-in-law over there,” she said, pointing to a man burnt, motionless but alive, on a filthy bed. “And my daughter Leanne’s over there. She’s 44. They don’t know what’s wrong with her; they think she’s got a broken arm so we’re making arrangements to airlift her out.

“I think she’ll be all right. I think she’ll make it.” Val herself was shaken, but uninjured. She wasn’t the nightclubbing type and had spent the night in the hotel with her grandson while her kids went out and partied … and almost died.

Across the ward, 21-year-old Steven Betland sat on a bed, his blistered back too painful for him to lie down. His mate Lauren Munroe hovered over him, doing what he could. Steven’s exposed injuries looked shocking, but compared with many of his fellow patients, he seemed all right, well enough to talk about the horror.

A rugby player from Forbes, NSW, Steven said he’d been at the Sari Club for about an hour drinking with mates who were in Bali for a rugby tournament. “People were dancing, having a few beers and then it was just boom,” Steven said.

“The blasts hit, one after another, within seconds of each other,” he said. “First a flash, then another one, two blasts one after another, just a coupla seconds between them,” he said. “We had to climb the wall to get out. The top part, where the roof is, collapsed, then it all started going up in flames, then the wall started caving in.

“And people started scrambling out anywhere and anyway they could.

“There was 25 of us,” Steven explained. “We’re missing three of our mates.”

THEY’RE already calling the smouldering remains of the Sari Club on Jalan Legian “Ground Zero”. It’s easy to see why. It’s not anywhere near as big as the New York version but the images are the same: the same vacant space where a building once stood, the same twisted metal, the same contorted pylons, the same pall of tragedy hanging in the air.

And all this in a place that generations of Australians – perhaps two million of us – have escaped to for a good time, our first taste of exotic Asia, a destination so familiar that, for many Australians, Bali seems almost like a seventh state.

It’s a place so thick with Australian youth culture, so pervasive, that revellers in nightclubs such as the Sari Club could stagger home with a skinful of VB after a big Saturday night out singing Cold Chisel’s Khe Sanh and local street urchins would sell the Australian Sunday newspapers, fresh off the Qantas jumbo with Saturday’s footy scores.

Not any more. No one’s going to come back to this dark place for a very long time.

(nominated for Best Story in Magazine Publishers of Australia 2003 awards)

Bali’s Demons – The Bali Bombing Revisited, 10 years on – Part 2

October 23, 2002

As well as the lives of many, the nightclub bombs destroyed any lingering illusions that Bali was a tranquil haven somehow isolated from Indonesia’s current malaise. Eric Ellis reports from Kuta Beach……

IT didn’t take long for the bile in South-East Asia to rise. And it came from Malaysia, hardly Australia’s best friend in the region. Writing in the government-controlled New Straits Times four days after the Kuta bombings, Kuala Lumpur-based writer and self-styled intellectual Rehman Rashid informed his mostly Muslim countrymen of what he knew of the Sari Club and its mostly Australian clientele.

“Yes, I knew the Sari Club,” Rashid admitted. “It had been there about 15 years, sopping up the dregs of the Kuta night, where the carousing begins in the early evenings at the chi-chi Legian end of the strip, then cascades down the drag in seven waterfalls of deepening drunkenness to debouch onto Kuta Beach and sprawl snoring at the dawn, or sink into the strip’s last sump, the Sari Club.”

Rashid (who didn’t respond to The Bulletin’s inquiries) was presumably only familiar with the Sari Club in the broader sense of research. As he got up his literary head of steam in the NST, he didn’t exactly say the victims of Australia’s biggest terror attack, our September 11, were Asia’s white trash. But he may as well have.

“Reeking of beer and sweat; the air thick with smoke and jagged with Strine; packed out and heaving into the night at the scummy end of the Legian-Kuta strip … the slimiest, sleaziest dive of them all.

“If you couldn’t score anywhere else, you could score at the Sari Club. To that rickety firetrap would lurch the last of the night’s purblind drunken foreigners.”

True, a river of VB flowed down Jalan Legian and true too that the Sari Club and its mostly Australian crowd of young party animals wasn’t the Amandari, the $1100 a night resort an hour away in bohemian Ubud favoured by the beau monde.

And perhaps harsh words such as Rashid’s have to be aired if Australia and Asia are ever to reconcile the accident of their geography. Others have certainly expressed these views privately. But his rant is hard to read if you are a parent whose son or daughter was struck down.

Or, if you were the four young teens who wandered aimlessly around Kuta for days, wondering when their still-missing parents would come home from their big Saturday night out. Or the Coogee Dolphins. Or the people of Forbes.

What Rashid didn’t mention was that the foreigners-free/Indonesians-$10 entry policy at Sari Club operated with offical connivance. Nor did he mention that the Indonesian government allows such bigotry in a country that touts itself as secular and non-discriminatory.

Rashid didn’t report that the ecstasy and dope available at the Sari Club and in myriad clubs like it around Kuta probably enriches corrupt Indonesian army officers and police, and their compradores in the Balinese-Chinese underworld. That very corruption – and for Bali read any region of Indonesia and Rashid’s own Malaysia – is a big reason why firetraps such as the Sari Club, with their not-so-Balinese thatched roofs and exposed gas cylinders, are allowed to exist.

It’s also why it took almost two hours to ferry injured from chaotic Kuta the 10km to the charnel house that was Denpasar’s Sanglah Hospital. And why poorly constructed and poorly resourced medical facilities caused more foreigners and Indonesians to perish than is acceptable.

It’s also why kilos of explosives can fall into terrorist hands and why militant groups of any persuasion can fester. And why three million Balinese are very angry that all this has been allowed to happen on their Island of the Gods.

BALI’S Hindus take their spiritualism very seriously, even at places such as the massive Grand Bali Beach Hotel in Sanur. It’s not far from where Australians such as the artist Donald Friend lived, loved and painted lithe young men and began a great tradition of Australian hedonism on Bali, which by generational osmosis somehow now expresses itself via foot­ballers in fleshpots such as Kuta.

Before October 12, Bali’s last great fire was at the Bali Beach Hotel, or the “Bali Bitch” as it’s known here, in 1993. There were no fatalities and the hotel, completed in 1966 in the blocky International style of the era, opened by Sukarno and financed by Japanese war reparations, re-opened post-fire as a national treasure. But as every Balinese of an era – and Sukarno’s daughter Megawati Sukarnoputri – knows, room 327 is special. It’s the room the Balinese believe that Loro Kidul, their mythical Goddess of the South Seas, allocated to Sukarno, independent Indonesia’s father. The hotel was gutted in the 1993 blaze but room 327 was the only one of 600-odd that survived wholly intact.

Even today, the room is maintained in the vernacular of the era even though Sukarno never stayed in the hotel. His trademark black peci and white trousers lay on the bed. No one stays in the room but it’s cleaned daily. On August 17, Indonesia’s Independence Day, Balinese deliver cakes coloured the red and white of the national flag. It’s part of the complex relationship that connects Megawati to Bali and Bali to Indonesia which October 12, and her inability to prevent it, threatens to unravel.

IT didn’t take long for the patrols to start up in Penestenan village, near the cultural retreat of Ubud, one hour north of ground zero Kuta.

But it wasn’t the police or the military on the job. And that was the point. Many Balinese have lost confidence in the ability of the central authorities in Jakarta to protect them, and in their once beloved part-Balinese president, for whom they voted 96% in 1999’s elections, a landslide that propelled her to the presidency last year. Bali is Muslim Megawati’s political heartland and such has been the reciprocal attachment that her political opponents led a whispering campaign that she is a secret Hindu. But there is widespread disgust that Ibu Mega – Mother Megawati – seems to be taking them for granted, appeasing Muslim factions elsewhere in the archipelago and not reining in the Islamists who now seem to have rained terror on Bali. “It’s criminal neglect,” says Made Wijaya, an Australian designer and culture critic once called Michael White who came to Bali 30 years ago and is one of the few foreigners to learn Balinese. “The Balinese are horrified at this,” he says. “It has effected them very deeply.”

And so they’ve retreated to the surety of pecalang, the traditional security of the village banjar, or committee of Hindu elders, where real power resides on Bali. So in villages across the island, a day or so after the bombings, young men in sarongs, black waistcoats, headbands and bearing kris daggers were moving traffic, closely checking village comings and goings. The ethos of the pecalang is persuasion not aggression and, so far, the banjars have dissuaded young hotheads from seeking revenge. But dangerously for Bali’s delicate relationship with a Jakarta desperately trying to avoid becoming Asia’s Yugoslavia, they form the basis of what is essentially a Balinese militia.

That worries people such as Luh Ketut Suryani, one of Indonesia’s leading academics who has seen her island steadily eroded by generations of foreign hedonists. Although gladdened her fellow Balinese didn’t loot shops, trash mosques and kill Muslims as her fellow Indonesians have done elsewhere in recent years, she neverthless believes the bombings were a “good thing”, divine retribution for the louche paradise lost that Bali has become.

“This is the punishment of God,” Suryani told The Bulletin. “We now have prostitution, gambling, paedophilia, drugs, [plans for a] casino. These things are not Balinese …

“It is good for us that Australians will not come to Bali. Our people can go back to their land, to their [rice] padi.”

Ibu Suryani reckons such “pollution” is imported by foreigners, by which she also includes the non-Balinese Indonesians who have flocked to the island since Soeharto’s 1998 ouster and the subsequent collapse of the Indonesian economy. In the past five years, Bali has been Indonesia’s Switzerland. As much of Indonesia burned, Bali has enjoyed a relative boom, becoming the second-richest place in Indonesia after Jakarta, its economic prop and a magnet for jobless non-Balinese.

This has tilted the delicate cultural blend. The guidebooks say Balinese is 95% Hindu, a religious redoubt in the sprawling country’s Islamic sea in which Javanese such as Jemaah Islamiyah’s spiritual leader Abu Bakar Bashir want to place the core of a Muslim superstate stretching from Burma to Timor. But local activist Putu Suasta, who hosts a weekly radio talkback show, reckons the split today is more like 75%-20%-5% Hindu-Muslim-Christian. He notes that Muslim families who’ve arrived on the island since 1998 are more fundamentalist than during the iron-fisted Soeharto’s moderate transmigrasi era. They also have more children – five or six to the two or three of the average Hindu family. “Bali will have a Muslim majority within two generations,” Suasta predicts.

Like the academic Suryani, the radio presenter Suasta would like Bali to turn introspective for a while. He doesn’t want a proposed bridge between Hindu Bali and Muslim Java. He’s angry about the “rape of Bali” at places such as the Bali Golf and Country Club where Hindu temples are hazards (free drop, nearest point of relief) and north-east of Denpasar at the stunning Tanah Lot, probably Bali’s holiest Hindu temple.

Here, Greg Norman turned rice padi into a golf course owned by the Jakarta-based Bakrie family, who then employed the rice-farmers as caddies. The complex is called Nirvana.

Before October 12, the saddest place of many on Bali was Pecatu Graha, a planned extension of the Nusa Dua tourist enclave where Tommy Soeharto (recently jailed for the murder of a Jakarta judge) was given a 650ha Indian Ocean beachfront by his father’s cronies and planned to build a massive condominium, golf and marina complex. An Australian design firm was its master planner, conceiving a Balinese Sanctuary Cove for wealthy foreigners and Indonesians like, well, like Tommy Soeharto.

That was 1996-97, when Soeharto power and corruption was so rampant the first family summoned the Indonesia military to clear 200 families from the site by bulldozing their temples, their fruit farms and their rice padi. Some were given jobs as gardeners, busboys and cultural performers at Tommy’s nearby Bali Cliff Hotel. He still owns the massive complex with its glass lift chute carved into the cliff connecting the hotel to the beach below.

In 1998, the Soeharto regime collapsed, and today, Pecatu Graha is a white elephant. Wind whistles through a dismal cluster of half-built condos and a golf clubhouse with no course. Nearby a temple lies in ruins. The wretched families have returned to their now barren home, earning a living by extracting a pathetic $1 toll from foreign fun-seekers careering down the estate’s potholed road in rented Vitaras to one of the best surfspots in Asia. The beach is called Dream Land.

VIGNETTES from Australia’s – and Indonesia’s – worst terror attack will stay with me forever; the unidentified girl with the purple belly-button ring; the stray cats and dogs lapping at the icy red-black rivulet that streamed from the Sanglah morgue; Qantas’ heartstring-tugging I Still Call Australia Home playing repeatedly on satellite TV in every hotel in Kuta; the bizarre Ray White (We’re All Right) Bali real-estate signs in familiar yellow and black.

Then there was the unclaimed luggage piled high at the Bounty flophouse, where scores of partying guests didn’t make it home; the wreaths of fake frangipani strewn island-wide; the traffic jams caused by myriad mecaru, the Balinese cleansing ceremony; in bohemian Ubud, a poleng – the ubiquitous black-and-white check skirt Balinese enrobe their temples in – symbolically spattered with chicken blood; the grieving family wailing as they repeatedly touched the photos of victims blue-tacked to the impromptu cross at the Australian consulate. This family – Australian wife, Muslim Balinese husband, three mixed-race kids in Islamic headscarves – hadn’t lost anyone. They grieved for hundreds of innocent families, for Bali, for Indonesia and for Australia. They grieved for all of us.

Allah’s Assassins – The Bali Bombings Revisited, 10 years on – Part 3

Winner of the 2003 Walkley Award, Asia-Pacific reporting….

THE Bali bombers were rootless young men recruited from the dusty poverty of a village in West Java – their overseer a worldly West Javanese, burning with Islamic zeal and with the contacts to organise and bankroll their jihad. Eric Ellis retraces their steps as they moved from village to town meeting the fixers, financiers and bombmakers, and finally assembling and detonating the devices that would kill and maim so many in a Kuta Beach tourist precinct.

March 5, 2003


“Slay the idolaters wherever you find them. Arrest them, besiege them, and lie in ambush everywhere for them” – The Koran, chapter 9, verse 5


IT’S 11.06PM ON SATURDAY, October 12, 2002 and the Sari Club is a United Nations of Idolatry. There’s much devotion being afforded to the free-flowing VB and Bintang. A strong smell of dope hangs in the air. And some serious body-worship is in the offing when the club winds down at about 3am. Just another normal night in Kuta, Partytown Central.

Corey “Goose” Paltridge, 20, nicknamed for his Top Gun hero, is one of 500-odd revellers from 25 countries at the Sari Club and Paddy’s, the infamous meat market of a bar just across Jalan Legian. Goose is partying hard. The glazier is on his first trip abroad with the Kingsley Football Club in Perth. Eminem’s Without Me is pumping through the speakers. Goose plays air guitar in front of his mates.

Marc Gajardo is more discriminating than Goose. “I’m sorry, but I really can’t dance to this,” the 30-year-old English surfer tells his girlfriend Hannabeth Luke and friend Melanie Cohen when the Sari DJ plays Cher’s Believe. With mock disgust, Marc heads for Jalan Legian.

He steps outside for some fresh air. Standing there, he may notice that a white Mitsubishi L300 van is parked outside the club. He may even notice the 12 filing cabinets packed inside – late Saturday night is a strange time to deliver office furniture. More likely to catch his attention, in Bali’s equatorial heat, is the young Indonesian man who steps from the van into Paddy’s wearing a very heavy vest.

The man is dressed for jihad, his vest bulked up by 5kg of TNT. Inside the van’s filing cabinets are 48 draws packed with a lethal 700kg recipe of potassium chlorate, sulfuric acid and aluminium powder – a powerful bomb primed for maximum destruction. At 11.07pm, the man in the vest blows himself up. Thirty seconds later, the Mitsubishi goes up too, possibly with another man in it. The times are known because the blast was so big it registered on Indonesian seismographs. Marc takes the full force of the bigger second blast and dies instantly. Goose perishes in the fireball that engulfs the thatched-roof Sari Club. Beth and Mel crawl from the inferno and survive. In all, 202 people will be killed and 350 horribly burned or injured.

In the next few weeks, in a Denpasar hall that will double as a courtroom, 25 Indonesians believed responsible for those bombs will answer for the attacks. If found guilty – and many have already confessed – death by firing squad awaits most.

And for the attack’s alleged masterminds – Mukhlas, Imam Samudra and their principal accomplices, who had cased the two clubs in the week earlier – their part in the jihad will have been splendid. For Islamic militants like them, a death killing unbelievers guarantees glory before Allah. Paradise will have been entered.


“Do not make mischief on the Earth” – The Koran 29:36

THE TINY TOWN OF MALIMPING, in the remote corner of south-west Java, revolves around its alun-alun, the village square as big as a football pitch common to many Javanese towns. The Indonesian state gathers around it; a police station, a school, a health clinic, municipal offices and the Telkom exchange. There’s also a mosque and the local wing of Vice-President Hamzah Haz’ Islamist United Development Party. The merah-putih, Indonesia’s red-and-white national flag, flutters proudly above.

And in the middle of the alun-alun is a massive asem tree. Malimpingers have shaded under their illustrious tree for generations; to pray, plot against Dutch colonisers and Japanese occupiers, celebrate the Merdeka (independence) of 1945, Suharto’s ousting in 1998, or simply to play guitar, gossip and while away the scorching equatorial days.

It was beneath this tree’s weeping boughs that 35-year-old Imam Samudra recruited jihadis to his holy war, just 50 metres from Malimping’s unsuspecting police station. “We had no clues they were there, no hint that anything suspicious was going on,” says a slightly embarrassed police chief Jamalludin Chaniago. “It was an entirely normal place to be.”

Samudra made the bus journey to Malimping from his home in Serang, five hours’ drive north, in mid-2000, not long after he returned to Indonesia from 10 years abroad in Pakistan, Afghanistan and, mostly, Malaysia. Outwardly, he wanted to look up a wealthy friend he knew from Malaysia, a man called Ook Oktavia – or Pak O.O. as he’s known in Malimping. Pak O.O. is the go-between unskilled Malimpingers see when they want to work in Malaysia, in jobs Indonesia doesn’t have, and for wages three times those they can earn at home.

The Oktavia-Samudra association was natural. Both come from West Java and speak the region’s Sundanese as their mother tongue. But there was another link: Oktavia’s 20 year-old son, Andri. He also knew Samudra in Malaysia, where he worked after studies at Abu Bakr Bashir’s Al-Mukmin religious school in Solo, central Java, the notorious pesantren that authorities now believe is the base for Bashir’s Jemaah Islamiyah, suspected of being al Qaeda’s South-East Asian branch.

It’s clear that Samudra went to Malimping with more in mind than seeing old friends. His eldest sister, Aliyah, told me that when he returned to Indonesia at Eid, the end of the Islamic haj pilgrimage, “he felt hurt and angry”. “He’d seen his Muslim brothers slaughtered [in Afghanistan and Palestine] and he wanted revenge for that,” she says. Inspired by the Taliban’s success in creating a pure Islamist state in Afghanistan, spurred on by the brimstone of his compatriot cleric Bashir, and seeking revenge for attacks on Muslims in Ambon, Samudra had terror on his agenda.

Older, fluent in English and Arabic and full of worldly adventures in Afghanistan and Pakistan, Samudra cut a thrilling figure for impressionable kids like Andri, his friend Andi – one of Malimping’s young football stars who lived just 50m from Andri Oktavia’s house – and an acquaintance, Arnasan, who lived in his parents’ shack outside town. Over two years, he introduced his new friends to computers and the internet, teaching them how to communicate online. He acquainted them with mobile phones, with SMS. He explained the “victory” of September 11.

They would meet under the tree and then stroll over to the mosque to bond in prayer. Gradually, Samudra got to know these small-town boys with barely an education between them, winning their trust and playing on their circumstances, their vulnerabilities. They didn’t realise it but Andi, Andri and, particularly, Arnasan were Samudra’s low-hanging fruit, forming the core of what would eventually be the 13-strong Banten halaqah, named for their home region in West Java. Halaqah is Arabic for an Islamic study circle but, in truth, Samudra had formed a terror cell that police now know as the “Serang Group”. Members of the group have been implicated in bombings across Indonesia, notably the Christmas 2000 attacks on Christian targets in eight cities. Bali wasn’t yet marked for attack but the boys sensed their guru was planning something big, something that would guarantee them eternal paradise. It was exhilarating stuff for three naive kids from a scruffy town like Malimping.

By early 2002, after a crucial meeting in Thailand between JI’s leadership – which included Mukhlas and, by some reports, Bashir – and known al Qaeda operatives, it was decided to bomb “soft targets” in South-East Asia, because the hard target strategy was now too difficult after the rumbling of the Singapore attack plan in late 2001. Samudra’s Bali plans took off. A meeting of the Serang Group at a safe house in nearby Bandung decided the matter. Bali and its corrupting foreigners would be the target of a big hit.

Ambitious terror is expensive. At the Bandung meeting, the plotters decided to finance their jihad by robbing non-believers. Stealing from infidels was not a crime, Samudra explained to his charges, but a noble part of the holy struggle. On August 22 last year, Andri and Andi donned balaclavas and pistols to raid the Toko Elita Indah jewellery store in downtown Serang of $A80,000 in cash and gold. It helped that Elita’s owners were Chinese, regarded by many Javanese as polluters.

Samudra didn’t participate in the Elita hit but Vini Khian, the store owner’s 18-year-old daughter who was shot in the abdomen during the hold-up, told me she’d later recognised him as the suspicious man who cased the shop in the weeks before the raid. He would repeat the tactic six weeks later in Kuta, scouting Bali’s foreign tourist precinct in the week before the October 12 attack, looking for the target with maximum impact.

A few days after the Elita grab, most of the loot was handed to Samudra in the back of a Suzuki van parked in a Jakarta bus terminal. Andri, Andi, Arnasan and another cell member, Abdul Rauf, kept some to rent two safe houses near Serang, finessing their plans and staying close – but not too close for suspicion to be aroused – to their guru Samudra.

One of the tenancies, unit 316 on the Ciruas road 6km from Serang, cost 60,000 rupiah ($A11.15) a month. The apprentice terrorists got what they paid for. The unit is not even a studio, but a filthy 2m x 3m room in a motel-style block of six. Bizarrely, someone has fashioned a Star of David from masking tape on a pillar at the unit’s entrance. Indonesians know such accommodations as kos, a Dutch holdover term for shared lodgings. Indonesian kos are a focus of social life, which parents grumble is why it takes so long – up to 10 years – for their kids to finish university. But not this one. “I barely saw them,” says 42-year-old landlord Sunarto. “They would come and go in the night, creep around.” Sunarto is still not happy with the “college students” who rented the room. “They used my room to plan this terrible thing. I really want to beat them up.” Sunarto says they paid two months’ rent from August. The last time he saw them was early October. He’s still waiting for the rest of the rent.

Andri, the Malimping slave trader’s boy, was captured a month after Bali. He’s now imprisoned in an even smaller room than the hovel he rented in Serang and, unless his influential father can swing it, facing another 15 years there. Andri’s friend, Andi the football hero, could get the death penalty, despite shopping his hero Samudra to the police in November.

And what of Arnasan, the poorest of the three? At 11.07pm last October 12, as Marc Gajardo was avoiding Cher in the street outside the Sari Club, Arnasan transformed himself into “Iqbal” and became South-East Asia’s first suicide bomber. Samudra had delivered on his promise of paradise.


“They are to cohabit with demure virgins … as beauteous as corals and rubies … full-breasted maidens for playmates … in the gardens of delight” – Koran 55:56,58

ARNASAN’S PARENTS HAVE NOW accepted their youngest son’s role in the Bali bombings. They have little choice; they haven’t seen him since August last year, when he told them he was off to see “a friend in Serang”, most likely Samudra. That’s also about the last time they saw Arnasan’s insistent friends from town, Andi and Andri. The next outsiders to come to their padi house were police from Indonesia and Australia, who took DNA samples from them in November to help identify the body parts that had bomb debris attached to them and which were found in the Legian rubble – the remains of their youngest boy.

Three nightmares have convinced Arnasan’s 57-year-old mother, Arti Satra, that her son is dead. In the first dream, before the bomb, she saw Arnasan fall down. In the second, around the time of the Bali bombs, Arti dreamt she saw her son’s only pair of trousers, with legs but no upper torso. The third dream was after the bomb but before the police arrived at her door. In it, Arnasan was dead. Says her husband, Haji Satra, also 57: “I am convinced now. It’s obvious to me that my son has died. This is Allah’s will.”

Arti says Arnasan was educated only to primary school, after which he was forced to drop out because his family could not pay school fees. “He was a little bit naughty when he was young; he liked to play more than study,” she says. “But he was a good boy. He was quite devoted, prayed five times a day and always observed Ramadan, but never expressed any extreme views. If I had known Arnasan wanted to do such things, I would try as a mother to ask him not to do it.” She repeats it over again, perhaps three to four times, breaking down more deeply each time. “In my heart I am always crying. I keep crying and crying and looking at nothing.”

The family’s poverty is striking. Their wooden hut is little bigger than the average Australian bathroom. There’s no electricity and few possessions. Food is provided by a single rice padi, shared with a neighbour. A few chooks scratch around in the dust. Arti and Satra can’t even speak Bahasa Indonesia. In Java’s remote backblocks like Sundanese-speaking Malimping, to speak disparate Indonesia’s unifying national language suggests a basic education neither ever had.

Sobbing, Arti still holds some small hope that might be expected of a mother. “Whenever I see the police coming, when I see the uniforms walking through the padi, I think they might be bringing my son back to me,” she says, as scrawny cockerels scratch around her and the flyblown infant grandson she’s nursing.

But today, all the Malimping police are bringing to the parents is a routine surat, a statutory declaration that requires their identifying fingerprints. Pressing their thumb into the police inkpad, and then to the surat, theirs is an absolute submission to police authority. The document is blank but even if there were writing on it, the illiterate couple would have no idea what it said. Likewise the letter, reportedly from Arnasan and found at his friend Andri’s house, in which he apologises for his “martyr’s death”. “I want to say sorry to you, but all I want to do is commit myself to jihad,” he wrote.


“God’s curse be upon the infidels! They have incurred God’s most inexorable wrath. An ignominious punishment awaits the unbelievers” – Koran 2:92-6

WHEN IMAN SAMUDRA was a boy in the 1970s – before he became a mujahid with al Qaeda and the Afghan Taliban, before he joined G272, a fundamentalist group of 272 Indonesian veterans of the Afghanistan conflicts, and before he settled in Malaysia as a computer technician – he was called Abdul Aziz. The eighth of 11 kids, he came from Serang, a market town in the West Javanese region of Banten. And Abdul Aziz was a cengeng. In Bahasa Indonesia, a cengeng is a crybaby. As in English, it’s not a particularly flattering term. Samudra’s 42-year-old eldest sister Aliyah Rudi doesn’t remember their childhood with much attachment. “I always had to carry him when he was a baby. He would cry very easily at the smallest thing.

“There were no happy times,” she says. “We were always poor. Misery came after misery. We always live in misery. We always had hard times but I consider this a test of Allah.”

She’s still miserable but her brother’s actions, of which she’s “very proud”, provide some definition. “My brother took the right path,” she insists. “I believe in his goal to bomb Bali.” She describes her brother as an intellectual, a studious man with eclectic interests who excelled at school, topping his class each year during his time at high school.

We’re sitting on the patio of this severe woman’s small house in a Serang slum. The Serang-Banten region resonates in Java’s history, in its politics, its religion and its mysticism. Banten’s mosque, Indonesia’s oldest, is almost 500 years old, a place of pilgrimage for the country’s Muslims, who believe it has mystical healing qualities. The area was also the first landfall in Java of the Veerenigde Oostindische Compagnie, the Dutch East India Company that led the 350-year Dutch colonisation of the islands.

The area’s mysticism echoes beyond the province. Suharto’s bodyguards tended to be Bantenese, bestowing that extra magic to keep evil from their president. Desperate for some of his lustre, Suharto’s incompetent successor, B.J. Habibie, raised his special militia from among the Bantenese.

Samudra’s sister is the most covered woman I’ve seen in years of travel through South-East Asia, clad in traditional Islamic dress, a blue tent that’s just a face-mask short of a burqa. Banten is Indonesia’s most devout region, a stronghold of Darul Islam. DI extremists violently campaigned for a Taliban-style Islamic regime in post-colonial Indonesia. The intellectual Samudra’s high school teacher was a DI hothead. Today, DI leaders obsess the terrorist-watchers of agencies like the FBI, CIA and the Australian Federal Police.

A goods train rumbles past barely 50m away from Aliyah’s house, en route to the nearby state steelworks that showers pollution on the district. A mosque is 50m the other way. While Aliyah’s home is concrete, her neighbours’ are mostly shanties and lean-tos. Before Bali, Aliyah was known for her sate bandeng stall, grilling the milkfish named for its succulent white flesh. But since Bali, her fame has been transformed into something more profound. Delighted neighbours give her the thumbs-up sign as they walk past the house. “No one has been against my brothers.” She smiles. It’s her only animated gesture in 30 minutes of difficult conversation. The smile doesn’t last. “The little boy dares to fight against the old man,” she rails. She means her brother, fighting for the masses against the US and its allies. “He is a defender of Muslims in Indonesia, a defender of peace. Everybody knows that his purpose is only for jihad. We are not terrorists but it is a war on kafir.” She almost spits out the Arabic word for “unbelievers”. “What he did was just to scare people.”


“You shall sing the praises of your Lord, and be with the prostrators. And worship your Lord, in order to attain certainty” – Koran 15:98-99

WHILE SAMUDRA, in West Java, was plotting deadly ways to scare kafirs, in a tiny hamlet on the eastern side of Indonesia’s main island, a family of devotees were spreading their own brand of hatred. Foreigners don’t get a friendly reception at the Al-Islam boarding school in Tenggulun run by the eldest son of former village elder Nur Hasyim – the father also of the radical fanatics the world now knows as Amrozi, Mukhlas and Ali Imron. Not surprisingly, visitors are welcomed by signs in English that say “Only for Muslim People”. The elementary English taught to students here is not the standard “Hello” or “How are you?” but words like “avenger”, “mole”, “accuse” and “spy”. At least, that’s the lesson for today on the blackboard – as much as I could see before I retreated under a torrent of spittle.

Tenggulun itself is almost medieval. A few of its hundred-odd houses have been tarted up by remittances sent from relatives working in Malaysia but, like Iqbal’s district in West Java, the poverty is palpable. There’s hardly a car or a motorbike on its streets. Wizened old men, their backs bent under cut bamboo, stagger through town herding buffalo. From a dilapidated mosque, a muezzin wails out a strident midday call to prayer.

The windows at the school’s other “campus” – which Amrozi was in the process of setting up and which was the place where he met Samudra – are filthy. In the dust, anonymous fingers have written messages of support for the brothers in English and Bahasa: “Bali for the jahanam (evil)” and “Bali for the neraka (hell)”, “Amrozi group for Paradise”. There are Koranic blessings, and promises of sugar and heavenly liaisons with Balqis, a mythical Muslim beauty of great power.

Two doors from the mosque is the house where Amrozi, Mukhlas and Ali Imron were raised. It’s small and modest, more a wooden shack, with its three “rooms” partitioned by flimsy plywood. There’s a small refrigerator (containing an egg, two half-eaten chicken legs and a bottle of water), a fan and four broken rattan chairs.

Groaning in pain in the middle of the stone floor is the family’s 85-year-old patriarch, Nur Hasyim. The word “patriarch” suggests a towering authority figure. But not this sad man. Not any more. He lies on the floor in a puddle of his urine, incontinent and whimpering. His wife swats away flies crawling over him, occasionally adjusting his green sarong to cover his shrivelled genitals. The stench in the house is overpowering. In the street outside, one of his grandchildren – a girl no more than five – rides a tricycle. When the wheels turn, the trike’s tinny speaker plays London Bridge is Falling Down.

Tariyem, the 65-year-old mother, is herself a frail little thing. She’s very welcoming and gives me the honorific bapak, even though I’m a generation her junior. The house has been raided a dozen times since October 12, she explains, including by Australian police. “They were very kind,” she says. “They gave me 50,000 rupiah for our information. They took lots of cassettes and magazines and discs.”

She seems genuinely bewildered by the whirlwind that’s swept in since October 12, a tragedy that will likely see a quarter of her family executed. “Why would my kids do such a thing? I cannot understand. They were all good kids. They never expressed any hatred for anyone.

“I just have to accept that they were involved. We don’t have anything. The only thing we have is religion. I hope that their struggle can be accepted by Allah. I just have to surrender to Allah.” Like Arti, Iqbal’s similarly devastated mother in Malimping, Tariyem breaks down. The two women – one has already lost a son, the other will probably lose three – don’t know each other. But they are united in grief and confusion. Tariyem is still sobbing as I leave, pleading: “Help us bring back our boys.”


“We do not send down the angels except for specific functions” – Koran 15:8

EVERYONE IN INDONESIA needs a fixer. They’re the access merchants who open doors, arrange stuff, get things done – for a modest fee, of course. Foreign journalists and diplomats couldn’t function without them. Working the angles, and knowing everyone’s mobile number, fixers provide function in the chaotic shambles that is often Indonesia. The best fixers are influential and so low-key as to be almost invisible.

In the central Javanese city of Solo, the Bali bombers had Herniyanto. Except the 25-year-old teacher at Abu Bakr Bashir’s Al-Mukmin pesantren didn’t get paid for his fixing. His fee for organising the safe houses, the transport, target maps (of military origin) and many of the jihadis’ meetings was October 12. And he fixed it all while his young wife was pregnant. (She gave birth to a son three weeks after the boy’s father was captured last December 4.)

If the conspirators needed motivation, Herniyanto was eager to please, producing Bashir’s cranky sermons to fire up the expanding group. He organised video nights for the plotters, with Osama bin Laden’s A Martyr’s Testament: Five Mute Witnesses to the Brutality of America the Terrorist the gripping main feature. It’s an al Qaeda documentary about the treatment of its detainees at the US military base in Guantanamo Bay, Cuba. If that was too depressing for the Bali-bound jihadis, there were videos of the September 11 attacks for inspiration.

Fixers also have a keen sense of who’s boss. And in terrorism as in normal life, real estate is a telling indicator. Of the six houses raided by Solo police, the biggest and most expensive was Samudra’s. His place is in Solo’s middle-class Sukoharjo neighbourhood, a pleasant concrete cottage gaily painted in a pinkish hue. The roof, recently repaired and painted the green of Islam, pleased him. Herniyanto paid a year’s rent, 1.7 million rupiah in cash, in advance, to move Samudra in.

It’s standard procedure in Indonesia for tenants to show landlords identification papers. Samudra was careful to keep his secret, apologising to his 43-year-old neighbour, Ani Ratno – whose family owned the house – that “my friend Herniyanto has them”. She says Samudra moved his wife and four children to Solo in August. Ani Ratno thought them “good neighbours, very religious. The house was very crowded sometimes.” She rarely saw Samudra, who would come and go at night. His wife said he was “very busy working with computers”. Most days, Ani Ratno’s children played with Samudra’s.

Herniyanto had planned with convenience in mind. Samudra’s Solo digs were just a short stroll from the homes of fellow conspirators Dulmatin, one of the suspected Bali bombmakers, and Ali Imron, Amrozi’s and Mukhlas’ brother. After the Bali bomb, when Samudra’s identikit was displayed on national TV, Istiqorma, the five-year-old daughter of Dulmatin’s neighbour, noticed that the face looked a lot like “Sabillah’s daddy”. It was. When strolling around the block to plan terror, Imam Samudra liked to take his four-year-old daughter along, too.

The three houses, just 100m from each other, were also a short three-wheeled becak journey from the vacant house of Herniyanto’s in-laws, where neighbours say as many as 15 men would come for Koran readings from June to October, mostly at night. Susi, 31, runs a warung across the road which sells, among other things, box-cutters. She noticed activity around the house just two days before it was raided by police in November, well after the Bali bomb. She’s suggesting the inhabitants may have been tipped off. Police also raided two nearby terrace houses, including the home of Herniyanto’s brother, which police now believe was the group’s operations centre. Lots of JI documents and al Qaeda videos were seized here.


“Carry out the orders given to you” – Koran 15:94

SOLO IS WHERE INDONESIANS go to connect with their inner Java. The city’s famous kraton, the ancient sultan’s palace, is stunning. So is the Masjid Agung, the grand mosque built, not in the common Arabic style, but in a low-slung Javanese manner. And chaotic Klewer Market, the centre of the world’s batik industry, is an absorbing jumble of colour and fabric.

But it wasn’t a cultural odyssey that Samudra and his Serang Group from West Java, and the brothers Amrozi, Mukhlas and Ali Imron from Tenggulun village in East Java, took to Solo last August. It was to finetune the attack on Bali, in the city that is home to the fundamentalist Jemaah Islamiyah of hardline cleric Abu Bakr Bashir, who had taught many of them while exiled in Malaysia during the 1980s and 1990s.

Samudra first contacted Amrozi in late 2000, not long after his return to Indonesia from Malaysia. He needed bomb ingredients for church attacks in Ambon. The younger brother of Ali Ghufron (better known by his nom-de-guerre, Mukhlas), another powerful G272 jihadi also influential in JI whom Samudra knew from Afghanistan and Malaysia, was eager to help. This time, however, he was summoned to Solo.

When Amrozi arrived, he had no inkling Bali would be the target. For Indonesia’s radical jihadis, the peaceful Hindu island and its infidel tourists were doubtless a provocation to their ideal of an Islamic super-state from Thailand to Timor. But they were pragmatic enough to know their war would not be easily won. Bali, with air links nearly as good as Jakarta’s, was a convenient – and unsuspecting – hub to source and store materiel for campaigns further afield.

Samudra welcomed Amrozi over soto at an Islamic community centre outside Solo known as a JI haunt. They arranged another meeting at the Klewer batik market, when Samudra brought along Idris (also known as Jhoni Hendrawan) and Dulmatin, two bomb-making and electronics experts. They told Amrozi what they needed. As in Ambon, Amrozi would be the quartermaster, and the mule, knowing only as much as he needed. But this time the quantities would be much bigger. A van was also needed and it should all be delivered to Bali by late-September.

Samudra handed Amrozi the funds; the equivalent of $A10,000 made up of rupiah, US greenbacks, Malaysian ringgit and Singapore dollars, the mix of currencies suggesting their funding wasn’t entirely from the jewellery store heist in Serang. However another credible source maintains the funds were not actually handed over until a later meeting in Tenggulun. Surrounded by Klewer’s dazzling batik, Amrozi was told Bali was the target, and assured that victory would be glorious. It was a successful meeting. The jihadis strolled across the road to give thanks at the Grand Mosque.

The operation was developing quickly. Samudra told his wife they would soon be moving. Their neighbour Ani Ratno says the wife told her they were moving to Lampung, the same Sumatran town where Herniyanto’s Solo-born in-laws live. On October 8, the Samudras moved out. His wife headed west with their four children, and Samudra east. He had important business in Bali.


“Your Lord never annihilates any community unjustly, while its people are unaware” – Koran 6:131

URCHINS GATHER ON the upper decks of the decrepit boat that ferries traffic from Java on the hour’s passage to Bali. For 3000 rupiah, the scamps swallow-dive into the murky water 30m below, then duck for the coins delighted passengers fling as the ferry retreats from the port. Their antics introduce a holiday air to the journey. We are, after all, heading for Bali.

Amrozi made the journey in late September, with a white Mitsubishi van in the hold, bearing a deadly chemical cargo. Today, several months after the bombings, a car like this would be impounded by soldiers toting sub-machineguns, its occupants arrested. The patrols began on October 25; before that, security was non-existent and, besides, vehicles carrying explosives were commonplace. Balinese fishermen use them instead of trawling.

After the meetings with Samudra and friends, Amrozi set about his important assignment. He was also eager to please his intense elder brother, Mukhlas, who had long regarded Amrozi and his faith as a bit flaky. Amrozi had bought a white Mitsubishi L300 van from a man called Annas in Tuban village in East Java, not far from Tenggulun. Annas told the police Amrozi had offered him Singapore dollars and Malaysian ringgit for the vehicle. Amrozi converted the cash to rupiah and paid Annas around Rp30 million (about $A5000).

Amrozi drove it into Surabaya – Indonesia’s second-largest city, about three hours from Tenggulun – to the Tidar Kimia store of Chinese chemical merchant Silvester Tendean, where he’d filled Samudra’s Ambon order in 2000. Tendean was keen to deal and happily doctored invoices that showed Amrozi had bought cooking salts. Arrested soon after Amrozi, Tendean is now on trial in Surabaya for his role in various terror campaigns. His store is shut down, but on Jalan Tidar, there are perhaps 20 just like it.

Amrozi set out for Bali, seven hours by road and ferry. As he drove, he may have even passed the truck which has one side decorated by a portrait of a smug Osama bin Laden surveying his jihadis flying a plane into the World Trade Center, the other that classic Easy Rider biker image – mixed symbolism if ever there was. At Banyuwangi, he paid Rp40,000 car-and-driver passage. An hour later, he arrived in Bali.

While Amrozi was gathering the bomb materials inJava and making his way to Bali, the fixers were at work in Denpasar. Safe houses were rented in at least four locations. The main one was a flat at 18 Jalan Menjengan, where Samudra stayed. Landlord Mas Edi rented the flat in September to an “Alfian”, a man with a strong Batak accent, meaning he was from the Medan region of Sumatra. Alfian’s ID said he was born in 1976. He told Edi he needed the flat for a year to store cargo. He paid a year’s rent in advance, some Rp10 million, wired through Bank Mandiri. “He found it through the newspaper,” said Edi. “I gave him the key … and he still has it.”

Edi’s ground-floor flat had a mango tree out front. A young student neighbour remembers one afternoon during the week before the bomb, Samudra yelled out to her: “Do you like mangoes?” He picked one and, now flirting, gave it to her, suggesting she make a rojak. “He was nice, very polite and had a caring manner. His face is not scary, I don’t suspect him capable of doing such an act.” It seems the charmer Samudra was good at picking low-hanging fruit.

Amrozi arrived in Bali during the last week of September, checking into Room 101 at the seedy Hotel Harum, a flophouse in central Denpasar. His brother Ali Imron told police he arrived about the same time, accompanied by Dulmatin and another man, a Malaysian called Dr Azhari who’d also been in Afghanistan. The bomb-making team were in place.

Ali Imron says he packed the explosives into 12 plastic filing cabinets, each with four draws. He roped the cabinets together with a plastic tube containing explosive, priming the package with dozens of detonators. The bomb was packed into the van delivered by Amrozi, who then returned home to Tenggulun. A bomb vest was also built: six pockets of a vest filled with plastic PVC tubes containing TNT, and wired to a switch to be flicked by the wearer.

Ali Imron told police he prepared four detonation options: a remote-control device activated by a mobile phone; a standard countdown timed for 45 minutes from activation; switches; and a detonator that automatically engaged when its lid was removed. If Ali Imron’s version is correct, it’s clear there was mistrust in some of the operatives. Ali Imron devised the first two methods as failsafes if the deliverer suddenly opted out.

The Mitsubishi was driven to Jalan Legian, which had been scouted and selected by Samudra as the target zone. Samudra was reportedly praying at a nearby mosque. Ali Imron says he was accompanied by two men, both known by their nom-de-guerre of Iqbal. One of them was Arnasan, the poor boy from Malimping.

Just before reaching Legian, Ali Imron left the van and jumped on a motorbike left there by his colleague Idris. Arnasan drove the van to the Sari Club, and stayed with it. Iqbal put on his vest and, at 11.06pm, stepped from the van toward Paddy’s. While Samudra maintains there was only one suicide bomber – Arnasan, who was wearing the vest – Ali Imron’s version contradicts this and says there were two and that Arnasan stayed in the van. Whatever the real identity of the vest-wearing “Iqbal”, he could hear Eminem’s Without Me booming from the Sari Club behind him as he climbed out of the van.

“Jump back jiggle a hip and wiggle a bit

And get ready cuz this is about to get heavy …”

– Eminem, Without Me


“The noblest of you before God is the most righteous of you” – Koran 49:13

IT’S LUNCHTIME IN A Jakarta hotel. One of Indonesia’s most influential lawyers sweeps into the cafe. He is neither garbed in the flowing robes nor clutching the Koran one might expect of the “Muslim Lawyer” his business card describes. Natty in good suit and expensive haircut, this senior counsel with the Indonesian Muslim Lawyers Group seems more Salomon Brothers than Sharia. We’re lunching because he’s defending some of the alleged Bali conspirators. There’s much to discuss. The lawyer remarks he’s taking the case pro bono, which I take to mean that I’m paying for lunch. But conversation is a struggle. His mobile phone or, rather, phones – he has three and his assistant two – won’t stop chirruping. The one with a French Can-Can ringtone is particularly distracting.

Between juggling Nokias and forkfuls of nasi goreng, he explains why he’s taking the case. “I must ensure it is fair, that it doesn’t become the target of infiltration and external influence,” he says, a noble ambition in a country where the law is derided as the best money can buy.

His clients, of course, are innocent; he reels off the usual Mossad-and-CIA-did-it theories. He claims the Legian bombs were “micro-nuclear”. whatever that is. He’s not sure himself but “Americans know about it. They are the crusader nation”.

He’s going to have to do better than this. “My clients’ so-called confession is their religious duty, because they do not think it is wrong, it’s best for their religion. There is a reward of going to paradise. A confession under Allah and under the law are two different things. The case should be built on the facts. I want to leave religion out of it.”

Lunch dishes cleared, he pushes a school exercise book across the table. It is, he explains, Imam Samudra’s hand-written diary, written in his Denpasar cell since his arrest.

Samudra has filled about 24 pages, mostly in Bahasa. He writes in Arabic after prayers and in English, he spouts invective. Exclamation marks scream from the generally neat text – BUSH! HOWARD! AMERICA! AUSTRALIA! TERRORISTS! The diary reveals a sarcastic man, angry and unrepentant. He complains bitterly of the police and their choking kretek cigarettes, and disparages their interrogation. Their questions are “childish” and “stupid”, the investigation “ridiculous” and “boring”. There’s no confession in the pages I read, nor accounts of torture made in the Indonesian press. Just plenty of bile from a cengeng.

“So, Bush the ‘Pharoah’ [the same ironic term Osama bin Laden uses to describe the US president] and the ‘so-called’ John Howard congratulate Indonesia for success in capturing terrorists. But the terrorists are those who treat the Muslim brothers like animals, those who bombarded Afghanistan during Ramadan after September 11, 2001.

“To the infidel, when you stir up trouble, you will be led to hell. Sooner or later, there will be torture for you in the world, and even the afterlife will be messed up.”

Cynicism drips from Samudra’s acid pen: “The animal Bush declares this is a crusade, for infinite justice, and joining him is the ‘nation’ called Indonesia in which the majority are Muslim. Yes, of course America and Australia are correct, that’s why Muslims are rounded up in Malaysia, Singapore, Indonesia for the sake of the master America and their lackey Australia.

“Allah will vanquish and destroy America and other infidels. Those who make war on Allah’s enemies, on those infidels who slaughter Muslims, that is called jihad. Yes, of course, America and Australia are correct.”

He also shows an inventive grasp of current affairs: “the terrorist America is definitely successful at cloning because they have spread out ‘Islamophobia’ and ‘Jihadophobia’ in the veins and the blood of the Indonesian people. That’s why all the ridiculous procedures that America imposes are cloned and followed by the Indonesian government”.

In one entry, written after a day with police reconstructing meetings with alleged co-conspirators, he puns thathe is an actor in a “REKONSTRUKSINETRON!!!” (Rekonstruksi is Bahasa for reconstruction and a Sinetron is an Indonesian soap opera.)

“The police are the directors and scriptwriters and I am just the instant actor that must follow all the rules; no complaints, just follow the director, my mouth sealed.”

His English seems solid. “I.M.A.M S.A.M.U.D.R.A” is defined with initial capitals as “Islamic Movement against American Monster. Save And help our Masjidil Haram [mosque worshippers] UnDeR Attack from American aggressors and its allies.”

It’s gripping stuff, a solid scoop, but before I can read more, the lawyer grabs back the book. “Perhaps we could come to a mutually beneficial relationship.” He suggests we should keep our “negotiations” confidential.

“It’s very expensive for my team to always be travelling to Bali to talk to clients,” he grumbles. He proposes an “arrangement”, exclusive stories and access to Samudra for $US2000. Like any practised dealmaker, he throws in a sweetener, a video of Samudra being interrogated by Indonesian police and “guarantee” of an exclusive interview in his Bali cell. “It can be arranged.”

“Many wartawan [journalists] from your country want to deal with me,” he claims. “… if you don’t want, I sell to them.”

The Bulletin declines his offer. We’ve seen enough. It’s time for justice to do its work.

Additional research by Rin Hindriyati, Jakarta

What On Earth Is Going On In Spain?

THESE are very difficult days for Spain.

Summer’s tourists have returned home from sojourning in the world’s second biggest tourist economy. And as the northern autumn descends into winter, that means that even more Spanish will now be out of work than the near one-in-three that entered the short holiday season jobless. The cold reality of its economic plight confronts Spain again.

Signs of Spain’s pain are evident across the country. Spanish nights, for example, are darker now, but it isn’t the imminent end of daylight saving and onset of winter that are causing the pall. Spain’s charming villages are less so because municipalities can no longer afford to light their streets or illuminate signature landmarks, such as a once-glowing 12th century castle. Those same streets are also less tidy, because urban services are being slashed, regarded as a luxury by penniless councils that have paid neither their teachers nor the local cops for months.

It’s a vicious circle: no jobs mean less local tax collected, and fewer administrative fees paid too, because fewer and fewer people have a job, let alone a budget to pay mortgages, improve houses, register cars or use basic services. Municipal rubbish dumps have suddenly become very popular; the usual scavenging cats are joined by foraging jobless breadwinners who gather food scraps for their families — their own leftovers remain uncollected because councils can’t pay refuse-collectors’ contracts. This is a nation reduced to its knees, fretting about what might happen next.

Spain’s regional governments, themselves hubristic victims of property’s nasty boom and bust, can’t help because they too are broke, having lavished the public purse on expensive white elephants. Regions such as Valencia, Andalucia, Murcia and Catalonia are being forced to ask Madrid for cash it doesn’t have. Foreigners are both loved and resented: in Andalucia, for example, where many foreigners own houses, these modest villas have become impromptu economic islands in otherwise becalmed neighbourhoods where the foreigner is master and diminished locals work as servants. It’s all wounding a proud nation.

Didn’t Spain recently get a lifeline from Brussels and Frankfurt?

Yes, a pledge of €100 billion in June this year, but that doesn’t seem to be enough. This week the ratings agency Moody’s said Spain’s bank bailout, which had been measured at around €60 billion, might need to be almost double what Madrid admitted to last week in its ‘stress test’. In any event, the Spanish are outraged that bankers and their political patrons will be rescued by each other, some with multi-million-euro payoffs, while their victims have to endure a generation of austerity, unemployment and poverty.

There’s little trust in the banking system. To compensate for funds that have been withdrawn from its banks, Spain has had to borrow more than €400 billion, about 40 per cent of its pre-crisis economic output, from the European Central Bank.

Hang on, weren’t we told “the worst is over” in Europe?

Yes, that’s what was said, by lots of prominent people who are paid to know better.

People like the IMF chief Christine Lagarde, who said last March that “the world economy has stepped back from the brink…we have cause to be a little bit more optimistic”. And Mario Draghi, the boss of Europe’s central bank, also this year: “The worst is over…the situation is stabilising”. And the European Commission President José Manuel Barroso: “We have not lost, we are not losing, we have resisted well.” And the German finance minister, and the new Greek prime minister and the Spanish prime minister, and, well, you get the idea…

If the worst is over for the Eurozone, desperate Madrileños and Athenians clearly didn’t get the note, as the blood spilled on their streets this past week suggests.


In Spain, Madrid’s besieged Rajoy government has begun hardening official resistance to the indignados, the ‘indignant’ protestors. Last week Spanish police bludgeoned and shot them with rubber bullets during demonstrations outside Parliament. These brutal tactics shocked many Spanish, who are usually among the first to put up their hand to serve  international peacekeeping efforts. Now there’s even murmurings of civil war — dangerous talk in a country that was defined by just such a conflict. Politically rare for him, King Juan Carlos even chimed in last week to warn against Spain’s splitting.

Polarising extremes are forming, testing a democracy that’s barely 30 years old and prompting some to portray Spain as an ‘unexploded bomb.’ To the right, veterans groups demand the army step in to enforce the unitary Spanush state, remarks which evoke modern Europe’s last attempted coup in February 1981. And on the left, Robin Hood-figures like Juan Manuel Sánchez Gordillo, an Andalucian communist mayor, have emerged as indignado heroes as they raid supermarkets for the poor and occupy banks and properties.

The Anglo-Spanish intellectual Felipe Fernández-Armesto warns that “fears of a social meltdown are excessive but not baseless”. The tension in Spain is palpable and as austerity measures are rejected across these struggling ‘Club Med’ nations from Portugal to Greece, the future of the euro may not be decided by summits populated by nameless bureaucrats spouting ‘globaloney’, but by the raw people power of the disaffected.

Wait, wasn’t Spain supposed to be the model for European unity?

Time was when Europe aficionados, many of them with their snouts in Brussels’ troughs, touted Spain as a model for the European Union. They enthused that here was a land riven by war which had made a unifying peace, a long-time dictatorship that had found prosperity in boisterous democracy — and so could their idealised wider Europe.

Though Spain encompasses distinct language groups and autonomous ethnicities — dour Basques, dogged Galicians, sophisticated Catalans and fiery Andalucians — who have historically never much liked each other, they were able to celebrate their own identities while embracing a national Castilian tongue and identifying as Spanish for a common cause. Why, Spain even resurrected a royal family of pomp and ornamental ritual — how very European.

That was pre-meltdown. How fragile the construct is proving to be.

Today, Spain has again become a symbol for Europe, but not the one imagined by the continent’s federalists. Now it’s a model for the EU’s own possible unravelling; under economic pressure, its celebrated diversity may become its undoing — revealing the weaknesses of artificial federalism.

Take wealthy Catalonia: as Germany is to Europe, so Catalonia is to Spain. It’s the country’s biggest economic contributor andhas long subsidised poorer parts of Spain through internal fiscal transfers managed via demanding Madrid bureaucrats. The industrious Catalans have always been grumpy that their taxes were badly spent by their fellow Spaniards, but while the going was good they kept their grumbles largely to themselves.

Now, they have had to ask Madrid for a bailout themselves, effectively asking for their own money back — and the feeling is they’ve had just about enough of this caper. Last month under banners proclaiming ‘Catalonia: A New European State’, 1.5 million Catalans jammed Barcelona’s avenues to demand secession from Madrid. Opinion polls show support for Catalan independence running at around 50 per cent — double the level of 2008 when the euro crisis was yet to bite.

Local economists have calculated that if Barcelona went it alone, Catalonia’s debt-to-economic-output ratio would fall by 40 per cent.

In other words, Catalonia would appear to be better off independent. On November 25, Catalans will effectively vote on secession in a regional election, on what is looming as a defining day for the Spanish state, and for Europe.

But aren’t the proud Spanish rallying, banding together to see out this national crisis? For goodness’ sake, the nation is the reigning football World Cup holder and has just taken the Euro championship.

Ask the people of Almeria in Spain’s southeast. This is where are more than 100,000 Africans slave off the official books for €25 a day, if they are lucky, picking vegetables for export in hothouses owned by billionaire Spanish food barons. They are illegal immigrants working without rights in a region where the official unemployment level is as high as 50 per cent among Spaniards under 25 years of age.

So why not diplomatically manage the flow of illegal workers from across the Med and provide jobs to the Spanish? No chance. That would mean lower profits for the billionaires if they had to pay their compatriots the minimum wage required by law, which is double what they occassionally pay their African illegals. More to the point, it would require the local mafia of cops, official and politicians – and the tycoons that back them – to apply the law, not just Spain’s but that of Europe. And that would mean the end of cheap labour – and of bigger profits. This is not a spirit-of-the-Blitz situation.

An eloquent depiction of Spanish regionalism is that when institutionalised corruption is unearthed in Spain’s districts, like it has been in the Almeria area, it tends to get shut down by Spanish federal agents from Madrid doing a job that conflicted local colleagues won’t.

As for football, well, it matters in Spain. Half the mighty La Roja, the Spanish national team, hails from or plays in Barcelona. If Catalonia went it alone, the famous Barca would be reduced to being a dominant team in an unremarkable league in a minor nation that would win internationally perhaps as often as, say, Scotland.

And as the Almerians like to say, it’s not as if the rest of Spain much likes the Catalans; they see them as arrogant and soft, entitled complainers. In a similar way, the barely concealed enmities all over Europe are resurfacing to divide it; north-south, Catholic-Calvinist, taxpaying-tax avoiding, rich-poor.

And what’s happening in that little Andalucian village that you wrote about once before?

Oh, you mean Gaucin, the tiny southern town with the shonky property development? Yes, this place crystallises much of what ails the Spanish economy, a lethal cocktail of speculation and malgovernance. That development is known locally as ‘Landslide Villas,’ because its 20-odd flats were precariously built by a mate of the then dodgy mayor on a shifting cliff that wasn’t zoned urban. The unremarkable two-to-three bedroom units that rose there were first offered at €350,000 to 400,000 through 2008, just after they were built, when times were better.

But near every time we’ve returned to Gaucin since, the advertised price has been lower. When I looked in June, they were ‘rent-to-buy’ for €399 a month, making a notional price of around €100,000, assuming the average five per cent annual return landlords aim for.

Now, a new advertisement draped over the building touts them at €299 a month to rent, 25 per cent down from June. At one level, that’s an extraordinarily cheap €9.83 a day for  a never-occupied apartment. But it also suggests that their prices are 80 per cent down on what they were first offered.

That’s a big headache for the developer, but a bigger one for his bank that collateralised the development loan against the now-stricken property, and possibly many more like it. No bank in Spain has written back 80 per cent of its property load as bad debt burdening its balance sheet. The biggest write-down is about 25 to 30 per cent.

So if this Gaucin property is taken as representative of Spain, that means there’s twice to triple the financial headache still to be endured, in a banking sector that last week admitted it needed €60 billion in emergency funding after that state-sponsored stress test,  a state that few much believe its public admissions of how profound is Spain’s crisis.

What If You (Mostly) Built A Ridiculously Ambitious City And Nobody Came?

The abandoned and incomplete apartment buildings of Seseña

UNTIL the recent years of Spain’s economic catastrophe, Spaniards mostly knew Seseña as the scene of a decisive battle in the country’s brutal civil war of 1936-39, during which the Molotov cocktail first found deployment in modern combat.

The Battle of Seseña came early in that conflict, but it defined its eventual outcome. With aid from Hitler and Mussolini, Franco’s forces had quickly taken key towns on the central Spanish plain, including Seseña, and were poised to take Madrid just 40km north. Franco’s men encountered Republican forces here, repelled them and pushed on to lay brutal seige to the capital for three years.

The more things change, the more they stay the same.

Today, Seseña again finds itself determining Spain’s survival, this time laying seige to its economy in a battle no less grave in its potential to cripple this proud nation.

For a symbol of all that ails Spain — and Europe too — look no further than the Residencial Francisco Hernando Seseña. This folly has it all: excess, waste, hubris, misery and scandal.

In 2002, the first sods were turned at Seseña, on what was the biggest residential complex ever undertaken by a private developer in Europe. It was essentially a EUR9 billion bank-financed plan to construct a new city, a working-class utopia of 14,000 large, affordable apartments piled into 280 blocks.

The developer was Francisco Hernando, better known to Spaniards as El Pocero, or The Drain Man. That’s the polite nickname many have for Hernando. Barely literate and from a dirt-poor family, he got his start — and a less flattering moniker — unblocking sewers. He likes to tell journalists that he didn’t have a proper shower until he was 22, which perhaps explains the smell that surrounds Seseña.

Hernando’s company Onde 2000 would complete barely a third of the promised apartments — though his builders have managed to finish the pompous statues of his clan still sprinkled around the complex, some now daubed with unflattering graffiti.

There is no feature of Residencial Francisco Hernando that demolition wouldn’t fix.

Today, four years of a crisis on, the apartment blocks are nothing but squat brown chunks of brick punctuating a massive abandoned construction site. Tumbleweeds somersault down broad avenues named, as if like a cruel joke, after famous artists, which run into dead ends. The promised swimming pools are dry, the sporting fields browned over in the baking 40-degree summer heat.

The towers where a few apartments were completed are forlornly plastered with ‘for sale’ signs or, even more pathetically, with ‘for rent’ signs. Planned shops and supermarkets are shuttered. Even the real estate agents are boarded up.

As for Hernando, the last Seseña residents heard of the 70-year-old Señor Sewers, he had re-launched in the West African dictatorship of Equatorial Guinea, the former Spanish colony regarded as the one of the world’s most corrupt nations.

It’s not just at Seseña where vanity and hubris ended in tears and white elephants. A few hours’ drive further south, the city of Ciudad Real boasts a EUR1 billion airport that doesn’t have planes. Built before the crisis, it opened midst much fanfare in 2008 as the economy began to collapse, only to close this year when the handful of flights stopped flying there.

Its fate was that it was financed and owned by Caja Castilla La Mancha — one of the first of the Spanish savings banks to collapse in 2009 — and built in a town populated by overreaching city fathers with close developer friends, and all anxious for their share.

Today, the management company of the Aeropuerto Don Quijote — no windmill-tilting irony intended is in receivership.

Across Spain there are a million vacant dwellings like those at Seseña and myriad white elephants like the airport at Ciudad Real, and that’s the core of the crisis facing the country. Financially, there’s a double whammy effect evident in Seseña. The project was bank-financed and begun in the very years, over 2003-04, that the market began to peak. The project was in trouble even before Spain’s property market began collapsing, and then it got worse. A few apartments were sold, mostly with 100 per cent mortgages, but today they are notionally worth 50 to 75 per cent less than what punters paid for them — notionally, because there is no market to sell into. With unemployment here at around 50 per cent, residents who can’t meet pre-crisis mortgage terms, or any terms at all, are being evicted.

Today, some 100 to 150 billion euros are being earmarked to bail out Spain’s banks, but even this may not be enough. The central Banco de España measures Spaniards’ private debt at more than one trillion euros, with mortgages accounting for about 60 per cent of that. And few banks have written down their bad debt portfolios to fully account for what has been, on average, a halving of property values since 2008.

Last month, as the Olympic Games were staged in London, I wandered down one of the main streets of Residencial Francisco Hernando, and through the wasteland that is the Ciudad Real airport.

In Seseña, the occasional Spanish flag hung patriotically from one of the buildings, and at one second-floor apartment a man who  identified himself as “Jose” appeared on his balcony and called down, surprised to see another human being in the neighbourhood. He was bare-chested and trying to catch a breeze amidst the heat, he said, explaining that his air conditioning wasn’t working because the electricity grid was down. When he learned he was talking to media, his wife appeared alongside him and pleaded with us to “expose all the corruption in our country”.

At Ciudad Real, the sprawling airport complex has rusting passenger air bridges that connect to nowhere, an empty and locked terminal and a runway that was built to handle the world’s biggest planes now closed to traffic, except that of scurrying rabbits. The only jobs evident are that of an occasional cleaner pushing a bucket, and a hyper-sensitive security guard shooing onlookers from public access roads.

The World Bank recently declared Europe to be a “lifestyle superpower, with arguably the highest quality of life in human history”. Perhaps it was referring to Paris’s chic sixth arrondissement. Had these wise sages expended some shoe leather on visiting Seseña and Ciudad Real, their conclusions might have been decidedly different.

And rather closer to the reality of today’s Europe, as it begins the difficult rise from its mire.

Read more Eric Ellis stories on the Australian lawyer leading Julian Assange’s charge to avoid extradition; the quaint hamlets and towns turning to right-wing politics in recession-struck France; and a step-by-step primer on the ongoing Greek sovereign-debt crisis.


Letters to the Editor (2)

The pain in Spain came mainly from the drain.

From andrew

20 September 2012

Not to mention the airport at Castellón that has never received a single commercial flight, which cost 150 million euros.

From John

19 September 2012

Wikileaks: Jennifer Robinson

Jennifer Robinson leaves the Ecuador Embassy in London, June 2012


And that’s not the natural state of this peppy jurist, defender of whistleblowers, daughter of tiny Berry on New South Wales’s south coast now ascending the rarified legal heights of Cavendish Square, London W1 and jurisdictions beyond.

I’ve asked her to clarify what seems an elliptical answer to a legal journal that had asked what the word ‘law’ meant to her.

She’d responded with just one word — ‘Jude’ — and words matter to lawyers. Particularly a self-described ‘legal nerd’ like this Bahasa-speaking graduate of Australian National University’s (ANU) Asian Studies and Law faculties, via Indonesia’s storied Universitas Gadjah Mada (UGM) and a Rhodes scholarship to Oxford’s Balliol College, too.

Robinson’s ‘Jude’ appears an academic, even wry, riposte, perhaps evoking the Epistle of Jude, a Biblical canon about faithfulness and virtue, of discipline and resisting intemperance; de rigeur values for an advocate exciting the international human rights stage.

Robinson, you see, is fast becoming an eloquent activist for the world’s downtrodden and disenfranchised, and is defending WikiLeaks and the divisive Julian Assange too, pro bono, at what many of her more-monied ‘learned friends’ scorn as the touchy-feely end of the legal spectrum.

And she is doing so while helping shape three of the most significant cases defining modern media, free speech, privacy and transparency: the Murdoch phone-hacking scandal, WikiLeaks and Assange (she’s the telegenic blonde in severe legal garb at his side exiting the courts), and the plight of alleged ‘Cablegate’ WikiLeaker, the US soldier Bradley Manning.

But reminded of her ‘Jude’ remark, the Robinson brow knots, perplexed at what I’m rabbiting on about. The Bible? Religion?

“Oh no!” she laughs. “It’s far more superficial than that. It’s just Jude Law, the actor!

“I could’ve got all serious and said, ‘Oh, you know, the scales of justice and all that stuff but I just thought, ‘You know what? Jude!’ I can be very serious but I was being facetious, taking the piss. I take my work very seriously but me less so. I am Australian, after all, and proudly so.”

Jennifer Robinson is just 31. But she’s already achieved a CV that would be impressive for someone double her vintage: trusted advisor to Assange’s legal team and Assange himself, engaged with the British media reform agitator Hacked Off, the Manning monitoring brief in the US, adjunct lecturer in law at Sydney University, member of the International Lawyers for (the disputed Indonesian region of) West Papua, former legal advisor to the New York Times in its investigation that kick-started the Murdoch phone-hacking drama, legal director for the South African-backed philanthropic Bertha Foundation, et al. “I wear a lot of hats,” she says.

Oh, and she also bangs out hundreds of emails and tweets a day, crisply cogitating on bogus Pakistani blasphemy and the Tamil ordeal in Sri Lanka, to Leveson, Prince Harry and Nicola Roxon’s flip-flops on data retention policy, while briefing journalists and colleagues and lobbying politicians and officials, and often doing it all from check-in at Heathrow, en route to a conference somewhere where she’s keynoting. “My smartphone gets a serious hammering,” she says.

Any one of these roles would be a fulltime undertaking for most, but Robinson has also found capacity to write a book on the plight of West Papuans — perhaps the issue closest to her heart — while setting up a award to encourage students at Bomaderry High School, her alma mater outside Nowra, to go onto tertiary studies. And she advises and funds independent documentary-makers, a vocation she’d secretly like to pursue if she wasn’t a lawyer (she has a dedicated screening room in her London suite).

“If there was a tablet that replicated the benefits of sleep,” she says, “I would take it because there are so any interesting things to do in the world, and so many important causes, and I’m so engaged by what I do. I would work all day long and all night long if I could. Unfortunately you have to sleep. We only have about 680,000 hours in our lifetime.”

Time to take a breath. She must’ve been insufferable at school, definitely the teacher’s pet, the bookworm sitting clasped hands at the front of the bus as she swotted for exams?

She laughs. “Yes, I did well at school, was captain of this and that, did all the school leadership things. But I partied a lot. I certainly wasn’t the worst kid in class but I wasn’t a goodie-goodie either.

“I certainly got called to the principal’s office on more than one occasion,” she says. “I think I would’ve sat definitely towards the back of the bus.”

When The Global Mail caught up with Robinson last Monday for an hour’s coffee among the lavender shrubs of the sunny rooftop above her London office, she had just moved house. She claimed she was exhausted and apologised for her appearance. It wasn’t apparent that either was an issue.

And so the Jennifer — Jen to her mates — Robinson dynamo powers on.

Next on her bucket list? Learning Spanish. She thinks it will be useful, given where her close friend and client Assange finds himself, confined to the Ecuadorian embassy in nearby Knightsbridge, and considering she’s working on Assange’s case alongside one of her lifelong legal heroes, the campaigning Spanish jurist Baltasar Garzon. Before Garzon, Robinson has been under the tutelage of two other heroes of hers: the Australian silk Geoffrey Robertson, and the former justice of the Australian High Court, Michael Kirby, before him.

Remembers Robertson: “Jen was interested in human rights and media law and so I engaged her as my researcher. She was exceptional in being able to understand the practicality of the case as well as being quite brilliant academically. That is why she is such a good lawyer.

“She is passionate about her clients but sensible enough to keep a certain distance in order to argue their case with power and objectivity,” he says.

Robertson introduced Robinson to Assange in mid-2010, just before WikiLeaks published the ‘Iraq War Logs’ revealing US military abuses in Iraq, and further fuelling Washington’s disquiet about him.

Anticipating Washington’s rage, and with ‘Cablegate’ about to publicly break, Assange was in London discussing legal representation with Robertson, Robinson’s mentor since the mid-2000s while she was still at Oxford. He recommended the London lawyer Mark Stephens, with whom Robinson now worked.

Assange had seen Robinson interviewed by Australia’s ABC about claims of Jakarta-backed torture and abuse in restive West Papua, a region where she had worked and studied eight years earlier and knew well. Meeting Assange in London, she was “impressed by his knowledge of the issue, its history and the politics”, of a subject “most people do not know much about”.

Two years on, she clearly has great empathy for the enigmatic 41-year-old WikiLeaks founder. “Julian is very engaging and fun to argue with,” Robinson says, “and far more self-deprecating than anyone realises, which — as an Australian — I appreciate.

“The constant feedback I get from journalists who meet him is that they are surprised by how warm and engaging he is, which is contrary to the impression created by the mainstream press.

“He is very committed to WikiLeaks work, and that can lead him to be uncompromising — particularly if he sees his principles at stake.

“There have been countless articles about his character and how he is as a person. Interestingly, a lot of the time they are written by people who have never met him. That is not good journalism.”

Of the Swedish rape allegations dogging Assange at the centre of the London-Stockholm-Quito diplomatic impasse, Robinson is reluctant, deliberate and on-message. “Everyone would like to see a satisfactory outcome where these allegations are dealt with and where Julian is protected from onward extradition to the United States for prosecution for his work related to WikiLeaks,” she says.

She is puzzled that Swedish state investigators won’t come to London to take evidence from Assange in the rape investigation. “We have offered his testimony since October 2010. It’s provided for under mutual legal assistance treaties, they’ve done it before in other cases, it’s permissible and they’ve refused to do so. It is unclear to me. One can only speculate as to their reasons.

“I do not think anyone should be confined in this way to an embassy, and the stress of the situation should not be underestimated, but if anyone can do it, Julian can.

“His commitment to his work and continuing that work will get him through.”

Pace her Indonesia passion, Jen Robinson has described herself as a rambutan, the fruit found across South-East Asia. A rambutan’s skin — hairy, bristly and coarse — offers no hint as to the surprisingly sweet and succulent fruit it conceals.

The description is about confounding cliches.

She’s absorbed by human rights and justice, and believes they shouldn’t divide right and left, that they are always about higher values and humanity. She is no less serious for liking fashion, cocktail bars and champagne in her fridge, or for eating in smart restaurants when she can, or liking the Cannes film festival. She loves Hugh Grant’s work, less so his films than his campaigning for Rupert Murdoch’s phone hacking victims. She says she’s just at ease working Sundance or a G-20 if need be, as she is yarning with wharfies or villagers in an Indonesian lean-to. She’s a big fan of Malcolm Turnbull, but has little regard for Julia Gillard or Tony Abbott. Kylie was on her wall as a netball and touch rugby-playing teen back home in Berry, and she’s now on her iPod as a 30-something lawyer in London.

She’s the first and only lawyer in her middle-class family. Dad is a racehorse trainer, Mum a teacher, Robinson the eldest of six siblings. “I didn’t go to a posh high school,” she says. “I went to government schools, I’ve gotten places because of my own efforts, I’m not part of any boys’ club, none of my parents and friends are ‘connected’. I’m from a good, solid, country family.”

Family is important to her. “The values that my family instilled gave me a sense of wanting to help others, a sense of empathy and that’s what drives my career. The trajectory of my life has been so unexpected.”

While she says her career experiences so far are firmly in the ‘not-in-my-wildest-imagination’ basket, “what I did hope was that I’d find a way of making human rights and defence of the media, of free speech, my career and I’ve been very fortunate to be able to do that.”

She remembers an Oxford friend had taken a screenshot of the front page of The New York Times on December 16, 2010. It’s a photograph of Assange — “the most famous dissident on the planet”, as she describes him — holding his release order from a British prison, flanked by Robinson and her mentor Robertson on the steps of London’s Royal Courts of Justice. The friend, who’d stayed on at university, said how thrilled he was she didn’t take his advice and continue studying; if she had, instead of being on the page one of the world’s most famous newspaper, she’d likely still be in the college library swotting with him.

WIKILEAKS may have provided Robinson her ‘pinch-myself’ moments, but it’s Indonesia and its restive far-eastern region of West Papua that really press her buttons. Robinson learnt Bahasa at high school, visiting Indonesia as a 16-year-old on a school trip that would change her world. It fired a zeal to defend the disadvantaged, and a perspective that Australians don’t often appreciate how advantaged they are.

As a genuine student of Asia — she also studied international relations, in Bahasa, a very rare bule (foreigner) at Jogjakarta’s storied UGM — she laments the loss of Keating and Rudd, less so for their politics but more for Canberra’s Australia-in-Asia initiatives, since rolled back by subsequent governments.

“I imagine how different my life would be if I didn’t that opportunity to be exposed to Bahasa, to Indonesia, to Asia.”

Fifteen years and several degrees on, she’s bemused and disappointed in equal measure that her Bahasa skill is somehow seen as a point of separation for her among Australians. “I’m one of the few lawyers who can speak Indonesian very well, but it shouldn’t be shocking that an Australian speaks Indonesian, it should be par for the course. I was fascinated by Indonesia, and I’m still fascinated by it, the most diverse and wonderful country.

“I really love Indonesia,” she insists, “and I am constantly frustrated by how it’s portrayed in the media post the Bali bombing. But at the same time, I can’t countenance what happens in West Papua,” the closest part of Indonesia to Australia, and largely off-limits to foreigners who aren’t miners.

It’s a place she knows well, having studied and worked in Jayapura with the renowned local human rights champion John Rumbiak in 2002, on an exchange from UGM in Jogja. “I think my UGM supervisor rues the day he ever proposed it,” she says. (Rumbiak was forced to flee West Papua in 2003 for Australia after a succession of attacks and death threats.)

For Robinson, her time in West Papua filled the missing link about Indonesia that was curiously not addressed by the ANU curriculum. “I thought, How on earth can I have spent three years at ANU, studying every single possible subject about Indonesia and East Timor and human rights and not once come across West Papua and what happened there.”

And it’s been noticed in Jakarta, too. In London, she recently had a spooky visit — dressed up as a courtesy call — from an Indonesian diplomat inquiring about her advocacy for human rights in West Papua. She saw the warning as a reflection of Indonesian sensitivity about the mineral-rich and militarised region, which has long been pushing to break away from Jakarta. It seems Jakarta was checking out, and she agrees.  “He told me that I wouldn’t be welcome back”.

But she returned to Indonesia last November for the first time in almost 10 years, doing so without a hitch. “I’d like to think that is a sign of the new Indonesia, that people can speak out about human rights issue and come and go.

“If you want to test Indonesia’s democratic development, then you need to have a look at what happens in West Papua. No democratic state would allow what happens there. The great strides and reforms made elsewhere in the archipelago have not happened in West Papua. It doesn’t engender support for the Indonesian state, it’s against their self-interest.

“Australia ought to be pushing the human rights agenda much further, which does not equate with supporting independence for West Papua. We need to harden up.

“We compromise our own values for the sake of political pragmatism, which is what we do on West Papua all the time. It’s unacceptable.

“If we are lobbying for a place on the UN Security Council on the basis of our supposed human rights-based foreign policy, if we can’t sort out what’s going on at our doorstep, how on earth can we be trusted to be on the international committee that deals with crisis all over the world when we can’t deal with the genocide on our doorstep?

“Human rights hypocrisy in the West, it gets my gall,” she says.

“When you have countries like Australia and America doing things that, if other states did, they’d really raise concerns about, but it’s fine if we do it — that to me is unacceptable.

“You have the US bombing a friendly state, using targeted killings as part of their foreign policy. If Iran was doing that, the world would be up in arms.

“Australia locks up refugees. If another state did that how would we respond? It’s double standards. Historically the West has led the human rights debate, quite correctly, but I feel their capacity to do so has been diminished by their hypocrisy. And that is a great concern because it’s important the West leads by example.”

“One of my great concerns is the state of Australian politics. It does our nation a disservice. Australia is a better country than our politics portrays. There’s a loss of values… I’m very proud of being Australian but I’m not proud of our politics.”

Robinson probably first came to wider attention in her own right in April this year, for what could well a spooky brush with Washington’s invisible tentacles. Checking in at Heathrow for a Virgin flight to Sydney to speak at a conference about, irony of ironies, “Lawyers on the Frontline”, she discovered she was on an ‘inhibited’ travel list. It meant she, an Australian passport-holder, couldn’t board a flight for her own country, forbidden from entering Australia without specific clearance from Canberra’s Department of Foreign Affairs and Trade.

The incident came “well and truly” after she was known to be working with Assange and WikiLeaks. She remembers the Virgin security officer telling her “You must have done something controversial to end up on this list”, as they leafed through her passport and banged impenetrable buttons to print her boarding pass.

The impression was given it was an Australian issue, and it floored her. “My thought bubble was ‘WTF, exclamation mark, exclamation mark’.” She contacted Assange.

Despite his WikiLeaks notoriety, Assange had never been stopped at immigration or check-in while he was at liberty to travel. She laughs recalling his remark. “He told me ‘Hmm, ‘inhibited’? That doesn’t sound like you, Jen.'”

Since she’s been advising WikiLeaks and Assange, she’s travelled to the US, to the Bradley Manning proceedings, and had no issues getting in or out. Holidaying at the Sundance Film Festival in Utah this year, she even collared US Attorney General Eric Holder, the man who launched Washington’s criminal investigation into WikiLeaks and Assange.

She has not been visited by mysterious wellwishers from Grosvenor Square, where Washington’s embassy is in London, as she was with the Indonesians.

“If it were related to my work, it’s unacceptable, and the world thinks it’s unacceptable because of the response to it,” she says, citing the storm that briefly raged across the media. It forced a response from Roxon, who assured Robinson she was on no Australian government ‘watch list’, even claiming Canberra has no such list.

“I’m completely open to the fact that it was a mistake,” she says, “but it’s something I still haven’t had a proper answer to.”

BEYOND WikiLeaks and matters Papuan, Jennifer Robinson is concerned about the wider media’s self-absorption with Britain’s Leveson inquiry into press standards, another pet subject.

She remembers a conversation she had with Assange about the phone-hacking drama, that Leveson could result in greater press regulation and government control over information.

“A self-regulated press is what we want to maintain and I’m concerned that Leveson may result in changes that move is away from that,” she says.

“Yes, phone-hacking was a terrible thing to have happened, yes it was illegal, yes there were lots of people involved in it, thousands had their phones hacked and not just celebrities and yes we should be doing something about that,” she says, pausing before the ‘but’ qualifier.

“But phone-hacking has been the number-one tweeted story by journalists in the last year. But when the UK government is proposing wholesale surveillance of the entire population — of every single person — where is the media coverage?

“The average person on the street… their emails are being captured. That’s what we should be writing about.

“Surveillance affects everyone. Not just the elite, celebs or those few phone-hacking victims who were not famous but in the news for other unfortunate reasons. And it’s not just ordinary citizens, but it’s also journalists. How can you possibly protect your sources with the data retention plans and the government’s ability to data mine it?

“Open your eyes to the longer-term game,” she pleads. “In 10 years’ time when you’ve got statutory regulation around your content, let’s have another talk about what you think you should’ve been reporting on right now.”

So what does the future hold for Jen Robinson? She says, “I just hope I’m doing good human rights work, and I hope in some way making a difference.”

Mentor Robertson believes “she is probably torn between a tempting career as head of a big NGO and carving out a career as a barrister.

“She is still very young. She could certainly become a great advocate or an excellent judge or could end up running an organisation like Amnesty.

“It will be fascinating to watch.”

* Ms Robinson would like to note that, to date, she has not argued a case at the Old Bailey. We say, watch this space.

From The Global Mail…


Read more Eric Ellis stories on the European debt crisis arranged alphabetically, fear and loathing in la France profonde, and an Italian satirist peddling pranks, parody and political power.

Letters to the Editor (2)

A great article about someone we all should be inspired by. What a wonderful Australian. Lets hope she can enter politics as we need more of her straight shooting intelligence and formidable actions based on deep values.

From Robert

6 September 2012

The West Papua situation is an appalling indictment of Australia and it is great to learn that Jen is a passionate advocate for the people.

From Peter Franklin

6 September 2012

My Life As A Mighta-Been Millionaire

REGRETS, I’ve had a few but, like Sinatra perhaps, too few to mention.

But this week as Apple, the much-loved technology company, became history’s most valuable public corporation, I allowed myself a look back at what might have been.

Some 15 years ago, almost to the day, I ruefully recall, I was the owner of around 400 to 500 shares in Apple.

Today, with its market capitalisation of around $630 billion, if Apple were a sovereign nation it would be a G-20 member, the value of its gross domestic product slotting in around the world’s 19th to 20th biggest  — alongside Switzerland, Sweden and Saudi Arabia, almost three times the size of Singapore, 11 times bigger than Syria and Sri Lanka, near 50 times Senegal.

And I owned a modest chunk of it when the entire company was valued at just USD2 billion, when Seychelles and Sao Tome and Principe could’ve given it a run for its money.

If I’d hung onto my Apple shares — and I tend to philosophically subscribe to that old ‘if’ aphorism about aunts and uncles’ testicles — then with subsequent dividends, splits and re-investments, not to mention its virtual reincarnation from a near-death experience in 1997, I calculate the holding would be worth around USD2 million to USD3 million today.

I recall that Rupert Murdoch’s mate, the Saudi financier Prince Alwaleed bin Talal, also bought Apple shares about the same time as me, acquiring some five per cent of the company for about USD115 million in April 2012.

He was educated in Silicon Valley and he’s still got them, two more reasons why he’s a billionaire and I’m not. But he also owns a lot of Citibank shares, and they’ve been mercilessly hammered since the 2008 financial crisis. And I’ve never been so naive as to much believe bankers.

With the bounty from my Apple portfolio that I once had, I could today buy about 2,000 Mac Book Pros, 10,000 iPads, 150,000 iPod Shuffles and who knows how many tunes of iTunes. And I’d be writing from a luxurious condo at an Aman resort somewhere expensively exotic, surrounded by all things divine and perfect. That I owned.

Instead, as pissed Poms on a stag party puke their Grolschs and haring onto the pavement outside my window, I write it from an apartment in Amsterdam. Which I don’t own.

I REMEMBER making the Apple trade, less for the head-spinning wealth that would (not) follow but for the amount of money I risked at the time — USD10,000 from memory, then as now a ridiculous amount for someone who’s tended to think trading the stockmarket a mug’s game.

I made it sometime in mid-1997. I was then an Australian Financial Review staff correspondent in the US, based in San Francisco, with a brief to cover California, supposedly modern society’s laboratory. I was planning to write a story about online share trading.

Initially sent to Los Angeles, I quickly became aware that Corporate Hollywood wasn’t where the world was being re-invented. That seemed to be mostly happening a few hours up Route 101, just south of San Francisco in a place insider hipsters liked to call Nerdistan — a place the world knows as Silicon Valley.

Sick of the long drives