The Daily Visionary: Thursday, December 20, 2018

Black Swan author Taleb says "Saudi Arabia is going to go bankrupt" after seeing the kingdom's latest budget

 

Author of The Black Swan Nassim Nicholas Taleb, who foresaw the 2008 financial crash, said “Saudi Arabia is going to go bankrupt” in response to Saudi Arabia releasing its 2019 budget this week, which at 1.106 trillion riyals, or USD $295 billion, is the largest in the kingdom's on record. "We are determined to go ahead with economic reform, achieving fiscal discipline, improving transparency and empowering private sector," Saudi King Salman said.

 

For Saudi Arabia to be able to meet its projected revenue and fund these generous payments it will need oil prices to rise much higher. Saudi Arabia is not projected to close its deficit as the kingdom forecasts a sixth consecutive budget deficit in a row, estimated to hit USD $35 billion in 2019. The 2019 budget represents a 7 percent increase from 1.030 trillion in 2018.

 

Concerning details of the budget include a revenue forecast of 975 billion riyals, while total spending will rise 7 percent to 1.106 trillion riyals. The budget deficit will be 4.2 percent of the GDP, which is expected to grow from 2.3 percent in 2018 to 2.6 percent in 2019. To put this in perspective, this is nearly double the size of Italy's projected deficit though still quite smaller than the deficit of the United States (U.S.).

 

The Saudi government expects non-oil revenue to increase from 287 billion riyals in 2018 to 313 billion in 2019. According to the budget, Saudi Arabia expects oil revenues to grow nearly 10 percent from 607 billion riyals in 2018 to 662 billion in 2019. To hit 662 billion riyals in oil revenue, or USD $177 billion, up from USD $162 billion in 2018, Saudi Arabia expects near record oil output of 10.2 mmb/d sold at a price of USD $80/barrel, while Saudi Aramco won’t increase its allocations to the government.

 

As oil fell below the USD $50 mark this week, the price of oil would need to rise at least 40 percent for the Saudi budget revenue assumption to be hit. Brent would have to rise an additional USD $15 to $95 a barrel for the kingdom to balance its budget deficit, according to Bloomberg chief Middle East economist Ziad Daoud.

 

Last year, Saudi Arabia based its 2018 budget on crude averaging USD $63 a barrel, $17 below the latest forecast even as its OPEC-defecting neighbor, Qatar, assumed $55 per barrel in its budget forecast released last week. This is the latest sign that the Saudi kingdom expects its efforts to corral OPEC members and its allies to cut production next year to support the assumed prices. In the face of more Qatar-style defections, Saudi Arabia will take on much more debt and putting it at the mercy of global creditors.

 

If Saudi Arabia's traditional bankers decide to boycott the Kingdom, preventing it from gaining access to global capital markets, Mr. Taleb's assessment may prove accurate.

 

Fake news in Germany: Der Spiegel’s award-winning reporter admits to fabricated content and interviews

 

Der Spiegel, one of Germany's leading news magazines, has relieved one of its award-winning journalists of his employment after evidence emerged that he committed journalistic fraud "on a grand scale" over a number of years, the publication said Wednesday. The case, which is still being investigated, "marks a low point in the 70-year history of Der Spiegel," the magazine said.

 

Der Spiegel published a lengthy report on its website after conducting an initial internal probe of the work of Claas Relotius, a 33-year-old staff writer known for vivid investigative stories. "The management of Der Spiegel will appoint a committee of internal and external experts," Der Spiegel said, adding that the results will be published.

 

The magazine said Mr. Relotius resigned Monday after admitting some of his articles included made-up material from interviews that never happened. Mr. Relotius acknowledged fabricating parts of at least 14 stories, including a piece about an American woman who he said volunteered to witness the executions of death row inmates, such as one in Texas at the beginning of the year. Mr. Relotius contributed almost to sixty articles published in print or online since 2011, first as a freelance writer before being hired full-time last year. The reporter previously worked for other German and Swiss publications and won numerous awards, including CNN Journalist of the Year in 2014.

 

Der Spiegel said concerns about Mr. Relotius' work first were raised in November by a fellow reporter who worked with him on a story about a border militia in Arizona and discovered that supposed interviews had never taken place. Further fabrications by Relotius included a phone interview with the parents of American football player Colin Kaepernick, who protested police brutality by kneeling during the pre-game singing of the national anthem, Spiegel said. Another was reporting that a sign on the edge of a Minnesota town read "Mexicans Keep Out," Spiegel said.

 

The German Journalists' Union DJU called the case "the biggest fraud scandal in journalism since the Hitler diaries" that Germany's Stern magazine published in 1983 and were later found to be forgeries.

 

President Trump’s new strategy to improve U.S. - Africa relations

 

United States (U.S.) National Security Adviser John Bolton presented the Trump administration’s new Africa strategy last week at The Heritage Foundation. The strategy focused on three priorities:

 

  1. Enhancing U.S. trade and commercial ties with African nations through arrangements that benefit both the United States and Africa. According to Mr. Bolton, “We want our economic partners in the region to thrive, prosper, and control their own destinies. In America’s economic dealings, we ask only for reciprocity, never for subservience.”

     

  2. Countering the threat of Islamic terrorism. Specifically, Mr. Bolton announced, “ISIS, al-Qaeda, and their affiliates all operate and recruit on the African continent, plotting attacks against American citizens and targets. Any sound U.S. strategy toward Africa must address this serious threat in a comprehensive way.”

     

  3. Ensuring that the U.S. allocates its foreign assistance efficiently and effectively to advance U.S. interests. In particular, Mr. Bolton emphasized, “The United States will no longer provide indiscriminate assistance across the entire continent, without focus or prioritization. And, we will no longer support unproductive, unsuccessful, and unaccountable U.N. peacekeeping missions.”

 

With the strategy announcement, the Trump administration demonstrates its recognition that development is far less dependent on foreign assistance than it is on the willingness of African governments to adopt market and investment – friendly policies. The Trump administration wishes to “pursue modern, comprehensive trade agreements on the continent that ensure fair and reciprocal exchange between the United States and the nations of Africa.”

 

Analysts at the Heritage Foundation have strongly urged the U.S. to focus on and counter Islamic extremism in Algeria, Kenya, Libya, Nigeria, Somalia, and other countries in the region, which the administration focuses on as part of its strategy for the region. Mr. Bolton also said, “The predatory practices pursued by China and Russia stunt economic growth in Africa; threaten the financial independence of African nations; inhibit opportunities for U.S. investment; interfere with U.S. military operations; and pose a significant threat to U.S. national security interests.”

 

The Trump administration’s new foreign assistance strategy will improve the effectiveness of U.S. foreign aid, which requires an overhaul of America’s foreign assistance programs that are, in the words of Mr. Bolton, “designed to counter the Soviet Union during the Cold War” and “fight terrorism after 9/11” rather than on today’s priorities. In particular, U.S. foreign assistance will “move recipient states toward self-reliance, and prevent long-term dependency” with less needy recipients graduated from foreign assistance and reductions in aid to countries “making poor policy decisions.” U.S. aid will “target resources toward areas where we have the most impact to ensure efficient use of taxpayer dollars.

 

In line with the strategy’s emphasis on the responsible use of taxpayer money, Mr. Bolton criticized the kleptocratic and violent South Sudanese regime that has misused American aid and expressed skepticism that the same leaders who led that country into war can lead it to peace. “Countries that repeatedly vote against the United States in international forums, or take action counter to U.S. interests, should not receive generous American foreign aid,” said Mr. Bolton. He also underscored the important effort to review all United Nations (U.N.) peacekeeping operations to ensure they are fit for purpose and focused on resolving conflicts.

 

Though recent administrations have talked a big game about shifting the U.S. and Africa away from a benefactor-supplicant relationship toward a true partnership, the Trump administration’s strategy outlines a path to realize that goal.

 

Khmer Rouge leaders found guilty of genocide in landmark ruling 40 years after fall of brutal Cambodian regime

 

The two surviving leaders of Cambodia's Khmer Rouge have been convicted of genocide in a historic ruling, four decades after the fall of the regime which wiped out up to a third of the population. In November, Nuon Chea, 92, and Khieu Samphan, 87, were found guilty and sentenced to life in prison by the country's long-running international tribunal, the first genocide conviction handed down by the United Nations (UN) – backed court. "The verdict is essentially the Nuremberg judgement for the Extraordinary Chambers in the Courts of Cambodia," said David Scheffer, who served as the U.N. Secretary General's special expert on the Khmer Rouge trials from 2012 until the trial.

 

The two are already serving life sentences over the forced urban exodus and disappearances of millions of Cambodians by Pol Pot's regime during its terrifying four-year reign in the late 1970s. Nuon Chea was the Khmer Rouge ideologist and and deputy leader considered Leader Pol Pot's right-hand man, while Khieu Samphan was the head of state who served as the regime's public face. These latest genocide verdicts relate to killings of the Cham and Vietnamese ethnic groups. The two leaders were also convicted of war crimes and crimes against humanity relating to the Khmer Rouge's brutal work camps, including murder, extermination, enslavement, torture, enforced disappearances, forced transfers, forced marriages, and rape.

 

An estimated 1.7 million people, nearly a third of the country’s population, were executed or died of starvation and overwork under the Khmer Rouge, the radical communist group which tried to create an agrarian utopia by forcing urban-dwellers into rural labour camps, between 1959 and 1979, immediately following the Cambodian civil war. The more than 20,000 mass grave sites around the country became known as The Killing Fields. Vietnam invaded Democratic Kampuchea in 1979, ending the Khmer Rouge regime.

 

The Khmer Rouge Tribunal, composed of Cambodian and United Nations-nominated judges, finally began its work in 2006 after decades of political and technical setbacks. The court handed down its first conviction four years later to Kang Kek lew, known as Comrade Duch, who was head of the internal security branch, the Santebal, and director of the notorious Tuol Sleng prison, S-21, in Phnom Penh.

 

Nuon Chea, Khieu Samphan, and Kang Kek lew are the only three Khmer Rouge leaders ever to have been prosecuted. Pol Pot died of a heart attack while under house arrest in 1998, while two others indicted by the court have since died. Cambodia's Prime Minister Hun Sen is a former Khmer Rouge commander turned defector who has been in power since 1985. He had vowed to halt any further prosecutions, saying they will cause political instability.

 

Bipartisan win for Americans and President Trump as U.S. Senate passes a landmark Prison Reform Bill

 

This week, the United States (U.S.) Senate approved the most sweeping prison reform bill in decades, voting to cut sentences of tens of thousands of inmates while also boosting access to programs designed to keep them from ending up back behind bars again. The measure cleared with an 87 – 12 vote and marks a major bipartisan victory for President Trump, who had pressured Republican leaders to pass it this year, before lawmakers closed down Congress. The bill still needs approval in the House, where a vote is expected before the end of this week.

 

Called the First Step Act, the legislation will expand prison programs designed to reduce recidivism and allow some prisoners to earn credits toward early release by taking part in those programs. The bill also reduces some maximum mandatory sentences, such as ending the three-strikes life-in-prison penalty and replacing it with a 25-year maximum. Backers said the credits would earn inmates a faster opportunity to enter a halfway house or be put on home detention.

 

Senator Rand Paul, Kentucky Republican who had made a crusade out of reforming sentencing, said “This prison and sentencing reform bill is a much-needed first step toward shifting our focus to rehabilitation and re-entry of offenders, rather than taking every person who ever made a mistake with drugs, locking them up, and throwing away the key.

 

The core of the deal was written by Senator Chuck Grassley, the Republican chairman of the Judiciary Committee, and Senator Richard Durbin, a senior Democrat. The bill applies only to federal prisons, which hold far fewer people than state prisons. It includes new rules on keeping inmates in facilities close to their homes where possible and pushes for them to be put in home confinement for the maximum time allowed.

An early version of the bill would have released an average of 53,000 federal inmates a year over the next decade, according to the Congressional Budget Office, which is more than a quarter of the current inmate population.


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