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EUROPE
Tuesday February 19 2013
Buffett’s bean counting
Sage squeezes every drop out of Heinz, Page 9
We surrender: Europe’s
retreat on defence
Gideon Rachman, Page 9
World Business Newspaper
UK premier
warns RBS
to speed up
reforms
Fresh struggle
Challenge to ANC power
Bumi sale
stacks odds
against
Rothschild
News Briefing
By Ben Bland in Jakarta
US Fed fears backlash
over payouts to banks
US Federal Reserve officials
fear a backlash from paying
billions of dollars to
commercial banks when it
eventually raises interest
rates.
Page 4; The Long Climb
Back, Page 7; Inside Business,
Page 14
Ireland faces fight
Ireland faces potential
lawsuits and a possible
constitutional challenge over
its decision to liquidate a
failed bank as part of a deal
to restructure €28bn in bank
debts.
Page 13
Google risks fines
Google risks being
sanctioned by European
regulators before summer
unless it radically changes
its privacy policies.
Page 13
Financial heritage
Franco-Swiss private banking
group Edmond de Rothschild
is setting up a merchant
banking business in London
to capitalise on its heritage
of advising and financing
entrepreneurs.
Page 13
Novartis pay­off anger
The revelation that Swiss
group Novartis will pay its
outgoing chairman up to
$78m has angered
shareholders and the public
on the eve of a referendum
to impose new curbs on
executive pay.
Page 2;
Editorial Comment, Page 8;
Lex, Page 12
Pledges to give
A dozen billionaires from
Europe, Australasia and
Africa have joined the
world’s most elite club by
publicly committing to give
away at least half of their
fortunes philanthropically.
Page 3
SEC disclosure test
A proposal to force public
companies for the first time
to disclose all their political
donations and lobbying is
emerging as an early litmus
test for Mary Jo White, the
nominee to head the US
Securities and Exchange
Commission.
Page 4
Iran death sentences
Iran’s supreme court has
upheld death sentences for
three businessmen and a
banker in a corruption case
linked to president Mahmoud
Ahmadi-Nejad.
Page 5;
www.ft.com/theworld
Chávez in Caracas
Hugo Chávez, Venezuela’s
58-year-old president,
announced yesterday via
Twitter that he was back in
Caracas after spending two
months in Cuba recovering
from cancer surgery.
Page 4
China gulags call
Among the many calls facing
Xi Jinping, new chief of
China’s Communist party,
for political reform, none is
louder than the demand for
changes to the gulag-style
“re-education through
labour” system.
Page 3
The board of the Indonesian
coal miner battling Nat Roth-
schild for control of the com-
pany has strengthened its posi-
tion ahead of a crucial share-
holder vote, stacking the odds
against the UK financier at a
showdown on Thursday.
While Bumi’s main Indone-
sian shareholders – the Bakrie
family and businessmen Samin
Tan and Rosan Roeslani – had
jointly owned 58 per cent of the
shares, their voting power at
Thursday’s extraordinary gen-
eral meeting was to be capped
at 29.9 per cent after the UK
Takeover Panel ruled the three
parties were acting in concert.
Mr Roeslani, however, yester-
day sold his 10 per cent stake in
Bumi to three new investors
who will be able to vote their
stakes, raising the board’s likely
support from 30 per cent to
more than 40 per cent ahead of
the vote. Two of the three new
Bumi investors, Avenue Capital
and the Tanoesoedibjo family,
have previous relationships
with the Bakrie family.
Avenue Capital, a New York-
based fund manager that
focuses on distressed compa-
nies, was a main shareholder in
the Bakrie’s property group and
had a seat on its board until
2011, according to the com-
pany’s annual report. The
Tanoesoedibjo family’s MNC
group, meanwhile, agreed at the
end of last year to buy some of
the property group’s toll roads.
As speculation swirled about
Mr Roeslani’s 11th-hour share
sale over the weekend, a spokes-
man for Mr Rothschild said on
Sunday that “this seems an
effort by the concert party to
thwart the clear wishes of the
majority of independent minor-
ity shareholders”.
A Bakrie spokesman said the
family had no prior knowledge
of the sale by Mr Roeslani. Mr
Roeslani, MNC group and Mr
Rothschild could not be reached
for comment yesterday. Avenue
Capital declined to comment.
New talk of mass offering of rescued bank
By George Parker in Mumbai
and Jennifer Thompson
in London
trasts with the US experience of
its bailout and subsequent sale
of AIG, the insurer, for a profit
of $23bn.
RBS declined to comment but,
privately, senior executives
pointed out that significant
progress had been made in the
restructuring launched by Mr
Hester in 2009, which involves
the rundown of non-core assets
and paring back of its invest-
ment banking arm. “We are con-
fident we will achieve what we
set out to achieve,” one said
after Mr Cameron’s remarks.
The bank must now complete
its restructuring and find a way
to dispose of more than 300
bank branches, demanded under
European state aid rules. Like
other UK lenders, it must also
deal with the cost of compensat-
ing customers mis-sold payment
protection insurance and inter-
est rate hedging products.
One route to reprivatising
RBS, which is 82 per cent owned
by the taxpayer, would be giv-
ing the public “free” shares in a
privatisation. While the Treas-
ury rejected the prospect of
such a move when first raised
by the Liberal Democrats in
2011, chancellor of the excheq-
uer George Osborne’s team did
not dismiss it out of hand this
month when the idea was
revived by Vince Cable, busi-
ness secretary.
However, the suggestion that
shares could be offered to voters
as a pre-election giveaway
would incur the displeasure of
the National Audit Office, to
whom ministers must justify
the disposal strategy.
David Cameron has increased
the pressure on Royal Bank of
Scotland’s chief executive to
“accelerate” reforms at the
state-controlled bank amid fresh
speculation about a mass offer-
ing of its shares to the public.
The UK prime minister, speak-
ing on a three-day visit to India,
said the idea of a “Tell Sid” pri-
vatisation of RBS – echoing the
Thatcherite privatisations of the
1980s – was one of a number of
“interesting questions for the
future”.
But he made clear he was
becoming frustrated with the
pace at which the bank, led by
chief executive Stephen Hester,
was being restructured and its
value rebuilt.
“The first job is to turn round
the performance of RBS and to
strengthen its balance sheet,
strengthen its business and that
is what Stephen Hester is
doing,” Mr Cameron said. “But I
am keen to examine all possibil-
ities for what we can do to put
RBS, in time, back into the pri-
vate sector.
“Obviously we want them to,
where possible, accelerate the
adjustments that they are mak-
ing in terms of making it a
strong organisation.”
The UK’s £45bn rescue of RBS
was one of the largest bank bail-
outs of the financial crisis. The
state bought shares at between
410p and 500p, depending on cal-
culation methods, with RBS
closing yesterday at 339.3p.
The relatively slow return to
the government’s “in price” con-
Mamphela Ramphele, a former World Bank managing director and widow of Steve Biko, the
anti­apartheid activist killed while in police custody, has launched a new political movement to
challenge the might of the governing ANC at next year’s elections
Report, Page 5
Reuters
Editorial Comment, Page 8
Battle for Bumi, Page 15
Employers ready to pay fines in
battle over Obama healthcare law
Italian hope
By Barney Jopson in New York
and Alan Rappeport
in Washington
Brands, said his doughnut chain
was lobbying to change the defi-
nition of “full-time” employees
eligible for coverage from those
working at least 30 hours a
week to 40 hours a week. Some
restaurants have explored slash-
ing hours so fewer employees
qualify for the health insurance.
Mr Dillon said Kroger
intended to continue covering
all full-time employees but
maintained that parts of the law
were “simply not workable”.
“If you look through the eco-
nomics of the penalty the com-
panies pay versus the cost to
provide coverage, the penalty’s
too low, or the cost of coverage
is too high, or the combination
is wrong,” he said.
“If [policy makers] get those
things too far out of balance,
everybody will have to recon-
sider their position on that
point, including us.”
The penalty for not providing
coverage is $2,000 per worker.
According to the Kaiser Family
Foundation, a non-partisan pol-
icy group, the average annual
cost to employers of insurance
is $4,664 for a single worker and
$11,429 for a family.
Companies with more than 50
workers have to pay a penalty if
they do not provide full-time
workers with health insurance.
Employees can buy coverage
subsidised by the government
on new insurance exchanges.
Darden, a US restaurant
chain, last year said it was con-
sidering slashing its workers’
weekly hours to below the 30-
hour threshold but retreated
from the plan after a backlash.
The Obama administration
maintains that the law, known
as the Affordable Care Act, will
improve access to insurance
while reducing healthcare costs.
US companies that employ mil-
lions of workers are considering
cutting their hours or paying
fines rather than enrolling staff
in health insurance plans under
Barack
Obama’s
landmark
healthcare law.
Employers are concerned that
the law increases the cost of
insuring low-wage employees on
existing plans, partly by broad-
ening their benefits, as well as
requiring companies to insure
workers not previously covered.
David Dillon, chief executive
of the Kroger supermarket
chain, told the Financial Times
that some companies might opt
to pay a government-mandated
penalty for not providing insur-
ance because it was cheaper
than the cost of coverage.
Nigel Travis, head of Dunkin’
Avellino’s motor industry is in
crisis. All but one of the 57
companies around the
southern Italian town have fired
workers or applied for state
subsidies. Irisbus, owned by
Fiat, closed its plant in
neighbouring Flumeri in 2011,
laying off 700 workers. So
when Pier Luigi Bersani, leader
of the leftwing Democrats,
came to Avellino last week,
workers greeted him with hope.
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Report, Page 2
Employers worried, Page 4
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TUESDAY FEBRUARY 19 2013
WORLD NEWS
Uncertainty looms for Italians
Hollande faces
up to painful
business of
reducing deficit
Four­way battle in
election countdown
Monti distances his
group from Bersani
whether the two would be
able to agree on a workable
coalition government after
the vote next Sunday and
Monday, as most commen-
tators have predicted.
“With this coalition of the
left I do not have and will
not have anything in
common,” Mr Monti said on
television.
Supporters of his cen-
trists saw an element of
brinkmanship in his
remarks as the former eco-
nomics professor tries to
distance himself from the
centre-left in order to prise
centre-right voters away
from former prime minister
Silvio Berlusconi. But they
also cautioned that policy
differences between Mr
Monti and Mr Bersani’s
Democratic party, particu-
larly on labour market
reform, meant that agree-
ment on a coalition should
not be seen as a foregone
conclusion.
Mediobanca, an Italian
investment bank, warned
yesterday that, in the midst
of its longest postwar reces-
sion, Italy’s next govern-
ment could be shortlived.
“We think that, realisti-
cally, the chance for Italy to
secure a solid and cohesive
government able to remain
in place for the next five
years is extremely low,” it
said.
The last opinion polls
published on February 8
before a pre-election black-
out showed Mr Berlusconi’s
centre-right narrowing the
gap on the centre-left, with
Mr Monti and Beppe Grillo,
leader of the anti-establish-
ment Five Star Movement,
battling for third place.
Under Italy’s complex
electoral system, the centre-
left was seen on course to
take 55 per cent of the
lower house, where a major-
ity premium is guaranteed
for the winner. But the
centre-left would fall short
of an outright majority in
the senate, where the win-
ning bonus is allotted on a
regional basis.
Up-to-date polls commis-
sioned by the parties are
being leaked to the media,
however. Published on the
internet and barely dis-
guised as “clandestine”
horse races and bogus con-
claves of clerics, the polls
indicate that the centre-left
is still several points ahead
of Mr Berlusconi. Mr
Grillo’s protest movement
is gaining from a wave of
corporate-political scandals
while Mr Monti’s centrists
are making little headway.
Discord is also apparent
within the centrist alliance.
Mr Monti, who is increas-
ingly emulating Mr Grillo
as the “anti-politician”, has
no plans to make a single
public appearance with his
two allies, Pier Ferdinando
Casini and Gianfranco Fini,
both veteran politicians
with little public appeal.
Draghi cautious
Mario Draghi, European
Central Bank president,
has tempered expectations
of a eurozone recovery
later this year following
worse­than­expected data
last week that showed the
bloc still in recession,
writes Michael Steen in
Frankfurt
.
Addressing members of
the European Parliament
in Brussels, Mr Draghi
said: “Economic weakness
in the early part of 2013 is
expected to be followed by
a very gradual recovery
later in the year.”
By Guy Dinmore in Rome
Italy’s election campaign
has entered its final week
with an aggressive four-way
battle that analysts warn
could result in a weak, frag-
mented government and a
prolonged period of uncer-
tainty.
Mario Monti, the techno-
crat prime minister who
heads a centrist ticket,
forcefully distanced himself
yesterday from Pier Luigi
Bersani’s centre-left alli-
ance, raising doubts over
painful business of
allocating reductions in
public spending to
achieve the €60bn in cuts
it has earmarked over the
next five years.
Last week, the national
auditor said in its annual
report that, with public
spending accounting for
no less than 56 per cent
of GDP, the second
highest ratio in Europe,
there was ample room for
cuts that would not hit
growth. France has not
undergone anything like
the painful medicine
dished out in Spain and
Italy, never mind Greece.
But the government is
reluctant to have to come
up with further savings.
It is already running into
resistance from some
ministers: one finance
ministry official joked of
having to wear a tin
helmet to departmental
budget negotiations.
Above all, it fears more
cuts would hit domestic
consumption, the main
driver of growth.
“We must not add
austerity to the risk of
recession,” Pierre
Moscovici, the finance
minister, said yesterday.
He said the most
important commitment
was to reduce the
structural deficit by two
GLOBAL INSIGHT
Hugh Carnegy
in Paris
Graphic: track Italy’s
economy by region,
www.ft.com/italydata
www.ft.com/europe
François Hollande will
make his first visit as
French president to
Greece today carrying the
same anti-austerity
message to Athens that
won him election to the
Élysée Palace last May.
As he put it in a pre-
visit interview with the
Athens newspaper Ta
Nea, it was essential for
Europe to support growth
in Greece, reeling from
years of financial crisis
and recession. “I reject a
Europe that condemns
countries to austerity
without end,” he declared.
But managing the
balance between growth
and austerity just got a
bit more complicated for
Mr Hollande back home
in France – and with his
European partners
(notably Germany) – since
his socialist government
admitted it was set to
miss its key goal for the
public finances this year
because of slumping
growth in the eurozone.
Since taking office, the
government has sought to
underpin its credibility
with the EU and financial
markets by insisting it
would stick to the target,
agreed with Brussels by
the previous centre-right
government, of cutting
France’s nominal budget
deficit to 3 per cent of
gross domestic product
this year. That is the
level at which public
debt, rising above 90 per
cent of GDP, should
stabilise.
The problem for Mr
Hollande is that Brussels
and Berlin may now
insist that France wields
an additional budgetary
axe to ensure the deficit
target is met after all – in
other words they may
insist on more austerity.
The European
Commission is set to
publish its growth and
deficit forecasts for all
member states on Friday.
Weeks of negotiations will
then follow over what
steps, if any, need to be
taken to meet budgetary
commitments.
Jörg Asmussen, German
member of the European
Central Bank’s executive
board, left no doubt about
what he thought last
week. “[I] believe
personally that it is
particularly important
that France reduces its
deficit below 3 per cent
this year,” he said.
But Mr Hollande’s
government, which spent
most of its early deficit-
cutting energies on big
tax increases, is only now
getting down to the
Unions pose dilemma
for Italy’s centre­left
a centre-left national coali-
tion government could be
held hostage by the unions
and in particular by the
CGIL, the most radical
among Italy’s large worker
confederations.
The line between the
Democrats and the CGIL is
often blurred – in Campa-
nia, the region around Avel-
lino, one of the main candi-
dates for Mr Bersani’s party
is Guglielmo Epifani, who
led the CGIL nationally in
2002-10.
“The proximity between
the CGIL and the Demo-
crats today is greater than
what you see in most other
European countries,” says
Marco Simoni, a political
scientist who is also a can-
didate for Civic Choice, the
centrist group backing
Mario Monti, Italy’s techno-
cratic prime minister.
Such ties could prove a
stumbling block if the Dem-
ocrats seek an alliance with
Mr Monti after this week-
end’s vote. Mr Simoni says:
“There is great uncertainty
over which policies the
Democrats want to pursue
but it is unthinkable that
we would form an alliance
with a party taking the
CGIL’s line.”
The economic policies of
the 5.5m-strong union feder-
ation are summarised in its
“Plan for Labour” – the
CGIL wants spending
increased by €50bn in the
next three years to hire
thousands of public serv-
ants and grant tax breaks
to companies that employ
young workers and women.
The plan can be financed
through a wealth tax and
steep cuts to company sub-
sidies, the union suggests.
At a rally in Naples on
Friday, Susanna Camusso,
CGIL’s secretary, hailed the
plan for its realism. “We
chose to ensure our figures
add up,” she told a crowd.
Yet some economists are
sceptical. “Half of the
CGIL’s plan is too vague to
be judged properly, while
the remaining half is unre-
alistic,” says Tommaso
Nannicini, a political econo-
mist at Bocconi University
in Milan. The programme
fails to address the question
of how to improve the qual-
ity of public spending, he
adds.
But the plan still needs to
be looked at carefully, he
says, “since the Democrats
cannot afford a rupture
with the CGIL”. He adds:
“The union’s demands are
so vague that the Demo-
crats may be able to ignore
them if in government.”
A centre-left government
would find it hard to recon-
cile the unions’ desire for
more spending with Mr Ber-
sani’s commitment to work
within EU fiscal rules. Italy
has signed up to the fiscal
compact, which forces euro-
zone members to keep a bal-
anced budget, adjusted for
the economic cycle.
Just as important for a
progressive government
would be to square the
unions’ wishlist with the
hopes of industrialists, to
whom Mr Bersani has
vowed he will listen. Con-
findustria, Italy’s largest
employers’ association, has
priorities very different
from the CGIL’s, including
a steep cut in social charges
on labour.
The Democrats’ balancing
act will also have to meet
the hopes of the party’s
rank and file, and in Avel-
lino expectations are run-
ning high. “Italy needs a
new industrial policy,” says
Generoso Bruno, a Demo-
crat activist. “Either we let
industry here in the south
be a resource for the coun-
try, or this could be the
beginning of the end.”
Elections
They may be
backing Democrats,
writes
Ferdinando
Giugliano
, but
could obstruct any
tie­up with Monti
Under pressure from slow-
ing demand and competi-
tion from abroad, Avellino’s
once-thriving motor indus-
try is in crisis.
All but one of the 57 com-
panies around this medium-
sized town in southern
Italy, some 50km east of
Naples, have had to fire
workers or apply to the
state for subsidies to keep
them on.
Irisbus, a Fiat-owned bus-
maker, closed its plant in
neighbouring Flumeri in
2011, putting 700 workers on
unemployment benefits that
will expire this year.
So, when Pier Luigi Ber-
sani, leader of the leftwing
Democrats, came to Avel-
lino last week, workers
greeted him with hope.
“The Democrats were the
one party that stood by us,”
says Dario Meninno, who
led a four-month strike at
Irisbus.
“We are anxious for a
Bersani win,” adds Sergio
Scarpa, the local leader of
Fiom, a hawkish trade
union representing metal
workers.
Mr Bersani will be
relieved to know he can
rely on the support of
organised labour as he tries
to secure an outright major-
ity in Sunday’s general elec-
tion. Avellino has been a
fiefdom of the Christian
Democrats for decades but
there are signs the political
wind may be changing.
“The industrial crisis is
tilting the town to the left,”
says Valentina Paris, a local
candidate who stood in
Democrat primaries in
December. “People here
knew I came from the
leftwing of the party, yet I
received twice as many
votes as I had hoped for,”
she adds.
Critics fear, however, that
France has not
undergone the
painful medicine
dished out in
Spain and Italy
percentage points this
year to 1.6 per cent of
GDP – that is, excluding
the one-off effects of
reduced growth. “[Our]
credibility relies on
the structural deficit
before anything else,”
he said.
Mr Moscovici suggested
that adjustments might
have to be made for
many, if not all, members
of the eurozone. “We have
collective problems with
growth,” he said.
Paris is likely to look to
other capitals for a like-
minded approach. Faced
with a preponderance of
centre-right governments,
it may spy a potential
ally in Pier Luigi Bersani,
leader of Italy’s centre-left
Democratic party, if he
wins this week’s
elections.
Mr Bersani has, like Mr
Hollande before him,
called for more moves by
the EU to boost growth
and social cohesion. But
he has also said fiscal
discipline is “non-
negotiable”, signalling a
willingness to accept
German proposals for yet
tougher centralised
eurozone budget controls.
At the least, some tense
negotiations between
Paris and Brussels look
set to ensue over the
coming weeks.
Pier Luigi Bersani: workers welcomed the leader of the leftwing Democrats last week
AP
Force to be reckoned with
Post­poll options kept open
Trade union membership,
2010 (% of total workforce)*
When Susanna Camusso
was elected secretary
general of the CGIL in 2010,
no woman had yet led the
largest and most leftwing of
Italy’s trade unions.
Ms Camusso immediately
took on the centre­right
government led by Silvio
Berlusconi.
When the tycoon was
replaced by Mario Monti,
relations between the CGIL
leader and the technocratic
prime minister were less
adversarial, but they
deteriorated after Mr Monti
tried to inject flexibility into
Italy’s labour market last
year.
At this weekend’s general
elections, the CGIL is
backing the alliance around
Democratic party leader
Pier Luigi Bersani. However,
its secretary­general is
open­minded about other
options.
“A priori, I cannot be
against a coalition
government between
Bersani and Monti. But I
would not be willing to
accept an alliance which
pushed for more cuts and
easier dismissals,” she
says.
The 57­year­old Milanese
thinks Italy should remain
committed to Europe.
She acknowledges the
country is constrained by
the commitments it has
taken with the rest of
Europe, “but these deals
can be changed”, she adds.
Finland
Sweden
Norway
Italy
Ireland
Canada
Austria
UK
New Zealand
OECD average
0 0 0 0
In full, www.ft.com/italy
*
Top OECD countries
Source: OECD
Novartis chairman’s $78m fuels Swiss anger at top pay
Referendum set to
impose strict curbs
hold a referendum on
executive pay controls that
are bitterly opposed by the
country’s business estab-
lishment. The bumper pay-
out to Mr Vasella is threat-
ening to inflame the debate.
On the table are 24
changes to Switzerland’s
corporate laws that include
giving shareholders a bind-
ing vote on total board and
management pay; banning
golden hellos and golden
parachutes for management
and board members;
restricting the terms of
board members to one year;
and making pension funds
reveal how they vote at
annual general meetings.
Taken together, the pro-
posals, which would apply
to all listed companies,
would sharply tilt the bal-
ance of power from Swiss
boards to shareholders. For
good measure, they include
criminal penalties for non-
compliance.
The proposals are the
brainchildren of Thomas
Minder, a Swiss politician
and entrepreneur who lost
money on contracts with
Swissair when the debt-
plagued airline was forced
to ground its fleet in 2001 –
a year in which the com-
pany’s failed chief executive
was paid millions.
Arrayed against his small
team are a host of Switzer-
land’s political parties, busi-
ness lobby Economiesuisse,
and many of the country’s
top companies, ranging
from banking giant Credit
Suisse to the engineering
conglomerate ABB and
Nestlé, the world’s largest
food company.
In the face of such clout,
Mr Minder’s proposal ought
to have little chance. While
his six-strong organising
committee has about
SFr400,000 ($433,000) at its
disposal, Economiesuisse
alone has up to SFr8m to
spend
tioned backed the propos-
als.
The initiative appears to
have touched a nerve
among a public wearied by
a string of misadventures –
from the collapse of Swis-
sair to UBS’s multibillion
writedowns during the
financial crisis – that have
bruised shareholders but
done little to curb executive
pay. According to Bloomb-
erg, five of Europe’s 20 best-
paid chief executives work
for Swiss companies.
“Achievement should be
rewarded, but failure
should not,” says Brigitta
Moser-Harder, an activist
shareholder and co-founder
of the initiative. “Managers
have to prove themselves. If
they do well, of course, they
deserve a bonus. But after-
wards. Not before.”
Opponents of the Minder
campaign concede that the
mismatch between execu-
tive pay and performance
has become a problem – but
they argue that the impact
of Mr Minder’s proposals
ranges far beyond the prob-
lem they are ostensibly ad-
dressing, and would damage
Switzerland’s
as a place to do business.
The first “poison pill”,
says Meinrad Vetter, head
of competition and regula-
tion at Economiesuisse, is
the possibility of criminal
charges. This, he argues,
goes far beyond what is
necessary and conflicts
with the Swiss tradition of
resolving such issues
through civil, rather than
criminal, law.
The second is the binding
vote on pay. “No one else is
doing this. We would be
putting ourselves out on a
limb,” he says, adding that
the move would also create
legal uncertainty. “You
can’t hire someone with the
caveat that you may have
to change their salary.”
The proposals also risk
undermining the role of the
board, adds Paul Bulcke,
chief executive of Nestlé.
“The board is responsible
for overseeing the manage-
ment of a company, but the
Minder proposal is taking
away its powers,” he says.
“It is basically saying: ‘We
don’t trust you’.”
By James Shotter in Zurich
The revelation at the week-
end that Swiss pharmaceu-
ticals giant Novartis would
pay its outgoing chairman
$78m to keep his mouth
shut has angered sharehold-
ers and the public on the
eve of a referendum to
impose stringent curbs on
executive pay.
“We don’t approve of this
sort of payment in general,
and this one to [Daniel]
Vasella is an absolute out-
rage,” said Roby Tschopp,
head of shareholder group
Actares.
“Even if you did accept
the rationale for such pay-
ments, this one is com-
pletely over the top.”
The payment is in
exchange for continuing
advice and a pledge not to
offer information to compet-
itors, and Mr Vasella
stresses he will give the
money away philanthropi-
cally.
But in less that two
weeks Switzerland is to
on
its
counter-
campaign.
Yet, despite this mis-
match, recent opinion polls
suggested that the
initiative has a good chance
of being accepted.
In the latest survey, 57
per cent of people ques-
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Editorial Comment, Page 8
Lex, Page 12
Daniel Vasella says he will give the money away
reputation
Bloomberg
    FINANCIAL TIMES
TUESDAY FEBRUARY 19 2013
★
3
WORLD NEWS
Beijing’s
gulags pose
test for the
rule of law
Billionaires pledge to
give their money away
By Andrew Jack in London
uals to give money away to
worthwhile causes.
Mr Gates, one of the
world’s richest men whose
foundation has disbursed
$25bn in the past decade,
told the Financial Times: “A
lot were going to do it any-
way but the pledge creates
more of a movement, makes
people do it earlier, collabo-
rate and do it smarter.”
Past efforts by him and
others to expand the pledge
outside the US in countries
including China have met
resistance from donors, who
because of cultural prac-
tices prefer to remain anon-
ymous or, for reasons of
politics or personal safety,
do not talk about their
wealth and philanthropy.
But the latest additions
include Patrice Motsepe,
the South African mining
magnate estimated by
Forbes to be worth $2.7bn,
Vincent Tan Chee Yioun of
Malaysia, who owns the
Friendster social network
and is worth $1.2bn, and Mo
Ibrahim, founder of the
African Celtel mobile
network, worth $1.1bn. Other
new members are Andrew
and Nicola Forrest from Aus-
tralia; Victor Pinchuk from
Ukraine; and John Caudwell,
Chris and Jamie Cooper-
Hohn and David Sainsbury
from the UK.
Collectively, the new bil-
lionaires are worth $61bn
according to Forbes’ latest
estimates. That adds to
wealth represented by the
US members of $433bn,
according to Glasspockets,
a monitoring service run by
the Foundation Centre in
the US. It calculates health,
education and human serv-
ices dominate their giving.
Sir Richard Branson,
founder of the Virgin Group
and another new member of
the pledge, told the FT:
“This makes individuals sit
up and think. Hopefully,
the vast majority will real-
ise there are better ways of
using wealth than leaving it
to future generations.”
He stressed his focus was
on supporting “social enter-
prises” for environmental
causes.
A dozen billionaires from
Europe, Australasia and
Africa have joined the
world’s most elite club by
publicly committing to give
away at least half of their
fortunes philanthropically.
Azim Premji of India and
Hasso Plattner of Germany,
who are software magnates,
and Vladimir Potanin, the
Russian mining oligarch,
are among 12 business peo-
ple and their spouses who
have joined 92 Americans in
the Giving Pledge, which
includes people collectively
worth $500bn.
The commitments come
at a time of international
debate over tax avoidance
by companies and individu-
als and the moral responsi-
bility of the wealthy to give
back to society.
The Giving Pledge, estab-
lished three years ago by
Bill Gates, co-founder of
Microsoft, and Warren Buf-
fett, the investor, was
designed to promote a
debate over philanthropy
and encourage rich individ-
who was released late last
year after two years in
Masanjia, says no inmates
have arrived at the camp
in northeast China since
September 26. Another
activist who keeps in
contact with a network of
female inmates says she
has observed the same
pattern across the country.
From defence lawyers to
judges, the Chinese legal
establishment argues that
laojiao
is unconstitutional.
Former inmates describe
the camps as hellish places
of excessive forced labour,
torture and humiliation.
“Anyone who would
speak would be punished
by having to work while
squatting,” says one former
inmate of Tuanhe Farm, a
camp just south of Beijing.
Inmates also recount
frequent beatings with
electric batons, pricking
with needles from the
sewing machines used to
make paramilitary
uniforms, and solitary
confinement in dark cells.
Since last May, Mr Pu
has helped secure the
release of 21 inmates from
camps in Chongqing. A
typical case was that of
Tian Hongyuan. In 2010,
Mr Tian suggested to
property owners in an
online forum that they
bring a dispute with the
developer of their
compound to the attention
of Xi Jinping, then vice-
president. The police
responded by sending Mr
Tian to a labour camp. His
case was widely followed
on the Chinese internet.
“The system has become
local officials’ tool for
personal revenge,” says
Wang Gongyi.
The Communist party
created
laojiao
in 1955 to
control “counter-
revolutionaries” – people
whom it perceived as a
threat but who could not
be accused of any crime.
The scope of the system
was soon broadened to
include anyone who fell
out of favour.
After China initiated its
market reforms in 1978, the
camps’ focus changed to
small offenders, including
drug addicts and
prostitutes. But as a
growing income gap,
corruption and abuse of
power swelled the ranks of
the disaffected, the camps
have been filling with
people the party sees as a
threat to its power.
Former inmates
interviewed by the
Financial Times say
petitioners – people who
complain to higher
administrative levels about
grievances the local
government fails to address
– formed the biggest group
imprisoned. Between a
quarter and half of the
inmates were followers of
Falun Gong, the outlawed
sect, they added.
These numbers raise
doubts about how far
Beijing’s reform can go.
“The question is what to
do with these people?” says
Mr Wang. “When the
troublemakers start
flooding the streets, police
will be under pressure
again to maintain stability.
They will think of new
ways.”
For now, experts say the
camps are being
transformed into drug
rehabilitation centres. The
Standing Committee of the
National People’s Congress,
China’s rubber-stamp
parliament, is this year
expected to issue an
opinion abolishing the
regulation governing the
camp – which is when the
real work starts.
“After that, we will need
a large-scale overhaul of
our criminal code,” says
Mr Wang.
Whether that can really
help usher in the rule of
law in China remains to be
seen. “There is no other
option,” says Mr Pu.
“We still have the
same problems we
had 10 years ago,”
he adds. “Hu
Jintao’s
‘harmonious
society’ is in a
dead end.”
Additional
reporting
by Zhao
Tianqi
Labour camps
China has vowed
to overhaul the
system, but critics
want wholesale
legal reform, writes
Kathrin Hille
Pu Zhiqiang has been in
hospital for three days to
stabilise his blood sugar,
but the prominent Chinese
human rights lawyer is
not slowing down. From
his hospital bed, he is
fighting for the abolition of
laojiao
– a gulag-style
“re-education through
labour” system.
“The name of re-
education through labour
stinks and it signals that
China is a police state,”
says Mr Pu. “What we
need is to rebuild the rule
of law.”
Among the many calls
facing Xi Jinping, new
chief of the Communist
party, for political reform,
none is louder than the
demand for changes to the
laojiao
system.
Recent signs suggest that
Mr Pu and other critics of
the decades-old system
may emerge victorious.
Last month, the
Communist party said it
would “push reform” of the
labour camp system this
year. Evidence is also
mounting that authorities
have reduced the use of
the camps in recent
months.
“There is consensus at
the top to abolish the
system,” says Wang
Gongyi, a recently retired
senior justice department
official. “The pressure has
grown too big and the
police are the only ones
that want to keep the
camps.”
Demands to reform the
A policeman instructs drug rehab patients: camps are being converted to treat addicts
Getty
Buffett and Heinz, Page 9
VIDEO
Kathrin Hille meets former
labour camp detainees and
asks whether China’s leaders
can rein in its ever­more
powerful security apparatus
and maintain the rule of law
www.ft.com/
chinalabourcamps
judicial system have grown
in recent years,
particularly since Hu
Jintao, Mr Xi’s
predecessor, granted
greater powers to the
domestic security
apparatus in an attempt to
contain unrest.
This was highlighted in
2009 with the draconian 11-
year jail sentence handed
to Liu Xiaobo, the
dissident who the following
year won the Nobel Peace
Prize, and by the detention
without charge for almost
three month of Ai Weiwei,
China’s most prominent
contemporary artist.
But
laojiao
– which
allows people to be
detained for up to four
years without trial – is the
most potent symbol of the
hollowing-out of China’s
legal institutions. It was
designed to silence political
opponents in the 1950s but
has become a dumping
ground for those who have
fallen foul of the security
services.
Government figures from
2009 put the number of
labour camp inmates at
160,000. But Mr Wang says
police stopped sending
prisoners a couple of
months ago except for a
minority accused of certain
violent offences.
“The total number of
inmates was down to about
50,000 at the end of last
year, and if the current
trend continues, there will
be just 20,000 left by the
end of this year,” adds Mr
Wang.
These figures tally with
observations of others.
Liu Hua, a woman
Pu Zhiqiang:
‘Re­education
through
labour stinks
and signals
China is a
police state’
AFP
   4
★
FINANCIAL TIMES
TUESDAY FEBRUARY 19 2013
WORLD NEWS
Fed officials fear interest backlash
Chávez
makes
surprise
return to
Caracas
Banks could be
paid up to $75bn
QE exit strategy
reconsidered
the Treasury. Officials at
the US central bank fear it
could create a public-rela-
tions nightmare, after the
Fed was lambasted for res-
cuing banks during the
financial crisis, prompting
officials to reconsider the
“exit strategy” from easing
monetary policy.
James Bullard, president
of the St Louis Fed, told the
Financial Times: “If you
think of the profitability of
the biggest banks, if you’re
going to talk about paying
them something of the
order of $50bn – well that’s
more than the entire profits
of the largest banks.”
Mr Bullard said neither
interest paid to banks nor
possible losses on exit made
a difference to the substance
of monetary policy. “I think
it’s more just a question of
the optics, and how you’re
going to play the optics,” he
added, referring to the per-
ception of losses by the cen-
tral bank. “And since it
shouldn’t matter in a mone-
tary policy sense you might
as well play the optics in a
better way than the one
we’ve got planned.”
All banks hold reserves at
the Fed. The central bank
has boosted its balance
sheet to more than $3tn as
it buys assets to drive down
long-term interest rates
through its programme of
quantitative easing.
It pays for the assets by
creating bank reserves,
which now amount to more
than $1.6tn. The Fed could
add another $1tn if it buys
assets for another year.
At the moment it pays
only 0.25 per cent interest
on those reserves. But
according to its exit strat-
egy, published in June 2011,
the Fed plans to raise inter-
est rates before it sells
assets. Interest of 2 per cent
on $2.5tn of reserves would
run to $50bn a year.
That interest should not
turn into profits for the
banks. They will have to
pass the revenues on by
paying more interest to
their depositors. But it
could still add to a populist
backlash against the Fed
and the big banks. One pos-
sible answer to the Fed’s
larger balance sheet is to
sell assets earlier in the exit
process. Mr Bullard said
that the Fed could create
accounting reserves now for
any losses it expects.
The Fed remits all of its
earnings to the Treasury
and has paid across $291bn
in the past four years. But
some of those gains will be
reversed when it sells
assets bought at today’s low
interest rates at a time
when rates are higher.
One banker argued that
was the real danger. “It’s a
little bit worrying for the
politicians to get addicted
to that level of income. The
windfall profit has been a
stunning number – that will
go away over time.” Bank-
ers also noted that the exit
strategy was uncertain and
the Fed could increase
interest rates on excess
reserves more slowly than
benchmark rates. They
added that more reserves
should be shifted out of the
Fed and lent out as the
economy improves.
Still, the eventual tighten-
ing could lead to substantial
amounts being transferred
to commercial banks from
the Fed, given the amounts
of cash they have there.
Wells Fargo has $97.1bn at
the Fed, the largest amount
of any bank, ahead of
JPMorgan Chase at $88.6bn
and Goldman Sachs at
$58.7bn, according to an FT
analysis of SNL data. For-
eign banks also have a strik-
ing amount of cash at the
Fed, potentially aggravating
the Fed’s PR problem.
Analysts at Stone & McCa-
rthy noted recently that
there had been a steep
increase in foreign banks
placing reserves at the Fed
and suggested that “US
banks may have distaste for
the opportunistic arbitrage”,
between lower market rates
and the interest on reserves,
whereas overseas institu-
tions “might not feel encum-
bered in the same fashion”.
Canada’s TD Bank, Ger-
many’s Deutsche Bank and
Switzerland’s UBS each
have more than $12bn at
the Fed.
By Robin Harding
in Washington and
Tom Braithwaite in New York
By Benedict Mander
in Caracas
US Federal Reserve officials
fear a backlash from paying
billions of dollars to com-
mercial banks when it even-
tually raises interest rates.
The growth of the Fed’s
balance sheet means it
could pay $50bn-$75bn a
year in interest on bank
reserves at the same time
as it makes losses and has
to stop sending money to
Hugo Chávez announced
via Twitter that he was
back in Caracas early yes-
terday morning, after
spending more than two
months in Cuba recovering
from cancer surgery.
The return of Venezuela’s
58-year-old president fol-
lows the release on Friday
of photographs of him smil-
ing from his hospital bed in
Havana. They constituted
the first proof that he was
alive after months of specu-
lation over his medical con-
dition, which is treated as a
state secret.
“We have arrived back in
the Venezuelan fatherland.
Thanks, my God! Thanks,
my beloved people! Here we
will continue the treat-
ment,” Mr Chávez tweeted
shortly after landing in
Caracas airport at 2.30am.
Since a six-hour operation
in Cuba on December 11, Mr
Chávez had not been seen
or heard from until the
release of the pictures on
Friday. No images were
shown of his arrival in the
Venezuelan capital yester-
day. Government officials
said last week that Mr
Chávez was breathing with
the aid of a tracheal tube as
a result of a lung infection
after his operation, and was
having difficulty talking.
“I remain firmly with
Christ and trusting in my
nurses and doctors.
Onwards to victory forever!
We will live and we will
conquer!” Mr Chávez con-
tinued on his Twitter
account, which had been
inactive since November 1.
He thanked Cuban leaders
Raúl and Fidel Castro for
his treatment there, as well
as Venezuelans for demon-
strating “so much love”.
Chávez supporters set off
fireworks on learning of the
return, with elated crowds
gathering outside the mili-
tary hospital in Caracas
where Mr Chávez will con-
tinue his treatment. Offi-
cials have suggested that
his recovery is likely to be
slow, saying that his condi-
tion remains “complex”.
“He’s back, he’s back,
he’s back!” tweeted infor-
mation minister Ernesto
Villegas, echoing the chants
that followed Mr Chávez’s
triumphant return to power
two days after a botched
coup 11 years ago.
Although Mr Chávez had
been too ill to return for the
inauguration of his third
six-year term on January 10
after winning presidential
elections last October,
observers now expect that
he may be sworn in by the
Supreme Court, possibly in
private.
Opponents questioned the
secrecy surrounding his
return, but the surprise pre-
dawn arrival was typical of
Venezuela’s leader.
“Everything had to be
carried out with great dis-
cretion, so as not to give
fascist groups the opportu-
nity to plan cynical actions
against the Bolivarian revo-
lutionary process,” wrote
Fidel Castro in a letter to
Mr Chávez on Sunday.
Henrique Capriles, the
opposition’s de facto leader
who lost to Mr Chávez in
the October elections, wel-
comed the president back.
“Let’s hope that the presi-
dent’s return means that
[vice-president Nicolás]
Maduro and the ministers
get to work, there are thou-
sands of problems to solve,”
tweeted Mr Capriles, who
claims there has been a
power vacuum while Mr
Chávez had been away.
Many expect that if Mr
Chávez is too ill to remain
in power, Mr Maduro –
anointed as his successor –
would win elections if they
are held in the coming
months.
Early test
for nominee
to lead SEC
By Stephanie Kirchgaessner
and Dan McCrum
in New York
corporate governance
experts say the issue is
important for shareholders
who are calling for more
transparency.
“Shareholder proposals
requesting this information
from companies are now
the most common share-
holder proposals at US pub-
lic companies,” said Robert
Jackson, a Columbia law
school professor who helped
spearhead the proposal and
served as an adviser to the
Treasury during the finan-
cial crisis. He compares the
issue to the push for disclo-
sure of executive compensa-
tion in the early 1990s.
Transparency advocates
say the petition has gar-
nered unprecedented sup-
port, including from John
Bogle, the retired founder of
the huge mutual fund com-
pany Vanguard Group.
In a letter to the SEC, Mr
Bogle cited Justice Anthony
Kennedy, who in his sup-
port for the Citizens United
decision said shareholders
could “determine whether
their corporation’s political
speech advances the corpo-
ration’s interest in making
profits”.
The chief justice, John
Roberts, also found that
“prompt disclosure of
expenditures can provide
shareholders and citizens
with the information
needed to hold corporations
and
A proposal to force public
companies for the first time
to disclose all their political
activity to investors is
emerging as an early litmus
test for Mary Jo White,
Barack Obama’s nominee to
head the Securities and
Exchange Commission.
If passed, the proposal,
which is still at an early
stage, would shed light on
companies’ political dona-
tions and lobbying – includ-
ing fees paid to groups such
as the Chamber of Com-
merce – since the 2010
Supreme Court ruling in
the Citizens United case,
which found that compa-
nies could use their own
funds to support political
campaigns indirectly.
Last year the SEC
included the disclosure pro-
posal, which was intro-
duced to the agency by a
group of academics, on its
agenda for this year. But
advocates and opponents of
the proposed regulation
believe that it will ulti-
mately fall to Ms White,
once she is confirmed, to
Restaurant chains and retailers, often operating on slim margins, are worried about the additional cost of providing health insurance for employees
Corbis
Business raises concern on Obamacare costs
imposes a penalty on those
who do not, subsidises
coverage for the poor, and
makes insurers offer
coverage regardless of a
person’s health status.
Big retailers and
restaurants are particularly
sensitive to the law’s costs
because they employ large
numbers of low-wage
employees in sectors where
profit margins tend to be
slim.
While most already
provide health insurance to
many workers, the law
increases the number they
need to cover by
mandating coverage for
everyone who works at
least 30 hours a week, or
fines them for not doing so.
The cost of insuring
employees who are on
existing plans is also likely
to rise because the law
mandates coverage for a
broader range of benefits,
removes limits on the size
of insurers’ payouts, and
does not require employees
to contribute to the cost of
preventive tests.
Robert Wilson, president
of Employco USA, a
staffing company, said that
businesses employing
minimum-wage workers
might have to pay nearly
$3,000 more per person
each year in additional
health insurance costs.
“If you’re a small
business, it’s going to be
an added cost that can’t be
ignored,” said Mr Wilson,
who forecast that people
whose hours had been cut
would be forced to find
second jobs. “It’s going to
become a more fragmented
workforce.”
Christine Pollack, of the
Retail Industry Leaders
Association, said:
“President Obama has
repeatedly assured
Americans that if they like
their health insurance,
they can keep it. Retailers
want to continue to offer
quality, affordable coverage
to their employees, but if
the law becomes too
complicated and
burdensome, it may put
employers in the
unfortunate position of
making drastic changes to
their benefits plans.”
The US Department of
Health and Human
Services, which is in
charge of implementing the
law, said the non-partisan
congressional budget office
and the experience of
Massachusetts – whose
healthcare reform served
as a blueprint – had
indicated that the measure
would reduce costs
“without significantly
impacting the labour
market”.
A spokeswoman said:
“This law will decrease
costs, strengthen our
businesses and make it
easier for employers to
provide coverage to their
workers.”
Despite such assurances,
discontent extends beyond
retail and restaurants.
Drug companies and health
insurers fear that the
legislation is so lenient
that it will not expand the
ranks of insured people to
the extent they had hoped
– partly because some
young people will choose
to pay a small penalty for
remaining uninsured.
Much of their support for
the law was rooted in the
promise of new customers.
Ian Read, Pfizer’s chief
executive, told the
Financial Times last month
that his company had
absorbed almost $1bn in
costs related to the health
reform law last year, but
that he expected the drug
industry to see slim
returns from such
investments.
“There is no benefit to
the industry, given that
the expansion of those
being insured is likely to
not be high users of
medication,” said Mr Read.
“We have contributed a
substantial cost to
implementing the
Affordable Care Act, and
we continue to pay that
cost.”
Meanwhile, medical
device companies have
been vocal in warning
about the tough spending
choices they will be forced
into by a 2.3 per cent
excise tax on sales of their
products.
Changes to the law are
possible. A bipartisan
group of lawmakers
introduced a bill last week
to roll back the tax, which
is expected to raise $30bn
in revenue for the
government over the next
decade. But until then,
businesses will continue to
look for ways to trim costs.
Joe Kiani, chief executive
of Masimo, a medical
device company, said the
tax was forcing it to
choose between imposing
pay cuts or slashing
research and development
spending.
“We are asking our
executives and potentially
employees to take some
pay cuts to pay the tax
because we don’t want to
take our foot off the pedal
of what we’re doing,” he
said. “We hope that one
day we can convince
lawmakers to repeal it, but
until then we have to
tighten our belts.”
US health
The side­effects of
president’s new
law are troubling
companies, write
Alan Rappeport
and
Barney Jopson
The proposal would
shed light on
companies’ political
donations and
lobbying
elected
officials
accountable”.
The argument for many
legal advocates is that such
a determination is impossi-
ble as long as many types of
donations are not disclosed.
The White House declined
to comment. Many observ-
ers say they are unsure
whether Ms White would
back it given the volume of
other regulations she must
complete once she is con-
firmed, including rules
mandated by the Dodd-
Frank financial reforms and
last year’s Jobs Act.
When Calpers, the largest
US public pension fund,
proposed pushing for more
disclosure of political dona-
tions in 2011, lawyers for
the Chamber of Commerce,
the business lobby group,
said that to do so would
“violate Calpers’ fiduciary
duties to its participants
and beneficiaries”.
The pension fund disa-
greed, and adopted the prin-
ciple of support for board
oversight of donations with
full disclosure to sharehold-
ers. Anne Simpson, head of
corporate governance for
Calpers, said “disclosure is
the missing link, what even
the court thought was the
important component”.
pass it with the help of the
agency’s two Democratic
commissioners, or to set it
aside to focus on the long
list of regulations the SEC
must pass, thereby avoiding
a big political fight.
The issue is causing con-
sternation among lobby
groups and among some
Republicans in Washington
who have staunchly
opposed similar proposals
that have been floated in
Congress but never passed.
Mitch McConnell, the top
Republican in the Senate
and an outspoken opponent
of such rules, said the pro-
posal was a “direct assault”
on free speech.
“Congress and multiple
federal agencies have
rejected similar chilling
attempts to curtail free
speech and the SEC should
walk away as well,” Mr
McConnell said in a state-
ment to the Financial Times.
Indeed many lobbyists
and conservatives see the
proposal as politically moti-
vated, because Republicans
are seen as big beneficiaries
of corporate donations. But
Less than a year before it
comes into force, some
side-effects of President
Barack Obama’s healthcare
law are troubling
companies ranging from
supermarkets to artificial
hip makers, including some
that backed the measure.
Retailers and restaurant
chains are worried about
the costs of providing
health insurance for
employees; drugmakers are
concerned that they will
not see the rise in the
number of insured
customers that they had
hoped for; and medical
device makers are unhappy
over a tax on sales.
Although critics argue
that such consequences
undermine the goals of the
law, the administration
maintains that it is good
for healthcare consumers
and the US economy,
which has been plagued by
soaring medical costs.
The Affordable Care Act,
dubbed “Obamacare”,
requires everyone to have
health insurance. It
$3,000
Possible extra insurance cost
per worker for employers
2.3%
New excise sales tax on
medical devices
Correa rides populist wave to third presidential term in Ecuador
Economic doubts
remain after poll
him to consolidate his self-
described socialist agenda
along with his regional
allies – the ailing Hugo
Chávez in Venezuela and
Evo Morales in Bolivia.
“I am 74 and I’ve seen I
don’t know how many pres-
idents. But
mashi
[compan-
ion] Rafael is the only one
who has given poor Ecuado-
reans dignity,” said Teresa
Poveda, a poor pensioner.
A fierce critic of the US,
Mr Correa took office in
2007 promising a “Citizens’
Revolution” to boost state
revenue from the Andean
country’s natural resources
and redistribute it among
the poor. His continued pop-
ularity has been fuelled by
a rise in wages, a substan-
tial decline in poverty and
unemployment and the fact
that he has delivered on
promises to enact a new
constitution and close a US
military base. Most of all,
Mr Correa has brought
political continuity and rel-
ative economic stability to
one of Latin America’s most
volatile countries.
“Nothing, nobody, can
stop this revolution,” he
said from the balcony of the
presidential palace in Quito
as he claimed victory on
Sunday night.
Despite his pledge to
diversify the economy, the
country remains dependent
on its oil exports. Increased
tax collections spurred by a
surge in the oil price have
resulted in a tripling of gov-
ernment revenues in the
past six years, allowing for
heavy spending on social
programmes, education and
health. Mr Correa, a US-
trained economist, has
acknowledged that the
country could suffer if
crude prices fall.
The Capital Economics
consultancy said: “There
are reasons to question
whether [his] ‘socialist revo-
lution’ is built on sustaina-
ble economic foundations.”
Ecuador’s government
spending has almost dou-
bled as a percentage of
gross domestic product
from being the lowest to the
highest in Latin America,
pushing the budget deficit
to more than 7 per cent of
Ecuador’s $76bn economy.
Oil output has been stuck
at about 500,000 barrels
equivalent a day in recent
years as foreign investment
has slowed to less than
$1bn a year. Chinese groups
are considering or are
already involved in oil and
mining investments.
But while Ecuador has
enjoyed rare stability under
Mr Correa, the world’s main
banana exporter still ranks
among the riskiest invest-
ment destinations in South
America. It has been virtu-
ally shunned by interna-
tional debt markets since
Mr Correa defaulted on
$3.2bn of bonds in 2008.
Since then, China has
stepped in to lend the
Andean country more than
$7bn in exchange for oil.
“We cannot keep relying
on high oil prices and
China’s ‘generosity’,” said
Ramiro Crespo of Analytica
Securities in Quito.
By Andres Schipani in Quito
Around the shanty towns
on the hillsides of Quito,
the mood is joyous: “Four
more years of Rafael!” yells
a local.
Rafael Correa secured
about 60 per cent of the
vote in Ecuador’s presiden-
tial poll on Sunday, accord-
ing to preliminary results.
The comfortable victory
assures him a third term
and an expanded power
base in congress, allowing
Rafael Correa: ‘Nobody . . .
can stop this revolution’
A Chávez supporter in Caracas
greets the president’s return
   FINANCIAL TIMES
TUESDAY FEBRUARY 19 2013
★
5
WORLD NEWS
Ramphele party to challenge ANC at the polls
S African activist
eyes 2014 elections
Move signals shift
in political dynamic
age have become the hall-
marks of many in public
service, Ms Ramphele said
she was forming a “party
political platform” to rekin-
dle “hope that building the
country of our dreams is
possible”.
“Our country is at risk
because self-interest has
become the driver of many
of those in positions of
authority,” she said. “The
great society to which we
committed ourselves follow-
ing our relatively peaceful
political transition is rap-
idly unravelling before our
eyes.”
Ms Ramphele told the
Financial Times that she
planned to register the
movement, called Agang,
which means “to build”, as
a political party in the mid-
dle of the year after reach-
ing out to South Africans
the “length and breadth of
the country”.
She said she had no illu-
sions about the challenges
that lie ahead – not least as
commentators warn that
she could struggle to attract
a broad constituency as she
is perceived to be part of an
intellectual elite.
The ANC said in a state-
ment that it believed “this
initiative is grievance
driven, whilst Dr Ramphele
rehashes the known chal-
lenges facing our country
she does not bring any new
suggestions to the table.”
It is unclear which griev-
ances the ANC was refer-
ring to. The statement
added: “We welcome her to
the political environment
and we hope that she has
party, the Democratic Alli-
ance, made some inroads at
municipal elections in 2011,
winning about 24 per cent
of the vote, but it struggles
with the perception that it
is a “white” party.
Another opposition group,
the Congress of the People
(Cope), was formed by sup-
porters of Thabo Mbeki
when the former president
was forced from office after
he lost an ugly party leader-
ship challenge in 2007 to
Jacob Zuma, the current
head of state. But it has
been blighted by its own
power struggles that have
left it weak and divided.
When asked if she would
look to co-operate with
other parties, Ms Ramphele
said she would have “ear-
nest conversations with
those who want to have
conversations after this
announcement”.
The DA has been pushing
for greater co-ordination
between opposition groups
as it seeks to weaken the
ANC’s grip on power. The
alliance said it did not see
Ms Ramphele’s plans as a
threat, adding that it would
work “with every other
entity that seeks to achieve
the realignment of politics”.
Life and times
Born on December 28
1947, Mamphela Ramphele
became one of the
founders of the Black
Consciousness Movement.
She had two children
with Steve Biko, who died
in custody in 1977 and
whose story became the
film
Cry Freedom.
She was
banished by the apartheid
government to the town of
Tzaneen in 1977­84.
She has a medical
degree, two postgraduate
diplomas, a bachelor of
commerce and a PhD in
social anthropology.
Ms Ramphele became
vice­chancellor of the
University of Cape Town in
1996, the first black
African and the first
woman to hold the post.
She joined the World
Bank as managing director
for human development in
2000­04.
Ms Ramphele is
executive chairperson at
Circle Capital ventures and
on the Rockefeller
Foundation board. She
stepped down as chair of
Gold Fields last week.
By Andrew England
in Johannesburg
Mamphela Ramphele, a vet-
eran activist and former
partner of Steve Biko, the
anti-apartheid hero, has
launched a political move-
ment to challenge the
might of the governing Afri-
can National Congress at
next year’s elections.
The much-anticipated
announcement by the busi-
nesswoman and respected
academic could signal a
shift in the South African
political dynamic, which
has been dominated by the
ANC since the first demo-
cratic election in 1994.
Africa’s largest economy
has seen gains since the
end of apartheid, but many
South Africans are frus-
trated with the chasm that
exists between the haves
and have-nots in one of the
world’s most unequal socie-
ties.
Complaining that corrup-
tion, nepotism and patron-
‘Self­interest has
become the driver
of many of those
in positions of
authority’
the
necessary
staying
power.”
While criticism and scru-
tiny of the ANC’s record in
government mounts, the
liberation movement has
still managed to garner
more than 60 per cent of the
vote at every election since
1994. Many black South
Africans also retain an emo-
tional attachment to the
party of Nelson Mandela,
which led the struggle
against apartheid.
The
Poor prospects: a women salvages an oven after a fire in a shanty town
main
opposition
AFP
Death sentences
seen as warning
Ahmadi­Nejad
lawyer for Mr Khosravi and
Mr Behzadi, declined to
comment on the verdict.
Mr Khosravi allegedly
forged letters of credit from
Bank Saderat, a partially
state-owned bank, and gave
the fake documents to
seven other banks, includ-
ing Bank Melli, Iran’s larg-
est state-owned bank.
The credit allegedly
helped Mr Khosravi fund
about 40 companies while
he tried to buy a large state-
owned steel factory with
the support of the president
under a national privatisa-
tion plan.
The mass trial of 39
defendants began in Febru-
ary 2012, and 25 people have
been convicted. As well as
the four hangings, sen-
tences include life imprison-
ment for a Bank Melli offi-
cial in the southern city of
Kish and 10 years for sev-
eral government officials,
including two deputy minis-
ters of industry and trans-
portation and two director
generals at the ministry of
transportation.
It is unclear whether a
row between the president
and Ali Larijani, the
speaker of parliament, who
leads the anti-Ahmadi-
Nejad campaign in the fun-
damentalist camp – has had
the effect of speeding up the
issuing of final verdicts for
Mr Khosravi and the other
businessmen.
Iran’s president this
month played a video in
parliament alleging that
Fazel Larijani, a younger
brother of Mr Larijani, was
corrupt and exploited his
powerful brothers – another
sibling, Ayatollah Sadegh
Larijani, is head of the judi-
ciary.
In return, the speaker of
parliament accused Mr
Ahmadi-Nejad of attempt-
ing to cover up corruption
among his allies. The head
of the judiciary also
accused the president of
committing a “crime” by
levelling allegations that
had not been proven in a
court.
Ayatollah Ali Khamenei,
who has the last say in all
state affairs, on Saturday
intervened in the embar-
rassing public spat, describ-
ing the president’s parlia-
mentary display as “illegal”
and accusing Mr Larijani of
going “too far” in defending
himself.
In an implicit warning to
the president, Ayatollah
Khamenei said he was only
giving advice “for now”.
It was unclear whether
the coded language meant
that if the president failed
to rein in his mudslinging
before the election, then the
Ayatollah would support
his overthrow – which is
believed to be sought by Mr
Ahmadi-Nejad’s opponents
in parliament.
“The political infighting
seems out of control,” said
one western diplomat. “It is
doubtful that politicians
will listen to the supreme
leader’s advice and lessen
their power struggle.”
Iran corruption
Verdict on four
businessmen comes
as president vies to
prolong influence,
writes
Najmeh
Bozorgmehr
Iran’s supreme court has
upheld sentences of death
by hanging for three busi-
nessmen and a banker in a
corruption case linked to
Mahmoud Ahmadi-Nejad,
the president, as a power
struggle wages ahead of
June’s presidential election.
The sentencing to death
of four people in a single
corruption case is unprece-
dented in the Islamic repub-
lic, and analysts believe it
serves as a warning to the
president that his allies and
affiliated businessmen
could face similar charges
should they use state funds
to support their candidate –
yet to be named – in the
next election.
Mr Ahmadi-Nejad cannot
run for a third term but he
is believed to be seeking to
have a close ally succeed
him so he can retain his
political influence. His
opponents, however, appear
determined to obstruct his
political ambitions.
The alleged $2.8bn fraud
has centred on Mah-Afarid
Khosravi, a businessman
who is accused of accumu-
lating billions of dollars of
wealth thanks to his links
to the government of Mr
Ahmadi-Nejad.
The State Supreme Court
– the highest judicial
authority – upheld the
death sentence imposed last
year and found Mr Khos-
ravi guilty of “disrupting
the economic system”,
Gholam-Hossein Mohseni-
Ejei, judiciary spokesman,
said yesterday.
He added that Behdad
Behzadi and Iraj Shojaei,
Mr Khosravi’s deputies for
legal and financial affairs
respectively, and Saeid
Kiani-Zadeh, head of a Bank
Saderat branch in the
southern city of Ahvaz,
were also sentenced to
death on similar charges.
The sentences “are going
to be sent to the concerned
[preliminary] court to be
carried out”, he said, with-
out clarifying when the
hangings would take place.
Gholam-Ali Riyahi, a
Ahmadi­Nejad: accused of
cover­up in favour of allies
www.ft.com/theworld
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