Have Tiffany's Make you an Extremely Long Spoon
Kitty Miv, Editor
05 December, 2013
Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.
The OECD's appointment of the Cayman Islands to be vice chair of the Peer Review Group of its Global Forum on Transparency and Exchange of Information for Tax Purposes comes across as a case of turning the poacher into the gamekeeper, although no doubt the Cayman Islands would be highly affronted by such a comparison. And the anti-offshore brigade will be grinding their teeth at the transmogrification of their precious hate object into respectable police-island. We can merely congratulate the world's third-biggest accumulation of capital at its cleverness in negotiating the shoals of international financial governance, and wonder at the influence which has accreted to the unelected, rich country quango called the OECD. It's not the only world body which has mysteriously and almost accidentally acquired power on such a scale (FIFA springs to mind as another example), but it is one of the most prominent. Other major institutions counting as global movers and shakers such as the World Bank and the IMF are directly financed and supported by their member countries, but the OECD seems to have acquired independent existence, albeit paid for by member country subventions, and unlike the World Bank, the IMF and the WTO (all three being Bretton Woods creations) it has no scripted, universal role on the international stage. And that's worrying.
Few people now remember that the OECD was brought into existence to manage the United States' Marshall Aid program after the second world war, and just as few perhaps remember that in the 1970s and 1980s the OECD, by then shorn of any obviously useful European role, functioned as an observer and commentator on the world's leading economies, providing extremely helpful comparative economic statistics in an unbiased, pragmatic fashion. From that essentially passive activity, worthwhile as it was, the OECD has transmuted into an agent of rich country policy, and this unbalances the international ecomonic equation in an unhealthy way. It's not quite clear how that result came about, or even whether it was intended; but at any rate we are left with the consequences, which in a nutshell amount to a hegemonic high-taxing paradigm being imposed willy-nilly on the world's varied economies without regard for alternative scenarios. In the 1990s, in the first flush of its newly granted powers, the OECD attempted to squash "offshore" (a low-tax, free-market alternative to the prevailing over-taxed, post-industrial socialistic economies of "Old Europe") but was stymied by fierce resistance from groupings of low-tax territories, and a briefly sympathetic US administration. Hence the Global Forum, which was intended to be a means to reconcile the competing interests of high- and low-tax jurisdictions. Whether the elevation of the iconic Cayman Islands to vice chair of the Forum counts as a fig-leaf or as genuine evidence of conversion on the part of the OECD, I leave for you to judge. But you can imagine what I think: the insane indebtedness of the rich countries offers them no choice but to increase taxes and to continue to try to exterminate "offshore." So please, Mr Cayman, have Mappin & Webb or Tiffany's make you an extremely long spoon. You're going to need it!
One up, one down for newly formed government coalitions this week: that in Luxembourg is sensibly standing firm in opposition to the EU's madcap financial transactions tax, while continuing to trot out the usual platitudes about cleaning up its financial center; on the other hand Mrs Merkel's shoddy Grand Coalition bargain with Germany's left-wing opposition has reaffirmed the financial transactions tax while agreeing to a national minimum wage and various other negative-sounding proposals. In this case the platitudes are to do with not increasing taxes, and are accompanied by a new tax on truck-drivers and foreign motorists, despite the fact that the Government is swimming in cash. That last bit doesn't matter too much, but what bothers me is the financial transactions tax. In a speech in Brussels last week, Algirdas Šemeta, the grandly-titled EU Commissioner responsible for Taxation and Customs Union, Statistics, Audit and Anti-fraud, reiterated his support for the tax, but admitted that not much progress was being made – hurrah! He also admitted that "changes will be needed to the proposal in order to reach a compromise." Yes, and the best change would be to abort the whole sorry process.
I am trying to get my head around the announcement from Argentina that it will increase taxes on luxury goods "in order to make more money available for imports that will improve domestic output." OK, so the Government will have more money, and the people who buy expensive toys will have less money. How is that going to increase "useful" imports? It must have to do in some obscure way with the fact that the peso (at its official rate) is grossly over-valued against the dollar and inflation is far higher than the Government admits. It won't work, anyway: Argentines have had decades of practice at getting around official currency restrictions imposed by spendthrift governments, and are famously inventive at it. One good thing the Government did this week, at least, was to open negotiations with Repsol over compensation for its expropriation of YPF oil and gas assets last year, although the amount being talked about, at USD5bn, was half what Repsol said it was due at the time. The Government hopes that a settlement will attract Pemex into financing exploitation of Argentina's vast shale hydrocarbon reserves, reportedly the biggest in Latin America. I don't understand that, either, because Pemex itself is heavily under-invested, and every penny that it has is siphoned off by the cash-strapped Mexican government, which is trying to get the international oil and gas majors into bed with Pemex (in order to rob them in the darkness?). I don't get it at all; but perhaps things work differently on the other side of the equator.
Another country (just on my side of the equator but still pretty hot) where nothing is what it seems, and they are going to increase taxes on imported cars in order to encourage vehicle sales (work that one out, if you can), is Nigeria. Do you get a warranty on a car that has been taken to pieces in order to get it through customs and reassembled in a local shed by untrained cowboys? Good luck to you, indeed. I warned you about that hat.
Kitty's Encomiums and Execrations
Methodology: each week (this is the 81st) two or three countries are given encomiums and two or three are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is on + 1, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step.
The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.
Luxembourg again the FTT
And Kitty's Execrations:
Argentina in denial
Germany's forced marriage
Nigeria upside down and inside out
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