YCLOAK

The U.S. economy rebounded sharply in the spring, growing at the fastest pace in more than two years amid brisk consumer spending on autos and other goods.

The gross domestic product, the broadest measure of economic health, grew at an annual rate of 3 percent in the April-June quarter, the Commerce Department reported Wednesday. It was the best showing since a 3.2 percent gain in the first quarter of 2015.

The result is a healthy upward revision from the government’s initial estimate of 2.6 percent growth in the second quarter. The growth rate in the January-March quarter was a lackluster 1.2 percent.

Improvements in consumer spending, particularly on autos, and business investment powered second-quarter growth. Those revisions offset a bigger drag from spending by state and local governments.

This was the second of three estimates the government will provide for second quarter growth. Even with the upward revision, the weak start to the year means that growth over the past six months has averaged 2.1 percent, the same modest pace seen for the recovery that began in mid-2009.

During last year’s presidential campaign, Donald Trump attacked the Obama administration’s economic record, pledging to double GDP growth to 4 percent or better. His first budget, sent to Congress earlier this year, projects growth rates will climb to a sustained annual rate of 3 percent, a goal that many private economists believe is still too optimistic.

 The nonpartisan Congressional Budget Office sees growth averaging 1.9 percent over the next decade, a forecast much closer to estimates made by private economists.

Many economists had been forecasting growth in the current July-September quarter would be around 3 percent. Some are now saying that the devastation from Hurricane Harvey could shave about a half-percentage point off growth this quarter. However, analysts believe the pace of growth will bounce back once the rebuilding begins and oil refineries get back to full production, bringing down prices.

For the entire year, Mark Zandi, chief economist at Moody’s Analytics, is forecasting growth of 2.1 percent. That would mark an improvement over last year when the economy grew a meager 1.5 percent, the poorest showing since 2009 when GDP shrank by 2.9 percent.

Zandi is forecasting that growth in 2018 will be an even stronger 2.8 percent. But he said 0.4 percentage point of that forecast reflects an assumption that the Trump administration will win a tax cut package that will take effect in early 2018. The economy will also be boosted by higher spending on the military and infrastructure projects, he said.

“For the first time since the Great Recession ended in mid-2009, the economy is not facing any significant headwinds,” Zandi said.

 
…

U.S. sanctions on the finance boss of Venezuela’s oil company PDVSA have led to some exports to the United States being blocked as banks and investment funds refuse to provide letters of credit to potential buyers, three financial sources said.

U.S. businesses are barred from dealing with a sanctioned person or company and one of the sources said the sanctions on PDVSA’s Finance Vice President Simon Zerpa were deterring some businesses from investments with the company as so many of its transactions are linked to the finance department he leads.

A Venezuelan oil shipment to the United States was blocked this month as lenders refused to provide letters of credit to PDVSA customers, the sources said.

Letters of credit, issued by banks, guarantee to a seller that a buyer will pay a specified amount on time when a shipment is accepted. Without a letter of credit, shipments cannot be delivered and the shipper does not get paid. Blocking letters of credit for PDVSA oil chokes off cash that is desperately needed in the OPEC nation.

Petróleos de Venezuela, S.A., commonly known as PDVSA, is the financial motor of President Nicolas Maduro’s leftist government, and it is operating within one of the deepest economic recessions Venezuela has ever experienced and widespread political unrest.

In one instance, U.S. refiner PBF Energy was unable to get a letter of credit for a Venezuelan crude cargo to be received at a U.S. port.

The Suezmax tanker Karvounis has been anchored in the U.S. Gulf for more than a month. It partially discharged its cargo on Aug. 23 in New Orleans, according to Thomson Reuters vessel tracking data. A trader close to the deal said PBF Energy ultimately agreed to a prepayment, removing the need for a credit letter. It was unclear what would happen with the rest of the cargo.

Some U.S. customers can import without a letter of credit if they pay up front.

In July, the United States imposed sanctions on 13 senior Venezuelan officials, including the head of Venezuela’s army, the national police chief, the director of elections, and Zerpa.

At the time, a U.S. official warned that the administration of U.S. President Donald Trump was readying tougher measures that could be part of a “steady drumbeat” of responses to the Venezuelan crisis.

The most serious potential future step would be financial sanctions that would halt dollar payments for the country’ oil, starving the government of hard currency, or a total ban on oil imports to the United States, Venezuela’s biggest customer.

This month the United States imposed its first economic sanctions on Venezuela, banning debt trades for government-issued bonds and bonds issued by PDVSA. 

The problem could spread to more cargoes if banks refuse to extend credit to companies that have a commercial relationship with PDVSA, the sources said.

The sources said foreign oil companies funding projects in Venezuela and financial entities negotiating with PDVSA were avoiding signing agreements that could involve Zerpa.

Major oil company China National Petroleum Corporation (CNPC) has pulled back from funding some operations at its joint venture in Venezuela, a source at PDVSA said.

Neither PDVSA nor the Information Ministry responded to requests for comment. Zerpa was not immediately available to comment.

“PDVSA will face additional trouble just by keeping a sanctioned individual as CFO,” said Jorge Piedrahita, chief executive of broker-dealer Gear Capital Partners, who has been involved with Venezuelan debt for many years.

“Even the Russians and China’s Development Bank should be worried about signing something with him as they can be subject to collateral damage from sanctions just by association.”

A close Maduro ally, Zerpa, 34, rose to prominence by leading the bilateral Venezuela-China fund through which Caracas borrows from Beijing and repays loans in oil and fuel. Venezuela has borrowed over $60 billion from China, earning Zerpa the nickname “Zerpa the Chinese.”

Two additional financial sources said having Zerpa as the company’s head of finance had made it impossible for U.S. entities to assist PDVSA in debt refinancing, even before the U.S. economic sanctions.

Even basic activities, such as a conference call with bondholders, are now essentially unthinkable, the sources said.

Sanctions against Zerpa are having a knock-on effect on Wall Street, affecting imports of food and medicine to Venezuela made through funds headed by Zerpa, according to Delcy Rodriguez, president of Maduro’s new legislative assembly.

“This wasn’t done to affect Venezuelan officials but rather the entire population,” Rodriguez said on Monday.

Zerpa has held several high-profile posts including heading Venezuela’s state economic development bank Bandes and off-budget investment fund Fonden.

Opposition lawmakers have said he is an example of how the late Hugo Chavez’s “21st century socialism” has allowed unprepared political figures to wield power over financial deals.

“I have a negative opinion of him because of the way he handled the Chinese fund,” said opposition lawmaker Angel Alvarado, describing Zerpa as Maduro’s “finance tsar.”

U.S. pressure could force PDVSA to remove Zerpa from his post, at least on paper. However, PDVSA has had issues in the past that have led investors to tread cautiously with Venezuela.

“In part, the sanctions codify an already existing situation in which PDVSA and the Republic have little to no access to international financial markets due to the combination of political risk, unsustainable policies, concerns about legality

of new issues and reputational risk from providing funds to the Venezuelan government,” investment firm Torino Capital wrote in a report to clients after Friday’s sanctions.
…

U.S. President Donald Trump is traveling to the state of Missouri to try to build support for his goal of reforming the country’s tax code.

Administration officials say the president will focus on explaining the need for tax reform, but not the specifics of a plan to do so, during a speech Wednesday in the city of Springfield.  They say he will promote tax cuts as a way to help American workers.

Trump has in the past proposed cutting the corporate tax rate from 35 percent to 15 percent.

The U.S. tax code has not undergone a significant overhaul since 1986.

Trump’s Republican Party controls both houses of the U.S. Congress, but failed in its earlier efforts to overhaul another major program as leaders were unable to get enough votes to change the health care system.
…

In Texas, rebuilding efforts in areas devastated by Hurricane Harvey’s winds and floods face higher costs and some delays because the construction industry has a critical shortage of skilled workers. VOA’s Jim Randle reports.
…

With rising urban populations and ever scarcer water supplies, cities and companies are teaming up to invest billions of dollars in water management projects, a report said on Tuesday.

Around two thirds of cities from London to Los Angeles are working with the private sector to address water and climate change stresses with 80 cities seeking $9.5 billion of investment for water projects, according to a report by the Carbon Disclosure Project (CDP), a non-profit environmental research group.

Water investment opportunities are greatest in Latin America, with Quito in Ecuador seeking $800 million to manage its water supply, including building three hydropower stations and cleaning up its contaminated rivers and streams.

City in India prepares for future

The cities most concerned about their water supply lie in Asia and the Pacific, the report found, with serious risks also identified in Africa and Latin America.

The key issues for cities include declining water quality, water shortages and flooding.

The Indian city of Chennai faced extreme floods in 2015 which killed hundreds and left survivors without access to clean water, while businesses were also severely disrupted.

The city is now investing in boosting its resilience to future water crises, with water conservation education, building a storm water management system and new infrastructure.

“We are seeing critical shifts in leadership from cities and companies in response to the very real threat of flooding, for example, to local economies,” said Morgan Gillespy, head of CDP’s Water Program.

Climate change is another underlying threat to all cities with an increase in extreme weather events from droughts to floods, with cities in North America more concerned than those in Europe, the report found.

Tropical Storm Harvey, pounding the U.S. Gulf Coast, has killed at least eight people, led to mass evacuations and paralyzed Houston, the fourth most-populous U.S. city.

The storm is most likely linked to climate change, said the U.N. weather agency.

Companies are also concerned about the effects of climate change on water supplies, with $14 billion of water impacts such as loss of production reported by companies last year, the report found.

WATCH: Worrying About Water

UN predicts global water shortfall

The United Nations predicts a 40 percent shortfall in global water supply by 2030, while global demand is set to increase by 55 percent due to growing domestic use, manufacturing and electricity generation.

“From our work with cities around the world, water has consistently come up as a key resilience challenge,” said Claire Bonham-Carter, Principal and City Resilience Lead at AECOM, a global infrastructure firm and partner on the report.

“Many of them, regardless of size, from Mexico City, Mexico to Berkeley, California, are addressing both long-term water supply issues as well as chronic urban flooding.”
…

The Middle East and North Africa region loses about $21 billion each year because of an inadequate supply of water and sanitation, the World Bank said Tuesday, warning that urgent action is needed to prevent ripple effects on stability and growth.

Poor management of water resources and sanitation in the world’s most water-scarce region costs about 1 percent of its annual gross domestic product, with conflict-hit states losing as much as 2 to 4 percent each year, the bank said in a report issued at the World Water Week conference in Stockholm, Sweden.

Deaths due to unsafe water and sanitation in some parts of the region, particularly countries affected by conflict, are higher than the global average, it added.

“As the current conflict and migration crisis unfolding in the Middle East and North Africa shows, failure to address water challenges can have severe impacts on people’s well-being and political stability,” the report said.

Peril in Yemen

In Yemen, which is reeling from more than two years of conflict, water supply networks serving its largest cities are at risk of collapse due to war-inflicted damage and disrepair, and about 15 million people have been cut off from regular access to water and sanitation, the U.N. children’s agency (UNICEF) said in a separate statement Tuesday.

In Syria, where the conflict is well into its seventh year, water has frequently been used as “a weapon of war,” with pumps deliberately destroyed and water sources contaminated, and about 15 million people are in need of safe water, including an estimated 6.4 million children, UNICEF said.

Overall, 183 million people lack access to basic drinking water in countries affected by conflict, violence and instability around the world, it added.

Better management

With the urban population in the Middle East and North Africa expected to double by 2050 to nearly 400 million, a combination of policy, technology and water management tools should be used to improve the water situation, the World Bank report said.

“Water productivity — in other words, how much return you get for every drop of water used — in the Middle East in general is the lowest on average in the world,” said Anders Jägerskog, a specialist in water resources management at the World Bank and one of the report’s authors.

Middle Eastern and North African countries are using far more water than can be replenished, said the report.

To reverse the trend, technology and innovation are “essential but not enough,” Jägerskog told the Thomson Reuters Foundation. Water governance — in particular, water tariffs and subsidies — must also be addressed, he said.

The region has the world’s lowest water tariffs and spends the highest proportion of GDP on public water subsidies. Such policies lead to excessive use of already scarce water supplies and are not sustainable, said Jägerskog.

Untreated wastewater

Another challenge is that more than half of the wastewater collected in the region is fed back into the environment untreated.

“Along with better water management, there is room for increasing the supply through nonconventional methods such as desalination and recycling,” Guangzhe Chen, senior director of the World Bank’s global water practice, said in a statement.

Improved water management could bring considerable financial returns, the report noted.

Governments could gain $10 billion annually by improving the storage and delivery of irrigation water to users, while increasing agricultural production by up to 8 percent, the report said.

Egypt, Syria and Iran — which have the largest proportion of irrigated land in the region — are the countries that could benefit most.
…

Mexico sees a serious risk the United States will withdraw from NAFTA and is preparing a plan for that eventuality, Economy Minister Ildefonso Guajardo said Tuesday, calling talks to renegotiate the deal a “roller coaster.”

U.S. President Donald Trump has threatened three times in the past week to abandon the North American Free Trade Agreement, revisiting his view that the United States would probably have to start the process of exiting the accord to reach a fair deal for his country.

Trump has vowed to get a better deal for American workers, and the lively rhetoric on both sides precedes a second round of talks starting on Friday in Mexico City to renegotiate the 1994 accord binding the United States, Mexico and Canada.

“This is not going to be easy,” Guajardo said at a meeting with senators in Mexico City. “The start of the talks is like a roller coaster.”

The need for a backup plan in case Trump shreds the deal underpinning a trillion dollars in annual trade in North America has been a long-standing position of Guajardo, who travels to Washington on Tuesday with foreign minister Luis Videgaray to meet senior White House and trade officials.

“We are also analyzing a scenario with no NAFTA,” Guajardo said.

In an interview published earlier on Tuesday in Mexican business daily El Economista, Guajardo said “there is a risk, and it’s high” that the Trump administration abandons NAFTA.

Responding to Guajardo’s comments, Canadian Prime Minister Justin Trudeau said his government would continue to work “seriously” to improve NAFTA.

What is ‘Plan B’?

Earlier this month, Guajardo told Reuters a “Plan B” meant being prepared to replace items such as the billions of dollars in grain Mexico imports from the United States annually.

To that end, and to seek openings in more markets, Mexico is hosting trade talks with Brazil this week. Trade officials are also discussing a possible replacement for the Trans-Pacific Partnership trade pact that Trump ditched after taking office.

Overlapping with the NAFTA talks, Mexico will participate in separate trade meetings with Australia and New Zealand in Peru, and President Enrique Pena Nieto travels to China this weekend.

Still, attempts to diversify trade will not be easy. Some 80 percent of all Mexican exports go to the United States, and economies such as Brazil and China often compete with Mexico.

Guajardo also suggested World Trade Organization tariffs that would kick in if NAFTA crumbled would be more favorable for Mexico, a view held by many Mexican experts who think trade with the United States would survive the demise of the 1994 deal.

“I don’t think it’s going to make that much of a difference in terms of the trading relationship,” said Andres Rozental, a former Mexican deputy foreign minister. “If we have to go to WTO tariffs, for us it’s fairly straightforward.”

Guajardo’s and Videgaray’s trip to Washington was announced after Trump not only threatened to pull out of the trade deal, but again said that Mexico would end up paying for the wall he wants to build between the two countries.

Mexico has refused point blank to pay for a wall. In January, after similar comments led Mexico to scrap a summit with Trump, the two sides agreed not to talk in public about it.
…

Brazil will seek China’s expertise and financing to complete its third nuclear power plant when President Michel Temer makes a state visit to Beijing on Friday, Brazilian government officials said Tuesday.

The Brazilian nuclear energy company Eletronuclear will sign a cooperation agreement with China National Nuclear Corporation (CNNC), signaling their intent to establish a partnership to finish the Angra 3 plant, the officials said.

Construction of the 1,405-megawatt reactor on the coast south of Rio de Janeiro has dragged on for three decades and its completion is now scheduled for 2023, but Brazil does not have the estimated 16 billion reais ($5 billion) needed to finish the job.

Russia is also interested in completing Angra 3 and Eletronuclear, a subsidiary of state-run electric utility Eletrobras, has held talks with the Russian nuclear monopoly Rosatom.

The Chinese corporation is expected to have the advantage in terms of abundant financial resources.

The head of Eletronuclear, Bruno Barretto, signed an initial memorandum with CNNC on the Angra 3 completion in Beijing in December when he visited Chinese banks that are potential financiers, Eletronuclear said in a statement.

Temer’s government has announced plans to privatize Eletrobras, Latin America’s largest utility. But Eletronuclear will be split off and remain in state hands under Brazil’s Constitution, which establishes that nuclear facilities must be government controlled.

Temer said on Tuesday he expects China to be a major player in Brazil’s plans to modernize its ports, airports and other infrastructure projects that will be offered to investors in private concessions.

He also hopes China will finance energy projects.

“China could be one of the big investors in our plans for concessions,” he said in a video message released after he set off for Beijing, where he will meet Chinese President Xi Jinping ahead of the BRICS summit in Xiamen.
…

Brazil’s government has revised a decree that stripped protections from a reserve in the Amazon after environmental groups criticized the original order.

The new decree announced late Monday still lifts the reserve designation from a gold- and copper-rich area larger than the Netherlands in two northern Brazilian states.

But President Michel Temer’s administration clarifies that mining will not be allowed in conservation or indigenous areas within the former reserve.

The government says the new decree will allow it to crack down on the illegal mining that was taking place in the reserve, while opening up legal mining.

The Brazilian branch of the World Wide Fund for Nature said in a statement that the new decree clarifies the need for protection, but the risk of environmental damage remains.
…