4 ★ FINANCIAL TIMES Tuesday20 August 2019

W

ashington is beginning to sidle away from

its two-decade consensus in favour of a

strong dollar.

Donald Trump’s recent complaint that

he was not thrilled with “our very strong

dollar” has found fertile ground among some politicians

on both sides of the aisle. Republicans are more willing to

contemplate interventions in the free market, Democrats

have become unmoored from Wall St — which sells dollar-

denominated stocks and bonds — and everyone is looking

for ways to help domestic manufacturers.

Last month two senators — one from either side of the

aisle — co-sponsored a bill that would oblige the Federal

Reserve to prevent the value of the dollar from harming US

exports. The bill would give the Fed discretion over a “mar-

ket access charge” to be levied on foreign investment in the

US — in effectaform of capital controls, historically

regarded by US politicians as a radical economic measure.

Although the legislation has little chance of passing into

law, it is an important symbolic moment in the shift away

from the longstanding bipartisan consensus on the desira-

bility of a strong dollar.

“Foreign speculators have driven up the dollar by trad-

ing in and out of US stocks, bonds and other assets,” said

Senator Tammy Baldwin, the Democrat who co-sponsored

the bill. “These trends have blown up our trade deficit and

led to an uncompetitive American dollar.”

These are words that could have come directly from the

president.

The bill’s sponsors are influenced by the work of Michael

Pettis, whose 2013 book

The Great Rebalancing,

championed the idea of

weakening the dollar;

their staffs have passed

around a copy of the

book.

Foreigners investing in

the US are not contribut-

ing the capital that the

country needs, Mr Pettis argued — instead the inward capi-

tal flows mean that other countries are pushing in capital

they cannot use, creating economic distortions which

damage homegrown industry.

His argument rests in part on the interest rate on federal

debt, which is slowly dropping over time — a sign, he said,

of demand for the paper exceeding its supply.

“If Americans were desperate for foreign capital, we

wouldn’t get that capital by lowering and lowering interest

rates,” he said. “We’d raise it.”

Weakening the dollar could help workers, midsized

industry and farmers. The strong dollar has been unam-

biguously good for some, notably people who own and cre-

ate dollar-denominated assets: financiers, property hold-

ers, and companies listed on US stock markets. But per-

haps it has now become a victim of its own success.

An explicit strong dollar policy was first officially

endorsed by Robert Rubin, then Treasury secretary, in

March 1995. At the time the Fed and other central banks

were intervening to support the value of the dollar, the

Federal government was paying more than 7 per cent to

borrow and industrial production was growing at a pace

that has seldom since been matched.

The risk of a dollar crisis — which would cut off the coun-

try’s ability to borrow abroad — was small, but it seemed

more pressing than the possibility of a decline in manufac-

turing if the dollar rose too high.

“We were very focused on the dollar as the reserve cur-

rency,” Mr Rubin told the FT last week — and he would still

make the same decision in 2019. The strong dollar policy

created capital inflows which, in turn, lowered the cost of

capital, making it cheaper for American companies to bor-

row, he said. The consistency of the strong dollar policy

created “a kind of [investor] confidence that one should

not sacrifice lightly”.

But now there is political appetite for sacrifice.

“Five years ago I would have thought it would take 15 to

20 years before anyone in Congress would understand,”

said Mr Pettis. “And now we have a bill already.”

[email protected]

GLOBAL INSIGHT

WASHINGTON

Brendan

Greeley

Reducing the strength

of US dollar attracts

cross-party support

Weakening the

dollar could

help workers,

midsized industry

and farmers

INTERNATIONAL

JAMES POLITI— WASHINGTON

US technology companies havecalled

on Franceto withdraw its plans for a

digital services tax, attacking it for being

unilateral and discriminatory, while

urging the Trump administration not to

retaliate with the use of tariffs.

At a hearing in Washington yesterday

senior executives fromAmazon,Google

andFacebook, as well as lobbyists for

Silicon Valley, said the move by Paris to

apply the tax would damage their busi-

nesses and set a dangerous precedent in

an era of mounting protectionism.

“Today’s hearing is about more than

the French digital services tax. It is

about preventing widescale application

of unilateral excise taxes,” said Jennifer

McCloskey, vice-president for policy at

the Information Technology Industry

Council, a Washington-based lobbying

group.

France has led the way in Europe

towards imposing higher taxes on dig-

ital sales, amid frustration that US tech-

nology giants have been generating high

volumes of business in the country

while avoiding large tax bills. An EU-

wide effortto find a common tax regime

for digital sales faltered, and multilat-

eral negotiationsat the OECD have

advanced slowly.

Other large European countries,

including the UK, Italy and Spain, have

considered following in France’s foot-

steps, amplifying the threat to the US

technology groups. “These countries are

watching France’s experience and con-

sidering whether a unilateral approach

might be easier or more advantageous

than pursuing a multilateral agree-

ment,” said Nicholas Bramble, trade

policy counsel at Google.

“This is a concern for international

trade and the wider economy, if coun-

tries follow the DST model”.

Yesterday’s hearing was called by the

office of the US trade representative,

which has launched a section 301inves-

tigationinto the digital tax, to explore

whether it amounts to unfair trade prac-

tice that harms the US, potentially pav-

ing the way for punitive measures

against Paris.

But while Silicon Valley is harshly

critical of France’s move, it wants Paris

and Washington to redouble their

efforts to find a multilateral solution

without escalating trade tensions.

“We support the US government’s

efforts to investigate these complex

trade issues but urge it to pursue the 301

investigation in a spirit of international

co-operation and without using tariffs

as a remedy,” Ms McCloskey said.

Donald Trump has threatened to

retaliate withtariffson French prod-

ucts, including wine. US officials are also

considering other measures, including a

doubling of taxes on French individuals

and businesses in the US.

The furore over the French digital tax

has added to trade tensions between the

US and the EU, which are already

strained by Mr Trump’s threat to

impose sweeping tariffs on imported

cars and car parts, on top of existing lev-

ies on European metals.

US companies

Big Tech urges France to drop tax plan

Industry leaders criticise

digital services excise but

rail against retaliation

‘This is a

concern

for trade

and the

wider

economy, if

countries

follow the

DST model’

BENEDICT MANDER— BUENOS AIRES

A defining moment in the four-decade

career of the man who many expect to

be Argentina’s next president came in

early 2018, when he had a private meet-

ing with Pope Francis.

“Francis encouraged Alberto’s recon-

ciliation with Cristina,” said a close advi-

ser to Alberto Fernández, who had fall-

en out with Cristina Fernández de Kir-

chner, theformer president, a decade

earlier while cabinet chief.

Mr Fernández’s meeting with the

Pope was a key step in unifying the cri-

sis-stricken Peronist opposition after its

humiliating defeat in midterms in late

2017, and may have helped pave the

road for its return to power.

The alliance of the moderate Mr Fern-

ández with his popular but more radical

namesake, who unexpectedly ran as his

vice-president, easily defeated the mar-

ket-friendly PresidentMauricio Mac-

riin primary elections this month.

Investors, convinced the veteran politi-

cal operator will cruise to power in elec-

tions in October, dumped Argentine

asset prices on fears that the country

was on the verge of a damaging return to

economic populism. Fitch Ratings on

Friday downgraded Argentina on con-

cerns it would not be able to repay its

debt following the collapse in the peso.

Those who know Mr Fernández insist

that fears of a return to Argentina’seco-

nomic isolationare overplayed.

“Alberto will bring calm to the mar-

kets immediately. ‘Kirchnerism’ is

over,” said old-guard Peronist Julio Bár-

baro. He voted for Mr Macri in 2015, but

said that Mr Fernández had good rela-

tions with business leaders, especially in

the media, in contrast with Ms Fernán-

dez: “Alberto is not Cristina, full stop.”

Mr Fernández’s unexpected election

victory was clearly helped by a strug-

gling economy, with inflationabove 50

per cent after last year’s currency crisis.

But it could not have happened without

Mr Fernández’s success in unifying the

populist Peronist party. WhileMs Fern-

ández controls the support of about a

third of the population, Mr Fernández

managed to win almost half of the vote,

suggesting his centrist image helped win

over middle-class voters angry with the

government’s failure to fix the economy.

The campaign was light on policy pro-

posals, but Mr Fernández has been at

pains to emphasise his commitment to

paying Argentina’s debts. He has pled-

ged not to exit its IMF programme but to

renegotiate it, extending maturities.

With most of his political career con-

ducted behind closed doors, the lawyer,

60, who still teaches at the University of

Buenos Aires, remains an enigma. He

has worked under almost every admin-

istration since the return of democracy

in 1983, from leftist Néstor Kirchner and

his wife, Ms Fernández, to the neoliberal

Carlos Menem in the 1990s.

He has distanced himself from the

more hardline politics of Ms Fernández.

He was critical of her after they parted

ways, even acting as campaign manager

for those running against her in recent

elections. A social democrat of the cen-

tre-left, he favours individual liberties

such as abortion and minority rights; his

son, Estanislao, is a drag queen.

“He is a man who is obsessive in eve-

rything he does,” said Mr Bárbaro, who

with Mr Fernández founded the Cala-

fate Group that aimed to prevent Carlos

Menem from returning to power in the

2003 elections. Mr Kirchner, then agov-

ernor of a remote Patagonian province,

became the group’s candidate.

As an example of his perfectionism,

Mr Bárbaro cited how Mr Fernández

wrote Mr Kirchner’s speeches himself,

something which would normally be left

to a speech writer. Jorge Argüello, a dip-

lomat who has known Mr Fernández

since they were student activists at the

end of the last military dictatorship, re-

calls a young Fernández as an “amo-

rous” man with a passion for women

and football — he was a goalkeeper.

“He once told me that he likes the

position as, while it may be the least

flashy, it can be the most important one

at exceptional moments like penalties.”

Mr Fernández, whose bushy mous-

tache is inspired by his music teacher

and friend, Argentine rock legend Litto

Nebbia, is also a keen amateur musi-

cian. His dogis named after Bob Dylan.

“When it gets to a certain time of the

day, he gets his guitar and starts playing

to get out of a stressful situation,” said

Guillermo Nielsen, a finance secretary

beside Mr Fernández, and now one of

his economic advisers.

“Some people train and do physical

exercise; Alberto sings and plays the

guitar,” he said, adding that he also liked

to write poetry.

He has an irritable side, however, par-

ticularly when subjected to persistent

questioningduring the campaign. His

aides played down a YouTubevideo

from last year which appears to show Mr

Fernández push a drunken heckler to

the floor in a restaurant.

The unknown is whether, once in

power, he would succumb to the whims

of his ambitious vice-president. “Those

that say that don’t know Alberto,” said

Julio Cobos, Ms Fernández’s first vice-

president but today allied with the rul-

ing coalition. “He is a simple, rational

person, with common sense. I don’t

think he’s going to do anything crazy.”

Argentina.Opposition rebound

Peronism on a roll after papal blessing

Healing of divisions spurred

by the Pontiff boosts party

ambitions for return to power

Reunited:

Alberto

Fernández

and Cristina

Fernández

de Kirchner

wave to

supporters in

Merlo, Buenos

Aires, in May

Alejandro Pagni/AFP/Getty

STEVE JOHNSON— LONDON

A growing number of countries are

seeking to tap into the financial

resources of their expatriate popula-

tions, by luring their savings and remit-

tancesinto so-called diaspora bonds.

The $500bn or so of cross-border remit-

tances that flow into emerging market

countries every year are a vital source of

funds for many of the planet’s poorest

people, bolstering household consump-

tion for families back home.

Yet the economic impact of remit-

tance flows could be greaterif some of

that money was directed into produc-

tive investment, according to develop-

ment economists. Diaspora bonds are

one of a number of approaches designed

to bring this about.

The World Bank has received

requests for help to develop financial

products targeting migrant workers

from 20 countries ranging from El Sal-

vador to Bangladesh, says Dilip Ratha,

lead economist in the migration and

remittances team at the World Bank.

“They are a simple recognition of the

fact that migrants send money home

but they also save a significant amount,

quite possibly more than they send

home, in bank deposits on which the

interest rate is close to zero,” he said.

“Offering a diaspora bond at 4 to 5 per

cent in dollar terms can attract their

savings.”

The advantages of this approach are,

in theory, manifold. With foreign direct

investment into emerging markets hav-

ing fallen to historic lows, bond financ-

ing is less volatile than the alternatives

of cross-border portfolio flows, bank

deposits and bank lending, all of which

can be withdrawn at any time.

Moreover, Mr Ratha said, diasporas

“have a more favourable perception of

country risk and are willing to be more

patient with it than professional inves-

tors”, while their benchmarks are

deposit rates, rather than the 10-year

Treasury yield of institutional investors,

potentially producing a “patriotic dis-

count”.

The idea is not new: Israel has raised

$32.4bn in diaspora bonds since 1951.

But it has so far remained a niche part

of the financial markets. India is the

second-largest beneficiary of diaspora

bonds, having raised $11.3bn, but has

not issued such a bond since 2000.

Issues from the likes of Nigeria, Ethiopia

and Nepal have raised far less.

Six months ago Pakistan launched an

effort reportedly to raise up to $1bnof

much-needed capital from its expats by

issuing a diaspora bond, but it has raised

just $31m so far, despite offering dollar

interest rates of up to 6.7 per cent. Mr

Ratha pointed to “supply-side prob-

lems” for the lack of take-up. Invest-

ment banks “don’t have a lot of appetite

for innovation,” and are happier selling

plain vanilla paper, he said.

Furthermore, diaspora bonds are

classed as “retail bonds,” and so require

more regulation than those aimed at

professional investors, with higher

retailing and marketing costs.

But he is optimistic about the poten-

tial scope. In particular, he has hopes for

a bond to help repair flood damage in

the Indian state of Kerala, whichcould

open the door for other states.

“With a few successful pilots we think

more will come on board, because the

potential is huge,” Mr Ratha said.

Diaspora bonds are not the only way

to channelremittances into investment.

The International Fund for Agricul-

tural Development, a UN agency, has

piloted 60 projects through its Financ-

ing Facility for Remittances.

IFAD’s projects typically have two

prongs. First, as with diaspora bonds,

they aim to tap into the potential invest-

ment capital of migrant workers, who it

estimates save 10 per cent of their

income. Second, the aim is to bring the

recipients of remittances into the for-

mal financial system via banks and

microfinance institutions.

Officials hope using migrants’ finan-

cial resourcescould create a positive

feedback loop that helps keep more

workers at home.

This is the latest in a series on remittances.

For previous articles go to ft.com/cash-

trails

Cash trails

Diaspora bonds target money sent home by expatriates

JOHN REED— BANGKOK

DANIEL SHANE— HONG KONG

Thailand’s economy grew at its slowest

rate in nearly five years in the second

quarter, the government said yester-

day,as slowing exports, a struggling

farm sector and rising US-China trade

tensions took their toll on south-east

Asia’s second-largest economy.

Gross domestic productrose 2.3 per

cent in April to June compared with the

same period in 2018, according to Thai-

land’s Office of the National Economic

and Social Development Council, after

growing 2.9 per cent in the first quarter

of this year.

The Thai government blamed flag-

ging domestic demand and weakening

export performance for the slowdown,

news of which camebefore the cabinet’s

expected announcementtoday of a

$10bn economic stimulus package.

The Thai bahthas been one of Asia’s

strongestcurrencies this year, hurting

the competitiveness of Thai exports and

its key tourism sector, which generates

more than a fifth of GDP. Its farming sec-

tor is in the grip of a drought.

Thailand said yesterday that second-

quarter agricultural output fell 1.1 per

cent, exports dropped 6.1 per cent, and

imports declined 2.7 per cent year on

year. Veerathai Santiprabhob, governor

of Thailand’s central bank, said the

bank would lower its 2019 economic

forecast of 3.3 per cent because of slow-

ing growth. The Thai economy grew

4.1 per cent in 2018.

The Bank of Thailand unexpectedly

cut the main lending rateby a quarter of

a percentage point this month, owing to

concerns over the sluggish outlook for

the Thai economy and for global trade.

Today’s anticipated Bt316bn ($10bn)

of government spending is intended to

invigorate growth. It is expected to

include loans and debt forgiveness for

farmers, cash handouts for poorer

Thais and a visa moratorium for visitors

from China and India, according to gov-

ernment officials.

South-east Asia

Thailand economy slows to

five-year low as exports fall

Diasporas ‘have a more

favourable perception of

country risk and are

willing to be more patient’

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