City & Business: The CBI: that's what I call real opposition
Sunday 02 August 1998
Ever since the Confederation of British Industry appointed Sir Clive Thompson, head of Rentokil as its chairman, the cosy relationship between the political leaders in Whitehall and the industrial chiefs at Centrepoint appeared to be hurtling towards a rough patch.
Now the CBI is shaping up to be a more effective opposition than the bedraggled Tories. This week's unusually strong statement from the CBI calling for a cut in rates, the first it had made since the Autumn of 1995, is a case in point. It certainly gained more newspaper space than similar mutterings that have emanated in recent weeks from the Conservative Party headquarters.
Of course, as everyone knows, the Government is no longer responsible for setting the rate of borrowing. The first thing Gordon Brown did when taking office just over a year ago was to establish the Bank of England's independence over monetary policy. Even so, the siren call from the CBI must have made Mr Brown a little uncomfortable. He does after all set the inflation targets the bank has to meet with its monetary policy. More importantly, the CBI's plea was yet another sign all is not well with UK Plc. To bring the point home, the economic boffins at Centrepoint then followed up their call for a decrease in rates with a series of briefings to the press.
Sir Clive would certainly make a formidable opponent for Tony Blair. He has a reputation as a tough nut, gained through his aggressive expansion of the company he heads, turning what was an unfashionable firm of rat catchers into one of the biggest companies in the country. Throughout he has remained an outspoken supporter of Thatcherite politics and a ruthless critic of trade unions and state interference in business. He has been a leading opponent of the minimum wage, hardly surprising given his company employs more than 10,000 people earning less than the pounds 3.60 an hour the Government says an employer now has to pay. And despite being almost 20 years his senior, he is a lot better looking than William Hague
Russia remains on brink
The spectre of financial meltdown in Russia has receded, at least for now. It's time for a quick review of the situation.
New money from the International Monetary Fund means that government employees will continue to be paid at the same grudging rates as before. It also means that investors don't face immediate disaster.
The stock market and the rouble have not risen in the wake of the IMF's conditional loan of $22.6bn (pounds 13.8bn) over the next 18 months because investors worry that the government will not improve its tax collection system enough to qualify for the next tranche of IMF funds. But neither has the market or the currency collapsed. An uneasy calm has descended.
President Yeltsin continues, in the words of one Russian banker, to be "a happy man", meaning that he continues blithely to play an unpredictable version of balance of power politics to stay one step ahead of his critics.
On Wednesday, he returned early from his holiday in the autonomous republic of Karelia, near the Finnish border, because of cold and rainy weather. He is staying at his Gorky-9 residence outside Moscow for a few days before deciding where to spend the rest of his holiday.
Washington, or at least that part of it that is not fixated on Monica Lewinsky's grand jury testimony, keeps a weather eye out on Russia, while seeking to stay ahead of the isolationist brigade in the US Congress.
In a three-page letter to US House speaker Newt Gingrich, US Treasury secretary Robert Rubin warned that withdrawal of IMF funds from Russia would cause a market collapse and "damaging turmoil".
But no one believes that zero hour, in some still unimaginable form, is not still coming. No one can say how Russia's fractious, intrigue-ridden government is going to square the circle of keeping the IMF sweet with higher taxes and lower spending while keeping its miserable populace from revolting at the further privations to come.
Russia's short-term capital market, the key to government solvency without IMF funds, is now a basket case. Last Wednesday, the government cancelled a bond auction. Yields on GKOs - the equivalent of short-dated gilts - still range from 50 per cent up, because no one except the bravest speculators want them.
The IMF, meanwhile, faces some form of financial crisis as a result of the new loan, even if the dimensions of that crisis remain vague. To raise the money for the $22.6bn, the Fund had to trigger its little used General Agreements to Borrow provision whereby the G10 and other present and former rich countries like Saudi Arabia cough up extra.
The only clear winner in the crisis? The partners of Goldman Sachs, who in a highly skilled piece of financial engineering endorsed by the IMF, managed the exchange of $6.4 billion in Russian treasury bills for long- dated eurobonds to coincide with the Fund's bailout.
No doubt Goldman deserved every penny it earned. But my goodness, the pennies do add up. Goldman's fee for handling the exchange, at a crude guess, came to somewhere between $25m and $50m. Not bad for a few weeks work, even if that work is founded on expertise built up over decades.
Goldman is not the jackpot winner in the latest evolution of Russia's financial crisis, you say? Other banks willing to lead manage the next GKO-eurobond exchange for less than Goldman charged, please raise their hands.
"We would have given our left arm to do that deal," said one of Goldman's competitors last week.
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