Month: January 2019

Deep in a provincial region of northwestern Turkey, it looks like a mirage — hundreds of luxury houses built in neat rows, their pointed towers somewhere between French chateau and Disney castle.

Meant to provide luxurious accommodations for foreign buyers, the houses are however standing empty in what is anything but a fairy tale for their investors.

The ambitious development has been hit by regional turmoil as well as the slump in the Turkish construction industry — a key sector — as the country’s economy heads towards what could be a hard landing in an intensifying downturn.

After a long period of solid growth, Turkey’s economy contracted 1.1 percent in the third quarter, and many economists expect it will enter into recession this year.

The country has been hit by high inflation and a currency crisis in August. The lira lost 28 percent of its value against the dollar in 2018 and markets are still unconvinced by the readiness of the government under President Recep Tayyip Erdogan to tackle underlying economic issues.

The villas close to the town center of Mudurnu in the Bolu region are intended to resemble European architecture and are part of the Sarot Group’s Burj Al Babas project.

But the development of 732 villas and a shopping center — which began in 2014 — is now in limbo as Sarot Group has sought bankruptcy protection.

It is one of hundreds of Turkish companies that have done so as they seek cover from creditors and to restructure their debts.

Driving force 

Sarot Group filed for bankruptcy protection after some of their Gulf customers could not pay for the villas they had bought as part of the $200 million (175 million euros) project, Sarot’s deputy chairman, Mezher Yerdelen, said.

So far, $100 million has been spent on the project.

“Some of the sales had to be cancelled,” Yerdelen told AFP, after the company sold 351 villas to Arab investors.

The villas are worth between $400,000 and $500,000 each. They were designed with the Gulf buyers in mind, architect Yalcin Kocacalikoglu said.

While the drop in oil prices hurt its Gulf customers, Sarot Group was also hit by “the negative impact of the economic fluctuations on construction costs” in Turkey, Yerdelen said.

Despite a legal battle over its bankruptcy status, Yerdelen said the company can continue making sales and that he hopes the project will be inaugurated in October 2019.

Yet the Al Babas project is hardly alone. Unfinished and empty housing projects are strewn across the country, testimony to the trouble the construction sector, and the wider economy, now finds itself in. 

The construction sector has been a driving force of the Turkish economy under Erdogan, who has overseen growth consistently above the global average since he came to power in 2003.

But the sector contracted 5.3 percent on-year in the third quarter of 2018.

“Three out of four companies seeking bankruptcy protection or bankruptcy are construction companies,” said Alper Duman, associate professor at Izmir University of Economics.

Turkey’s ‘locomotive’

“Whether we call it a construction bubble or a housing bubble, there is a bubble in Turkey,” he said.

He pointed to unsold housing stock as the main indicator of this, with data showing in that over the past 16 years 10.5 million apartments have been built but only eight million have been approved for use. 

“There is a high risk this bubble will burst,” he said.

Trade Minister Ruhsar Pekcan said in mid-December that 846 companies had applied for bankruptcy protection since March 2018 but opposition daily Sozcu claimed in October the figure was more than 3,000.

Turkish Chamber of Civil Engineers head Cemal Gokce expressed pessimism, predicting “more bankruptcy protection applications, bankruptcies” among construction companies.

He said too many homes have been built in Turkey.

And most are not luxury villas like Burj Al Babas with its style reminiscent of the Sleeping Beauty Castle at Disney theme parks, but simple apartments and homes for ordinary Turks.

The construction confidence index of the Turkish Statistical Institute (TurkStat) fell 2.1 percent in December to 55.4, after 56.6 in the previous month. Anything below 100 indicates a pessimistic outlook.

However, Kerim Alain Bertrand, who previously headed up a firm that provided and analyzed data on Turkey’s real estate market, said recently he was more optimistic, partly due to the country’s growing population.

“The construction sector is this country’s locomotive sector,” he said. 

While there will be a consolidation in the sector, it will “continue to be kept alive” by the young population, he added.

The median age of the population in Turkey was 31.7 in 2017, according to TurkStat, compared to 42.8 in the European Union.
…

Cuban President Miguel Diaz-Canel replaced his transport and finance ministers this week in his first Cabinet reshuffle since forming his own government in July and amid a cash crunch and growing discontent with the island’s transport sector.

Cuban state media said Wednesday that Transport Minister Adel Yzquierdo, 73, and Finance Minister Lina Pedraza, 63, had been “freed from their roles” without explaining why, adding they would be given “other responsibilities.”

Both had been originally been named by former President Raul Castro during his 10-year mandate and reconfirmed in their roles by Diaz-Canel, who took office from the 87-year-old in April.

They will be replaced by the respective vice ministers in each ministry, Eduardo Rodriguez, 52, and Meisi Bolanos, 48.

​Public transport mess

Some Cubans questioned the logic of promoting those who had also overseen strategies they deemed had failed.

Transport is one of the top complaints of Cubans living in the capital, with new regulations vastly reducing the number of private collective taxis on the road that had supplemented the creaking public transport system.

Many Cubans say they are struggling to get around and it is taking them far longer and costing more to do so.

“Transport is awful,” said Maritza Carrion, waiting for a bus in the business district of Vedado.

In one of his last public appearances, Yzquierdo announced on state television in December that Cuba was importing hundreds of microbuses and buses to alleviate the transport shortage.

The government has periodically done so in the past, only partly resolving the chronic transport shortage for a short while.

​National airline

Meanwhile Cuba’s national airline Cubana has had to slash flights over the last year because of a lack of planes that it blamed partly on the decades-old U.S. trade embargo.

It also faced a plane crash that killed 112, its deadliest in nearly 30 years, just weeks after Diaz-Canel took office.

“What we need are real solutions because it’s been nearly 60 years that we’ve been behind on transport,” said Yadier Osorio, 41. “The government still hasn’t found a solution.”

Under the article on state-run website Cuba debate about the Cabinet changes, many readers called for greater transparency over such decisions. Growing internet access is fostering greater public debate online and accountability from officials.
…

Young people from around the world who provided low-cost child care for American families will share in a proposed $65.5 million settlement of a lawsuit brought by a dozen former au pairs against the companies that bring the workers to the United States. 

Nearly 100,000 au pairs, mostly women, who worked in American homes over the past decade will be entitled to payment under the proposed settlement filed in Denver federal court Wednesday, a month before the case brought by a dozen former au pairs from Colombia, Australia, Germany, South Africa and Mexico was set to go to trial.  

They claimed 15 companies authorized to bring au pairs to the United States colluded to keep their wages low, ignoring overtime and state minimum wage laws and treating the federal minimum wage for au pairs as a maximum amount they can earn. In some cases, the lawsuit said, families pushed the limits of their duties, requiring au pairs to do things like feed backyard chickens, help families move and do gardening, and not allowing them to eat with the family. 

“This settlement, the hard-fought victory of our clients who fought for years on behalf of about 100,000 fellow au pairs, will be perhaps the largest settlement ever on behalf of minimum wage workers and will finally give au pairs the opportunity to seek higher wages and better working conditions,” said David Seligman, director of Denver-based Towards Justice, which filed the lawsuit in 2014. It was later litigated by New York-based firm Boies Schiller Flexner. 

Companies deny wrongdoing 

Under the settlement, which still must be approved by a judge, the companies agreed to make sure au pairs are informed about their legal rights in the future, but they denied any wrongdoing. 

Lawyers now need to track down au pairs who came to the U.S. on J-1 visas between Jan. 1, 2009, and Oct. 28, 2018, and have set up a website to help spread the word about the deal. 

While sometimes confused with nannies, au pairs have much less experience and earn a lot less.   

The program, overseen by the U.S. State Department, was launched as a cultural exchange program in 1986 as demand for child care grew. At first there were only 3,000 participants as part of a pilot, but last year there were over 20,000. The program occupies a gray area between work and an international relations effort, and critics say that makes it ripe for abuse.  

The sponsors said they were just following regulations from the State Department — which last adjusted au pair pay to $195.75 for a 45-hour work week in 2009 after the federal minimum wage rose to $7.25. Their hourly wage has actually been $4.25 though: Families were told to deduct 40 percent of their pay to cover the room and board they’re required to provide the au pairs, a practice challenged by the lawsuit. 

Too costly

In court filings, the sponsors argued requiring families to pay more in states with higher minimum wages would destroy the program by making au pairs unaffordable, hurting foreign policy goals. 

According to a 2016 report on U.S. child care by the Washington-based think tank New America, the average cost of full-time care in a child care center for children up to 4 years old is $9,589 a year for each child, more than the average cost of in-state college tuition. The average cost of full-time care at home with a nanny was $28,353 — 53 percent of the median U.S. household income and nearly three times the annual pay for an au pair.   

The practice of having au pairs — French for “on par with” — developed in postwar Europe, where young people lived with families in other countries to learn a language in exchange for helping with child care and some housework. In Europe, au pairs generally are limited to working 30 hours a week. 

Sarah Azuela said the ad she saw her final year of college in Mexico promised coming to the United States to work as an au pair would be the best year of her life, full of travel, meeting new people and becoming part of an American family. But she says what grew into a two-year stay turned out to be the worst time of her life, with her feeling more like a slave subject to the whims of her host families than a member of the household.  

At her last placement — working for a single mother in Virginia — Azuela said that in addition to helping care for three children, she cooked all the meals, cleaned, planted flowers and packed the family’s belongings and helped move them twice, first to an interim apartment and then to a permanent home. 

Positives

Nevertheless, Azuela was grateful her host mother gave her time to study for a business certificate at a university, which led her to extend her stay, and for not yelling or threatening to hit her as a previous host had done. 

“I don’t wish anyone to experience anything like this,” Azuela, who is from Hermosillo, Mexico, but now lives in Wisconsin, said about why she joined in the lawsuit.

Meanwhile, a related case challenging whether Massachusetts had the right to protect au pairs in its domestic workers’ bill of rights, since they are regulated by the federal government, is pending in federal appeals court. The State Department said in a court filing in September that federal law requires only that au pairs are paid the federal minimum wage, arguing federal law specifically states when other international guest workers, like camp counselors and teachers, are entitled to make more.  
…

With the March deadline approaching for Britain to depart the European Union, there are concerns that Britain’s exit could undermine Western sanctions against countries like Iran, Syria and North Korea. Analysts note that Britain has been influential in persuading the EU to take action, saying there are risks Britain will seek a different path as it carves out new economic and strategic partnerships.

“Some estimates hold that up to 80 percent of the EU’s sanctions that are in place have been put forward or suggested by the UK,” said Erica Moret, chair of the Geneva International Sanctions Network.

She says Britain’s future absence from EU meetings will impact the bloc’s future relations. “The UK is also a very important player of course as a leading economic and political power, a soft power player in the world. Also the City of London means that financial sanctions are rendered much stronger through the UK’s participation.”

Britain was quick to coordinate expulsions of Russian diplomats among EU allies following the nerve agent attack in the city of Salisbury last year against a former double agent, an incident London blamed on Moscow.

Through EU membership, Britain enforces common sanctions against several other states and individuals, such as Syrian officials accused of war crimes.

After the Brexit deadline day on March 29, Britain will be free to implement its own sanctions.

“I wouldn’t see this happening in the short term, especially because again both sides have said they are committed to EU sanctions and they are also committed to projecting some political values that both EU and UK agree to,” says Anna Nadibaidze of the policy group Open Europe.

Britain, however, could seek a competitive advantage over Europe by diverging its sanctions policy, says Moret.

“It’s very unlikely that the UK would deliberately seek to gain commercial advantage over EU partners. But when you think about the tensions that will come into play post-Brexit, when it comes down to trying to negotiate new trade deals, seeking new foreign investment into the country. There will be pressure, a balance to be made between alignment with EU sanctions and domestic interests.”

That pressure could be felt first over Iran. Alongside European allies, Britain backs the 2015 Iran nuclear deal known as the Joint Comprehensive Plan of Action or JCPOA, which lifted some Western sanctions on Tehran in return for a suspension of its atomic enrichment program. U.S. President Donald Trump pulled out of the deal last year, saying Iran has violated the spirit of the agreement.

Britain urgently wants a trade deal with the United States after Brexit. Will the price be alignment with Washington’s policy on Iran?

“That is a key risk and it’s a very important one that will be in the forefront of policymakers’ minds,” adds Moret.

Britain was among EU nations backing sanctions against an Iranian intelligence unit this week, accusing Tehran of plotting attacks and assassinations in Europe. Both Brussels and London say they will continue to work together to counter common threats through a range of policy tools including sanctions.

 
…

Concerns have arisen that European sanctions against countries like Iran, Syria and North Korea could be undermined by Britain’s upcoming departure from the European Union. Britain will be free to implement its own sanctions regime — and while both Brussels and London insist they will continue to work together, analysts say there are risks that Britain will seek a different path as it carves out new economic and strategic partnerships after Brexit. Henry Ridgwell reports from London.
…

Another clutch of U.S. Federal Reserve officials said Wednesday they would be cautious about any further increases in interest rates so that the central bank could assess growing risks to an otherwise solid U.S. economic outlook.

The presidents of three of the 12 Fed regional banks, from Chicago, St. Louis and Atlanta, all pointed to a need for greater clarity on the state of the economy before extending the central bank’s rate hike campaign into a fourth year.

Two of the three, Charles Evans of Chicago and James Bullard of St. Louis, are voting members this year on the Federal Open Market Committee, the bank’s policy-setting panel. Bullard has long been critical of the Fed’s rate increases, begun in December 2015, but the caution from Evans is new, even if he still asserted that rates probably need to rise more.

The remarks from the three come less than a week after Fed Chairman Jerome Powell eased market concerns that policymakers were ignoring signs of an economic slowdown. Powell said he was aware of the risks and would be patient and flexible in policy decisions this year.

The new tone of caution comes after the U.S. stock market dropped precipitously in the fourth quarter of 2018, suffering its worst December performance since the Great Depression. Other signs of tightening financial conditions surfaced as well, including a sharp slowdown in issuance of corporate bonds.

Evans has been among the most vocal backers of gradually tightening U.S. monetary policy. In a speech in Riverwoods, Illinois, his first public comments since November, he nodded to an array of “tough-to-read” factors highlighted by the recent market sell-off, but penciled in a forecast for reasonably good U.S. growth and employment in 2019 and beyond.

His prepared remarks gave no hard timeline for further rate hikes, but they hinted he could agree to stand pat until around midyear to see how factors like global growth and U.S. trade and fiscal policy pan out.

Bullard, meanwhile, told the Wall Street Journal that while the Fed had “a good level of the policy rate today,” there was no rush to push them higher.

Latest hike

The Fed last raised rates in December, to a range of 2.25 percent to 2.50 percent, to conclude a full year of quarterly increases in its benchmark lending rate.

Minutes from that meeting will be released later Wednesday and could shed more light on how policymakers assessed the economy as they agreed to raise rates and, at that time, projected two more increases in 2019.

Overall, that marked the ninth increase of a quarter percentage point since December 2015, when the Fed began lifting interest rates from near zero, where they had been since the financial crisis in 2008.

Defensive decisions

Atlanta Fed President Raphael Bostic, who earlier this week said the Fed was likely to need at most a single rate increase this year, on Wednesday elaborated on that view as driven by conversations with business executives, who say they have become more defensive in preparing for slower growth by paying down debt and holding off on new plans.

Those conversations “are not consistent with the business sector ramping up,” Bostic said in remarks prepared for delivery to the Chattanooga Area Chamber of Commerce. Bostic, who backed all four rate hikes in 2018 as an FOMC voter, does not have a policy vote on the panel this year.

Meanwhile, back in November, Evans had said raising rates to about 3.25 percent would be a “reasonable assumption.” Powell and other top officials in recent weeks have stressed that they are listening to the concerns implied by the stock market sell-off that began in early October, and traders are very skeptical of much more tightening this year.

“A case can be made for a reasonably good 2019 economic outcome,” Evans said. “But I do not want to downplay the risks too much.”
…

Amazon.com Inc. Chief Executive Jeff Bezos and wife MacKenzie Bezos have decided to divorce after a long trial separation, Bezos said on Wednesday in a joint statement by the couple on Twitter.

Amazon.com again became Wall Street’s most valuable company this week, surpassing Microsoft Inc. Bezos’ fortune has soared to more than $160 billion, thanks to his stake in Amazon.

From modest beginnings as an online bookseller, Bezos and Amazon branched out into almost every product category available, ending up taking on established retail giants such as Wal-Mart Stores Inc. Bezos founded Amazon in 1994.

Under Bezos, Amazon launched the Kindle e-reader and revolutionized the way books are distributed and read. The company has also been a pioneer in cloud computing.

In November, Amazon picked America’s financial and political capitals for massive new offices, branching out from its home base in Seattle with plans to create more than 25,000 jobs in both New York City and an area just outside Washington, D.C.

 
…