© 2007 Institute of Current World Affairs
The Institute awards long-term fellowships to develop a deep understanding of an issue, country, or region outside the US and to share that understanding with a wider public.
Institute of Current World Affairs - Home Page

Below is a hobbled text version of a PDF document.
In order to read the actual document please click the link below and register if necessary.
(One-time registration is free and very quick.)
Read article

5/17/1988 - untitled by William L. Melvin

NOT FOR PUBLICATION WITHOUT WRITER SCONSENT INSTITUTE OF CURRENTWORLD AFFAIRS May Cambrldge UK WLM Peter Bird Martin Institute Current World Affairs W Wheelock St Hanover NH 03755 Dear Peter Yesterday I finally primary tutors Center Latin American Studies Unfortunately about plans preoccupied arrival Octavlo Paz noted exlcan author Labrynth Solitude When I found speak arrival plans matter anyway I thoughts metal markets miners Bolivia International Tin Council joined crowd listen aestro Paz reflected nature poetry modern society I brief excerpt A Brazilian student asked Maestro Paz justify shift Left during assoc Surrealists before Spanish Civil War present position Brazilian characterized Center Right Paz responded realism forced rethink views witnessed excesses Stalin failure planned economy after another He mused The great mistake generation forgot democracy The terms Left Right useful journalistic jargon Perhaps problem Latins passionate identlty But I finish story before starting another As I wrote newsletter contradictions structure ITCTk collapse being during negotiations VIth International Tin Agreement Haggling buffer stock export quotas characterized debate between consumer states U S producers ala2sla lesser extent Bolivia The U S negotiating stance strongly influenced election President Reag ascendancy market ideologues Administration Although U S member ITC during first agreements advantage status number consumer Vth Agreement press views US negotiators maintained export controls William Melvin Institute Fellow studying Indian societies Andean affairs Page encouraged uneconomic marginal producers You imagine Bolivia delight hearing argument The U S delegation proposed buffer stock extra production market abolltlon export controls Producer nations countered buffer stock proposal Such stalemate produced debate talks which began Geneva toxtended another result Vth Agreement extended original closing In U S pushed increased buffer stock compromise reached A normal stock funded members shared equally among producer consumer camps metal And everyone dismay U S refused ratify VIth Agreement Bolivia opposed agree would money scare foreign exchange reserves bowed To Americans VIth Agreement become producers Agreement Bolivians consumers Agreement As turned Agree Much immediate crash analyses focus limitation imposed buffer stock When takes account special lends special borrows unprlced sales Buffer Stock Manager Koing accumulated total stocks attributable ITC after October amount tonnes This quantity which exceeded declared stockpile forced BSM tried maintain Council price range defend floor alayslan rlnggit A larger stockpile argument would allowed BSM flexi611ity enabled trade without hiding warrant special deals However ITC official privy negotlations argues fundamental problem buffer stock actually subtle Although reminded downfall historians benefit hindsight assign foresight declared What U S unlerstand understand buffer stock mattered The buffer stock It ceiling buffer stock demands attentlon This limit words recipe disaster Under Vth Agreament buffer stock export controls worked tandem Article member states contribution buffer stock allows unlimited borrowing increase stock Unlimited borrowing never because buffer stock O00 export controls effect Thus relatlvely early point under production cycle BS Council could intervene weapons bring consumption A further borrowing total Pse production equilibrium As demand picked price moved upper range Council sales buffer stock commenced tandem revision export controls Thus country Bolivia rarely incentive flood buffer stock It profitable follow guidelines In Vlth Agreement however U S pushed clause would allow imposition export controls until buffer stock filled In doing argues ITC official insured buffer stock would always capacity Ironically argument limited buffer stock nicely market ideology actually encouraged opposite captlve market So producers could market BSM would until buffer stock course would I would later nalyze production trends It compelling argument nonetheless theoretical grounds Whether accepts theory VIth Agreement practice holes On June buffer stock stood largely result buying forced Malaysia infamous Mystery Buyer scheme failed suddenly market Now buffer stock limit Vlth Agreement negotiated figure assumed U S Bolivia would When others total members contributions scaled downward reflect Council Include membership participated negotiations So instead 30000 total contributed metal Combine lower figure allowed borrowing money discovers ITC possessed buffer stock allowed before transaction London Metal Fxchare place To alleviate problem delegates decided transfer Vth Agreement leaving balance VIth If sounds confusing better Contributing Koning dilemna members chose their contribution buffer stock metal Only Thailand contribution Australia contribution L3 transferred Vth Agreement Malaysia L18 July De Koning faced nevertheless grave serious situation The buffer stock almost little maintain How Council manage operate three years Simple De Koning secured loans using warrants reputation ITC collateral importantly played risky dangerous arbitrage between metal market currency markets The bleak world economy might members reluc their contribut Council But Page L1l overvalued U S dollar De Konlng position defending based reference price Penang Malaysian ringgit rlnggit closely follows movement U S dollar In London traded Metal Exchange L sterling This meant dollar against pound currencies almost reached parlty value Koning buffer stock accordingly From Koning Almost without variation contract worked favor since dollar could seemingly wrong For needed reputation ITC growing value stocks credit easily available Bernard Engel deputy buffer stock manager charge securing credit faith banks ITC doors The banks Indeed major creditors ITC Malaysla largest banks Bank Bumlputra Malaysia BHD Malayan Banking Berhad Sir Adam Ridley director Hambros Bank PLC chairman group bankers seeking recover losses estimated L340m We dealing organi ation claims foster parentage UN T never doubt member countries would honor commit ments their behalf Council France West Germany these countries AAA credit ratings The credit terms reflect trust loans given abover LIBOR warrants valued value accepted collateral When price decline moved value below value obligations added margin bring collateral Immediately after crash speculation trying explain banks risks there special provisions venture attractive Engel denies I relationship banks straightforward built dependence foreign currency movements circumstance could ITC forever At Council session March Koning pressed membership ability operate below floor price TIs granted until later March By forced price higher higher The lapse decision proved costly after larch dollar rlngglt began decline against sterling Forward trading gains turned forward trading losses One dealer responsible hefty volume futures warned Koning dollar could continue forever upward Koening misplaced faith dollar Achilles Heel When Koening error This dealer square entirely facts Documents I indicate BS repeatedly warned Council membership onwards gbliug dangerously volatile market These warnings mentioned foreign exchange exposure infusions lessen loans Yet until August group member tates Canberra Australia decided offer ITC L60m continue trading When Koning called Exchange Page confess money promised According delegate Council meetings inertia member states developed visible evidence Koning playing market successfully The general feeling surfaced Konlng little cried often At situation bordered comedy absurd When warning failed materialize solely I because brilliant accounting maneuver Japanese delegate opportunity chastise members Secretariat unnecessary doomsaylng Others point existence unpriced forward sales evidence members adequately informed risky nature their business When crash buffer stock priced As market Council favor unprlced sales worked increase revenue But there sudden price difference Oetween Council purchase price price created There matter special lends borrows refers rolling interest purchase confidential between broker BSM This meant really never changed hands expense moved Oack forth between Council Exchange merry round These arrangements solely favorable ITC If BS operated years strength dollar brokers The existence short sellers market culminating June sueeze I discussed first newsletter happily unprlced sales Unprlced sales provided secure source supply speculatlve venture I speak Jaime Bueno a0out these issues return South America My amazement trading operation could place without understanding membership another delegate alayslan Trade CommissiOner Amha Bin Buang I asked would agree theses forth John Crabtre The Great Tin Crash Bolivia Tin Market Crabtreseem ssedt Bbl current misery traced brokers London Metal Exchange L40 O00 while miners Bolivia subsistence thereby shedding light injustice international economic system dominance North South I asked Mr Amha because ialaysian sector suffered equally Bolivia He rejected Crabtree terms debate Ve number loser litigation resulting crisis makes expensive But risks decided chance Without Exchange could Page supported price The Exchange essential producers Rather Mr Amha other analysts attention internal workings Council Since producer consumer conflict I asked Amha producers among themselves Again frank response competition another You problem ITC problem international organizations A meeting scheduled begin means start until Then because other items agenda consensus reached difficult issues these issues saved until lasAwe order delegates This procedural mentality certainly shows months immediately following crash The credltos grouped themselves around Sir Adam Ridley Hambros Peter Graham Standard Chartered Bank They concert Ralph Kestenbaum Gerald etals Ltd constructed rescue package known Neweo NewCo would holding company owned bankers brokers ITC stocks release three period Originally capital raised L270m L200m which ITC member states The targeted disposal which would ITC hands January calculated premise would L7 market cleared settle around L6 However since contract suspended could where price might Thus plans stockpile quarter minimum release month seemed inflexible producers Japan The early stages talks NewCo marred unwillin member states admit liability ITC default The UK government stood alone advocating guarantee The reluctance basis sovereign immunity ember states argued ITC limited liability concern If House Lords finally decide member states liable members ITC rarely impression before crisis Only after enormity Council debts became known countries cover their bases resorting legal counsel One delegate producing country assured country consulted lawyers question after October Before country rssponsibility Council never questioned He maintains producers pushed months after October Bankers brokers neglected diplomatic overtures favor leave approach little account delegat confirm every stage talks their capitals Indeed question financing NewCo arose would before several parliaments approval Page The situation actually complicated Feeling still existed among producer countries Exchange unfairly changed rules June Council ahead producers advantage And producers mainly LDC naturally hesitant commit money would longer influence price Trying understand stance EEC countries difficult The obligations countries France West Germany Holland stand miniscule compared their respective GNP And considers pressure currently levied Third World governments maintain service legal integrity their position hardly seems credible To Sir Adam feels recalcitrance EEC countries stand behind ITC originates consderations quite apart As wrote repeated Their concern about precedent which admission liability would involve imagine With recurrent problems financing EC budget thing would greater complicated legal wrangles might arise Intervention Board Agricultural Produce money unable fulfill contracts purchase surplus wheat All above notwithstanding deadline accepting NewCo EEC countries which shelved Indonesia Thailand By February EEC states largely prodded accepting principle UK offer supply additional bridging finance through Bank England I admit I footdragging consumer countries surprising For onsumers paying wildly artificial prices ITC water I imply I agree position But perplexing concerned I Third World development inability unwillingness producers together their collective interest NewCo There assurance NewCo would worked Bernard Engels shared theory markets callin Everest Prlnciple Anytlme target price market matter reasonable market attack price simply because there Perhaps would NewCo No knows conversations realistic ideas about trade based Indonesla rejection Sources London clear Indonesia decision alone A group Young Turks captured Suharto Jakarta effectively overturned decades cooperation commodity agreement Sir Adam Not during course negotiations I concern marginal producers Bolivia ULI Pse Instead Indonesian position based purely market considerations These Young Turks sources declined convinced beyond doubt price could below LS Although opinion Energy inister Dr Subroto clear group carried enough political weight Jakarta Prime inister Their market based solely price desire steal market share Indonesia Asian rival alaysia Thus could afford ignore Koning explicit warning unregulated market might result falling below L The Indonesian rationale stems nature industry Malaysians Although first mined Dutch island Bangka indus still emerging The majority Indonesian deposits presently worked alluvial offshoe This gives Indonesians competitive advantage since dredging relatively inexpensive industry initial capital investment place Sea dredging becomes economicwhen considers nearly alluvial dredge scooped first place Thus mined twice nearly equal yield In alaysia situation nearly reversed Gravel operations comprise industry These mines owned ethnic Chinese tradition favored export control because operational costs And reserves Malaysia fully exploited Indonesia above these Young Turks convinced Suharto temporary squeeze market could force alaysian industry contract Conversely Indonesia could weather storm expanding production lowering costs Then price crept upward would market A phone Indonesian Embassy resulted answer I sorry government policy Jakarta So I publicly available figures check theory Within months collapse Indonesian rupiah devalued Indonesian attractive The royalty exported miners government reduced On European market priced discount above beyond conferred devaluation As November estimatedV O00 strong force telling production figures tonnage increased estimated Indonesia exceeded export quota Association Page Tin Producing Countries Finally smelter built reduce country dependence Mala ysians turned around million profit ruplah But Young Turks infallible If anything production increase simply decline revenue brought persistently price It would entirely correct blame solely Indonesians either When VIth Agreement force Tin Council could longer claim majority ctlon under control Artificially prices encouraged smuggling Far East never under mbrella international otherwise China returned world market force producing aproxlmately mined signlflcantly Bolivla neighbor north exploited richest fields world In Brazil produced figure risen dramatlcally The share mined alluvial deposits Paranapane owned Pitlnga Ite located Manaus capital Amazonas Both Brazil China refused ITC successor ATC I I explain miner Bolivia Talks earlier Geneva raised possibility International Tin Study Group function purely statistlcal nature Though impossible irrefutable notion still overhangs market I heard estimates Twenty thousand considered normal analysts thinking ahead distant future again L6 It certain international control passed until litigation settled London Metal Exchange advised contract market And commodity agreements general Amha Malaysian Trade Commission sentiment London Yes there solidarity South I Even international agreement always boils against As Received Hanover LZ Z I III I III OO O00OO Z Z C