Word: baumohl
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...Bernard Baumohl. Reported by Marc Hequet/St. Paul
OPEC, the international oil-producing cartel, is fighting for its life amid tumbling oil prices and members' cheating on their quotas. That, says TIME business writer Bernard Baumohl, is the reason Saudi Arabia yesterday secured an agreement from Venezuela and Mexico cut oil output -- a deal quickly emulated by Kuwait, Iran and the United Arab Emirates...
...Overproduction and falling demand caused by the Asian economic crisis and the unusually mild winter has sent oil prices plummeting, while cheating has bedeviled OPEC?s attempts to reverse the trend by cutting production. ?Venezuela has been notorious for cheating,? says Baumohl. ?Although in the new agreement they?re going to cut back production by 200,000 barrels a day, they were, in fact, producing 700,000 barrels more than their OPEC quota allowed,? says Baumohl...
...rest of Indonesia, though, the move is financial poison. Pegging the rupiah to the dollar would only work if Indonesia's economy were "comparatively healthy--functioning banks, low inflation, low unemployment, like in the U.S.," says Baumohl. "Indonesia has none of those. It'll be a disaster...
...scenario then is predictable and crushing: Currency traders will take one look at the over-valued rupiah and exchange rupiah for U.S. dollars. "By pegging the rupiah," explains Baumohl, "Indonesia has promised to buy those rupiah with U.S. dollars--at the inflated price." Indonesia's reserves of foreign currency, vital to a nation's economic health, will quickly shrink. And traders, smelling more trouble, will dump even more rupiah, guaranteeing an economic meltdown. "In no time," says Baumohl, "the Indonesian government is bankrupt, and the economy collapses...