Business

MOSCOW — President Vladimir Putin told company bosses on Thursday to bring their assets home and clean up their businesses to help Russia survive Western sanctions over Crimea, and an economic downturn.

Facing a possible widening of Western sanctions that may target businessmen close to Putin, some of Russia’s oligarchs are increasingly nervous about their companies’ prospects.

Some of Russia’s largest companies are registered abroad where they may benefit from lower tax rates but also may enjoy some distance from the Kremlin and feel beyond its reach.

Without referring to Russia’s annexation of Ukraine’s Crimea region or to slowing economic growth, Putin said it would also be in the bosses’ interests to support the Russian economy.

“Russian companies should be registered on the territory of our nation, in our country and have a transparent ownership structure,” Putin told heads of Russia’s largest companies.

“I am certain that this is also in your interests,” he said, pressing home a patriotic message at a conference full of businessmen, including a front row of top oligarchs such as media mogul Alisher Usmanov and metals magnate Vladimir Potanin.

Putin waged war on the oligarchs who amassed political influence as well as vast riches under former president Boris Yeltsin, driving some out of Russia and forcing those who remained to stay out of politics.

Since then, several businessmen with ties to Putin have come to dominate the corporate landscape and are now among Russia’s richest men.

His words may have made some oligarchs nervous. Usmanov’s Internet holding group Mail.Ru is registered in the British Virgin Islands, while X5 Retail Group, owned by Mikhail Fridman, who was not at the conference, is registered in Amsterdam.

Returning to the Kremlin in May 2012 for a third presidential term, Putin has urged politicians and businessmen to return from the “offshore shadows” and stop spiriting cash out of the country, a move some critics say was a move by a weakened president to ensure loyalty among Russia’s elite.

But with sanctions imposed by the United States and European Union (EU) on officials, his demands are carrying more weight, ensuring there will be little public sympathy for oligarchs who may be stung by widening punitive measures.

“Our task is not only to limit the possibilities of offshore schemes,” Putin said. “We understand perfectly well that little can be achieved through prohibitions. The main direction of our work is in something else: it is necessary to increase the attractiveness of the Russian jurisdiction, improve the business climate, and strengthen legal guarantees and the protection of property.”

Fear of sanctions to come

The conference, days after Putin signed a treaty on bringing Ukraine’s Crimea region into Russia, was surprisingly upbeat despite the threat of deeper sanctions by the United States and EU, Russia’s top trading partner.

Many Russians have been swept up in nationalist fervour since Moscow annexed Crimea. But bubbling under the surface, there were some doubts as to what lay ahead.

Putin’s moves in Ukraine have wiped $50 billion off Russia’s stock market this month, sent the rouble down 9 per cent since the beginning of the year and further weakened Russia’s poor investment climate.

The economy grew 0.7 per cent in January, a slowdown from 1 per cent the previous month and analysts expect it to slow further as the impact of the crisis in Ukraine is felt.

“The integration of the global economy has reached such an extent that any split in economic ties cannot happen without consequences,” said Usmanov, a close ally of the Kremlin. “Therefore we do not need sanctions.”

Potanin, who owns a stake in the world’s largest nickel and palladium producer Norilsk Nickel, noted that he had worked out a contingency plan, just in case. 

“Sanctions are a double-edged sword, it’s not clear who will be more hurt,” he said.

Most business owners know that this time the government will not prop them up, as it did during the 2008/2009 global financial crisis when Russia burnt through billions of dollars from its reserves to support its largest companies.

“We will watch how the situation develops, in what direction both our economy and the situation in the financial sector go,” Finance Minister Anton Siluanov told the same conference.

Siluanov said the government would, if necessary, support Russia’s most important companies and institutions, but it did not have the resources to offer help to the majority of companies.

“We do not want to be helping company owners all the time,” he remarked.

Putin was clear that Russia’s economy would develop on its own terms, and would do his best to reward loyal companies.

He said Russia should find ways to help Russian companies win contracts with state companies while holding competitive auctions with foreign companies to please what he called the more liberal economists in this room.

And while he knew business would like more flexibility in reducing the workforce, he would always consider the “social aspects” of these “difficult problems” — a clear reference to Russia’s monocities which are dependent on certain industries.

“We will do this,” he said. “I hope you understand me correctly.”

AMMAN — International General Insurance Holdings (IGIH) announced this week in a press statement that it generated $31.26 million net earnings for the 2013 financial year. The amount is a 24 per cent increase over the $25.25 million recorded in 2012. Wasef Jabsheh, vice chairman and chief executive officer of IGIH, said in the statement: “2013 was another year where we have been able to achieve record profit. These results clearly demonstrate that our business strategy, underwriting guidelines, and risk management have worked positively in our favour.” He added: “Although we expect 2014 to be a fairly tough year due to increased competition, we are re-aligning our business strategies and approaches to meet the challenges of market cycles and uphold our corporate mission.”

AMMAN –– Amman Chamber of Commerce (ACC) President Issa Murad on Wednesday called on Chinese firms to take advantage of investment opportunities available in Jordan and to take part in mega-projects the Kingdom plans to carry out, a chamber statement said. At a meeting with Chinese Ambassador to Jordan Gao Yusheng, Murad described China as one of Jordan’s major trade partners, indicating that nearly 30 per cent of goods imported to the Kingdom are from China. Trade volumes between the two countries reached $3.6 billion in 2013, he noted. The ACC president called for constant coordination between the chamber and the embassy, particularly with regards to problems facing Jordanian businesspeople who import from China, according to the statement. 

DAMASCUS — Syria has suffered damage estimated at $31 billion as a result of its three-year civil war, Prime Minister Wael Al Halqi has said, a figure nearly equivalent to its gross domestic product (GDP).

“The damage caused by the war in Syria stands at 4.7 trillion Syrian pounds,” or $31.3 billion (22.5 billion euros), Halqi told the ruling party’s Al Baath newspaper.

He did not say whether he was referring exclusively to property damage or to some broader measurement.

The Economist Intelligence Unit has forecast that GDP will reach $34 billion this year.

In January, Local Administration Minister Omar Ghalawanji valued the losses at $21.6 billion.

Meanwhile, Halqi said the budget allocated for reconstruction this year stands at 50 billion pounds, up from 30 billion pounds last year.

“The current priority for the government is to return security and stability by giving our armed forces the means to fight terrorism,” said Halqi, referring to rebels seeking to topple President Bashar Assad.

“There is also a need to give people the basic commodities they need to meet their needs,” Halqi added, noting that Syria has enough wheat in store to feed the population for a year.

The prime minister also said the state pays £609 billion a year in salaries to civil servants, and that it spends $300 million a month on refined petroleum products.

A Syrian NGO says at least 146,000 people have been killed in the country’s war and that nearly half the population has been displaced.

Separately, a sizable but silent portion of those who live in Damascus and oppose the government say their constant fear of the police state is a flashback to some of the worst years Syrians endured before the war.

People continue to disappear into state detention centres. If they are released, they speak of torture and humiliation, sending ripples of fear through their community.

Among the merchants, almost everyone believes openly opposing the government carries great risks, including torture, death, or “inviting attention to the business”.

During a recent meeting of Damascene merchants, talk turned to the case of a colleague detained by Syria’s powerful and dreaded state security apparatus.

The man in question, it seemed, had overheard someone cursing President Bashar Assad, but failed to turn them in.

“Imagine that! They took him and beat him to a pulp and called him a mute devil for not reporting his colleague,” one merchant said. “Imagine the life we’re living now!”

While it is hard to verify the specific case, the discussion demonstrates the climate of fear and intimidation prevalent in the capital three years after the revolt against four decades of Assad family rule broke out.

For some time after the uprising erupted in the southern city of Deraa on March 18, 2011, it looked like the revolt would shatter the barriers of fear that long defined the relationship between Syria’s police state and its citizens.

Nowadays in government-controlled areas of Damascus that is far from the case. Armed men outnumber civilians on some corners, barricades prevent people from entering some streets and military hardware sits conspicuously between trees.

One affluent merchant said he held out as long as he could against painting the shutters of his shop the colours of the Syrian flag — a show of support for the government increasingly common in recent months — but he eventually had to give in.

“Was I going to be the odd one out? They [state security] probably would have ignored me, but they would have sent the tax department or some other authority to find some violation to shut me down. No thanks,” he said.

‘Assad is staying’

Violent crime in the capital is rare, but the city teems with armed men both in and out of uniform who often work long shifts for low pay.

With few provisions from the government, the men instead supply themselves from nearby grocers who would not dare demand full payment. The men stop taxis and name their own prices; the drivers do not protest.

In some cases, gunmen have posed as state security agents, demanded entry into private homes and burgled them. Police are too afraid to pry into a crime that might involve the intelligence apparatus, and the incidents go uninvestigated.

At petrol stations, a “security ID” issued for military, state security or other official business will get you to the front of the line, as well as into a specially reserved “military lane” at the checkpoints that have proliferated throughout the city.

The IDs — and their counterfeits — have become so popular that the cars in the military lanes now sometimes outnumber those in the regular queue. “Everyone in this country is somebody,” one driver remarked.

But for many Damascenes the most difficult aspect is the sense that very little of this will change anytime soon. One middle-aged woman who supported the uprising echoed many when she voiced her resignation.

“Assad is staying and he’s stronger than us and there’s nothing we can do about it,” she said.

LONDON — Britain shook up the Bank of England (BoE) on Tuesday, breaking the all-male grip at the top as it appointed two new deputy governors and a chief economist who has been highly critical of the banking industry.

The biggest single change in senior staff since the BoE gained independence in 1997 sees International Monetary Fund (IMF) official Nemat Shafik become its new deputy governor for markets and banking — the first woman in a top policy role since 2010.

Ben Broadbent, up until now an external member of the bank’s monetary policy committee (MPC), will step up to become deputy governor for monetary policy.

In a third move, executive director for financial stability Andy Haldane swaps jobs with chief economist Spencer Dale.

Dale had been a favourite to become deputy governor but will lose his MPC seat from June when he takes over Haldane’s role on the financial policy committee, which regulates banks.

Haldane has been unusually outspoken for a central banker, criticising banks for trying to dodge regulation and addressing anti-capitalism protesters.

The changes — made by BoE Governor Mark Carney and the government — are part of an overhaul to break down barriers between the bank’s monetary policy and bank regulation wings.

The biggest loser from the upheaval is markets director Paul Fisher who will have to give up his MPC seat to Shafik from August 1. Fisher has been under fire from lawmakers over the BoE’s handling of alleged manipulation of London’s currency market.

“The bank needed a pretty major shake-up and it is certainly getting one,” said Jonathan Portes, director of Britain’s National Institute for Economic and Social Research.

According to Portes, the new appointments should breathe fresh life into the central bank’s macroeconomics team — which had a patchy forecasting record and was too inward-looking — and that Shafik had the right temperament to tackle market abuse.

“She’s pretty tough and at the moment you need someone who is prepared to be fairly tough with the London financial sector,” he said.

But Domenico Lombardi, a former IMF board member who now works for Canadian think tank CIGI, warned that she was likely to face a steep learning curve when she arrives at the BoE.

“She will have some catch-up to do, because clearly banking and markets were not at the core of her responsibilities at the IMF,” he remarked.

New deputy governors

Prior to Tuesday’s announcement, Carney had overseen the appointment of outsiders to two other top positions at the bank.

Broadbent was formerly a senior economist at Goldman Sachs — Carney’s employer before he became a central banker. He will succeed Charlie Bean, who retires at the end of June.

Broadbent has said the failure of troubled banks to lend money to more efficient firms is one of the reasons behind Britain’s weak economic productivity since the financial crisis.

Shafik — who holds Egyptian, US and British nationality — has a background in development economics, working at the World Bank and as the top civil servant at Britain’s overseas aid department before becoming deputy managing director at the IMF.

According to an IMF statement e-mailed to The Jordan Times Tuesday, IMF Managing Director Christine Lagarde said: “I know I speak for all colleagues at the fund when I say that Minouche [Shafik] will be missed. The fact that she is leaving us to take up such an important post is testimony to her broad command of policy issues, her superb leadership and communications skills, and her global reputation.”

Shafik oversaw much of the fund’s country work in Europe, including the programmes with Greece and Portugal, as well as Arab countries in transition, the statement said, adding that she also led the efforts to integrate the IMF’s work on capacity building and technical assistance.

 “I have highly valued Shafik’s contribution as part of the senior team and I have greatly appreciated her advice, candour, and loyalty. She is a dear colleague and, I am proud to say, a dear friend as well,” Lagarde noted.

Shafik will stay on until mid-June as special adviser to the managing director, the IMF said.

She joined the fund as deputy managing director in April 2011  after resigning her position as permanent secretary of the UK Department for International Development. Holding a M.Sc. in Economics from the London School of Economics and a D.Phil. in Economics from Oxford University, she has also served as the youngest ever vice president at the World Bank where  she helped get private money into infrastructure projects.

Shafik will be responsible for the BoE’s eventual exit from its quantitative easing policy, under which it amassed 375 billion pounds ($624 billion) of government bonds. 

She will also steer a review of the way the central bank gathers intelligence on markets, which has come under scrutiny recently after claims that London traders manipulated key foreign exchange rates.

Since taking office in July, Carney has been keen to increase the number of women in senior roles at the BoE.

BNP Paribas economist David Tinsley said the appointments were a surprise, and would add “a degree of raised uncertainty”  about when the central bank would start to lift interest rates from their record low of 0.5 per cent.

Little is known about Shafik or Haldane’s views on monetary policy, though Portes said she had been sympathetic to the IMF’s move away from its highly orthodox policy prescriptions.

Broadbent and Dale both voted against the bank’s final expansion of asset purchases in July 2012, while Fisher was part of a dovish minority under former governor Mervyn King who wanted more asset purchases up until King’s departure in June.

Broadbent is the first external member of the MPC to take up a position as deputy governor. He will be responsible for the BoE’s analysis of Britain’s economy, as well as bank notes.

Britain’s finance ministry also named Anthony Habgood as chairman of the Court of Directors, which supervises the central bank. Habgood is chairman of brewer Whitbread and publishing company Reed Elsevier.

Habgood succeeds David Lees, whose term expires on July 1.

LONDON — Vodafone has agreed to buy Spain’s largest cable operator Ono for 7.2 billion euros ($10 billion), the latest hefty deal in a European telecoms sector starting to rebuild as the region recovers from a recession.

The British group said on Monday it would use some of the $130 billion proceeds from the sale of its US arm to acquire Ono, with a superfast cable network and 1.9 million customers, to create a stronger challenger to market leader Telefonica.

The deal for private equity-owned Ono is Vodafone’s third purchase of a European fixed-broadband asset in two years, following similar moves in Britain and Germany, enabling it to offer fixed-line and mobile services, pay-TV and broadband, while saving money on building and operating its networks.

The agreement, which comes as the French market undergoes a similar transformation, could also spark more consolidation within Spain as players such as France’s Orange seek out acquisitions to avoid falling behind.

Orange has been linked with Jazztel, Spain’s fourth biggest telecoms operator, while Yoigo, owned by Sweden’s Teliasonera, is also seen as a likely target, analysts say.

Shares in Vodafone were up 1.4 per cent in midday trading, outperforming the FTSE 100 index, and shareholders have generally been supportive.

“Historically, Vodafone has been a pure mobile operator,”  Henri Tcheng, a partner at consultants BearingPoint said. “But the future of telecoms includes convergence between very high-speed broadband, mobile and fixed so I would describe this as a compulsory move for Vodafone.

“It is quite a high valuation, but in any given country the cable operator is in a unique place for mobile operators. So even if it is expensive, it is not a bad deal,” he added.

Ono, which had been in the process of preparing for a stock market flotation, has 1.9 million customers on its network that covers 70 per cent of Spain, or 7.2 million households out of a total of around 16 million.

Having built the network later than other cable and telecom companies, Ono can achieve broadband speeds of up to 200 megabits per second, or up to 20 times the average of rival networks.

And its footprint in more rural areas fits well with the superfast network Vodafone is currently co-building with Orange in major cities including Barcelona and Madrid. Vodafone said on Monday it would not commit to a second stage of the roll-out with Orange.

The British group, which is ramping up spending on its European networks to boost speeds, said the deal would enable it to save around 240 million euros per year, before integration costs, by the fourth full year after completion.

It also expects to generate revenue of around 1 billion euros as it seeks to cross-sell its mobile offering to Ono’s cable customers, and vice versa.

Stabilise the market 

The planned savings and the appeal of the superfast network, which will also enable the British group to offload some of its mobile traffic and stop paying so much to rent lines from Telefonica, helped soften the blow of the hefty multiple the group is paying compared with typical telecoms valuations.

A 7.2-billion-euro price tag implies a multiple of 10.4 times the target’s operating free cash flow, broadly in line with recent deals in the European cable sector.

But it is almost double the 4-billion-euro value assigned by bankers to Vodafone’s current mobile business in Spain, which with almost 14 million customers at the end of December dwarfs its new acquisition.

“Vodafone has seen revenues and core earnings from its Spanish operation decline by an aggregate of 38 per cent and 60 per cent between 2010 and 2014 estimations,” Jefferies analyst Jerry Dellis said in a note to clients.

“Securing a more credible fixed to mobile convergent offering on a faster timescale than a self-build could deliver is vital to stabilising that momentum,” he added.

According to the Spanish regulator, Vodafone had almost 25 per cent of the mobile market, and the deal which includes Ono’s 1.1 million mobile customers is likely to increase that by almost 2 percentage points. Orange has around 23 per cent of the market.

In the provision of fibre, Vodafone would now be number one.

Analysts said they expected regulators to approve the deal without requiring Vodafone to make any concessions.

The deal for Ono will be financed from existing cash resources and committed but undrawn bank facilities. Morgan Stanley advised Vodafone on the deal while Deutsche Bank acted as the lead financial adviser to the shareholders of Ono.

Ono is 54 per cent owned by investment funds Providence Equity Partners, Thomas H. Lee Partners, CCMP Capital Advisors and Quadrangle Capital.

BOSTON — Big US companies appear to have handed out smaller increases in compensation to their chief executives in 2013 than in 2012, mainly as a result of reduced grants of stock options, according to an early review of annual regulatory filings.

Based on disclosures from 46 companies in the Standard & Poor’s 500 (S&P) Index that had filed annual compensation reports by March 11, the median compensation increase for a chief executive officer (CEO) was 1 per cent to $8.64 million.

That was a slower rate of increase than this group of 46 received for 2012 when its median CEO pay rose 15 per cent to $8.53 million. The median compensation for CEOs in S&P 500 companies overall increased about 5.5 per cent for 2012.

The review, conducted for Reuters by proxy adviser and corporate governance consulting firm Institutional Shareholder Services (ISS), provides an early peek at compensation trends but ISS cautioned that there could be significant changes once all companies have reported and that the 46 companies may not be  representative of trends for companies in the entire index. Most companies will file their executive compensation data over the next few weeks.

Some pay experts have been expecting to see slower growth in compensation for 2013 — despite the bull market in stocks — as S&P 500 corporate profits only increased 6.2 per cent amid a stuttering US economic performance, and due to the increasing use of performance measures to decide on levels of compensation.

In the kinds of incentive plans becoming more popular, executives do not receive higher compensation just because a company’s share price rises, but rather must perform well on a series of measures — not just profit, but often including revenue, margins, cash flow, and in some cases even a company’s safety and environment records.

“They’re not going to get monster rewards,” said Alan Johnson, managing director of pay consulting firm Johnson Associates in New York. “The indications are that companies continue to do a better job of matching up pay with performance.”

However, the figures are unlikely to assuage concerns that CEOs are reaping bigger increases than those received by many Americans further down the food chain, exacerbating inequality. President Barack Obama has been stressing policies intended to reduce inequality, such as a push for a higher minimum wage.

The study looks at what was granted to CEOs for 2013 and does not include all the compensation CEOs actually pocketed in 2013 after stock and option awards granted to them in previous years were exercised or vested. With the S&P 500 surging 32.4 per cent last year, including dividends, and almost tripling from the lows it hit in the financial crisis, some of those awards from 2009-2012 have proven very lucrative.

A separate review by executive compensation data firm Equilar of 44 companies in the Fortune 1,000 that filed their statements in January or February shows that the median value executives gained from exercising stock options or stock vesting was $2.1 million in 2013, up 18 per cent from 2012.

Radical changes 

Investor activists and proxy advisers, including ISS, have pressed companies for years to align pay with shareholder interests. In recent weeks, a handful of companies have made radical changes in the way they reward their CEOs, including semiconductor maker Intel Corp and mining group Freeport-McMoRan Copper & Gold Inc.

Among the 46 S&P 500 companies surveyed, the median cash salary rose $27,584, or 2.6 per cent, to $1,079,327. But the median stock award rose $337,493, or 9.5 per cent, to $3,887,008, and the median cash incentive award rose $63,799, or 3.3 per cent, to $1,998,102.

Restraining the overall increase, though, were less generous stock options awards. Of the 46 companies, only 32 of them awarded stock options to their CEOs in 2013, down from 35 in 2012. For those 35 companies (including those who did not grant options in 2013), the average award fell by $548,543, or 23 per cent, to $1,880,476 in 2013.

Some companies said they reduced their option awards as they wanted to reduce the incentive to take certain risks. At financial services company Comerica Inc., total compensation for CEO Ralph Babb fell 10 per cent to $6.46 million, as the value of his option awards fell to $314,729 from $1,047,682 in 2012. 

Comerica said in a filing it cut the weighting of stock option awards during the year to “discourage inappropriate risk taking and better align with regulatory expectations”.

At paint maker Sherwin-Williams, total compensation for CEO Christopher Connor fell 1.5 per cent to $10.8 million, as the value of stock option awards fell to $3 million from $3.3 million in 2012. 

The company said in a filing that it has de-emphasised stock options in favour of stock awards related to performance to provide more focus on operating performance.

“Most CEOs get it, an increase in stock price is going to be their greatest opportunity for compensation,” said David Dorman, an investor and board member at a series of companies, including  network technology company Motorola Solutions Inc., pharmacy group CVS Caremark Corp and KFC and Pizza Hut owner Yum! Brands Inc.

He added that generally compensation for executives in corporate America “will be in a pretty tight range”.

A few caveats apply to the ISS figures. They do not include set-asides for executive pensions and other deferred obligations, which are often established by formula. At some companies these set-asides fell in 2013 as interest rates rose.

John Roe, ISS’s executive director of corporate services, said companies have embraced new forms of pay. “For the companies in this sample, it was a year of compensation adjustments rather than increases,” he said. 

Reforms spread 

The ISS review focused mainly on median figures as a way to exclude results from companies at the top and bottom of the pay scale that could distort the conclusions.

On an average basis, CEOs among the early S&P 500 filers received $9.34 million in compensation in 2013 — an increase of 2 per cent from the average in 2012.

Since 2011, most US companies have submitted their pay plans for non-binding shareholder votes amid concerns about excessive executive compensation.

While investors have largely supported management, the contests have given some leverage to reformers, particularly as activist investors press companies to make pay depend on relative measures like share price versus peers.

The pressure has made a difference at some companies.

For example, Freeport got only 29 per cent support from shareholders for its executive compensation plan last year. Citing shareholder views, the company on March 3 filed a plan that would cut in half the salaries of its three top executives to $1.25 million from $2.5 million.

The company also said it gave them an annual compensation goal of $7.5 million, with the final figures to be based on the company’s operating cash flow, copper and oil production volumes, and performance on safety and environmental scores. Executives could still earn more than that if the company outperforms peers.

All of the elements, except for the base salary, are “at risk” and could be worth nothing in a bad year, Freeport spokesman Eric Kinneberg said via e-mail.  There is “real potential downside if performance is not good”.

Other companies that reworked pay after facing vigourous opposition to its executive compensation policies from some shareholders include Intel, which won 68 per cent support last year, and Walt Disney Co. with 58 per cent. (Intel and Disney were not among the 46 companies in the study as Intel has yet to file its proxy statement and Disney has a fiscal year ending in September)

Disney said in a filing that it reduced the bonus paid to Chief Executive Robert Iger by almost $3 million to $13.6 million for fiscal 2013 after the company’s results did not beat certain goals.

Intel last month outlined changes for its new CEO Brian Krzanich such as allowing equity awards to fall in value if returns for shareholders don’t meet targets. 

Although Krzanich was promoted to the CEO job last May his compensation was less in 2013, $9.1 million, than the $15.7 million he got in 2012 when he was chief operating officer. It is also less than half the $18.3 million his predecessor as CEO — Paul Otellini — got in 2012.

Brit Wittman, Intel’s director of executive compensation, said the changes were made because shareholders wanted pay to be more closely tied to performance, especially after the financial crisis soured many on pay models that once were widely used.

“Pay for failure really seems to alienate investors,” he remarked.

ERBIL, Iraq — Rizgar pulled one of his wife’s bracelets from his pocket and laid it on a gold merchant’s counter in Iraq’s Kurdistan region at the weekend, reluctantly selling it to cover his bills.

The electricity ministry in Kurdistan had not paid Rizgar for two months because the Baghdad government has withheld funds to punish the Kurds for trying to export oil via a new pipeline.

“I have to sell it, or else I’ll go into debt,” said Rizgar, 39. “If my salary doesn’t come soon, I don’t know what I’ll do.”

A day after he sold the gold bangle, his ministry was among several that finally met the February payroll after the federal government belatedly sent some money at the weekend, but officials in Baghdad insist they will pay no more.

The region says it will pay its own way in March, but the financial squeeze shows how reliant Kurdistan remains on Baghdad for a slice of the OPEC (Organisation of Petroleum Exporting Countries) producer’s multibillion-dollar budget, so long as it cannot export oil in large volumes itself.

Kurdish officials often hint they could file for divorce from Iraq — and their differences with the central government in Baghdad seem more irreconcilable than ever.

However this confrontation ends, the region is likely to push even harder for economic independence, raising the stakes in a dangerous game of political brinkmanship.

The funding crunch hitting the Kurdish economy, which has boomed since the 2003 US-led Iraq war, has been felt acutely in the gold bazaar, which serves as an informal banking system.

“If I can’t sell, I can’t buy,” said a gold trader in the regional capital Erbil, opening an empty cash register after turning away yet another customer who wanted to sell. “How can you talk about an independent state when you can’t pay your own employees?”  

Bloated payroll

More than a fifth of Kurdistan’s five million people are on a government payroll that has swollen to 840 billion dinars ($722 million) a month — 70 per cent of public spending in 2013.

Formally, Baghdad is supposed to give Kurdistan 17 per cent of the national budget after sovereign expenses, flown in cash from the central bank to Erbil, though how much is actually paid is disputed.

Now the Iraqi government says payment should be contingent on the region exporting oil solely under state auspices, which Kurdistan objects to.

In January, it paid 566 billion dinars, less than half last year’s monthly payments. It transferred another 548 billion for February at the weekend.

“The equation is simple: You take 17 per cent of the wealth, you hand over the oil you have,” Prime Minister Nouri Al Maliki told France-24 television last week, summarising the dispute.

Political brinkmanship has in the past brought Iraqi troops face to face with Kurdish “peshmerga” forces in the oil-rich band of territory along their contested internal frontier.

The Kurds have strengthened their hand by signing contracts with oil majors and building a pipeline to Turkey in defiance of Baghdad. One million barrels of oil have already flowed along it into storage tanks at a Turkish port, but Ankara wants Baghdad’s blessing before exports go ahead. No compromise is yet in sight.

“We’ve been working on this for some time and it’s come a long way,” said a US diplomat of the quest for a deal between Baghdad and Erbil. “Election season makes it harder, however.”

Parliamentary elections are set for April 30 and neither side wants be seen as weak for making concessions. But with his own Shiite constituency divided and minority Sunnis hostile, Maliki might need Kurdish backing to form a new government.

Trump card

“Maliki may be creating bargaining chips to play with the Kurds if he aims to gain their support for his third term,” said Ramzy Mardini, a non-resident fellow at the Atlantic Council. “All this is pre-election jockeying. Once the dust settles and the government formation dynamics are under way, it will be clearer who has the advantage.”

Ayham Kamel, director of Middle East and North Africa at political risk consultancy Eurasia Group, said the Kurdistan government was not without leverage, but was still dependent on funds from the centre. 

“Baghdad’s ability to cut or curtail such financing is a trump card in the relationship,” he remarked.

Wrong-footed by the budget cut, the Kurds are weighing their options. A cartoon in the Iraqi press shows a fiendish-looking Kurdish President Masoud Barzani standing astride a dam, illustrating fears the Kurds could cut off water to the rest of Iraq.

“We are still hoping Baghdad will act responsibly,” the Kurdish Regional Government’s (KRG) Planning Minister Ali Sindi told Reuters. “Definitely there are cards that the KRG can also play, but we don’t want to talk about them now.”

For now, the battle is unfolding in parliament, which mustered a narrow quorum for the first reading of Iraq’s draft 2014 budget on Sunday, despite a boycott by Kurdish lawmakers.

If it passes, the budget will make Kurdistan’s allocation conditional on its exporting 400,000 barrels per day of crude via Iraq’s State Oil Marketing Organisation. Any shortfall would be deducted from the region’s 17 per cent entitlement.

“This is punishment,” said Abdulkhaliq Rafiq, a KRG finance ministry adviser, brandishing a copy of the draft budget with the offending articles highlighted in pink.

It is not clear how much income Kurdistan generates itself,  but Sindi said it does not cover government salaries, let alone other operational costs and some 2,900 investment projects in progress.

The region is seeking ways to raise more revenue and cut spending, as well as alternative sources of financing abroad.

“We have started looking at different finance models such as loans and public private partnerships,” said Sindi, adding that the KRG had been in talks with foreign banks even before Baghdad slashed the budget.

Saving or stealing? 

In the meanwhile, Kurdish tycoons have chipped in to help improve liquidity. Among others, the founder of mobile operator Asiacell lent 15 billion dinars to banks in Suleimaniyah city.

Some hope the crisis will spur the KRG to change its spending habits and reform employment practices.

Barzani’s Kurdish Democratic Party and its rival, the Patriotic Union of Kurdistan, have dominated power since the region won autonomy in 1991, hiring thousands of people into an increasingly bloated public sector to tighten their grip.

Bilal Wahab, research fellow at the American University of Iraq, Sulaimani, described the status quo as unsustainable. 

“Unless the KRG diversifies its economy and employment, it could face economic instability and public unrest,” he said.

Kurdish nationalism fuelled by past mass killings under Saddam Hussein remains a potent rallying cry, as was evident at the reburial this month of 93 Kurds unearthed in a mass grave in the desert in southern Iraq last year. Most had been killed by firing squad as part of Saddam’s campaign to quell the Kurds.

“The Kurdish people did not make all these sacrifices in order to be subjected to oppression and despotic rule once again,” Barzani said at the ceremony, declaring that the time had come to reconsider relations with Iraq.

“If the authorities in Baghdad continue to treat us in this way... we will take a stance no one can anticipate,” he added.

A small crowd gathered outside the Kurdish region’s parliament last week shouting “Maliki is a dictator”.

But many Kurds say their own leaders are partly to blame for the budget crisis, which has re-focused attention on opaque dealings and corruption in Kurdistan, described as “widespread and pervasive” in a recent US State Department report.

“Where is the money? Nobody knows,” said a gold trader in Erbil, who asked not to be named. “Either they are saving it for independence day, or they are stealing it.”

AMMAN — Amman Chamber  of Commerce (ACC) President Issa Muard  on Sunday discussed with newly appointed Saudi Ambassador  to Jordan Sami Bin Abdullah Al Saleh bilateral cooperation and ways to boost commercial exchange between the two countries, according to an ACC statement sent to The Jordan Times. The two sides also stressed the importance of increasing visits of businesspeople from the two countries, activating the decisions taken by the joint Jordanian-Saudi committee as well as removing all obstacles hindering trade exchange. Murad expresssed the Jordanian businessmen’s keenness on building strong economic relations with their Saudi counterparts and attracting more Saudi investments to Jordan. Al Saleh voiced his country’s willingness to enhance relations with Jordan, and to work on increasing the Saudi investments in Jordan, the statement said. 

DUBAI — Oil-rich Abu Dhabi and the United Arab Emirates (UAE) central bank agreed Sunday to roll over $20 billion in loans to neighbouring debt-laden Dubai after it was hit by the 2009 global financial crisis.

The government of Abu Dhabi agreed to roll over a loan of $10 billion for a renewable five years, the state news agency WAM reported.

The Abu Dhabi-based central bank of the UAE federation at the same time renewed subscription to Dubai bonds worth $10 billion for five years, it said.

The loans, that were due this year, will have an interest rate of 1 per cent, WAM said.

“These agreements are made within the context of its parties’ continued efforts to boost the competitiveness of the UAE economy on both regional and international levels, and to reflect the upturns Dubai’s domestic economy has witnessed over the past few years,” WAM added.

“This is positive for Dubai, but it was largely expected,” said Monica Malik, chief economist at EFG-Hermes investment bank in Dubai.

“It is very positive for Dubai in terms of meeting its debt obligations for 2014, which was a heavy year, mainly due to the maturing debt owed to the central bank and Abu Dhabi,” she told AFP.

Dubai had $36.5 billion of debt maturing this year, including the debt just rolled over by Abu Dhabi and the central bank, according to figures published last year.

Malik described the reduction in the loans’ interest rate to 1 per cent, from 4 per cent earlier, as “particularly notable”, saying it will be “supportive of Dubai refocusing on investment”.

Dubai sent jitters through global financial markets in autumn 2009 when it signalled problems in servicing mountains of debt owed by government-related entities (GREs).

Dubai World group was the first to expose the emirate’s debt problem, saying it was facing difficulty in repaying debt amounting to $26 billion. 

Other GREs followed suit.

Growth follows crisis 

The once rapidly booming economy of Dubai was hit hard by the world financial crisis, which turned off the tap on easily available foreign finance, leaving many of its companies high and dry and with a heavy debt burden.

Dubai and its government-related firms piled up some $113 billion in debt.

But with the help of deep-pocketed Abu Dhabi, and following long talks with lenders, Dubai managed to restructure most of its debt.

The economy of the glitzy emirate, home to the world’s tallest tower and large man-made islands, has since bounced back strongly, banking on its core sectors of trade, tourism and transport.

The economy contracted 2.4 per cent in 2009, but growth hit 3.4 per cent in 2011, and was just under 4 per cent in 2012. It exceeded 4 per cent in 2013.

And Dubai’s property market, which nosedived in 2010 after five years of rapid growth, is recovering strongly, with reports of a 35 per cent rise in prices in 2013.

The sector received a major boost after Dubai in November won the right to host the World Expo 2020.

The rise in prices has triggered some warnings that they might not be sustainable, however.

Dubai is one of seven emirates forming the UAE federation, which has been spared during the wave of Arab Spring uprisings that hit most Arab countries.

The emirate has been largely seen as a safe haven for capital fleeing troubled countries in the region.