21 May 2019

Corruption, a Panamanian way of life

Let's face facts, corruption is everywhere in Panama, and this election will not change that. Martinelli (two presidents ago) was indicted for eavesdropping on his opponents, not for taking backhanders from Odebrecht and others. Laurentino “Nito” Cortizo, the incoming president, plans to indict the outgoing president, Varela, on corruption charges. In fact, this was one of the specific platforms that he ran on. So two prior presidents in a row are or will be brought up on corruption charges?

The international press has said that the Panama Papers have contributed to the awareness of corruption in the country. Yet Panama's inclusion on the "Grey List" pre-dates the Panama Papers, and the documents released pointed to, in some cases, corruption by non-Panamanians exploiting the Panamanian corporate (and other countries) structures and tax laws. This is a nice idea, but in Panama, the Papers are yesterday fish-wrap; nobody cares.

Real corruption can be seen across Panama, from the bribing of police to the buying of votes by mayors in big cities and small, so simply exploiting Gringos and each other as much as possible.

The 2018 Transparency International Corruption Perceptions Index ranked Panama 93rd out of 180 countries. All told, approximately 38% of Panamanians said that they had to pay a bride to have an official service provided to them. Yet paying a bribe is only one measure of corruption and how deeply ingrained it is in Panama.

In the countryside, true or not, it is a common assumption that mayors are "owned" by local oligarchic families, such as we're told is the case on the west coast of Varaguas. Apparently, Panamanians will openly tell you that their mayor is corrupt, but when asked if they will vote him out, they shrug their shoulders "he is our mayor, so what can we do?" So the roads are potholed, the electricity fails regularly, and rubbish is everywhere. And the families will support the mayor because he does their bidding. After all, if you can pay workers $12 per day to grow rice, then why would you want them educated or working on construction for Gringos at, gasp, $20 to $30 per day?

The mayor promised potable water for everyone in the town of Mariato, but when the water tower was built, it was going to take six weeks or more to hook up the electricity to pump the water and the ensure it was potable. So the mayor asked a local Gringo if he would let the city plug the water system into his power. Feeling like there was an obligation to be a good citizen, and not wanting the backlash of saying "no" to the mayor, he agreed. Sure enough, the town received clean water, certainly from that day and for the six weeks leading up to the elections.

But two to three weeks before the elections, the Gringo was presented with a $4000 electricity bill. He took the bill to the mayor, who simply said: "it is your bill, I'm not paying it". And sure enough, the electricity company came along and cut off the Gringo's power. He (the Gringo) now has no electricity and a $4000 bill; the town had enough water in the tank to last two weeks, and still no power connected to the water system. The water was expected to run out the day after the election - an election that would probably return the mayor to office, even though he has already served the two consecutive terms that he is allowed. [Update: The mayor was not re-elected, and quietly the bill was paid for the gringo.]

And of course, the Gringo will look like the bad guy for failing to pay for the electricity and therefore leaving the town without potable water.

In the towns the children will all tell you that they want to grow up to be policemen. Such civic mindedness is wonderful to see. Until you realise that what they really want is a well paying, low effort job. Not all police are corrupt, depending on your definition of corrupt. But if there is a job in Panama that comes with a steady "extra" income without the need for additional effort, it is to be a country policeman. Let me be clear here; the city cops work hard and face dangerous working conditions that result in many experiencing long term trauma and sometimes physical harm. They are the heroes keeping poor cities like Colon and large parts of Panama City functioning and safe(ish). Yet even then there are areas where they will only go in pairs.

But like many countries, the life of a country cop is a good life. Easy hours, respect, kickbacks, and not a lot of hard work. In another part of the country, when a Gringo had his tools stolen, the police were unable to help, shoulders shrugged, these things happen. Needless to say, it was known in the community who had stolen the tools. Two teens had earned a reputation for thieving around the area.

As the thieves were unable to use the tools, and as has a small reward had been offered, the local religious minister was told that walking by an empty building, someone saw what looked to be tools abandoned inside. Sure enough, the police arrived, "found" the tools, and told the Gringo to go and pick them up.

The Gringo went to the local police and confronted them. "You know who did it, so why haven't they been arrested?"

Well, of course, they didn't know. How could they?

The Gringo then went to the local minister and asked him who were the thieves. He, of course, did not know either. Finally, the Gringo got close to the minister and said "these two are in your parish, and are causing problems across your parish. You have 50 adult males here. Preach a sermon next week saying that the community has a duty to teach the young what is acceptable and what is not. And - tell those two toe-rags that is they try it with him again, they will be never be found." He has not had any problems since.

Of course, the Gringos are just as bad as the Panamanians. Being very clear, Panama is a country full of corruption, and it would be inaccurate to suggest that it is only Panamanians that are corrupt. There is the case of "Max", the Gringo (Dutch I think) who is accused of "buying" large amounts of land from local Indians and Panamanians, paying them 10% of the agreed price in cash, and then having the properties titled in the name of a company. The land(s) are then "sold" for peanuts to another company, which signs the properties over to trusts, which then on-sell them to other shell companies, etc etc. until the audit trail is lost through bureaucratic inefficiency (and bribed judges).

Apparently, but with no evidence, Max's secret is to make sure that he has rented the services of an appropriate judge. This was all long in the past, of course, and this couldn't happen today, I'm sure. But I understand the going price for a judge might have been around $20,000 up to $100,000 depending on the size and nature of the problem that needed to be solved. This is, of course, all hearsay and probably none of it is true.

Of course, Gringos stealing land from the natives is not the only game in town. Stealing property from Gringos is also part of the local repertoire. There is the local mayor who (again, no evidence whatsoever) signed a paper saying that a small parcel of land was owned by a local Panamanian, attesting that the owners of the properties to the North, South, East and West were named on the document. The only small problem was that the name of the Gringo who owned (owns?) the land surrounding the small claim was not included in the document at all.

This document was then used to demonstrate to MIVI, the ministry that builds houses for poor people on their land or on public land provided by a local council, that the family had "title" to that parcel, and MIVI could build the family a house.

One the house was built, the family could then claim the rest of the land, staking a claim on well over 50 hectares, from their small claim or 500 square meters of land. And the document accepted by MIVE would be used to demonstrate, as it was not contested, that the land was theirs, that the Gringo owner had not been to or occupied the land in over a decade, and was not even listed on the document.

At this stage, it becomes further conjecture - that the mayor would then buy the full land from the local family, for a fraction of its real value. Everyone wins. The family gets a house and a very good chunk of cash, the mayor gets the land for a pittance which he can then on sell at a discount, but still enough to make him "rich(er)".

These are but a scratching of the surface of corruption in Panama. The real corruption is of the soul, in which these stories are looked on as a slander on the country (even if they are true) or simply accepted as the way of life in Panama. They got theirs, why shouldn't I get mine.

Of course, the real estate companies trying to encourage Gringos to move to Panama will not say any of this, and Panamanians can become quite aggressive in response to any criticism. A negative comment on a quite frank posting on an Expats in Panama Facebook group resulted in a Panamanian saying that they were going to report the writer to immigration and have them deported. Panamanians can be very prickly.

None of this will change with this election, except that the people at the top being bribed will change, and sadly in five years, even if he has been the picture of honesty and a champion for anti-corruption, someone will run for president of Panama on a ticket of indicting Nito, the newest president. It is the Panamanian way.

11 March 2019

The wars of European Unification - What lies ahead?

When we look into history, we see periods when it seems obvious what the outcome was going to be, and wonder how they could not or did not see it coming during those times. Take the expansion of Rome from about 210 BC through about 150 AD, or the rise of the British Empire from 1700 to 1900. There is also the rise of the United States in its first three-quarters of a century. Then we can look at Europe from about 1870 to 2030. In the middle of any of those periods, it would not have been obvious that there was a peak coming, followed by stability and decline, or civil war.

One thing that distinguished each of these historical eras was the growth of empire, apparent unending upside, followed by limits, competitors on the periphery, conflict and civil war (across the greater empires, if not in the core). Is this what we should expect of the German Europe Empire Union?

In each of the first two examples, history shows us the rise and rise of the empires and civilisations, the peaks and the beginnings of their declines. Rome in 210 BC was fighting an existential war with Carthage, or so it seemed at the time. Yet through the eyes of history, Roman domination seems inevitable; Carthage simply was not a match, and Hannibal was never going to get Latins to fully abandon alliances with Rome, a prerequisite for Carthaginian victory. Later, Britain expanded into India and North America, Australia, New Zealand and various parts of Africa, but reached its peak and the strains on empire eventually pulled it apart. By the middle of the nineteenth century, pressures were building, and the second great spasm to hit the empire occurred with the Indian Mutiny (the first being the rebellion in the North American colonies). The British Empire survived, but by 1900 it becomes clear that the next century would be one of disengagement from Empire.

Will historians look back at the Franco-Prussian War (1870) as the first of the three great wars of European Unification under the hegemony of the German Empire? And as war is the continuation of politics by other means (Clausewitz, 1827), was the failure of the wars to accomplish the political objective then replaced by the politics of acquiescence by countries exhausted by war, fearful of a re-industrialised and again potentially imperial Germany? After all, the very embryos of what became the EEC and then the EU were attempts to contain post-WWII Germany; containment that ultimately failed with Germany once again becoming the economic and industrial powerhouse of Europe.

Our other example from history could be the United States of America from 1776 through 1850. American independence from the United Kingdom was hard won, and through a series of almost Roman campaigns over the following 75 years, a Union was formed. While American (European) technology and organisational skills were sufficiently advanced to make the subjugation of the natives almost a foregone conclusion, it probably did not appear to be that pre-ordained at the time. 

I have selected 1850 for the United States, and 1900 for the British Empire, and 100 AD for the Roman Empire, because these are the rough dates at which we can see the stresses appearing, that ultimately lead either to the long retreat, or to civil war before renewed expansion. Each of these empires reached levels of expansion that tested their organisational and political systems, alliances and ultimately stretch them to their limits, while also putting them into too-close proximity with emerging blocks or nations/groups that do not wish to be assimilated (and whose "power" is adequate to counter the residual level of power available to the Empire at its outer fringe..

So is Europe and the EU at its 100 AD, 1900, or 1850 point yet? Certainly, the wars of European Unification failed to accomplish the goal that has been achieved through peaceful politics. Europe is now a unified imperial power centred on Brussels, but under the effective economic control of a few "member states" of that union. Like the Romans before them, Germanic Europe has created a politically unified hegemony over much of the continent, and happily exercises that power in the suppression of local politics, or actively sides with the regional satrapies in the suppression of dissent in their regions. 

If we look far enough back, we see Rome arbitrating over the succession of Masinissa as the king of the Numidians, and we see the Romans continuing to support Masinissa as the King of all Numidia, and in his disputes with Carthage. Of course, their support for Masinissa came at the expense of Carthage, and eventually precipitated the Third Punic War and the destruction of Carthage. Today we see "Brussels" supporting Madrid in their dispute with the Catalonians, ensuring continued suppression of Catalonian independence and the continued imposition of the Spanish culture and language on the Catalonians. 

And Catalonia in Europe is not alone. Almost every European country has its ethnic and national minorities, some seeking independence and others comfortable that their cultures are protected, even if that means subjugation within a larger nation-state. The Breton in France and the Welsh in the United Kingdom are good examples of nationalities that are attempting to protect and even promote their national cultures and languages within existing countries. And for these two, close relatives that they are, the years of suppression of language and culture are mercifully in the past. In neither are there "national movements" seeking independence, though there is in each a greater awareness of their culture and language.

But other groups within Europe do seek independence to a greater or lesser extent. Northern Italy is a different country from Southern Italy, and while the south is comfortable with that single national identity, many in the north would happily forge a different national path.

The Balkans remain a mixture of independent nations and cultures, and languages. Their civil war of the 1990s should have been a wake-up call and warning of the dangers of an overbearing central government, but instead is viewed as the poster-child for the dangers of nationalism. Without the overly powerful central government, demonstrably supportive of the desire and needs of one community within the Yugoslav nation, nationalism would not have been a problem. So which came first, excessive control perceived to be in the hands of one national group, or the rise of nationalism on the part of the many national groups within Yugoslavia?

The current European government is not in danger of repeating that error; it is actively repeating that error, to the very visible detriment of European national groups. 

The "European Project" today is pushing up against a combination of barriers, each of which can be managed, but like all empires, it is the combination of barriers and pressures that result in stagnation, civil war and ultimately slow (and sometimes fast) decline and fall. While the countries will remain - there were follow-on nation-states after the fall of Rome and the retreat of the British Empires. The European Empire's barriers are both external and internal.

Externally the European Empire is boxed in; to the east by the still existent and now re-expanding Russian Empire, while to the west, the United States has evolved from mentor to competitor to adversary. To the south, the entire African continent views Europe as either a former colonial master to be soaked, or the future of on their poor populations. 

Internally the threats are just as strong, and mainly come as a result of imperial over-reach by Brussels and their German masters (and French lapdogs), aided by Benelux intolerant and culturally domineering liberalism. The nations of Eastern Europe do not accept the idea that the dominant liberalism represents the only "core value" of European nations. These are conservative countries with populations that remember totalitarian rule, and in many cases remember personally starvation and impoverishment after the fall of those regimes with the collapse of the Soviet Union. Their current economic conditions, while far superior to their condition under the Soviet system, comes at the cost of what they believe are their core, conservative and predominantly "Christian" values. In many cases, the younger and more "liberal" members of their societies have migrated westward, and those who remain see no reason to cast aside their historic prejudices and values.

Further, the incompetent handling of the migrant crisis, with edicts from Brussels that countries must accept certain numbers of illegal migrants, harkens back to the rule of the Soviets who likewise demanded that countries accept Russian migrants (and troops).

As mentioned earlier, there is also the perception that the centre will be more than willing to punish any country or nation that does not follow the edicts and instructions of the centre, all in the name of "helping them". Recently, Former Finance Minister and now President of the German Parliament, Wolfgang Schaeuble said “as minister of finance, I had asked for a lot from the Greeks, but these reforms had been in the interest of the Greeks if they wanted to stay in the eurozone,”

This is the same man who told Yanis Varofakis that "elections cannot be allowed to change economic policy" or to put it more simply, the EU, German, the ECB and the IMF did not care who the Greek people voted for, and that they would punish Greece for even asking for debt relief. Another way of looking at this; no German or French banks will be harmed by the lending that they provided, even knowing that the loans could never be repaid.

Yanis Varofakis wrote, "Of course he had a point: democracy had indeed died the moment the Eurogroup acquired the authority to dictate economic policy to member states without anything resembling federal democratic sovereignty."

Such situations will only continue to increase the dissatisfaction within the empire (oops, Union), with the result that Brexit will not be the last event in the disintegration of the European Empire  Union but will be seen in history as the first event.

So returning to the question of looking back on Europe from 2040 or 2050, or further in the future. Will the Wars of European Unification give way to the First European Civil War?

Here we look again at the American experience, in which the period of expansion between 1776 (independence from the United Kingdom) and 1850 pushed the boundaries of centralised power versus the power at the individual state level. Eventually, the issue of slavery, dressed up as a "States Rights" issue was to tear the country in half. Slavery was not the only issue, but underlying any of the other issues was the principal issue of a State's right to allow slavery.

The rich and industrial North was pushing for the elimination of slavery, while the poorer and less industrialised South required slavery to provide the labour for the large landholders, and through them provide the economic foundation to support the rest of the South. While the percentage of actual slave owners in the South was fairly low, and the number of slaves individually owned was low, there were enough major (and minor) slave owners whose personal and community economic structures would be upended by emancipation. 

In modern European terms, the South simply needed to modify their economies and introduce labour and capital policies similar to the North, and all would be good. (Being very clear, Slavery was a blight on the South and the United States as a whole, and remains, unfortunately, a blight on the world. The very practice of defence of slavery is evil).

The problem faced by the South was that there was no way that they could restructure their economies without major upheaval and economic dislocation. The South could not, and never did become an industrial society that continued to power the Northern states long after the Civil War.

With this history in mind, and a quick review of the current European economic situation, we find a similar situation (thankfully without slavery) of an industrial and "rich" North and a poorer South, bound by a common currency and a central power authority that favours and indeed is directed by the North.

Greece has provided an example to all of how far the centre is willing to go to ensure that the rest of the South stays in line. And the Brexit fiasco provides additional evidence of the centre's willingness, and intention, to punish any who think they have the right to make their own decisions.

This will work for some time. But for how long. And will the final pulling apart of the European Empire Union be peaceful, or like the United States, will a Civil War be fought in Europe, the Centre against the East and South?

If the Wars of European Unification are anything to go by, we already know how the sides will be drawn, with the big difference this time being that the "Central Powers" of Germany and Austria may well include a new "Central" of France and the Benelux countries.

How soon might this happen? It is hard to say, but the rhetoric out of Brussels and outright hostility to (and from) the Eastern members suggests that it may be years and not decades away. While the Treaty of Lisbon contains the now famous Article 50, the defection of multiple countries and the very visible shrinking of the European Empire Union may be more than the centre will allow. 

05 March 2019

IT Audit - sometimes you need to escalate

A common facet of contracts is a true-up clause that pushes a disagreement on price or capacity into the future, with actual usage or consumption to be calculated at a future date or time. Think of the classic French Bistro (in the outback of France, no in a London or New York suburb), and the bottle of house red that is automatically delivered to your table. Or the bottle of whiskey in the officers mess in the Indian Raj, with the line drawn on the bottle. When the meal is finished, or the drinking is done, a new line is drawn, and you are charged for the difference - the amount consumed.

There is no contract that requires you to consume the entire bottle(s), or a guarantee that you will only drink three-quarters. The contract is settled at a later time. The core of this contract is that all can clearly see what was consumed, and there can be little dispute as the actual quantities and therefore the final bill.

I have seen computer systems contracts with just that type of resolution built into the contract. 

Many years ago, I was asked to look at a contract that had such a true-up clause in it. The computer vendor had estimated that a certain level of computing power (mainframes) would be required, while the client estimated a lower amount would be required. In the days before on-demand cloud infrastructure, computing power came in "boxes" of defined "MIPS"(Millions of Instructions per Second - a quaint concept to us today). You got the whole box, or no box. The vendor believed that a certain number of "boxes" would be needed, while the client thought otherwise.

The system was of too much importance however, to allow for the implementation of inadequate computing power, and so both partied agreed to install enough to ensure smooth functioning. The vendor was adamant that their estimates were right, so insisted that the total amount of processing power be installed.

Through the negotiations, a final difference of $18 million was arrived at, out of a total contract value of approximately $80 million. The parties agreed then, as is not uncommon, to split the difference three ways.

  1. The client agreed to pay $6 million.
  2. The vendor agreed to discount $6 million.
  3. The parties agreed to review system usage at the end a year, and split the remaining $6 million based on the actual usage.

Makes perfect sense, if the actual usage can be measured and recorded, and if monitoring and system optimisation are in place on the client side. Like the line on the bottle, the utilisation level could be measured and a line drawn across the capacity of the systems.

Unfortunately, the client failed to put in place the monitoring. As a former mainframe systems capacity planner, I knew what monitoring would be required, and I knew exactly how the vendor would demonstrate that the application actually did require the full amount of computing capacity that was originally estimated. I had, in fact, worked for that vendor.

As the IT Auditor, I recommended that the monitoring should be put in place, and provided guidance on what and how to perform that monitoring. I also recommended that such monitoring should be performed on an ongoing basis, so that management could track how much of the $6 million they would "owe" at any given month-end, so that system optimisation could be performed. 

Nothing happened.

Again, in three months, I recommended that the monitoring be put in place. Again nothing was done. All the while the clock was ticking down to the performance date, and it was looking like the $6 million would be owed to the vendor.

Having received no response from the CIO, and in fact, having been told by the CIO that Internal Audit really didn't know what it was talking about, that Internal Audit knew nothing about IT, and that IT auditors were a particularly incompetent bunch, we felt there was no option but to escalate. A one-page memo was prepared and sent to the CEO (the same CEO who sent a two-page memo to all managers telling them that all correspondence to him should be in one-page memo form) outlining quickly the situation, and the (lack of) response from the CIO.

The result: After an independent review of IS's work lasting all of one day, the CIO was fired, and new negotiations were opened with the vendor, and a pre-emptive agreement was reached that saw the client pay the vendor $3 million. The vendor forgave the other $3 million.

Ultimately all agreed that they would not be able to draw a line on the bottle that each party would agree to, so it would have been almost impossible to agree exactly how much had been consumed.

But failure to implement basic monitoring and management cost the company $3 million that they should not have needed to pay. 

09 February 2019

Baltic Dry Index - dropped like a stone

In September I suggested that the Baltic Dry Index was telling us to worry. Now it is telling us to be very afraid. Then I highlighted the fact that the Baltic Dry Index had dropped almost $300 to $1477 from its high of $1774. That turned out to be transient, and there was some recovery. In the last month, however, the BDIY (technically the Baltic Exchange Dry Index) has dropped like a stone, and now stands at close to one-third of its previous high.

The Baltic Dry Index provides a composite cost of shipping bulk goods and commodities, and provides a forward-looking view of global expected trade volumes.

Late last year, the index began to fall, and into the new year the fall has picked up steam. Year-to-date the index is down almost 50%, and has dropped almost two/thirds from its 2018 high. 

The BDIY is now at $610, a drop of $1164 in the past six months, and a drop of 52% from 1 January 2019, six weeks ago.

Baltic Dry Index as of 8 February 2019

It looks like we may be at the start of a recession due to a build-up of inventories and a concurrent reduction in international trade. The 1920/21 recession, usually attributed to difficulties in the economy adapting to the post-WWI increase in the labour force, also saw the forward buying of inventory resulted in bloated inventories and a collapse in demand. The resulting deep-V recession recovered because there was no intervention. This time, there will be significant intervention again, which instead of allowing the system to cleanse itself, will probably simply extend the period required for a real recovery.

If the Baltic Dry Index is right, and trade volumes are collapsing, then we are in for a rough ride, starting sooner rather than later.