Behind Your Business

ON a local bus trundling round the south of the island, Mauritius does not feel like the centre of a balance-of-payments scare in India. Beaches slip by and a conductor sits puffing below a no-smoking sign. But remote Mauritius, over 1,000 miles (1,600km) from Africa, is no tinpot dot on the map. It is odder and more impressive than that. Mark Twain said it was so beautiful that God modelled heaven on it. Half its people are Hindus, descended from Indian labourers brought over when Britain ruled the island. France once ran Mauritius, too: hence its Gallic creole and baguette-munching office workers dressed to kill. Strangest of all, Mauritius is the world’s financial gateway to India (see chart 1). It is the tail that wags the elephant. But its status and the position of outside investors in India have been upended by a bewildering display...

Correction to this articleTHE idea that an infusion of hope can make a big difference to the lives of wretchedly poor people sounds like something dreamed up by a well-meaning activist or a tub-thumping politician. Yet this was the central thrust of a lecture at Harvard University on May 3rd by Esther Duflo, an economist at the Massachusetts Institute of Technology known for her data-driven analysis of poverty. Ms Duflo argued that the effects of some anti-poverty programmes go beyond the direct impact of the resources they provide. These programmes also make it possible for the very poor to hope for more than mere survival.She and her colleagues evaluated a programme in the Indian state of West Bengal, where Bandhan, an Indian microfinance institution, worked with people who lived in extreme penury. They were reckoned to be unable to handle the demands of repaying a loan. Instead, Bandhan gave each of them a small productive asset—a cow, a couple of goats or some chickens. It also provided a small stipend to reduce the temptation to eat or sell the asset immediately, as...

HAVE Spain’s policymakers at last woken up? The news that Rodrigo Rato was leaving Bankia came at the start of Madrid’s siesta on May 7th. The abrupt departure of one of Spain’s most prominent bankers came hours after Mariano Rajoy, the prime minister, admitted that he might need to use public funds to shore up the banking system. Two days later, the government nationalised Bankia’s parent.Bankia, a merger of seven savings banks and the largest property lender in Spain, is not Mr Rajoy’s only banking problem, but it is a good place to start. In a report last month the IMF singled the lender out, urging it to strengthen its balance-sheet as well as to “improve management and governance practices”. Its auditor did not sign the 2011 accounts of Bankia and its parent company, Banco Financiero y de Ahorros (BFA).The bail-out heaps more pain on shareholders: the bank made its debut on Madrid’s stockmarket only last July and its shares have since lost 45% of their value. It is also an embarrassment for regulators. Most of the bad land assets of the seven original savings banks reside in BFA, a 45.5% shareholder in Bankia that had already received €4.5 billion in preference shares from the state. The idea was to detach Bankia’s banking business from the contaminated parent, but the fall in Bankia’s value made the whole structure vulnerable. The preference shares will convert to...

WITH their overnight-lending rates at zero for most of the past decade, the Japanese public long ago stopped caring about interest rates. Instead the yen is their focus. Shoppers may revel in its current strength against the dollar but in the news media, the financial markets and corporate Japan, it is a relentless source of woe. Carlos Ghosn, the boss of Nissan and Renault, publicly lambasts it as a “1,000-pound gorilla” that hurts his ability to sell Japanese cars abroad. Its strength is increasingly becoming a political issue, too.Both the Bank of Japan (BoJ) and the finance ministry have taken steps recently that analysts believe are surreptitiously aimed at the currency markets. On April 27th the BoJ increased the size of its asset-purchase programme by ¥5 trillion ($62 billion), and extended the maturity limit of government bonds it would buy from two to three years. That enhanced easing measures introduced in February which sharply weakened the yen.Days before, the finance ministry promised the biggest single contribution—a $60 billion slug—to a $430 billion increase in IMF funding which is largely aimed at alleviating concerns about the euro crisis. As a senior official admitted, Japan’s decision was not altruistic. When the euro crisis gets worse, it weakens Japan’s exports to Europe and strengthens the yen, which compounds the first problem. So Japan has a direct...

BANKS in China appear to be in rude health. The seven biggest mainland banks have just posted a 16% year-on-year increase in pre-tax profits between them for the first quarter. The level of non-performing loans (NPLs) remains low, at just about 1%. But trouble is being stored up for the future.There are two big worries: bad local-government debt and souring property loans. The infrastructure binge of the past few years saw a boom in local-government financing vehicles (LGFVs), off-balance-sheet entities used to get around prohibitions on borrowing. Regulators say these entities’ bank debts were worth $1.4 trillion at the end of September. Private estimates range much higher, and suggest that 20-30% may be non-performing.

The government is trying to defuse the bomb. One experiment is the issuance of local bonds to replace these loans. Officials also published guidance in March pushing banks to roll loans over, in the hope that growth will solve the problem. Another wheeze is shoving these loans onto the books of “policy banks” like China Development Bank (CDB), whose balance-sheets are now suffering (see chart). Half...