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QUEST MEANS BUSINESS
Interview With Hungary's Economics Minister; What Will Europe's Bank Stress Test Reveal
Aired July 22, 2010 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: We don't want the IMF. Hungary's economics minister tells me tonight on the day the Hungarian parliament debate the heavy bank tax.
A case and test of credibility, will Europe's bank stress test reveal anything worth knowing?
And the managing director of Thompson Airways tells me how she dreamt of the 787 Dreamliner.
I'm Richard Quest. I mean business.
First to Hungary, which is turning its back on the International Monetary Fund. A clear message from Budapest to the IMF that their economy will grow without the international lender. The Hungarian prime minister said today, in parliament, that they would only hold discussions with the European Union. The problem is this is a high stakes game for the Hungarian economy which is in some trouble, indeed.
Overall, if we take a look, come and join me over in the library and you'll see what I mean. Now, Hungary's economy has been both one of the best and poorest performing within the European Union. To bring it into recent past, in 2008, the economy required a bailout from the European Union and the IMF. The bailout totaled some $25.8 billion.
Now talks of a package to continue the bailout have now been suspended, on Saturday. The reason the IMF and the EU suspended the talks, or continuing it, was because they were not happy, first of all with the new Hungarian bank tax, which is about to be introduced; and secondly, with their commitment to increase austerity measures to help meet the deadline of 3 percent GDP, 0.8 percent deficit, this year.
Hungary says, well, that's all very nice and all very good, but they will meet the 3.8 percent target this year, and as the finance minister will tell me tonight, the economy minister says 3 percent of GDP in 2011 is entirely within the ambit (ph). So that is without the IMF help.
Finally, this is the big problem. Have a look. This is the bank tax that is being issued, the short-term measure, which is what the IMF says. The IMF calls it a short-term measure. The reality is, it is a whopping tax. Nearly 1 percent, 0.7 percent, much higher than the U.S. Much higher than the U.K. And you'll hear now from the Hungarian economics minister, it is a tax that he says is necessary, but I began my discussion with Minister Matolcsy by asking him if Hungary had actually abandoned talks with the IMF?
GYORGY MATOLCSY, ECONOMY MINISTER, HUNGARY: We'll have talks with the IMF in September, but I must say, after the 3rd of October when our agreement will expire, then I don't see the necessity to hold new talks with the IMF.
However, we'll have new talks, of course, with the European Union; there will be economic policy negotiations with the European Union. There will be a European summit and some other exercises. So we'll focus on the European Union's negotiations from the 3rd of October.
QUEST: The European Union may not negotiate if you are not also talking to the IMF. Surely, you have to talk to both.
MATOLCSY: In principle that is the case, however, Hungary will go back to the international financial markets, so it is my understanding that we don't need a new IMF/EU agreement. It means that we'll have normal procedure, for economic procedure with the European Union.
QUEST: The cost of your debt is now starting to rise in the international markets. You manage to refinance, but at a higher rate, the market is sending you a message, that they are not-that there is a lack of confidence.
MATOLCSY: I have to disagree with you to some extent. It means that I see the window of opportunity to restore confidence in the Hungarian economy, meaning that we'll have an extremely low budget deficit figure for next year. We'll be in the first group of the European countries where the budget deficit will be below 3 percent. So it will be outstanding performance on the part of the Hungarian government, meaning that Hungary can go back to the international money market and we don't need a new agreement with the IMF and the European Union.
QUEST: Let us talk about the new bank tax that parliament has been voting on.
QUEST: The tax is a high tax. There seems to be a lot of opposition to it, even internally within Hungary.
QUEST: Why is it so high? Why is it higher than the U.S., than the U.K.?
MATOLCSY: Right. The size is really a huge one, we know that. But you know, it is absolutely necessary to have a sustainable budget deficit figure for this year. Meaning, that we need the 0.7 percent of GDP, so- called bank tax-actually it is a financial sector tax-to keep the budget deficit under control. And we stick to the 3.8 percent deficit. So for this year we'll have the bank tax and the bank tax will result in a sustainable budget deficit figure.
QUEST: When will you hit 3 percent? Will you get a 3 percent deficit next year?
MATOLCSY: Hungary will be in the group of those countries, I mean next year, when the budget deficit figure will be below 3 percent. It will be really a dramatic improvement on the part of the Hungarian economy.
QUEST: Hungary has been in the news because of the economy, can you tell me tonight-
QUEST: -that your economy is destined for growth and strength and that it is no longer in crisis?
MATOLCSY: Absolutely, Richard. I can firmly-confirm that the new economic policy of the new Hungarian government is pro-business, pro-growth approach, meaning that we will have a turning point from a negative GDP growth figure to a positive GDP growth figure by the second half of this year. So, Hungary will be, again, back on track. Hungary will be on the right track to become one of the fastest growing economies in the Central European Region.
QUEST: The finance minister of Hungary, the economics minister who, incidentally, no sooner had we concluded our interview had to rush off to go and vote in the bank tax debate. The Hungarian currency was taking a clobbering. Earlier this week it hit a 50-month low against the euro, after EU/IMF talks were suspended. It is back a bit. You can see it has been extremely volatile. Reports showed manufacturing and service sectors in the Euro Zone improved in July.
OK, the market that is of great interest and concern at the moment-
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-is up more than 2 percent. The Dow Jones industrials over 200 points to the good. And when we come back, after this break, was it results from companies like Caterpillar in the second quarter that gave the markets a boost. CAT is just one of the heavy hitters in our exclusive Q25 earnings index.
And then, from economies and earnings we'll be looking at the outlook for the U.S. economy from a man who has President Obama's ear.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Well, we are certainly going to be a long slog coming out of this deep recession. The recession began in 2007, I mean, we had to stop the fire, now we have to rebuild the house and that is going to take some time.
(END VIDEO CLIP)
QUEST: Now yesterday Ben Bernanke was on Capitol Hill, he used the phrase, "uncertain" to describe the economic recovery in the United States and that tanked the market by more than 100 points. Mr. Bernanke is back on the Hill, it is part two of the Fed chairman's annual report-semi-annual report, to the U.S. Congress. He's not there yet, but he will be. We're not expecting him to say anything different to the shock he gave the markets when he told the Senate committee the outlook was "unusually uncertain". Doctor Bernanke did not mention the possibility of a double- dip recession. But the senior economic advisor at the White House is prepared to be more explicit than that. Austan Goolsbee has ruled out a double-dip recession for the United States. Mr. Goolsbee talked to me about the Fed chairman's remarks, and of course, what was happening in the economy and the long-haul to recovery.
AUSTAN GOOLSBEE, SR. WHITE HOUSE ECONOMIC ADVISER: We've had some concerns for a couple of months now. We had job growth but not very strong job growth. We're in the deepest hole in the U.S. since 1929. And then you have the concerns coming from Europe, which have not had a positive impact. So, I don't think that there was much tremendously new here.
And I don't think that we're facing a double-dip, but we're certainly going to be a long slog coming out of this deep recession. The recession began in 2007, I mean, we had to stop the fire, now we have to rebuild the house and that is going to take some time.
QUEST: The problem is interest rates are at zero. The Fed has bought a trillion dollars worth of securities. There is a trillion dollars of stimulus, much still to work through, and still, the economy is not responding perhaps as it has in the past.
GOOLSBEE: Well, be a little careful. I mean, the circumstances that we were in, where the president takes office, we're loosing 750,000 jobs per month, and the economy is shrinking at a 6.5 percent annual rate, was epically and catastrophically bad. So, it is a really tough lift to get out of catastrophe and up to where we are today. We have clearly been going in the right direction. And part of that is coming from government, part from monetary, but really what we've got to do is get the private sector ignited. That is the only way to do this in a sustainable way. So the government is trying-you know, we're opening up the doors and we're trying to press on that. But I would hesitate to say that nothing has worked, because if you compare where we are today to where we were when we started, it is very, very different.
QUEST: When we look at Europe and the austerity measures, the G20 very much endorsed that austerity was some that had to be introduced. And the president talked about it yesterday with Prime Minister Cameron. But are you concerned that the spill over of the austerity will mute the recovery?
GOOLSBEE: Look, it is certainly a concern. If you were going to try to immediately tighten the belt, while you are still in an uncertain position, you run the risk of repeating a mistake of the Great Depression, in the U.S. or in some other countries where they tried to do that, and it sent them back into the major double dip. So, I think that is a concern. But the president has made clear that he has-not only is he not opposed, he is an active supporter that in the medium term addressing the fiscal sustainability in the U.S. and throughout the OECD is a bit priority for him. It is just that doing that in the next six months, I think, is-we ought to be a little wary about.
QUEST: Now, that was Austan Goolsbee, one of the president's economic advisers, talking to me from the White House.
On Wall Street we're gearing up for after-hours profit reports from the software giant, Microsoft; and the king, of course, of Internet retailing, Amazon. So far, already in this session, the market leading mobile phone maker, Nokia--or Nokee-a-has reported a drop in profits and limp sales growth as competition heats up in smart phones. Better results in the U.S., the heavy machinery giant, Caterpillar reported stronger sales and rising profit margins. AT&T continues to benefit from its exclusive deal to offer the Apple iPhone. The question is, how long it can last as the iPhone's principle carrier? And 3M, the maker of everything from Post- it Notes and Scotch tape to fingerprint technology, reported its best quarterly sales in two years.
So, about time to hand out the Thursday's balloons on the Q25. Maggie Lake joins me now from New York, for our exclusive look.
Maggie, before we go get too detailed; overnight from Europe, I'm going to give a red balloon-nod or shake your head if you don't agree-to Nokia, which of course, disappointing-disappointment all the way around. Where would you like to start.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Why don't we stay with telecom and do AT&T, Richard. We had a little bit of a discussion about this.
LAKE: Because you read that headline number, 25 percent increase in profits. Looks really good but there were some worrying details underneath, weren't there?
QUEST: Specifically, it is very tied in to iPhone, iPad, and Apple. It has taken off its "all you can eat" data plan, which should boost profits. But the market, Maggie, remains ferociously competitive.
LAKE: Yes, that's the problem. And then they can't afford to lose any customers. Remember, everyone you know, you see it on the blogs and on the Tweets, everyone is pushing Apple to break that exclusive contract with AT&T. Another little tidbit that was worrying for me, Richard, wired broadband subscribers dropped the first time in a decade. So, AT&T definitely has big vulnerabilities. And in this kind of environment, when you slightly miss on revenue, that is not really good enough.
QUEST: So, I'm voting AT&T, the (UNINTELLIGIBLE) with Cingular Wireless, a red. Would you agree?
LAKE: Yes, I agree.
QUEST: OK, let's be a little more optimistic. We've got a couple of greens to give out tonight. And I think Caterpillar is one of those stocks, from my point of view-when we came into the recession, Maggie, we looked at it voraciously, to see whether or not Caterpillar would be a bellwether from when we were coming out.
LAKE: Right, that's right. Remember, that is because of course, construction, heavy equipment, really tied to housing. And that remains the case, but we forget this is also a global company. And so they came out with some fantastic-looking earnings. They beat on profits, they beat on revenue, and importantly for investors, they raised their guidance for the full year, substantially. They are really being helped out by the boom in infrastructure in developing countries, mining, the whole commodity push. So, it is true that housing, especially North America, remains a sort of muted point for them, but they are certainly firing on all guns when it comes to the global economic recovery. So they are definitely a green.
QUEST: They are a green. If we had, as a barometer of their own health, they're agreed, if we had one for the U.S., they'd probably be more of a yellow. But we don't have that, we're just green and red. We managed to mess it up once before by throwing in a yellow.
Finally, which one is our next stock.
LAKE: 3M, and 3M is also a story of diversification with the emerging markets, developing countries. Again, beat on the top line, beat on sales, for estimates, and raised their guidance. That is so important in terms of catching investors interested in getting that confidence.
And, Richard, you know, you can't go far without getting Apple tied back in. 3M is, of course, this huge, you know, diversified industrial conglomerate, but they are an electronic consumer department, and they are a graphics, display in graphics for some of the strongest points, touch screens, TVs, flat screen TVs, they are in that business and they do well off it.
QUEST: A green goes for 3M. Maggie, have to pause there, because we will-we are going to take a pause in the Q25 for tomorrow, because you are on Wall Street, I am in the City of London for the banking stress test. So we are going to take a short pause. Maggie Lake, who is in New York.
Just have a quick look at this, though. Now it is really interesting, because now we're getting just about Even-Stevens, maybe the greens have it just slightly ahead. But as we go into the Q25 next week, well, you are getting the idea; the slowdown in the U.S. economy coming from here, but still good corporate results being seen over here.
When we come back in just a moment, he maybe out of prison, the future is still uncertain. It is Lord Conrad Black, who is heading back to court to appeal against the conviction for fraud. We're live, next, QUEST MEANS BUSINESS, good evening.
QUEST: He's free on bail, the media mogul, Conrad Black, walked out of a jail in Florida on Wednesday, following a friend, and a real friend, posting a $2-million bond, after he was granted bail.
Lord Black served more than two years of a six and a half year sentence for defrauding investors out of millions of dollars. He was once, of course, in charge of the world's third largest media empire. He owned Britain's "Daily Telegraph" and at one point, "The Chicago-Sun Times". David Common of the Canadian Broadcasting Corporation, the CBC, is in Palm Beach, in Florida. And David joins me now.
We know that Lord Black will appear in court in Chicago, tomorrow. Is this the way he just gets given his bail details, or are we likely to have the appeal decision by the judge?
DAVID COMMONS, CANADIAN BROADCASTING CORP.: No appeal decision yet, not one expected tomorrow, Richard. At this point he's just going to hear officially his bail conditions. He's not allowed to leave the United States and it is a bit a difficulty for him. He wants to return to Canada, but he's not a Canadian citizen anymore. He renounced that citizenship to go sit in the British House of Lords. So he's sort of like this former media mogul who has no place to live.
The place that he's staying, right now, just down the beach here, on South Ocean Boulevard, gorgeous mansion; it's not his anymore. He had outstanding debts and had to turn the deed over so they are just allowing him to stay there until September. He and his wife are there, Barbara Amiel. They met with their children last night. And he has to make his way up to Chicago.
We actually went into that mansion this morning. Beautiful place, they left the gate open, we rang the bell. They told us, the groundskeeper told us, Richard, that Lord Black had already left the premises. He was already on his way to Chicago. But these are the same groundskeepers who, yesterday, told us he wasn't coming to this mansion. Then he ended up coming to this mansion directly from Coleman Prison, where he spent the last-
COMMON: a-last 28 months incarcerated.
QUEST: You pays your money, you takes your choice with some of these people. You have to get your information from.
David, I'm curious. You've obviously followed this for some time. Lord Black always insisted his innocence, a Renaissance man who has written many books, he is not going to take this whole-freedom, and without some form of bitterness and perhaps, possibly to get his own back.
COMMON: No, absolutely, he wants to clear his name. That is job number one for him. He's not a flight risk for that very reason, because he is going to try to go out there and get all the other convictions overturned. He's still got some other problems, though. The IRS wants $71 million in back taxes from him. They are some former shareholders who are suing him so there are a lot of legal woes ahead. But just to give you and idea about how he's always felt there is a vendetta, that he's been a victim of the U.S. justice system.
COMMON: When he was in prison for the last two and half or so years, he never considered himself a prisoner, but a guest of the United States. Just happen to be in a penitentiary.
QUEST: Finally, just to clarify, I asked your colleague last night this same question, but I think it is worth pointing out. He wouldn't be out on bail if there wasn't a better than odds average-or average odds, that he's going to appeal, that the appeal is going to be allowed and he's going to be actually released.
COMMON: Yes, I think the expectation is that either there won't be a further appeal by U.S. prosecutors and they'll let it stand. Or that if they were to appeal, what he would end up getting nailed with is time served. He's already done two and a half years, so there is not the expectation that he'll get more. There is a very good chance, as a result that he's out for good, right now. That doesn't mean his name is cleared. He wants to do that still.
QUEST: David Commons, in Florida, David from the CBC. Many thanks indeed.
Now, European banks, laid bare, at least that's the theory. They've opened up the books, who will pass the economic stress test, when we get the results tomorrow. QUEST MEANS BUSINESS, back in a moment.
QUEST: Hello, I'm Richard Quest. QUEST MEANS BUSINESS, this is CNN, where the news always comes first.
QUEST: By this time tomorrow, you and I, and everybody else in the financial world, will know the outcome of the European stress tests for banks. We'll be talking all about these results on Friday. So we really do need to get, you know, what's at stake, and why, the markets, the industry, the politicians, in fact the whole financial world is somewhat waiting and worrying about these bank stress tests.
Move over to the library and you'll see what I mean. Ninety-one banks -- that's 65 percent of the E.U. sector -- has been put under stress. National banking supervisors have actually done the deed.
Now, what they do is they create a variety of scenarios -- lower GDP, higher default rates. They can throw in bond yields. They can throw in all sorts of things. And then they run the bank's portfolio of loans and debts and assets and liabilities through a model. That's how you decide if the stress tests are going to be tough enough.
What they are likely to show, I think we all know, is that some banks -- probably not the big ones -- the weakness will be in the smaller banks, maybe the cajas in Spain, the Landesbanks in Germany, not the Santanders, unlikely to -- almost certainly not the big British banks or German banks. But they may need more capital. And if that's the case, well, then. You're going to see a rush by regulators, banks, governments to try and shore up the confidence. Because what we saw in the United States was that once we'd got the results, they were only meaningful if action was taken promptly.
So, for an analysis on this, I turn to one of the best names in the city of London, the chief economist at Goldman Sachs International, Jim O'Neill.
He is very concerned. In fact, he's so concerned, he doesn't really know what the results are likely to show?
JIM O'NEILL, ECONOMIST, GOLDMAN SACHS: I don't quite like the idea that they're being published with only two hours of New York trading left. I mean, you know, from a tactical perspective, it's a pretty tight window on a summer Friday afternoon. So in the event of the markets not quite liking what's in it, you know, we can have some pretty wild moments during those couple of hours. And, of course, we all know from the past few years that summer moments can be quite tricky. So I think that, in itself...
QUEST: Would you...
O'NEILL: -- is a bit -- I -- I don't know why they didn't just release it over the weekend.
QUEST: Or the first thing tomorrow morning and let -- and let everybody have the full day's (INAUDIBLE).
O'NEILL: Yes. Yes, so for a start, that bothers me. The very -- the very fact that there's 91 banks across Europe being dragged into this thing, you know, and -- and banks of all shapes and sizes.
How do you compare a German Lundesbank with BBVA, for example?
And so, you know, the credibility of it is -- is a -- is an issue. And, of course, many people, particularly in the overseas investing world are looking for the worst. So you put all those combinations together and I don't know what quite comes.
My -- my -- my real view on the whole thing is I don't -- I think to rush to make instant judgment is a mistake. What -- what is important about this process for Europe is what bank CEOs and the European policymakers might learn as the way to guide Europe going forward, not the immediate...
QUEST: But if...
O'NEILL: -- issue.
QUEST: -- if it's a process, a process has to start with the first step.
O'NEILL: Yes, of course.
QUEST: Arguably, that's what tomorrow is about.
O'NEILL: Yes, of course it is. But, of course, the dilemma is with markets, you know, the markets want to judge straightaway so.
QUEST: What's your gut feeling for what the results are going to be?
O'NEILL: Oh, I don't -- you know, I normally have no qualms whatsoever answering. I don't know and it's bothering me. I've actually suggested to my own team that, you know, we probably shouldn't want to rush and put any comment out, because it's tough to know what the right feeling should be. I don't know. I really don't know. It's -- it's a strange feeling.
I'm not ducking the issue, I'm really...
O'NEILL: I'm not...
QUEST: No, no. The mere fact that somebody like yourself is saying that you don't know...
O'NEILL: I really don't know...
QUEST: -- and aren't certain.
O'NEILL: I'm really not sure.
QUEST: When Ben Bernanke says yesterday "uncertain" to describe what's happening in the U.S. economy, what did you make of that?
O'NEILL: I thought...
O'NEILL: I thought he might have had a bit stronger views on it. It suggests that the Fed is a bit shocked by some of the latest data that things appear to have slowed, certainly more than they indicated in the previous minutes. And, I -- you know, I think that suggests he's not had a chance to discuss it properly with his colleagues, because, don't forget, it is supposed to be a formal representation of what the whole FOMC thing...
O'NEILL: -- not just him.
QUEST: But what...
QUEST: -- do you think, because I -- there's one part of the test, in many ways, (INAUDIBLE) we are keeping everything under review.
QUEST: And we know that the MPC, the Monetary Policy Committee in the U.K., did consider and rejected the quantitative -- further quantitative easing.
Would you expect to see further asset purchases?
O'NEILL: Based on the indicators what I've seen in the U.S. recently, I think we're going to probably see some more, yes, because, you know, Bernanke has told us for many years that he's the guy that knows how Japan shouldn't have been Japan and that it's never going to happen in the U.S. And so if you've got growth slowing even a bit back below trend, he's got to -- he's got to -- he's got to back himself up.
So I'm a bit surprised he didn't hint more about it yesterday. But I think we might get pretty close to him having to do some more.
QUEST: And finally, you pointed out to me that, actually, China had slipped under the radar, if such an economy that size could.
O'NEILL: You know, it's interesting, with all these issues in the West this week, China's rallied 6 percent this week -- the first time this year you've had four -- I think that's about -- days of rallying. It smells like the Chinese locals think that the authorities are close to being done on signing. And, of course, from a big picture perspective, for the world as a whole, especially with me being Mr. BRIC, I think this is a -- a big issue that people should be -- you should be spending more time thinking about it, because if the Chinese are done timing and slowing the economy, off we go.
QUEST: They didn't even properly tighten. They didn't -- go on, Jim. They didn't even properly...
QUEST: They did liquidity shifts.
O'NEILL: Not in the way that we might, you know, recognize in our -- in our simple style. But they've certainly done a pretty good job in slowing the property market down.
(END VIDEO TAPE)
QUEST: Jim O'Neill, Mr. BRIC, and talking to me there. And, of course, ahead of those stress test results, bank stocks in Europe were on a roll. And so were the broader markets. We just need to look briefly. Strong gains, Paris, once again, really showing the best of the day. Industrial orders in the Eurozone were one reason, particularly for Germany's extremely robust performance. Upbeat earnings reports we've been hearing about also helped.
The Swiss power engineering company, ABB was another one that beat expectations and that stock rose.
London was up higher, banking stocks.
But it's going to be a very different session tomorrow, as the unease moves over the cont -- over the continent.
Now, in New York at the moment, you have a Dow Jones that's up 2.3 percent, 230 points, a robust session. The earnings is part of the reason. A more mature, perhaps, reflection on Ben Bernanke's testimony is also giving a pause for thought.
Tomorrow, we have a special edition of QUEST MEANS BUSINESS coming to you live from London's financial district. The European banks get their stress tests together and the result -- we'll have the results and the reaction.
What's the true state of Europe's banks?
We'll find out.
In a moment, a man on a mission -- a senator from Pakistan who's in charge of the country's privatization says it's all about efficiency that will help (INAUDIBLE).
QUEST: Pakistan's minister for privatization is a man on a mission.
Is it an efficiency drive or something more philosophical?
And he begins the process of divesting large swathes of the Pakistani economy. But it's not been sold off to the ordinary man and woman in the street as such. The involvement of outsourcing to management, Western- based management, often, is what's proving so controversial.
I began by asking Senator Waqar Ahmed Khan about the proposals, which include privatizing companies in large swathes of the economy, including railways and airlines.
WAQAR AHMED KHAN, PAKISTANI MINISTER OF PRIVATIZATION: Look, what we're talking about is, when we talk about privatization, we're talking about the PPP model -- public/private participation. Under that model, before we get to that level, we need to restructure these entities. When you think about railways, you talk about airlines, you talk about oil companies, you talk about steel mills, these entities have not been managed properly in the past. And I will be the first one candidly to admit, before you even jump on it, that this has been because of the political interference and because of the inability of the bureaucracy to run them efficiently.
Now, to run them efficiently, we need to stop these two things.
QUEST: But is this an efficiency drive to make better industries or is it also a philosophical drive to increase share ownership and to get more ordinary people in Pakistan involved in the market?
AHMED : Look, we -- we've done something unprecedented that has never happened in Pakistan. We gave 12 percent free shares to all the employees, which is about 10 percent of the total labor -- labor force. Now, what we're trying to do is, we're trying to make sure that these state-run enterprises become the bread earner for the government of Pakistan and for the people of Pakistan.
So there is a philosophical approach behind it and there is an efficiency drive. And then, to get to that level, we need to really be focusing on markets outside of Pakistan.
QUEST: So how -- markets outside of Pakistan is external capital coming in.
How are you going to prevent your crown jewels being cherry picked by foreign investors?
AHMED : Look, we are, right now, looking at equity linked instruments, convertible and exchangeable bonds. Convertible bonds are normally non-recourse to the government of Pakistan. They don't impact the fiscal space of the Pakistan -- Pakistan government. What we're trying to do is we're getting major financial institutions, a list of banks, to underwrite these convertible bonds and -- and launch them in -- in capital markets outside of Pakistan.
AHMED : A...
QUEST: But on the -- the sort of the ownership question, how are you going to prevent foreign companies, foreign investment banks, foreign entities, from buying up Pakistan's companies?
AHMED : Well, we're not selling. We're not selling any of the -- these state-owned assets. We are not privatizing. What we're doing is we're trying to get, we -- we're outsourcing the management. We are raising liquidity to make them more efficient for specific projects. And at that time, once we have that, when we turn around the companies, at that time the company that has come in and -- and done the management outsourcing with us, yes, we will give them the first right of refusal to come in and do the public/private participation with us, with the private sector coming in and taking over the -- and -- and working with us and enhancing the values of these assets.
QUEST: Why do you want public/private partnership so badly when the experience elsewhere in the world has been so poor?
AHMED : Our experience in Pakistan has been contrary to what -- what you were just saying. And Pakistan, the -- the public sector has not been able to run these efficiently. And for us to run these efficiently, we need to get the private sector and entities from the international community that have the technical know-how, the capability, the management skills and create value addition with -- with giving us assurances and performance guarantees.
(END VIDEO TAPE)
QUEST: Pakistan's privatization minister, who has his work cut out for him.
If the media reports are accurate -- and we believe they are -- the U.S. Coast Guard has begun to evacuate the vessels in the Gulf of Mexico from -- because of a bad weather.
Guillermo Adruino is at the World Weather Center -- now, Guillermo, before you tell us too much about this, I've got a couple of questions.
Show me where this storm is, the ferocity and why this is so crucial now for where the -- they're -- the oil spill people are?
GUILLERMO ARDUINO, CNN METEOROLOGIST: Well, there are two things. One, it's a tropical depression, which is the first phase of a tropical cyclone. Then it becomes, if conditions are OK, a tropical storm, which is the case. It's going to become a tropical storm.
So the winds are going to be sustained at 70 kilometers per hour. Right now, it is over the Bahamas. But the problem -- and this is the second part to your question -- is to the north, where we have a high pressure system there. And this high here is going to define the path of the system. So this is the path, according to all of the numerical models, it's going to continue this way. It may vary a little bit farther to the south or farther to the north, according to its interaction with a high pressure center.
The intensity, because of winds in the high levels, it may not become a hurricane. But they expect it to stay on a tropical storm basis, becoming that around 24 hours from now, when -- when it goes through the southern parts of Florida.
But then when it gets to the waters in here, they are so warm, that that's a perfect element for development. And at the same time, the winds in the higher levels are favorable for a system to remain like that. We're talking about 70 kilometers per hour, maybe; 74, you see; or 83.
There's one thing that we need to know in this case. It is that the oil spill is in here and because of the rotation of the winds, if it goes a little bit farther south, most of the oil that is close to the beaches is going to move south. But if it continues this way, some areas are going to see beached oil.
And it's intense. That's why the evacuations are happening. So the operations in the Gulf of Mexico are going to be halted now for a couple of days, unfortunately.
But at least whatever is down there at the bottom of the sea, it's not going to be affected, because we're talking about the surface right now.
The same in China. You know, Richard, that we had landfall of a typhoon, in this case. We did not think it was going to be a typhoon. It became a typhoon right before making landfall herein the south of China. It is too close for comfort to Szechwan Province, in this case. But it's going to weaken very rapidly. It's adding more stress to the rainy situation here in China. But the rain is going to continue not because of the cyclone per se, but because of this front that we have in here.
And the heat continues in Eastern Europe -- Richard.
QUEST: And I'll quickly do Europe for you. Warm in the south, middling in the middle and it could be a little bit cooler in the north.
How does that sound?
ARDUINO: You are a pro.
QUEST: Thank you very much.
When we come back, it's been a big week for the Boeing Dreamliner. The plane's first flight outside the United States -- a chance for visitors to the Farnborough Airshow to look into the future and a chance for one of the plane's customers to wax lyrical.
(BEGIN VIDEO CLIP)
CHRIS BROWNE, MANAGING DIRECTOR, THOMSON AIRWAYS: Like most women, Richard, I'm a good -- I'm a good shopper. And it is probably the best bit of shopping I've done in a long time. And the biggest bill, as well, actually, when I think about it.
(END VIDEO CLIP)
QUEST: She's Chris Browne, the M.D. Of Thomson Airways. And she bought the plane. And now she just has to wait for it.
QUEST: Airbus had a banner week at the Farnborough Airshow. The European plane maker said customers committed to buying 255 planes and look at that -- $28 billion worth of orders, including mainly from leasing companies and from emerging markets. They were -- the big companies. They weren't the only ones. Take, for example, Virgin America, which, on the day of -- over the last days -- said it plans to order 40 planes from the A320 family from Airbus.
It was the show's final business day and both Airbus and Boeing, with their orders, called it evidence of a clear upturn in the industry.
The star of this year's Farnborough Airshow was clearly the 787 Dreamliner, making its first appearance outside of the United States.
Chris Browne is the managing director of Thomson Airways. She will be the first U.K. customer to take delivery. She's bought 13 787s back in -- which will be delivered in 2012.
Now, sitting comfortably on board the test aircraft -- look, you and I have bought cars. We have bought houses. We have even bought -- gone to the sales and bought who knows what.
But only Chris Browne was able to tell me what it was like to buy a plane.
BROWNE: It's very scary, which is why you have to make sure the process is so thorough. So we -- we were based in Manchester at the time when we were evaluating the aircraft. And I can tell you there are offices filled with files and analysis on -- on this particular aircraft, just to make sure that we got the decision right.
And I'm pretty confident that we have done, actually.
QUEST: Because Thomson has had a -- a very good record in terms of choosing aircraft before. So you've got quite a -- in fact, you've got a very large fleet with (INAUDIBLE)...
BROWNE: We have, indeed. We have, indeed. And we've got 65 in the - - in the U.K. alone.
What made this one a bigger challenge was being prepared to take the risk in all the new technology that's on board the aircraft. But, yes, I keep saying planes are like puppies, they're not just for Christmas, they're for life. I mean we will operate this aircraft for 20 years when we get them. So we had to make sure that we covered up everything, to make sure we chose the right aircraft.
And it was -- there were three key criteria back there, if I may. First, it had to be cost-effective. I mean, you know, we want to continue to offer good value for money holidays. It had to go -- offer greater comfort. And you can see that this aircraft is unrivalled in terms of that. And it had to be environmentally friendly.
QUEST: As the delays started, at what point did you start to feel queasy and one -- even though you knew the compensation was going to come down the road and would compensate you for it -- but you're not going to tell me how much you're getting for that, are you?
BROWNE: I'm sorry, I can't.
QUEST: No, I didn't think you would.
BROWNE: Look, it's un-professional to talk about money
QUEST: Well, I -- I -- you're right. (INAUDIBLE).
At what point did you have a -- a feeling in the pit of your stomach about, oh, what have we done here?
BROWNE: We always knew that being such an advanced aircraft, from a technological point of view, that there would be delays. And the disappointing thing was the creeping delaying (ph), the not knowing, like anything in life. It was less of (INAUDIBLE), actually, because we were already flying the 767s and this aircraft is going to replace the 767s.
So from a customer point of view, there was no difference. So it was just a matter of us working -- sitting down and working with Boeing saying, like, when is this aircraft going to get here?
QUEST: When you're deciding to buy a plane, you've got the -- the -- the rooms of files that you just told me about. And then you've got your heart.
What role does head versus heart or heart ruling head play?
BROWNE: There -- there's no room for heart in business, I'm afraid, Richard. It has to be all the head. And I mean, at the end of the day, we are -- we are a business. We have to make money. We have to continue to offer great value holidays to our customers. And I have no doubt that we've made the right decision with this aircraft.
QUEST: You take your first plane when?
BROWNE: January 2012.
Do you want to come and see it?
QUEST: Can I come on board?
Be my guest?
QUEST: Are you sure?
BROWNE: Oh, absolutely.
QUEST: I'll -- I'll serve the drinks.
BROWNE: I don't think I trust you with that. We're -- we've got plenty of crews that can do that for us.
QUEST: I don't think I'd trust you with that.
(END VIDEO TAPE)
QUEST: And Chris Browne gave me the quote of tonight's program: "A plane is like a puppy, it's not just for Christmas, it's for life."
The stock markets in the U.S. are having a bumper session.
Let's go to Chris Evans.
And he's -- Carter Evans, who is joining me now from the New York Stock Exchange -- Carter, why are we up near over 2.5 percent?
What's going on?
CARTER EVANS, CNN CORRESPONDENT: Well, we've got a couple of things going on.
First, Richard, we lost 100 points yesterday. So we're seeing a lot of bargain hunting in the wake of that big sell-off. But, also, we had better than expected earning news. We had better than expected news from the housing sector. Yes, you heard me right, the housing sector.
Now, existing home sales fell 5 percent in June. Now, normally home sales falling is not good news, and, yes, it's not good news. But relatively speaking, in this market, it is good news because analysts thought that existing home sales would fall 10 percent. So a 5 percent drop is much better.
And it's especially good since these sales come after the home -- after the expiration of that first time homebuyer tax credit. So it's very good news. It -- it is seen, rather, as good news from the housing sector.
We do also have some earnings. So far, so good. AT&T, Caterpillar and 3M all posting big jumps in second quarter profits. They topped forecasts. Caterpillar very important. That's the machinery maker. It caters to so many different industries. The company is also now raising its 2010 profit outlook and investors are liking it -- Richard, back to you.
QUEST: Carter, briefly, does this -- does this rally have depth and liquidity in it or is it froth on the top?
EVANS: I think it's froth on the top. I mean I think you hit it right on the head. You talk to the traders on the floor, the same thing with the drop yesterday.
EVANS: They thought it was a knee-jerk reaction. The volume just isn't there right now. There's a lot of money on the sidelines and it doesn't take much to swing the market one way or the other.
QUEST: Right. And there we'll leave it.
Carter, many thanks, indeed.
QUEST: Carter Evans at the New York Stock Exchange.
When I come back in a moment, a thought or two about Hungary's precarious financial position. It's a Profitable Moment.
QUEST: Hungary's prime minister addressing parliament today. And a short while ago, the parliament voted heavily in favor of introducing that new bank levy tax. It's the largest, pretty much, in the world, certainly beating anything that has been introduced by the U.K. or the U.S. That bank levy will remain in force until 2011 and will add hundreds of millions of dollars to the Hungarian budget to try and bridge the deficit to under 3 percent.
But the row between Hungary and the IMF is one the country really cannot afford, as it deals with these serious problems. Hungary's position is not as bad as Greece's. But the country cannot afford a bad tempered spat that might push up borrowing costs and drive investors away. And worse, it would weaken the foreign currency, already down 15 percent against the Swiss franc. And that's significant, because many Hungarians have mortgages denominated in currencies like the franc or the euro.
I warn you here this is a crisis that may not yet be over in Hungary, whatever the parliament may have voted.
And that's QUEST MEANS BUSINESS for tonight.
I'm Richard Quest.
Whatever you're up to in the hours ahead, I hope it's profitable.
I'll see you tomorrow.