Goldman Sachs Group Inc may succeed in its bid to pay back U.S. taxpayer money with the help of a $5 billion common share sale, but it may still not get the freedom it wants from intense public scrutiny.

Goldman, which posted a better-than-expected first-quarter profit and announced the public offering on Monday, has navigated the global financial crisis better than many of its rivals.

Its share price has more than doubled since hitting a record low in November, and is up more than 50 percent this year.

So it may be allowed to return the $10 billion it took under the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program (TARP), which has become a headache for recipients with oversight over compensation, expenses and acquisitions, experts said.

But given Goldman’s size and importance to the financial system, regulators may still want to keep a close eye on it, said Seamus McMahon, an independent banking and regulatory consultant.

“So the question is, even if they are allowed to do it, how much of a victory is this actually ultimately?” McMahon said. “Is it more marketing or does it really give them operating freedom?”

The dilemma was underlined on Monday when Goldman posted a profit as it took on more trading risk and disclosed it was paying its employees on average in the quarter almost 35 percent more than in the first quarter of the previous fiscal year.

To add to regulators’ headaches, Goldman’s bid to return the money could prompt other banks that are not in as good financial condition to seek to do the same, forcing some difficult policy decisions.

Regulators would want to be sure that banks that return the money have enough capital. But they would also be concerned if a two-tier market is created, with Goldman, Wells Fargo & Co and some other banks being seen as strong enough to thrive or survive without government help, and others such as Citigroup Inc seen as requiring government nursing.

Besides Goldman, others such as Morgan Stanley and Bank of America Corp have signaled their eagerness to pay back the money as soon as possible.

“It breaks the ice for somebody big to want to pay it back,” said Chip MacDonald, a banking partner at law firm Jones Day.

The U.S. Treasury Department did not have an immediate comment.

THROWING THE GAUNTLET

Goldman has managed to sidestep most of the pitfalls of the financial crisis, having posted just one quarterly loss since the middle of 2007, even as competitors posted four or more quarters of losses.

Selling common stock could further strengthen its stake, as it would boost its tangible common equity (TCE), a key focus for investors in determining the strength of banks.

TARP funds did not boost the TCE ratios of banks and so Goldman’s offering would be seen as a positive, MacDonald said.

“Regulators need to make sure there is adequate capital,” MacDonald said. “But I don’t know why they would resist a redemption if they feel like there is adequate capital.”

Still, it would force regulators to make a decision on a tricky subject sooner rather than later.

“They are throwing the gloves down,” McMahon said, referring to Goldman. “In a way it’s signaling to the government that they are different from the other institutions.”

“I can understand what Goldman’s rush is. But the government can’t be in rush to do that,” he added.

China investors should care about three major numbers this year: 8 percent economic growth, its 4 trillion yuan ($586 billion) stimulus package, and the 10 industries revitalization plan.

The first is the government’s economic growth target and the second is a spending plan to shield the economy from the global financial crisis.

A lot has been said about the first two numbers, but not enough about the third. Indeed, there are at least three misunderstandings about the latter.

First, perhaps misled by the word “revitalization,” many people talk about the plan as if it is another set of recovery measures to boost investment demand. On the contrary, it mostly contains policy measures aimed at reducing supply.

Thus, there is little reason for investors to be disappointed if their favorite sectors, such as property, are not included.

The 10 industries consist nine sub-sectors of manufacturing and one service sector related to that, logistics, which have all been hit hard by the collapse of overseas demand.

The plan is designed to buy time by achieving an orderly reduction in these industries’ capacity, rather than a reduction that could become disorderly if left to market forces, says Qing Wang, Morgan Stanley’s China economist.

But will that work? That leads to the second myth.

The revitalization plan is mostly about state-owned companies buying other state firms and many in China believe that if the government has a wish, it has a way.

But that is not always the case. Companies and local governments try their best to avoid arranged marriages. History has shown that such deals can take as long as a decade to complete.

In the current economic environment, designated acquirers won’t be interested in taking on more workers and equipment and local governments hate to lose tax revenue from factories on their turf.

Even if the government can drive consolidation, they cannot successfully compel integration, thus little synergy can be extracted out of those deals.

Investors should also bear in mind that Beijing’s top priority is to protect jobs. Any company with plans of cutting more than 20 jobs needs to brief local authorities one month in advance. So far, state-owned companies have largely refrained from staff reduction.

But if Beijing does not allow layoffs and closures, then it will be impossible to reduce capacity even after arranged mergers.

So, don’t expect restructuring plans to lead to much capacity reduction, even though it is desperately needed.

A point in question is China’s steel industry. Now the world’s largest steel maker, China last year produced 660 million tonnes of crude steel, 100 million more than demand.

The government has said it will strive to eliminate just 25 million tonnes of obsolete steel production capacities by 2011, only a quarter of the current extra capacity.

The third myth is that all industries are treated equally. The reality is that policies for those 10 industries differ widely.

The priority for the electronics industry is “rural demand,” for textiles “upgrade and move up the value chain,” for nonferrous “contraction,” and for equipment “strengthening and innovation.”

For steel, the focus is consolidation, as demand is not likely to come back soon.

“The best time for steel is over frankly,” said Larry Wan, a fund manager at KBC Goldstate Fund management in Shanghai.

“The government is motivated to cut capacity, but it will face strong resistance from below.”

Beijing also wants the auto industry to consolidate. It specifically said that it wants the top 14 auto makers to be reduced to 10, but has not set a target for capacity reduction. Instead, it is planning for capacity to grow 10 percent annually in the next three years.

The policy for autos is more about stimulating demand. Measures include reducing the sales on smaller cars, providing subsidies to encourage rural residents to replace old vehicles, and making more financing available for consumers.

It might be tempting for investors to dismiss Beijing’s interventionist approach. But they should still study the plan.

The government has never before come up with such a sweeping package that includes detailed long-term goals for so many key industries. It could serve as a curtain raiser of future industrial policies.

“The plans have made it clear where the government support lies,” said Yang Chengzhang, chief economist at Shenyin Wanguo Securities. “Every company needs to position itself according to the plan to get maximum room for its development.”

– At the time of publication Wei Gu did not own any direct investments in securities mentioned in this article. She may be an owner indirectly as an investor in a fund –

In early January, I travelled to war-ravaged northern Uganda to a dusty village in Pobura and Kal parish in Kitgum District. We were there to see the completion of a 16km dirt road constructed by the community with support from Oxfam under an EU-funded programme.

The road is bringing benefits in the form of access to markets, education and health care. Some parents say their daughters feel safer walking to school on the road instead of through the bushes. Many families have used the wages earned from construction work to pay for school fees and medical treatment. This is the impact of aid.

Having lived and worked in east Africa, I have witnessed the positive effects of aid. But done badly, it can be very limiting and even has the potential to create more harm. To avoid this, it must be provided within an enabling environment in which it is used as a catalyst for change and not as an end in itself. Governments must show leadership through an accountable system.

For individuals, access to resources – including aid - is like an investment. Aid can build up poor people’s assets, support good governance and enhance skills and capacities to bring about transformation. But it can become a bane when it makes communities dependent, lazy and hopeless. Governments, aid agencies and the United Nations need to ensure the delivery of aid is well planned and coordinated, leading to higher self-reliance among poor communities.

Aid is also beneficial when trade is fair. There are several examples in Africa, like the case of coffee farmers in Uganda, where aid has been used effectively to improve the overall quality of the coffee seeds, thereby giving farmers better prices for their produce. When they have access to markets at home and abroad, they generate income which is ploughed back into increased output, better access to health and education, and overall improvement in the quality of their lives. To make this happen, developed countries need to stop procrastinating and put in place fair trade practices.

Aid works well if governments are accountable – in other words, when they are responsible and encourage active citizenship. On this continent, civil society is still weak and needs to be nourished. But stopping aid will not resolve frustrations about poor governance, which is partly a result of weak public scrutiny. Aid should be used to help fight corruption and promote accountability through active input from ordinary people.

As I have argued here, receiving aid is not just an act of charity. It should be understood as the right of poor communities to a life of dignity. As stated in international conventions, people have a right to good health, food, water and education. We all need to ensure the planet’s resources are equitably distributed. As Mahatma Gandhi said, you must be the change you want to see in the world.

So what do you think? Which argument is most convincing?

Moyo’s book, her first, comes out at a time when Western campaigners, financial institutions and some African governments have been warning of the danger posed to Africa by the crisis and calling for more money from developed countries as a result. The former World Bank and Goldman Sachs economist spoke to Reuters in London.

“I’m not saying its going to be easy, I’m just saying that there is a real opportunity for policymakers to focus on coming up with more innovative ways of financing economic development. In a way the crisis actually provides the African governments with the situation where they cannot rely on aid budgets coming through from the West.”

Moyo believes more than $1 trillion in development aid over the past 50 years has only entrenched Africa’s poverty, distorted economies and fuelled bureaucracy and corruption. She sees alternatives such as encouraging trade - particularly with emerging markets - encouraging foreign direct investment, microfinancing for enterprise and seeking funds from capital markets.

Moyo is not discouraged by the fact that all those options appear more difficult in the current environment.

“It just means the onus is on African governments to come up with a more compelling story as to why African governments are overseeing real asset investment not derivative products we don’t really understand.”

“If you focus on traditional markets like Europe and the United States, you come to the conclusion that markets are really damaged and it’s very hard to raise money in those markets, but if you start to look towards China for example which has $4 trillion of reserves, all of a sudden you could see there might be another opportunity to do a bond issue in the Chinese market for example.”

“The model that’s coming up, that I’m proposing, is essentially one where Africa and Africans become equal partners with the rest of the world, not one where there is kind of a donor and a recipient, where Africans are kind of viewed as secondary citizens,” she said.

“There is no other system, whether a political system or a business system, that has stayed as the status quo for 60 years when we all know it’s not doing what it’s supposed to do, it’s not generating growth and it’s not alleviating poverty.”

Moyo is not worried about the impact of aid being taken away:

“It actually tends to pool at the top so it’s not like the average African is going to suffer. They don’t see the aid anyway. Essentially it‘s going to really affect the bureaucratic processes at the top and would really impact on corruption.”

“You could take me to country X in Africa and say ‘look at this girl here and she’s going to school because of aid’. Yes, that’s true but on a macro aggregate perspective these economies are not growing. They’re not growing fast enough to ensure that when that girl is done with her schooling she can find a job.”

Moyo is unimpressed by Western campaigners such as rock stars Bob Geldof and Bono calling for lots more aid for Africa.

“I fundamentally object to the notion that Africa needs more aid and I do think it’s time to have many more Africans speak out, especially the policymakers, because many of the policymakers actually don’t support aid  and yet they stay in the background and they allow this money to come into the economy.”

“You very rarely see Africans on the global stage saying ‘actually we would like to have much more aid please’.”

“I do think a gap has opened up to allow other people to formulate a view on coming to the global debate and offering opinions as to what they think Africans want. But maybe we should start a website called ‘Ask the African’ because I think you might be quite surprised to find that people say ‘we want jobs’, I wouldn’t mind a flat screen television, I wouldn’t mind having my kids go on holiday sometimes ...’”

Picture: Helen Jones photography

It’s time to get Russia back into proportion.

Moscow’s resurgence as a major power, determined to be treated with respect and to stamp its influence on its neighborhood, has been one of the big stories of 2008.

The sight of Russian tanks rolling into Georgia in August, coupled with a Kremlin drive to extend its control over energy supply routes to Europe, sent shivers through former Soviet satellite countries and drew loud condemnation from Washington.

President Dmitry Medvedev’s threat to site short-range missiles in Kaliningrad aimed at Poland if Warsaw deploys part of a planned U.S. missile shield raised the rhetorical stakes.

Yet the global financial crisis, the collapse of oil prices, the aftermath of the Georgia war and U.S. President-elect Barack Obama’s victory have all cast doubt on Russia’s real weight.

The credit crunch has hit Russia harder than other emerging economies, hammering confidence in its stocks, bonds and the rouble and forcing the central bank to spend some of its huge foreign currency reserves to stabilize the financial system.

Foreign portfolio investors have fled and many Russian investors have parked more of their money in foreign currency abroad, at least partly due to heightened political risk since the military action in Georgia.

State gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz), feared in many parts of Europe as a predator seeking a stranglehold on the continent’s gas supply, has lost more than two-thirds of its market capitalization since May.

SHRINKING POPULATION

With oil prices down from a peak of $147 a barrel in July to below $50 now, the heavily oil-and-gas-dependent economy looks more vulnerable, especially since Russia needs Western technology to boost its energy extraction.

Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, says that after a 10-year boom, growth will fall to between 0 and 3 percent next year.

Russia remains a lucrative market for Western consumer goods, but concerns about state meddling in business, widespread corruption and shortcomings in the rule of law have contributed to its failure to diversify away from hydrocarbons and minerals.

Compounding the weakness of its non-energy economy, Russia’s demographics are among the worst in the world, with a life expectancy of just 67 (60 for men) and the combination of a low birth-rate, an aging population and a public health crisis.

The Organization for Economic Cooperation and Development (OECD) projects the population could shrink by nearly one-third by 2050 to 100 million from 143 million.

Diplomatically, Russia overreached itself after its lightning military victory in Georgia by recognizing the breakaway regions of South Ossetia and Abkhazia as independent.

Only Nicaragua followed suit. Major allies such as China and India, fearing the precedent, pointedly declined.

The European Union, the main customer for Russian gas, has responded by accelerating efforts to reduce its dependency, planning an alternative supply corridor through Turkey and seeking new suppliers in Africa, the Middle East and Central Asia.

Other former Soviet republics, including Azerbaijan, Belarus and Turkmenistan, have sought closer ties with the West.

True, the U.S.-led NATO alliance has gone no further toward giving Georgia and Ukraine a roadmap to membership — the issue is off the agenda for now — and it has now resumed some frozen contacts with Russia, as has the EU.

But Moscow’s efforts to reshape the security architecture of Europe, sidelining the role of the United States and of the Organization for Security and Cooperation in Europe, loathed by Moscow for its election monitoring, have gained little traction.

STATUS QUO POWER?

Russian analysts insist the Georgia war was a defensive action responding to pro-Western Georgian President Mikheil Saakashvili’s bid to retake control of South Ossetia by force.

“Russia is a status quo power, not a recidivist aggressor on the prowl,” says Dmitry Trenin, head of the Moscow office of Carnegie Endowment for International Peace.

Moscow has taken a number of steps recently to suggest it wants peaceful solutions to other “frozen conflicts” in its neighborhood, brokering the first summit talks between Armenia and Azerbaijan over Nagorno-Karabakh, and seeking a deal between Moldova and its breakaway region of Transdniestria.

In Ukraine, the biggest former Soviet republic where a democratic “Orange Revolution” in 2004 infuriated the Kremlin, Russia has other political and economic levers it can pull to maintain influence without having to use force.

Getting Russia into proportion does not mean ignoring Moscow or its security interests. Its location and the fact it supplies 40 percent of Europe’s gas imports mean it cannot be neglected.

The United States and the EU have an interest in binding Moscow rapidly into rule-based international bodies such as the World Trade Organization and the OECD, although they put both processes on hold in reprisal for the Georgia war.

Some Western analysts believe a weak Russia could be more dangerous, if mishandled, than a strong one.

In NATO circles, some see a risk of the “Weimarisation” of Russia, comparing it to Germany’s economically enfeebled Weimar Republic that was swept away by the rise of Hitler’s Nazi party.

Political humiliation and economic instability could lead to a surge of aggressive nationalism.

After the collapse of the Soviet Union in 1991, wags branded Boris Yeltsin’s rump Russian Federation “Upper Volta with nukes,” capturing the paradox of a failed state with a ruined economy sitting on a huge arsenal of atomic weapons.

When Vladimir Putin succeeded Yeltsin in 2000, he was determined to restore Russia’s power and pride after a decade in which many Russians felt the West ignored their interests by expanding NATO in ex-communist eastern Europe.

Today, it sometimes seems that Russophiles and Russophobes in Europe and the United States have become objective allies in exaggerating the importance of or the threat from Moscow.

A more self-confident Europe and a less unilateralist America need to find a way of engaging with Russia according to its true weight, without treating it as a giant.